Arjun Balaji: A Financial System Built on Bitcoin

Arjun Balaji is the Chief Investment Officer of Shomei Capital. He consistently voices one of the most interesting perspectives in crypto. From diving into the many altcoin scams to a philosophical debate on "What is Money?", this is a conversation you don't want to miss.

• 0:02Speaker 00

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 0:14Speaker 00

  Arjun Balaji is a CIO at Show Me Capital. He consistently voices one of the most interesting perspectives in crypto. Arjun never disappoints regardless of if he is discussing Bitcoin's dominance, the lack of quality in most altcoins, or participating in a philosophical debate about what is money. This is a conversation you don't want to miss. I hope you enjoy it.

• 0:37Speaker 00

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. Alright guys, we're here with Arjun. We've got a lot to talk about. I think you are one of the realist people and one of the people who are not afraid to say what you think and

• 1:17Speaker 00

  call out the projects that are frankly unworthy of existing.

• 1:24Speaker 01

  That's almost all of them.

• 1:26Speaker 00

  How are you?

• 1:27Speaker 01

  I am doing well, man. I'm happy to be here. It's a nice, muggy day in New York City.

• 1:32Speaker 00

  For sure. Alright, so for those people that don't know, let's just go through real quick your background and then we can jump into a whole bunch of different stuff.

• 1:41Speaker 01

  Sure. I will kind of start with my birth, only because it's somewhat relevant. I was born in India. We immigrated to the US when I was about six years old. So first generation immigrants was pushed into the lawyer, doctor, engineer type mold. My parents are conservative gold bugs. Actually, we had a rich gold culture growing up and still do. And so grew up, went to school in Boston, was trained as an engineer. And that's when I first found Bitcoin was in 2012, 2013 at sort of the heyday of the Silk Road.

• 2:25Speaker 01

  You know, that first run up in price that was really exciting to watch. And my politics were already sort of aligned in that in that direction, in that sort of libertarian, anarcho-capitalist mold. And that was the first time I really had exposure to a wide group of people in that lens. So, you know, price action dies. I sort of lost interest along with that. You know, it was just who's building anything, what's going on. It wasn't until a couple of years later that I, you know, saw the what was happening in the community again and started working on and kind of focusing on Bitcoin

• 3:04Speaker 01

  full time in 2016. And first thing that I was exploring is the market microstructure itself. Was looking at where were people, you know, trading Bitcoin, what were people using to trade Bitcoin? The markets, you know, still are very inefficient, but was, you know, far more inefficient back then. Exchange arbitrage was a very big thing. The spreads on the exchanges were very wide. There wasn't really any, you know, there wasn't a lot of algorithmic execution. The volume was tiny. And so that was my first sort of area of focus. And so subsequently over the next year and a half

• 3:44Speaker 01

  and kind of with all of the run up in 2017, I spent a lot of my time helping people figure out how to navigate the microstructure and how to actually trade, you know, these markets and where there are opportunities to make money. And, you know, there are all sorts of questions there. You know, not only all the things that I described, but figuring out what the right ways to custody assets. And so, and that's sort of foregoing altogether the question of, you know, what do I buy? And so worked with a few large traditional hedge funds, you know, helping them sort of evangelizing Bitcoin, helping them explore the space and have since for the last year spent

• 4:27Speaker 01

  most of my time investing and trading my own money with, you know, a couple of outside investors. And I'm in the process of institutionalizing that further, which is really exciting.

• 4:37Speaker 00

  Awesome. Alright, we're just gonna start off with a bang here.

• 4:43Speaker 00

  Twenty years from now Bitcoin, where are we? Not in terms of price, but can we get to a global reserve currency? Can we get to it being used kind of coexistence with the US dollar? What do you think is possible here?

• 4:58Speaker 01

  Sure. So I think that right now Bitcoin is a global settlement layer. We're already seeing that Bitcoin settles, you know, right now between one and two billion dollars a day, right? Notional, which is in US dollars, which is substantial amount of money. I think that over the next 20 years, that number is only going to continue to go up. I think over the next 20 years, we will have figured out, you know, ways to make Bitcoin viable for small-scale payments as well, which won't be, which I don't believe are going to be on-chain. I think in terms of its existence in the global financial system,

• 5:39Speaker 01

  I see over the next 20 years, I think it's entirely possible that, you know, central banks will hold Bitcoin reserves. I don't know that it can achieve any sort of reserve status currency over the next 20 years, even in our wildest dreams. But I think it's entirely possible that it plays a significant role, especially as smaller developing currencies start to collapse. I think what people often forget is that the median lifespan of most nation-state issued currencies isn't that long, right? And sort of even, you know, we look at the US dollar as, you know, having longevity

• 6:22Speaker 01

  and the US government being the sort of lender of last resort. But, you know, and the US government in the grand scheme of things has existed and dollars have been in circulation for a substantial amount of time. But I think that especially with much smaller currencies, we're seeing what happens with poor monetary policy. We're seeing it in, you know, Iran and Venezuela and, you know, Turkey now. You know, I saw that, I think you put out the tweet earlier this week that Roger Verstel. But we're seeing, we're seeing the collapse of currencies all over the world. I think that there's a further conversation to be had about, you know, whether Bitcoin does become a global reserve asset itself.

• 7:04Speaker 01

  Where, and this process is what a lot of the Bitcoin maximalists, a group where I would consider myself firmly in, consider a sort of hyper Bitcoinization, right? So post-hyper Bitcoinization, Bitcoin is stable enough to be a viable means of exchange and unit of account all over the world. But I think, you know, well before that, there could exist, you know, sort of in a free banking type model, nation-state issued currencies that are just pegged to Bitcoin. You know, similar to how we had the gold standard. And before that, in the late 19th century, early 20th century, we had all sorts of, you know, bi-metallic pegs, all of which collapsed for, you know, for a host of reasons.

• 7:46Speaker 01

  But I think that the first step in that process will be actually returning to a Bitcoin reserve. And this is something that Saifedin has covered in detail in the Bitcoin Standard. And I think sort of before that, we'll see, we'll start to see substantial growth even from the volumes it's doing today in Bitcoin's utility as a global settlement layer. You know, where it's already settling numbers that annually are comparable to gold markets.

• 8:16Speaker 00

  Absolutely. And so as this global settlement layer becomes more prevalent, do you think that these smaller currencies and smaller markets actually gravitate towards it in the short term? Or do you think it's something where they'll continue to kind of flounder and really suffer until, you know, some other event makes this overly attractive to them? Right? Because if you look at like, you know, Turkey, for example, right now, there's some flight to Bitcoin, but it's not, you know, kind of half the economy, right? And so how do you think about that?

• 8:49Speaker 01

  Yeah, I think that there's, there's two ways of thinking about it. One is over a very, very long-term view.

• 8:57Speaker 01

  Reality is that in that very long term view, so long as it survives another day. You know, Bitcoin's almost like a black hole, right? It's a black hole sucking in all assets that are, you know, weaker forms of money. I think that over a very, very long time horizon, it's entirely possible that this could include the US dollar. On shorter timeframes, I think it's it's most relevant to even see what's happening in Venezuela, for example. Where citizens are swapping bolivars for, you know, primarily dollars, but also Bitcoin. Because even dollars, you know, despite the fact that there's substantial number of dollars that are printed every year, are still a significantly harder form of money than bolivars.

• 9:40Speaker 01

  And I think that what will happen over time is, you know, that people will always have the the sort of inclination to, you know, use their their weak forms of money and to acquire and hoard stronger forms of money, especially if they don't have widespread access to it like they do Bitcoin. And so in the short term, I think that we'll we'll start to see, you know, the shift in economies where they absolutely have to, where they have no other choice. So in Venezuela, even if you had bought Bitcoin at the highest possible local rate at the peak of the market in in December, your purchasing power in, you know, relative to bolivars

• 10:22Speaker 01

  would still be twice, you know, what it it would be if you would have bolivars, despite the fact that Bitcoin has dropped by a factor of three. And and so I think that in the short term, we'll start to see shifts where people have no other choice, especially in in countries that have significant capital controls, where they're still able to bring in Bitcoin. And and in the long term, we'll see, we'll have to, I think that it's inevitable that we'll see it, we'll see a convergence effect there.

• 10:52Speaker 00

  Absolutely. Yeah, one of the things that's interesting to me is a lot of people talk about the currency element of Bitcoin, right? But there's also a income aspect to it as well. And so earlier this week, I wrote this thing, a gentleman from Venezuela, right? So he's a lawyer. He's got three young kids and about, it sounds like two and a half, three years ago, he started to feel some of the economic pressure. He started a business for spare car parts, right? And so as he's going through, more and more inflation's hitting and right about the time where he realizes, you know, two, two and a half years into his business, hey, this isn't going to work, he discovers Bitcoin, cryptocurrency, et cetera. And so he's not, you know, poor, he's not wealthy by American standards, but you know, he had a little bit

• 11:35Speaker 00

  of money and so he bought an Antminer S7. And so he starts mining cryptocurrency, right? Bitcoin specifically, and then he bought another machine and now his family literally lives off of the income that they receive from a couple of these machines. And so it's, you know, as long as he has electricity and he can plug that machine in and he's able to then go from Bitcoin to Fiat, you know, he's got an income stream regardless of the economic situation around him. And when you do the math, I think that one of the interesting parts is, he was telling me that the minimum wage in Venezuela today is a dollar 25, right? In kind of the US currency, but a S9 is mining, you know, 110, 130 bucks, depending where

• 12:19Speaker 00

  the price and difficulty is. And so it's making him wealthy compared to that country's standards, you know, in that, you know, kind of perspective. How do you think people in those countries will continue to use cryptocurrency, you know, whether it's trading, mining, et cetera, as a supplement to income, not just as a store of value?

• 12:42Speaker 01

  Sure. So I

• 12:45Speaker 01

  I don't, the original vision for, you know, 21, as I remember, was actually that they were going to produce ASICs that people were going to have, you know, all over the world. It was going to be embedded in their IoT devices, on their phones, etc. And that everyone would sort of, you know, latently be, you know, earning Bitcoin on a continual basis. And that autonomously, all their, all their devices are going to be able to frictionlessly sort of transact with each other. And a lot of the original visions for Bitcoin very much imagined the world expanding in this way, where people would be mining their own Bitcoin. And that miners, you know, wouldn't really be industrialized the way that they were.

• 13:27Speaker 01

  I think that was a mistake that many, and not a mistake even, but just necessarily something that early Bitcoiners often didn't anticipate. They didn't see the growth of industrial-scale mining operations, especially if they're concentrated in China. I think that the, the way I think regular people can, can be significantly impacted with Bitcoin is actually an extension of what's already happening via the Internet, where, you know, they could live in a regime with substantial capital controls. But so long as they have sort of unfettered access to the Internet, either directly or via VPN, there's pretty much nothing preventing them from earning, you know, global sort of living wages, so to speak.

• 14:13Speaker 01

  The most, the best example that I can describe here is actually, recently I bought a wallet. I bought a wallet directly from someone in Venezuela, not a Bitcoin wallet. I bought a physical wallet. And the wallet has some significance. I have it in my backpack, so I'll show you. But the wallet is made out of bull bars. And because that's kind of reflective of how much the currency is worth. And so I, you know, I bought it. I wanted to support, you know, this guy and his family. And now the thing that I've been talking to him about is setting up a storefront for him so that he can accept Bitcoin payments directly, ship things out directly because he, you know, still has entire freedoms to do that. Where they can earn a wage entirely independent of their financial system.

• 14:58Speaker 00

  Yep.

• 14:59Speaker 01

  Uh, allows him to accept Bitcoin directly. And so we've been working on trying to figure out the best way to get him up and running there. I think that that's what's really unlocked is, is this sort of frictionless commerce that can take place all over the world. Um, and it's easy to, uh, you know, produce commentary and say, well, you know, transaction fees are 50 cents. And it's really hard to open a lightning channel and nobody's really using the lightning network yet. Uh, and there are all these problems, but I think the reality is that if you, if you sort of look at it bottom up and you see what, how people are using Bitcoin on the ground and what, you know, people's sort of psychosocial perception is of it. Um, you know, it's, it's easy to see how it's changing people's lives already.

• 15:38Speaker 00

  Absolutely. And, and, you know, I think the incredible part is, what are we 10 years in, less than 10 years, right?

• 15:43Speaker 01

  Less than 10 years.

• 15:44Speaker 00

  And so it's, uh, it, it's been pretty impactful, um, you know, on that global scale. What, um, what do you think about Wall Street kind of, you know, it seems like turning a corner a little bit and starting to say, uh, from the previous statement of, you know, not Bitcoin, but blockchain to now it sounds like definitely blockchain and maybe Bitcoin. Right? It's, it's kind of, I think where we are right now, where people are saying, you know, maybe there is actually some value to, uh, to this digital currency. He's got a deflationary model, et cetera. How, how do you kind of see that impacting, uh, one, the currency and then two, kind of, you know, the future outlook?

• 16:22Speaker 01

  Yeah, absolutely. I think that Wall Street is in the business of taking fees, right? Wall Street is, it's fundamentally, uh, investment banking, commercial banking, et cetera. It's, it's a middleman business. Uh, it's, it's a business where you have a corporate entity who's providing a service for clients and taking a fee for being in the middle of transactions. Uh, fundamentally Bitcoin is about the The opposite of that, right? It's it's about the ability to trustlessly disintermediate that process entirely and conduct frictionless commerce with two different parties who don't have to know each other.

• 17:03Speaker 01

  And it's not a surprise to me that Wall Street has historically not been receptive to Bitcoin. Why they've chose to focus on on sort of blockchain, not Bitcoin. I think that blockchain for Wall Street is actually something that is fundamentally nonsensical. You know, because it's a a close friend of mine, Murad, often likes to say that blockchains don't create revenues. Blockchains destroy revenues, you know, by their very nature. If done correctly, they would take away revenues from the core businesses of many banks. This sort of alternate, this alternate parallel capital market structure that people are are building is actually a universe where traditional underwriters and middlemen don't make any money.

• 17:49Speaker 01

  And, you know, we're starting to see the downstream effects of this. ICOs this year have financed much, and and this is nothing to say of the quality of these ICOs, which is extraordinarily poor, but ICOs in aggregate have raised more money globally than IPOs have in in Q1 and Q2 this year. And so I think that there is a shift and a and a focus on Bitcoin, but I think that it's more driven by just demand that they're seeing from high high net worth clients, institutional clients about custoding, trading Bitcoin, about buying it, holding it in their accounts, about providing prime brokerage services around it. I think that some of the more savvy banks are are looking ahead to this. But I don't I don't think the fundamental attitude has changed.

• 18:34Speaker 01

  I still see a lot of enterprise blockchain, permission blockchain projects, none of which have shipped anything of value. I think it's pretty safe to say that to date. And a lot of these efforts have actually imploded. But Wall Street, they, there's a number of things that they bring. I think that the capital that comes with Wall Street is very important. Um, in order to uh sort of institutionalize uh Bitcoin uh as a real uh asset class. I think the second really important thing is that with Wall Street comes a lot better security tools, custody tools, market infrastructure, uh liquidity, all of which is good for all Bitcoin users, uh not just um, you know, Wall Street.

• 19:20Speaker 01

  I think the third thing that's really interesting is that with Bitcoin is going to come uh, you know, Bitcoin on Wall Street is going to come all sorts of interesting new financial products, uh some of which uh I've been exploring. Uh but you know, the lowest hanging fruit is sort of ETFs uh and options and and other derivatives products. Um, all of which I I think help contribute to um, you know, Bitcoin's path as as a highly liquid, you know, saleable good.

• 19:47Speaker 00

  Absolutely. What um, what was your first experience with Bitcoin and like what what drew you into uh i- in? Right. What was the attraction to uh the tech?

• 19:58Speaker 01

  Yeah, so I uh my first interaction with Bitcoin was actually transacting on the Silk Road. Um, you know, Free Ross, uh i- if any, if anybody listening uh doesn't know the Ross Ulbricht story, that's uh, you know, it's a great story. Uh, you know, despite the fact that he was framed, uh so so Free Ross. Uh, but that was my first exposure to Bitcoin and and first it just seemed like a sort of gimmick fad, uh fake internet token uh that. And I didn't even think twice about it. I didn't think about scarcity. I didn't think about um, you know, anything else. Uh, and then sort of later uh that year, uh in early in 2013 was when I first started to look into it um and and sort of think through,

• 20:41Speaker 01

  you know, hey, wh- what, why are people interested in this? Um, what is the appeal? Who works on it, right? Because, you know, I admittedly, and this is kind of embarrassing, the first time I saw Bitcoin, I actually thought it was a company. I didn't realize it was this um, you know, sort of globally distributed network. I I thought, you know, I was like, what's this company Bitcoin? You know, who runs it? Well, what are they working on? I can't find their website.

• 21:02Speaker 00

  Yeah, they got some wild ideas.

• 21:05Speaker 01

  Right, exactly. I was like, this is kind of. Kind of a crazy idea. I was like, I love it. And so that was, that was my first exposure. It wasn't until later that I actually read the white paper. I tried running a node. I bought, I bought my first Bitcoin before that. It was via, I did a Western Union transfer to Japan, actually, to buy money on, to buy Bitcoin on Malcocks. Still involved in that, in that class action, but it seems like we're getting paid. So there's some good things that happen. And the, you know, once it all sort of clicked, you know, how it was, you know, sort of resistant to government shutdown.

• 21:49Speaker 01

  What the, the sort of novelty was around, you know, having a digital scarce resource, et cetera. You know, once that clicked, you know, everything kind of made sense from there. And, but it took me a long time. I remember I looked at it recently. I was, I looked back at, you know, finding it from over five years ago to figure out what was the first thing I ever said about Bitcoin on the internet. And the first thing I ever said about Bitcoin on the internet is, played around with Bitcoin a little bit today. Looks interesting, but not sure the UX is there for the mainstream. And we're here five years later and the UX is substantially better. Companies like Coinbase exist now, BitGo, Ledger.

• 22:33Speaker 01

  You know, there are a number of great wallets. There are a whole host of exchanges. There's a lot of places where you can spend your Bitcoin, a lot of merchant payment tools. But the UX still, you know, could use a lot of work and it's something that dozens of teams are working on. So it's awesome.

• 22:47Speaker 00

  Absolutely. Well, let's talk about the, the retail adoption, right? In terms of, there's a lot of technologists in the space that are fairly deep in the weeds, right? When it comes to how does the tech work, you know, can we solve some of the scalability issues, et cetera? And I think that they probably are not thinking as much about how do you drive adoption of that mass consumer? Right? I think you mentioned that there's can be some financial products and things like ETFs that could potentially help, you know, open those gates to crypto. What has to happen on the UX side to make it easier for kind of that mass consumer to not use a retail financial product? Like, you know, an ETF, et cetera, but still get much easier access to buying, holding and transacting Bitcoin?

• 23:32Speaker 01

  Yeah, so I I think a lot of that UX actually does exist. Okay. In really good ways. I think Coinbase, you know, despite a lot of their foibles, has done a pretty good job of that. I think Square has done an amazing job. I actually think Square has now the best experience for using and working with Bitcoin. But I think that the, um, a lot of the, you know, when when people say, uh, we need more user adoption or or growth, um, they're often focused on the usability of products that interface with, uh, you know, with cryptocurrencies. Um, and I actually think that that's not the sort of main bottleneck.

• 24:13Speaker 01

  Um, I think that the harder problem is actually, um, you know, shifting the narrative, right? It's explaining, uh, and educating investors, whether they're institutional, whether they're retail, on what the merits of a non-sovereign money system could be, right? And I think from there, branching into and exploring, um, you know, well, what are other forms of money that could exist besides, crypto money that could exist besides Bitcoin? Um, what is the path to monetization of something like Ether, et cetera? But it's, uh, I think all of that is grounded in an education campaign more than an actual, uh, usability exercise. I think what we've seen in the past, especially in the last retail run-up, is that a lot of the emphasis was around,

• 24:58Speaker 01

  um, retail investors trying to seize, uh, what I'll describe as the next Bitcoin, which I I find is is pretty misguided effort, you know? But we saw Ripple run up substantially. We saw, um, you know, EOS and Ether run up substantially. Um, and I I think what was couched, and we saw, um, Cardano run up substantially, especially in Asian markets, where, um, it has, you know, very broad-based appeal. I think that all of these users are looking for, uh, something that is better, faster, cheaper, um, has higher transaction throughput, et cetera, than Bitcoin, right? I think that that's what's driving a lot of retail interest is because they think that they can capture something that is meaningfully better than Bitcoin on those axes.

• 25:41Speaker 01

  Um, and I think that that approach is actually totally misguided. I I don't think it makes much sense. Um, I think that, uh, what that reflects to me is actually that users don't understand the value proposition of Bitcoin, right? They might be buying Bitcoin. They might be holding Bitcoin. Uh, they might even be using Bitcoin, but. I think that that education campaign is kind of the first place to start is is teaching all investors institutional or retail what the value propositions of Bitcoin are, what the history behind cryptocurrencies is and kind of where you know sort of value can can accrue and be captured long term.

• 26:17Speaker 00

  Absolutely, and so do you think that the people who are looking for you know the these alternative coins or kind of you know improvements to Bitcoin, how much of it is human greed because they think there's going to be appreciation of price versus they're actually being thoughtful as to you know this is going to be better than Bitcoin and I truly believe that and would hold it for five years, right or more?

• 26:46Speaker 01

  Yeah, I think that and this is the reason why on Twitter I make jokes about this, you know, because Twitter on Twitter traders and investors are always talking about alt season, right? When is alt season? When are all the alt coins going to come back? You know, and what's that shift? I think that alt season will always come back, right? Even with so many of these alt coins down 90%, I think alt season will come back. And the reason for that is because crypto networks have such small penetration into the kind of global consciousness and human greed is so immense that I think it will come back. And where you know about the greed improvement thing, I actually think that most crypto

• 27:29Speaker 01

  projects are driven by greed. I truly believe that. The cost of issuing new tokens has fallen pretty dramatically. It's virtually zero now. Requires white paper, landing page, marketing team, roadshow, advisor list, actual contract deployment. So you can you know add on another two hours for that and you're sort of good to go, right? That's what you need to raise money. And so I think that that mentality in reality has reflected in in a lot of greed that we've seen from projects. I think that there are some you know people who in the world who have made efforts to

• 28:08Speaker 01

  I find them misguided. I think Vitalik is a great example of this. Originally Vitalik tried to bring Turing completeness to Bitcoin. There's a number of reasons why the community sort of pushed back against it. You know, all of which in hindsight look like great reasons. You know, and then Vitalik went and started a separate project. You know, similar things happened with the release of Monero or Zcash. I think that other projects have some novelty to them. But for the most part, especially as you get into the long tail of, you know, say lending projects, right? There's five different crypto projects that are all working on some sort of lending token.

• 28:49Speaker 01

  I think where you get into that, it's much more grounded in sort of greed on the part of teams. Or, you know, it's an existing team that's launching a crypto project. You know, where really it's a play for non-dilutive financing. Because that's what all token raises are, right? You know, there's no corporate rights, there's no, you know, parada liquidity rights. You know, there's, there's really no rights of any kind, right? And so I, I think a lot of that is, is short-termism. I think a lot of it is greed-driven. There are a few sort of brave projects out there that are vesting tokens, right? Which is a, an innovation the US technology investor market has come up with decades ago.

• 29:32Speaker 01

  There are some teams vesting tokens over very long periods of time, six or eight years, which I find to be brave. But something I would be terrified of as a, as a founder. And so I, I do think it's mostly, mostly greed-driven. And over the long term, I, I think it's great, right? It's bringing more interest to the space. And really, all of these are free research projects for Bitcoin. That's how I view it. You know, whatever it is, you know, if it, if it works out long-term, it'll find a way to get in. If it's something that's important and something people value.

• 30:05Speaker 00

  So you, you got one of my questions that is something that I, I want to spend some time talking to you about in terms of smart contracts, zero, zero knowledge proofs. All of these kind of ancillary pieces of technology or, or concepts that are, you know, being explored by other cryptocurrencies or crypto assets. You think eventually get contributed back to Bitcoin as long as they have value and sustainability.

• 30:30Speaker 01

  Yes, and it's already happening, right? So on on smart contracts, the Rootstock team has spent a few years exploring this. And and there's other teams exploring sidechains to do smart contracts. Eric Martindale at Fabric. Yeah, Fabric, on working on Fabric, is is working on a potential layer. I guess we could call it layer three solution to, you know, building more complex scripting into Bitcoin. And so that that's already happening to an extent, and I think the further Bitcoin monetizes, it's actually going to be increasingly relevant. There's actually another sort of reframing here, because when I say, you know, hey, people are working on this stuff,

• 31:14Speaker 01

  the pushback I often get is, well, all of the DApps are still being built elsewhere. And the reality is that people don't want to waste their time, right? People, I think, largely people in the Bitcoin sort of development universe of, you know, say roughly 500, 2,000 people, of which there are probably 50 or 70, 50, 75 are really regular contributors to directly to Bitcoin. And and, you know, besides that contribution base, there's, you know, thousands of people who work or who are building on Bitcoin or built in or building services that have to interface with Bitcoin directly. You know, these people don't like to waste their time, right? There's only so many of them in the world.

• 31:57Speaker 01

  I think that what they're focused on building right now is the most secure

• 32:04Speaker 01

  protocol that is most conservative in its assumptions, that is most safe in its sort of method of operation. And whatever else is important, you know, we'll let the market, you know, dictate what is important and and kind of incorporate that downstream. There are a number of, on the privacy side, I think one of the things that's been really interesting is this sort of Bitcoin development culture, where what it actually forces is a lot of the innovation that is, that would be on like a base layer chain to be moved downstream. And so on the on the privacy angle, a lot of the interesting things that people are working on on privacy, there are sort of like improvements on CoinJoin or other mixers.

• 32:47Speaker 01

  Samurai Wallet, I find really compelling as a project. They have an Android app, but haven't released on iOS yet. And so a lot of the privacy components being moved to the transaction layer, or you know, a different layer, I think is pretty compelling in the in the short to medium term future. I am pretty happy with the privacy projects that are out there, particularly Zcash and Monero, both of which use different privacy mechanisms. I've been monitoring the launch of Grin pretty closely, which will launch later this year or early next year, which is another kind of another anonymous, fair mind, interesting privacy project. And so I think that privacy is still something that's very important for,

• 33:31Speaker 01

  you know, Bitcoin users and Bitcoin developers and and the community of original cypherpunks that primarily Bitcoin is coalesced around. I've seen demos of different, I don't want to name names, but I've seen demos of different chain analysis tools. And they are terrifying, man. I think that Why? Well, they're terrifying because I I think the logical implication of a lot of people focused on on-chain analysis, you know, despite the fact that it is still a little bit rudimentary. There's still a lot of information to glean. I think that we'll quickly move to a future where if Bitcoin is not fungible, it's not fully fungible, we're gonna have whole, we're gonna have different types of Bitcoin, right? We're gonna have clean Bitcoin, we're gonna have dirty Bitcoin,

• 34:17Speaker 01

  and it'll trade at different rates. And I I think that that's not what we want in Bitcoin. I think we want fully fungible Bitcoin. The same way, you know, gold is largely fungible. You know, cash, it has, I guess it has an identification in the in the form of serial numbers, but you know, direct transfer in cash is directly, you know, it's it's directly fungible. And you know, that's part of the reason why, you know, drug dealers and terrorists often use US dollars, right? They use cash. It's their choice of currency. Yeah, shout out, shout out Jamie Dimon, you know, he was wrong about that. And and so I actually really do worry about a future where Bitcoin isn't fully fungible.

• 34:58Speaker 01

  And and do think that we'll, fungibility is something that Bitcoin developers are pretty concentrated on, and it's something that's improved substantially over time. And and there's a number of proposals for different, you know, everything from different signature types to, you know, full-scale rearchitectures. But I I think any sort of large-scale privacy would be many years down the line. But in the short to medium term, there are a lot of efforts focused on fungibility that I find compelling.

• 35:25Speaker 00

  Got it. Alright, so I want to walk through a couple of different people in the ecosystem, the position that they sit in, and you tell me what you think from that perspective as to what they should do or kind of how it impacts them.

• 35:39Speaker 01

  Sure.

• 35:39Speaker 00

  So, the first one, if you're the President of the United States and you see Bitcoin, what do you do? And do you think it's a threat to the country, to the US dollar? Do you think it's something that you should embrace? Kind of, you know, how do you think through that framework if you're sitting in the Oval Office?

• 35:56Speaker 01

  Sure, I do think Bitcoin is a threat to the US dollar. But it's not the only threat to the US dollar, right? So, I mean, the renminbi is a threat to the US dollar. You know, we actually have renminbi-denominated, you know, we have Petro renminbi futures contracts now, right? Which is very relevant. And so if I were the President, you know, would, my consideration would be, hey, you know, this is a threat. And Pierre Rochard at the Nakamoto Institute has written about this in the past. In the future where Bitcoin is a credible threat to nation-states, you know, we'll start to see more and more speculative attacks. And...

• 36:37Speaker 00

  What are the most likely kind of first couple?

• 36:41Speaker 01

  Sure, I think that the first couple, you know, we're already starting to see at the fringes, right? They're in countries with no capital controls, so take Turkey this week as a perfect example. And they're starting to get shut off, right? So, you know, just this week, we've seen Turkish citizens get shut off from PayPal. Soon they'll be shut off, you know, to other sort of internet retailers. And as their connection to the outside world is starting to get shut off. And Bitcoin, by the way, Bitcoin trading is not yet illegal in Turkey. But I do anticipate, you know, either that Bitcoin will be made illegal or that FX will shut down.

• 37:24Speaker 00

  Yep.

• 37:24Speaker 01

  Or that, you know, or that...

• 37:29Speaker 01

  You know, I forget what I was gonna say, but the, I, I like, I anticipate that this will happen in, in the short to medium term future.

• 37:36Speaker 00

  So you think that the first attacks are not violent in nature, they are more politically savvy in terms of trying to use either market forces, you know, access to internet, access to communication outside of world, etc.

• 37:51Speaker 01

  Yeah, I, I don't think that we're gonna see sort of like full on nation state level disputes over Bitcoin yet. Uh, but I think that it would be, you know, prudent, especially given the amount of Bitcoin, uh, con, like this sort of industrial Bitcoin concentration in Russia and China. Uh, for, it would be prudent to own some Bitcoin, right? And there's been, uh, there are a few people working on this in Ghana, for example, who've been, you know, lobbying and, and working with, uh, you know, the central banks of Africa to try to get them to hold Bitcoin exposure. Um, you know, I think we're fully at the point right now where it's more, it, it's more prudent to own a little bit than to not own any at all. And, uh, you know, I would approach it the same way if I were the president, right, is, uh, to do, you know, two big things.

• 38:36Speaker 01

  One is to make sure we own some Bitcoin. And second, more importantly, is to be welcoming of entrepreneurs working on truly, you know, decentralized systems. Because I think that what you have, uh, and, and this has been described, uh, by a number of people, but what you, the universe where the US is not welcoming of crypto entrepreneurs is one where we effectively push away, uh, you know, sort of the potential architects of this open financial system, uh, elsewhere. And that's not a place that we want to be at all. Um, and I, I think that that could come with a lot of negative repercussions. And so I think the first order of priority is to be welcoming of Bitcoin and other kind of truly open networks and technologies,

• 39:17Speaker 01

  while also clamping down on, you know, sort of, uh, you know, doubling down on investor protections and protecting retail investors from fraud, et cetera, et cetera. Uh, but I think that's less of a problem with Bitcoin specifically and, and more of a problem and it's kind of a long tail of crypto projects. Um, but I, I think that both of those things are, are really important.

• 39:35Speaker 00

  So let's keep going with the example. You're the US president, you say, hey, we should own some Bitcoin. There's, you know, two, three mil- uh, two or three billion dollars a day trading.

• 39:46Speaker 00

  Do you just go buy, you know, as much as you possibly can over a couple of weeks and try to build a, you know, 20, 30 billion dollar position or kind of, what do you do?

• 39:56Speaker 01

  Yeah, I think that, um, you know, first I would call the guys at the NSA and make sure that they didn't create Bitcoin. Um, and that this isn't some huge NSA ruse. Uh, you know, these things, you know, these things happen, right? We'll find out 25 years from now what the NSA knew and didn't know. Uh, but you know, even, you know, RSA encryption, um, in, in, in a forum, they'd actually come out, uh, with it privately. Um, you know, the NSA did, uh, you know, four or five years before it was in, uh, you know, it was, it was went through academia. Uh, but, you know, the sort of tongue in cheek, that's the first thing I would do. Uh, but, you know, in, in terms of accumulating a position, uh, you know, I, I don't know the specifics about,

• 40:37Speaker 01

  uh, sort of what disclosures would be required or which branch of the government would have to approve it or what can be done by executive order, et cetera. Uh, but the, the first focus rather than accumulating it would probably be to shed, uh, better regulatory clarity on, on the environment. Because, you know, the regulations that we have now are confusing. Um, they're, they're bad for entrepreneurs. Um, you know, it's confusing because it's, it's unclear, uh, you know, because Bitcoin is really new, right? It's, it doesn't fit into sort of existing, uh, paradigms, especially doesn't fit into sort of, uh, you know, more traditional conceptions of, uh, money transmitter businesses, um, and money service businesses. Um, and it's, it's unclear, uh, you know, while, you know, the IRS says one thing, the SEC says another.

• 41:20Speaker 01

  It's unclear what the status of it is. Um, the SEC has attempted to shed some light on decentralization. I think that that's also, uh, largely, uh, sort of, uh, it's very up for interpretation. Um, actually, uh, there, there are some problems there, I think, as well, uh, because what they've communicated is that there's some sort of slide for, uh, how decentralized something is, uh, where.

• 41:45Speaker 01

  Hey, you know, I don't, I, I think that that's very, very hard to say, right? It leaves a lot of wiggle room. And so I think the first thing, you know, you know, sort of even more paramount to, to buying Bitcoin is actually clarifying, you know, what the regulatory environment is around Bitcoin and making it clear that, you know, we are supportive of and encouraged to develop and, and use Bitcoin. But we'll see, I mean, it's, it's kind of at odds with, you know, with state issued currency to some extent, right? It makes for all sorts of, you know, actually even more complex regs around taxation, right? If I'm spending Bitcoin, you know, do I have to calculate capital gains whenever I buy a cup of coffee? Or, you know, is there a threshold under which it won't matter? These are all, you know, very relevant and important questions.

• 42:29Speaker 00

  Absolutely. If you're a traditional investor, right? So maybe you have some working knowledge of cryptocurrency, blockchain, Bitcoin, but you're looking at your portfolio and your managing assets. How do you think about crypto in general, given kind of your portfolio construction? And then how do you actually start to participate, if at all, in, into the asset class?

• 42:56Speaker 01

  Sure. And so I think that there are a couple of interesting lenses to look at Bitcoin, right? So as an, as a sort of traditional investor. So one is, you know, Bitcoin as a form of crisis alpha, where, you know, it, it serves a similar function to maybe gold in that sense, where it can be sort of a non-correlated asset to the rest of the market. It can be a safe haven when the rest of the markets are in turmoil, and that it's part of having a sort of responsible portfolio. I think that's one lens to look at it. It's something that people have proposed. I think it's mostly incomplete, because Bitcoin was, you know, was born in the sort of aftermath of the last financial crisis.

• 43:40Speaker 01

  Bitcoin itself has never gone through a broad-based, you know, sort of collapse in equity markets. I think it's unclear how it'll perform in that, in that universe. And I, and I actually don't see it. Performing well in the event that we have a large sort of risk off type market movement. You know, absent a potential sort of sovereign debt or currency crisis, I think that in that sort of lens Bitcoin could actually potentially shine.

• 44:11Speaker 01

  Another lens to approach it as an institutional investor is to say, hey, this crypto thing is this big bet on a new trend, right? A new macro trend and the trend that a lot of people have described as web three point O. Or something else where I think the the smart way, you know, while I personally believe that the smartest like most. You know, on a on a risk adjusted basis, the smartest thing to do is just to buy Bitcoin. You know, a lot of investors I I know are sort of opting to own a basket of cryptocurrencies. Which will, you know, sort of eventually converge on. You know, the market winner or winners, depending on how you think the the power law dynamics will shape out. So that's another sort of option to to sort of play into it.

• 44:57Speaker 01

  The third is investing directly, which. You know, many investors have done the custody infrastructure for holding assets isn't quite there. And I think that'll change a lot in the next six to twelve months. The financial products that could exist for investors aren't aren't quite there yet. But I think that that is that's the third sort of option is investing directly. And being very wary of putting money into projects that. Seem appealing on the basis of sort of blockchain technology, right, which I I consider largely to be a scam. But I I think that a lot of the original money that came from traditional investors went into.

• 45:38Speaker 01

  Exactly that from a lot of, you know, traditional, you know, hedge fund managers, you know, private equity investors. Fintech investors, a lot of that money went into funding private enterprise permission blockchains where. You know, in that sort of fourteen to sixteen period, when investors thought Bitcoin was dead. They invested in all of these private blockchain projects because that was something that they could understand. And I think that that's a really dangerous place to be, you know, so. If I were an institutional investor, I had outside clients. My, you know, sort of lens would be to allocate a very small percentage of portfolio directly to Bitcoin. And, you know, if that isn't compelling would be to allocate to a basket and there's a couple of ways to buy baskets.

• 46:21Speaker 00

  Got it. And so, um, let's go down the rabbit hole of this enterprise blockchain or, you know, not Bitcoin but blockchain.

• 46:31Speaker 00

  I tend to agree with you that 99% of those use cases or applications are complete garbage, right? And, you know, if you take a step back and you remove all of the hype and sexiness of the word blockchain, you're talking about a database, right? I mean, that is what we're talking about here.

• 46:48Speaker 01

  Exactly.

• 46:48Speaker 00

  And so, um, in order for people to get that excited about a database, there would either have to be, one, some, you know, such a technical leap uh, in terms of uh, efficiency, effectiveness, et cetera. Or two, there would have to be something that that, um, you know, database allowed us to do that we previously weren't able to do before.

• 47:09Speaker 01

  Yeah, it's a, it's a sort of, uh, enterprise blockchains are back office automation system, right? It's a form of like back, it's a back office upgrade essentially. And the awesome part is, uh, Wall Street historically doesn't put money into the back office, right? It puts the bare minimum because it's not a profit center, it's a cost center. Um, you know, why invest more in the back office than you absolutely need to? Uh, this really is a way for back office teams to lobby for more financing for their, uh, for, for the sort of essential infrastructure that needs to upgrade. And so I don't see a lot of value being captured there. Uh, you know, because actually they're creating hypothetically more efficient systems, right?

• 47:50Speaker 01

  If there's all these sort of improved efficiencies, um, a lot, uh, I don't, I don't see how, it might be cutting costs, but I don't see it, uh, creating and subsequently capturing a lot of value. Which is, you know, the disconnect I think a lot of people have in this ecosystem broadly, not just on Wall Street, but in general, is the disconnect between value creation and value capture. I think that that problem remains largely, you know, unsolved in many teams' minds.

• 48:21Speaker 00

  Absolutely. And so if Bitcoin is that digital currency, right, and maybe it takes some time to play out, but we eventually get to, hey, this is a true currency that has multiple properties that we're looking for, do you think that there is a world in the digital age of finance where there is digital stocks, digital bonds, digital commodities, kind of all of these other applications that aren't necessarily enterprise blockchain, but they are digital assets, they're native to this environment, but they represent or have analogous, you know, kind of properties to their non-digital peers?

• 48:57Speaker 01

  Yes, Pamp. I think we'll tokenize the world.

• 49:00Speaker 00

  No, no, no, no, no.

• 49:02Speaker 01

  No, the, I think that all sort of financial instruments will eventually be digital in some form, right? Even, even stuff that's represented with paper now in, in the basement of the DTC, I think it's all going to be digital. It's sort of inevitable. And I, you know, sort of welcome that future. That'll be really exciting. I think that there will emerge kind of new capital market structures altogether where deals will be financed sort of frictionlessly all over the world. You know, you'll be able to move from Broker J to Broker H B in a very straightforward process. I think that all of that infrastructure will eventually exist because I see, you know, capital markets and capital formation.

• 49:46Speaker 01

  I see sort of sound money first as the largest addressable market and, and not by, you know, a small difference, it's by many orders of magnitude. And then sort of second thing I find compelling is actually a recreation of a capital market structure around that. So I do think that this will be somewhat inevitable. But actually, the things that are interesting to me here are less Around what a lot of, you know, it's sort of more tokenized securities offerings and kind of unique financing models and on, people have proposed, you know, doing under Reg D offerings here in the US. What I'm interested in is actually kind of like the more subversive stuff, right?

• 50:28Speaker 01

  Where I would consider Binance, Binance Coin, right? B and B, Binance's native exchange token to be an example of what I would consider a subversive, you know, illegal securities offering is a stretch because it might be illegal only to US investors. But, you know, they basically raised an ICO, issued a token in exchange for that, had some discounts and features for holders of the token, and then issued a basically a burn mechanism where they bought back tokens and subsequently burned them based on their profits every quarter. And now they're launching, you know, very, very, very sizable crypto fund that's investing

• 51:09Speaker 01

  in very high quality, early-stage projects, and they're basically passing on returns from that fund back to users, right? So, you know, what I'm describing is entirely a security, right? It's a very sort of unique form of security where it has this dual utility function and security-like feature where, you know, the benefits, the efforts of Binance and their team feeds right back into the security. And many people would be appalled, right? They would consider it super illegal. But what they've now created is a very broad investor base of, you know, tens of thousands, if not hundreds of thousands of investors all over the world, all of whom have profited substantially, the token is appreciated substantially, and they've been fully transparent.

• 51:52Speaker 01

  I think the next levels for them is moving to a decentralized exchange model, which they've been working on for some time, first. Second, you know, shifting to a model where all of their cash flows are actually directly distributed on-chain, right? And they can do, you know, once they have a decentralized exchange going, they can even do potential buybacks and burning functions all autonomously. And, you know, what happens in that universe starts to resemble something much more close to a A DAO structure. And while I think the DAO was a disaster, it was still exciting, right? It was exciting for me to follow. It's still exciting to me now. I think the potential of DAOs is very underappreciated.

• 52:36Speaker 01

  And all of these DAOs, I think, will have, you know, equity-like characteristics, right? I think that they will exist all over the world and all sorts of different capital formation structures. And that's really cool to me. And so around that, I do see a whole new sort of decentralized financial system forming. Whether all of these will have separate tokens, I don't know. Whether, but and there's a number of questions that remains that are how will governance look in this sort of a DAO-like universe? But it's cool. It's exciting.

• 53:06Speaker 00

  Absolutely.

• 53:09Speaker 00

  Let's go back to this idea of a security and a utility and kind of can something have, you know, properties of both? Can it transition between the two, et cetera? And so, you know, in the traditional non-crypto world, there's shareholders that hold equity. And there is utility to sometimes being a shareholder, access to a shareholder meeting or event, that type of stuff. But but for the most part, outside of, you know, some kind of more gimmicky type stuff. If you hold a security, it's a security and there's not much utility to it, other than the value, the appreciation, et cetera. In this world, we're seeing kind of the blending or that blurring of those lines.

• 53:52Speaker 00

  What excites you the most in terms of, you know, as long as people continue to follow rules and regulators, kind of work with them, et cetera? Like, what do you think is possible there? Right? Is it the Binance model? Or is there other things that you think could possibly be, you know, this kind of blended security utility could be used for? That could be compelling to either investors or holders of the token that use it in an incentive model?

• 54:17Speaker 01

  Yeah, I think that the my favorite utility I for the most part I hate utility tokens. I think that they have little utility. I think that there hasn't been a single utility token, a pure utility token that I've seen designed that has thoughtfully, you know, figured out how it could work at a future high demand equilibrium state.

• 54:38Speaker 02

  Even Ether.

• 54:39Speaker 01

  Uh, yes, including Ether. Um, but I think that the but I think that my favorite actually utility token example is something like Sia. Um, I find Sia's model pretty compelling. They and the way it works is they have two different tokens. One is an equity, a traditional sort of equity token, um, where it has all of the sort of same class structures as as equity would have. Uh, and it has a separate, uh, utility token which is used for, uh, participating in the network, um, that has a lot of the qualities that utility tokens have in their future, uh, you know, sort of high demand, uh, high throughput state. Um, it's highly

• 55:22Speaker 01

  unlikely that the utility token is ever going to make a good investment and they're clear with that from day one. Uh, but what it does offer is, uh, you know, exactly what it describes, right? It's access. It helps access utility in their network. Um, while the security structure, um, actually provides, uh, recourse for investors, right? And they have some claim, um, and it aligns incentives of for the team. Because I think the problem with most utility tokens is that there's a strict conflict oftentimes that emerges between the incentives of the team, uh, and the incentives of their potential users and the incentives of their potential investors. Oftentimes, these three things aren't totally

• 56:05Speaker 01

  aligned, right? A universe where, uh, there's high velocity in utility systems and, uh, these network tokens are are these networks actually do see high usage rates, um, is actually one where, uh, users benefit, uh, but the team or investors might not necessarily be incentivized to, you know, to work on it or or participate as. An investment in sort of a fixed supply world, you know, oftentimes these are it's problematic for users while being more beneficial for the team or for investors. And there's all sorts of models that people have come up with to try to work around this there. You know, there's token bonding curves and kind of mint and burn models and people are, you know, they're trying all sorts of things, right?

• 56:49Speaker 01

  They're throwing a lot of things at the wall, experimenting with crypto economics and tokenomics and, you know, all of these sort of, you know, LinkedIn buzzwords almost. But the reality is that I find the security utility token, that kind of dual token structure that has clearly delineated. What and delineated what the incentives are for each party and aligning all of those in the same direction. I find that super compelling. I think it's really cool.

• 57:17Speaker 00

  Got it. No, I think that that's a really interesting kind of thought process to go through and kind of see, you know, where that could even lead. Twenty years down the road, right? Let me ask this, what's the one thought that you have or the one belief you hold? That a large majority of people would disagree with you on?

• 57:38Speaker 01

  Yeah, so there's a lot of things. I mean, I, I, I, the, I, I would already consider myself a Bitcoin maximalist, which I think is a minority position. But I think it's probably more interesting to see, you know, sort of even in the universe of Bitcoin maximalism, which oftentimes to outsiders is this sort of amorphous blob of a community, right? Where everybody is aligned and, you know, sort of eats steak and, you know, hates socialists and is all sort of the same type of person and loves guns. And while I love guns and hate socialists, I'm actually vegetarian, so there's a minority position there.

• 58:17Speaker 01

  But I think that my, the more interesting question is kind of what do I disagree with most, even in the sort of Bitcoin maximalism world? And there's two things. So one is that I see cred- credit systems and the sort of banking systems being built on top of Bitcoin as being inevitable. I think people will do. And I think that they have the potential to work for a really long time, right? And so a lot of, you know, a lot of the, a lot of Bitcoin users enthusiasts, especially those that were here from very early on, disagree with that premise, right? Including most recently it sparked up in a debate between Syfadi Namos,

• 58:58Speaker 01

  who wrote The Bitcoin Standard, and George Selgin, who is an OG cypherpunk. He was in the original, you know, he was on the original cypherpunk mailing list. He's with, I believe, the Cato Institute now around free banking and Bitcoin. And I actually find Selgin's view very, I'm very sympathetic towards it. I think that all these sorts of unique banking constructs, I think will emerge on top of Bitcoin and credit systems on top of Bitcoin are inevitable. And that we should kind of welcome it. I don't know if it'll be sustainable or work forever, especially because there are a number of structural limitations to how Bitcoin is designed. And these are good, right? There are limitations to what, you know, non-Bitcoin sort of bank actors can do.

• 59:41Speaker 01

  But I find that vision of Bitcoin to be not only inevitable, but, you know, pretty interesting. And so that's kind of one large thing that I disagree with, you know, in the sort of Bitcoin maximalist universe. The second sort of belief that I would have that is probably contradictory to many people in the Bitcoin maximalist universe is that I really do believe that, especially in the short to medium term, which I would describe as, you know, even extending past to the next 10 years, I think that Bitcoin will be winner take most, not winner take all. And it will slowly increase in dominance. I think it's at, you know, roughly 55 to 60% dominance right now. And I anticipate that that'll go up over time.

• 1:00:25Speaker 01

  But I see two things as potentially being, a few things as being valuable to the market that will sort of emerge over time. I think privacy is sort of systematically undervalued. I think everyone says they talk, they care about privacy. But, you know, I don't think that's reflected at all in the relative value of projects and teams working on privacy. Relative to every everything else, especially in the utility universe. So that's one thing I think is sort of systematically undervalued. I think some form of stablecoin, I don't think any of the stablecoins that exist right now that have launched are really robust. But I think that over the next, at least over the next five years, I think a lot of them sort of, you know, by design

• 1:01:10Speaker 01

  will be, you know, very hard to kill, right? And then they won't die for a very long time. So I actually see them holding some sort of appeal, especially because I think that the design of stablecoins, though a lot of it is misguided, kind of Keynesian nonsense. I think that is, it's that narrative is very appealing to a lot of people I talk to on Wall Street who sort of look at that and go, wait, you know, that kind of makes sense to me. I can see, you know, this sort of algorithmic central bank model being compelling. So I think we'll, we'll, we'll see that as well. So in terms of how the market evolves, though, long term, I am sympathetic to view that Bitcoin is this sort of black hole. I think in the short to medium term, that there are a lot of things that'll hold value because

• 1:01:53Speaker 01

  of what the market views as structural limitations of Bitcoin for now.

• 1:01:58Speaker 00

  Got it. Makes sense. All right, before I ever, before I end each one, I let the guest ask me one question. What question would you ask me?

• 1:02:10Speaker 01

  The, I think that my biggest question that I've always

• 1:02:15Speaker 00

  I'm so scared of what you're about to ask.

• 1:02:17Speaker 01

  How did you come up with the virus is

• 1:02:19Speaker 00

  Oh, man, you're the second person to ask.

• 1:02:22Speaker 01

  Oh, really?

• 1:02:23Speaker 00

  This is the second time. So we didn't talk about

• 1:02:28Speaker 00

  long story short, I think Twitter is full of characters of ourselves, right? And so it's, the example I always use is like, imagine if we were all just in the WWE on Twitter and like, you know, there's the hero, the villain, the announcer, the referee, etc. And those characters all have, you know, taglines, right? You know, if you ever watched wrestling growing up, you could probably tell me, you know, The Undertaker, The Rock, Steve Austin, and all the characters. And so I did not Have a grand plan. When I first said it, it was more of just. You say that, you say. No, no, no, no, no, I swear. So the idea that blockchain, Bitcoin, crypto was just, it was capturing the mental energy of so many people.

• 1:03:10Speaker 00

  And it was just spreading and no one could stop it. And it was this viral phenomenon or this virus, right? And so I tweeted it one day. It's like snow crash. A little bit, yeah, yeah, yeah. And when I tweeted it, I put a rocket emoji next to it. And next thing I knew, people were tweeting it back and tagging me on things and it just took on a life of its own. And you know, look, I tend to think that, you know, there are things that take off because they have a little bit of truth to them, right? And that's kind of why we latch on to them. That one is, it's kind of run its course, right? If you notice, I don't really push as much anymore because I think everyone's got the idea.

• 1:03:51Speaker 00

  Hey, there's no stopping this thing. But I'm actually surprised at, you know, how bad the crypto community is at taking what is pretty intelligent, thoughtful, many times complex ideas and work and presenting it to an audience that probably doesn't have the same passion, understanding, etc. And so this, you know, taking up the complex ideas and making them simple, right? And really delivering them to a much wider audience, I think is not only compelling for Bitcoin and crypto's sake,

• 1:04:30Speaker 00

  but also it helps, right? And so I think that something like the virus is spreading is really easy for that kind of, you know, lesser in the weeds crowd to grab on to. And is that the message we want them to walk away from crypto with? No, right? But at the same time, if that gets them interested and gets them in the door and then we can actually educate them, I think actually it can be a valuable thing.

• 1:04:52Speaker 01

  Yeah, this is something I've written about in the past because I actually think that the most interesting sort of fundamental, quote unquote, fundamental indicator to me, you know, counterintuitively is actually price action, right? And kind of fun flows, right? Because that's always, you know, I view, a lot of people view the crypto markets as, you know, startups with stock tickers, right?

• 1:05:15Speaker 00

  Yeah.

• 1:05:15Speaker 01

  Which I think is kind of a flawed model for a lot of the reasons I've described. And, but I think that currency markets, it's actually much more important to focus on fun flows, right? What do people see as future money, right? What are the narratives that they're going to latch on to? And I, you know, mentioned a lot of narratives that I personally find compelling. What are the narratives that you think institutional investors are really interested in?

• 1:05:38Speaker 00

  Yeah, so,

• 1:05:41Speaker 00

  I think that

• 1:05:44Speaker 00

  the best framework for this is they have sleeves of capital, right? So they've got equity, debt, real estate, fixed income, et cetera. And if they see ways to deploy equity capital into this vertical,

• 1:05:59Speaker 00

  that is attractive to them. They understand what they're buying. They have a dedicated pool of capital for it, et cetera. I look at, you know, take equity, so venture capital specifically, as it's like somebody raising a VC fund and saying, I have a healthcare-focused VC fund, right? You're just doing venture capital inside of the healthcare industry.

• 1:06:18Speaker 01

  Yep.

• 1:06:19Speaker 00

  Crypto, crypto-focused VC fund is just venture capital inside of crypto blockchain space, right? I think where the institutions kind of get off the rails or there's a disconnect is when they're getting pitched, hey, you should buy Bitcoin, you should buy these digital assets. There's going to be some early adopters for sure, right? And they'll probably write, you know, single-digit to, you know, lower double-digit millions of dollars checks, to dip their toe in the water, et cetera. I don't think that the majority are ready to do that yet, right? They don't understand the asset class. They don't know where the capital comes from, you know, on their side. So there's just some hurdles that need to kind of get jumped over before they're ready to do that. But I do think that, you know, if you can start to show them, hey, you know, mining, it's an infrastructure investment.

• 1:07:02Speaker 00

  Right, and there's cash flow and you start to kind of walk them through a couple of different applications of the blockchain technology, but allow them to invest without holding the digital assets themselves. I think that's a much easier conversation than hey, go buy Bitcoin. I would not be surprised, though, at the same time, if over the next 12 months, that rapidly changes. And I think that ICE and some of these larger names, I really put them in two buckets. Some are the pretenders, right? And some are, you know, the operators, right? The pretenders are the ones who just keep, you know, every day, there's a different press announcement and they're, you know, exploring something, they're potentially going to possibly

• 1:07:44Speaker 00

  announce, you know, a future partnership with somebody and you're just like, what are you guys doing? The operators are the ones, you know, I think ICE is in that bucket where they're saying, look, we've already built some stuff, we're going to continue building stuff, it's going to launch in the next, you know, 60 days and, you know, that type of kind of propensity for action, I think from a large player, is definitely eye-opening to these institutions. And then, you know, look, we've seen a couple of institutions jump already across the ecosystem. I think that, you know, we probably need another three to four months of that continuing to happen. And then it's almost going to flip, you know, very violently and people are going to say, look, if you do not have this in your portfolio, you actually are not, you know, fulfilling your duty, because this could potentially

• 1:08:28Speaker 00

  be one of the highest performing assets in a portfolio and you don't have any exposure.

• 1:08:33Speaker 01

  Yeah, it's like I sometimes say, it's, people don't have a choice, right? People can decide when they want to become a Bitcoin max floater, but they really don't have a choice, right? It's sort of converges on that eventually and people will capitulate eventually, right? I'm not super worried about that.

• 1:08:51Speaker 00

  Absolutely. Last thing I'll leave you with is, I have, and this is coming from somebody who, you know, fully believes in the digital age, Bitcoin being that digital currency, but digital stocks, bonds, commodity, you know, all that stuff, not even necessarily convinced that it has to be on the blockchain, right? It can just be digital. I think that when you really dig into Chain technology specifically, I would say, you know, over eighty, ninety percent of people probably start with Bitcoin. And they have this like well-worn path from Bitcoin to enterprise blockchain to altcoins to, you know, whatever. And they end up all circling back and end up at Bitcoin.

• 1:09:30Speaker 01

  Yep.

• 1:09:31Speaker 00

  Right? And so like, every single person I know has gone down some variation of that path where you, the intellectual curiosity takes you there, right? It's could you actually apply this technology to, you know, this application? Could you, you know, whatever? And it just takes time, right? It's probably eighteen, twenty-four months and people come back around and they all just, man, I could have saved myself a bunch of time if I had just, you know, saw Bitcoin, believed Bitcoin and stuck with Bitcoin.

• 1:09:56Speaker 01

  I mean, there's, the more you research the space, the more you look at other projects, you come back to it because there, there's an elegance to it, right? It's this elegance of immaculate conception, right? It's this elegance that came theoretically just works, right? It's the security model, which is the best in the world, right? It's the subservience of miners to users, consequent, you know, sort of in contrast to what a lot of people believe. That's how Bitcoin works. You know, it's seeing, you know, the success of the user-activated software initiative last year in light of SegWit2X and Bitcoin Cash and, you know, users controlling Bitcoin, right?

• 1:10:40Speaker 01

  What we learned last year, and you can make all of the commentary that you want about Bitcoin, about its transaction capacity, about its, you know, about a number of things. But what you can't criticize is that Bitcoin is hard to change and that users control Bitcoin, right? Miners don't control Bitcoin, businesses don't control Bitcoin, Barry Stobert doesn't control Bitcoin. Users control Bitcoin and that's really awesome. And once you realize the simplicity to that and the path to governments even trying to shut down Bitcoin, it all makes sense. You can't unsee that, right? Once you take that red pill, it's just, it's game over.

• 1:11:19Speaker 00

  There, we're gonna end this thing on three words. Bitcoin is beautiful.

• 1:11:23Speaker 01

  Yes, it is.

• 1:11:24Speaker 00

  Awesome, man. Thank you so much. I really, really appreciate this. You've, you definitely have a unique perspective in this whole world and I appreciate you sharing it with us today.

• 1:11:31Speaker 01

  Yeah, I'll see you at a hundred K. We'll record again.

• 1:11:36Speaker 00

  Hey everyone, Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the Apple, Spotify, and other podcast charts, please do us a favor and rate, review, and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.