Podcast Summary: "The Compound and Friends" – Episode titled "2025 Crypto Predictions with Pantera’s Franklin Bi, the AI Crash with Alex Kantrowitz"

Release Date: January 28, 2025

In this dynamic episode of "The Compound and Friends," hosts Downtown Josh Brown and Michael Batnick delve into two pivotal topics shaping the financial and technological landscapes: the future of cryptocurrency with Franklin Bi from Pantera Capital and the recent upheaval in the AI sector with Alex Kantrowitz. Below is a detailed, structured summary capturing the essence of their discussions, enriched with notable quotes and timestamps for key insights.

1. 2025 Crypto Predictions with Franklin Bi (00:03:26 – 00:18:32)

Guest Introduction: Franklin Bi, a partner at Pantera Capital, brings over a decade of expertise in cryptocurrency investing. Pantera Capital, a pioneering blockchain-focused investment firm, oversees assets reportedly valued at $5.4 billion.

a. Trump’s Executive Order on Crypto (00:03:26 – 00:08:41): President Donald Trump’s executive order, titled “Strengthening American Leadership in Digital Financial Technology,” marks a significant regulatory shift for the crypto industry.

• Key Provisions:

  • Support for Digital Assets: Emphasizes the role of digital assets and blockchain technology in innovation and economic growth.
  • Prohibition of CBDCs: Explicitly prohibits the issuance of a central bank digital currency (CBDC), addressing concerns over government overreach and maintaining the separation between public and commercial financial sectors.

  Franklin Bi [04:11]: “It feels really surreal… Blockchain and crypto technology where there was just this perception that it was only being used for criminal purposes…”

  Josh Brown [07:39]: “…the only thing it really prohibits is the issuance of a central bank digital currency…”

b. Regulatory Evolution and Industry Sentiment (00:08:41 – 00:18:32): Franklin outlines the transformative impact of the executive order, signaling a transition from skepticism to proactive support within regulatory frameworks.

• Shift from JPMorgan’s Stance: Franklin recounts his experience at JPMorgan, highlighting internal support for blockchain despite external skepticism from leadership like Jamie Dimon.

  Franklin Bi [06:31]: “It's sort of intentional schizophrenia… we've had to have people who think differently.”

• Pantera’s 2025 Predictions: Franklin presents a three-pronged approach to mainstream crypto adoption, focusing on Gateways, Developers, and Applications.

  i. Gateways: Bridging Traditional Finance and Crypto (00:19:50 – 00:28:40)

  • Integration with Legacy Systems: Establishing seamless connections between traditional financial institutions and blockchain infrastructure.

  • Tokenization of Assets: Pioneering efforts to tokenize U.S. Treasuries and other securities, exemplified by companies like Ondo.

    Franklin Bi [21:22]: “The real power and the real inflection point comes from the traditional system bringing over 1,000 trillion dollars of financial assets.”

  ii. Developers: Expanding the Talent Pool (00:30:20 – 00:37:27)

  • Scaling Developer Base: Encouraging a massive increase in blockchain developers to 10 million to foster innovation.

  • No-Code Solutions: Promoting tools that abstract complex blockchain technology, making development accessible to non-experts.

    Franklin Bi [36:12]: “We need to abstract the underlying complex technology away so that we can unleash the creativity from folks who aren't as close to the technology's backend.”

  iii. Applications: Driving Mainstream Usage (00:37:27 – 00:45:56)

  • Beyond Wall Street: Transitioning crypto applications from investment-centric to everyday use cases, particularly in gaming and real-world asset management.

  • Real-World Assets (RWAs): Predicting that RWAs will constitute 30% of on-chain value, enhancing global capital markets and liquidity.

    Franklin Bi [45:14]: “Real world assets becoming tokenized… this is just a set of dominoes that's starting to fall.”

c. Regulatory Clarity and Economic Impact: Franklin underscores the importance of clear regulations that support innovation while mitigating risks of bad actors, ensuring that the commercial and public sectors collaborate effectively.

Franklin Bi [10:25]: “Having banks and having intermediaries that actually serve as that distribution layer can actually be a positive for the economy.”

2. The AI Crash with Alex Kantrowitz (00:52:30 – 00:84:43)

Guest Introduction: Alex Kantrowitz, an AI expert and technology analyst, examines the recent turmoil in the AI sector, particularly focusing on the release of the Deepseq R1 language model and its market repercussions.

a. Deepseq R1 Model and Market Disruption (00:52:35 – 00:60:35): Deepseq R1 emerges as a groundbreaking LLM, rivaling top models like those from Anthropic but at a fraction of the cost.

• Model Performance and Accessibility:

  • Open-Source Advantage: Deepseq R1 is open-source, allowing developers to customize and deploy it freely, fostering rapid innovation and widespread adoption.

  • Cost Efficiency: Operates at approximately 3-5% of the cost of leading models from OpenAI, making advanced AI more accessible.

    Alex Kantrowitz [57:03]: “…if it was so easy to do, why hasn't OpenAI done it?”

• Market Reaction:

  • Nvidia's Massive Decline: The AI market disruption led to an unprecedented $500 billion loss in Nvidia’s market cap in a single day, showcasing investor panic and uncertainty regarding the AI hardware demand.

    Michael Batnick [76:35]: “Nvidia had the largest market cap wipeout of all time for any stock… down 17% on the largest, one of the largest companies.”

b. Criticisms and Concerns Surrounding Deepseq (00:60:35 – 00:74:13): Deepseq faced scrutiny over its training data and operational transparency, raising questions about its integrity and performance beyond standardized tests.

• Training Authenticity:

  • Non-Native Responses: Instances where Deepseq accurately responded to historically sensitive questions (e.g., about Mao Zedong) raised doubts about claimed geographic and ideological training intentions.

    Josh Brown [62:08]: “…version three of Deep Seat actually answers by saying it is ChatGPT.”

• Model’s Integrity:

  • Rebranding Issues: Deepseq’s tendency to identify itself as ChatGPT in certain contexts undermines trust and highlights potential method irregularities.

    Alex Kantrowitz [63:01]: “Perplexity took deep seq, R1, downloaded it, customized it to the point where it might censor on the Deep SEQ website. It won't censor on Perplexity now.”

c. Implications for AI Industry Leaders (00:74:13 – 00:84:43): The emergence of Deepseq R1 poses a significant threat to established AI entities like OpenAI and Anthropic, potentially reshaping competitive dynamics and market valuations.

• Competitive Pressure:

  • Open-Source Momentum: The rapid replication and cost-effectiveness of Deepseq intensify competition, compelling proprietary model developers to innovate or face obsolescence.

    Alex Kantrowitz [75:44]: “You're OpenAI, you spend, I don't know, 2 billion, 3 billion to train a new model. And did Deep seek just find out the architecture to then go kind of crib notes from your model and then run it cheaper and more efficiently and everybody is then going to go replace it with what deepseek has built?”

• Market Sentiment:

  • Investor Confidence: The dramatic stock movements reflect broader anxiety about AI models’ sustainability and the underlying hardware sector’s future.

    Alex Kantrowitz [82:30]: “They've created intelligence that is smart and cheaper to use than anything else and that you can, you can sort of negate everything that they've done to get there.”

d. Future Outlook: Alex predicts ongoing volatility in the AI sector, driven by open-source innovations and the challenge they pose to established players. He emphasizes the necessity for continued application development to harness AI’s full potential beyond mere infrastructure expansion.

Alex Kantrowitz [83:17]: “We need to see the applications. The applications are the most important part here.”

3. Market Reactions and Broader Financial Insights (00:84:43 – End)

a. Stock Market Volatility: The episode transitions to a discussion on the immediate impact of Deepseq’s release on major tech stocks, particularly Nvidia, Apple, Microsoft, and others involved in AI infrastructure.

• Nvidia’s Staggering Drop:

  • Market Cap Loss: Nvidia experienced an unprecedented 17% drop, equating to $589 billion, marking it as the largest single-day loss in stock history.

    Josh Brown [76:35]: “...the largest stock in the country falling 17%. The second large is going up 3%.”

• Apple and Microsoft’s Resilience:

  • Apple: Despite initial skepticism, Apple stock showed resilience and minor gains, attributed to strategic distancing from proprietary AI investments.

    Josh Brown [86:02]: “Apple started rallying immediately because people like, oh, wait a minute now, who gives a shit who owns the LLM?”

  • Microsoft: Demonstrated a strong rebound, suggesting investor confidence in its diversified AI strategy and existing investments with OpenAI.

b. Sector Performance and Investor Behavior:

• Utilities and Infrastructure Stocks:

  • Volatility in Utilities: Companies like Vistra and Vertiv, integral to AI data center operations, saw significant stock fluctuations, reflecting concerns over future power demands amidst evolving AI efficiencies.

    Michael Batnick [88:33]: “...the power usage story though, is now under the microscope. Do we really need as much of a build out of a power infrastructure build out if we found unlocked a new level of efficiency.”

• Retail Investor Influence:

  • Leveraged ETFs and Single-Stock Options: The episode highlights how leveraged financial instruments exacerbated Nvidia’s stock decline, illustrating a broader trend of speculative trading driven by retail investors.

    Michael Batnick [76:35]: “...Granite shares two time long Nvidia etf… fell 34% yesterday.”

c. Broader Financial Insights:

• Market Concentration: A Goldman Sachs chart discussed in the episode indicates that high concentration within the S&P 500 doesn’t necessarily predict future returns, challenging conventional investment wisdom.

  Michael Batnick [93:00]: “...the level of concentration has no bearing on returns over the next 12 months.”

• Long-Shot Bets and Risk Behavior:

  • Parlays and Multi-Leg Bets: Drawing parallels between sports betting and stock market speculation, the hosts discuss the increasing appetite for high-risk investments among younger demographics, driven by platforms like Robinhood.

    Josh Brown [97:04]: “...this is culture. This is a cultural phenomenon. I believe it's being driven predominantly by Gen Z.”

Notable Quotes:

1. Franklin Bi on Regulatory Shifts:

   “Having banks and having intermediaries that actually serve as that distribution layer can actually be a positive for the economy.” [10:25]

2. Franklin Bi on Tokenization and Global Markets:

   “Real world assets becoming tokenized… this is just a set of dominoes that's starting to fall.” [45:14]

3. Alex Kantrowitz on Deepseq’s Impact:

   “They've created intelligence that is smart and cheaper to use than anything else and that you can, you can sort of negate everything that they've done to get there.” [82:30]

4. Josh Brown on the Importance of Applications in AI:

   “We need to see the applications. The applications are the most important part here.” [83:17]

Conclusion:

This episode of "The Compound and Friends" provides a comprehensive exploration of the converging trajectories of cryptocurrency regulation and AI-driven market volatility. Franklin Bi offers a bullish outlook on crypto’s integration with traditional finance, emphasizing the critical roles of gateways, developer expansion, and mainstream applications. Conversely, Alex Kantrowitz presents a cautionary perspective on the AI sector’s rapid developments, highlighting the destabilizing effects of open-source innovations like Deepseq R1 on established tech giants such as Nvidia. Together, these discussions underscore the intricate interplay between regulatory frameworks, technological advancements, and market dynamics, offering listeners a nuanced understanding of the evolving financial ecosystem.

For those interested in further insights, Franklin Bi can be followed on Twitter @FranklinB and through his newsletter Chainbrain available at Pantera Capital's Insights section. Alex Kantrowitz's analyses can be accessed via his Big Technology Podcast on major podcast platforms and his YouTube channel.

This summary encapsulates the key discussions and insights from the podcast episode, structured for clarity and engagement, ensuring comprehensiveness for those who haven't tuned in.