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The Wolf Of All Streets
Bitcoin As A Reserve Asset? Central Banks Are Waking Up!
00:29:18
Bitcoin As A Reserve Asset? Central Banks Are Waking Up!
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- [00:01]
Scott Melker
The momentum behind bitcoin becoming a reserve asset is only increasing, especially in the Czech Republic. Obviously we've talked the strategic bitcoin reserve in the United States to death, but that still is in the process of potentially happening. That's just one of many huge news stories driving the cryptocurrency market this week. Luckily, I have NLW here to unpack it all on the Friday 5. Let's go. Let's do. Let's do. What is up everybody? I'm Scott Melker, also known as the Wolf of all streets. Before we get started, please subscribe to the channel and hit that like button. A lot happening in the news this week. Without further ado, nlw. Good morning, sir.
- [00:57]
NLW
What's happening?
- [00:58]
Scott Melker
I can tell you that the other day I was starting to feel like there was never going to be an alt season again. It was over. I was starting to feel overwhelmed with emotions. Not really, but the thoughts were creeping in, talking to my team and then I said, this has got to be the bottom.
- [01:14]
NLW
Yeah.
- [01:15]
Scott Melker
And since then, price have bounced lovely. We have Bitcoin at $104,600, which, the fact that we have this overwhelming bearishness or questions about what's happening with the market when price is a few percent off the time high, I guess just shows you how impatient people are, but how badly altcoins have underperformed and how overexposed people likely are to them.
- [01:37]
NLW
Yeah, I think, I think you're right. I think that the, that we've got kind of a more complex, you know, thumbs up, thumbs down kind of scenario here where one, I think you're right, there's probably a mismatch between where people have exposure and what's doing well that's causing some discord. But then two, I think in general people are kind of unmoored just because this cycle doesn't isn't following any of the patterns we're used to like, especially people who've been around a couple cycles. It always feels like it's breaking the cycle pattern and then it's actually just the cycle pattern, whereas this one really is kind of its own thing. And we don't know how much of that is related to unique events going on right now versus this is setting up a new cycle versus, you know, who the hell knows. So even if it's not bad, it is destabilizing. And I think that that's part of kind of what a lot of folks are feeling.
- [02:22]
Scott Melker
I believe the memes.
- [02:24]
NLW
No, it's not their fault.
- [02:27]
Scott Melker
I'm sure they're very kind and polite memes, but that's clearly where all the interest has been. I think ETH is going to blast off from here though. That's a topic for another day, but a topic for today. No more debanking. Fed chair says US banks perfectly able to serve crypto customers. I've got the clip right here. Quickly for us to watch. Let's do it.
- [02:48]
Jerome Powell
With Bitcoin really is to look at, with crypto really is to look at the banks and, and you know, we, we think it's, you know, banks are perfectly able to serve crypto customers as long as they understand and can manage the risks. And it's safe, safe and sound, as many of our good number of our banks that we regulate and supervise do that, you know, the threshold has been a little higher for banks engaging in.
- [03:16]
Scott Melker
So first of all, this is a wholesale reversal from everything we saw in the previous administration. And he says it so casually, as if it's always been this way. Yeah, but a lot of this obviously has to do with Trump being elected. I think the overturn of SAB121. But pretending that there's a ton of banks that already do this and it's totally fine just seems like a bold faced lie.
- [03:37]
NLW
Yeah, but whatever. It's kind of like it's a lie that we're, we know. But what. Yeah, I agree. This is a radical normalization. You know, we skip over the part where we have to talk about what we used to do, just pretend it's always been like this and everyone's happy.
- [03:53]
Scott Melker
So what does this mean in your opinion, for the market? Right. We had this AB121 being overturned, obviously know that now banks, if they choose to can custody Bitcoin and other crypto assets without putting it as a liability on their balance sheet. This also means that a lot of ETF issuers could theoretically move custody away from Coinbase and to some of the more trusted financial institutions like bank of New York, Mellon, State Street, Goldman, any of the huge custodians that we have in the United States. But is this sort of an all systems go signal that if banks want to do it, they can, which means we can get the full suite of financial services that exist for every other asset on Bitcoin.
- [04:38]
NLW
So let me explain it and obviously I'm completely making this up, but kind of my, my read on how this has progressed. There was a period for a little while there pre Luna, pre ftx where banks had, you know, their little skunk works with, you know, 10, 15, 20, maybe 50 people working on what their crypto products were going to be. Then we get operation choke point 2.0 and that goes down to somewhere between zero and call it five. Right? Zero for most. And then, you know, a couple loan holdouts that are just keeping the flame, you know, keeping the candle lit for a little while to see what happens. As it looks like Trump's going to get elected and things start going, maybe those two or three become, you know, closer to five, 10, you know, we start to brewing, start to bring those plans back, pull out those old Google documents, start to see what was on that list. Trump gets elected. All of a sudden they're actually making plans. You're getting some dates around those plans, trying to prioritize which they are. And then every single thing from then is sort of just a, you know, locking in those dates, moving those dates up. Right. So SAB121 repealed. Okay. That's the thing to move forward. This, you know, Powell confirming move forward even faster. So I don't think any one of these things. I think the catalytic event is the shift in administration and everything else has been sort of just pushing, pushing that, you know, forward. So that, that's, that's my take. I, I think that it's basically my guess is that I don't think that anyone who hadn't been working towards this stuff is going to watch that and now like finally go. I think that a lot of people had been sort of like, you know, everything just keeps adding up to a stronger and stronger signal to, to be moving.
- [06:04]
Scott Melker
I wonder how quickly this will actually happen. Right? I mean, at what point are people just going to have Bitcoin or ETFs in their schwab portfolio and it just becomes another part of their portfolio that they can take loans against or use as margin for trading or those assets will count for getting a mortgage. Right. It's just, could be a different world.
- [06:23]
NLW
Yeah, I think that the, the big banks definitely feel in general a little bit more immune to kind of FOMO and game theory as opposed to some other industries. Like, I don't think that you're going to see kind a race to be first because I think that most of those banks are, they're thinking about, you know, retaining and increasing their relationships with their existing customers versus sort of going and trying to peel off. Now that doesn't mean that some banks won't be more aggressive, but I feel like the, to the extent that you want it to be aggressive, you were already working on things you Know, I think when it comes to, you know, the, the, the mass normalization, it's sort of just, you know, slow and steady and on its own pace.
- [07:01]
Scott Melker
Right. So I think we get some early adopters, then the sort of mid tier and then maybe 10 years down the road, literally every bank is forced to do it because it's just another asset like your stock portfolio or anything else. Either way, man, seeing Jerome Powell just so dismissively answer that as if it was the default setting was just pretty surreal and incredible and kind of have to pinch yourself.
- [07:26]
NLW
Yeah, it's nice to have the wild new statement be totally in our favor.
- [07:33]
Scott Melker
Yeah. So next story, Robinhood CEO calls for us to embrace tokenization. I would say we can add Larry Fink into this as well, because if you saw him at Davos last week, he basically said, we want to be at the forefront of tokenizing stocks and bonds and kind of pushing the SEC to rapidly approve asset tokenization for those who are paying attention. Even before the Bitcoin Spot ETF, BlackRock writes a yearly report, basically summary, and everybody focused on the bitcoin part of it in March of 2024. But actually there was a larger section on tokenizing everything and BlackRock's deep belief in that. So this isn't a new sentiment from Larry Fink or from institutions, but we're really starting to see momentum. When you see Vlad at Robinhood, who controls 24 million, I believe, retail subscribers and users, it's time to start paying attention that this trend could really come, right. Talking about tokenizing private equity, stocks, bonds, effectively everything. I mean, did you give this a read and what were your thoughts?
- [08:35]
NLW
Yeah, so it's an aggressive, it's an aggressive positioning, right? I mean, this is, this is not wading a toe into a debate. This is a full throated, total reevaluation, rethinking of, of, you know, everything from accredited investor rules to, you know, financial access and beyond. I think to your point with Fink, and we've talked about this before, one of the, one of the most wonderful parts about, you know, papillary coming into this space is the utter obliteration of the bitcoin versus blockchain narrative that, that, that he did. If you remember the, you know, right after they announced the bitcoin spot etf, you know, the, the, the Sorkin, the Sorkins of the world, you know, on, on mainstream media, kept trying to pin him down and get him to sort of like, you know, reiterate some old blockchain, you know, Jamie Dimon style bitcoin blockchain, not bitcoin narrative. And he basically just said both and thank you. And you know, I think that that's sort of further, further development of that. You know, the interesting thing about the, the this is, this is 100 inevitable. It just is in the sense that it's just the, the, the so many of the constraints of the way that we trade and our markets right now are techno technology mediated. Right? We are, we are operating on the basis of old patterns where the delimiting factor was technology. It has now been for years, no longer the factor. And so we are now in the weird period where technology has gotten to a point where some totally new, much more efficient market system is, is possible and we're just not doing it. And that's a friction and a disequilibrium that can't last long in this sort of market system. Now the exact parameters of how that shakes out, how that rolls out, I think are big questions. Right. You know, there I'm sort of, you know, firmly in principle against accredited investor rules. I think that any politicians who want to try to resuscitate, you know, the American life dream, which is the American dream, which is on life support, starting by, you know, breaking down barriers to what people have access to rather than them having to sort of like nihilistically hide it and you know, and meme coin their faces off is probably a good idea. But there are obviously a lot of questions. There is going to need to be a totally new regulatory regime where, you know, a reconsideration of what investor protections, I hate that term, but you know, what disclosures look like when it's appropriate for tokenized stocks to come in, what the lines, you know, we already have this weird blurry space between private markets and public markets. You know, the series EFGs that happen now, like there's, there's going to have to be a whole new consideration for how this all plays out. But I think that you're getting a louder and louder chorus and you already have the infrastructure making this possible. So it's just a matter of time. I don't think it's just on the horizon and I think that regulators are going to really slow walk it, but it's coming.
- [11:31]
Scott Melker
In my opinion, the reason it hasn't happened yet is because of all the incumbents that obviously want to still continue to be toll collectors in the middle of all of these transactions. So I lean towards a more skeptical view, which is that we will adopt the technology, but they're waiting to have enough time, as you said, to regulate it and to figure out how to get their piece right. So I don't see a world where you and I decide that we want to trade Tesla stock in size and just do that back and forth. Maybe it will be tokenized, but they're going to find a way to make sure that it's cleared through some clearinghouse or third party to confirm those trades, make sure nobody gets scammed and that it's real. I mean, listen, it's a scary world. It's amazing, but it's a scary world where everybody can sell everything to anyone because, you know, it's going to just be largely scams.
- [12:20]
NLW
Yeah, I mean, listen, we. How to deal with scams is a much bigger question. And you know, the, the appropriate ways. I think that the 1, 1 sort of binary that I would reject or that I would encourage policymakers to reject because I don't think it's really a problem with the people who are listening to this particular show. There are lots and lots of ways to deal with scams that don't involve diminishing consumer choice. We have the bluntest hammer possible when we handle scams by just disallowing people to engage with an entire category of things. That is obviously not the way to treat adults. Scams are going to get bigger, they're going to get harder to identify, they're going to get worse. The era of AI is going to make scams much more difficult. We're already drowning in, you know, text message scams, phone calls, I mean, you name it, there's scams everywhere. So we do have a scam problem. But again, just limiting one group's access to a category of investment is probably not the, not, not not only not the right answer. It's, you know, it's insufficient to the actual problem. If you are trying to solve that problem.
- [13:26]
Scott Melker
I 100% agree. I just don't see them letting go so easily.
- [13:31]
NLW
Oh no. Is the main point 100% agree on that front?
- [13:35]
Scott Melker
Yeah. So then obviously we have title here. Bitcoin is a reserve asset. Central banks are waking up. This is not theoretical anymore. Anyone who is following this story, obviously this week check central bank chief moles bitcoin as possible reserve asset Notable because this guy is the governor of the central bank. This is not somebody throwing a dart and hoping for the best. Of course you can read if you choose to his Twitter thread about it. But then the finance chief immediately warned that this might be a bad idea. No surprises. But as an update, it did Basically pass, at least for them to evaluate it as a reserve in bitcoin, which is what he was asking for. So the central bank of the Czech Republic now taking a very serious look at this. It actually triggered a lot of sort of fear, I would say, in the United States. Lummis very quickly quoted Ricky Bobby and said, if you ain't first, you're last. The United States needs to start taking a very serious look at this and to start accelerating. I mean the game theory is here, this is now arms race for bitcoin as a strategic reserve.
- [14:40]
NLW
Yeah, it's interesting. It's going to be interesting to see whether this plays out as, you know, an avalanche where a couple banks, central banks rolling down the hill charges everyone up. I think it really depends on which central banks there are. I'm not surprised that Lummis is using this as a, as an example to sort of increase her arguments for, for why we need to be on this train. One of the ways that this could play out, which would be wildly unsatisfying from a media perspective, but probably fairly realistic for the real world, is we just have so much of this discussion over the next few years that by the time it actually happens, everyone has already totally assumed and almost priced in that it's going to happen. That's kind of my base scenario, right, that like this conversation, unless we have a surprise shock rush in from the U.S. or you know, from another big central bank, you know, I'm talking about over the next year where it's A major, major G7 type power that, you know, makes a meaningful push in. My guess is that by the time people start doing it, they're all just going to assume that they're going to do it. I don't even think it's that far off as an assumption at this point, you know, so it's going to be pretty, pretty interesting to see how it plays out again. I think that I would expect to see the people who want there to be game theory around it really use every little indicator we have to push more aggressively for the US to, to jump in. I mean, obviously we are the starting gun in a way that no one else could be, but it'll be interesting to see.
- [16:10]
Scott Melker
She didn't like it. ACB's Lagarde slaps down check proposal for bitcoin reserves. They are part of the European Union but they don't use the Euro. So there is some nuance there. But she. If you watch the speech, which is just a miserable watch that I highly recommend, I mean she basically snickered and couldn't hold it in when she was talking about this and talked about how her son, against her better judgment and advice, lost 60% of his money investing in crypto. She's always hated it. She's hated as a central banker, she's hated it as an individual. And I don't think they're going to take her opinion. But still notable that the head of the European central bank is very outwardly against adding Bitcoin to the balance sheet.
- [16:59]
NLW
At some point over the last 10 years, Europe stood looking towards the future and decided to turn 180 degrees around and walk the other direction. And the more that this happens, the less that anyone gives even one iota of a fart about what they think about things. It is just unfathomable how little resonance, you know, these folks have, especially because it's like the same people who have been in power in these institutions for 75 years. You know, there's the absolute unit, you know, Augustin Carstens, there's, you know, Christine, like just no one cares.
- [17:36]
Scott Melker
And Bond villains.
- [17:38]
NLW
Yeah, it's actually like unbelievable how little influence these people who are theoretically in extremely influential positions have. So I don't know, whatever I roll from the American crowd, sorry to my European friends, did.
- [17:53]
Scott Melker
We're Team America over here. But either way, listen, just as an honorable mention, we're obviously talking about Bitcoin on the balance sheet of nations as a strategic reserve asset. I can't even keep up with how many states are now talking about it here in our country and how many are actually advancing the ball. I believe Utah advanced the ball. Arizona, these things are actually leaving committee and heading to real votes. Texas obviously has their own proposal. So these things are going to happen whether on the nation, state level or state level. I mean, you and. And just as this was the honorable mention, I mean, MicroStrategy announces pricing of its Strike Preferred stock offering and upsizes deal from 250 to 584. We don't need to dig into it. I've done it before. But I do want to highlight the upsize as the deal from 250 to 584. Meaning that there is still endless demand for everything Sailor has to throw in the market.
- [18:44]
NLW
You know, the, the scary thing for Sailor now, you know where he appears this week, right?
- [18:49]
Scott Melker
Cover of Forbes, right alongside was DO Kwon and SBF and Elizabeth Thanos.
- [18:55]
NLW
And yeah, this is, this is. It's the Jim Cramer of magazine covers, man. It is. It's dangerous. I mean, but look but it's not.
- [19:02]
Scott Melker
Just like market tops. It's like you end up in jail.
- [19:05]
NLW
Yeah, exactly. Yeah. Someone's, someone's got to break the pattern, you know, so here's hoping that sailor could do it. But you know, it's. They even, they even. The problem is that they style them the same way. It's like they want it to be like this, you know what I mean? Like, it's not like, you know, most magazine covers, I don't know, there's a variety of ways that people appear on the COVID Not with Forbes, with Forbes. There's a very specific face on, you know, here up kind of a thing. Never smiling. You know, it's, it's the mug shot before the mug shot.
- [19:37]
Scott Melker
Ah, it's not happening this time. We ain't going out like that. I mean, the other big story obviously this week, since I can't even stomach him being on that cover right now and don't want to talk about it anymore, is obviously the AI arms race. China's Deep Seq. AI is good for bitcoin, says Standard Chartered. Just to give the good. Quick, quick and dirty here, obviously Deep Seq was launched somehow over the weekend, everybody found out that it was much faster and cheaper than OpenAI. It dumped American markets, including Bitcoin, for about a few hours. And then we got into the obvious, oh, they stole it all and they didn't actually do this. And now we're just going to try to figure it out for a while. Right. But apparently OpenAI has actual evidence that its models help train China's Deep Seq. Apparently they had done this with inferior chips. They didn't have Nvidia chips. Now we think that maybe some companies in Singapore slinging them black market Nvidia chips. There's going to be a lot to unpack here. But at the end of the day, the point of that first article is that faster, cheaper technology is probably good.
- [20:41]
NLW
Yeah, the, there's, from the beginning of this story, there's never been a question, if you zoom out to just from a consumer perspective, is it a good or a bad thing? It's an unmitigatedly good thing. I think there's a reasonable question around how much cheaper they actually offering. You know, one of the, one of the big sort of conspiracy theory pieces of this that I think is worth examining is how, how, how much is the price reduction artificial because it's being subsidized from somewhere else because that's going to have a big impact on how much it drags down prices from the American model companies. But look, in a lot of ways this just accelerates what was inevitable, which is, you know, the cost of intelligence coming down. It's already down a thousand X over the last two years. It's going to just keep coming down from here and it's just going to keep getting more powerful. So you know, from a consumer perspective, cheaper intelligence is, is basically nothing but good. The interesting thing from a market reaction perspective is the, the. So initially everything sold off Bitcoin did what it always did, which is like. Because it's the only thing that's trading at the time, you know, all the time. As the market starts to digest news, it becomes a leading indicator. And sure enough, it did that again on Sunday night leading into, you know, the market route on Monday. Nvidia lost, you know, the, the market cap of Mexico in a single day. Biggest loss ever on the stock market. Now I think that my, my general fact pattern over the last couple years is that ChatGPT comes out the same time that Powell starts the hiking cycle. And for a very long period there during the hiking cycle, it was AI enthusiasm versus macro. Right? That was the, that was the battle in terms of attitudes and stock. And AI did a lot of heavy lifting for a long period of time. That entire interval after the, the, the, the market, you know, the interest rates, we moved to the, the, the cutting cycle, AI didn't have to do as much. And Nvidia was, you know, people keep looking for reasons to, to reprice Nvidia, but it just keeps doing so well that every time they do it's one of these narrative things and then it just goes right back up. I think this is that again a little bit. But I think when it comes to Bitcoin, what's good about this is, is this is a very specific. Even if you are an Nvidia Bear because of this, even if you think that this, you know, the, the cost of compute, the, the usage of this compute isn't going to rise as fast as the cost comes down. And so you're bearish on Nvidia and chips in general, or at least chips, you know, from, from Nvidia Bitcoin. After the very quick correlation decoupled, right. And people stopped. Yeah, people stopped. They realized that this was a specific, to a specific type of, of stock. And I actually think that that's really good from a, an understanding perspective where Bitcoin is not, not just a sort of high beta stock. It is its own thing. And it's almost better that it initially kind of tried to be that old modality of, you know, high beta stock. And then people are like, wait a second, that's stupid. And move, moved right back.
- [23:35]
Scott Melker
We've seen a few examples of it, right? I mean, where the, we kind of have these market events, these mini black swans and bitcoin. Every single time. If you look at it on the chart, just paints this huge wick down and a bounce, right. It happened right under 90, closed the day right back where it started in the mid-90s. It just happened the other day when it went to 97, closed right back up at 104 or 105 on the Nvidia. And it happens fast. So very clearly right now there's exceptional demand for bitcoin outside of the other markets, to your point. And they don't wait long to buy the dip. You see it easy. If you want to be a participant in buying that dip, it might only last for a few hours.
- [24:12]
NLW
Yep. I think that the, the megatrend that we're in now isn't just institutionalization, which is obviously the megatrend we've been in for some time. It's recalibrating and catching up on exposure. And I think to your point, catching up on exposure is, it's a long term, you know, rotation sort of strategy. It's not a short term. We have to get as much in. It's like, you know, we're, we're moving to a world where you're going to have two then three, then 5% in Bitcoin and you have a mandate to do that over some period of time. And so you're right, each time it dips a little bit, you're programmed to go to scoop a little bit up. Right. And kind of move that forward. So I think that we're going to see a lot more of that throughout this year as I think it's going to take a very long time for organizations en masse to get to their base level of bitcoin exposure in this new paradigm that we live in now.
- [25:05]
Scott Melker
100% agree. I'll tell you who probably wasn't buying the dip this week when that happened. And that's this lovely woman here, Elizabeth Warren, pressing Lutnik on crypto firm Loved by Outlaws. What a what, what a title from Bloomberg here, right? Loved by tether. Loved by Outlaws. I mean, they just, you know, I would say actually 97% of outlaws that were surveyed said that they love tether in the outlaw survey, that that was nationally distributed. But she's, you know, listen, she's been marginalized, but damn if she's not on TV a lot screaming her face off. RFK screaming her face off. Lutnick screaming her face off. But basically saying, hey, Lutnick, your firm, Cantor Fitzgerald, which says you have all of the tether reserves and you're now an investor in, is backing, you know, North Korean criminals. It's the same old. It's just amazing that we're still doing this. I guess that's it. Yeah.
- [26:00]
NLW
I, I gotta tell you, for whoever is listening from the Warren camp, if you're gonna go with the crypto is for criminals narrative, do not use the single coolest word we've ever invented to describe criminals. Wyatt Earp, like, you know, like Robin Hood, Buffalo Bill Hickok, like, come on, these people are. Those are outlaws. Like, why would you call them outlaws? You don't want to call them outlaws. Outlaws are awesome. Call them, I don't know, dirty, dirty criminals or something. Just terrible branding. I mean, but you know what? She's, she's really, she's reeling from the apex of her power, you know, diminishing slowly over time until she's reduced to just. When she's, when she's finally, you know, off into her journey in the next life, she'll just resurface as the occasional ghostly open letter about some financial issue, and that'll be her legacy.
- [26:52]
Scott Melker
I hate to say this out loud, but in a conversation I had with John Deaton yesterday, he did point out, which I've said many times, listen, most, most parties that have a sweeping victory don't continue to have that sweeping victory at the midterms. Right. So there's a very, very good chance that the Senate could swing back blue in two years during the midterms. She would be the chair of the Senate Finance Committee again.
- [27:17]
NLW
Yeah. Yeah, we'll see. It's too early to start, you know, our off topic political chat. I think for, for this. But God, I suppose that'll be good for our frothy, you know, conversations.
- [27:30]
Scott Melker
We'll have so much to talk about. We'll have to look at her face. Listen, that was kind of it, but I just want to. Since we're talking about stable coins Market surged past 200 billion signaling potential crypto price HUD swing. Of course, every, every time we print dollars, that means people are buying Bitcoin and Tether bringing its 140 billion USDT stablecoin to Bitcoin and Lightning Networks. Lightning Network still exists. That's the news. Good job.
- [27:55]
NLW
Rocking and rolling, man. Long playing a long game.
- [27:58]
Scott Melker
Stablecoin adoption happening and stable coins coming to Bitcoin. I mean, that feels like a piece of news. I have a feeling there won't be mass adoption of that too quickly, but I think it's a very cool story.
- [28:09]
NLW
Absolutely. That the whole point with all these things is choice and availability and each little nugget of infrastructure coming together to form a. An unassailable hole. So all good things.
- [28:21]
Scott Melker
Do you think legarde and Warren are friends?
- [28:25]
NLW
I don't know that they have the capacity to be friends with anyone anymore. I think they're just friends. Yeah. Every. Every night they go home and. And start jotting down on a manual notebook what they're going to be mad about next.
- [28:38]
Scott Melker
It's like Buscemi and Billy Madison, you know, exactly. The lipstick crosses off the name from the death list. All right, guys, that's all we got for you today. Another great episode episode of the Friday 5. We'll be back with you next week. Give NLW a follow. Obviously, check out the breakdown, all of his channels. And until next week, thank you, guys. Thanks, man.
- [28:58]
NLW
Later.