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- [00:01]
Narrator
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- [00:32]
Austin Campbell
Hey, everybody. Welcome to Bits and Bips, where we explore how crypto and macro collide one basis point at a time. As always, I'm your host, Austin Campbell, high Scholar of Zero Knowledge Consulting. Here with my co hosts Ram Alawalia, master of wealth, leader of Lumina, and Chris Perkins, the golden hand of coin funds. We're here to discuss the latest stories in the worlds of crypto and macro. And boy, do we have a few stories today. Today. But before we start, remember that nothing we say here is investment advice. Please check unchained crypto.com bitsandbips for more disclosures. And before we begin, a quick commercial break.
- [01:10]
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- [01:30]
note before we get into today's episode, Bits and Bits now has its dedicated feed. We're spinning up from the Unchained feed and moving to a new podcast and YouTube channel. So if you want to keep up with our weekly live streams and Macro meets crypto breakdowns, make sure to subscribe to Bits and Bits directly. We won't publish there until March, but subscribe today so you can be ready for launch. Be sure to subscribe to the new feeds@ Unchained Crypto.com BitSandBits.
- [01:59]
Austin Campbell
All right, welcome back. And I guess right at the top, we've got to start with the biggest thing in the market right now, which is Iran. So over the weekend, there were US Strikes on Iran. All right, there we go. In an operation dubbed Epic Fury, the United States and Israel launched a coordinated military campaign against Iran. Early reports indicated widespread airstrikes on strategic targets across Tehran and the country. Perhaps the biggest news is that Supreme Leader Ayatollah Khamenei, who had ruled Iran since 89, was confirmed killed in the strikes now by both Iranian state media and originally Israel. One could say that is the most significant escalation in US Iran tensions in Decades. The fallout of that led to immediate regional escalation. Iran has retaliated with missile strikes on U.S. bases, allied facilities and commercial targets across the Gulf region. Multiple Arab countries have now been struck by Iran. Multiple impacts for instance in the uae casualties and damages have been reported on both sides really the Iranian morning and declared 40 day period of national bereavement for Khomeini headlining that. So in terms of market impact, before we get to some of the items that have happened inside of this Oil prices originally surged as traders are pricing heightened geopolitical risk at potential potential disruptions to Middle east supply routes. Bitcoin and risk assets down slightly at the start but rebounded quickly tapped 70,000 today. Gold reached 5,400 an ounce again today and excuse me, poly market attracted record trading volumes as US Iran bets topped 529 million at risk. And in terms of actual reporting, hyper liquid oil prices were used by Bloomberg over the weekend in terms of keeping track of what was going on with the situation. So I want to start rom from the economic perspective with your view of war is typically seen as both a risk event and a supply chain disruption event. What are you seeing in terms of market impact here as a result of what's happening over the recap?
- [04:31]
Ram Alawalia
Yeah, no, so great introduction. So you know as you pointed out, oil prices are up and so industries that rely on oil are down. Consumer discretionary for example airlines, traveling leisure are down and then energy leading sector in the market. So all sorts of sub industry groups within energy also like oil fuel services have done really well. You know we talked I think last Monday we said the likelihood of Iran may be inversely proportional to Trump's polling in the wake of Epstein. And here we are one week later. I'm not saying there's cause and effect but there's a consideration at the very least there's a consideration like a little tiebreaker perhaps at the same time this Iran news has been discussed for so long that it's been telegraphed into markets and you saw that with the 10 year coming down to 4% from 4.25%. You saw that with energy leading QQ XLE Energy ETF is a top performer year to date so people did position around it and the Vix index was in the low 20s for most of last week and is there now I find it remarkable that essentially markets are flat and the volatility index is actually up. That's actually bullish. It's actually a good sign. So that's constructive. But I don't think there's really much of a long term impact. The amount of kinetic energy I'm sure Chris will go into this is just massive. There's no credible counter threat that the IRGC has. I want to be careful and use the word irgc, not Iran, because the IRGC is not representative of the Iranian people. Far from it. And the three casualties were friendly fire. So Pete Hegseth this morning and Trump over the weekend suggested there might be like a four week and perhaps five week time frame. I think they managed expectations pretty well and low. And that helped the market. The market didn't have that. As soon as Pete Hegseth came out this morning and offered that guidance, the market started to rally. He also just injected a lot of confidence in his remarks. You listen to it and it's like listening to an earnings report from Palantir or something. You just see like American dominance coming through the screen there. Right. And I think expectations will be beat. I think that four to five weeks is actually too low. I think it'll come. I think resolution can debate what resolution is defined as, but in terms of the ending of kinetics will happen much faster than people think. Chris, what's your take?
- [07:21]
Chris Perkins
Yeah, so first off, I'll say that war has come to crypto's doorstep. I mean, how many times have we been in Dubai, guys, or Abu Dhabi, one of the global centers of crypto, and you know, here we are seeing bombs drop again from an, through an idealistic lens. You know, this is why we're here. Crypto is very resilient. It's decentralized. And you can't just take off like, it's not like cutting off the head of the snake. From a crypto perspective, we're decentralized. We've got validators. So in case one center gets hit, the networks will perpetuate. Now let's talk about the war a little bit to your point. This has been telegraphed, you know, not for a week or two weeks, but for 47 years. Right. Like, like this had to come to a head at one point. I think there were some surprises we can get into. But the strategic importance of this is pretty material. The Strait of Hormuz controls 20% of the world's oil. 80% or so, I think goes to Asia. China is very dependent on oil. They were dependent on Venezuelan oil. They were dependent on Iranian oil. And now the US is positioned to have perhaps control over both of those streams. So this is also part of a greater, I think, China containment strategy. And you know what surprised me about this was the Iranian response. Yes, they did target US Bases, but they also went after every single Arab country that, you know, previously said, you know what, maybe we don't want you guys to use our aerospace guys. Now they're like, okay, we've had enough. And there was a lot of historic resentment, you know, between the Saudis and the Iranians as an example. So I think, if anything, that will probably build, bring this to an end. And the question is, what is the end and what does this mean for markets? So when I was in Iraq a long time ago, we were there to encourage democracy. Our mission was, hey, you know, we're going to turn this into a democratic, you know, friend, just like, like us, the Trump. And I think that was part of the policy for failure, you know, because we tried to force our ideals on a country that maybe had different ideals at the time. I think what we're seeing with Trump, and if you're going to see anything that comes out of, like, how does legacy look at the Trump foreign policy? It's about certain cases looks like take the head off the snake. And I think what he's going to prioritize is stability over ideals, right? So at some point, somebody's going to pop up and say, I'm the strong man, probably, and Venezuela was the woman. You know, he didn't go with the democratic, you know, opposition. He went with the regime because he wanted stability. I think he's going to look for somebody to assert strength and power and stability, and I think that's how the war probably comes to an end. Is that there? I don't see us moving boots in the ground, which would be bloody protracted and be very bad, I think long term for the economy. But then pivoting to crypto prices, I think bitcoin showed a lot of strength, as did crypto. I think we were already part of that bottoming. I know I get accused to be the, of being the bull on this program, but, like, I think we were hitting, we were bottoming. And now we see liquidity. You know, all roads are leading to liquidity coming into the markets. And the fact that, yeah, risk assets, bitcoin came down. It, it showed a ton of resiliency. It feels like a very good setup for me. And the last thing I'll say is, you know, I've got friends out there who are, who are on the watch, who are like, my classmates are now the commodores of the fleets out there. You know, all of my thoughts and prayers to the people who are, you know, The UAE and, and the surrounding countries are friends, service members to Floyd and their families. I know how it is. It's not easy. So thinking about you guys always.
- [11:06]
Austin Campbell
So picking up on a couple of threads there, Chris, one that I think has been. I think what's the right way to say this maybe misunderstood in the United States is the position of Iran versus the rest of the Gulf, right. There is this tendency when you're not like an expert, to regard things as sort of a monolith, right? Like, see the whole argument around clarity where people are like, oh, the banks. And let me assure you, all the banks don't agree. It's a similar problem here. And one of the things that really did surprise me as well, and I actually think is driving part of the market reaction is it's like Iran went out of their way to alienate all of their potential sympathetic countries around them as quickly as humanly possible by firing missiles and drones at all of them, right? Like, if you're in, like, Qatar and you're suddenly catching missiles from the Iranians, you're like, what the hell is this? Like, what did we do to you? You know, the UAE obviously has not had a great diplomatic relationship with them, but it's a very different thing to have missiles fired at literally your hotels, right? Like, let us not make any pretense that these were military targets here. I believe in Saudi Arabia there was an attempt to disrupt oil refining as well. So, like, these are significant sort of economic attacks and it's branching out far beyond just US Military bases in Israel, which were the typical sort of shots in previous, you know, altercations, to being very realistic here and looking at, like, capabilities across the map. There hasn't been too much of an effective risk spots, right? Like the United States lost three, three fighter jets to friendly fire and currently zero to Iran. Israel, like, obviously has sported a similarly positive record here. One of the things that I'm also watching is, is the market reacting to the fact that it may be that Iran was mostly talk from a military capacity standpoint versus, like, operational capacity to really hit back at scale. Like, we have not seen hypersonic missiles into US Carrier groups or anything of that sort that people were worried about. We have not seen mass casualties among civilians in other places. We haven't seen major disruptions to infrastructure yet. So as part of what the market is pricing, just call it the kinetic superiority of the Americans so far.
- [13:35]
Ram Alawalia
Two quick reactions. First off, that the head is gone, right? So the leaders assembled Saturday morning, all 40 of them in A compound, an incredible act of cell phone stupidity. They're gone now. Of course they did that because they probably believe their electronic communications are compromised, which they are. So they had to meet in person. So it's like you're damned if you do damn sure don't there. The other thing I read is that they delegated decision making to the on the ground troops. So that's why I believe you're seeing then strike their neighbors. I don't think it's top down. I think they've lost that because it makes no sense what they're doing. It shows you just how ineffectual and incompetent autocratic leadership is. They have only two levers. Fire missile or issue a menacing threat. Those are the only things they know how to do. They have no other kind of maneuverability. The interesting thing going forward is that US allies will now control the Strait of Hormuz, which is a nerve point to Chris's point for China. So the long term strategic benefits for the United States go up quite a bit. It's a very interesting juncture in history here. One last point, and I'd love to get your take on this. Which Mossad agent is going to run Iran at this point? I mean, you know, the IRGC hired a guy to smoke out Mossad because they're so heavily infiltrated. Turns out that guy worked for Mossad. And if you, if you don't work for Mossad, you're going to get bombed.
- [15:16]
Austin Campbell
Right.
- [15:17]
Ram Alawalia
So it's almost like, okay, who, which institution steps up which. Are you with Mossad? No. Okay, you're going to get bombed. Isn't that how this plays out?
- [15:26]
Austin Campbell
I mean, arguably the best possible outcome for peace is that the new Ayatollah is also a facade agent. Right.
- [15:34]
Chris Perkins
I mean it's, it's, it's gonna be a complete rewiring of the Middle east in many senses. And there are some age old rivalries in that region between Shia and Sunni that go well back over a thousand years. Right. And I think it's an incredible as, as the geopolitical starts, I guess reshifting, I think the economies are also simultaneously shifting. What are the Middle east governments looking to do? They're looking to get into data centers. Right. And data centers. Why is UAE positioning itself as a head of crypto? You know, there's a lot of interest in emerging technologies. I think as things settle, it's going to be very bullish for crypto, it's going to be bullish for AI and tech. The Saudis as well, like, you know, MBS like him or not, he's very focused on a pro tech agenda. And you know, as things settle and they have to invest less in kinetic warfare, I think that they're going to be pouring more and more into tech. I hope that's the case. I really hope we get out of the violence game and back into, you know, tech innovation, investment. And I, I think that's where we're heading if we can get this right. You know, the hard part is what's next? Nobody knows. Right. And I hate it when they're like interviewing military people. What have you planned next? Like it's almost impossible to do. But you know, to your point, Rahm, they have incredible intelligence. We saw that with the complete dismantling of Hezbollah, you know, and, and they had, we saw it again over the weekend. So, you know, how do they work closely back channel with somebody who can assert stability and control? I'm not sure it's going to be democratic. I would like for it to be, but I think the prioritization because remember, we're in a real politic age. It's all about real politic. And like it or not, Trump is moving in his interests. If this thing settles as he wants and he's got a strong, strong, stable, non confrontational Iran that makes the region better. You know, China is now, you know, we're, they're, they are, they're much more dependent. We're controlling a lot of the oil that, that they used to get below sanction prices like, but low market. So it's a, it's a move of strength if you can pull it off. And mind you, like we talked about earlier, it's March madness, right. We're starting to kick off the midterm season and so this all plays into the narrative. So he's moved on the chessboard. Interesting to see what comes next.
- [17:59]
Ram Alawalia
Trump incited the population to take over the government. So that's a call for popular led leadership.
- [18:09]
Austin Campbell
Right.
- [18:10]
Ram Alawalia
So that's a possibility absent that the clerics would have to get together and nominate a new leader. So those are the two paths. We'll have to see how it plays out. I hope a popular led approach would work. I think the difference, back to your point on Iraq, I don't think it was so much about ideals. I think it was more around a lack of institutions, that's it. Lack of habits and routines around how democracy is conducted. It's a lot more than just an election. You have to have parties and primaries and discussion and a Debate and free press in the fifth column. Iran has a better shot, I believe, at that because you had protests from a very thoughtful, highly educated population. It was coming from the, from the ground up. So one can be hopeful.
- [19:10]
Chris Perkins
Yeah. So democracy in its best form is bottoms up, not tops down. And to your point, what makes our democracy so robust in this country is state and local government. You know, even down to city councils, it gets us very well organized and democratic. That was not my experience in Iraq. And my experience in Iraq was, hey, we're here, you know, the guy in Baghdad, you know, he's your new elected leader. Deal with it. And the sheik's like, no, man, I've been in charge for a thousand years. That's not how it works around here. And so it's just much more complex. I guess my point is that I think the administration wants stability first and foremost. They want control of the oil. And I hope, I hope that, I earnestly hope that the, that the grounds up democratic regime emerges. Iranian people are very smart, very thoughtful, very educated, and I think they want it. I hope they get there.
- [20:02]
Austin Campbell
There was a guy on Twitter, his handle is Roman Helmet guy, who was joking a little while back that actually we should just rename it Persia. Right. As part of this. But Chris, to go to what you were saying is there is actually a long, right. And deep history in this region that I think the Iran name in the recent region regime kind of obscures, like Persia does have a very long history of like education and contribution to both the world and the region. That sort of the best case is that that is rediscovered in subway and sort of brought back in that part to the world. And then by the way, they're sitting on a ton of oil. So as much as we're seeing like an oil supply, like disruption, move of prices upwards right now, if you end up with a stable, like call it globally aware cooperative government. And I just, I don't mean cooperative in like bowing down to any one group. I just mean in the sense of like not constantly attacking and antagonizing your neighbors. You could actually very quickly have a much stronger Iranian economy. Right. And it becoming the gateway between Europe and Asia once more. So to me there is a very positive case. But I'll also remind everybody, we had Omid on here last week talking about how sort of the opposition in Iran is quite weak. Right. There is not really an organized sort of, you know, group pushing back. Correct. Partially because of that, partially because many already left the country, if we're being totally honest and then I think the other problem you have, and Chris, you're familiar with this from Iraq, is there are factions in this country who would probably rather be their own country. Right. Like what are you doing with the Kurds for instance? I think the potential pathways, one that maybe is under discussed is neither the current regime staying in charge nor like Iran just flips back, but rather call it Yugoslavia. Which is to say does this thing break apart into several factions that eventually become their own countries?
- [22:11]
Ram Alawalia
Yeah, I mean the people will need to be involved. Right. The, the suppression of the people was driven in part by the irgc, but also local law enforcement. It. I don't know that the US government is going to take out local law enforcement. I don't know how you do that. So that has to be done by the people. I think you can be cautiously optimistic though it's hard to see what the left tail risk is though it's hard to see what the left tail risk is from this. The left tail risk is the conflict lasts longer than expected. There are fewer transports through the Strait of Hormuz, mainly because those ships don't have the right insurances. But that's temporary phenomena. We had this in 2022 with COVID and you know, delays in shipping. You know, this is a temporary phenomena. So markets, look should look past this.
- [23:09]
Chris Perkins
I think they have, I mean look, look at the resiliency of crypto.
- [23:12]
Austin Campbell
Right. I don't, I don't think just crypto equities have been pretty resilient today as well. Like as you look down the list. I, I think this to me, right, like having seen market regimes before, this is being priced right now as though it is a regional conflict is the way I would describe it. That is to say we don't see major global spillover. Honestly, like Russia and Ukraine was more disruptive to markets than this was.
- [23:41]
Chris Perkins
Yeah, yeah. And again, what has it shown? Venezuela happened on a Friday night. Hyper liquid was price discovery. This happened on Saturday night. Everyone looked at hyper liquid. Now Bloomberg's even quoting it. What we're wondering is like, okay, so hyperliquid has an edge now. It seems to be the 247 global commodities indicator. Like we kind of knew how oil was going to trade as soon as it happened and into the week. We didn't have to wait for Sunday night or whatever for markets to wake up. But we're also seeing the big exchanges now moving towards 24 7. So the question is, can hyper liquid keep that edge? Because like know we've been around long enough like liquidity is very, very hard to achieve. They got it. And once you got it, it's very hard to, to get rid of it or lose it. And so as the big guys come in, what is that going to mean for liquidity once their mode of 247 is, is, is reduced? So like that's what we've been looking at. But again, another, another gold stamp for the crypto markets. They work 247 and they gave the markets what they need on the weekends.
- [24:47]
Austin Campbell
One of the fascinating parts of this too is that a counter argument against 247 trading, and Chris, I'm sure you've heard this as well, is that it will be risk increasing because we'll get all these jumpy moves when people are not awake, etc. Etc. And actually in this event it appears maybe to have been somewhat risk reducing potentially because instead of just uncertainty, like nobody knows what the price is going to open at, we've got these proxy indicators sort of showing us in a market of people, like even if it's not the full market, like let us accept that hyper liquid is a small subset of markets currently it is at least not a completely uninformed and idiotic subset. So you could look at that and say there's some information value in here and it gives us sort of a boundary on what the open is going to be. I, you know, I know you and I were at an event earlier today and we'll get to that. But I think one of the things that this is revealing is that the 247 news cycle might speed up the information discovery, but that may be risk decreasing in many cases as opposed to risk increasing because you don't have the giant jump risk that people are trying to manage over weekends anymore.
- [26:00]
Chris Perkins
Yeah. Which should lower your collateral everywhere. Right. Because you're collateralizing in real time. That should result in additional liquidity coming back into the system as people. Because you used to have to hold the collateral from like Friday till Tuesday if it's a three day weekend and there's a stress, God forbid, that's one of the beauties of 247 markets. You get to lower that collateral and increases liquidity. The other data point that we had, frankly was prediction markets which had their own little challenges over the weekend, you know, and debates. Yeah, I think there's plenty to talk about there as well.
- [26:31]
Austin Campbell
I mean, I'm going to say right now the main thing I'm coming around to on prediction markets is that they're learning in a way that crypto has been learning some of the lessons of financial markets. Prediction markets are in the process of learning many of the lessons of insurance markets right now. Which is to say, if you're familiar with insurance and reinsurance, some of the biggest fist fights in the history of those markets are around do I owe you money or not? And that's always the edge. Cases on terms and conditions and like, how were events defined? Maybe the classic one is does hurricane insurance cover flooding? Right. And like a giant debate that is like ripped through the Florida court system and was worth tens of billions of dollars. And these sorts of things I'm watching in prediction markets now, where the number one thing I would advise everybody is if you're looking at prediction markets, pay special attention to the wording of the terms of each of these markets. Like that is going to be a space that will need to be stated standardized over time with much better call it neutral arbitration. In the same way that insurance and reinsurance markets work right now. Because you can't have a market where most people thought it would resolve to yes and it resolves to no or vice versa become the standard, because then people just back away and stop using it.
- [27:55]
Ram Alawalia
Yeah, I think you know this. This Iran event has refocused market attention. However, there are still larger issues that are out there and brewing under the surface. Q. Q. Q. Is down 7% year to date. Nvidia reported blockbuster earnings and it sold off. Markets were strong today, but it was driven by energy. Most sectors were down, including consumer discretionary. Staples rallied year to date, but you've got now stocks like Walmart at 45 times earnings in Costco. That's not sustainable. That's going to have to give back. Where is the leadership going to come from? I was just looking at Amazon's free cash flow yield. It's 0.3%, 0.3%. It's incredibly low. That number should be 2 to 3%. You've got the Department of Defense having a public dispute with Anthropic now awarding the contract to OpenAI. There are these issues under the surface. Valuations are elevated versus free cash flow. The positioning is still crowded and we're seeing technical weakness in the leading themes in the market. I see people buying the dip on everything, even things that are just down 40%. It's like, really, it's a bear market and you're just buying the diplomatic. So I do think that after we get through maybe a bit of a rally here, through some of the VIX decay and a faster resolution than people think around Iran, there are still larger issues that the market's trying to address. And obviously midterm elections are there, too.
- [29:36]
Austin Campbell
I mean, I was going to say let's go down one of the rabbit holes that you brought up there, which is the AI component, because this is something we've been talking about for a while. So currently there was a little bit of a brouhaha between Anthropic and the Pentagon, where Anthropic CEO, you know, an Anthropic for those listening, kind of positioned itself as the safety AI. Claude had guardrails against certain military and surveillance uses. And tensions escalated pretty quickly with the Department of War as they both sought broader contractual language allowing use of anthropic speed models, but also were alleging that some of the things that Anthropic had call it implicitly or explicitly permitted before they were backing away on. I think, to be honest, like, both sides are telling the story most favorable to themselves, but the core of the debate is who gets to use this thing and for what and on what terms. This escalated pretty quickly. Donald Trump criticized them on social media and through PROPIC has done a bunch of PR around this. It framed them as hostile and unreliable for national security needs. And unsurprisingly, somebody else in the market, as happens in competitive marketplaces, stepped in and took advantage. So Sam Altman shows up and signs a contract with the Department of War where it's now OpenAI that will be essentially filling that gap and working with them. There are again, guardrails around that, but not the same sort of categorical refusals. So to me, before we get to the operational realities for the military, Rob, I want to come back to a point that you have raised previously on this show, which is, where is the value capture going to be in AI? Because to me, this is maybe the best example of somebody just hot swapping one model for another and moving on with. So, like, what is the difference?
- [31:32]
Ram Alawalia
Yeah, no, I agree. I agree. I instructed our team at Lumina to switch over to Anthropic and their enterprise use cases. They work really well. I give credit to Dario for a principal stand. I don't think he would do that. I still don't think deep down aside, I think they will bend the knee eventually out of economic necessity. And I'm concerned that Sam Altman now is playing some role. Is it critical or not? Hope not. With U.S. department of Defense. This is a guy that was fired by his board, where a developer died or was killed on his watch and where he made misrepresentations to early investors like Elon Musk, where is the integrity in any of that? It's not a one off, it's a three off. That's a pattern. So it's a bit of a concern that OpenAI is in there. Couldn't we have found someone else, please? But yeah, no, I agree there's limited value capture in all this. The open source models, like hugging face, they're a tenth of the cost of these models. They're one year behind, but they catch up. So it's just like the cost of storage. We saw this with the hard drives and the memory, it just drops over time. That's going to happen. So I don't see the value capture. Look at Palantir stock. I think that's a bubble deflating. But hey, they've got value capture. It got the multiple. I don't see it for these LLMs, which are in a brutal war of attrition with each other.
- [33:12]
Chris Perkins
Let me just chime in as somebody who's been in war, been shot at, lost a lot of friends, this debate is really hard for me because obviously, you know, you want to do the. The great thing about the US Military is you always want to do the right thing on the battlefield. You don't swear allegiance to the president or to a king. You swear to the Constitution as an officer. You have to follow the lawful orders and uphold the Constitution. And that's wonderful. This is actually very similar to crypto, this debate that's going on now. What Dario said is he. There's two things, two conditions he had. One was like lethal autonomous decision making. And the second one was mass surveillance. What I've come to know, whether it's crypto or AI, is that it's not the technology that is evil or not evil. Maybe it is in the case of AI, but. But generally it's technology. It's the behavior that people employ it to do. Right. And the thing is, is like technology, we have laws. Just because you have new technology doesn't mean that you ignore the old laws. And as you're thinking about mass surveillance, well, if there's laws that prevent mass surveillance, it's a policy issue. And then the government tries to conduct mass surveillance, like put it to bed, you know, throw people in jail, like, hold them accountable because it's illegal. And that's why it's important to have that policy. I think the lethality piece is a little bit more complex for me, because if there is a technology that saves like one marine on the battlefield or one of your, you know, provided it's done Legally, why would you suppress its development if it can be done ethically? So, like, I'm almost of the acceleration camp. Like, you can't restrict it. You need to study it because, like, let's go back to Iran. The Iranians are really good at drones. They have the shahed drone, which is at low cost. I mean, they've had effect with it on the battlefield, just through sheer size. Like, I've come from the. From a place. I'm sorry, but, like, you. You got to give the guys and the ladies on the ground the best tools possible. And like, but. But law should apply. And I think Dario's point is, like, well, wait a second. The laws haven't cut up, caught up to this technology. Well, we got to hold then our.
- [35:20]
Austin Campbell
Our.
- [35:20]
Chris Perkins
Our. Our Congress accountable. And, you know, we have to use the democracy that we talked about. So it's tricky. But I just hate anything that deprives, you know, our men and women on the ground who are vol. Who are sacrificing their lives, anything that. That protects them.
- [35:37]
Austin Campbell
I think another important point there, you know, I. I understand this is unpleasant to a lot of people, call it in the theoretical ethics camp, but in war, people play to win, right? And what I mean by that is if you're not willing to do something with an AI model and the other side is, and that thing works, that they just win. So one of the things that I think we. I'll just be transparent and say we don't know from the outside exactly where the lines were drawn. But if you're in the Department of War and Anthropic is telling you, we want them drawn here, and it's going to impede operational capabilities. And OpenAI is telling you, no, no over here. And it's not. That's a trivial decision for them to make. Right? Because, like, you know, it's back to the whole. God, what was that quote from Unforgiven deserve? Ain't got nothing to do with it, right? Like, both sides are playing to win. And ultimately, Chris, to your point, if the United States is handicapping ourselves in a way that's causing us to lose conflicts or get our people killed, that that is a bad decision, just strictly speaking in that regard.
- [36:42]
Ram Alawalia
So there's a case we made that Anthropic may have been held captive by its own employees. So the US DoD agreed that the AI technology would only be used for lawful purposes. In fact, there's a post from the Undersecretary of Defense going through the contract Langu. And from their point of view, it looks completely reasonable. And also, David Sachs and Elon both stated that there are a number of holdovers from the Biden administration that went to Anthropic. And if you look outside Anthropic's hq, there is a lot of chalk and rainbows and quasi protests or support this and that. So I wouldn't be surprised if that decision was made because of talent people. They were trying to find a way not to do a deal that in fact would be lawful and address the concerns of Anthropic. After all, that's in the contract. They weren't making the claim that the DoD wouldn't abide by it. That's not what they said.
- [37:43]
Austin Campbell
I mean, so back to what we've been saying about AI too. Is the future that we're seeing here going to be employees losing a lot of the pull to do that over time? Because, you know, one, Claude just got swapped out for OpenAI piece. But two, like one of the other big AI related news items was Jack Dorsey cutting nearly half the staff at Square Block xyz, whatever we're calling the thing now. Right. And he was saying, essentially we're preparing for an AI future. Now, in fairness, they had probably massively overhired in the pandemic, so. So I have a feeling there's some element of pointing at AI to justify Right. Sizing the staff in general. But it is also a statement that you can be like, well, of the 10,000 people, we have 4,000 of you, peace because of AI. And that will also send a message to remaining employees, like, if you're not sort of on the team, you're going to be much more easily replaceable. Are you guys seeing that same dynamic in employment overall? Like just zooming out from the Dodge be?
- [38:47]
Ram Alawalia
Yeah, I think they're in a bubble. I think Silicon Valley AI engineers are in a bubble. They're not in reality. They're getting lavish pay packages, they're getting poached, they're turning down $100 million pay packages right from Zuck. You know, startups go through these cycles where they, they have the foosball table and the free everything and the retreat, and they are in kind of peak mode of this kind of lavishness and they're in a bubble. But yeah, reality is going to come home to us. Jack Dorsey ran Twitter with thousands and thousands of employees and Elon runs it with 35. He's not a lean, mean operator. Now, Jack Dorsey is many wonderful and amazing and brilliant things. By the way, I have an incredible amount of respect for Jack Dorsey and how he conducts his life. Not just his entrepreneurial business building skills, but he likes to think, he likes to contemplate. He's like a kind of a philosopher entrepreneur. He's not a great cost efficient operator. And so you're seeing a lot of these startups justify headcount reductions based on AI. Klarna did the same thing. They cut out work then they said we did with AI. Come on, you're just cutting costs. Hit your numbers for the ipo.
- [40:04]
Chris Perkins
A lot of uncertainty, isn't it? But your point, like, hey, if Jack's doing it, I should do it too. And it's a really good opportunity to optimize. Now let's not even talk about. There's legal things too, like hey, you're restructuring. Sometimes when you fire people, you get sued. Well here everyone's restructuring because of AI. It kind of lowers your liability in certain cases. So I do think it's going to be a trend that you're going to see that companies will use to optimize. And let's not forget AI should be massively deflationary.
- [40:32]
Austin Campbell
This reason.
- [40:34]
Ram Alawalia
Yeah, wait till Thinking Machines blows up. Remember that one? That was the CTO from OpenAI started raised a couple billion dollars. Ilia created like safe AI. This is like insanity. This is insane stuff. You're not supposed to get billion dollar valuations on a, not even a PowerPoint just because you around the OpenAI hoop. This we're going to look back at this and say what craziness was done in Silicon Valley.
- [41:01]
Austin Campbell
Yeah. And I think what's interesting to me Rom, that you were saying there is exactly the Silicon Valley component of this. Because if you look across like some of call it the more people focused or hands on industries, we're not seeing this same trend everywhere. You know, a good example is my wife works for Memorial Sloan Kettering, the cancer hospital. We are not seeing tons of doctors and nurses being replaced by AI in this context. Right. Is it going to be integrated? Is it going to improve productivity? Is AI going to be a powerful diagnostic tool for patients 100% over time? Is it going to lead to massive headcount reductions in the healthcare industry? Almost certainly no. Right. And it is kind of funny that there are these subsets of industries that I think are both living in a bubble, but then also disproportionately driving the discourse. Like the idea, you saw that Citrini paper that we were talking about of like, oh, everything's been destroyed by AI. I'm like, that is A very software developer centric.
- [42:03]
Ram Alawalia
Yeah, software rallied since then. That marked the bottom potentially. But look at private equity and private credit. It's getting absolutely destroyed in the markets right now. And they're lending to software, they're subject to mark to market. They live in reality land. Right. OpenAI and these AI LLM. This is story time. That's why Dario's on the pocket. No one knew who Dario was six months ago. Now he's making the podcast circuit because they have to go public. And his thesis for how they get to a trillion dollars. Here's an interesting story in the first two years around enterprise adoption, which I believe I'm actually signed up as a customer. But after year two is like, oh, we'll have a data center full of geniuses that's they will solve $9.950 billion somehow from that insanity.
- [42:56]
Austin Campbell
No, I think, I think that trend will play out over time and people will find out. Yeah, I mean this, you know. Okay, so one final point before we go to ads, because then we have one more thing we want to talk about before Chris has to leave. But you've seen this sort of misidentification of where the value is before in other industries. We saw it in the tech bubble. We've also seen it in crypto with fat protocol thesis that right now appears to be slowly falling apart. As well it may be that the AI companies themselves are not the value accretor right in this space. That is not a refutation of the value of AI. It is a reputation refutation of the specific conduit of value transmission going through the model companies.
- [43:40]
Ram Alawalia
Rahm, I believe our water companies highly value. We all need water. Does anyone know the name of their local water company is Con Edison, A trillion dollar company. We all need electricity. Gross intelligence will be a utility on demand at low cost. Service competitively.
- [43:58]
Austin Campbell
Well, on that note, I believe we have a couple more sponsors that we need to hear from and then Chris, Chris and I will talk about something we were at earlier today.
- [44:06]
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- [44:44]
continue with today's episode, Bits and Bips now has its own dedicated home. We're spinning off from Unchained and launching a standalone podcast and YouTube channel focused on the Fed macro AI and how it all collides with with crypto. If you want to keep up with our weekly live streams and Macro meets Crypto breakdowns, make sure you're following Bits and bips directly. We won't start publishing until March, but getting set up now means you'll be ready on day one. You can find the new Bits and Bips channels at unchained crypto.com bitsandbips. You can also find us by searching Bits and Bips on YouTube, Apple Podcasts, Spotify, or wherever you listen.
- [45:22]
Austin Campbell
All right, everybody, welcome back. So earlier today, Chris and I were at the Economic Club of New York with former podcast guest Patrick Witt, talking about the current situation with Clarity and what is going on in Washington, D.C. chris actually was the one interviewing Patrick on stage. So, Chris, I'm just going to lob this one over to you. What was the conversation about? What was the overall tone? What were your takeaways? First?
- [45:50]
Chris Perkins
Yeah, we've been talking about crypto markets for a long time and, like, what's next for crypto? We know that's an institutional error. And for it to accomplish its true potential, I think a lot of us think that this thing called clarity has to pass. Right now, the White House, according to Patrick, they've been really focused on obviously getting it over the line. They're implementing genius right now because genius, you just don't pass the bill and go away. There's a lot of different regulations and rulemaking. They're navigating the OCC rulemaking that again, reaffirmed no interest on stable coins from issuers. So he's navigating all of that. And then, like, when it comes to clarity, the irony continues to be that what's holding up Clarity? Well, it's the stablecoin stuff that we thought we already litigated. It feels like there's progress. My sense is that clarity could go either way. The irony is, is if you look at polymarket today, there was like, it shot up recently to about a 70% chance. Pretty, you know, thin markets, you're looking at about 300k in the pool. But somebody thinks that this is going to happen, or at least thought a lot more so than the past. It feels like just what I'm hearing through the grapevine is that the coinbases of the world have come a long way. They're at the, you know, 4550 yard line. The banks really haven't moved and continue to dig in and that's fine. And like people are like, well how come these people get to decide what the bill is like? That's for the senators to decide. That's for. And, and that's exactly what they're trying to do is because a lot of the senators will sit back and say, I want to hear your story, Banks, tell me. I want to hear your story, Coinbase crypto, tell me. And then they, then they figure out which direction that they're going to vote. It's a lot easier for a senator to say, okay, good, you know, both of you guys figured it out. I'm good, now you're cool, I'm cool, we're all cool. This makes good policy. So it's not, it's, you know, a lot of people like, it's not fair. The industry is just, you know, doing it in a bubble. Not so fast because those senators are thinking about getting reelected as well. So it's just sausage making and it's hard. And you know, I personally still think it's going to happen. It's coin flip. But you know, the other thing that I think the crypto industry hasn't endeared itself to members of Congress is that there's still a lot of wackos out there. And, and, and they need to see more utility, more grownups, more focus on, you know, actually delivering real use value to people. That's what we need to do a better job of showing and telling and explaining. So that was my takeaway. What about yours, Austin? You heard it from the audience.
- [48:25]
Austin Campbell
Yeah. So to one to pile onto a point that you're making there. I think a lot of people in crypto are in denial about how bad the reputation of crypto is after call it 2022 into present, like with call it the average two legged human on the street. I tweeted recently that crypto was ranked probably one to two slots below slime mold in most people's preference lists. And everybody got mad with me, but I'm like, I'm just repeating what I hear. And I think, Chris, you're right. It makes it easy for people to make bad faith arguments that are anti crypto and get away with them because the reputation of the industry is so poor. But what I was hearing from the audience too is that one of the things we're going to see over the next five to 10 years, and this will be unwelcome to some varieties of crypto natives, is a much Greater convergence between blockchain technology and traditional financial firms. That is to say, the idea that we're going to tear down the entire system and replace it with decentralized, permissionless money is on the way out. But the idea that we can actually take the current system and massively upgrade it in ways that improve people's lives and financial access and fairness is on the way in. And so one of the things that was interesting to me because this is very like DC and realpolitik is a pathway where clarity can happen and where the sort of like punching match from genius could be resolved, is how do we make sure that the entities that are call it the most politically, socially and maybe economically favorable get something out of this AKA or winners. And so one of the big takeaways is I genuinely don't think the interests of the big banks and the community banks are the same here. And people have been treating that side like a monolith for a long time. But the reality is, you know, thought experiment here that I've discussed with a couple of things friends before. If all of the stablecoin issuers were to be told, hey, you guys can pay yield, but only if you keep X percentage of your reserve at deposits at banks under, say, $10 billion balance sheet size, who's the loser there? Except for the giant banks to begin with.
- [50:40]
Chris Perkins
Yeah.
- [50:41]
Austin Campbell
And so I think as we start sort of like making the sausage in Washington D.C. if you're outside of that framework, you need to understand a couple of things that are important. One, Chris said something really powerful, like now twice in this episode about how the United States operates, which is we have our Constitution, we have elected representatives, and they do genuinely serve at the behest of the people. You can vote these people out if you don't like them. So, number one, if you're listening to this and you're an American citizen and you have a strong view about this, go look up who your House representative and your senators are and just like call them, write them, email them. You can go visit their office in Washington D.C. like it's shocking, but you can check into the building and just go walk right in there, tell them what you believe. It will move the needle. And that too, finding a compromise between the people in this space who I would say have the biggest players, political acts here will get things done. And to me, that is the call it legitimate people in the crypto industry trying to face US persons like Coinbase is a good example. They never fled the U.S. whatever you think about them, they've Been willing to be regulated. They'll argue about the terms, but they're not fleeing the U.S. they're not fleeing reporting. And then the community banks, right. Like those are the two groups who people really care about here. The big banks kind of hide behind the community banks as a shield. But the answer is if the community banks are happy and the big banks are not. I like our odds.
- [52:14]
Ram Alawalia
I like that too.
- [52:17]
Chris Perkins
Yeah. Speaking to Patrick, talked a little bit about Quantum, didn't seem to be keeping him awake at night like our friend Nick Carter. And then getting back to like what people want to see is they want to see better utility and user experience. And to me that's can I think AI is going to play a huge role in that. Like AI doesn't care about the downstream, you know, wallet interfaces and all the brain damage that we deal with every single day on, on chain. So I think those are some things. The other thing that's frankly fascinating is that when you talk to normies, you know, in events like that, what was their biggest concern? Security. Isn't this a crappy product because no one can trace it? Actually everyone can trace it. And we all sometimes forget in our little bubble just how unaware most people are. They just don't care. They've got more important things to care about.
- [53:08]
Austin Campbell
One I was going to say one of the things that you run into there is, you know, it's, it's a well known problem in economics like the street light effect, which is to say because crypto is so transparent you can observe the crime and therefore people think it's bad. But there's probably way more crime that we're simply not detecting in the traditional system. And then people think it's better because they don't see it.
- [53:33]
Ram Alawalia
Yeah. Something I'll share anecdotally, I still receive reverse inquiry from call it like baby boomer conservative profile types are asking about specifically Bitcoin unprompted. I find that interesting. I do think and they approach it with curiosity like should I have allocation to Bitcoin with an open mind? So I do think Bitcoin has crossed the Rubicon in terms of broader public consciousness and understanding, which is a major accomplishment. I have yet to see that with other digital assets thus far. It's not a comment on the price potentials of their assets. I'm just sharing what I see on the ground. I see there's a lot of potential in what Ethereum has done and other like Solana. Those too, like hyper Liquid. But the inquiry I do get is around Bitcoin it's kind of, kind of interesting.
- [54:33]
Chris Perkins
Yeah. And bitcoin is crypto. Right. There's no difference.
- [54:37]
Austin Campbell
I will also hop in there and say the other one that I get and I see why you're not getting it from the investor side is stablecoins.
- [54:43]
Chris Perkins
Yeah.
- [54:44]
Austin Campbell
Right. Like when I talk to a lot of companies that are doing things like payroll, international wire business, like how do we just manage our like, money. Stablecoins are genuinely a topic of conversation from a curiosity standpoint now as well. I. If we're looking at the two things in crypto that so far to me definitely have product market fit, it's bitcoin and stablecoins. Everything else I think is very tbd. Rob, as you're saying, which is not a refutation, but just a statement of not yet. Right. Maybe it will be in the future, but it's not certain than it will be. I would be shocked if bitcoin and stablecoins are gone from the playing field like 10, 20, 30.
- [55:25]
Ram Alawalia
I agree, I agree. I think, I think there's a lot bringing it back to Iran is like, does bitcoin play a role in whatever institutions are form coming out of this? We talked about social media, access to information and technology. And the Iranians do have these deep technical skills and know how one, one can dream that there might be a role for decentralized money as a check on unchecked executive authority.
- [55:56]
Chris Perkins
They're going to open up Mr. Beast wallets with Tom Lee. I mean, that is not in the realm of impossible.
- [56:04]
Austin Campbell
I, I would like to point out to everybody as, as a topic I just covered in my newsletter. Mr. Beast bought a fintech app that does handle crypto. It's called Step. Right. Like everybody is joking about that, but that may be a very real thing. I will also remind everybody Mr. Beast has more YouTube subscribers than people who exist in the United States of America. So that that is not a small distribution conduit.
- [56:31]
Chris Perkins
I think. I think Iran and crypto hold strong promise. It's a young educated demographic. I think they're going to come out of this after being suppressed, thinking very forward, being very forward, being focused on innovation. And I think it does. The conditions are very ripe. We heard.
- [56:51]
Ram Alawalia
And make it happen. Right?
- [56:52]
Austin Campbell
Yeah.
- [56:53]
Ram Alawalia
What is the it though?
- [56:55]
Chris Perkins
Omi talked about it how like he was an early adopter largely because of, you know, his background in Iran growing up and his ability to seamlessly exchange value with people that he needed to. So I do think the conditions are sound. See what happens, guys.
- [57:08]
Austin Campbell
I would also point out. Chris, we talked about this today at the event, too. Like, Patrick was on stage on the topic of security and observability. Making the point of it depends what end of that you're on, right? Like there is the bad of, like the North Koreans and what they're doing on chain, but there's also the good of if you've been an extractive system that essentially steals your money either through inflation or just straight up corruption and evil, now you have the ability and importantly voluntary ability to opt into the dollar system through stablecoins, right? Like nobody. We're not holding a gun to anybody's head saying you must use tether. Right? Like, that's not how this works. But when you give people options, they are able to take advantage of them. And it fundamentally creates competition that delivers essentially the end value to consumers. Consumers.
- [57:58]
Chris Perkins
Yes, sir.
- [57:59]
Austin Campbell
All right. So on that note, Chris, TODAY has a hard stop and we have some upcoming programming. So I'm gonna go ahead and take us out here, which is thanks for joining us for this episode of Bits and bips. We'll be back in one week to discuss more about how the worlds of crypto and macro are colliding. But next up here, Stephen Ehrlich will be with Rob Haddock, general partner of Dragonfly Fly, on the BIPS and BIPS interview. So until then, that is enough from all of us, everyone, and enjoy the next show.
- [58:28]
Chris Perkins
Cheers.
- [58:29]
Ram Alawalia
Have a good one.