B (3:46)

All right, welcome back everybody. I think we have to start with the Feb.5 market crash today and I'm going to run through a brief of many of the things that have been talked about here and then we're going to have a wandering discussion down many of these paths, knowing us. But to frame the discussion, last week's sell off saw bitcoin briefly break towards 60k, one of the worst cross asset drawdowns in years. This came after drawdowns in gold, in silver and we're going to talk about some of the stock market. The moves coincided across all of these things. Was this global de risking or crypto specific stress? So one rumor in the market is that the nexus of the problem lies with a large IBIT holder. It's the number one venue for bitcoin options trading. So one guess is that a hedge fund trading IBIT options as the culprits. Parker White said after talking to multiple folks, I am much more convinced now that a Hong Kong based fund who is a large holder of IBIT blew up. Moving from hypothesis to strong theory at this point there are some others who rejected it. Dovey1Yevgeny, citing no abnormal fund behavior, no information leakage and surprisingly few signs of opaque leverage like prior cycles. Quote, in order to blow up you need to have a decently levered position. Most of the leverage in previous cycles has been facilitated by uncollateralized lending platforms like Genesis, Celsius, et cetera, which was very much not transparent to the rest of the industry and obviously ended pretty badly for most of them. Most of the leverage in this cycle is coming for perps. So ETF options of plumbing, Bitcoin liquidity and selling pressure clustered during US hours consistent with ETF related flows rather than Asian fund unwind. And there are no huge redemptions or collapses coming out of IBIT that we've seen. Franklin B suggested a tradfi multi asset player may have been the source of force deleveraging and especially with the move in metals, this seems at least plausible if it's a margin driven selling thing outside of crypto. I also want to raise the generic risk off framework as we've been looking at a number of different risk on assets and Rahm, you've been talking about this for a while at the Animal Spirits reversing in this case. So before we get further into some of the individual bits here, I want to start with that layout. Ram start with you because you've been on sort of like the risk story changing for a while. What did you make of this?

D (6:27)

I agree with your hypothesis earlier that you had hedge funds that were buying on the way down and over levered and had unwind. There's another post on Twitter about a fund called Trend Research that was accumulating Ethereum on leverage and we talked a few months ago how the bottom would be marked by funds blowing up the bodies floating in the water. And you're starting to see that now. And there will be more, I'm sure. There are more names we have not heard of, including obviously individuals that are part of that too. And this is just a marker of how all cycles begin. And so I think that's exactly what it is. And I thought you said it exactly right. This is, it's a high beta sell off. It's happening across different markets. That day also coincided with a sell off in Mag 7, right. Microsoft reported it was down 10%, et cetera.

B (7:28)

Amazon was down last week too, and.

D (7:30)

Amazon as well, and it was down again the day after.

B (7:33)

I was going to say the only winner out of the Mag 7 was basically Apple and they've been doing absolutely nothing.

D (7:39)

Meta meta Also they reported they gapped up, they pulled back, but now it's going up again for those that are keeping score.

B (7:46)

So all right, so Chris, what do you make of the call out here on the perps front? Right, like I agree we haven't seen like a large leverage lender explode, but derivatives could be a tremendous source of both leverage and price reflexivity. What are you seeing or thinking there?

E (8:06)

I guess the first question is, you know we're trying to figure out 2.5 as it's now called we figured out 1010 yet. Like, we were talking about 1010 last week. You know, like, it takes time. And I don't even think we've seen the, the bodies float to the surface on 10, 1010 yet, let alone 2 5. It's going to take some time to.

B (8:24)

Figure it all out.

E (8:25)

But what do we know? We know that the market seems very, very nervous right now. I think 1025 was related to 1010, because as I was speaking to some of our counterparties, particularly some of the market makers, they were very, very quick to liquidate positions that weren't meeting margin calls. And so there's that nervousness to liquidate quickly. And I think that contributed to some of the downward spirals. I think I liked what Jeff park was talking about regarding basis. We're going through a bit of a regime change in crypto, for those of you who've been listening, where a lot of the OGs are checking out and they're being slowly and methodically replaced by institutions. And sometimes those institutions are slowly marching forward. Retail moves much more aggressively. There does seem to be a lot of interconnectedness. We call it pro cyclicality. In many cases, there's still folks adl' ing away. That's still part of market structure in crypto, which also contributes to that pro cyclicality. And so I think, you know, in time, as institutions come in and intermediaries again assert themselves and provide those buffers, I still think we're going to be bound for a number of different violent moves. And whether that's, you know, gold's coming back to crypto, crypto going to gold, whatever. It just feels like it's a time of violence. Continue to watch the basis. I think institutions will continue to leg into the basis and the basis. So when futures prices are higher than spot prices, things get interesting. And institutions can take advantage of that because they're not taking that real price risk. I think there's a couple of issues right now is that when they unwind that trade, prices go down. And there's also a lot of competition in crypto for other bases, whether it's in Japan or other places now where, where maybe some traditional assets are competing with crypto. So that's been part of the issue here. But like, I think Don Wilson was really, really summed it up. And I think Rahm, you talked about it in one of your chats where, you know, we had this exuberance after Trump came in. Everything's going to be great. Everything's going to be fine. You know, everyone poured into DATs. You know, this also feels like a natural pullback after some of that exuberance, but it feels like it's bottoming to me and it feels like slow and steady building from here. Acknowledging that there's going to be some.

B (10:50)

Violence along the way. Nick, you've seen more crypto cycles than most people are capable of living through at this point. What is your take on where the market currently is? And I, I want to ask specifically for you. I know you've paid close attention over the years to like the thesis around bitcoin and then a lot of the fintech developments coming out of this space. Like what, what are we actually hearing on the ground from people in the space? Are the OGs dropping out?

A (11:17)

I think some of them are, yeah. I mean we know the Galaxy had a whale that sold 9 billion, you know, and some of us were mistaken. Listening to Galaxy earnings call wasn't about quantum for that whale specifically, but I, I think in every cycle actually if you look at the age of coins that are being sold actually the OGs are pretty good at timing, market picking, market tops. So every time there's this distribution effect of long holders distributing to the new entrants and that's definitely the case now. It's hard to say whether we see this feeling of pessimism throughout the industry now, whether that's persuading the bitcoin holders to sell or not. Certainly bitcoin has become this kind of institutional asset, like a careful what you wish for thing where it's much more exposed to global macro trends. I don't know if that's enough to get an OG to sell. Some of, some of like the core bitcoin ideology. Things have probably been invalidated to a certain degree. Like lightning didn't take off the way people thought it would. It didn't become this medium of exchange. Stablecoins claimed that crown, you know, Ethereum didn't die, Salana didn't die, you know, so a lot of these, so like the stock to flow model I think is, I don't know if everybody on this call agrees with me, but it's probably not real. You know, a lot of these like foundational bitcoin mythologies are, have been invalidated to a certain degree. So that might have persuaded some people to sell. But to the broader discussion I actually don't know if we're going to get a satisfying single catalyst, you know, to explain the recent selloff or even 10 10. I think we've been spoiled because in 22 there are all these specific things we could point to that were really nice neat causal explanations. And the broader explanation was a credit crunch and a deleveraging. But in prior, you know, sometimes market structure just becomes inherently unstable and the tiniest catalyst sets off it, you know, conflagration. So I think that might be the case this time. We, there may not be any single large fund that blew up. So I, I, I think it's very people always reach for an explanation because it would be great if there was one and then we could say okay well that's behind us, we can go up now.

B (13:47)

So one thing that I was observing and I was having a chat not too long ago over the weekend with a friend of mine who's still a trader on the street is that the debasement trade overall was very crowded but pretty probably not working for the reasons that people thought, right? Like Rahm, you've been on this about if you look at the actual performance like EM stocks have been outperforming the dollar and you have people piling into like metals at silver and maybe to some extent bitcoin, though it had been lagging compared to many of these things. And the thought there was, it may actually be that a very crowded debasement trade leading to unwinds in that space when things stopped working bled over into a whole bunch of things. Like we do know now that there are multi strat funds that also handle bitcoin either outright in some cases or Chris, to your point, using things like CME futures, right, instead of taking the outright positions to hold tokens themselves. And when you have extremely crowded positioning, which by the way you also have in the Mag 7 to something Rob has been talking about before. I want to piggyback on what Nick just said, which is you don't need one specific blow up to actually start the chain of prices going down. The causation actually works in the other direction, right, which is the chain of prices start heading down and then you could start getting a string of discrete blow ups as people get margin called or forced out. But like here there's no crypto contagion into the traditional banking system. If anything's blowing up, it's a multi strat hedge fund, right, which is going to hit some prime brokers, but those guys have more than enough capital to live or if they don't, JP Morgan will buy them as is the fate of all financial institutions. So I've been watching like the string of unwind risk and I feel like the market structure problem is a key point Which I want to bring us back to something that Rahm was just saying. Rahm, if this continues, what other sectors do you think are due for a little bit of deleveraging?

D (15:52)

I think this is a highly crowded market that's been unwinding.

B (15:58)

Right.

D (15:59)

So like Mag 7 stock's a good example of that. Digital assets at the passage of the Genius act in June, July, around the Circle IPO. These are highly crowded and concentrated markets. And Max7 has so much market cap that when it leaks capital, right, we're talking trillions and trillions of dollars relative to any other asset class. And it flows anywhere else. Those other markets run up so much. Like, look at Staples. The headline would be, it's just a, a high beta rollover story. You could tell the same story about Palantir, about Robin Hood and, you know, other high beta assets. And what's taking that place is, is value.

B (16:46)

Right.

D (16:46)

The pendulums come the other way around. International. It's the, it's the inverse of what's worked well over the last two years.

A (16:56)

All caps.

B (16:58)

I. I was going to say it's. It's revenge of like, what's the right way to say it? The physical atoms, so to speak. Right. Like, if we're in an AI world where digital scarcity is being displaced, let's say, based to the thesis that you've said, and then we're getting into this very complicated position in the AI trade, the thing that should outperform is physical scarcity. Is that kind of the thesis here? I mean, I know you've also been on the insurance company bandwagon too. And I guess that comes down to.

D (17:28)

Physical presence, free cash flow. Free cash flow and value. It's back to classic investing.

B (17:35)

It's the revenge of Warren Buffett.

D (17:37)

The revenge of Warren Buffett.

B (17:41)

So I was going to say somewhere Charlie Munger is laughing. All right, so a couple of points that I want to sort of pile on to that we were just talking about here. As we've thought about what's going on. We're talking specifically about all of these different markets and like, idiosyncratic concerns. But I want to drill down on two of them in particular to talk about the risks and, and how they're impacting price appetite whether people are buying the dip or not. So let me start with Nick on this one. Nick, what is going on with the people who are quantum skeptics in Bitcoin, and how has this been impacting dynamics of people willing to step in there?

A (18:26)

I think reasonable people can disagree about quantum for sure, they're very smart people that will deny that quantum mechanics is even real, even though that's wrong. But, you know, quantum mechanics, definitely real. There are smart people that will plainly deny that quantum computing will ever be a thing, though, you know. So I would say a lot of the skeptics have changed their tune. Not the crypto quantum skeptics, the general quantum skeptics have changed their tune recently. Like, you listen to Scott Aronson. He'll say, yeah, I used to be a huge skeptic, and I mean, he's active in the field, but he used to be much more skeptical than he is now. Now he says probably just an engineering challenge, not a theoretical challenge. So in Bitcoin, I think the disagreement is over timelines. And I think a lot of people don't appreciate the fact that navigating quantum transition Bitcoin will take the better part of a decade. So it's not really about, you know, I would say what it's mostly about is starting early so that you can transition before the threat becomes material and how long you have, how much notice you have. I think people think we'll have a lot more warning than we do have. So that's probably the crux of the disagreement, is some people don't appreciate the immense lift involved. And then, of course, some Bitcoin devs are a little more precautionary in the sense that they don't want to change Bitcoin dramatically to reflect a risk that they don't even believe is real. And the change itself might be introducing new risks, which is definitely true as well. So I'm on one side of this argument. Smart people are on the other side, too. I think it's not being taken seriously enough.

B (20:24)

So I want to throw this one over to Chris, who thinks a lot about investing, like in general contexts here. Then, as you look at Bitcoin in particular, the governance process there, that would be required to change it for, call it any major threat. Does this sort of behavior give you more or less confidence in the long term as an investor in something like that?

E (20:47)

Well, one thing that's been on my mind is you've got three major technologies that are advancing at lightspeed and they're all interconnected. You have crypto, you have AI, and you have quantum, and I think AI is accelerating both of those streams. They're all, you know, look at what's going on right now in crypto. I talk about it's been a retail market, it's transitioning to an institutional market. But Guess who else is going to show up? The agents. Right? That's a brand new environment and they're coming, right? And you know, you look at AI, these guys look what's going on, you know, X402EIP8004 in the Ethereum ecosystem. These guys are going to be paying each other. These are technologies you can't look at siloed. And along comes Nick Carter and Quantum. You can't look at that in a silo either. What gives me, I guess, confidence and maybe I'm a little bit more optimistic and that's maybe a flaw of mine, is that because this issue has been raised to the surface by guys like Nick. Thanks for that, Nick. I feel like maybe people aren't going to move fast enough, but it feels like there's enough capital on the line and enough people that are interested that the risk has been identified. I do think it hasn't stopped adoption, but it's a throttle we talk about. If Clarity act gets passed, the throttle goes forward and institutions move faster. If quantum resurface, the institutions are still moving forward. They just have to slow down a little bit. Because that question comes up on every single IC now. On every single institutional ic. Guys, I'm going to take my state fund or I'm going to take my endowment and pension fund. I'm going to invest in Bitcoin.

A (22:28)

Whoa, whoa, whoa, whoa.

E (22:29)

Do we know what's going on? Quantum, right? So it just slows the process. I personally believe that the. And again, I'm not deep like Nick into the hardcore developer community and Bitcoin as he is, but it feels as though this has been elevated to the surface. Maybe David Sacks should take on a third job and make himself the quantum czar as well. But look, I think that you have to look at these things together. I think the problems are going to be accelerated with AI. So AI will help definitely expedite developments in quantum, but it's also going to expedite the defenses that we're going to need. So I don't know, we'd love to hear Nick's response to that one.

A (23:12)

No, I think those are very astute comments. I totally agree with you that AI is accelerating quantum development because quantum is. Quantum computing is about physics and it's about engineering. And what is AI really, really good at? Basically those things. There's all these math discoveries that are being made with AI, even the primitive ones. What happens when we 10x the computer and the flops? What kind of math problems are we going to solve then? Probably the kind of stuff that will allow you to figure out how to do error correction really well on a quantum chip. So I do think it's naive to predicate the future of Bitcoin on tech development slowing down. I think that's not the right bet to make. And it's weirdly regressive and Luddite esque. You know, it's, it's odd as a supposed, you know, envelope pusher, bleeding edge tech guy to be like, I think tech is actually going to slow down. Like look what happened with AI in the last six, seven years. It AI capacity by whatever metric you look at increased from, by six or seven orders of magnitude in under a decade. Whether that's flops, whether that's the size of the largest training run, whether it's the length of useful tasks that AI can do with the high success rate. So we know for sure that it's possible. When a lot of excitement and capital is mobilized around a topic specific technological trend and there's an inflection technology, maybe there's some breakthrough, we know for sure that we can churn through the orders of magnitude really quickly. Now how many orders of magnitude are required to get a state of the art quantum computer today to a point where it's good enough to break Bitcoin's elliptic curves? Two to three. Two to three. It's not six or seven. And is there a lot of excitement in capital being mobilized around quantum computing? 100%. 2025 was the biggest year ever in QC by a lot. About 10 billion in private, private capital was mobilized. And then you have China, another 10 billion. God only knows, you know, how much work they're putting into it. Strategic priority, certainly one here. So I just think, you know, it, we are one of those inflection points. We saw it. The scientists at these top quantum companies saw something that caused them to go out and say let's raise a billion dollars to build a useful quantum computer. And that's happening. Those fundraisers, those have occurred and bitcoiners I think are just denying that. So it makes me worried.

B (26:02)

Yeah.

D (26:02)

And on quantum, look, timing matters and early is wrong, like the direction of travel. I think Nick is right. AI accelerates discovery, math, engineering. But I'm reminded of Craig Venter when he mapped the human genome in 2001. And yet a massive biotech bubble. There's a lot of hype around personalized medicine. Nothing happened. It was a big bust. Twenty years went by, people said, geez, it's a lot harder than it looks. You know, we have sustained fusion reactions for a period of time where you get positive energy output, but we're still a long ways away, so the direction of travel isn't enough. So I think we're too early on quantum driving real impact in the next couple of years. And the reason is it's hard for anyone to propose a specific mechanism or pathway. We're still in the discovery and ideation creativity phase. So I'm more on the kind of skeptic camp on quantum from a timing perspective.

B (27:10)

I think an important point though, about that, which Chris raised earlier, is, you know, this is one of those things that's like savagely beaten into you by the market as a trader, is your opinion doesn't matter on some of these things in terms of prices, which is to say if it's true that investment committees are looking at Quantum for crypto and saying this is a concern and we have this concern and we're not going to buy this thing until this concern is addressed. If you're like a Bitcoin core dev, if you're like Nick or like Rom, it kind of doesn't matter to those people. They've got their concern and either it gets addressed or it doesn't. And if it turns out that quantum is not a risk, they will eventually change their minds. But that can be 20 years later, right? And we live in this world where, what's the right way to say it, because of the speed of technological process. A lot of these are like memetic things that get into people's minds and then they need to be addressed if you want to move forward. So in a strange way, if you're like a proponent of Bitcoin and want mass adoption, I don't think your personal opinion on quantum matters, I think enough of the asset allocators are telling you it matters that you address it or you slow it down.

A (28:21)

I just, I think it's exactly right. And, you know, there's two ways to address the concern. One is to address the root issue, which is to add post quantum signatures in Bitcoin. There's ways to do that without just ruining the way it works right now. You could have opt in, optional post, whatever, so you could address the root issue. That's hard. Takes a lot of governance work. We've had two updates all decades, so it's slow. You could also address the like, more transient and apparent issue, which is the perception that there's a risk. You don't actually have to change the blockchain to address the perception. All you have to do is say, here's our roadmap. This is what we will do. We'll look at these milestones to determine when we do this. Ethereum already did this. Ethereum made it a strategic priority. I know Bitcoin core development doesn't work like Ethereum. I know, but you could do that if you wanted to address the perception. Instead we have the most influential bitcoin developers calling me a fudster. I don't think that is going to do anything to allay the concerns that the big investment. And I think there's a huge gulf between capital and core devs, which there's always been that gulf, and the core devs deliberately trying to ignore what capital thinks because they want to stay pure. This is one of the issues with bitcoin governance and that's been fine historically because there's been no change needed to bitcoin that's been critical since about 2013. So in the modern era of bitcoin has never needed to be a critical change, but now there might be. And so maybe it's time to rethink this whole notion of devs being these monks walled off inside the monastery, receiving no signals from the outside world.

D (30:13)

One point I'd like to make just around this earlier point around institutions and this transition retail institution. Let me challenge that a bit. This is a compilation of 13F filings and it shows the largest ownership positions by hedge funds sorted by value. CC Millennium's got a billion dollars worth of ibit, Jane street, then blackrock, then it tails off pretty quick. Now this is just ibit, but it is the most liquid ETF representing Bitcoin and this is not much second. You can see they're all underwater. Generally these kinds of investors don't add to losing positions. I see Paul Tudor Jones is in there. Losers add to losers. So I think this is another reason why there's been pressure on digital assets like institutions. They really aren't there. It's really been RIA distribution vehicles to their end client base. That's what we mean by institutions. Those are really financial advisors that are offering these products, but they're not offering enough. There's not enough end demand. Of course, that's why prices come lower.

A (31:21)

This is a, this is a very.

D (31:22)

Different cycle than any cycle we've seen before.

E (31:26)

Yeah, we, we talk about how in this cycle fundamentals, utility really matter and, and you really need to differentiate as you're looking at every single token in and of itself. But that's not how people look at crypto right now. You know, if bitcoin didn't get its act together and solve the quantum conundrum, you know, it's pretty much going to take, you know, the rest of crypto down with it for a while. I would say even if ETH had its act together, because it's just we look at this asset class as an asset class. But you know, the more I've been thinking about it, I think crypto is just a wrapper. You know, you can take that wrapper and you can wrap a security, you can wrap a bond, you can wrap anything. You can wrap tech and call it crypto native. So I don't think we're there yet. I think right now we're just looking at all of crypto equals bitcoin, Bitco, Bitcoin equals crypto. Quantum is going to screw all of it. And I hope that we mature and start looking at, you know, these projects a little bit more with a little bit more discrimination, fundamentals and individual properties, et cetera.

A (32:26)

And Chris, to your point, these blockchains have taken enormously disparate approaches to the problem. And this is basically the more centralized. I'm not saying this in a disparaging way. The more centralized you are, the better you can deal with the problem. So you can imagine how that maps to the major blockchains.

E (32:44)

Yep, a hundred percent.

B (32:46)

Right.

A (32:46)

So I mean, bitcoin will just be the last one to upgrade.

D (32:49)

Layers of contradictions, Nick. Layers of contradictions.

A (32:53)

No, yeah, no, I. It. Censorship is. Or centralization is maybe good.

D (32:58)

Now, Hyper Liquid and Canton are the two blockchains that Don Wilson from DW is talking about. Their centralized. Their own counterparties. You know, that's antithesis of a decentralized network.

B (33:12)

To be fair, Don may be talking his own book a little bit sly.

D (33:16)

He's accurate though, right?

E (33:18)

He.

D (33:18)

It's his book because of his reasoning. And I agree with the reasoning. I think that reasoning is accurate.

E (33:25)

I think he's. He's stalking multicoins book too. Right.

A (33:29)

Sorry, I was a Ben Smidge founder.

E (33:31)

Yeah, that was a bad joke.

B (33:33)

Now you're just causing trouble. Now the great irony is going to be when because bitcoin core has too hard of a time coordinating here, that the quantum resistant one ends up being bitcoin Satoshi Vision. And that's what everybody ends up using in the future. Not a prediction. That is a joke.

A (33:49)

Well, I'll tell you what I think is going to happen, and I don't want to scare anyone. I think the devs will probably continue to do Nothing. They say that there's some stuff happening, there's not a lot. And I think the big institutions that now exist in bitcoin, they didn't before. They didn't. In the 2x scaling wars debate, there were basically no institutions. They will get fed up and they will, for lack of a better word, fire the devs and put in new Devs. If you're BlackRock and you have billions of dollars of client assets in this thing and it's problems not being addressed, what choice do you have? So I think this, if unaddressed by the devs organically would lead to a corporate takeover, a successful one, and then.

B (34:36)

Bitcoin will look more like some of the other centralized blockchains. This is really an all roads lead to Rome type problem. But like, okay, rewinding the tape here and kind of back to how we got here. When you have this informational fog like around market prices for an asset that was previously a momentum asset. The other thing that's going to drive that to go back to sort of behavior is blackrock is a fiduciary. Right. Like they vote in shareholder things. They think about the value of holdings. If there is a structural problem here and they have a large view, eventually they are going to be wired to speak up. It's not even like a sort of call it preference thing. Yes. Like I mean it's just the decision factor.

D (35:24)

But generally BlackRock and many institutions go in the direction of management.

A (35:28)

Right.

D (35:28)

When you see like those shareholder proxies now here there's no shareholder proxy. But overall to say that they're, they're passive, they're not activists.

B (35:40)

Are they? There's all those. What, what's the right way to say this? Theoretically BlackRock and Vanguard are passive, but in reality they do have opinions on shareholder votes. They do have opinions on governance. Yeah, I mean especially like a vanguard who's also prom to your point, got a whole RIA business and needs to make recommendations.

A (36:01)

I'm just not sure traditional corporate governance maps that. Well, you know, there is no board and there's no management team, but someone needs to do something. Like maybe forget Quantum, any existential risk to Bitcoin, some committee of people has to step up and do something. If that committee doesn't exist, they have to be. It has to be catalyzed into existence.

D (36:27)

Overall, just the mood and the climate around digital assets, just to put a word on it, is bleak and dark and dismal. Would you, would you agree with that characterization, Nick?

A (36:39)

Yeah, I think it's. I Think the, the one main cause is because 90% of all token launches in 2025 were down.

D (36:49)

And garbage. And garbage.

A (36:51)

They're bad and they were down.

D (36:53)

I mean, I think anyone listening should be pissed at the crypto VCs and entrepreneurs and the lack of alignment. Remember GeoCities, Austin? Chris? You know, we probably remember GeoCities.

B (37:04)

I am that old GeoCities was a website.

D (37:07)

I don't know, it was like a webpage and a thing went public and the bankers, you know what they're selling. There's actually stories of JP Morgan bankers, right. They didn't know what they were selling.

B (37:15)

Yes.

D (37:15)

It was like the guy with upstart on CNBC and he said, what is the business model?

B (37:19)

He says, sorry, I can't hear you.

D (37:20)

What? Excuse me, the audio's cutting out.

B (37:23)

How?

D (37:24)

We essentially had 500 geocities do token launches in crypto. So much nonsense and variations of permutations of nonsense. That's what we saw. The central amazing innovation of digital assets besides decentralized exchange, permissionless exchange. It's incredible. The second was defi borrow lend without a counterparty, the ability to conduct banking activity without a bank clarity. Act's not focused on that. Genius act's not focused on that. That's a civilization level achievement. That was the prize. And people aren't focusing on that. They're focusing on the quick money grab from a token flip.

B (38:09)

I mean this is a story that we see across industries though. I mean, so one of the funny trivia items from my past life as a banker is I sat on this horrible mix of products at JP Morgan, but one of them was bank of Life Insurance. And the way those policies work is you're selling, call it, you know, 40 to 50 years worth of like life insurance upfront with a premium payment. Brokers get a cut of that, they get a trailer. And so the brokers all figured out, wait, most of this is paid out in a trailer over time. Let's securitize it. So they went and securitized all of like the policy fees for a bunch of boli policies, sold it into the market, and then wouldn't you know, as soon as that happened and the brokers got their money, they went back to all the clients with the current policies they sold the fees from and pitched exchanging those policies for new policies where they would start the trailer all over again. Like to some extent, I think the dismal mood in crypto is because of the extractive behavior of a lot of token projects, of a lot of just Projects in general. And I do think tokens themselves are causal to that because it's easy to pump them, it's easy to flip them. The market's not transparent. You don't have good disclosure and trading rules. And this is not a refutation of the value of tokens in the future. Just what has happened so far. Right. In many ways I would say the moon's very different. If you look at like stablecoin world, where I spent a lot of time, I wouldn't call it dismal over there. I think a lot of people are very excited about building. I mean, Nick, do you feel otherwise? I know you're in a lot of the fintech stuff too.

A (39:43)

No. Yeah. And so is Chris. Yeah, I mean it's the most exciting. You know, we've never seen more capital brought to bear there. And the, and the metrics actually validate it at the company level.

E (39:56)

There have, there have and have nots. Like we said, there's a lot of have nots. There are a ton of have nots and, but again like if you're discriminant, if you understand the tech, if you understand utility and the fundamentals, there's been some incredible innovations. We talked about stablecoins, tokenization, like look what Leshner was doing over at Superstate, right? Canonical equity issuance on chain that has incredible potential hyper liquid. Look what it did in hip three, you know, commodities giving people access to commodity derivatives, you know, nearly instantaneously. There's, there's definitely something there. You know, I believe RAM to your point of civilization scale. You know, again, let's go back to the other three. The theme of AI, crypto and quantum. These things are only coming together now. This is young technology. Was it 15 years ago, Bitcoin was a dollar or something like that. Like we're early guys. And now as the agents start moving in through crypto, you know, there, there are a lot of things, I think we, I think we created a pretty strong foundation in certain cases. In other cases, not a lot of that foundational development was around the layer ones. And that's why everyone was screaming about the FAT protocol thesis. All the values going to accrue to the layer ones? No, the value is going to accrue to the apps. But we're early on the app journey. Do you guys see the piece that Chris Dixon put out, a 16Z?

B (41:23)

I have many thoughts on that, but because you hit on the specific topic, I want to hop to next here. Chris, I'm going to pause us for one last word from our sponsors and then we're going to talk exactly about that.

C (41:37)

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B (43:22)

Chris, we're going to pick up right where you left off. Let's start with Hype and the overall thesis about the space. I'm going to start specifically with Hype. So there was a big dust up on crypto Twitter over the weekend. Kyle Simani publicly slammed Hyperliquid just after stepping down at Multicoin Capital, especially as multicoin was accumulating 40 million worth of hype around the same period. While Somani called it, quote, everything wrong with crypto, the narrative gained some traction when he was asked about the buys and his response of I don't work there. Kyle is staying with Forward Industries, which is the Solana dat, and criticism of that from Luke Cannon was in most respects, it's everything wrong with dats. It's the ninth Soldat, not even original incinerated Billions of dollars of investor money by top blasting Saul's final pump and the team still made millions. On the other hand, Sol does have some of the most adoption in some of the actual apps in the crypto space. And I want to use this as a thread of first of all, you guys are both VCs. Rahm, you're an investor. What do you make of this dust up in general for both sides? And then two and we'll get to that. What are the threads of where this leads us on where value is Crypto ecosystem.

E (44:45)

You want me to kick this one off?

B (44:46)

Do it, man.

E (44:48)

All right, so first off of all, the respect for, for Kyle in the world. I had a chance to, to work with him over the years and look man, the Salon investment that he did is going to go down in history. When all the ships were down, he doubled down and you know, he, you know, he was, he had a lot of courage. As you fast forward to today, the Solana ecosystem has some amazing people there. They're highly intelligent and I think they really started, they've been working hard to deliver on the vision which is, look, it was designed to be the decentralized NASDAQ high throughput influenced by the HFTs, traders for traders. But they have a bit of an issue and I've been public with them and I think it's something they need to solve for. If you're going to be the decentralized nasdaq, you have to solve for derivatives. And based on my, yes, I'm a derivatives guy by background, but if you look at traditional markets, derivatives always eat spot. There's a reason why ICE Intercontinental Exchange bought NYSE and not the other way around. It's a much more profitable, much more liquid in many cases important part of market structure. And so all of a sudden you're building to be that decentralized NASDAQ and hyper liquid comes out of nowhere and just dominates derivatives. And so that is a conundrum. If you're in the Solana ecosystem, if there are major projects building in a derivative space, they have to figure out a way to get that back. Now they're doing some good things. They've got product market fit on Deepin. That seems to be the destination for Deepin. They're working on Internet capital markets, which is great, but they have to solve for derivatives. And I think that's why some of the if, if you're the, the world's greatest salonable and you know, your fundamental life's work has been challenged by these guys. I Think you're going to be a little salty. I totally get it. You know, hyper, hyper liquid. I think Jeff is. Has been. Yes. Did he move overseas? Yeah. Why? Because Gensler forced everybody overseas. You don't have a choice. Either stay here and go to jail or build something amazing overseas. Is Hyperlipid perfect? No. I think some of their practices around ADL need to get resolved, but they move very fast. They've created an ecosystem, they've driven value and they showed a lot of innovation with HIP3, now, HIP4, which will result in some prediction markets. So they're trying to deliver on that accessible derivatives market that's been restricted. Look, it's too early to call a winner. You got lighter coming on strong. It's a very, very challenging market place. The, the, you know, the regulation hasn't been figured out, but it's early days. But I totally get the animosity. You know, Solana needs to sell for Duras.

B (47:38)

Nick, what do you make of this? As an investor? Would you blow out of Castle Island? Are you going to be dropping threads like that or like what happened here?

A (47:49)

Colin's a friend of mine, so I can't, I can't be too mean. But no, it's different because he redeemed. I think he redeemed his shares in the fund, which is like scorched earth, and then he funded the position that they bought after he left, which is double scorched earth, and so that it was used by terrorists, which is true.

D (48:08)

I didn't realize he redeemed entirely at a multicoin. So there's no something like that.

B (48:12)

That's the rumor on the street.

D (48:13)

But he's got to have his GP interest in it.

A (48:16)

Yeah, that you can't. Yeah, you have to sell that. You'd have to. It'd be a longer process. Yeah, but it's, it's not just a. It's certainly not an amicable exit. Right. I won't speculate more about that, but I think that the fact that everyone's talking about Kyle and people thought it was such a big deal is really like. Kyle is, in my opinion, the most important crypto investor that has ever existed because he typified what crypto investing is so really focusing on liquid being incredibly, you know, unwilling to listen to criticism in a good way. Right. And signatures, guns and playing pretty much exclusively the token game. Now, I know Multicorn has obviously done a lot of equity investing. We've co invested with them a bunch. But I think he's. And also not having any Prestige prior to, you know, he came out of nowhere basically. He had a startup before.

B (49:19)

I was gonna say he's an NYU grad that is not nowhere iu and.

A (49:25)

He had a Google Glass startup. So. But you know, he, he's one of the most successful crypto investors of all time. I mean obviously there's guys that were started in 2010 and made more money, but you know what I mean. So I think it's really, really interesting that he said publicly something like my position on the, the game on the field has changed. Right? I think that's right. What he does for a living is not a thing that exists anymore actually. And I think this is true for all a lot of the really token focused VC funds and that's why they're all the gps are leaving. None of them raised any new funds. The LPs are mad at them, all these guys. A lot of this stuff is going down. It's not going to happen anymore. It's not a thing anymore. People are moving, pivoting, quiet, quitting, et cetera. And he loudly quit and he, he now he's going to focus on the longevity or you know, whatever, which is like totally his right. He can do whatever he wants. And I think that's very telling. I think it's very telling. I think the token side of the industry is basically over in its current form. I think there, there will always be tokens. But the VC backed, flashy L1 token side is done and what's left is the boring stuff. Boring stuff. It creates value, the boring stuff, cash flowing businesses. And that's what I've done basically my whole career in crypto is the boring unsexy stuff. And now everybody wants to be like us, which is funny because everybody used to make fun of us. And for a lot of people it's unappealing. And I get it, it honestly it's not that exciting, but it's all that's left, I think, you know, like basically crypto being this underlying infrastructure that powers a lot of finance and is maybe invisible to the end consumer half the time. And there's no token ever. So I think Kyle's departure is one of those key moments that will be remembered forever in the history of crypto. Not as the end of the beginning like Aseeb said, but actually the end for a lot of people.

B (51:37)

I'm, I'm going to pile in and say as somebody who kind of got into this space through like the side door because you had all the people coming in through bitcoin and you had all the people coming in through defi, like liquid tokens. And I'm the guy who came in the side door and was like instant settlement. Everybody just looked at me confused. I think the interesting part as I watched the liquid token thing, Nick, is that probably 90% of these tokens, I think are going to die. I think the ones that are not going to die are the ones that Rom just said something important about, which is there may be actual cash flows there, right? Like if you look at hype, if you look at like what they're doing at sky, if you look at aave, there may be actual cash flows that come out of those at some point. Uniswap, maybe. We'll see. And that to me starts to become a market that looks less like a crypto market and just looks more like a liquid market in general. Where to trade that well, you need to understand funding and derivatives and like relative value trades. And you know, it. I guess I would say it is for me, I think part of why we're getting to the end of like call it the crypto unique token model is with the wicked witch of the SEC dead right, and us starting to make rules that might make sense, we don't need to contort ourselves. 8 Ways to get around that. Launch something. And at the same time more and more professionals are showing up and we're just tokenizing real assets with cash flows. Are these things just for lack of a better way to put it, becoming markets?

E (53:13)

Guys, like when I think of Kyle and I don't want to put words in his mouth, he only knows the reasons for his actions. But I feel like you're right, Nick. He left crypto as it was, but he's staying in crypto as it is. What's he doing? He's going to Forward Industries, you know, where he's chairman. He's sitting on an operating company that's a Solana dat that's committed to do all kinds of stuff on chain. Like he's going to be doubling down on building businesses that use Solana as the back end. I mean that's what he's publicly stated in the past, what Ford is going to do. So I almost feel like he's entering the new crypto Gucci city of an intersection.

D (53:49)

I don't know, do we?

E (53:50)

Right now he's staying at the. As the chairman of the board of Forward and like that's, that's the new crypto. It's the intersection of traditional markets, equity markets, equity capital markets, and, and using blockchains to power applications and I think in his case it'll be on the Solana blockchain. But the biology staying on as, as the chairman of the board.

A (54:10)

Yeah, no, he said he has. It's we. The new crypto is tokenized equity and equitized tokens. And that's it.

E (54:20)

Yeah, and then we're going to take the tokens and then we're going to turn them into equities and then we're going to turn those equities into tokens again.

B (54:28)

Didn't you just tokenize? Is that Super State? We're going to tokenize everything and it's going to be the literal equity. Like not like back and forth, back and forth. It's compress them into a single layer. That is just the thing.

E (54:41)

But well, super state is tokenizing DATs. So now we're going all the way around.

B (54:45)

I, I was going to say, yeah, they're tokenizing all equity. All right, so let's move on to the final thing that I wanted to talk about here today because this one will get way into left field for everybody. There was an election over the weekend. I'm not sure how many Americans were paying attention to it, but Japan PM Takechi's election gamble led to the LDP having 70% of lower house seats, which if I'm not wrong, I think that's the largest mandate in modern history. In Japan, The Nikkei was up 5%, closed up 3.9%. The 10 year JGB yield surged to around 2.285%, a record high. And the macro spillover risks could be interesting for global risk assets. There's also a geopolitical inflection point here where the tough talk with China is accelerating very quickly. But I wanted to start with the markets component, what that's going to do globally to risk. Rahm, I know you've been thinking about it.

E (55:52)

What do you think?

D (55:53)

Here, look. It's bullish. It's bullish for Japan. Japan in the last 12 months is up 40%. The JP Morgan of Japan called MUFG is up 57% as compared to JP Morgan itself up 19%. You should own Japan. I own Japan. You should own Japan. South Korea, South Africa, South America, south insert country. It's outrunning the S and P. I feel like I say this every week. It's still happening. Happened today again, happened last week. It's bullish. Bullish, right. The pinata of Crowded Mag 7 was beat with the stick that capital's leaking to the other areas. And I'D love to get Nick's take on Data center, you know? Do you Trust Sam Altman? OpenAI? Is OpenAI a bubble? The valuation's real Thoughts on Core Weave? If we can get that in a few minutes.

A (56:46)

How long do we have? 300.

B (56:47)

Whatever we can do longer than three minutes. Let's do it.

A (56:50)

I. I trust Sam as far as I can throw him, which is really not far.

B (56:54)

I mean, like an A fight. I'm not so sure about it.

A (56:57)

I. I feel like he weighs 180. I don't think I could throw him over real distance.

D (57:02)

So low trust in Sam. Okay.

A (57:04)

I'm excited for their wearable, actually. I will be the first user of that. I love an AI wearable, and I know everybody think that's crazy and it's like privacy thing. I don't care. I want to outsource all my cognitive function to a machine. Then it will never have to think again. So.

E (57:24)

Are you going to use your world ID to log on?

A (57:27)

If I have to.

B (57:28)

Well, I want to get this right, Nick. You're saying you want to be an npc?

D (57:32)

That's what you're saying. And if there's one person on the.

B (57:36)

Planet that would be anti npc, it would be you.

A (57:39)

I just don't like thinking it's too much work. And if I wear the wearable all the time.

B (57:44)

You're a philosopher.

A (57:45)

It'll remember everything that happens. And I could just ask it who I had lunch with that morning.

B (57:50)

Who would know the pain of thinking more than Nick?

A (57:54)

It's a burden.

B (57:56)

So, Nick, you studied philosophy in school, right?

D (57:59)

In Greek mythology, they say that this is what Aristotle said, that the pleasure of the gods was contemplation. It was the conduct of philosophy is the exercise of cognition. That that was the highest leisure and satisfaction. I find this very surprising.

A (58:15)

No, it's Sisyphean for me. So anyway, I. I'm obviously bullish.

E (58:21)

AI.

A (58:22)

Most of my net worth is in AI. Not on purpose. Not on purpose, but it is. And I felt like the AI bubble was a bubble. And I think people realized that there was a bubble. An AI bubble talk over the last few months. And I think the thing that changed was Claude got really, really good. And the most important chart in the world right now is this one chart from Metter Mutr, which is how many hours of human labor equivalent can a top model do reliably? 50% of the time. And it's a super exponential chart. Super exponential. It's not just linear, it's not just exponential. It's super exponential. So it goes up faster than an exponential. Every new data point of the last three have been beating the curve. So I think the last print was like six hours. So an AI model can do six hours of human labor with 50% success rate. That alone justifies everything I think. So I'm not worried in the slightest. About 600 billion of capex next year. I'm not worried. It should be more. I think this is bigger than the industrial revolution at this point from a.

D (59:40)

Markets perspective I agree with all that. Age of abundance, productivity growth, never been a better time to be alive. But OpenAI raising 860 billion up from 500 billion September ago when MAG7 stocks and other names went down double digits. It just looks like funny money to me. They're passing the hat around to the suppliers like Nvidia and Amazon and some of the worst investors in the world like SoftBank and Saudi Arabia to raise money. Isn't OpenAI private stock a bubble number one? Number two, their revenue, performance, obligations, the contracts that they've signed with these data centers which are relying on OpenAI to make good on hundreds of billions of dollars.

B (60:21)

Microsoft has $200 billion on it, Oracle's.

D (60:23)

Got 100 billion-plus and OpenAI is making $23 billion a year in revenue. Forget about free cash. Revenue is not enough to honor those agreements. Isn't that an issue for markets?

A (60:36)

Yeah, that's why I don't own any of these model companies. I think they're capital incinerators and I think there's absolutely a bubble on the private side that's dislocated from the public markets. That is, it's like no one's thinking that one through. But yeah, like my view has always been that the model companies are capital incinerators. It's so easy for one to beat the other. Subjectively actually I think Gemini is better than OpenAI right now. I'd run the same queries through both. Gemini's better. No one's even really talking about Google. Anthropic is probably better. So it's just like hot potato, which one's better? You know that destroys value. That will totally. It'll destroy hundreds of billions of dollars.

B (61:15)

In value is what we're really seeing here. Then call it the incineration of what previously would have been captured as the search market. Nick. And where is the money coming out? I mean semiconductors of data centers appears to be one area where it's coming out to bring us back to like the core weave topic. The other one I Have a lot of questions about that to me is just an open field. I'm not sure anybody's given me an answer. I feel great about is what's going to happen to all of the content. Like people used to create things and get paid for it. It would drive web traffic. Like is that all going to retreat to increasingly non computerizable forms? Like, Nick, is your sum stack eventually going to be published as a physical newsletter? Like where are we going here?

A (62:00)

I used to publish physical magazines by the way. That's what I did in college. I think the top 1% of content creators are going to ascend to like a different dimension of being incredible and the mediocre ones will be drowned in slop, but the good ones will do great, you know, long Mr.

B (62:20)

Beast.

A (62:22)

It depends which way in the.

E (62:24)

Hierarchy he says Tom Lee thinks so.

B (62:28)

I mean did that dude just buy Step today? Right. Like back to the convergence of all of these themes. It's now fascinating.

E (62:35)

He's got hundreds of millions of users. He's just, you know. Yeah. Bought a bank app. I think we see where the word's going and I think Tom Lee saw it too.

D (62:42)

So he was in, he was the influencer promoting Current, which is a, a fintech banking app for teens now. He just bought a fintech banking app for teens.

B (62:51)

Mr.

D (62:52)

Beast is real politique now.

B (62:54)

Yes.

E (62:55)

Yeah.

B (62:55)

Yes.

A (62:56)

Is he worth whatever it is? What, what, what's the implied value? We didn't know what the deal got done at. Is he worth whatever it got done at?

D (63:04)

No, he's trying to compete with Hershey's too. He's got his candy bar.

A (63:09)

Well, he makes money on the can. He makes like, what is it, 200 million a year on the candy bar.

D (63:15)

Nick, what's your one minute view on Core Weave? I know we're both investors, but in the context of OpenAI, right. So OpenAI's got RPOs out there, which I view as bad debt. It's not worth par value because you know what you can. And that debt shows up as an asset or receivable for any data center company. That would include Oracle and it would include Core Weave. How do you, how do you view Core Weave giving?

A (63:42)

Yeah, I very, I'm very much on the left side of the curve on this one. I think like you've got Elon out there talking about building data centers in space, you know, like, I think basically all, you know, corporate activity is going to run through AI in the next year or two. Like we will reach saturation. What would what would you rather more own than the company making this happen? You know, aside from Nvidia? The next layer up from Nvidia, basically, it's like hardware and then the data center on top of the hardware. The model company is scary to own because people could just not like the model. So what do I feel comfortable owning as a index bet on AI Generally, one of these big data center companies, totally acknowledging the OpenAI issue. But if OpenAI goes poof, like you do have Anthropic or Google or Grok.

D (64:43)

That is another customer that can take off the capacity. So they're.

A (64:48)

They're a little more hedged. The data center guys are a little more hedged. The model guys. That's insanely scary to own, in my opinion.

B (64:58)

So the model is the restaurant, the data center is the supplier, or it's.

A (65:02)

Like, think about it, like the FAT protocol thesis, like, is the fat model hypothesis, which is, in my opinion, totally also not true.

B (65:11)

Models are traditionally skinny.

A (65:15)

That's good.

E (65:17)

Did we answer your Japan question, Austin?

B (65:21)

I think we got sidetracked from the Japan question and instead run out of time. But I respect you guys doing that. I mean, today we've learned that quantum risk may or may not be real and nobody knows, but somebody's got to deal with it. That the bitcoiners have become the Luddites of crypto as a result of that. That wow, AI. I do think it's interesting how we keep coming back to the core thesis of the atoms or what's valuable. Like, are you building the chips? Are you building the hardware? Are you building, like, the tangible? Are you building the AI wearable that Nick will actually use so he doesn't have to deal with the burden of thinking. Right. Like, I. I do think there's an emerging theme here that's very interesting, Chris.

A (66:01)

Very good.

B (66:02)

All right, so on that note, before we keep Nick any longer and continue torturing him about core weave, we should probably go ahead and sign off. So this was, as always, bits and bips. Thank you to everybody for joining us today. We will be back in one week to discuss more about how the worlds of crypto and macro are colliding. Until then, everyone.