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- [00:01]
A
Hey everyone. Welcome to Bits and Bibs, where we explore how crypto and macro collide one basis point at a time. We're here to discuss the latest stories in the worlds of crypto and macro. Just remember, nothing we say here is investment advice. And please check unchained crypto.com bitsandbips for more disclosures. Now, before we begin, a quick commercial
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B
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A
all right, so as always, I am your host Austin Campbell, high scholar of Zero Knowledge Group. And here with my co hosts Rahmalawalia, Master of Wealth, the leader of Lumina and Chris Perkins, the golden hand of coin funds. Today we're going to start with a segment that we're calling the bond market is running foreign policy. So on Sunday, Trump told the Financial Times overnight that he wants to quote, take the oil in Iran, but some people back in the US Are saying why are you doing that? He referenced Kharg island, which handles 90% of Iran's crude exports and said maybe we take it, maybe we don't. We have lots of options. Chris, you've been on this before but US Troops are now deployed to the region and available. Brent has surged up early in the day to 116 a barrel. Oil continues trading with a significant amount of volatility. The conflict itself is continuing. The Houthis fired a ballistic missile at Israel. There was a suspected Iranian backed attack on a Saudi air base that wounded U.S. troops. And Trump's April 6 pause on striking Iranian power plants is still in effect. But the FT interview signals that the military track might still be very much alive. Diplomacy, as is often the case, is going either nowhere fast or potentially around in circles very quickly. Allegedly witkoff floated a 15 point peace proposal through Pakistan last week, publicly rejected it and offered five counter conditions including war reparations. Despite public rejections, however, a source says Iranian officials privately signaled interest per CBS News. However, it becomes unclear which Iranian officials these are and what level of interest there is now. Before the FT interview, oil had already been moving up. It closed Friday at 11257 a barrel for Brent WTI at close to 100 Monday pre market Brent rent was above 116. Briefly, the oil disruption appears to be significant and the timing as this cascades throughout the world is on the verge of hitting some major economies. Also now Getting in on the action is the bond market, which is where I want to turn to what Rahm has to say. But to set the frame there, the 10 year yield hit 4.48% on Friday, eased back down a bit and there has been a pattern of Trump pausing tariffs or backing off of things previously as specifically the 10 year rate moves up and for those who are not U.S. persons, most U.S. mortgages. So the housing market are priced off the 10 year rate. It is a point of particular interest in the economy. So Rom, you've been saying, who wants a deal more? Who has the time pressure and what is going on with the ceasefire? Is this real or is this performative? I want to start with you before we go to Chris and ask what are you making of everything going on right now?
- [04:08]
C
Yeah. So Trump ordered or attempted to manifest the greatest Taco supreme of all time last week. Trump has extraordinary manifestation skills. By the way. No taco was delivered. It takes two to taco here. The IRGC reiterated today that they are not negotiating. They appear to be holed up in bunkers and making highly effective meme videos targeting American consumers. American brands like lego using American GPUs and Nvidia technology. It's really quite extraordinary. Usually they make propaganda for their internal audience, but they're turning that around. So Trump wants the Taco. It's not clear what the off ramp is. It seems like he might make a move on Carg island to create a bargaining chip and then use that to exchange, as he calls it, escalate to de escalate. Markets don't like that. And to Your point, the 10 year moving up is not good for asset prices. Inflation's also moving up, dollars continuing to strengthen. None of that's good for asset prices. And oil continues to move higher also. So yeah, it's not a good story for asset prices. Really no way to share any other way to tell. I think you should be defensively positioned for the next few weeks until you see some kind of credible off ramp.
- [05:44]
A
Chris, I think you may be on the other side of this discussion. What are, what are you making of this one?
- [05:49]
B
Right now I feel as though there's no turning back at this point. The world has seen what could happen if the strait is closed. The straight of Hormuz. Right now, Asia is choking. Europe is now based on some, some new ballistic missile technology. They're actually under threat. And so there's, there's no way that we can return to the status quo because the status quo is just gonna, if everything stopped Right now, everyone went home. You know, by the way, for the Gulf states and for the Israelis, they can't go home. This is their neighborhood. But there, there is. There's no turning back. What do you do? You just pause and let the IRGC reconstitute. Next thing you know, they have weapons of mass destruction. If they do achieve weapons of mass destruction, then they're holding the Strait of Hormuz hostage forever. I don't think that's good for the global economy. So it's hard to. I hate looking backwards and saying, you know, should we have done this or should we have done that? I think it's more important to look at where do we go from here. Trump does have some very capable ground options right now. I think that's going to be very, very difficult to deploy them, particularly with the drone warfare that we're seeing. But again, I've been saying this all along. The Marine Corps has been preparing for this moment for 40 years. Their tactics have achieved, as have evolved over time. There's army airborne units on scene, special operations on the scene. So there are new tools in the theater that are available to him. But there is no turning back. We're starting to see some very concerning escalation. I think the Iranians hit a Kuwaiti desalinization plant for the first time recently. So, look, I think it's going to get worse before it gets better. But I think the strategic end goal is pretty obvious. We need freedom of navigation on the Strait of Hormuz. I think the globe, the entirety of the globe, knows that this is the case. Even our adversaries in China know that that strait has to be open and free. I don't ever see it being having true freedom of navigation if the IRGC gets its hands on a nuclear weapon. So I do think it's going to get worse before it gets better.
- [08:05]
C
Are you bullish on markets, Chris, given what you just said, or no short term?
- [08:10]
B
No short term, you're going to have some volatility for sure. I do think if you time it right, it's going to be particularly in the crypto space. I'm a crypto guy. I think it's going to be a very, very good cyclical buying opportunity, because once this thing gets settled, I think we're going to be in a very good place. I mean, at the end of the day, we've been talking about this for weeks. The world is more and more a trustless, permissionless place. I think crypto does very, very well, I think. And it's demonstrated continued resiliency. Yeah, we had a little bit of a dump the last couple of days, but I think you're going to see Bitcoin starting to catch up to the gold narrative. It's inevitable. So medium long term, bullish as ever. There's going to be short term volatility until the situation improves, but it has to. There's no, there's no way out of this. It'll have to approve. What I do like though, Rob, is I've seen the globe. This is no longer a US problem. You know, people will say US, Israel started it. This is a global problem now because the world is getting choked off. And so the world is axed to clear that straight. And I think one way or the other, it's going to get cleared.
- [09:23]
A
So.
- [09:24]
C
Clear through coercion and escalation.
- [09:26]
B
I think so, yeah. I mean, unless, you know, at some point. And by the way, like the propaganda really. Did you really think that was amazing that they made some Lego videos? I mean, really, I, I wasn't like that didn't scare me. I kind of laughed at it, to be honest, but
- [09:48]
C
I don't think it was scary. No, it's entertaining but effective. Overall, I would say the expectation, I believe, going in from the White House was a quick and decisive victory with a kind of head of the snake strike on the Ayatollah and then what Trump calls Group one, Group two. Now you're seeing less missile volley from Iran, but more are getting through, including an awacs. It was destroyed. There's an acceleration of orders for defensive equipment and bunkers that the Pentagon is doing. There's been no Pentagon briefing in nine days. So I don't think things are going as well as people had initially hoped. And you know, the White House is trying to do kind of play action audiblying, trying to find a path forward, but they need two to taco and the IRC doesn't want. The IRC likes the status quo and it's going to take a lot longer to get done. You know, the initial guidelines were four to five weeks. Okay, well here we are, week five, and they're saying it'll be done, quote, unquote, soon. Reminds me of like when Paolo was saying subprime is, is contained or Paulo was saying inflation is contained. They're overly optimistic and it takes time. I don't even know how you negotiate a deal in 30 days if you don't know who your counterparty is. And you have 15 points of which there are egregious differences. How is any deal going to get done in 30 days? It's going to take, if not 30, 60 or 90. And all you need is a little bit of threat. It's epsilon threat. You don't. You know, the US has dominant military advantages, no question about it. No one denies that. But if you look at the Suez Canal conflict in the 80s, it was effective at denying transit for enough time to cause an increase in oil prices. And I think these destroyer convoys haven't been deployed. It's not clear that they'll be affected. We're spending $200 billion a month. We're talking trillion dollars, $2 trillion in a year, which is also inflationary, which will also increase interest rates. So the overall picture is not pretty. It's a very toxic picture for risk assets.
- [12:10]
B
Yeah, I think near term there's a lot of unknowns and a lot of risks. And the market hate that if the genie gets put back, if we're successful, and that success could happen overnight. We've seen these things move. Right now, when we had spider marks on here, he was saying, this is going to take a long time. Fellas, the problem you have is that if you are a member of the irgc, your entire legitimacy is based on your hatred of the US and the West. Right. And so it's very difficult for somebody to like, pop up and say, okay, I'm going to be that guy who's going to take the risk. I'm going to be the strong man who's going to take over this country, speak to Trump, you know, we're going to settle things. I'm going to be really rich in this process because, you know, you're probably going to get exterminated in like, you know, two minutes.
- [12:57]
C
And so, well, they have more hardliners. The negotiating team was taken out. Spider marks, when we interviewed him, said, I said, when would the tanker start moving? He said, could be tomorrow. He was wrong on that. So I think the military miscalculated effectiveness impact and is, you know, they're not communicating and markets is trying to price that in and they're losing trust. You know, Trump came out on the tarmac last Monday and was saying, hey, we have 15 points of negotiation. They just issued the points of negotiation, which there's no discussion around. So they're losing trust with markets. And then on Thursday of last week, when the cabinet assembled, it was clear from J.D. vance and Marco Rubio that they're looking for a 50 year solution. A 50 year solution. And then if you look at the objectives, they're saying we have well, four objectives. It does look like regime changes and objectives. You're targeting leadership but none of those are the stated objectives. So it just seems like they're making it up as they go along. And this is going to extend. The relevant question for markets is will it last longer than markets expect or shorter than markets expect now?
- [14:10]
B
That's right.
- [14:11]
C
We have to kind of make assumptions what markets expect. They were initially anchored at four to five weeks. Now White House is trying to set new expectations for soon and a few more weeks and I think it's more likely that it'll extend beyond that.
- [14:26]
B
Thanks. Thank God for prediction markets. At least now we have a market. I don't know. Is there one? I, I saw that there's one on you know when they're going to be ground for.
- [14:33]
A
Yeah, I, I was going to say I think they're being careful with some of the military markets. To me I think there's two things you've got to think about when you're framing this that are being significantly under discussed is you want to think about both the market response and cost it a real world resolution to this event. The first is that negotiating implies that you have a party with whom you can reliably negotiate. One of the things that I'm observing with Iran is the internal fractures and division appear to be growing, not shrinking over time. Both between call it hardliners and moderates in the regime and then other sorts of things that are happening in the country. The longer they are under pressure and the borders getting scrambled, the weirder things get over time. And it may be the case that the party who eventually we will be negotiating with to end this thing has not even come to the table yet because it's not clear that they are going to be the people in charge when this ends. Right. And that is not a one month period, that is not a three month period. That is maybe not even a six month period. Again. Yeah, I brought up a long time ago on this show when we were talking about this, the French revolution like this could be a 10 year process of like cascading regime collapse in Iran. And what comes out the other side may be something nobody expects. When you let the genie out of the bottle there is no guarantee that you can put it back in the other part.
- [15:55]
C
Iran is selling more oil than ever at higher prices.
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A
Yes, for now.
- [15:59]
C
So there's an economic benefit for now. Well, part of bessant release sanctions, there's an economic benefit for the IRC to continue this. I took a Closer look at the composition of the Iranian population. So in Tehran there are higher incidence rate of protesters that want change. But outside the major cities it's kind of like American blue states versus red states. In the rural areas they are far more pro Shia and there are millions of Iranians on these coastal cities and within access of the shorelines you just need a couple dozen people with rockets, that's it. To have an effective asymmetric deterrent. I would encourage, if you all want to dig into this, go to Google Maps and zoom in on the Strait of Hormuz and follow the coastline and look at the cities and look at the ports and then ask yourself, how do you contain this? Imagine you had like an Aegis destroyer off of Manhattan. One wouldn't be enough. That's just, we're talking just 12 miles there. So this is a very complex situation. You know, they, they made an assumption that you take out the head of the snake and you'd get a resolution. That assumption was falsified and there's no clear path of de escalation.
- [17:17]
A
So you lead me into my second point, which is, and this is something that's been true basically Post World War II, but for a handful of the great powers when they're engaged in wars, the answer as to will they win or not is essentially how much resolve do they have to bring force to bear. Because if we want to be particularly gruesome about it, the strait could be open tomorrow if the United States wanted that. The question is how many bodies are going to be left behind in the wake of us doing that. And one of the things that I would watch for as the IRGC continues these tactics, Rob, is if you restrict supply and drive up global prices to the point that it starts doing real damage to China, to India, to Japan, to Europe and causing starvation in Africa, at what point, obviously the United States has to retain political will to fight, but at what point does the rest of the world retain, call it the political will not to strike Iran much harder. Restrain somebody from striking Iran much harder.
- [18:21]
C
Because how are they going to strike them? Like UK's navy is defunct. The crap that it's falling apart.
- [18:26]
A
I'm talking, I'm talking about, I'm talking specifically about US and China, right? Like Iran is in this war because the United States is unwilling to deploy our best weapons against Iran. Like let's just be as clear as possible about that. If we choose to wipe them out with nuclear weapons, we have that capability. And I'm not advocating that. I want to be clear but there's a strange game of brinksmanship that you get into with these conflicts that will lead to one side or the other backing down. And if you look at the history of them in Afghanistan and in Vietnam, the United States backed down because quite frankly, the threat of the people that we were dealing with there was not existential and global. But when you have an IRGC regime that has been dead set on getting its hands on nuclear weapons and having those capabilities, I'm not certain it goes the other way if they continue escalating.
- [19:13]
C
So you're talking about China's anchors got through today. Yes, China loves this.
- [19:21]
A
You may start seeing a taco from the Iranians. Because my point is the brinksmanship works differently at this level. If you truly want to continue escalating.
- [19:32]
B
China does, China does not. China does not love this. Right now their oil prices are high. They have great risk that the US takes control of the straight of Hormuz and now we're in control of 80% of Asia's oil. There's, they don't like any bit about this. They're, they're, they're situation.
- [19:48]
C
They, they, they like the current situation.
- [19:51]
B
I don't think so.
- [19:52]
C
The US overextended. Yeah, sure. So you see in the next 30, 45, 60 days,
- [20:02]
B
like oil prices continue to go through the roof. That's, that's putting a lot of pressure on their already weakened domestic economy.
- [20:08]
C
China's buying off market pricing oil from Iran. They get the best price in the world.
- [20:14]
B
They're buying oil, they did for many
- [20:16]
C
years and their tankers are still moving through the Strait of Hormuz. Now I wouldn't be surprised if China supplying rockets and maybe targeting to the irgc. Now in real politic, one of the goals is to ensnare the hegemon into a conflict that consumes blood and treasure. And you're spending $2 trillion a year at current run rate and you've got a blackout on Pentagon briefings. It seems like interceptor supply is low because they're letting rockets land to preserve supply. That's not good. I mean clearly this was poorly executed at the very least.
- [20:55]
B
I do agree with you.
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C
You disagree? You think it was relaxed?
- [20:57]
B
No, the one thing I agree with is that China is in a, I think they're in a bad place all the way, like all around it. If we, if we, if we do secure the straight and control the oil, that puts them in a very difficult strategic position no matter what. That's why they're, they're so focused on alts.
- [21:13]
C
If.
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B
Right.
- [21:15]
C
You know, a lot of generals, you
- [21:17]
B
probably know status quo is not good for them either. Right. Because they have, they're at risk all across their neighborhood. Oil's getting very expensive and yeah, maybe they let a few tankers go through. I think the Russians are very happy right now because there's a lot of pressure. For now, I think it's going to bite them in the end, but I do think they're happy. But I think Austin makes a very, very strong point. We're not talking about the tactical level of war. There's three levels of war. There's tactical campaign, slash operational and strategic. This is a, this is a battle at the strategic level. We will whip them every day on the tactical level, just like we did in Vietnam operationally, you know, are the Gulfs come the Gulf states coming closer to us? Yes, I think the campaign is, is in effect. But it's the strategic. That's the battle. How long can Trump hang on to this and not lose the political will? He's not trying to win an election next go around. He's already at his terminal limit, so he's got some staying power. Of course, midterms could impact him and a hostile Congress is likely to step in and cause him a lot of pain and maybe some impeachments and everything else. But it really comes down to, to the thing that we ignored in the beginning, which are our allies. And to the extent, what have we seen? We've seen that Europe is now in threat. We've seen that our allies across Asia, their economy is bad. Australia is close to turning back into Mad Max. You ever see that movie? Like, they're running out of gas. Right. So if we can build social consensus, global consensus, and have the entirety of the globe and the, you know, like you said, Austin, if this needs to
- [22:56]
C
get fixed, what is the entire world pariah? Who cares? Do you think IRGC cares? They're a pariah. Do you think they care about Australia's opinion? Australia doesn't have a military force to bring to bear. The US is NATO. That is the force. And the allies aren't stepping up. And Iran is charging now $2 million a tanker. If the US just withdrew now and just say, hey, we're headed back home
- [23:17]
B
and not going to happen.
- [23:18]
C
And Trump talked his. Yeah, I'm not saying that would happen. Let's just visualize what's the path to de escalation. Trump is saying, hey, we won. He could just walk away. They would still have control of the Strait. So if he doesn't walk away.
- [23:33]
B
And it would turn into a proxy war where Israel would continue to bomb the hell out of the IRGC and we would supply them. Maybe that's, maybe that's what's going to happen. But I'm telling you we have a big problem unless that that strait is secured and the globe has a big problem.
- [23:47]
C
I, I agree. I. What do you what the global economy has a problem escalation.
- [23:53]
B
Look, I think the original playbook, the original playbook was. It's the Venezuela playbook, right. That that's what they're seeking to achieve. Super hard to do. Do you continue to, to use kinetic measures to, to until that strong person pops up to take charge? I don't know.
- [24:12]
A
I mean I, I would say on that front there's a significant difference between somewhere like Venezuela versus somewhere like Iran. Right.
- [24:19]
B
Like if totally agree, it's much more complex.
- [24:23]
A
And if we look back at pulling agitators out of the populace, to Rom's point, part of what you're trying to determine is call it how embedded and representative of the populace are the agitators because, you know, the d degree of difficulty of both removing, interdicting, detecting, disrupting something like Islamic fundamentalist terrorism in the United States versus say the IRA in Ireland is very different because of how the population feels about the people doing the thing. And I think in Iran, if we're being totally honest about what is the pathway to deescalate this thing, then almost all roads lead to the United States having to continue to degrade the operational capacity capacity of the IRGC and quite frankly kill them until it's too painful to continue. I will say the thing that I'm keeping an eye on, and I think we talked about this earlier with the general, is do we start to see factionalist problems within Iran itself? To me, that is an indicator of when the IRGC is probably hitting the point of oh God, we have to negotiate from a position of weakness. Because if you start seeing problems in the east, if you have uprisings with the Kurds or the Azerbaijanis get involved or like Pakistan starts throwing punches now, you have a very, very different problem in your neighborhood than when it's purely internal. I don't think we're at just observing the facts on the ground that level of operational degradation yet. So I really do think this is just Chris, to your point about the strategic level of war, who has the will to continue fighting and also maybe an important lesson from the Ukrainians fighting Russia, the call it tactical and campaign level capabilities to rapidly innovate, to counter the things that your opponents are doing. Because, Rom, to your point about, hey, it's going to take a lot of people to keep the Strait of Hormuz, like, secure, maybe, or maybe it just takes some really good drone tactics so that we can interdict all the people trying to interdict things themselves. And I'm not saying yes, and I'm not saying no, but I'm saying we're seeing a rapid innovation in the art of war as people integrate things like drones into battlefield tactics that, quite frankly, didn't exist 20 years ago. And I don't know which way the economics of that is going.
- [26:35]
C
I think it's very naive. Guys, look, you've got rockets landing in Saudi. You got rockets, line interceptors can't stop. The Strait of Hormuz is a closer distance, and there's more awareness of that category. You just need rockets and a couple of decentralized individuals. You got millions of people. It's not more kinetics will make this go away.
- [26:56]
B
Yeah, I agree. It's not.
- [26:57]
C
It's never very deep miscalculation.
- [26:59]
B
Yeah. You can't win a war through just kinetics. It has to be at the strategic level. That's the issue we're talking about. Right. And we just haven't seen that.
- [27:07]
C
They're pulled up in bunkers.
- [27:08]
B
You haven't seen that leader. But, but, but the kinetics will get you potentially to degrade to a situation where somebody sees an opportunity and they're like, okay, guys, I'm gonna go for it. I'm taking control of this country. I'm going to be richer than I ever imagined, and I'm gonna go for it. And I'm have all the power in the world. That's what the kinetics will get you.
- [27:27]
A
And that's by the. Well, that, by the way, to your point, Rahm, you were talking about this earlier, is the leverage that Trump needs to create if he wants a way out of this. Like, if we talk about manufacturing leverage out of nothing, you've got to create a path to winning for the other side, who you're going to be negotiating with. Right? Like, how do you put them in a better position than they otherwise would have been in? And if you look at people who have successfully resolved these conflicts historically, in fact, we can go to how the United States handled Western Germany and Japan after World War II. The answer is, if you want to create a winning condition for both sides, for one to cease the conflict, it's actually going to need to be Very profitable and viable for both sides essentially to have that relationship. So if Trump is trying to manufacture leverage, I agree the stick is very important here from creating leverage, especially when you're talking about a religious fanaticism type argument. But the other side is there's got to be the carrot. And my question is, what is that carrot? Because hey, we'll just stop bombing you. Is not alone itself a carrot.
- [28:30]
B
How do you guys think that Besson gets the 10 year yield under control? Because that is something that is not what's up.
- [28:39]
C
Yeah, $200 billion in incremental monthly deficit spending. That's 1. Oil prices are going up. That's 2. You have a tightening of financial conditions. He can't control that.
- [28:50]
B
There's nothing he could do. Yeah, that's, that's part of the strategic level.
- [28:54]
A
Well, I was going to say a
- [28:55]
B
lot of pressure, actually.
- [28:56]
A
I think he's working on something that might help with that right now. If you saw the announcement today of the 30% bounty for finding government fraud and other things like that, we get to the point of how do you start dealing with the financial conditions? Like fundamentally, the administration is not the problem there. It's Congress. Like, if you look at the budgets we've been passing since Congress, Covid, it's just been up, up, up, up. When was the last time Congress passed a budget that spent less money than the previous year? But that is the paradigm ultimately we need to be getting to. And I will remind everybody, the last time that really happened in the United States was under Bill Clinton. So this has been a problem that's been underway for 30 years now. But the fundamental answer is y' all are spending way too much money.
- [29:45]
C
Yeah, yeah. Now there's a lot to say. He's meant to replenish munitions, too.
- [29:52]
A
It all, it all comes back to spending. So let's talk about what markets are doing here because we've had the worst month in a year. Rom the S P closed at what, 6,368ish on Friday. It's the fifth straight weekly decline. That is the longest losing streak since 2022. The Dow was down 1.7%. Nasdaq is down more than 10% from the October peak at this point year to date, I believe the S P is down roughly 7%. The Vix has continued to be elevated and Moody's said their recession model is at a 50% probability. Goldman has raised recession odds to 30% and others like Wilmington Trust, et cetera, are following. Part of the problem here as well is when you have a supply shock. The standard monetary policy tools, like, we could change interest rates, but that does not create more oil. So, Rob, let me ask you, as we're looking at all of this negative information coming out of the market, it appears to be pricing in a prolonged conflict. If things proceed sort of as you were predicting, what is the downstream impact? What should we be expecting from here?
- [31:06]
C
Yeah, QQQs are in correction territory now. I think the downside could be something like 6,000, 6,200 in the S&P or 15% correction. Something that pulls you back to the Liberation Day valuation lows. This is more serious in Liberation Day, though, because you have factors outside control, such as the price of oil, which is inflationary. 53% of the S and P market cap depends on that. You've got consumer spending that's pulling back. Consumer discretionary names will get hurt. And already you're seeing commodity prices like wheat, corn, agriculture going higher, which creates more inflation at home. I think the first time I said there was a something burger was when this broke out five weeks ago. Like, this is a, you know, war is highly inflationary. It's just not a good set of background conditions. You know, I'll reiterate what I said before. You know, you should stay small, have excess cash. This is not a market where you want to be a hero. What I see are continued deleveraging from institutions and retail investors. I also see a lot of denial and complacency on Twitter. I see people talking other people into buying these stocks that are down 40 to 50% and that they're trying to buy the dip. The dip keeps dipping. They're referencing fear and greed indicators, which really don't have any relevance given the broader backdrop and structural forces and facts around the Strait of Hormuz. This is like a sentiment reflex kind of thing. These are legitimate issues. At the same time, there's starting to be some value emerging. You know, it's not back up the truck, but like, I picked up Berkshire Hathaway last Friday. It's got a price attachment book of 1.3. I picked up Microsoft. I picked up Meta at 17.54 pe. So I think there's a flight to safety to US assets, I think names and large cap tech. But not all of them. Not all of them by any stretch. Netflix is still expensive. Tesla's egregiously overpriced. But their pockets, right? Look at Micron. Look at the leaders in the market that had the highest relative strength. They've rolled over. Whether that's Micron, Lam Research, Bloom Energy, the industrials complex, which I have shorts on that crack today. Names like Teradyne, Caterpillar, John Deere. That's a bubble. That whole category is a bubble. So this bubble existed before the conflict and people were bulled up on Goldilocks and now you have this torrent of negative information hitting markets. So people are trying to adjust. They've got vwap orders in and there's just a simultaneous degrossing so that whenever you see a market rally, it gets sold off. You had a gap up today. It gets sold off. People are being trained to sell rips, taking that advantage to de gross. Biotech is rolling over. Emerging markets are getting whacked by stronger dollar. So I'm sorry, guys, I wish I could be more bullish for you. I was bullish, I think up until five weeks ago. But now I think it's just a very caustic environment for risk assets.
- [34:29]
B
Yeah, I mean, it's a flight to fund, it's not a flight to safety. I mean it is, but it's also a flight to fundamentals. And that's what I'm hearing. For the right companies with the right fundamentals, when sentiment is down, it actually is a pretty decent setup. So I think you just need to double down on fundamentals, acknowledging that there's going to be some near term macro stress.
- [34:49]
A
How do you feel, Rahm, about bitcoin? Right. Like bitcoin's actually holding pretty well at 66k here compared to some of the carnage elsewhere in markets. It's kind of chopped sideways. You know, we. I was going to say we talk about the equities market here, but from a crypto perspective, it's actually the one thing that's been holding up decently as this has started. Why do you think?
- [35:08]
C
I think a lot of this. Crypto. Yeah, crypto. Bitcoin's held up quite well. It's really notable to say that I think a good chunk of that is just STRC flows. That's it. So Michael Saylor launched another product. It's being heavily marketed. We had a new client join today. I looked at his portfolio. He's got strc. He said market sell. We're getting out of that one. And that's creating inflows to bitcoin. This is not a healthy bid. So it's hard for risk assets to run this. When it comes to finding good names and with good fundamentals, it's just very difficult to find those assets. This is my day job. This is What I do, it's my night weekend. All the Berkshire Hathaway is not bad. It's not a screaming bargain. There are some opportunities here and there, but the tides around these companies are under pressure, like software. Software. You still got companies like MongoDB and Datadog that have 50, 60, ARM, 60, 80 times earnings. It's hard to find that one nugget that can rise above when the entire theme is under pressure due to valuation rerating because of higher interest rates.
- [36:26]
A
So if I'm hearing, if I'm hearing you right, if we're talking like mag7, you think now is when the chickens start to come home to roost for a lot of like the AI hyperscalers who have been spending a huge amount on capex, like impairing their forward cash flow, no longer doing buybacks. Right. Like is the rubber meeting.
- [36:45]
C
Yeah. Of all that, a lot. I mean, they were amongst the first to feel the pain, so they took their lumps earlier. And there's some value in some pockets of that category, but not across the board. You have to pick and choose your spots.
- [37:01]
B
So on the crypto space, crypto is very responsive to liquidity and gold has sucked out a lot of liquidity. Oil is now sucking out a lot of liquidity, but it's still been pretty resilient. And again, when you step back and we should talk a little bit about the Clarity act, whether Clarity act goes or not, I think if it does go, that's going to be a very, very nice tailwind for the asset class. But we couldn't imagine a better regulatory environment. I mean, I was at the Digital Asset Summit last week. The number of new faces coming into this space, coming from institutions who do care about fundamentals, it was profound. I think it was the most signups they've ever had. Yes, macro is, is macro and liquidity, when you, when you're a crypto investor, you have to be very mindful of, but there are these underlying fundamentals that are. And macro themes behind the scenes that are coming together very nicely. So when, when those black clouds lift, I think this asset class has shown that it's here to stay and that it's, it's pretty well positioned coming out of this.
- [38:06]
A
All right, well, before we have a bigger argument about crypto, given where we are on timing, we do need to go to our second ad break. So before we continue, another word from our sponsors.
- [38:17]
B
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- [38:57]
A
so welcome back everybody and for our next segment we're going to talk about the public chain problem. And at the start of this I want to say like Chris, I attended das and it was a very impressive event this year. So first of all, good works to Blockworks and the team for putting that on. Events are a tremendous amount of work sometimes. But the crowd I think was maybe the best mix of institutional along with crypto that I've seen in quite a while. And despite the despondent mood among altcoins, I can say with certainty that was not true among traditional financial participants. But this paradigm is also starting to reveal some of the fault lines that exist within crypto that have been under discussed. One of them is the emerging brawl between Canton Network and call it many
- [39:47]
B
of the public blocks and everybody else.
- [39:50]
A
At least some people like I might argue there's a third faction here that right now is staying out of it watching the two brawl. But so Canton's co founder Shock Fear has been telling regulators and institutional buyers that quote ZK proofs are too dangerous for mission critical financial infrastructure and this went fully public. He referred to Solana's April 2025 zero day and its ZK powered confidential transfers that could have allowed unlimited token minting and nobody quote knowing if it was exploited. Obviously ZK6 co founder Alexowski fired back with a tweet thread and then more things were happening here. So on the Canton side they continue to add super validators like Visa for instance, as was reported on Unchained. Don Wilson has been criticizing mev, saying that it's not appropriate for people to reorder transactions to extract valuable quote that's just not suitable for financial markets and the industry has been fighting back. Meltem Demirs, Rebecca Reddig and Omid Malika, friend of the pod, have all had things to say about this, calling it things like a special or permissioned interest at work, a grossly outdated view on mev or to quote Obed mev, a risk of blockchain says guy who backs corporate database alternative where a single entity can steal everybody's money. There's some strong opinions on both sides of this so I'm going to pause there. After describing this fight. Chris, ask you, as somebody who's been investing in and looking at the space for a while, what do you make of this brawl?
- [41:34]
B
I mean, it's a really, really interesting dynamic going on. I'll be honest with you, Eric. Over at Canton, DA holdings, he got me into crypto like a really, really, really long time ago. So I've known these guys forever, and people fail to realize that that not Canton itself, but DA holdings is about the same age as Ethereum. I mean, they've been around forever. So, look, the, the debate is there's a couple of things. There's also the MEV debate going on where Don Wilson said last week, hey, you know this MEV stuff, it's just not institutional ready. We should talk about that. But in the bigger conversation between private permission chains versus public chains, look, I think that there's enough for everybody, but it shows that we're in this institutional era where everyone's fighting for real estate, everyone's fighting for real estate. If you look at dtcc, right, who have they prioritized? Canton's on there, Ethereum's on there. No one's sure which way the market's going to go. So the competition is as ruthless as it's probably going to get because once you have that real estate, it's hard to push you off of it. Right. My personal take is that different strokes for different folks. Like, if you're an institution and you know, a lot of them were investors in Canton for a very long time, that solution fits their needs. Other folks, there's some real value in Ethereum and Solana, but it really comes down to differentiation. How are you going to differentiate your chain and then which applications thrive because of that differentiation? It's as simple as that. And it's not one is better than other. I think it's going to be very, very app specific. Right. So let's look at Ethereum mainnet. Maybe not the fastest thing in the world, but what's its edge? Its edge is decentralization, permissionless, public. Right. No one can shut it down, no one can roll it back. And that's its edge. The crops thing makes a ton of sense in my mind. It, you know, that they're leading with censorship, resistance. What is Solana leading with? Speed. Right. Tps. Tps. And what's Canton leaving with? Privacy. Right. And permission and other things of that nature. Institutionalization. Right. So I just feel like every single. It depends on the app, it depends on the institution, and it depends what app the institution is trying to achieve. But I do think you're going to see liquidity throughout. Who's winning the stablecoin game today? Ethereum, Lesser extent, Tron. But we know you and I are gonna have a debate about real world assets here in a second. But, but again it's, it all depends. And I think the great thing about this space is everything's programmable, everything is, is customizable. And I just feel like you're gonna find different apps thrive in different places.
- [44:23]
A
So the interesting part to me hearing this debate was that being fair to both sides, there's elements of truth on both sides sides and I think they reveal how under baked many of the current solutions are. So I'll, I'll say something that I think everybody in crypto gets angry with me when I say, but the blockchain that the majority of financial assets will be trading on in 30 years probably has not yet been created. And the reason I say that, Chris, you make an interesting point about taking territory is there is a vast, vast middle ground between a very permissionless eth and a very permissioned private bank chain or canton that is mostly unexplored. And if there are explorers, they are the explorers who are like deeply disfavored by the market right now. Like the Stellars and the avalanches of the world that everybody is just ignoring as they sort of go off on the Y axis while everybody is fighting about the X axis. And the reason I keep coming back to this, and maybe it's the brain damage from having run a stablecoin is that if we think about ledger technology that is decentralized and permissionless and then we think about real world assets, then regardless of what the rules of your ledger are, the ultimate dictator of the real world assets are going to be the courts, right? And the legal system in the place where you have issued this asset. This is also something that many financial and regulatory people are missing is we're moving from an account based world to an issuer based world for these things. That is a big change. But the reality is let's take Paxos, where I used to work, so I can use them as an example. If I get a court order from a federal judge to do something with the tokens at Paxos and I want to tell them, no, I am going to jail, right? And so the position that that puts you in is the rules that Paxos will follower whatever a federal court tells them the rules are. And so you need to be aware of those rules and willing to reflect those rules on your chain. Because if you don't, it's not going to be the ledger of record. So my concern with Ethereum going in that direction is very simple, which is that if there's a disagreement between your ledger and the real world, how do you get your ledger back in alignment with the real world and will you get your ledger ledger back in alignment with the real world? And if you don't, you're gonna break stuff. Because the ETH problem, like as I've described it, why Chris, they continue to be mad with me over at the Ethereum foundation right now is not that I think you can't have a permissionless ledger with real assets on it, it's that if you want to do that, you should not have smart contracts and complex interactions. Because like to give a very live example of something that's on there right now, if there turns out to be a decent amount of Iranian money on a in either USDT or USDC and a judge freezes the entire A lending pool, the stablecoin issuer is not going to tell them no. But then you brick an entire protocol, right, which will have a commingled cascading effect. We're Back to like 2008 in derivatives markets. And so to me it becomes one of those clarity of vision type issues. Back to the strategic level of thing is, if ETH truly wants to be decentralized, the Ethereum foundation should be hammering on people every single day to reduce complexity and interconnectivity and do not build things that if somebody pulls that one Jenga block, the whole thing falls over. And if you don't want to do that, we move towards Canton. Now the problem with Canton is not, call it a technical design one. There have been some critiques there, but I think all of those are fixable. I think they have a governance one because like Rob, actually, I remember you and I at one point were talking about this when we were having dinner is the idea that you can start a private chain with a bunch of money from a small specific group of financial entities and have everybody adopt it by having to pay into that thing is just not a thing that happens. Like you're not going to get Jamie Dimon to make a gigantic donation to another bank to join a blockchain. And so I think the Canton problem is if you look at dtcc, that worked because on day one they got all the big guys in a room and the SEC kind of held them at gunpoint, made them all jump together. I don't think Canton's done that. So Chris here's the question I'm actually going to put to you and Rom is do we think 30 years from now either Ethereum or Canton are the answer?
- [48:51]
B
I'll answer that. I really don't understand your line of, I really don't understand your line of reasoning. I'll be honest with you. So you talked about the Paxos example and I do think we have some big security problems that keep me awake at night. And that security problem is related to latency. So even if you had any chain, let's just say if you have a tokenized equity and it's out in some chain, transfer agents tracking it, everyone's happy, it gets hacked. You can say, yeah, but the transfer agent know who's, who's is what. The problem that you have is that if somebody moves very quickly and swaps it off into bitcoin and bridges somewhere, you're gone. Right? So, so we have a security problem that has to be solved. The great news, as we've talked about over the years, is that we can track it. I'm going to introduce privateers in the, in the Market Structure act and that's going to take care of a lot of our practice security. But we can talk about that later. But, but getting to your point around Ethereum, what I know about Ethereum is that it's an ecosystem that tends to evolve in very difficult ways. Moving from proof of stake, proof of work to proof of stake was like flying an aircraft and changing the engine. And it's an ecosystem that continues to evolve with the market and we can talk about that. So is it going to be around for 30 years or not? That's what they're trying to do. And their edge is to make it censorship resistant. And so where I struggle with your examples is as follows. If I have a stablecoin, we agree that you can freeze and seize. We agree that the stablecoin is centralized. But why can't you, why can't you house it, stake it, put it in a pool? Why can't it be on a decentralized, censorship resistant blockchain? I don't see why. Now if you deposit it into an application that's centralized, of course the regulators or the government or the DOJ or whomever, if that app can be sense, is subject to censorship, subject to sanction, it will be sanctioned. But again, it's almost like saying, you know what guys, this Internet thing, you know, you can't, you can't do anything sophisticated on the Internet. You can't pay on the Internet because You know, no one can control it. That's the whole point. Like Iran uses the Internet, they're tweeting. Right. My point is that I don't like. I totally appreciate the fact that you have centralized assets, centralized applications, but I don't know why you think it's a problem to have a decentralized, permissionless layer one.
- [51:20]
A
So my answer is I don't think it's a problem if you don't have the apps. Right is essentially the way I would put it. Right. Because again, go to aave, look at it right now. You have very large combination mingled lending pools. And if one of those contains sanctioned money, the whole thing will get frozen, which breaks the whole ecosystem and damages a bunch of innocent people.
- [51:42]
C
I'm more on Austin's side of things. I think Chris used the word ruthless earlier, which is the exact right word to describe the behavior of Wall Street. These investment banks have principal strategic investment groups. Goldman Sachs has one. They created Ice Market Partners, Tradeweb, whom we had on the pod previously. Their first instinct is going to be if we're going to be customers of some platform, how do we maximize our own value? Capture and take this company public. They did the same thing with Visa and MasterCard. And the mistake that crypto entrepreneurs make again and again is they focus too much on product features. They focus on the features of the car rather than what the customer wants. What the customer wants is control. They want to deepen their moat. They don't want to expose them of the competition. They do want permissioning. They do want compatibility with existing norms and contracts in the real world, like trade disputes, for example, or the ability to handle a legal dispute or compliance with ofac. So just because you have a gee whiz, decentralized network with all sorts of great product features doesn't mean it drives Wall street adoption. In fact, I'm not saying that I agree with you. It's for them to go the other ways in co op technology.
- [53:05]
B
So I'm not disagreeing with you. And by the way, I'm not saying oh yes to Ethan, no to Canton. What I said earlier was that different applications will thrive in different ecosystems. You're right. Tradewebs and investor in Canton. Goldman Sachs investor in Canton. They're axed. And, and I. And if those are your. My investors, I'm going to make sure that I'm going to solve their needs. Damn it. So, so they have product market fit. The Canton guys are doing great. Like I said, they're the ones who got me into crypto in the first place like long, long time ago. And they're going to customize solutions for their Wall street owners and. And their Wall street supporters. Totally. But what I'm saying is that so
- [53:41]
C
what more market will crypto capture?
- [53:43]
B
Go ahead with crypto would a trustless permissionless chain like Ethereum capture what institutional
- [53:51]
C
part of the market? There's a Wall street component. Okay. What segment of the market is up for grabs, legitimately up for grabs where some industry led solution doesn't come to the fore and they seek to maximize their own value capture?
- [54:08]
B
Again, it depends on the apps. Could you see Repo migrating into a canton? For sure. But the thing about Ethereum that I think we're also seeing a lot of people really like and I know the EF has pushed away from the layer 2 roadmap avalanche does something similar. Austin, you talked about them too. But you have the benefit of real customization optimizing for number of different variables, cost, tps or whatever. Leveraging that Ethereum security and doing so in a cheap matter. So look at Arbitrum on Robinhood as an example. Look at Optimism Technology based in Coinbase. So these are getting used Inc. Kraken Ethereum technology is being used and adapted by major crypto institutions and trad Robinhood. So why wouldn't that continue? But I think the real if you look at ETH as a layer one, the real value is, is the sense that it's censorship resistant, it's decentralized. If we agree, that means if you're in Botswana or name your developing country of choice, you can use this new Internet and you can move value over that Internet and no one can stop you. And that's its edge.
- [55:22]
A
So I want to.
- [55:23]
C
Sovereign neutrality is really the edge. There's got to be a blockchain that's sovereign neutral. That's the edge of a Wall Street.
- [55:30]
B
That's right.
- [55:31]
C
But it's hard to, it's hard to sell to Wall Street a pitch that you're sovereign neutral when they're subject to the sovereign.
- [55:37]
A
Yeah, I think your bigger problem is upstream of the banks on that one. Go try to sell sovereign neutrality. The SEC or the Fed, they are 100% down with that,
- [55:50]
B
but they use the Internet.
- [55:52]
A
The Internet is actually a virtual, very different animal because in the United States of America we have the First Amendment. If the First Amendment did not exist, the Internet would not exist because the government shall pass no law regulating speech. Right. The Internet exists because of the First Amendment. That does not exist for money and financial assets. So the Road to climb again. Like I said, free money is much higher.
- [56:13]
B
The assets, the centralized assets will continue to be regulated. All I'm saying is that I don't see see any issue with a censorship resistant layer one, a global settlement layer. I don't see, I don't see any issue with that. Regulate the activities, regulate the behaviors, regulate the centralized players. That's what we said from day one and I decentralized tech.
- [56:35]
A
I want to be clear, I have no problem with ETH working purely as a settlement layer that does one way sends of assets or maybe even like bilateral trading of assets. To me, the problem that a lot of the people building on ETH have not thought through, and your Robinhood example actually kind of brings this to the four is if within Robinhood's four walls something goes wrong. Robinhood can solve that problem unilaterally. But what ETH is creating with the current defi ecosystem is an interlayered thing where it's Robinhood, Coinbase, Kraken, OkX, Binance, like put whoever you want, they throw them all into a pot. So problem with one breaks everything for everybody.
- [57:13]
B
But it's not, that's the point. It's unbreakable. It's unbreakable. I think what you're saying, Chris, it is not.
- [57:20]
A
No, let me, hold on, let me give you a very specific example. We have an ETH pool right now with a ton of ETH and a ton of USDC in there. Okay. And the USDC side gets frozen by circle. Does that or does that not break the pool for everybody on which app? What's up?
- [57:36]
B
Yeah, Uniswap again, it's, it's about the. If the app is decentralized, I mean that's a very, very high thing to achieve. But I think what you're saying though, if you have a centralized application, of course it's going to be subject to regulation wherever it's based. Of course.
- [57:54]
A
No, but the U.S. no, the USDC is the thing subject to regulation. If there's 500 million of us in
- [58:00]
B
there, there's 25 million of the Iranian money. Right. If there's a centralized application, it would be subject to sanction as well.
- [58:07]
A
Correct. But I'm saying if there's no centralized application, if you commingle decentralized money, you've created a ticking type bomb. The things that work are things that have a structure like any pay on somewhere where everybody has a segregated account.
- [58:21]
B
So here's the deal, you know, you cannot violate the laws if you're an individual. Right? Or an institution. So if I go into that pool and I trade with the North Koreans or the Iranians, I'm in trouble because I just broke the law. But that doesn't mean I need to shut down Ethereum or I can't use Ethereum because I can use advanced analytics to look at the pools and I don't trade with them because that's how it works and I don't violate the law. It's not the technology that should be indicted here, it's the behaviors and the activities.
- [58:52]
A
But there's no way around the behaviors and the technologies implicitly involving open access. Things like the Iranians can bomb into that pool whenever they want. Yeah, everybody can then try to start withdrawing. But now you're in a race between a freeze order and usability. And by the way, I don't think it's reasonable to put the duty on the average retail users to monitor all of that. Like that's just functionally not.
- [59:13]
B
Again, if the Iranians are using stable coins, then there's this thing we call freezing seas, which we both know and love. And by the way, like, no one hates money getting into sanctioned hands more than like me. Right?
- [59:23]
A
But Chris, you've just made my point for me. There is a thing called freezing seas. So the commingled pool is going to get frozen. Right?
- [59:29]
B
Right. So what does that have to do with it?
- [59:31]
A
With the layer one Right. To go. But to go back to the point, the problem is the trilemma of permissionless real world assets and complex smart contracts. You can pick two of them, you can't have all three.
- [59:44]
C
If eth is purely a setup, it's not truly permission. Permissionless, immutable and trustless. Yeah, the legal system intervenes here. It's not truly immutable, permissionless and trustless. Like.
- [59:54]
A
Correct.
- [59:54]
C
The original concept of crypto was an anarcho, libertarian, capitalist, world network state kind of concept that was free from the purview of sovereign control. What's happened is crypto is really become FinTech 3.0 and it shaped, molded and governed by US laws. And so US laws still prevail. US laws are layer zero.
- [60:22]
B
Totally agree. That code is not law. Law's law. Right, we all agree with that. But the point is, is that again, it goes back to the fundamental argument. Do you, do you regulate the coders? Do you sanction the coders? Or do you sanction and regulate the behaviors and the activities of the people that use the tech? That's where I am.
- [60:44]
A
But, and I, I was going to say I think the unfortunate answer to both of those as we look at essentially how we build things in the United States is you're going to end up regulating both for real world assets, whether you like it or not.
- [60:59]
B
Right to the accepted centralized right from day one. If you have a company that builds tech, that company is going to be held accountable for the tech. I think here we have a horizontal solution where if you truly have something that is and again incredibly high bar, you have something that's truly decentralized, you know, something that perhaps has a million validators, right, you can't turn it off, you can't roll it back. It's very difficult.
- [61:22]
A
Chris, I'm not saying, I'm not saying we're giving court orders to the validators. I am saying there is functionally no way to build a uniswap pool pool that includes real world assets that does not answer to US courts. That is Rob's point about what the layers.
- [61:37]
B
I agree, I, I don't disagree. Look, if, if you, if there are. This is the great thing about crypto from national security perspective, if there is a tainted pool, we freeze and seize. What you're saying is, you're saying that creates this domino effect where you just can't trust anything because there's bad guys in the system. That's how blockchains were invented. Because they, they were. We needed a way to be able to have trustless, permissionless exchange of value in a very adversarial environment. Right. That's the whole idea.
- [62:04]
A
Well, I want to pause you there. I'm not saying you can't trust anything. I have no problem with holding like USDC in a personal self custodial wallet. What I'm saying is all the commingling is what you can't trust. Like I, I guess let me be very explicit in the argument. If ETH wants to be the global settlement layer that is descending centralized and have real world assets, defi needs to go away.
- [62:27]
B
I don't maybe define its current form needs to adjust. You know, I, I hear you like we did. There are some challenges of course with, with sanctioned activities that need and we have no tolerate for that. We also need folks that can proactively leverage the technology to take care of those, you know, to freezing, to track privateer, you name it. So I, I don't think we're that off. I just, I do think there's value in a trustless permissionless layer one and I think it's gonna, I think that is a humongous opportunity, huge mode for certain blockchains. Yeah, that's it. But I think we're coming on time.
- [63:04]
A
I was gonna say. Or L2s, to be fair. Like, I don't have a argument against building L2s on top of that layer. Now, Chris is correct. We are coming up on time yet here. So we will continue this debate at some point in the future. But for today, I have to say 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 and apparently magnetic warfare are colliding. Until then, take care, everyone.
- [63:30]
B
Thanks, guys.
- [63:40]
A
Sam.