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- [00:01]
A
Hey everyone. Welcome to Bits and Bips, where we explore how crypto and macro collide one basis point at a time. As always, we're here to discuss the latest stories in the worlds of crypto and macro. But before we begin, a quick commercial break.
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B
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- [00:48]
A
All right, everybody, welcome back. I am your host Austin Campbell, high Scholar of Zero Knowledge, here with my co hosts Ram Alawalia, Maester of Wealth, leader of Lumina, and Chris Perkins, the golden hand now of 250 Digital Asset Management. We're going to start today with what I think is perhaps unsurprisingly, the top news of the day, which is that Iran technician, but not It's Hormuz. So the latest from the straight Iran fired cruise missiles at commercial vessels in the Strait and allegedly US Navy warships.
- [01:29]
C
I'm not getting any audio.
- [01:31]
A
Centcom says no hits and the Iranian state media claims otherwise. Tehran says that Trump's Project Freedom and naval escort mission violates the ceasefire. The South Korean Ministry of Foreign affairs allegedly confirmed a Korean vessel was struck by Iranian fire today in the Strait. The US Navy has fired on and sank multiple Iranian small boats after they attempted to interdict efforts to break the blockade. And Iran fired missiles at the UAE striking the Fujairah oil industry zone, which to be clear is the primary export terminal on the Gulf of Oman that bypasses the Strait of Hormuz. It was on fire earlier today, sparking rumors that the UAE and allies may retaliate to so the market, unsurprisingly, not super happy. Brent was up 5% to about 114 WTI up to 105. Intraday Kalshi traders are seeing an over 50% probability of 127. Brent. The UAE obviously has already quit OPEC, but there was an op ed at Al Jazeera by Anas Abdoun saying this is not about oil, it is the end of Gulf solidarity. And today that has definitely spilled over into kinetic conflict so Chris, I want to start with you on this one, which is to say, what do you make of what's happening in the Straight today before we get to more on the market reaction? What's happening in terms of the physical theater?
- [03:07]
D
Yeah, I mean I wanted to start with the market reaction because that's what's really fascinating here. I mean, come on, like tell me. Bitcoin ripped through 80. It's, it's now surpassed its 150 day moving average which generally shows a regime change. If you look through history, Ethereum's up. Like crypto seems very, very resilient. Traditional markets are down a bit, but crypto is like, is, is just like kind of shrinking enough to your point. WTI is ripping, Brent's ripping. What's going on in the Straight right now is a couple of things. The Trump administration is now, I mean, I mean there's, there's a million things to unpack, but all focus is on freedom of navigation. And the administration is approaching this almost through a humanitarian lens now and saying, hey, we're doing the right thing for the globe. We're going to help shepherd these ships through the strait. My understanding is they were able to, to bring two ships to the strait today, including a mask, a Maersk vessel, again with a focus on freedom of navigation and in accordance with UN Charter. So that's good. But against the backdrop, man, like it feels like things are about to boil over. Iran feels like a caged animal. They continue to be decimated. They're, you know, they're effectively, they're, they're swelling with their, they're, they're not able to export their oil. That's going to impact long term their ability to, to pump out of the ground. It's going to hurt their, if they're not able to get that oil out. It feels like this, you know, things are coming to a head and who do they lash out again? They're lashing out at the Emiratis again. It's fascinating. I was at Milken this morning here at the Milken conference and someone very, very senior was presenting from today. And gosh, the amount of optimism in the crowd was profound. When you talk to business leaders in the Middle east or beyond, yes, this is a short term geopolitical stress, but I can't understate the excitement about how the world is going to come out of this. The amount of focus on Capex, the amount of innovation and development in the GCC and beyond. And so the general sentiment is like we're going to get through this, it's tough. But on the other side, it sounds like it's going to be a very, very, we're going to be in a very good place. So, long story short, things are very, you know, it's, it's a very tenuous time in the Gulf. The United States Navy is doing God's work, continues to do God's work. I think you're also seeing a lot of psychological warfare. Iranians said they hit one of our, one of our ships, a cruiser or something. Centcom's denying it. And so obviously, you know, having been in war, I'll tell you what happens is like there's a lot of stuff that happens on the ground. It gets filtered up and then you just hear a sound bite. So I guarantee you there's a lot of hooking and jabbing on the ground. Yes, we took out like six or seven boats. We got to a couple of ships flow. So the markets tell the truth over and over again. Obviously there's stress on oil. Crypto feels really good. I still feel like we're kind of heading towards the end of this. And when I say the end of it, I don't mean the end of actions. I mean when this geopolitical event will reach a certain piece, like will reach stasis, where it kind of gets relegated to the back and the markets will take over again. So generally, lots going on. Crypto feels very, very constructive. Again, I say this every week now, I feel, and it does continue to feel constructive. But yeah, let's go over to Rahman and love your take there, Austin.
- [06:47]
C
Yeah, I agree with what Chris is saying. I agree. Markets are constructive. Digital assets is constructive in many areas. I think this Strait of Hormuz as an issue is increasingly less relevant. I think the IRGC is beat, they're boxed in. The blockade is working. Markets are generally shrugging off high oil prices. Markets are one day from all time highs, which was last Friday. So I think opportunities to buy the dip will be bought by a number of investors that continue to remain offsides. That includes institutional investors. Overall, things are good. You know, the earnings growth estimates for next 12 months is 19% and what we saw is 40% of the market cap report last Wednesday. Every single mega cap tech company beat, beat and raised, which suggests that even that 19% may be an underestimate, meaning that they're sandbagging the numbers and they're holding back. So overall I'd be biased, bullish, take advantage of weakness, a small pullback. The beginning of this week is natural. What we were expecting I would take advantage of that. I would remain overweight energy though I do believe oil prices will be higher for longer. They're not going to settle back to the $70 range and that area is a bull market and it's a nice inflation hedge also.
- [08:17]
D
Yeah, I just want to touch on the capex that you talked about. So I think with the, I think Even in the AI space, data center space, we're seeing like 800,000,000 billion dollars of capex spending that's going to extend for multiple years. This is just not a one off. And the amount of stimulus that this will bring with it across blue collar jobs even, you know, it's not just, you know, going to go into the hands of a couple of like private equity firms. You're going to see job creation and I think that's why there's a lot of optimism. When I talk to the people here at Milken, it's the amount of stimulus that's going in. Like the investment in this new infrastructure should be very, very good for the economy in the medium to long term. So a ton of optimism here.
- [09:02]
C
I'll add to that. It's a great point. I saw the data point that the demand for software engineers is increasing, job openings, software engineers increasing. A lot of this AI apocalypse news is overdone. It's true that there are headcount reductions at the mega cap tech companies who are substituting labor for tokens. But for the long tail of the economy they need engineers to adapt workflows. Also you're seeing that the tech ETF went up today because of software. So software is rallying too. Software's got a nice interesting correlation with digital assets. So that's constructive. I think the bottom's in for software also.
- [09:44]
D
Yeah. And you'll see as a repositioning, right, jobs will shift, some will go away, some will come, some that we haven't heard of will be back and emerge. And so it's just a restructuring of labor markets. But I think long story short, based on the amount of capex going on, it should provide nice stimulus to our economy in the medium term.
- [10:08]
A
I think part of what's important to look through on the job, Pentagon is
- [10:11]
C
ramping up spending as well. We saw that. I think they're talking to four of the big AI players now, two hyperscalers and two the LLMs. We haven't really seen Pentagon defense spending get involved in AI yet. Some initial toes in the water. So that bid is coming online and this UAE kind of the attack there that happened. What are they going to do? They're going to turn on and buy American defense equipment like Raytheon Patriot defense systems and interceptors. So that leg of the economy is going to do well. Industrials are doing well. It's hard to find weakness that point in the inflation risk. You know, their expectations are neutral. So as long as you have some inflation overall, real benefit from that.
- [11:09]
D
Yeah. And there's another region that we don't often talk nicely about here, Europe. And like it or not, the Europeans, they're going to have to do some building themselves as well as they focus on their own internal security apparatus and they have to galvanize their manufacturing. So even if there is a decoupling and the US pulls back out of Germany or whatever, that could be short term difficult on their economy. But they're going to have to reconstitute and they're going to have to again build back a manufacturing capability and self sustainability, which also should be positive from a stimulus perspective. So that's something that they're going to have to do and it's part of this greater theme. So yes, we were maybe global inefficient and now as we decouple and become more self sufficient, you're going to have to do a lot of building. There's going to be a lot of economic activity due to that rewiring. So it's pretty interesting from a macro perspective.
- [12:12]
C
How do we feel about Germany rearming here?
- [12:16]
A
Well, I'll, I'll hop in. Yeah, I was going to say, I'll hop in to say one, one of the things that the economy has been short on over the past, call it 10 years has been. I can't hear also, by the way, like manufacturing needs. We've had to take this trend of building piece by piece by piece by piece into the AI infrastructure. Chris, as you've been talking about, and committed capital to it the way that we haven't, Europe is now going to have to do the same thing with defense, by the way, they're doing nothing on AI and they're probably going to have to build around energy if these problems continue as well. So I'm actually going to say this. I think before Germany can really build out their defense industrial base, to flip this back to the two of you, don't they need to fix energy first?
- [13:15]
D
Did we lose that? Yeah, I think we lost Rom.
- [13:17]
A
All right, I, well, I was going to ask you. I can hear.
- [13:21]
C
I can't hear. Austin.
- [13:22]
A
Yeah. Germany's got an energy problem.
- [13:24]
D
Do they not yeah, they absolutely have an energy problem. Their dependence on Russian gas and energy has been a huge issue. So where does this road go? And they also pulled back out of nuclear a while back. So they're going to have to figure it out. I think near term that's going to result in probably more dependency on U.S. oil and U.S. energy, I think, but medium term, you know, they're going to, I think nuclear has to come back. Yes. Solar, you know, you can get, you can do your best with solar and clean energy, quote, but I think nuclear is probably the way forward personally.
- [13:57]
A
Right. And so as I'm looking at that, right, we're playing through this whole sort of situation in Iran and my, my central view is like their capacity is not coming back online for a while. There's going to be continued conflict in the region. Who knows what the timeline for resolution is. Is it weeks, is it months, is it years? I don't know. And that tells me that the energy build out globally is going to be a problem and something that the market will have to digest and that people are going to need new sources of energy and once they have that, they could then start moving forward and building all these other components. So, Chris, to your point, when I'm looking at the CapEx story, I think it's very bread and butter stuff. I think we're talking about like energy, I think then that legs into data centers. Europe is massively behind on those in the AI space. It's really the US and China fighting that battle. And I think the restructuring that we're seeing here of capex is going to be spending in the United States on data centers while we're doing spending in Europe on energy. And that tells me, as I'm looking at markets, if we're worried about valuations in the United States, are we in a world where earnings are going to catch up to the valuations as opposed to valuations like prices coming back down to come to the earnings?
- [15:17]
D
Yeah. So Rob, is this the time of the episode where you critical of Sam Altman? I mean, you have to give him some credit. He's doubled down on data centers. Right. He's gone totally long compute and it seems like it's paying off. I don't know, maybe you got something right, Paying off.
- [15:37]
C
I don't know if it's paying off. So they're falling short of their own projection. So OpenAI projected to hit 1 billion weekly active users. They're behind target. There's,
- [15:55]
D
I think we're losing Rom. Do you guys, do you hear Internal disagreements.
- [16:00]
A
I hear. I hear ROM slowly turning into a robot, which tells me Sam Altman is using Open AI to sabotage.
- [16:07]
D
That's right. So absolutely.
- [16:09]
C
Can you hear me, Chris?
- [16:10]
D
Yeah, we got you a little bit.
- [16:12]
C
You heard me or not? All right, so Sarah Fryer, the president of OpenAI, is having some internal disagreements. She's trying to kick the IPO out to 2027, trying to bring expense discipline. They're behind on their weekly active users goal and their revenue goal. Google Gemini is the leading LLM out there and Claude is growing quickly. So OpenAI is in a rough spot. But yes, we're going to keep criticizing Sam Allman until he sponsors this podcast or acquires one or the other.
- [16:42]
D
Not we. Not we. You, my friend.
- [16:44]
A
Yeah, I was gonna say, I don't, I don't think that's how TBT hadn't pulled that off. All right, so Chris, I want to go back to something you were talking about earlier and let's in fact drill a bit more on one particular topic here, which is bitcoin. So bitcoin, as you said, broke its 150 day average. But the one I want to talk about is Paul Tudor Jones, right, who came out saying that bitcoin is unequivocally the best inflation hedge that there is. More than gold. He's saying it's going to be really hard to make money in stocks over the next decade. That the S and P reminds him of the 2000.com bubble. So contra all of the optimism that we've heard here, he's thinking that the valuations and equities are still quite, quite high. But he's very long bitcoin. Now with that said, you know, and Cliff Asness has been talking about this, that bitcoin's correlation to stocks is now like 0.75 and like 0.92 to NASDAQ. But I wanted to bounce this off you. If you've got PTJ calling the top on equities and calling bitcoin the best inflation hedge, given his trading history, what do you make of that? What do you think is going to happen here with bitcoin in that context?
- [18:04]
D
Look, I think he's right. And he was an early adopter, came out long Bitcoin many years ago, was one of the first real macro guys to come out and say, yes, bitcoin is the solution here. And it really comes down to its fundamentals as a store of value, digital gold. It's actually better than gold because we're not entirely sure how much gold is out there. Yes. I think people will tell you that you can put the amount of gold in the world in a pool. But gosh, there's a lot going on in space and there's a lot of innovation happening. So it's not a perfect known. We don't exactly know how much gold there is or isn't in the universe. Right. But Bitcoin, there's 21 million coins that can potentially come into existence, many of which have been lost or stolen.
- [18:52]
C
They're gone.
- [18:53]
D
You got satoshi stuff. And yes, there's some, there's going to be a conundrum that happens as we try to navigate some of the quantum challenges. But it is a more pure commodity of limited amounts. Right. It's constrained in its size. And so in that sense, because we have a very similar social consensus, albeit gold has had that social consensus not because of its utility, because people believe that it's precious for thousands of years. Yes, it's a shorter duration of that social consensus, but it's a pure store of value due to its limited quality. It's known limited quality. And so I think he's right. And again, as time marches forward, look at the bitcoin chart, it looks very constructive. Look at it against gold since Iran began. It's a beautiful chart. If you do one thing, look at that chart, it's up and to the right. So again, like prior to that, when gold went on, did its thing, people freaked out. They're like, wait, the narrative's been lost. It's really gold. It's not bitcoin. What have we seen? Time and time again, bitcoin catches up to gold. It's a catch up trade over and over again. I think long term, he's right. It's going to emerge as, as a store value. It's. And look, there are risks out there. The risk was any asset class. But you know, he's one of the greatest macro traders of all time. I think you got to listen to him and, and agree with him or disagree with him. He's got a perspective and I respect it.
- [20:26]
C
Money comes online, we're going to have quantum money. You're going to see some successor to bitcoin that's quantum encryption resistant and that'll be the next move. It won't be in the next few years, but that's what you want to keep an eye on. There's going to be some flurry of quantum money coins that are created in a few years time. I agree. The quantum risk I think are priced in at this Point, you should be biased, bullish. Those risks are still legitimate. It's a question of time frame right now.
- [20:57]
A
You should be biased.
- [20:59]
D
Yeah, look, I think your quantum point is interesting, but I think it's going to be a little bit different. So as I think of store value going forward, it's really energy, right? That's what we're really talking about. You know, all these, these AI models, the LLMs, the hyperscalers, they're desperate for energy. What is tokenization? What is bitcoin? In a way, it's wrapped energy, right? And so the way to think about it going forward, I think the next iteration of that store of value is going to be either compute or energy, which is one step downstream from that computer. But those are going to be the new commodities. It's going to be wrapped energy, wrapped compute, and almost the next backed stablecoin will be backed by energy or compute. Is that bitcoin or not? But I kind of agree with where we're going, Ram. It's hard to articulate exactly where it's going to land, but to me, that's the future.
- [21:53]
C
I think your point on digital assets as backed by compute is a super powerful one. We already use the term token to represent a unit of compute, and tokens are priced in dollars. Bitcoin is one way energy. So I'm not of the view that bitcoin is wrapped energy. It's not like the ability to convert kinetic energy to potential energy and back and forth again. But compute and tokens and dollars are fungible and interchangeable. And compute should approximate the cost of energy production and you should see money linked to that in some way.
- [22:33]
D
100%.
- [22:34]
C
So I agree. I think that's the future. The best digital asset might not yet exist.
- [22:40]
D
I think that's right. And great point on the irony of calling these tokens for AI models tokens, right? You're like, no, that's my token, man. That's my word. But it does actually show. Like this thing is converging, guys. AI crypto, AI quantum, quantum crypto. It's all coming together. They're all accelerating each other. It's an amazing time to be alive.
- [23:07]
A
All right, so let me. I was going to say pile in on this one and come back to a previous theme that we've talked about here, which is microstrategy. And what I mean by that, Chris, is if we're going to take the bull case for bitcoin from here, that being, we've seen a very constructive setup. I agree with you. It's had catch up trades with gold previously. It's handled today relatively well compared to equities, which tells you that a lot of the conflict risks are probably priced in in addition to the quantum risks. What do you make of STRC as the issuance machine coming out of MicroStrategy and what do you make of microstrategy itself in a world if Bitcoin prices are going to be going back vertical, like say we're back on the road to 125 10.
- [23:55]
D
Yeah, look, I don't love talking about individual stocks or underwriting them on the show, but it's a dat, right? We dat. Everyone hates Dats but they don't hate MicroStrategy. And I think you're starting to see some real financial innovation
- [24:15]
C
again.
- [24:16]
D
What did we say? Securities are not a debt sentence. And here you have a company that's been incredibly innovative around using the wrapper of an equity and doing some really cool things under that public framework. I just saw Tom Lee yesterday, my buddy Tom, shout out to you, sir, we'll get you on the show one of these days. Doing amazing things in the Ethereum space as well and leveraging the organic yield of Ethereum amongst other things to drive that ecosystem. And so I'm going to get a lot of crap for saying this, but dats are not dead. They're not dead. And like, wait till you see some of the reflexivity once tokens pick up. And again, like NFTs, a lot of them are going to go the way of the dinosaur. However, some of them are going to figure it out and you're going to see some real innovation as we go, as we come out of this bear market into the next cycle. So yeah, Rob, you're on the other side.
- [25:18]
C
I own two DATs. I own two DATs right now. So I think there are opportunities in that land, you got to pick them.
- [25:26]
D
Well, it's fundamentals, right? Like you have to understand the fundamentals, what's going on under the hood.
- [25:35]
C
So I think there are things you have to do to underwrite it. The fundamentals. I think technicals matter more than the fundamentals right now, but fair enough, you
- [25:45]
D
got to look at both.
- [25:46]
C
Yeah, sure, but we talked about one, I think one or two weeks ago, right? We talked about hype and DATs related to hype. I think that's going to continue to do well, but there's a lot of things that can do well now. It's hard not to be constructive.
- [26:08]
A
I mean, given what happened today, I do think it's very hard not to be constructive on that front. But I also want to. What's the right way to say this? I think one of the interesting things about the current situation that we're in is we're at sort of a collision of various market forces here. Chris, to go to a topic that you were referencing earlier, and I'm just going to pull this up right now. You were at Milken today in Beverly Hills. I think what was attendance there? It's like 3,500 plus people this year. It's crazy, right?
- [26:45]
D
They had to like break it down. I think it's like normally five. I think they brought down to four because there's a lot of construction.
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C
Okay.
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D
But it's like, it's insane. Yeah.
- [26:52]
A
So the headline poll that I saw was the Milken Harris poll was 88% of business leaders agree companies can't solve AI workforce readiness alone. That we're going to need some sort of coordination and response. 41% of workers had zero AI support last year. A big gap between saying and doing though. Now 69% of workers believe AI can create more opportunities than it eliminates with the right approach. Jensen was speaking. I think Desantis and Whitmer were there on workforce course. You had Hagerty and Warner. I wanted to ask you specifically since you were listening to this and then we'll hop over to Rob as we're thinking about all of the themes that we're seeing in markets and this great restructuring and the AI build out that you were referencing earlier. With regard to Milken, where is public sentiment on that? Because if we're going to talk about technicals and animal spirits, we kind of need to take the temperature of like two legged human beings.
- [27:54]
D
Yeah, look, I can't talk to. There was an opening here. The president of Milken foundation came out and talked about the world as we know it and some of the challenges and the opportunities that we see. And they're both like. I think he mentioned that 27% of kids have anxiety issues and things of that sort. Like what are we doing about it? But I'm telling you, the overall sentiment amongst. And again this conference has like serious industry like leaders across every industry, CEOs, you know, everywhere. The sentiment was overwhelmingly optimistic. Optimistic about the opportunity ahead. Leveraging technology to solve some of the world's problems. Healthcare especially, things like that. Excitement about robotics, excitement about that interface. Everything from interesting sectors. Energy came up over and over again. But overwhelming sentiment is like, yeah, we're facing some near term challenges here, guys. Geopolitics are awful but gosh, we're going to get through this thing. And there's so many amazing things happening across the economy really powered by number one, strong regulation. The countries where regulation is transparent, predictable results in capital inflows. Jenny Johnson was talking about that today. So why is Singapore doing so well? Because it has an amazing regulatory regime that attracts capital. Why is the United States doing so well? Because we have a transparent, predictable regulatory regime. People can do business here and know what they're getting into, tracks capital and so you're going to see more focus on that and, and the countries that get it right, they tend to do very well
- [29:38]
C
and loud and clear. Now, so two different views on AI. I'll give you the public sentiment view and then anecdotal data, both of which conflict the public sentiment surveys are pretty negative, especially from areas like lawyers and even teachers that have a lot to lose with AI, but also like just advanced professionals. Also the politicians, including a lot of the candidates, if not all of them in the next presidential election, seem to be bias negative around AI due to the hike impacts on utility bills. It's an easy scapegoat to make and just point the finger at. Here's the other side though. Anecdotally across all age cohorts, looking at my family, just when I go to the cafe, I'm just seeing conversations around AI that really come from joy, including like my seven year old son. Every night I ask him hey, what do you want to talk about? Put him into bed and last night he's like let's talk about what is AI. And I remember last week he's like hey, you work at AI. He doesn't even know what that means. It's something that he's talking about. He's heard of the term GPT. It's something that he's brought up who's built AI. He has a natural curiosity around it. And then also retirees is at a coffee shop and I overheard a conversation with these retirees talking about AI in like a positive, excited way and they were engaging with it. So you know, I think the adoption is of course it's strong. We see it in the numbers, seeing the data, the value creation is coming online in the enterprise world, it can't get it fast enough. We're getting rate limited by Claude. Thought for a week Claude was smarter than me and presumably a lot of humans. My wife would tell you that's not a high standard but I think now they, they rate limited it so now it's not but the demand and the usage and the value is there. And you're going to see consumer applications come soon. More consumer. Yeah, we'll see how we, you know, wrestle with this as a political issue next in the next cycle.
- [31:51]
D
It's a democratization of access to knowledge and data now it's not always perfect, but people can now use it to learn things much more quickly. Even your 7 year old. Just like crypto is a democratization of finance in its purest form. So this should elevate the human condition. Not everybody, but those who use it the right way. It should.
- [32:13]
C
I agree, I agree. My wife brought up the concept last week of like not contributed 5 to 9. She said why do we need colleges anymore? Just, you know, focus on critical thinking and entrepreneurship in the age of AI.
- [32:26]
A
I think there's a lot of value
- [32:28]
C
in 5 to 9 for other reasons, by the way, even beyond education, for portability of wealth. You should, you know, so it's kind
- [32:34]
A
of a separate question.
- [32:36]
C
But yeah, like everything's up for grabs. Which I like. Which I like. I think the thing that I get, I think we need to be focused on just not losing the humanity behind the decisions impacted by AI.
- [32:48]
D
Right.
- [32:48]
C
When you talk about like automated lethality, I think you got to have humans in the loop around all of that. But we're seeing the benefits here. I am, I'm driving and not driving. This is amazing. So we can all have a wonderful conversation together. So the promise is there. We got to lower healthcare. It's 20% of GDP and how many incremental years of life extension have we really gotten for all that spend? It's not clear we're getting the right side of the trade off there. So the promise is tremendous and obviously there's all the national security. If you don't win in AI, you're on the wrong side of history as a sovereign.
- [33:24]
D
Yeah. I want to comment on your 529 comment. And I think that entire the whole college thing needs to get disrupted for many of the reasons we can talk for hours and hours about. But the need for community, the need for critical thinking, creativity is more important than ever. And I think the teams that win going forward are cross disciplinary. Right. We're going to like, you know, in crypto and AI it's been very tech, computer science dominated. As we move forward, I think we're going to reintroduce those humanity majors, the literature majors, the classics majors, because it's going to critical thinking and creativity will be at a premium. So that makes me excited Actually, I
- [34:12]
A
also think there's going to be some significant opportunities in spaces that people aren't thinking deeply about. Like, here's a good example. So my wife works in healthcare. She's the head of compensation for Memorial Sloan Kettering, which is like the major New York cancer hospital. And she is now running an AI working group and training thing to upscale skill. Everybody in hr, which is hopefully going to allow them to do things like onboard doctors and nurses faster, spend less time on all of these things, to dedicate even more time to research and patience, which, as it should be, is the number one focus there. And one of the things that she's been observing Chris, to exactly what you're saying is once you start teaching people how to use this with their hands, that is to say, not talk to the them theoretically, but like, how do you prompt this thing, what workflows are working, how do you build these things? People get increasingly excited about the potential of it and the possibility of it. I think what's going to, you know, a little bit like the advent of the personal computer going to happen here is the divergence between the people who train themselves and upskill and the people who refuse to engage with it will get increasingly large. But net, net, that's a benefit for the world as we move forward. I think the biggest mistake you could make with AI right now is just doing nothing, right? Like you've got to engage with it and either learn how to use it or learn where it's not good and where human skills will still dominate. All right, I think we're so much.
- [35:48]
D
Ron, we're losing you, buddy.
- [35:49]
A
All right, since we're losing Rahm again, we're going to give him a moment to recover by going to our second AD break. So before we continue, a quick commercial break.
- [35:58]
B
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- [37:29]
A
All right everybody, welcome back on the part where Chris and I get to talk politics, by which I mean apparently there is a compromise on yield for the Clarity Act. So what's the deal? Coinbase says agreement has been reached. Passive yield banned. Activity based stablecoin rewards permitted. Clearing a path to the long stalled Senate banking markup. Circle jumped 16% on the news. Markets are pricing in stablecoin legitimacy. Couple of comments from Coinbase, from Faryard and Paul Graywall. Much of this debate was based on imagined risks, not real evidence. Carlo d' Angelo framed the carve out as a substantive crypto win disguised as compromise. I on my own Twitter account may have called it grindingly mediocre, but said that the industry should probably, probably accept it in order to just move forward, given the context on the ground and the tension. Was banks pushing this narrative of a passive yield band causing deposit flight risk. I don't, just to be blunt, think there's any credible research supporting that, but that was the argument. And yet crypto got an activity rewards definition which, Chris, I think you and I both agreed that was going to have to be preserved because otherwise you start implicating all the credit cards, rewards programs and like gift cards and things of that sort. So I guess let me start with this. Did crypto win? Did the banks win? Did anybody win?
- [39:05]
D
It's like we're back to where we started, right? Like, I don't know, I don't want to say I told you so, Austin, but I told you so. I said like this interest thing is going to get worked out. It's kind of dumb and it is what it is. I think we're going to be in a place that's workable for everyone. I get. I guess my question for you, sir, is that does this mean that we can now liberate money market funds and, and send them anywhere we feel like.
- [39:32]
A
Okay, so for one, I'm going to give a super hot take here which is I think banks are a catastrophic loser in this like compromise because they are going to regret regret in the future that they cannot pay yield on stablecoins. Because I will remind everybody, you could definitely pay yield on a government money market fund. In fact, you are required to do that by law. You do not have the ability to hold that interest back. And what that means before you hop in, Chris, is that an asset manager? Let's pick Fidelity for the purposes of this discussion because they are launching a stablecoin and a tokenized money market fund could have a stablecoin backed by their tokenized money market fund that for anybody who's got a wallet with them, you could just unwrap it when it's in there and you've got a money market fund paying interest and then when you want to move it, you can wrap it again. So did asset managers not just dominate both the crypto industry and the banks here?
- [40:35]
D
Maybe, maybe this is very good for asset managers because again we've talked about this over and over again. What's the difference between a Treasury backed money market fund and a stablecoin? The wrapper risk perspective, which one's more risky?
- [40:50]
C
Right.
- [40:50]
D
And so like these worlds are coming together. We call one a security. Since it's regulated, we put more restrictions around it. Does that make sense from principles based perspective? I don't know. Here's the deal. Let's just talk clarity for a second. As we discussed, the interest piece has been worked out out and to my knowledge in talking with policymakers, there are no technical gaps to passing this thing, no technical issues. However, now we're going to face the harder challenge. We're going up Hillary Step, as I like to say, on Mount Everest. Those are the political challenges. The political challenges now need to be overcome. Two things to be on the lookout for. Number one, commissioners. Right. We only have, we only have a single commissioner at the cftc. I think it's, it's a little bit better on the sec, I think, but we're going to need to have some, some additional commissioners introduced into the fray. That's a big part of the political navigation. And then of course probably the biggest hill to climb of all. Ethics, ethics, ethics. There's certain people that believe that the Trump administration and crypto go hand in hand. Again, out of these, can we overcome these obstacles? Absolutely. Do I think we will? I do, I do. I think polymarket's around 62% at time of filming. I'm probably in the 50s still a little. I'm, I'm net positive. I. It's not a done deal. It's still a coin flip. But we got guys like Patrick Witt down at the White House working his tail off and Harry and the crew down there. So I think it gets done. It's not going to happen overnight. As we saw at the end of genius, all the craziness happens at the end. It can go in either direction. I think it gets done, but it may take some time. Politics are technical is done. Politics are next. What's your take? Does it get done, sir?
- [42:43]
A
So I remain skeptical on it getting done, but for completely non technical reasons. Exactly. As you've just said, I would say the bill is currently constructed, certainly not perfect. There are some elements of it that I think could be better, like the Yield compromise, but there are some elements of it that are extremely good. One is just giving a taxonomy on who's supposed to do what with their hands. Because part of the reason we're here in the first place is in America we have, what is it, 19 regulators touching this stuff as opposed to one in most places. But to, you know, I'll remind everybody, part of the initial impetus for clarity because work on things that were predecessors to what is now clarity probably started in 2017 is the BRCA right. And making sure that we have clear delineated lines of where the boundaries on things like money transmission, when does regulation attach to you in the first place? What are your obligations? And, and just being able to know what the law is, regardless of what we think of it is a very big win. I think all of that's good. I think the bill as constructed is reasonable to pass. I think you hit the thing that to me is likely to be the landmine here, which is how do we get around the ethics component? Because we can, I'll say we can probably break the Senate into four groups conceptually. Group number one is they want to pass this and they genuinely don't care about what Trump is doing, which will be some on the Republican side, I would imagine none on the Democratic side. Two is they're grudgingly willing to pass it. On the Republican side they don't love the bill, but if they can find an excuse that plays, maybe they duck back out of it. I don't think there's many of those that maybe is just a handful of Republicans, but let's go over to the Democratic side. There is The Elizabeth Warren led group who hates blockchain with the fury of a thousand suns and wants nothing to do with this and will not vote for this under any circumstances. Circumstances, you know, there's no amount of facts that will persuade them and we just have to accept that. But then there's the group you need to get this passed and that's the Democrats who are probably largely willing to deal on crypto, but their bigger problem is call it ethics and the administration writ large. Now getting that group on board, Chris, I think you would agree with me, is going to be the key unlock to actually moving this from technically correct to politically viable. And what I'm looking at there, and why I'm a little bit worried is I think any ethics compromise that's going to get passed, the Republicans won't let it be something that just targets the Trump family. So we're probably looking at comprehensive ethics reform for Congress and maybe federal employees. Like, what is your take on what the art of the possible is there?
- [45:33]
D
So Trump in his State of the Union address mentioned the Stop Insider Trading act twice. Yes. And I think that was his way of getting in front of that, saying, hey, let's look at this holistically, you know, across why are we singling out a single asset class? And frankly, that's probably the a better way to do it. And yes, I think most people would agree that ethical issues should always be reformed and attacked. So not an easy path forward, but that's what's going to happen. I also think I'm generally bullish on overcoming this because the President has a lot of political chips in D.C. he's got more than anybody and he has to choose how he's going to spend them. And if you remember at the beginning of Operation Epic Fury, he came out and what did he talk about while the bomb started flying? He's like past clarity. And so I think he's going to put a lot of those chips on the table. That may hurt his agenda in other places. But I remain confident. There are two other things that I'm focused on in Clarity. One that came up been watching closely is this thing called Section 505. This could restrict the SEC's ability to provide an innovation exemption or some exemptive authority. And so like having lived through Dodd Frank and when I was building businesses within Dodd Frank, oftentimes technology moves faster than the regulations in the law, particularly regulations. And so one of the key differences between our regulation here in the US and some overseas regulators is that our regulators have this concept of Exemptive authority. So they're like, hey, the regulation was like this, but the conditions have changed on the ground too fast. And so we're going to exempt this old regulation. We'll go through proper rulemaking. We're just not going to enforce it for now because it's going to let, because we're focused on principles. So 505 seems to constrain that a little bit. And so that's something that we're focused on. And then last but not least, the one thing that I'm dying to see in markups is I want to see a recovery program where we can recover stolen assets from bad guys. Yes, I call it privateering as well, but I'm supposed to call it recovery program now. Public private partnership recovery program. So please write your congressperson, Congressman. Hold on.
- [47:55]
A
Public private partnership recovery program asset. There's got to be a way to make this a pirate acronym. When we pass the bill, we'll figure it out.
- [48:03]
D
But come on man, like the great news about this today was Kim Jong Un, you know, came out and said, oh, you reptilian media, we're not stealing anyone's crypto. Which is great. So this is not an escalation now against, against North Korea, dprk. They're, they're, you know, they're doing their own thing. We can actually go after the criminals. So, so again, Those are the two things I'd like to see. Maybe some focus on 505. And then on top of that, we got to address the security situation. You know, every week, April is one of the worst weeks for hacks. 600 million bucks a month. Sorry.
- [48:38]
A
No, I agree with you on that. And like it continues to spawn complicated situations because like look, clarity or not, the security landscape continues to be a problem. In fact, I mean, Chris, Arbitrum is a good example of this. Right? So what's going on there now is the Arbitrum Security Council froze funds that were related to the North Koreans theft from kelpdow and let's call it what it is, that's just straight up theft. Right. And what happened is now in US courts, a lawyer has shown up seeking funds for the victims of a decade old judgment against the North Koreans for terrorism. One, reminding you how long they've been a problem for. But two, attempting to seize money that was linked to the kelp dao exploit. So I'm going to say a couple of things here from people in the industry and then I'm going to make a point about this as well, which is one aave has said this flags existential risk to Dow governance autonomy if judgment creditors can reach Treasuries. Now, with that said, if this is correct, that existential risk is real, Peter Van Valkenberg of Coin center said the real precedent is whether US Courts can reach decentralized Treasuries. Sanctions enforcement will become a tool of Dow control. Bantag said it's theater. Daos don't have legal personhood. You can't serve papers on code. But I want to make the point to everybody. Daos are a name that we throw around in crypto without thinking terribly hard about them. And whether you're acting as a partnership with de facto control or truly decentralized, the facts and circumstances matter. But I think there are two points in the legal discussion that were missed that are important to raise. One is what is the actual legal status of these funds? There is a very big difference here. If we take the code is law exploits are working as intended, and that is how things work on chain. One good exemplar of that actually might be some of the mango markets decisions, because in that case, I'm going to tell you a weird but coherent outcome is that the North Koreans became the legal owner of that, so that in this case, the plaintiffs actually might have a legitimate claim about a judgment and taking control of those. The other one is to say, no, this was theft. And if this was straight up theft, that is not the North Koreans property. Chris, I can't steal your car and then have somebody unrelated come after me for a previous judgment and take your car. Right. And then essentially re victimize you. So I think part of what we're skating onto with this territory and it relates to the recovery thing is exactly what the hell is going on here. So I want to start with this because I know you've actually thought about this space a lot as you've looked at companies, which is what is going to be the future of call it not just dao actions, but dao structure here as we move into a world where courts are getting significantly more cognizant. I think you agree with me. A recovery act would only further that. How are people going to have to think about these concerns in defi and is the industry ready for it?
- [51:54]
D
Yeah, I think we've talked about this before. Code is not law. Law is law. And that's, you know, I know there's a lot of libertarians that wish that it was different, but that's not how it works. And if you're a centralized actor using defi, you're Subject to the law too, I think. You know, I'm of the opinion that developers, they should not be subject to sanction. That's freedom of speech. Decentralized technology is technology, it should be left alone. But entities and people that use that will be held accountable. Now this is a really interesting debate and Stani, the founder of AAVE has come out and said dude, that's not North Korean possession. No, they stole it. So why are you laying a claim to stolen assets? It's not theirs. But it's a fascinating part, part of, of law. It's cutting edge and at the end of the day it's something that we're going to have to, we're going to have to sort out. But law's law. I think the interesting point on, on Mango and like we have to watch case law and see how it's going to evolve over time but hopefully we come out with something that's very reasonable and, and the money gets returned to the people who it were stolen from.
- [53:14]
A
No, I think to your point as a starting baseline here, if we can't take assets that were taken in actual theft in this case or potentially in significant exploits and return them to call it normal two legged people, my prediction is over time that proves to be an existential problem for developing a decentralized centralized ecosystem. And the reason I say that is while deep subject matter experts might be willing to engage with that system, eg the Stanis of the world, I think it will be very difficult to get the average person who knows they are not a deep expert to use on chain finance. If the answer is finders keepers and if something breaks you lose your money because they're not going to have the time to be experts or do due diligence. Right. Like back to our old haunt. This is why things like rating agencies, auditors, like financial regulators exist in the first place. Because if you told every American there's going to be no fdic, go fully underwrite your bank's loan program before you put any money in the bank. Most people would just take their money out of banks. So as a starting point I would ask you to sort of volley back on this. How do you see that evolving from the industry? Can we get mass adoption without getting to good answers here?
- [54:39]
D
It depends on how you're using the technology. I'm a strong believer that anyone in the world should be allowed to use decentralized techno decentralized finance. They should do their own research and AI is making that better. I think AI is going to come up with People say AI is a threat to security. Well, guess what? It's also a humongous benefit for security because it's going to tighten a lot of those loops. And so I think in time, as we close these security gaps, investors need to have good disclosures. They need to know the risk that they're going to take. Not only market risks, but operational risk, hacking risk, et cetera. People should be allowed to use decentralized networks unimpeded. That said, for many institutions and for some people, frankly, they love intermediaries and they want to keep using intermediaries and that's okay. And some of those intermediaries can provide value added services. What are some of those services? Well, they can mitigate and provide enterprise capabilities when it comes to operational risk management, et cetera. So different strokes for different folks. And I think you're going to see like today, almost all of our financial services market is intermediated. As time goes on, you'll see less and less of that. But there's still going to be a need for, for, for intermediaries going forward, in my opinion.
- [55:57]
A
I definitely agree there will be a need for intermediaries. Just like this is a specialization of labor point, Most people don't have 40 hours a week to monitor this market or more. And so you're going to need somebody to do it for them. And that, that's fine. That's how market works. Right? Like none of us are on here arguing that everybody should be building their own car if they want to drive anywhere. Why would you think the same thing about finance? But you do raise a very important point, which is where I think the divide is going to get complicated for the industry is I think we're going to need to find ways to preserve the values of decentralization while potentially, to be blunt, making it simpler and safer for people to functionally use that. Like the chain with the least exploits. Chris is probably bitcoin, right? There's very little going on there. The attack surface is not large, right? Like ignoring potential future quantum risk. It's primarily, I was going to say
- [56:50]
D
it's a state actor gets its hands on a quantum computer, then maybe that shifts and it's maybe the largest of all time. But I'm just joking. I think that the community will figure that out.
- [57:01]
A
But my point is more on the surface area to attack. Like part of why we're not seeing these hacks in the bitcoin ecosystem is what is there to exploit. Right. And so simplicity may be part of the cure here as well. But I Guess where I'm getting to. And I wanted to rope this the reason I brought it.
- [57:19]
D
But isn't that the opportunity you're talking about, the challenges? I mean, that's the opportunity for startups.
- [57:24]
A
Yes.
- [57:24]
D
Abstract, abstract. The user experience. Make it easier for humans and agents, make it more secure, make it more transparent. That's why it's an exciting time to be in venture. There's still so much to be built. And yeah, go chase your shiny new toy and learn about AI and then bring it back to crypto and let's build something really special.
- [57:45]
A
Well, I think this is the other point I wanted to get back to with clarity and bring this back around is the only way we're going to get concrete answers to many of these things are if we have a legal framework where people feel comfortable to build things here. Because to bring up a project that we talked about earlier, one of the most successful, most adopted and most valuable crypto native projects of all time is hype. And hype was built by Americans who left America to build the protocol. So if we can't do a much better job of getting these people back to the country, I think long term, we have an economic problem in this space.
- [58:27]
D
Amen.
- [58:28]
A
All right then, on that note, we will go ahead and call it a day here. So thank you very much for joining us for this episode of Bits and bips. We will be back in one week to discuss more about how the worlds of crypto and macro and AI are colliding. Until then, everyone.
- [58:46]
D
See you, buddy.
- [58:47]
A
Thank you for watching and hope you enjoyed this episode of Bits and bips. Just remember, nothing we say here is investment advice. And please check unchained crypto.com bitsandbips for more disclosures. Sam.