{ "episodeId": "SLP495", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "joe_carlasare": { "name": "Joe Carlasare", "role": "guest", "tag": "JOE" }, "guest_2": { "name": "Guest 2", "role": "guest", "tag": "GUEST" } }, "segments": [ { "speaker": "stephan", "time": "00:08", "start": 8.33, "text": "Hi, you're listening to Stephan Livera podcast, a show about Bitcoin and Austrian economics brought to you by swan dot com. Today, we're talking about the Bitcoin ETF, the spot ETF, to be clear, as well as lawsuits and Bitcoin. Joe Carlasare, Bitcoiner and partner at a Munson Davis, joins me to share his legal expertise and his opinions on these topics. Now, before we begin, a reminder Mind a Pacific Bitcoin Festival is coming back this year for twenty twenty-three in LA in October on the fifth and sixth. And so this year it's going to be a festival. The conference last year was a fantastic experience. Lynn Alden said she had more fun at this conference than at any other conference before. So you know the Swan team knows how to organize a great event, and we have an awesome lineup of speakers, people like Jimmy Song, Lynn Alden, Greg Foss, Preston Pish, Corey Klipstein, and many more people are coming along for the ride this year. This time, I'm looking forward to being there and seeing you also. So this is going to be a fantastic experience for those of you who are out there, who either aren't new to Bitcoin or intermediate or advanced people in Bitcoin. This is a great chance to meet a whole range of Bitcoiners, whether they are speakers or just everyday Bitcoiners out there. And this is a great chance to bring your family members or friends along also, so they can see that this is real. It's not just a bunch of us internet nerds. There's actually a real movement and something building here. So go to Bitcoin dot com, use code Livera for a discount, and remember, that's October fifth and sixth, so mark the dates in your calendar, and I'm looking forward to seeing you there. And now, onto the show with Joe. Joe, welcome to the show. Good morning, Stefan." }, { "speaker": "joe_carlasare", "time": "01:42", "start": 101.93, "text": "How are you doing?" }, { "speaker": "stephan", "time": "01:43", "start": 102.75, "text": "Doing well. I am, yeah, excited to chat with you. I think there's a lot of things going on in the space, and, I appreciate some of your takes that I've seen, at least on Twitter and things like this, so I thought it'd" }, { "speaker": "guest_2", "time": "02:00", "start": 120.02, "text": "Definitely a lot going on. So, it's Joe Carlasare. I'm a commercial litigator and partner with the law firm of, Amundson Davis, we just switched names, in Chicago. I, co-chair of our cryptocurrency, fintech, and, and blockchain practice group. I'm also, sort of a amateur, macro thinker and, investor. I've, been investing in capital markets since, I was trading with a custodial account with my father in the '90s. So but, definitely someone who's interested and passionate about Bitcoin. I have, had some of the earliest litigated matters in Cook County, Illinois involving Bitcoin, involving custody and getting orders, re-uh, regarding the turnover of assets. So definitely somebody who is passionate about this space, and I'm, I'm, it's an absolute pleasure to speak with you and, and given your background and knowledge in the space. So thanks for having me on." }, { "speaker": "stephan", "time": "02:52", "start": 172.41, "text": "Well, hey, thank you. Thanks for saying that. And, yeah, I think you have a Area that's interesting is this whole ETF idea, right? So obviously, there's been this big narrative recently of, \"Oh, wow, look, BlackRock and these big, they're gonna do a spot ETF and it's gonna be, quote-unquote, physical ETF,\" and it seems to have been a big opium-pumping narrative, and it just seems like what I see on Twitter and what I see, when people are talking about it, it just seems there's so much opium about it. What do you think is more the reality of it? Well," }, { "speaker": "guest_2", "time": "03:28", "start": 208.24, "text": "you can't say that BlackRock filing is a negative, right? That's, it's clearly the brand that comes with it, the, the prestige of, of the, the institution as a whole filing, that's a positive. And that alone, coming out and signaling to the marketplace that, yes, we support this through the filing, through making a registration statement, which they previously hadn't done, that is a positive. But you have to really go back to structurally what was the impediment towards an, an ETF being approved, and you start from the, the standpoint that there have been many Statements filed with the SEC, the SEC has denied all of them, and currently, the SEC is in, in active litigation with Grayscale. I, I don't know if you're familiar with the case, but up, up on a, it's up on appeal right now, and, and the position the SEC has taken is that, well, we have confidence in the futures ETF, the futures structure, because there's surveillance sharing agreements with the CME, we know how those contracts are traded, we don't have confidence at all in the underlying spot market. Why that is germane to the BlackRock filing, which we can get into, there's an attempt at trying to overcome what the SEC's concerns are. We can discuss whether it's gonna be sufficient or not, that's sort of a whole separate question, but what I would say is that from me, from my standpoint, I look at structurally, has there been a market change? The answer is no, there's no structural market change. Has there been a form change in the filing? Yes, there is, but the question is, is that gonna be sufficient? So, you know, you really have to separate those two things." }, { "speaker": "guest_2", "time": "05:00", "start": 300.0, "text": "The hopeum over BlackRock, you know, the masters of the universe filing this, of course they'll get it approved. I keep seeing these, you know, reports that, you know, they've gotten five hundred plus ETFs through that, so this one's gonna be no different, they'll get this one approved as well. And, and I'm a little bit more hesitant on that because this is a very different vehicle, it's a very different marketplace, Bitcoin is, you know, distinct and dissimilar to a lot of other ETFs that have been approved in the past, in fact It'll be positive, but you have to really just pump the brakes a little bit, because really what you've seen is you've seen the only reason why things have changed is 'cause someone else has slapped their name on, on the application. And by the way, all the other applicants basically pivoted and adopted similar structures, and they filed the same thing. And I will tell you this, one thing I can for certain is that if the SEC were to approve one of them, they're not just gonna approve one, they're gonna approve several of them in, in mass. It's gonna be a shotgun BlackRock, it'll be numerous ones, and even the ones that get denied, all they have to do is change their paperwork effectively, change the structure of their ETF, and they'll get the same green light. The SEC can't pick and choose favorites. In other words, we won't have a situation where there's a single spot Bitcoin ETF in the United States." }, { "speaker": "stephan", "time": "06:17", "start": 376.51, "text": "Yeah, interesting. And you were touching on this earlier around structural, what has structurally changed and what has not structurally changed. So could you explain for us what are you referring to there? Is it the number of exchanges, the liquidity Onshore versus offshore. What do you mean, when it comes to structure there?" }, { "speaker": "guest_2", "time": "06:34", "start": 394.0, "text": "Yeah, great. It's a great question. And you start from the, from the benefit of having the, heard the arguments in the SEC versus Grayscale appeal, right? So this is on appeal, and there's very prominent lawyers that are arguing this case in, in, in the appellate courts basically saying the SEC's denial and refusal to allow a Bitcoin, a Bitcoin spot ETF, that's arbitrary and capricious, meaning there's no rational basis for why you would allow a futures ETF but not a spot- Spot, ETF. So because that's the argument, Stefan, what the SEC has had to do, they have had to go through and explain just why they think these two markets are dissimilar, meaning the spot market from the futures market. And what they basically come down and said is, \"Listen, our job isn't to prevent fraud in marketplaces. That's really not what the SEC can-- it's not, there's no way to prevent all fraud and manipulation in marketplaces. Our job is enforcement, right? To be able to come in after the fact, detect market manipula- Detection, detects spoofing and, other, other ways of manipulating the actual order books, and we can't do that with the spot market. We can't understand what's in the spot market because the majority of the liquidity in the spot market is ex-United States, outside the United States. So the SEC's argument is, until there is a market of sufficient size that has surveillance sharing agreements that we can detect and monitor fraud, until that occurs, we're not going to be able to approve a spot Bitcoin ETF. So they're, they're basically just telling you that's their test. Their test is a market of sufficient size. So the next question logically, if you're trying to meet that standard, you say, \"Well, how do we get to a market of sufficient size? What does that mean?\" And the SEC has actually spelled this out in their briefing in the appellate court. They have said that a market of sufficient size is effectively one where if someone were attempting to manipulate the marketplace, they would necessarily have to trade on that exchange. So let's unpack that a little bit. What that would mean effectively is that We're truly trying to bounce Bitcoin around and, you know, jack it up ten thousand dollars and drop it ten thousand dollars, they would necessarily have to trade on that particular exchange to affect the spot Bitcoin market. So let's apply that to the filing by iShares by BlackRock. What the filing by Black, BlackRock iShares is, which is the same entity essentially, they are filing and claiming that their surveillance sharing agreement with Coinbase in the Nasdaq, that that would be enough to meet the SEC's test, the market of sufficient- Sufficient size where there would be someone who would need to trade on it. I don't know how that meets their own, the SEC's test. I mean, you've got, in terms of volume, global volume, majority of it is offshore, majority of it is in places like Binance and these other exchanges which are black boxes, and we don't know what's, what's true or not true about their order books. And, Coinbase, if you take their percentage of the global volume, global volume, spot volume, I think, I was looking at some data that showed it was like You were just let's play an exercise. We're trying to manipulate the spot market. Would you have to trade on Coinbase? Probably not. Would you necessarily have to go on there? I don't think so. So I don't think it meets the SEC's own test. Now we can debate whether the SEC's test is wrong or it's supported by the law or it's good policy. I tend to think it's not any of those things. I think it's poor policy and it's a misreading of, of the appropriate sections of the Exchange Act. but from just a market" }, { "speaker": "guest_2", "time": "10:00", "start": 600.16, "text": "I could be wrong, but that's just my reading of it. Yeah." }, { "speaker": "stephan", "time": "10:02", "start": 602.26, "text": "And then even from a US perspective, let's say Kraken or Cash App, even, like, there are other big US exchanges and brokers who maybe there's nothing, you know, nothing to be said about them either. and I think to what you were saying as well, it seems a little odd. Now, maybe the SEC doesn't care about this, but it seems odd that we have physical, you know, spot Bitcoin ETFs in other countries, but not in America. And so is it just-- Do you Regulators in other countries were maybe a bit more lax, or what do you think is going on there?" }, { "speaker": "guest_2", "time": "10:36", "start": 635.62, "text": "Well, I think there's, there's two things going on. number one, I do think there's different laws that apply in some of these states in, in countries, right, outside the United States. they're, they're applying standards in the, from the, at least in the case of the SEC that are very heightened, and this is the argument that GrayScale's been advancing in the appellate court, that you're, you're misreading and applying this heightened standard to The reason it's arbitrary and capricious, right? And, and that, that, that basis is that like, you-- it's a misreading of the law, effectively. You're misreading and misinterpreting the law. that argument, is probably not gonna fly for the simple reason that Congress gives the SEC a lot of deference, okay? there's been some recent cases that have sort of pulled that back, particularly a Supreme Court case about deference to, particular federal agencies. But, just from a concept standpoint, I think that States and why some are getting through and some aren't getting through. The second reason I think is that they're very focused on precedent, right? And if you are going to approve a Bitcoin spot ETF, okay, then the question becomes, okay, we're gonna get applications, we know we're gonna get applications, but for a whole lot of other, quote unquote, digital assets, digital commodities, other things that are gonna try to get through and get their own spot- Lot structures, lot ETF structures in place. So I think what the, the SEC is trying to lay down the groundwork for is, until there is a market for these things that we understand and we know and we're comfortable with, and we're comfortable that there's consumer protection, we're not gonna let it through. And I think with Bitcoin, there clearly is a robust liquid deep market, right? I mean, you can execute trades, with minimal slippage for, you know, eight figures, without moving the market very much. the, the problem I think from The point is, well, how does that apply to other assets? And we don't wanna set a precedent where suddenly we have to approve an Ethereum ETF, we have to approve a Cardano ETF, all these other things out there, because if we don't apply the rigorous standard of a heightened market, then anyone who launches a token that has some liquidity at all could probably get it through for a spot ETF." }, { "speaker": "stephan", "time": "12:43", "start": 762.66, "text": "Yeah. And when it comes to surveillance and surveillance sharing agreements, can you elaborate a little bit what exactly does that mean?" }, { "speaker": "guest_2", "time": "12:51", "start": 770.68, "text": "Yeah. So it can vary depending on the institution. I know that the, the CME has, for example, very robust sharing agreements where they're preserving data, they're flagging, suspicious activity, trading that's inappropriate, and they're tendering it over to the regulator. So they're working hand in hand with the SEC to say, \"This looks a little funky, this smells a little weird, this user is doing something inappropriate.\" And what that does is that allows the SEC to come in, review the case, and potentially bring in enforcement action or the CFTC, as applicable, The, the problem is that, that in this particular circumstance, right, the majority of the volume, w-- and this is just a fact, and as much as I'm a passionate Bitcoiner, I just admit it, you know, 'cause it's true, the majority of liquidity and volume in Bitcoin is outside the United States. So you, you have to start from the standpoint of if you're a regulator and you're concerned about quote-unquote manipulation of the price, how do we know it's, it's, it's robust trading or it's not, or it's, it's Sued about how Binance had these, you know, in-house desks that were trading against users without even, without their knowledge. if that's happening in mass across most of the Bitcoin volume, that's clearly concerning, right? And I can just tell you anecdotally from someone being involved in the space, and I'm sure you've seen similar things, it is, Very frustrating, and I've had clients that have come to me and, and had issues with this, where, where you're, you're trading on major exchanges and you see these Darth Maul wicks, right, where it can bounce up, you know, two thousand dollars and go down two thousand dollars in a very short period of time, and you have to wonder what's driving that price action, where is that coming from? there used to be old accusations against, one of the major offshore derivative exchanges about how they would do that, trade against their, their customers and stop hunt For liquidity, you have to at least acknowledge that there's a possibility that that's occurring in the Bitcoin market." }, { "speaker": "stephan", "time": "14:44", "start": 884.13, "text": "Yeah, for sure. I, I think you're right there. it's definitely, evolved a lot over time. and as you say, there is a relatively low fraction of global Bitcoin trade based in the US. So then, I guess that also raises the question, does that mean the US number has to go up relative to the rest of the world before the SEC would be comfortable with approving a spot ETF?" }, { "speaker": "guest_2", "time": "15:08", "start": 907.63, "text": "So there's three ways, right? That I see See a path forward to getting the spot ETF, which by the way, I'll state again for the record, 'cause, I don't want my position to be misinterpreted, I really want a spot Bitcoin ETF. I think it would be great for a lot of reasons. So, so the way I would map it out, there's the main way, main way to do it is exactly what you said, very easy if you get a ton of volume and liquidity into the United States for spot purchases. If you were to do that and say, let's just throw out numbers, say all of the US-based exchanges, you named a bunch earlier, all of them amount for fifty or more percent of spot volume, okay? In that hypothetical world where all the US-based exchanges amounted to, you know, the majority of the volume, and they had agreements with the SEC surveillance sharing agreements that would report data and suspicious activity, in that environment, yes, there would be a green light, I think the SEC would say, \"That's enough, we're comfortable, these are US-based exchanges.\" We know who's running them, we have agreements in place, and the applicant for a spot at ETF can actually tender those, those agreements and show, here's, here's what we're talking about. short of that, the other way I think it gets approved is just a change in policy, right? There's nothing that would prevent the SEC from actually pivoting and saying, \"We're not gonna apply this test anymore. We think there's sufficient liquidity in the markets. We don't think that this standard is correct.\" And part of that may come from the grayscale versus SEC suit. Okay? And one of the things that has, again, given me pause about the approval chances is that if I were the SEC and I were facing a potential loss in the appellate court in the grayscale for SEC case, I would, and, and at the same time, I, I intended to approve the BlackRock ETF. What I would do in that situation Stefano is I'd say, \"Okay, we're gonna make a filing with the appellate court, we're gonna say this is moot because we've changed our policy on this, we're gonna allow spot Bitcoin to come in.\" In other words, you wouldn't Embarrassment of a loss, just coming after the Ripple case, you'd save them the embarrassment of that by, by just telling the court, \"Don't rule on this. We're withdrawing the, our, our denial. We're effectively letting Grayscale convert. We're gonna let BlackRock through. We're gonna let anyone else through.\" And this is the announcement and, and the change in policy. So change in policy, change in liquidity in the United States, or the third thing, it is conceivable, theoretically, that you can get some of these offshore exchanges, if they were to," }, { "speaker": "guest_2", "time": "17:29", "start": 1049.36, "text": "Agree some sort of agreement and subject themselves to, the US regulators in, in terms of sharing data. That's probably the least likely scenario, but it is po-possible, and you should put it on the table as something where, if Binance truly wanted this to get through, they could, you know, show what's behind the books here, show, show the trading activity, share it, and comply with US regulators." }, { "speaker": "stephan", "time": "17:49", "start": 1068.52, "text": "I see. And so as you boil all of that down, it sounds like you are, you believe it's unlikely to happen soon, but going to happen eventually. When a US spot Bitcoin ETF occurs, when one of those three events happens, let's say." }, { "speaker": "guest_2", "time": "18:05", "start": 1085.09, "text": "Yeah. There will be a Bitcoin spot ETF sometime, right? At some point. I, I strongly believe that. The question is when. And, and in my view, the, the genesis behind the BlackRock filing is really the SEC versus Grayscale case, because I still, I think there are some folks that are bullish on the fact that Grayscale may prevail. They may get, some ruling from the court court that there was an arbitrary and capricious distinction, that the, the SEC is applying a heightened standard without precedent under six B five, I think, that might not be the right section, but one of the, the applicable section of the, the approval process, they are applying a heightened standard. so if that is the case, if the heightened standard is really not with, with good support legally, and the court says, \"No, we, we think you need to take another look at this SEC,\" it's an easy hedge for BlackRock, iShares to- Make a filing like this and as well as the other entities to file, because basically what they can do is they can say, \"Listen, the SEC has just gotten kicked again in court, on the Grayscale case. We have an application in line, so we're not gonna miss our chance, to get early action, early approval, right? \" 'Cause this stuff does take time, it, it doesn't just, you know, get approved overnight." }, { "speaker": "stephan", "time": "19:18", "start": 1158.22, "text": "Right. And as you, as you probably would assume, maybe there'd be like a winner takes most kind of dynamic here that if But obviously the fees, so maybe that's why they, they wanna have that, put that one in there and have it ready to kind of be ready, when, when the SEC and the broader market is ready to take it." }, { "speaker": "guest_2", "time": "19:39", "start": 1179.15, "text": "Well, yeah, I mean, look, look at the, the futures as an example, right? The, the majority of it, I think, the futures ETF volume is still on BITO. That's the, the, the, in terms of ETFs, right? That's the, the, the more liquid volume, that's being traded on B" }, { "speaker": "guest_2", "time": "19:59", "start": 1199.34, "text": "Important with ETFs. A-as you may know, you know, from studying markets, you've got, you know, the many ETFs that track the S&P 500, but they all have varying degrees of liquidity and varying degrees of, you know, market penetration. So that, that's gonna be a big issue, right? But I guarantee you there won't just be one Bitcoin spot ETF, there will be numerous ones. Of course." }, { "speaker": "stephan", "time": "20:19", "start": 1219.04, "text": "A-and when it comes to the SEC's actions against offshore exchanges, as I'm sure you're following closely, things going on, Lawsuit. I'm curious if you have any thoughts on, you know, if that sort of changes the dynamic, like let's say the SEC successfully goes after Binance and maybe get some kind of serious, penalty against them, you know, does that then even change the dynamic and maybe make it more US-centric?" }, { "speaker": "guest_2", "time": "20:48", "start": 1248.28, "text": "Potentially. I mean, so, so let's talk about these two suits very briefly. So there, there are two suits out there that I think are, not getting enough attention, in my opinion, the Coinbase suit and the Binance suit. We've kind of been wrapped up in the Ripple suit recently, but in both those suits, Stefan, there's, there's, there's parallel allegations, okay? That they have many theories that they're raising, but, but in both suits, the SEC has taken the position that Coinbase and Binance US are not authorized, they're not re- registered to operate as exchanges in the United States. So let's just take that and unpack it. Number one, keep in mind that what I just mentioned earlier about the iShares and the BlackRock filing, at the core of their entire premises of why this will get approved is this notion that, well, the surveillance sharing agreement with Coinbase and NASDAQ, that that is enough to get approval. Well, if, if that's true, how can the SEC at the same time in their enforcement division ignore the fact that they're saying? Well, this exchange in and of itself isn't authorized to operate in the United States. I mean, I-- that seems like a inconsistent position. Either, either you're gonna say, in approving the ETF with BlackRock, you're gonna say this exchange that underpins the surveillance sharing agreement, this is a solid, robust exchange, it's li-liquid and deep and has everything we need to put us at ease in approval, but you're saying it can't operate in, in active litigation. Those two things can't coincide. the same goes for Binance. I mean, their theory against B In both suits, they say Binance US cannot operate in the United States because it doesn't have proper registration, it's not a broker-dealer, it's not a valid clearing house, it can't engage in exchange-related activities because it doesn't have compliant regulation. so, so I think those are inconsistent. You can't have both of those. One of those arguments has to fail. Either the SEC is gonna lose in its case against Binance and Coinbase on that issue, and, and potentially you get the spot Bitcoin ETF, or they succeed, and if that is the case, I ETF as, as filed by BlackRock gets through. But to the larger question is, can this suit against Binance, can that affect the overall crypto market? And I would say potentially, because what the allegation is in the Binance suit is that there was commingling between the US based entity and the foreign entity. Why is that significant? Well, if I'm a judge and I am trying to figure out is that exactly true, was there commingling, was their assets just shifting back and forth between Binance US and the international? What do I have to do? I have to allow discovery from Binance on the entirety of Binance's operation. In my world, if you're a litigator and there's commingling of assets, anywhere there was a potential money trail, that becomes discoverable, that becomes something where the documents have to be produced. And in the Binance case, I will, I'll go on record saying I predict at one point where, where it really comes to a head is when the international entity is going to be forced to turn over records that show their potential holdings. At that- At that point, I, if I'm, if I'm CC in the Binance crew, I can't live with that order because they're so, guarded about what information they have and what they're releasing that I, I think that it will be, it will present serious risk to them, potentially systemic risk to them, because who knows if they have the, the assets to back everything they claim on behalf of customers? There's reports that they're on, you know, they're, they're under col- under collateralized and they have obligations out there that exceed their actual holdings they're gonna fight that really hard, and I will tell you, in the motion practice we've had so far, the, the focus of Binance, the Binance team, has been preventing discovery and preventing production from the international. They really don't wanna have to turn over anything international. They wanna focus it on the US-ba-based repository of information, Binance US." }, { "speaker": "stephan", "time": "24:35", "start": 1475.45, "text": "Yeah, and that's really interesting and, really good, context around what's happening there. certainly as you, as you say, like there's been rumors going around that, maybe That maybe they haven't been strict about segregating the customer's assets from company assets, and that's also another whole aspect. I, I guess while we're here as well, I, I know people talk about the idea of market structure, and if we are-- if you're looking at to the parallel of financial markets, there's this idea that the exchange shouldn't necessarily be the custodian in, you know, normal assets, right? Not Bitcoin. Do you believe that a similar market structure will eventually come to Bitcoin, that Bitcoin companies won't be able to be both the exchange and a custodian? Storied" }, { "speaker": "joe_carlasare", "time": "25:18", "start": 1518.34, "text": "as an example. Do I believe it? Probably." }, { "speaker": "guest_2", "time": "25:21", "start": 1521.34, "text": "I think that will be forced upon the market at some point. Do I think that's a good thing? not necessarily, and for a variety of reasons we can get into. But I, I can just tell you that there's still a lot of angry people in, in, in high level circles that I've had conversations with about what happened with FTX and what happened with other exchanges. So I think you haven't seen the end of that, the fallout of that will continue to come. I think that if the SEC The, the CFTC also has a suit against Binance, by the way, the folks don't talk about, but if those, if our regulatory enforcement agencies aren't successful, I think that's the greatest motivation you could have for Congress to act. I mean, if, for example, in this SEC versus Ripple decision, which, you know, many in the Ripple crowd are championing as a huge victory, which it probably is a, a significant victory, I would say, to, if you're gonna be fair, if that holds and there isn't reversals on appeal and there isn Alternative case law that develops that gives the SEC more ability to control the market, it's very easy for them to go and say to Congress, \"We need some sort of bill, we need some sort of package to take care of this.\" And if you remember, what we were building towards for several years now was some omnibus crypto bill that was gonna get passed. I think that there was plenty of folks that, SBF was marshalling on the Hill, and there was a huge lobbying effort to try to get some big crypto bill packaged, through. There was also, recent bills We saw is that after FTX blew up, and this is the overall theory on what's occurred basically the last year, after it blew up, I think there was an outcry to do something and do something now, and that we can't wait for, for legislation. So that's why the SEC happened to have this huge, you know, tsunami of litigation that I've called it for the last six to twelve months, right? They've really ramped up their filings and who they're going after after many years of doing nothing. I think that all comes back to FTX and SBF SPF, they didn't want to pursue crypto legislation at that point because they were afraid that, you know, they have, they've got egg on their face from supporting him and being close to him and taking his money and those sorts of things. The opposite may happen in the near future if the SEC continues to suffer defeats and, an inability to handle the market, you may hear outcry from the Elizabeth Warrens and others on the Hill to say, \"We need a bill now because consumers aren't protected and they're getting hurt.\" Yeah. so to, how that bears on your questions about The exchanges, I think you're gonna have every aspect of the exchange activity in the United States eventually regulated if the SEC fails in these suits. I think there are gonna be omnibus bills that put in clear guidance, and, I mean, you, you know how when Congress gets involved, they, they make a, what, what should be simple solutions, they make it entirely too difficult and very, very onerous, and, and I think that's gonna change the entire market structure. What it may do, may do, it may just tell major liquidity providers, you know, we're just We're just all getting out. And, and the similar example is to, you know, what happened with the BitLicense in New York. Tons of companies just said, \"We're, we're done. We're not, we're not operating here. We're gonna leave.\" And I don't think that's good for Bitcoin or, or, \"quote unquote\" crypto either. I, I don't think that's a positive for everybody just flee the United States and operate offshore because it will get worse in terms of, you know, the" }, { "speaker": "stephan", "time": "28:38", "start": 1718.09, "text": "shenanigans. I see. So I" }, { "speaker": "stephan", "time": "28:48", "start": 1727.8, "text": "And SEC and Coinbase, do you think that itself could also drive a lot of the volume offshore?" }, { "speaker": "guest_2", "time": "28:54", "start": 1733.86, "text": "Yeah, absolutely. I mean, so you have to really-- and, and it pains me to say this as a Bitcoiner, and because I, I really don't believe in many of the other projects, if not all the other projects, but you have to really look at the role that crypto plays and its interchange with Bitcoin. Like, crypto is a, is a huge source of liquidity for Bitcoin. When you-- when a lot of these altcoins which are boom and busts, right? They never come They pull in the newbies, they pull in the retail, they allow the VCs to have early exit liquidity, and they, they pull in that capital, and I think a lot of that capital does end up in Bitcoin eventually. So why is that relevant here? Like, I think that if, if these companies can't operate here and they're pushed overseas, you're gonna continue to see a fragmented market where the US is basically, very, I, I would say hostile towards the entire thing The little lump in crypto, Bitcoin, everything, they're very hostile. Internationally, it's where it's all playing outside the purview of US regulators, and then US retail has to sort of, skate this, very difficult path to get access to this through dexes or through other means. And, and ultimately, I think that hurts US consumers. I don't think that that's a-- I would much rather than be trading if they're gonna do this, and much, much rather be trading on US-based exchanges for the simple reason that you can bring suits against In the United States, if you're overseas, outside the, the jurisdictions of the United States, good luck ever seeking any relief against these folks." }, { "speaker": "stephan", "time": "30:25", "start": 1825.06, "text": "Back to the show in a moment. Over at CoinKite dot com, you can get gear that will help you secure your coins. As we all know in Bitcoin, it's not your keys, not your coins, and the Coldcard is my favorite device for doing this. Now, some common confusions people have is, not understanding the difference between the seed, the passphrase, and the PIN. So think of it like the seed is that twelve or is extra words, and that actually changes the cryptography of your wallet that it's securing, and the PIN is something that you actually enter on the device. Now with the cold card, you have a pre-PIN and a post-PIN, so it's not that hard to get started. A lot of people are overly scared or sometimes they agonize about which hardware device to get. Just try the cold card, get a USB-C cable, and plug it into your computer, use it easily with wallets such as Sparrow Wallet for desktop, and just follow the prompts and on your hardware device and on the computer, and then as you get more advanced, you can do more and more things. So go to coinkite dot com, use code livera to get your cold cards. Mempool dot space is the leading Bitcoin and blockchain visualizer. At mempool dot space, you can use the website to target the fee for your transaction. You can even search transactions to check whether they have confirmed. Of course, beware about the privacy considerations of doing this, unless of course you are running mempool dot space on your own node and calling out against your own server. Now also They've got v3 coming. They've got a range of features such as visualizing full rbf, they've forked Electrs, they have mempool blocks that are now scrollable, which is great for those of you browsing on mobile, and they've got the mempool accelerator integration coming. So go and find out more about all of this over at mempool dot space. And now back to the show. Right, and so I think that also brings up this whole debate about what, which some people say, how, how some of these crypto coins and tokens have they sort of distracted people from Bitcoin, and that, you know, what would the world have been like if more people had just come straight to Bitcoin? but also a related question is stable coins, because Bitcoin used to be sort of seen, a-and I mean, personally, maybe you and I think of Bitcoin as our unit of account, but for a lot of people, they are still stuck in a US dollar mindset, and for that reason, Using stablecoins and US dollar as their way of getting money around across different exchanges, and so I guess that also, is kind of in the air about if, if the US government, if regulators go after stablecoins really hard, as maybe they have done with, say, BUSD, then maybe some of that volume actually does come back to Bitcoin in a paradoxical sense. I'm curious, what do you think?" }, { "speaker": "guest_2", "time": "33:01", "start": 1980.82, "text": "Yeah, I mean, it, it depends on what you mean by go after really hard, right? I mean, you, you can easily see a scenario where- Where I think you at, the US says we want stablecoins to register and go through certain limited processes, and, and once that gets through, that would be very bullish, right? You know, for, for example, without naming any, any particular tokens, there are stablecoins that are ostensibly on paper fully backed by treasuries and cash and cash equivalents, right? Those particular types of stablecoins, if there was some sort of clear approval process, clear ratification that this is, you know, this is a- Enough that it's not gonna draw the ire of, US regulators. If that were the case, Stefan, then I think that would be hugely bullish for that particular stablecoin, right? If there was a compliant way to get a stablecoin through that everyone could go to bed at night and have clear confidence in that the US regulators have stamped it sort of, you know, this is okay, this is good, then I think that would be a major source of liquidity abroad, for that coin. It would, it would have some confidence to the marketplace, and that could- I think give a lot of confidence to Bitcoin, because, you know, it's very difficult if you're in the developing or emerging markets to withstand the twenty percent down swings in Bitcoin when you have very limited savings anyway, right? You'd much rather hold dollars to reduce your volatility, and that's what you're ultimately trying to do. You're trying to reduce your volatility because you just don't have that much money to, to swing through a fifty percent or twenty percent downturn. but to your point though, there's, there's limits to that, right? And I think that if," }, { "speaker": "guest_2", "time": "34:38", "start": 2078.14, "text": "We are in compliance stablecoin, and that was approved by the United States, and there was a bill that came through Congress that said, \"Here's how you do it, here's the approval, here's the regulators you need to get registration for.\" That would open a lot of doors internationally, a lot of capital internationally because of that confidence behind it. But still, as we, as we're, we're, it's constituted right now, a lot of these are just private actors using self-enforcement rules, trying to give confidence to the market, trying to publish audits to say, \"Here's what And the failure of Congress to act is really just causing problems for these folks." }, { "speaker": "stephan", "time": "35:12", "start": 2112.17, "text": "and let's talk a little bit about this, SEC Ripple XRP, decision as well. Could you give us a bit of an overview there from your perspective?" }, { "speaker": "guest_2", "time": "35:21", "start": 2121.32, "text": "Sure. So you start with the premise of, what- The test was applied, which, as many know from being around these circles before and being in Bitcoin, the, the standard test for what is a security, in the context of crypto has been the Howey test, right? This has been applied in various decisions so far, and, and really what Howey is, it's, it's, it's an implied, contract. It means that effectively, even though there's no formal contract between various part-parties, where the, the courts will imply A contract which will effectively transform the transaction into a security. So you start with the premise that howey has always been sort of a transactional analysis, and I think this is confusing to a lot of folks because when you and I talk about, \"Well, that is or isn't a security,\" we're really talking about the thing itself, right? We're talking about that share of stock, we're talking about that bond, that instrument, that financial instrument is a security. Well, that's true, and there are certain specifically delineated types of securities. What Congress In, in other situations, they created what's called an investment contract. Investment contract is a broad, analysis, broad review of the transaction to say, are we going to transform this transaction into a security? And many had, had hypothesized for years, I'll credit, one of the other crypto lawyers I know quite well, Louis Cohen, and said, \"Well, the thing itself in crypto isn't really a security. What it is is the transactions, the buying and the selling of these types of things, they can constitute a security.\" And what happened And in the SEC versus Ripple cases, they said, \"Okay, we're gonna apply Howey. Howey is the law. Howey is the only law. We're not gonna develop some new test. We're gonna look at specific transactions, and we're gonna try to determine, does this fall as an investment contract? We're gonna transform it into an unregistered securities offering, or does it not?\" And the judge split her analysis in sort of three separate ways. She first says, \"XRP, the token itself, is not a security. It's just alphanumeric cryptography. It's just basically, And code strung together, and that in and of itself isn't an investment contract. However, the original sales, the institutional sales of the XRP token, was an unregistered offering. People were buying it with a reasonable expectation of profit. They were, they were gonna get the tokens, and they were gonna rely on Ripple Labs and the CEO, to develop the protocol, and that's why they bought it, right? So that, that is an investment contract, it's a classic investment contract. The most interesting part of the decision, though, is the next part, right? The, the Programmatic sales, and what these were, is Ripple Labs over a period of several years, they were, after they did the initial ICO effectively and raised the token, they did these general, regular sales, automatic, that accounted for about one percent of the daily volume, and the court looked at that and, and said, \"These programmatic sales on...\" Centralized exchanges, they aren't investment contracts, and that you may be scratching your head, how is that possible? And the, the analysis the court does is effectively this. The buyers of those tokens, number one, don't know they're buying from Ripple. We don't know who's selling on a double blind order book like, you know, Coinbase or any other centralized exchanges, so they can't reasonably expect that they're gonna enter into some transaction with Ripple just because they're buying on a centralized exchange. The second thing the judge says is that, you know, from Ripple Labs' standpoint, Representations made about how they're going to promote the token, unlike the original institutional sales where they got, you know, the early money, say, buy this token, here's how it's gonna ten X or twenty X, there was no correct communication between Ripple and the consumers buying on these centralized exchanges. so that's a huge distinction in the court's mind. And then the court takes this analysis and said, given all this, and applying the howey test, we think that it fails, that we don't think that there's a, a clear, meaning of, the Clearly met the test, therefore this isn't an investment contract, this wasn't an unregistered offering, so those programmatic sales, they're okay. Now, the confusing part about that is that if you apply that logic to other tokens, it's very easy to come to the conclusion that, say, any secondary market sales after the original launch of any token, that those aren't investment contracts. Okay? So if you're with me so far, basically, lawyers have read that passage and said, \"Okay, all we need to do is make sure that secondary market participants don't know they're buying from the Sure, it's done in a double blind way and there are no representations about this token. The interesting part, though, is the judge includes a footnote, and the footnote creates even more confusion. The judge says at the bottom, \"This isn't meant to suggest, and I'm paraphrasing, but that all secondary market sales of the token aren't securities.\" So you start scratching your head and saying, \"Wait a second, you just described how secondary market sales work, and now you're including a footnote saying that I don't wanna make any ruling on secondary market sales, that's for another judge for another That's not properly before me. So that's created a lot of confusion because you can read, the decision in a very bullish way for altcoins. You can basically say all the issuer needs is to be careful with how the original launch is done. They need to do that with accredited investors or use Reg D or, you know, make it so that that, that transaction, the initial launch, isn't a security, and then you're free and clear on the secondary market. You don't have to worry about anything. Conversely, people have been more cautious and said, \"Look, you Early saying, and there are other facts you could put together which may change the judge's ruling, and potentially the judge may have just gotten it wrong, and it could be reversed on or looked at differently on, with respect to other, other tokens. You'll, you'll recall that there have been other decisions that have been made with altcoins where the judges have come down the other way, they've supported the SEC's position, not finding the protocol itself was a to-- was an investment contract, but finding a more broad application, broad reading of the, the securities analysis. So There's a lot of gray area, there's a lot of ambiguity, there's things for both sides to argue, and this is how case law develops." }, { "speaker": "stephan", "time": "41:19", "start": 2479.29, "text": "Yeah, interesting, because what we're seeing is a lot of people sort of jumping on a headline. Obviously, the more, the crypto, you know, Ripple XRP army types would say, \"Oh, look, XRP itself isn't a security, look, we're safe, it's all good.\" And then on the other side, the other side, you have people saying, \"Well, hang on, what about the overall scheme What's going on here. but anyway, enough about all coins. I, I think, yeah, sorry. Yeah. No, no, no, I mean, not your fault. I, I'm saying, I think that's, that's, that's one thing, but at the end of the day, it's more about what's happening with Bitcoin, where is it going? and I think it might be interesting as well to talk a little bit back and forth about, even if we did get a Bitcoin spot ETF, in your view, why would But on the other hand, you could see an argument of, okay, a lot more people are aware about this thing, maybe it's, it gets that stamp, it gets that approval, and maybe that then gets them to go buy their own self-custody Bitcoin. So from your perspective, why is it a good thing?" }, { "speaker": "guest_2", "time": "42:27", "start": 2547.2, "text": "I, I think a spot Bitcoin ETF is a, is a good thing mostly because of how retirement accounts and various other accounts have huge pools of trapped capital. And right, because we've been forced into this situation where many people have accounts and, and, and, and I run into this all the time with, with clients that are asking for advice, which I, I can't give financial advice of course, but I can, I can just sort of navigate the legal landscape. And it, it, it is frustrating when people have put, their entire nest egg, their hard-earned dollars into- To, trapped accounts which force you to buy only certain assets, right? And this, this is the, this is the problem when you have, you know, accounts that only have access to stocks and bonds and maybe some REITs, you, you don't, you're deprived of, of access to this asset class. And for those people that would love to be able to buy spot Bitcoin, I mean, I talk to people all the time who would absolutely love to hold spot Bitcoin, they're forced to do two things. They either just ignore it in those accounts or buy GBTC, which is a significantly, diminished mar- I mean, it's a, it's a, I would say a negative structure compared to other opportunities, and I think the spot bi- Bitcoin ETF would give them an option. Again, it's not gonna be the same, you know, the equivalent of holding regular Bitcoin, holding spot Bitcoin itself, which is always preferable, but if you can provide that capital to come into the marketplace, I don't see that as a bad thing, a negative thing. There's always gonna be risk with any institution, any custody provider that they don coins or that the coins have been stolen, that, that will always p- persist whenever you don't take custody of your keys. So, you know, Bitcoiners like myself and you, we, we generally recommend people take their own ownership, take their keys, you know, manage it, learn it. It's, it's a little bit of a learning curve, but you'll get there. It's not too complicated for, I mean, I, I have, friends and family that are seniors that have helped, set up," }, { "speaker": "guest_2", "time": "44:22", "start": 2661.88, "text": "you know, sig- No one, you can't do it. I would say it takes a little bit of a learning curve, but there are people that just can't do it for the accounts, so that's why I think it's generally for those people that it's a good thing. I see," }, { "speaker": "stephan", "time": "44:35", "start": 2675.37, "text": "yeah. And, I guess also there is this idea people are talking about just saying, \"Okay, just buy MicroStrategy, right? \" And that's kind of like a proxy, obviously it's not the same, but that's like another way that maybe people who are stuck in stocks, they're" }, { "speaker": "guest_2", "time": "44:53", "start": 2692.58, "text": "trying" }, { "speaker": "guest_2", "time": "44:57", "start": 2696.54, "text": "Ultimately, I think you're, you're pinning your hopes on a handful of folks in the leadership there that, you know, we know leadership changes over time. Human beings, you know, they go their different ways, they change strategy, they're fickle, right? So you, you have, an implicit additional risk factor where you're relying on the MicroStrategy leadership not to have a change of heart. So if you're building, you know, a significant holding in MicroStrategy, you're, you're basically not only betting on Bitcoin, you also have the additional risk of betting on S Him to follow through with the Bitcoin strategy, which I hope they do, I think that they're very likely to do, but it's just another risk factor you're, you're just taking on. So to me, if I were to have to pick between a spot Bitcoin ETF that has auditors, that has lawyer, that have lawyers, that people that look through all the paperwork, that, you know, they're gonna have to, have insurance for that entity, you know, in their holdings, depending on how it's constituted, I, you can have varying degrees of confidence, Team that may change. I mean, I would rather take a trust prospectus where you have a clear defined goal. This thing is a, is a, is a trust that's holding Bitcoin. That, that's what the ETF would be put together. That's its goal, that's its purpose, doesn't have any other commercial, purpose of existence." }, { "speaker": "stephan", "time": "46:12", "start": 2772.39, "text": "Yeah. And I totally fair, I think, because at the end of the day, the institution is designed in a different way, and as you said, it's, there's, multiple risks at play, even if Michael There's just different risks associated. I think one other area that might be interesting to talk about is just the interaction of Bitcoin and stablecoins, right? We're seeing a, a little bit of, I'm gonna call it hand-wringing a little bit because we're seeing people sort of saying, \"Oh, look, people who are in, let's say, poorer countries and maybe they can't afford to save, and therefore, look, they're using stablecoins which travel on shitcoin rails per se, right? Like, as an example, people are doing Tether on TRC20, Let's say, and so I'm curious what your thoughts are on some of this interaction, and how to sort of proceed. I, I think the way I'm seeing it is like that we would promote the idea of Bitcoin, i-if you can save, Bitcoin is great, long term, is a, it's a great long term savings vehicle, but for people who fundamentally, you know, because, because of the system they're in, because of the government, because of the rules that they have to, they-- or they're trying to get some kind of USD exposure, I'm curious how you see that interaction of stablecoins and Bitcoin and, and, and further growth and what are the main pathways for growth here?" }, { "speaker": "guest_2", "time": "47:34", "start": 2854.07, "text": "Yeah, it, it's a great question and to be quite honest, I, I go back and forth on it because what I, what I'm, what I wanna be, and again, no one cares what I think in, individually, I think that people are gonna do what they're gonna do, right? People wanna build stablecoins on Bitcoin, they wanna build stablecoins on Lightning, do all these things. That's the beauty of Bitcoin, right? Maintains market penetration. I do think there is demand for a US dollar pegged stablecoin that's clearly out there. You hear it all the time from folks. So if you're a Bitcoiner, you have to basically do the analysis like this. You have to say, is the demand, for this thing in the marketplace, is it sufficient so that we should devote resources to it, and is that gonna drive Bitcoin adoption? I think the answer is that probably yes. I think you can develop it on Bitcoin rails And on Bitcoin and secondary, second layers, in a way that would actually get people to embrace Bitcoin. the, the downside is that if you start doing these things with stablecoins on Bitcoin and, and, and interacting, on secondary layers, what you potentially do is you potentially trigger more oversight from regulators. So I think the push and pull of it in my mind, in a cost benefit, if I were advising folks trying to get in, into that marketplace and trying to promote solutions to get it all- Offtron and these types of things, I would try to say, \"How can we do this in a regulatory compliant way, in fully acknowledging that the regulation on stablecoins is changing as we speak, right? Like there's been many bills that have been proposed, and there likely will be a bill come down at some point. So you really just have to be careful about how far you push it, because you don't wanna draw unnecessary attention. There's already, you know, crosshairs on the backs of many other, providers and other stablecoin issuers because of Of the simple fact of what they're doing and, and its threat to capital flows and so forth. So, so I would just say tread carefully and do it in the best way. And, and again, you-- it's all the devil's in the details, right? How, how you're actually constituting that. You know, if you have a stable coin, if you have a stable coin on Bitcoin Bitcoin as a protocol is inherently stable, right? We know exactly how many Bitcoin are out there, it's fully auditable. But once you're introducing anything exogenous to the chain, like a dollar, okay, some sort of dollar equivalent, what you really need at that point is you need, some sort of repository for dollars, right? Which means you're, you're, you're crossing the chasm back into banking sector, traditional finance, heav-heavy regulation, money transmitter laws, all those sorts of things. And once you do that, you're opening such a big can of worms You know, I'm, I'm, I'll defer to the more creative, brilliant developers and folks that are pioneering solutions on this to figure out a way to do it in, in a very soft footprint type manner. But I can just tell you, the, these things, the more complexity you add onto it, the more issues you will have, and I think that's the beauty of Bitcoin. Bitcoin was made so brilliant with its simplicity that it doesn't have a lot of these issues. It's much more clear cut." }, { "speaker": "stephan", "time": "50:37", "start": 3036.59, "text": "Yeah. Interesting. And I, I guess I, I can We can't stop them, right? So as an example, RGB or what used to be called Taro is now called Taproot Assets. Some of them are kind of-- we can't really stop them, right? Like there's just developers who are making this stuff, and there are people out there who might try, who might try to put some kind of stablecoin on these things, and we can't really stop them. So I guess that's one thing. Nope. But then we've also got other people who are doing a different approach. So for example, Stable Sats is an approach by the" }, { "speaker": "stephan", "time": "51:13", "start": 3073.29, "text": "Side here is it's custodial and there's a little bit of, you know, you're trusting, that exchange to not, you know, rug you, et cetera. and so there's kind of the synthetic approach, and so I guess some of it is, you can't really stop people, but at the same time, maybe it is, we could argue that it's like we're having a smaller attack surface if you just promote the idea of saving Bitcoin, right? You don't even try to do this stuff, like you could just say, \" And the government will go after you because if it's seen like, okay, it's just your little saving, it's your savings, it's like your digital gold, then maybe there's less reason that, you know, you're, you're not, inviting, too much of the, of government attention" }, { "speaker": "guest_2", "time": "52:00", "start": 3119.61, "text": "Yeah. and then I think just from a macro standpoint, if you're just looking at, this, the effect this will have, let's assume Stephan that we have broad proliferation of stablecoins. Well, in my mind, the, who, who that's most negative for are foreign governments, right? You're, you're, you're taking away the money printer, quote unquote, from many foreign governments out there across the world that, that it's gonna be increasingly harder for them to service their debts when their own citizenry wants to hold the dollar. And And what that does, in, in, in my view, is I think it ultimately promotes a strengthening dollar. You know, it, it, it pro-- it's very bullish for the dollar and it's very bearish for every other asset. And I think if you get-- that, that's the general trend I think this, this thing will take over the next ten to twenty years. So you will have coexistence between Bitcoin and the dollar. And once people get more comfortable with a digital asset like a digital dollar, like a state, whether it's a stablecoin or a CBDC, once that Very easy jump for them just psychologically to move to Bitcoin. Like this is all, the, the, something as important and profound as money, which plays such an integral role in our entire world, it, it will take time for folks to transition to Bitcoin. I, I, I'm very bullish on Bitcoin long term, right? But the, I, I sort of always have a sort of a, a, a cringe reaction when I hear these things that, you know, we're gonna go to hyperbitcoinization in the next two or three years and Bitcoin's gonna be at," }, { "speaker": "guest_2", "time": "53:29", "start": 3209.09, "text": "world to live in if that truly did happen. it would be a very negative world in the short run just because people didn't have time to adjust to a huge, profound shift in, in global monetary networks. And it" }, { "speaker": "stephan", "time": "53:40", "start": 3220.48, "text": "also might drive a lot more custodial use than we would like if maybe hypothetically Bitcoin users in the network can agree to certain, let's say, upgrades, things like APO or CTV, and maybe that helps enable more non-custodial use, maybe it, it, that, you know, on a longer time horizon could- Could, make it more decentralized in that way. but of course, we don't, we don't get to choose these things, right? We don't get to choose when it happens. It could happen tomorrow, for all we know. Obviously unlikely, I think it's more likely that it's going to be, just like we've seen before, I think we've, we've seen cycles before, we're going to see cycles happen in the future, and I'm always a little skeptical when I see people say things like, \"Oh, it's the supercycle, we're not" }, { "speaker": "stephan", "time": "54:29", "start": 3268.85, "text": "Whether it's four year cycles or not, I don't really care about that. It's more just that we're going to see the human herd mentality come in all of a, all of a sudden, and then we're gonna see them kind of come out, and we're gonna see a few more of those. And so it's more just like, how do you navigate those without getting wrecked, right? From a personal perspective, from a business perspective, how do you survive? that's probably the key, that I would see it. but I guess turning to kind of" }, { "speaker": "stephan", "time": "54:59", "start": 3298.85, "text": "Inflation coming down. Do you have any, you know, just off the cuff op- opinions?" }, { "speaker": "guest_2", "time": "55:05", "start": 3304.59, "text": "off the cuff, I'll just tell you that, I think the, the easy sort of, disinflation has sort of, is run its course at this point. Yeah. barring, barring-- Now, now, the big caveat you always have to say is, barring a credit event, right? If you get some type of credit event at this point that could really seize up in, in, the, the credit system, the Senior loan officer survey and others, where they're tightening standards, but you haven't had anything extreme, right? And I think the concern coming out of SVB, one of the reasons why you saw rates like come crashing down after SIV and bonds really get bid hard, is because people thought that the S-SVB could trigger a systemic credit tightening that was significant. I mean, even Chair Powell came out and said at some of the pressers that it's very hard to measure what the fallout from SVB is, are the credit markets really gonna seize up and, and banks are just gonna refuse to And what I will say, depending on your perspective, it may be a good thing or a bad thing, but that isn't materialized, right? You still have okay-ish, lending out there. there's some data that shows, recently that there's been, like I said, slight tightening, but nothing to the ex-extreme where you're seeing, you know, credit origination fall off a cliff. now, so, so from, from my standpoint, I think that continues to sort of suggest that we've got a road ahead of us, and one of the certain markets respond to these elevated rates. And what, what I think you have to pull under the hood and look at is actually when companies are gonna have to roll their debt. And there's some great charts floating around, I'll try to throw up a few on my Twitter if anybody's, once this podcast comes out, but they show that there's a ton of junk debt that needs to get refinanced in early to middle of twenty twenty-four, and then it escalates and ramps up, really, all the way through twenty twenty-five. That, that's gonna be a very difficult Period. And what I think is interesting is that you don't really wanna wait until the, the last minute to start rolling that paper, you really need to sort of give yourself a runway, you don't wanna be forced into it. And I think over the next twelve months or so, you're gonna see a lot more companies that are forced, and including, I've talked to some of my clients about this, they're forced to have to accept these higher rates. In other words, they had a long runway of low rates, they took out a lot of debt, and the short term rate increases just haven If people are being honest, there are a lot of industries where they had excess, and individuals, by the way, that had excess savings that had refinanced over the last several years at very low rates, and the short term rate increases may have, affected asset prices. We obviously saw that through twenty twenty-two, but they didn't actually affect, or they haven't yet affect and been felt by the overall marketplace. so, you know, the old famous saying, long and variable lags of monetary policy, I think we're about to see the long- Long lag finally start to hit the economy over the next year. Now, that doesn't have to mean some doomsday scenario. What that effectively means is it's just gonna slowly and steadily have cause unemployment to rise, and I think that it's not gonna be, a rise in unemployment across all sectors that many are thinking. I think it's gonna be isolated to companies that are very sensitive to interest rates, and you'll start to see that slow trickle. but again, you know, there's a lot-- in these situations, there's always the unknown unknown Lawsuits, right? And that, that's the c-issue with the credit event. So if you do get a credit event, this thing can fall off a cliff very quickly. But for the short term, barring some, like I said, exogenous event, I expect yields to slowly head higher from here, you know, closer to, I think what was it, ten year trading at, So like the ten years at three eighty, you know, it's been bouncing around, in this range here for, a few months now. it, it hasn't, made a new high. The two year did make a new high, right? Post, SVB, it went above five ten, five eleven, somewhere about there in the yield. That, that just tells you that, you know, we might still have a little bit of a runway here where before people have to roll paper and before the excess savings are in fact depleted." }, { "speaker": "stephan", "time": "59:13", "start": 3553.12, "text": "Yeah. One other Let's say it was in an environment where rates were coming down or rates were low. As rates are rising, we have, you know, people were saying, \"Oh, look, Bitcoin's bull run was only driven by low rates.\" But now, I guess we could say we've seen, Bitcoin start to rise even in higher rates scenarios. I'm curious, do you think that continues to play out?" }, { "speaker": "guest_2", "time": "59:41", "start": 3580.64, "text": "I, I think Bitcoin can succeed in any environment. The, the, the big difference is in the short run is the leverage, right? So one of the reasons why Bitcoin goes on these parabolic runs and why asset prices in general, I don't care what you're talking about, real estate, stocks, whatever, they go on these parabolic runs is really just excess leverage in the system. If you're talking about margin debt, that's one of the things I look at frequently with the stock market, and as you create a higher cost capital, obviously that prevents sort of some of those, it makes it more difficult for those parabolic runs to occur in, in any asset class, right? So it's interesting because with Bitcoin, The same range it was last June, right? Around, around, thirty K roughly. it, it's had a lot more stability here, which tells me the following, tells me that there are still pa-- some modest passive flows to Bitcoin. You still have some of the, and there's data on chain that talks about this, like, you know, the, the fishes and the smaller, you know, whatever is grabbed. The shrimps are accumulating and gobbling, yeah. Yeah, shrimps accumulating. now, if there's a credit event, I would expect If there's not a credit event, and you just have a general tightening, in terms of the cost of capital, what you may in fact see is you may see Bitcoin relatively stable and trend upwards over time. It's not gonna have a par-- I don't expect it to have a parabolic run, unless there's really the, the quote-unquote money printer goober or really major stimulus inflows. But that's not necessarily a bad thing, you know, Bitcoin having relative stability in a time where, you know, people are, are trying to, get more comfortable with I'd rather have that than Bitcoin bouncing from a hundred to twenty to, to, to fifteen, wherever it is. You wanna see stable, relative stability and, and at inflows. So to me, I don't think low rates are a necessity for Bitcoin to perform well. I think it more, it's more of a question of overall liquidity conditions, which in a tightening liquidity environment, I think Bitcoin could struggle. But that, again, what happens after they tighten the liquidity environment? You have a credit event, you have some sort of recession, and you have more liquidity coming in, and most folks- That have day jobs, they can't time all this things. So I always tell friends and family, you know, with Bitcoin, don't-- you, you shouldn't time it. There, there shouldn't be, \"I'm gonna try and get it at the bottom of the liquidity cycle, I'm gonna try and sell it at, at the top of the liquidity cycle.\" It's not worth it, it's too difficult. You know, if guys that are focused on this is their full time job, and they still get it wrong. So don't mess around with that, just understand over time," }, { "speaker": "stephan", "time": "01:02:18", "start": 3738.14, "text": "You know, just accumulating, you know, as a, as a long term savings. I think that's a great way to put it, and so look, I think it's probably a good spot to wrap up here. So before we let you go, Joe, where's the best" }, { "speaker": "joe_carlasare", "time": "01:02:28", "start": 3748.11, "text": "place for people to find you online? Yeah, I-- So I'm on Twitter at Joe Carlasare. if you" }, { "speaker": "guest_2", "time": "01:02:33", "start": 3753.97, "text": "have a litigated matter, you know, I, I represent a ton of miners, contract disputes, breach of fiduciary duty claims, issues with exchanges, feel free" }, { "speaker": "guest_2", "time": "01:02:47", "start": 3767.82, "text": "With me about any issue, I've worked it to where about half my practice now is Bitcoin centric, related in the Bitcoin industry. So I'd love to go 100% Bitcoin at some point if, if folks keep wanting to, have legal representation and, and also if you don't have a litigated dispute, I have very, sophisticated partners that can help with most transactional issues as well, and I work alongside them where there's a, a Bitcoin related issue, just so I can bring my knowledge base to it. So" }, { "speaker": "joe_carlasare", "time": "01:03:12", "start": 3792.06, "text": "thank you so much for having me" }, { "speaker": "stephan", "time": "01:03:18", "start": 3798.34, "text": "Thanks for listening, and I'll see you in the citadels." } ] }