← Bulwark Takes
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- [00:00]
Sam Stein
Hey, guys, it's me, Sam Stein, back again. Made it through the weekend here on Monday, I'm joined by Ben Walsh, business finance journalist extraordinaire, old colleague of mine. We're going to be talking about crypto, which I know very little of, which is why we have been here. Mainly we're going to be talking about Trump's weekend announcement about a crypto reserve, which is going over like a old turd in some corners of the crypto universe. All right, Ben? Yes. So we were, we were talking a bit about this. We're not totally sure if this is official US Policy because it was presented in the form of a truth social post. But over the weekend, I'm going to just read what Trump wrote and then you could react to it and give me your summarization of what's going on here. He writes, quote, A U.S. crypto reserve will elevate this critical industry after years of corrupt attacks by the Biden administration. Which is why my executive order on digital assets directed the presidential working group to move forward on a crypto strategic reserve that includes xrp, Sol, and ada. I will make sure the US Is the crypto capital of the world, blah, blah, blah. And obviously he adds, btc, eth, and other valuable cryptocurrencies will be the heart of the reserve. I also love Bitcoin and Ethereum. I don't. Ethereum, I guess.
- [01:17]
Ben Walsh
Ethereum.
- [01:18]
Sam Stein
Ethereum. Okay. So, long story short, Trump's creating a reserve. There are five tokens. Two are well established ones that would be Bitcoin and ether. And then there's the three newer ones, that's xrp, Solana and Cardano. What do you make of this? Like, what is, is this complete corruption? Is this like, smart savvy? What is the deal?
- [01:43]
Ben Walsh
Well, I guess if you're the one doing the corruption, it's savvy, which, I mean, you know, this is, this is when people talk about the significant shift in Silicon Valley elites to Trump in the 2024 election. You know, there are lots of things that get brought up in terms of issues that the big tech companies have with their workforces, regulation, antitrust, et cetera. But really, you know, when you look at the people specifically who are very wealthy, who shifted their support, you know, maybe from kind of on the fence or being kind of Romney Republicans to just being full on hardcore MAGA guys, it's a crypto thing. It's a crypto thing. And what they need, the two kind of things you need to understand about crypto, is that it operates on two fundamental principles. One is money laundering, and the second one. And the second one is the greater fool theory. They always need to find someone else to sell this stuff to. Right, right. So, you know, everyone always talks about, oh, what's the use case for? You know, what's the use case for crypto? The use cases are money laundering, and it goes up in price. Those are the two. Those are the. Those are. That's it.
- [02:58]
Sam Stein
It sounds like Bernie Madoff to me.
- [03:05]
Ben Walsh
Well, it's. It's a. It is a.
- [03:07]
Sam Stein
You cut. You need return on investments consistent to get new investors.
- [03:11]
Ben Walsh
Yeah, yeah. I mean, you need, you need. You need other people to sell it to and, you know, the people who are using it for money laundering. That's not really an expanding market, per se. The crypto's already, you know, tapped that out. All the criminals who want to use Bitcoin and other crypto coins are doing it. And I think that, you know, that's a story that is bigger than people realize and is more important people realize, you know, North Korea is a huge crypto user, for instance. It's a real problem. The greater fool thing is a real problem. If you're an American consumer and you're just like, seeing a crypto ad and you're like, yeah, I'll download the app and do that. Sure.
- [03:52]
Sam Stein
All right. So, Ben, why. What was just. Back up a second.
- [03:55]
Ben Walsh
Yeah.
- [03:56]
Sam Stein
Trump. Trump kind of becomes a crypto evangelist during the course of the campaign, largely because he was getting an incredible amount of financial support from crypto advocates into his campaign and his election bid, and.
- [04:09]
Ben Walsh
Because he launched his own coin and it was successful.
- [04:12]
Sam Stein
Well, that came later. That came for the presidency. But why Tell. Tell us a little bit about the. The idea behind having a strategic reserve. What is the point of a strategic reserve for crypto?
- [04:25]
Ben Walsh
Well, I mean, let's back up. And what's this point of a strategic reserve for any currency? And the point is that the US treasury, which has strategic reserves of foreign currency and gold, may at times need to buy either US Dollars or US Debt in order to influence markets and to back the currency of the United States. So there's a legitimate reason to hold currency reserves. What's the legitimate reason to hold a cryptocurrency reserve? Basically none. Because there's no policy reason why the US should at some point have to sell crypto to buy dollars. Why? It makes no logical sense, and it makes no financial market sense.
- [05:19]
Sam Stein
Now, what Trump and his people will say is, well, this is a burgeoning currency. We Want to make sure there's some stability behind it in case things go, you know, completely bonkers and sideways. We will be able to inject some currency into the marketplace if needed. And beyond that, frankly, we can make some money here for the United States by owning these reserves. Is that legit?
- [05:42]
Ben Walsh
Well, the US Government having sort of a vested interest in a specific asset class that isn't, you know, kind of the broad economic prosperity of the United States is a fairly dangerous road to go down. We've seen in the past, you know, specific asset classes that the US Government has gotten very deeply involved in propping up, and that doesn't end well.
- [06:03]
Sam Stein
Like what?
- [06:04]
Ben Walsh
Well, you know, the US Mortgage bubble is a huge, is a huge ball of wax. But, you know, one of the things that was going on there was that the US Government, through Fannie and Freddie, was participating in the market to a massive degree. And the US Government still participates massively in the mortgage market. But there was a, basically a policy incentive from all branches of government, minus the judiciary, to push mortgages in terms of origination. So that, that was, that was one version. But what's very problematic about this specific one is that, you know, to acquire a crypto reserve, you have to buy the crypto from someone. And so what is effectively happening is that the biggest holders of crypto are looking to unload it onto someone and they've fully saturated basically the market for consumer invest, you know, retail investors, effectively, who want to buy crypto for obvious reasons, because it rises and it crashes and, you know, FTX blows up and where's your money? And who knows, it's not a safer kind of, you know, normal thing to invest in, although it's become normalized. And so they're looking for who to sell it to next. And the US Government is a big buyer.
- [07:33]
Sam Stein
Right? Well, you got to the next question, which is, you know, how much of this is just people, you know, pumping and dumping. Right. Like, so you talked about the Trump meme coin that came out right before he took office. People were shocked to see it. It rose dramatically in value. People jumped in early and got some wealth from it. And since has dissipated in wealth. What is, first of all, are there any rules to prevent this stuff? And secondarily is how much do you, I mean, the accusation for this reserve is that at least the three more volatile currencies are essentially pump and dump schemes in that someone could have gotten a heads up that this was announced was coming. And it looks like this one investor made a significant amount of money and Then just bought it, rode the wave, right?
- [08:22]
Ben Walsh
Yeah. Well, one is that there. No, there are no regulations. That was something that, you know, the Biden administration was pushing to do. Gary Gensler at the SEC got a huge amount of heat and hate from the crypto industry, you know, for his efforts to regulate crypto like a security, which is what it is. It's not. Although they're called currencies, they don't function like a currency. You know, if you don't wake up and, you know, tomorrow the US dollar is worth 45% more, and then the next day it's worth 35% less. That's not how. I mean, imagine buying and selling.
- [08:56]
Sam Stein
People are playing this like it's a. Like it's a gambling game, like it's a market. And they're trying to buy dips and they're trying to get out on top. And that's basically it. It's a casino.
- [09:06]
Ben Walsh
Yeah. And hearing that the casino is going to go around and hoover up a bunch of chips at an inflated price is a really good thing to know. And so to your point, if, you know, hold and then sell. Yeah. If you know that this policy is coming down the pike and specifically that Trump's buy. And you know, the other thing that I think is interesting is that he specifically named the currencies and that I think is sort of the tell that this is all about pumping and dumping.
- [09:40]
Sam Stein
So he could have in theory. He could have in theory just said, look, we're going to create a reserve. I will name a number of different currencies at a later date, or I won't even say it, or we will look and create a commission to make sure that it's all above board. And, you know, but we're going to buy. But he didn't. He went with five very specific names.
- [09:57]
Ben Walsh
Five very specific names. And the only reason to include those five specific names is so that the market knows that those are what they're looking at and that there's going to be, you know, yesterday through, you know, for the couple of hours after the announcement that those currencies spike and so that people can, you know, who know, can offload.
- [10:21]
Sam Stein
Now, tell me, because again, I'm totally new to this, I was reading online, but it's. You can tell who's making trades on these currencies, but that identity can be anonymous. So, like, for instance, someone made something like 20 million off of these trades early yesterday. But we only know the username. We don't know the identity of the user in that we may never know who this person is ever.
- [10:43]
Ben Walsh
Correct. Yeah, correct. I mean, you know, the. And the company with that, that user has made the account with. There are various ways they may never know. I mean, you can run a fully if you want to, you can run a fully anonymized crypto wallet and we will never know. But yes, we do know that someone is making money, but we don't know who.
- [11:10]
Sam Stein
So the big person who's taking it on the chin this morning is David Sachs. He is the crypto czar, for lack of a better title for Trump. He's a Silicon Valley guy who obviously was on the all in podcast crew, big bro fest, finance dudes. And he joined the administration, kind of served as their emissary to Trump, and then joined the Trump administration specifically to help prop up the crypto industry through executive policy.
- [11:38]
Ben Walsh
Right.
- [11:38]
Sam Stein
And he had holdings on some of these cryptocurrencies. Now, David says he sold all this stuff before he went into the administration, so he doesn't have conflict, but he does have ties to investment firms that probably still have holdings here. And some of his all in brethren are, are not happy, honestly. They think this is wildly corrupt. What do you make of all this? Like, I didn't, I didn't expect the all in crew to go at each other like this. So this is kind of curious to me.
- [12:08]
Ben Walsh
Yeah, no, I mean, well, you know, they are correct that it is wildly corrupt. I'd also make a minor point, which is that if David Sachs did sell the entirety of his crypto holdings pre inauguration post Trump victory, that actually would have been a savvy move because bitcoin has actually been taking on the chin post Trump inauguration.
- [12:32]
Sam Stein
It went up the last three days, but it's back down a little bit.
- [12:37]
Ben Walsh
But it's instructive that it's gone down. And they're issuing these statements that are not actual policy that can be implemented. Right now they're just saying it is going to happen. And that again, gets back to the greater fool thing is that they need the line, as they say in crypto world, the line to go up. Right. And if the line is not going up, they need to figure out what to do to make it go up. And so they add an incremental bit of news that says, oh, remember this strategic reserve? It's happening and it's not just happening. Here are the five names that it's happening to and that can help push things up for, you know, a day.
- [13:13]
Sam Stein
Or two or a week or this all falls apart when People basically, like, I've heard this all before. This is the boy who. The reverse of the boy who card. Wolf, I've heard this all before. This is you just, you know, trying to juice the numbers. I'm not going to buy it. You. I'm selling. That's when it all falls apart.
- [13:30]
Ben Walsh
Well, and. Or maybe it all falls apart when there's some actual policy that needs to get included in some, you know, massive appropriations bill in the House or who knows what, and it doesn't get through, or it's in and then it gets stripped out because someone's mad and they need one vote. You know, who knows? But, yeah, they're going to. I think that the end game here is that you either establish the crypto reserve and then it goes up and then it crashes after that, and hopefully you get out then. Or they don't establish crypto reserve and things go sideways.
- [14:08]
Sam Stein
And so now let's. Since you brought us to the legislative element here, I do have a couple questions. One is, and you might not know the answer to this because it's not clear to me either, but, like, where do we get the money to buy the reserves? And how much are we buying? And are the. I mean, assuming the taxpayers are obviously on the hook for this, right, it's our money that funds the government. We're going to buy the reserves, right?
- [14:30]
Ben Walsh
Yeah. I mean, there's economic technicalities there, but, yes, it's U.S. government funds. I don't see how you can do this absent a bit of legislation that says we can do this. You know, you mentioned before we came on about, well, maybe they can just put it in the Federal Reserve and the Federal Reserve will do it. I mean, there's two problems with that. One is that the Federal Reserve would then have to do it and actually take Trump's instruction, which I think they would be very loathe to do. The other kind of option, I mean, related to that, though, is that it's not clear that they're authorized. I mean, the Federal Reserve is an independent central bank created by the US Congress. And it's not clear to me that they can just do something that's outside of their mandate or legislative or the authority that's been granted to them by legislation. The other option would be the US treasury, which is where foreign, foreign currency reserves sit. Again, same problem, not obvious to me that they have the authority to do it.
- [15:35]
Sam Stein
They couldn't just simply transfer reserves already on tap in our currency or foreign currency and just swap them in as Bitcoin. And just make it an even transaction.
- [15:43]
Ben Walsh
I don't think that just pointing at something and calling it a currency means that you can include it in the foreign currency reserves.
- [15:52]
Sam Stein
I mean, we're in uncharted.
- [15:53]
Ben Walsh
What if, I mean, like, let's, let's, I'm just, let's, let's go to the fully absurd example. Right? What if you point at Mar a Lago and you say that's a currency and the US Government is going to buy it from Trump for.
- [16:05]
Sam Stein
We own real estate. The government owns tons of real estate.
- [16:08]
Ben Walsh
Yeah. But it's not, it's not administered by the U.S. treasury. Foreign currency reserves.
- [16:14]
Sam Stein
Yes. I mean, I guess the better analogy would be oil reserves in a way. Right. Like we have also.
- [16:20]
Ben Walsh
But also again, also created by very specific legislation and there's very specific mechanisms through which oil is purchased and released.
- [16:29]
Sam Stein
Ben, I don't know if you sitting down. I want to make sure you're sitting down. But I've noticed that the Trump administration has not been particularly adherent to the strict letter of the law, so.
- [16:41]
Ben Walsh
Right. Yeah.
- [16:43]
Sam Stein
So that they just decide to fucking do it and we, they might decide.
- [16:47]
Ben Walsh
To just do it again. And Yeah, I mean, it's, it's a lawsuit situation and, and then, you know, there you go. But all this stuff, I will say.
- [17:02]
Sam Stein
This, like, look, they've, they don't give a. About some of the stuff, so it is what it is. But boy, like to me on as a political matter, doing this to enrich your billionaire crypto pals at the same time that you're cutting like NIH research in foreign aid is like, you know, it's, that seems like a tough one to, to, to stomach politically. But they, again, they, they have a immaculate ability to spin this stuff into something that their base loves. Although in this case there, you know, the crypto base is not really in loving this one.
- [17:37]
Ben Walsh
Yeah. I mean the thing that's, that's pretty ridiculous about this is that it's not, you know, there's been a lot of speculation of like, well, if crypto goes sideways, does the U.S. government have to bail it out? Right.
- [17:48]
Sam Stein
The FDA like an FDIC.
- [17:50]
Ben Walsh
Right. Which is, you know, again, the, one of the ironies. This whole thing is this is exactly the whole series of mechanisms that crypto was invented to sidestep. Right. Was like government intervention, cronyism.
- [18:01]
Sam Stein
Yeah.
- [18:01]
Ben Walsh
Etc. Etc. But like, the thing that I find kind of shocking about the whole thing, to the extent that you can find anything that they do shocking, is that it's A. It's not even a bailout. It's like a. It's a pre bailout. Right. It's a. It's just in case they're doing, you know, people who invested in crypto are doing fine, especially the big guys who got in early and, you know, know when to buy and sell based on inside information. Because, again, there's no. In this market, there's no regulation, no insider trading, all that. So it's. It's really just a, you know.
- [18:35]
Sam Stein
Well, there is insider trading, but it's not regulated is what you're trying to say.
- [18:39]
Ben Walsh
Well, I'll say insider trading is not illegal.
- [18:41]
Sam Stein
Yes.
- [18:45]
Ben Walsh
So it's a pretty shocking bit of, you know, corruption and kind of quid pro quo for electoral support. And it's, you know, it's remarkable that it's happening and it's just kind of all out there. And I guess part of what makes it, quote, unquote, not a scandal is that it's all in public view, except.
- [19:08]
Sam Stein
It'S not, because we don't know who the hell the traders are. But. Yeah, I get your.
- [19:12]
Ben Walsh
No, we don't.
- [19:13]
Sam Stein
I'm still waiting for my hawk to a coin to materialize here, but it's taking a long time. All right, Ben Walsh, thank you so much, man. I appreciate it. I really do like this stuff. I woke up, I was like, this is. I think I understand it, but I probably don't. And I'm glad to have you here explaining it to us. We'll have you back. As always. Thanks for tuning in to you guys. Appreciate it. Subscribe to the feed where you can get all your free crypto advice, among other things. Take care.
- [19:37]
Ben Walsh
Thank you, Sam.