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- [00:00]
A
We're always kind of in a race between inflation and gdp. These things don't exist in a vacuum. And I guess the question, if you will, that's driving a lot of that view is how big do we think the productivity gains from AI are going to be?
- [00:15]
B
And I think more and more investors are going to recognize that the consumer AI revolution is just starting to come and enterprise AI revolution being there. Nvidia Microsoft Hyperscale was Palantir Consumer AI revolution now comes and it is a.
- [00:33]
C
Tough, tough bill to pass. Genius was supposed to be easy, but we saw how difficult that was.
- [00:39]
A
People continually undermine a belief in the currency or a central bank. People are going to substitute to Bitcoin. Hey everyone. Welcome to Bits and bips where we explore how crypto and macro collide one basis point at a time. Austin I'm your host Austin Campbell, the high scholar of Zero Knowledge Group, here with Ram Alawalia, maester of wealth leader and founder of Lumita, and Chris Perkins, who I believe. Chris, I have to deprecate your old intro and you have some news for us about a spin off, but we'll get to that in just a moment. And then finally today we're joined by Danny Ives, the grand herald of technology at Wedbush, but more importantly, currently on the run from a group of anti AI skeptics. So coming to us from a vehicle at an undisclosed location. So we're here to discuss the latest stories in the worlds of crypto and macro. Just remember that nothing we say here is investment advice. Check unchanged crypto.com bits and bips for more disclosures. And first, a word from one of our sponsors who make this show possible.
- [01:47]
D
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A
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- [02:21]
D
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- [02:37]
A
So I think we need to start today with the Federal Reserve and the news of an ongoing spat between the Federal Reserve and the administration and the market reaction. So to lay out the facts, news broke over the weekend that there have been subpoenas to the Federal Reserve about their renovation project and potentially Chair Powell's testimony in front of Congress about this topic. I want to be clear, President Trump himself claimed to have no knowledge of this. However, Chair Powell then came out with a video saying that this was essentially an pretext to try to influence the Fed's monetary independence. And from there we saw some market reaction. So stocks honestly either appear to have ignored this or think that eroding Fed independence would be a positive for the markets. But gold was up, bitcoin was up. And there have been a lot of discussions on Twitter about this. We've seen some of the Fed watchers and whisperers speaking up, some people in the administration. But before we get too granular on any of that, I wanted to just start by throwing it to the group and I'll start. Rahm, with you. What did you make of this whole thing? What's going on?
- [03:52]
E
I thought it was unfortunate. It's economic populism on steroids. You take this together with, hey, let's cap credit card interest rates at 10%. And Trump is running to the left of Bernie Sanders and he's alongside Elizabeth Warren, at least on these two issues. You throw in, hey, let's buy $200 billion of MBS, which is a Bernanke Obama policy. These are ultimately inflationary policies. Not in the near term, but they are inflationary. They're inflationary for asset prices and they're also inflationary for commodity prices. And that's why you're seeing gold and silver and uranium and copper go up and to the right. And it's all driven by midterms. I, I, I don't like the pressure on the Federal Reserve. It's important that the Federal Reserve remain independent. Bond investors are going to start demanding higher long term real rates. So, you know, that's my, that's my view on the matter. Overall, you know, I wasn't happy with it.
- [04:55]
A
Chris, what do you think?
- [04:58]
C
So, you know, whether you like it or not, at that level, you're political and they try to keep it apolitical, but its politics seem to be everywhere. President Trump seems to be on offense right now and I think Rahm is exactly right. Midterms are on his mind. He's moving very quick to try to accelerate an appeal to his populist base. This is coming on the back of Venezuela where he really asserted himself in a material way. And yet we should talk about inflation because right now it feels like inflation seems under control. It seems like now, if anything, perhaps Powell is going to push back on lowering rates. Even if it was like maybe I should have lowered rates or maybe the Fed should be lowering rates. Maybe I don't want to do it now because it's going to look like I'm caving to the big man. So that may be working against us a little bit. At the same time, you have a couple of big things in play that, that may be able to, to keep inflation in check. You got the AI narrative, which we think is going to be very disinflationary over time. We should talk about that. Maybe, you know, Austin, you were talking about maybe some exceptions to that. But generally speaking, from a macro perspective, that's our belief. I think that's the common belief, massive disinflationary force. And then you got the whole Venezuela stuff up against the backdrop, right, where, you know, to the extent we start, quote, controlling the oil in the Western Hemisphere, does that keep fuel prices low? Does that help the inflation narrative, all pushing for lower rates? Look, against this backdrop, dollars weakening, Bitcoin responded favorably. The one thing that we've also noticed is that Bitcoin isn't quite digital gold yet. It's a risk asset and it's very, very sensitive to the behavior of the Fed. But yeah, I think there's a lot going on everywhere right now. It's hard to put it all together.
- [06:56]
A
Diane, what did you make of the Fed news and the administration?
- [07:04]
B
I mean, look, I just think this continues to be kind of a scope opera that I think investors are almost just struggling off realistically, just given any sort of criminal inquiry is not going to result in it. And I think that's why some market ended up. And to some extent, I think right now, investors, they're kind of looking past this to see, okay, obviously have a FICO interest rate sort of cuts that we're going to see, but really, who's going to be the replacement? A dove's going to come in that's going to be bullish, I think, for stocks. And it's one of my steps.
- [07:40]
A
So as I was looking at this, I started digging up some news and also encountered a few interesting tidbits here. One is that I believe this action has caused the odds of Powell being removed before mid May actually to drop. It's like 13% now. And in a similar vein, I saw that Senator Tillis said he's going to put a hold on any sort of, call it, progression of other candidates until this matter with the Federal Reserve is resolved. Chris, I think you're right. As a result, this may be, while President Trump may be trying to play offense, having the counterattended effect here. And I think one of the other things that people outside the Fed maybe don't understand is how Powell is perceived within the Fed and so how it takes sort of like a different view of what's going on here. A good example. So a friend of mine is Bob Bench and he tells a story, Bob is the guy who led Project Hamilton at the Fed about Chair Powell wanting to get up to speed on both and commissioned an internal report, which to be clear is like 50 to 75 pages, dense diagrams, writing all of that. Apparently Powell got this on a Monday, shows up D.C. like to Boston Amtrak in the morning with a backpack and two binders with the whole report just fully highlighted, grills people for eight hours on the thing like unprompted, and then just goes home on the Amtrak same day. Right. So you're talking about a guy who's perceived within the Fed as a workhorse and somebody who's relatively unpolitical. What I worry about as a result is we've kind of been in this Rorschach test of a market where various like presidents at the Fed and people on the board can kind of pull from the market what they want. Because to like the AI thing, Chris, which you were referencing earlier, you could make an argument that there's going to be significant deflationary pressure in parts of the economy from AI. But we're also now seeing inflationary pressure from AI. If you look at things like RAM prices, GPU prices and the likely knock on effect, I think this just entrenches people in their views. Like JP Morgan is out now saying that they expect less rate cuts. So I'm, I'm curious if this is a little bit of an own goal as we move forward.
- [10:11]
E
It seems like it depends where, right? Like labor markets benefit from AI and productivity growth. You're going to see less inflation there. But commodity prices benefit when the dollar declines and AI can't fix that. You know, ever since the trade wars of last year, the safety trade has been gold, not the bond. And international value stocks are already in circles around US Markets. I agree with Danny's point. I think ultimately it's a bullish risk. Assets and markets are looking past this or discounting what Trump is saying. They're saying he doesn't have the Congressional authority. Still though it does impact positioning on the margin investors saying I'm going to go buy emerging market stocks, I'm going to go buy South Korea, Mexico, Brazil, Canada, France, Germany, uk all of them are up from in the US markets and not by a little.
- [11:03]
A
And they're also going to buy bitcoin and gold. Right?
- [11:10]
E
Well China this way, China's buying one.
- [11:15]
C
Middle east, well sewer, Korean corporations, they turned on buying crypto again this week which is another bullish factor. Dan, what do you take, what's your take on Austin's belief that there's inflationary pressures due to AI?
- [11:31]
B
Oh I mean look if I think about it today there's probably about 5 billion give or take just from tariffs in terms of the increase that we've seen on the build out data centers. Look when you dram pricing and what we see across the board there's definitely inflationary pressures. I mean it's a memory super cycle that's going on. We see that from SK to SanDisk across the board there. Look, I think right now it comes down to like in stationary versus growth and AI is such a big part of this economy and the capex build app companies, your B school like they're willing to pay a bit up because that's what they need to do in terms of their, you know, in terms of the buildup that we see in this fourth industrial revolution.
- [12:25]
A
It's an interesting point because one of the things back to Rahm's earlier comment about economic populism that the administration seems to believe here is we could run it a little bit hot on the inflation side if we run it much hotter on the growth side. And so you know it's something that people forget is we're always kind of in a race between inflation and gdp. These things don't exist in a vacuum. And I guess the question if you will, that's driving a lot of that view is how big do we think the productivity gains from AI are going to be? And in, in fairness to the bull case here, as we look at this you are seeing more and more people on call it the non technical side of things starting to get sort of the punchline with AI like you know, to take another person from the crypto space. Mike Dudas was on Twitter today talking about I get that coders think AI is like something of a big deal but let me tell you, it's a much bigger deal to me because I couldn't code at all before and now I can use this thing and start making stuff for myself. And it's like the immediacy of it is something I think some people are starting to grapple with. Another good example of that. I know, so go ahead.
- [13:41]
B
I, I would also just add to look, for the first time in 30 years, the US is ahead of China when it comes to tech. You know, and that's another thing that's playing out here too with US companies from Nvidia to Microsoft to Palantir that are kind of dictating a revolution. But, you know, to Rob's point, energy's the biggest constraint in the US and price points are going up, right, in terms of just memory and just capacity. So that's probably something that, you know, those are some of the biggest push and takes as you look at what's happening right now, especially in the tech world.
- [14:24]
A
So I actually have a question for the group. I wasn't planning on going this way, but I am going to take the detour here since Danny asked a very interesting question. The energy bottleneck. What are we like, let's take the bull case for AI. Let's say that we're going to build out more data centers, that we're going to solve some of the capacity bottlenecks for hardware and that we're going to be able to drive very significant productivity growth. Wouldn't that in the current world just cause energy prices at a lot of place to go vertical? And if that's true, what are we going to do to build out more capacity? Capacity? Like what is the actual solution over? Call it the next two years.
- [15:04]
C
We're going to invade Venezuela, take 300 million gallon billion barrels of oil and we're going to, we're going to refine it and we're going to, we're going to protect it and then we're going to, that's what we're going to do now. But I like it. All joking aside, I mean, maybe that's part of the, the. But beyond that, like, you know, we, we do have other, like nuclear. I mean, one of the constraints. I remember after SBF blew up, right? I remember I was talking to a good friend of mine, Chris Giancarlo, and he's like, oh man, I hope this is not the Three Mile island moment for crypto. And which if you guys remember, it wasn't a nothing burger, but like nobody died. But there was an issue in Three Mile Island. It freaked everybody out. And we overregulated nuclear into non existence, you know, for decades. Right? Thank God SBF was not the Three Mile island moment for crypto. You know, we've come back. I think we've got a really wonderful regulatory setting right now. We will talk about that later. But I think the same set, the same thing's happening in nuclear land. I think we're finally getting to the point. Like I'm an old Navy guy, right? Like we put nuclear reactors in our submarines and everyone sleeps around them. We, we've mastered this technology. We're only getting better as you look at modularization. And so to me, what's holding us back is regulation. And like that is, that's, that's the way to solve it. I think that's how we, you know, and of course, yeah, you've got solar and other stuff. Nuclear in my mind is the way to go.
- [16:36]
B
100 I say and I want to get mom, see what you think. But like to me, nuclear continues to be, that's going to be the answer. I mean you're not going to see nuclear fission infusion. I believe fusion could be significant. There's a sea playing out. But right now, look, Chung is ahead of the US when it comes to energy. 3% of US companies have gotten down the AI path. When you get to 20%, you don't have enough energy. Nuclear, I wouldn't call it a crisis, but to me this is just a very, very important moment in terms of build out of nuclear in the U.S.
- [17:17]
E
Yeah, no, I agree. I mean nuclear is the only way. The issue is that the execution timeline is measured in years and there's no near term impact. There's no near term impact. We don't know how to do small molecular reactors. They're still not in my backyard. Concerns and issues, you know, China's still way ahead on nuclear, so I don't know. My own view is that it's the right answer. But hype is ahead of reality and that matters mean what's priced in is above expectation. You know we've seen this before, right? Biotechnology will be enriched through AI. Biotechnology was also enriched when Craig Venture decoded the genome. We had a two year bubble and then asset price went nowhere for 15, 20 years. Right. So like I'm a big believer in AI productivity. I just don't see tangible results in nuclear that drive earnings. I see prices that are high relative to expectation. Everyone's talking about it now. I think it was a great trade a year ago, a year and a half ago I was in that trade a year and a half ago and a year ago I'm out of it now. I've sold my nuclear positions at this point.
- [18:27]
C
Yeah, well, let's go back to geopolitics, right. I was joking about Venezuela. There's something going on in Iran too, that people, you know, for some reason aren't talking about as much. That's a really big deal when it comes to energy prices. If you can get that regime back into the market in a responsible way, that should also be very, very beneficial. But I, I think this administration is definitely focused on, we talked about it with Peter Scheer last week, right. Pro sec, you know, securing like the, securing the resources needed for the US to sustain itself. And I think that's, that's really been driving our fallen foreign policy and I think it's going to continue to do so.
- [19:04]
A
I would als. Oh, go ahead.
- [19:07]
E
No, I mean, look, if you just look at a few of these charts like ko, CCJ or ura, I mean they're starting to look like double tops and there's a lot of high beta and parabolic activity. Like when I see that I'm, I'm looking for rotations, I'm looking like, okay, everyone's on the same side of the boat. What side of the boat are they not on? I think they're, they're interesting angles. Love to get your take, Dan. And like, like liquid natural gas. That's near term. It's real good.
- [19:34]
B
No, I agree. No, I, I think you're making a great point in terms of like, see I, I, I can almost make a point that like energy is coupling to like when you think about what the best AI trades this year, I think you could argue energy, which would include natural gas. But is, is going to be a huge part of what I view as the AI transitioner, you know, and then there's also a basket in there with like Jeep Vernova and some other, I think like, then you came out like, like iron. Like that's one of. Even though it's a crypto mining, we like that one. See, to me the best way to think about it is more of a basket on, on the energy side is the best way to play it. But I think like the natural gas players are going to be, they're going to be key players as this ball plays out.
- [20:33]
A
I think a lot of the difficulty of the energy theme is figuring out demand versus supply timelines. Right, Rahm? Exactly. As you were saying, like nuclear has been so slow. I know Elon Musk is very bullish on solar in the medium to long term, but that's not immediate. China, China's built a lot of capacity there, but it's not immediate. Right. Like all of this takes picks and shovels to get done. And so part of what I'm sort of looking at as we look at this and we look at the forward trajectory to bring it all the way back to the Fed is a little bit of like the call it demand leading supply which is going to cause a spike and then a significant downtrend over time as people build out. People build out, people build out. We may see the same thing at ram, we may say the same thing in other sorts of computer parts like all of these. If we're talking about a real infrastructural build out will have that behavioral pattern.
- [21:28]
B
Well I just want to say that was like when I was at CES last week in Vegas, that was a big question. Whether it's like remember everything embedded AI, whether it's PCs, health, glasses. It's been a rising crisis. Right. And so the reality is is that it's something where she's all playing out in real time. Especially the same time that you're trying to embed up all this technology into consumer devices that are going to launch.
- [22:02]
E
How do you see that playing out with inflation on that angle?
- [22:05]
A
Right.
- [22:05]
E
You say also mentioned that HBM memory is spiking like 200% price increases and you need right. Ram. It's in every single smartphone. And now you see this AI PC cycle starting. You're seeing Microsoft Windows 11 retire. There's a new Windows cycle coming online. So how does this play out? So is you know the one is like the impact of Micron, SK Hyex, the memory manufacturers. Then there's the supply chain behind them like Lam Research and KLAC and Applied Materials and then you got the PC players who and the smartphone players that use memory as an input cost. But maybe they're going to benefit from people that want AI devices. How do you see winners and losers kind of shaken out there? Especially given that Micron's also ran up and yeah, good.
- [23:02]
B
I think but R.E.M. i think Micron's still cheap. I think like Micron San and this as k behind I mean I think it's a mechanry super cycle.
- [23:12]
E
We own Micron. Full disclosure, I'm with you on that.
- [23:16]
B
But I can argue the Micron is cheaping with 50% upside this year. Like I so I I when in some say oh that's a huge run. I think we're actually there's four or five core suppliers and that's not going to change. Look, I think you're going to have some absorption of costs among maybe PC, some of the smartphone players. Apple's gonna have to increase prices on iPhone 18 by probably by at least $100 per phone. So you're gonna have to like, I think like you play it up in the picks and shovels like the memory player for delam Research. And I think that it's good. The memory super cycle is going to continue to play out in 26. PCs could get squeezed on a margin because I think some of the biggest worry is like gross margin compression on PCs, on smartphone players, on some that are kind of midstream the supply chain look. And it's a big variable as this all plays out.
- [24:20]
E
I agree with you on Micron. I own it. But you know, I look at names like Lam Research, these things have never been more expensive. Like 45 times earnings. Obviously the market is saying, hey, well look, earnings growth is going to go higher, so watch that multiple come down. I don't know, I just can't, I can't get there. Personally.
- [24:38]
B
No, I see serious hiccups. My view is that it's 45 times, but it's probably more like low 30s relative to what numbers are going to be. And we've never been in a memory super cycle like this. It probably goes on until 2027.
- [24:59]
C
Danny, Beyond CES would love to know like any, any major themes that you came away with from there, you know, that's going to impact the macro landscape or even crypto.
- [25:11]
B
Yeah, I thought, Look, I mean, CES going for 25 years, whatever. It's like this wasn't about flying drones and talking refrigerators. I, I mean this is something where it's about physical AI that's really coming when it comes to robotics, when it comes to autonomous, I thought robotics to me was really the most fascinating in terms of the advancements we're seeing. I think spur robotics would be a good example. Some of the humanoid stuff from figure AI that we've talked about, I think as it relates to just crypto though, and just my overall view is that look, we are, we're in a fourth industrial revolution playing out. Physical AI is here. I think it's going to be bullish for blockchain ultimately, especially as it plays out on the robotic side. Consumer AI revolution now comes. Why do you think Apple's partnering with Google? This is going to be the start of many comments to smartphone in terms of they're going to bunch their true AI model now the 1.5 billion iPhones.
- [26:20]
E
I don't see the competition. Sorry.
- [26:22]
B
Go ahead.
- [26:26]
E
How do you see this playing out between Nvidia and Tesla? Right, so Nvidia is making a bid for autonomous driving vehicles, which is Tesla's home court. Nvidia is obviously making picks and shovels play. Tesla is on humanoids. But everyone sees that opportunity too. How, how do you see that shakeout between these two players?
- [26:50]
B
Well, first, I think Tesla is playing a different game. I think 80% the autonomous market they're ultimately going to own. Like I, I believe this is going to be a. Robotax is going to meet 30 cities. I also think Trump signs the executive order probably in the next four to six weeks about autonomous going away from states to federal. And that's very important from a regulatory perspective. But look, Nvidia, they're going to be an end to end on some OEMs. They're obviously a partner of test. You could argue a competitor, but they'll be. There would be a point. And I think, I think, See, I didn't. The initial reaction to Tesla stock was down when Nvidia, you know, when Vincent talked about everything. See, I don't. I disagree. I want Nvidia involved in autonomous like I want Jensen involved in it. This is not just about. So I actually thought it was actually bullish for physical AI, bullish for autonomous. But I still believe at the end of the day the winner when it comes to physical AI, there's two. It's Tesla and Nvidia. Nvidia's stock, where it is today is I view as basically like, it's, it's one of the biggest disconnects that investors are only valuing the data center piece for Nvidia. They're not valuing physical AI, they're not valuing sovereign area, which is why I think 250 to 275 is the right price.
- [28:33]
E
I don't think there's a bubble, but I do think OpenAI is a bubble. Let me make the case and I'd love to get your downstream analysis there. So OpenAI is raising money at a 850 billion valuation. They've got to raise $100 billion. They want to get it done this quarter. I expect they'll be successful at that. But they need to keep funding the machine. Right. There was an interview that CEO of OpenAI had with Brad Gerstner, Altimeter, and he described that they've got $1 trillion in committed obligations. Grew up in New York. Committed obligations also means debt you have an obligation to pay. And Oracle has got over $100 billion in revenue. Performance obligation. That means contractual commitments from OpenAI. So there's this ecosystem that's built on top of OpenAI and the music keeps playing. So long as OpenAI can raise the funds, they can raise the funds. Then of that a hundred billion dollars, 7,75 billion goes to Nvidia. Call it on average Nvidia's profit margin 75%. So you're now you have $50 billion in net income on a trailing PE of 45, which is $2 trillion is hanging on this $100 billion investment. So look, I think they get it done but beyond that there are limits. Right. You get an. They have to do an IPO by necessity it seems to me. Seems like they have no choice because they've got to feed the machine. And when markets see that OpenAI can no longer raise financing, then I think the semiconductor game is done. That's my view. But what's your take wrong?
- [30:08]
B
No, I, Look, I. And, and that's like the Michael Bur. Yeah, I mean there's, look, see my view is just kind of like covering tech stock since the late 90s. Like I've seen all types of cycles, right? Vendor financing, back bubble burs. It's where we are today. See I just have like I get what you're talking about and straight argument. My view is you're building out a new economy and you're basically in the second, third inning. OpenAI, Nvidia obviously AMD are going to include the huge part foundationally parts of it. My view of what OpenAI is doing is, is that look, if I believe that they're going to ultimately monetize 20% of the 4,5 trillion that's spent over the next few years, then I would believe like they very able to pay their bills. You know, it's like I believe like they're good for their trillion. Now are there, is there some of that that could go by the wayside? Yes, but it goes to my view like Oracle I, and I've talked about it like it's been a tabletowner the last few months. Like. And if you start talking about EDS spreads because two dudes in their basement are trading with each other and that's where you're going on the liquidity. I just view it as like Oracle is one like their growth going from 17% to 30% to 50% now look, could some of that go away? Yeah, but that's why that one like you just watch Oracle's stock. I think Oracle is stock that ends the year 275. Like so that's one on a large cap one that I really like.
- [31:50]
E
Corey's got the Nvidia put though, right. Nvidia said we will take on whatever excess capacity like you said core weave has. And Nvidia is a much better counterparty than OpenAI. You don't have to bet on the.
- [32:01]
B
Come with Nvidia but but you raise great point and I think it speaks to my point like they're going to have to go public by 2027. They're going to raise a hundred billion. They probably raise another 50 to 100 billion after that in the final round. But that the too big to fail that's going to continue to kind of be that like goats that's in the closet nervousness like for the sector. But look it's like they're going to have to prove it. That's what rhyming that.
- [32:34]
E
I think you're right and by the way really love the discussion. One last point here in question is you know on OpenAI they're charging fees to generate revenue. Google has a freemium model. They don't charge for Gmail, they don't charge for search. It's an ad driven model. They know how pixel and digital marketing works. Meta's also entering the game with Llama and it's a freemium model. They have existing distribution. They don't want OpenAI to have a seat at the table. How does OpenAI fund their commitments in a world where the cost of inference and the cost of services goes to zero.
- [33:14]
B
But see my view of OpenAI everything they're doing is building. They're building on end to end stack from chips to application to consume. So ultimately devices. So like where OpenAI is today I need them as a much different company. 18 months, 24 months or like it's no different than like Amazon starting off as an online bookstore. So it's like it's great points. I just believe when you look at what the models that book I OpenAI and the reason they're able to raise this, you know I rapid believe it's going to be the 100 billion at this validation because investors be looking on the other side of it. But look to your point OpenAI is going to have to prove it this year.
- [33:55]
E
Yeah. Nvidia has other sources of demand as you pointed out like sovereign AI. They the demand for Nvidia GPUs is strong. I fully agree. OpenAI is making bets. They don't have product market fit. They've got to sell me this pen story. No one wanted the pen. No one wants a pen. I just got a pair of Google Pixel headphones at Best Buy. They automatically integrate with Gemini. AirPods work like that, form factor works. They're already there. They've met the market where the market has need. Anyway, I spoke my piece back to after.
- [34:31]
B
I'm gonna go now.
- [34:36]
A
Chris has a question. One more question before you go there.
- [34:39]
C
Yeah, I just, yeah, just want to ask real quick about worldcoin. So you know, Sam hasn't been that, you know, obviously Sam has worldcoin, he has open AI. What's your view? Obviously you're the chairman of orbs. Just would love to get your thoughts about the role of crypto and AI coming together in that capacity.
- [34:57]
B
I mean that's why we're doing Orbs, because to me it's the intersection of AI and crypto. I mean that's what work of COIN is. There's some extent like with Sam and you've seen him more active with Gap and he's been with Alex, some of the guys. I mean he's a huge believer in worldcoin. But my view is like sometimes you build things and then market's not ready for it.
- [35:26]
A
Danny, thank you very much at a full core issue joining us. All right, so on that note, I was going to say I also want to hand the ball very briefly to Chris before we go to our next ads, which is Chris, there was a little news at Coin Fund lately and I know you can't talk about everything, but I wanted to give you a chance to let people know what you can say about what is going on over there and what you'll be heading up.
- [35:50]
C
Yeah. Thank you for. It's super exciting. My partner Seth and I announced that we're going to be spinning off. So we're going to take the liquid strategies. New entity couldn't be more excited. So yeah, a lot more to come. Got some big plans special thanks to the Coin Fund guys. The last four and a half years and onwards and upwards. So thank you.
- [36:12]
D
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- [37:11]
A
All right, everybody, welcome back. As promised, we're going to argue about more things. So we're going to start with something we've argued about before, which is the Market Structure Act. So we just got news right now that the AG markup of Clarity is going to be pushed back and the bill continues to, I'll politely say, be digested by the Senate. Like, Chris, what do you, what do you make of what's going on right now? Right now?
- [37:36]
C
Oh, man, it's, it's. We talked about this, man. It is a tough, tough bill to pass. Genius was supposed to be easy, but we saw how difficult that was. We've talked about this. I think we're still banging our heads around a few things. The first one is obviously one of our favorite subjects, interest on stablecoins. Or I shouldn't say interest, I should say rewards on stablecoins. And this has turned into a very controversial subject. The banks are back at it. They think it's not fair, and for some reason, they are very much against it. My take on this one is that anytime there's a bill, there's a grand bargain. And I think that if I'm in the bank shoes, and I was for a long time, I would say, hey, I don't like this. I don't like this. It's going to hurt my loans. I'm not going to be able to take the deposits to issue loans. And so what I would say is, you know, what if we need, if we're not going to mess with these rewards, give me some relief somewhere else, lower my regulatory capital, because you know that there's room there. It kind of gets you to the same place. If I'm a banker, depending on my business, I may like that a lot more. And so I think that there's. Maybe there's a deal there, but, man, it's. The Trump ethics things we talked about seems to be going nowhere. That seems to be a huge issue.
- [38:55]
E
Well, at the point, the bank.
- [38:56]
C
So, like, that's not going anywhere and then defi is still out there. So look, I talked to my friends who have been in D.C. all week. They're like, it's cooked. I talked to the people in D.C. that are trying to get it done. They're like, no, it's alive. You know, we're going to get it done. I don't know the final format of this thing, if the crypto people are going to like it or not. Maybe not. I don't know.
- [39:21]
A
I don't know.
- [39:21]
C
Go ahead, Rob.
- [39:22]
E
Tinfoil. Conspiracy theory, question, hypothesis. Okay, so you mentioned that, hey, banks want to trade, like, give us some regulatory capital relief this cap on credit card interest rates, this threat. Maybe Trump is dealing the stick instead of the carrot. Trump says, look, get behind this, get your lobbyists behind this. We're going to get this done and I'm going to walk back this 10% stuff so your stock prices recover.
- [39:51]
C
I don't know. I mean, I think that that issue can be dealt with. Austin, dying to hear your take. I think we can solve that issue. I think we could kind of figure out defi. But I don't know if we can figure out this, like, this maniacal focus that certain folks have on Trump and crypto and ethics needs to be addressed. And the point that I continue to make to anyone who listens with me is, yes, let's address ethics, but let's do it for every single asset class. But to me, that's like, I talked to Democratic senators or whatever. They're like, yeah, no, this Trump crypto. No, no, no, we have to fix this. What do you think, Austin?
- [40:33]
A
Yeah, I think there are a lot of angles to deal with the banks if you want to deal with them. One is exactly what Chris said, which is do something nice for them. The other one is do something neat, which is to say, hey, wait a minute, if you guys are telling us that you're balance sheets are in such trash shape that you can't survive if we permit competition to you actually maybe we should start raising your reg capital. Right. Like there are again, ways to push them off of that. I would also. Well, I would also say another thing I'm observing is I think retailers are waking up and noticing what's going on here and are going to pile in to refight the credit card debate writ large if banks aren't careful. So that one's solvable. I do think the unsolvable one is the ethics one, because the problem you're going to run into there is Democrats seem unlikely to pass anything without the ethics restrictions about crypto. And if you say to them, well, let's address everything, I think their answer is going to be yes, right? I Don't think they're going to know that. And then I think it slows everything down as you negotiate a complete EPICS bill and then you end up with something that quite frankly, the president's going to want to veto. So do you have a 2/3 super majority in the House, the Senate, to override? Like it's good. If nothing else, this thing is just going to grind to a halt unless.
- [41:51]
C
You carve it out. Right. When we talked about modularity with Patrick Witt, the White House executive director, when we had him on, and he said, no, not at this point. I do want to talk though that and mention that there is a difference between G sibs, global, systemically important banks, the big guys that we all know love, and the community banks. And the community banks have been getting hammered. Their numbers continue to dwindle. I'm sorry, but it's definitely not because of stable coins, because we barely have stable coins already. The reason why they're dying is because the G sibs are killing them. And the way to solve that is to give them some regulatory relief that allows them to compete again. I think at least that's what the treasury beston said when he went on the all in podcast. So I think solving the G sib versus community bank issue should be dealt with the way it should be dealt with, not by going after stablecoins. It's just really.
- [42:44]
A
Yeah, I'm going to go one step further. Going after stablecoins entrenches the G sibs because like, think about it from this perspective. If you are Chase, bank of America, Wells Fargo, Citi, you're providing to customers with medium to high balances, which are the valuable ones, ones like adequate to good customer service and one, stop banking for your checking, savings, brokerage, credit card, mortgage, all of it.
- [43:11]
B
Right.
- [43:11]
A
Community banks cannot do that. By definition with their scale. Stablecoins because of the interchangeability of them, are a way for all of them to essentially federate against the big guys. And one of the things I was great about, I wrote something about this this weekend, is that the leadership of the ICBA needs to be fed fired immediately because they are essentially feeding all of their members to the big banks and getting them killed. And again, it has nothing to do with stablecoins currently. What's happening, because like, here's a great trivia question. What appears to be the number one growing bank in rural Michigan? Jeffrey Morgan, SoFi Right off, the thing that's killing you is not stablecoins digital banks. It is people who could meet the customers where they are to attract the new customers. Right? And that is number one, the fintech banks are just housing you. And then behind them are the G sibs and then it's the community banks. And when you get to big cities it's the G sips dominating because of their aggregated services. Nowhere in here are the community banks winning. And so every year their average customer gets one year older.
- [44:22]
E
You're exactly right on the mark. I mean the G sibs, the big banks and the fintech banks have a better customer experience because of digital banking. They have a broader product offering and that's where the future is going. And the community banks are struggling for relevance. And it's interesting because the community banks already do have more favorable regulatory treatment. They have less capital requirements, they have exemptions under Durbin around interchange income. So there are all sorts of little arbitrage that's set up in like my alma mater, Cross river, right, for example. There are all sorts of little arbitrages these banks enjoy. And so the only answer is, well, hey, look, give them more, even more relief. You know, if you're an entrepreneur, one of the best things you can do is help these community banks maintain long term relevance. And one of the answers to that will be through integrations with DeFi and through things like tokenization. It's it. Those community banks can already avail themselves of modern digital banking technology like the Encinos of the world, the nice front ends, a nice mortgage experience. That startup ecosystem has already been built out. But what hasn't been built out is like liquidity and financing and risk transfer so they can compete and start to look like the service offering that a bigger bank presents.
- [45:40]
C
Crypto's dying. Crypto's dying for borrow lend. Like you know, all the centralized borrow lend we had last cycle is wiped out. It wasn't done right. You know, Celsius, blockfi, you know, there is an opportunity for the people who can leverage, who are smart enough to leverage technology and lean forward. I think you're right. It's time to compete. And I think they can proliferate because the regulatory environment is going to allow it.
- [46:03]
A
I would also say this is back to telling the banks, hey, be careful what you guys are lobbying for down there because to me there's another obvious answer to helping the community banks out here, which is bringing back Glass Steagall. And if I were one of the big banks, I would want to be fit. I have heard people in the Senate discussions bring this point up because they've pointed out to the Community banks, your problem is that you can't compete with these like consolidated behemoths. So like the real answer is either join them or we have to break them up. But that's sort of the inevitable like future. And I'll tell you, there are many people, right, whether I think this is right or wrong, who think we have too many banks and we should have less. But that's a school of thought that should also be acknowledged here. But Ram to your point about technology, like great example of community banks holding themselves back. Apple bank here in New York, I, there's a branch, I walk by it occasionally when I'm on walks around my house. If you look at their actual like offering, it's pretty good. It's like a checking account that pays interest. But then I go and look at their technology and it's like psychopathic. They have separate apps to manage their debit card and your bank account. Guys, what is going on here? Like that's the stuff that needs to be.
- [47:19]
E
Yeah, look, there are incredible opportunities with these community banks if you focus in the right area. So like Customers Bank, I'm a customer of Customers Bank. The service sucks, the bill pay sucks, the wire experience sucks, they still haven't issued me debit cards, been there for like a year and a half. The support response sucks, the Stock is up 70% in a year. It doesn't matter, right? If you're a Bank, you get 10 turns of leverage from the Federal Reserve, from the FDIC Tier 1 capital requirements and you can borrow from the Fed. There are some startups like stablecore getting after this opportunity. How do we enable banks to become stablecoin relevant, providing picks and shovel solutions. And I think if you're a community bank and you can pivot like SOFI did. Sofi acquired a community bank and they made it modern tech with digital marketing and that was a driver of success. So there's still more of those opportunities.
- [48:11]
A
Out there and you're seeing partnerships of that sort too, like your friends across river, like columns, cotton, coastal, community art, like you could name them all. And the thing I think will start happening is if you're a medium to small bank and you don't find that sort of path, you are just going to be eaten by one of the big guys, right? Like the current pathway of do nothing is rapidly running out of rope because as the boomers age and die off, if you didn't attract new customers, you're just out of customers.
- [48:41]
E
If you're a community bank owner, give me a call and focus on this topic, I've thought about this one or two times, so just let me know.
- [48:49]
A
End up in there by now. Final one before we bounce out of here today, guys, Venezuela at some of the actions around tether. I want to break both of these up in related fashion, call it. So as we've looked at the Maduro regime and what's going on in Venezuela, when looking at how deeply USDT has been embedded in the economy for oil exports, potentially for sanctions of Asia and by the way, depending on which end of that you're on, do we mean evading US sanctions or do we mean evading Venezuelan capital controls to get your money away from the regime? So let us acknowledge there are two sides to that story. But the punchline is we just saw one of the larger freezes we've ever seen of stablecoins and we're seeing how much this was integrated into. Call it a wadam slash Global south system. What do we think is going on here? Like Chris, what's your take on these unfolding events?
- [49:46]
C
I think it just goes to show that stablecoins are the most significant power, the most significant instrument of national power that you could ever imagine. More powerful maybe than any weapon that you could construct because you have a product that's in high demand, right? Everywhere in the world everyone wants dollars, right? And the fact that you have freeze and seize capabilities makes it very, very powerful from the, from, from a position of control. Now the power that you have is that if you don't go through proper due diligence, you're going to undermine the confidence of that currency. So as much as it's in demand right now, you can lose that demand and really undermine your currency if it's taken advantage of. And so, you know, the question is, is where do the bad guys go from here or how do people evade from here? It's a lot harder when it's on chain, a lot harder. So it's, it's going to be really interesting cat and mouse game going forward. One thing we didn't mention was that I'm really hopeful that market structure is going to include a white hat hacker provision that, that allows private citizens with licenses to go and help recover assets. But for stablecoins, you don't even need that because you just go through due process. Freeze and seize. Yeah, maybe not what Satoshi had in mind when he created Bitcoin, but it's, gosh, it is one heck of a instrument of national power.
- [51:18]
E
Yes, it is. A few quick thoughts. One is, this is more dollarization of emerging markets. Stablecoins are advancing US interests through national security and dollarize in emerging markets. That's 1, 2 is tether's coming into the fold. Right. Used to be the perception that if you want to house assets and evade the long arm of the US government, you custody and tether and not usdc. Well hey look, that's not true. And third, Chris's point is right on is like there's a big tension around. Is digital assets sovereign money where you bank yourself and you have privacy and you're secured by fourth amendment protections against unlawful search and seizure? Or is digital OSS just FinTech 3.0 and this is more evidence that this is FinTech 3.0.
- [52:14]
A
I mean I would say I think these two. Chris, to your point, these two visits can look live side by side with each other. It may be the case that Bitcoin is the permissionless, non interdictable currency, that stable coins are going to be highly interdictable and that different sets of people will use each as preferences demand. Right. To bring it all the way back to where we started, if people continually undermine a belief in the currency or a central bank, people are going to substitute to Bitcoin. So in some ways it serves as a hedge on the worst behavior. Because if the US is using the powers of freeze and seize capability to interdict genuine criminal actors, I think everybody looks at that goes yeah, okay man. But on the other hand, if they start using those to like steal from people who they just want to tax more, just take money because they don't like your political speech, you're going to drive people into Bitcoin.
- [53:07]
C
Yeah. It's also not dissimilar to the Fed. Have you ever been in the Fed Vaux down in New York City? It's incredible. If you ever get a chance, I recommend you. But like yeah, that's a custodian actually. People don't realize it's not our gold, it's other people's gold and we hold onto it because of that trust. So to the extent that we're able to retain that spirit of trust, I mean it's a very, very good thing.
- [53:31]
A
I would agree with that. So on that note, we've been going for a while, we had a great conversation with Danny and in closing notes I will just write, remind everybody that nothing we said here was investment advice and that we thank you for joining us for this episode of Bits and Bibs. We'll be back in one week to discuss more about how the worlds of crypto and macro are colliding. Until then, take care, everyone. And Chris, congratulations again.
- [53:57]
C
Congrats. Thank you, sir. Thanks, guys.