Eric Wall: Arcane Assets – The Future of Digital Investments #373

Transcript

this is epicenter episode 373 with guest eric wall [Music] hi i'm sebastian cuccio and you're listening to epicenter the podcast where we interview crypto founders builders and thought leaders on this show we'll dive deep to learn how things work at a technical level and fly high to understand visionary concepts and long-term trends if you like epicenter the best way to support us is to leave a review on apple podcasts if you're on a mac or ios device the easiest way to do that is to go to epicenter dot rocks slash apple and if you're new to the

podcast be sure to subscribe on itunes spotify or wherever you get your podcasts i hope everyone had lovely holidays and i wanted to wish all of you a very happy new year 2021. i'm optimistic that things will begin to steer in a more positive direction this year and i hope that we'll be able to do things like travel again and go to conferences so in case you haven't noticed crypto is going through a pretty significant bull run at the moment and today's guest is fitting in this context now keep in mind this interview was recorded in early december which seems like an eternity from where we are now today our guest is eric wall he's the cio of arcane assets they're a european crypto hedge fund but you probably know eric best from his writings and his presence on twitter where he offers really valuable insights

on crypto markets and crypto as an asset class in this interview brian and frederick discussed the current situation with eric and how it should be compared to the 2017 bull run there's some really interesting differences between these two market events what's different this time who will come out as the winners and who will get wrecked and where can things go from here which i think is the most interesting thing to speculate about they also discussed ways in which bitcoin and ethereum could evolve to well particularly accommodate increasing demand from institutional markets now the institutional market demand side of things is something i had very little knowledge

about before listening to this interview but it was really interesting to understand how that's in many ways driving this bull run i'm sure you're aware that bull markets are often accompanied by increased transaction fees one inch optimizes transaction fees on all your trades and discovers the best prices across all dexes and amms i'll tell you more about one inch later on but if you want to check them out now go to epicenter dot rocks slash one inch so they know you heard about them on epicenter and with that here's our conversation with eric wall so we're here today with eric wall he is the chief investment officer of arcane assets and he's been involved in the bitcoin

space for a while in the crypto space for a while i've often enjoyed some of his analysis and insights and he's marched he's been in this uh fairly sparsely occupied space of like you know very bitcoin bullish but also kind of open-minded to other things and not as maximalist as many so i found his perspective interesting from that point of view and um so glad to have you on thank you very much glad to be here so it's always interesting to hear kind of like how did people get started and like what triggered initially their you know their journey in this strange land of crypto so what was

it like for you uh yeah for me it was i was a computer science student at the uh lund university here in sweden and uh we were having computer science courses and studying for example the uh tour network and it was sort of during my exploration of the uh the underworld of the darknet that i came in touch with bitcoin for the first time i i have an article uh bookmarked about silk road that's from uh 2011 but it took me uh one year from reading about it for the first time and bookmarking the article so it was in 2012 that i decided for the

first time to uh try making a small investment and that was on the mount gox exchange so obviously uh two years later i would lose all of my bitcoins on mount cox so i was one of the i am still one of the creditors of the uh muntbox exchange uh so yeah it it became like a an interest for me i wanted to understand uh and i've always i've always been interested in computer science but i sort of if i hadn't gone into computer science science i think i would have gone into finance and one thing that struck me as interesting about bitcoin was that you had a new asset class and it was like a clean slate where this instrument was trading but there

was very little uh it was largely uncorrelated to the rest of the market and it was like turning a new page on something where i felt like i had an opportunity to get in here and the information that i would be able to accumulate on this asset class uh you know i would have a chance to be you know one of the first and one of the foremost persons to accumulate knowledge on the subject and then trade it successfully however quite embarrassingly for me uh initially and during my first years i you know started trading using technical analysis and it took me until a couple of years into my computer science studies that i learned how to program my trading strategies and back test them

and after having done that for a while i realized that there was very little empiric evidence for estimating that what i was doing uh was successful and seeing that it could be potentially successful in the future there was no empirical basis for what i was doing so there was no scientific science behind using technical analysis and that's when i started to think you know maybe there is a better way to trade bitcoin what are the other factors that i can look at and see what types of information moves the market so i started to read bitcoin mailing lists and because that was at least a couple of years ago technical developments

in bitcoin was something that inspired inspired people to become bullish on the asset that was something that was driving the price so sort of being able to forecast and understand where the technological development is going at least then you were doing something scientific that you could uh have a relation between uh cause and effect and you could understand that okay if this thing happens then that's good for bitcoin and then maybe i can enter a leveraged position here uh before uh most people know about this technical development and then once it he hits the press and people start to speculate based on that activity let's say for example that somebody invents the lightning network and all of a sudden people start talking about oh bitcoin is finally going to scale now as a medium of exchange and that causes people to

speculate so keeping track of those types of development that's sort of how i started to go from being just this person that was trying to understand how do i speculate in this asset class as a regular forex trader into someone who was studying the protocol on an in-depth uh level so at the end of my computer science was a master's degree that i was doing at the end of that of my university period it was time for me to write the mastery thesis so i wrote the master thesis on bitcoin side chains blockchain technology in general and oracles so when i came out uh from the university in 2016 i had i think i was one of the first or only people in sweden that had a

academic computer science based background on blockchains and bitcoin so that's sort of how i started my career and then you joined a company named cinopa what they did is they provided financial technology for exchanges and clearinghouses can you talk a little bit about what you did there yeah so sinnover was actually the company that put out the master thesis proposal for the massive thesis that i later wrote and what they were mainly concerned about and what they wanted to understand was if it was possible to leverage the technology that was powering bitcoin to build a distributed securities depository so in finance you have

exchanges that's where the orders get matched and then you have the clearing layer and then at the bottom you have the settlement layer and for securities uh securities are settled in central securities depositories csds and it happens all over the world and that was a component that sinover hadn't previously built and they were looking into building such a component that was going to be based on blockchain technology so most people don't know a lot about synovo and i think that people will know even less about the for moving forward now that it's been acquired by nasdaq and it doesn't exist anymore but before before they got acquired by nasdaq in 2019 they were the largest independent

provider of market and market technology so exchange and clearing technology they were a large competitor to the largest competitor to nasdaq for about 20 years so i joined the firm as someone that would help them understand blockchain technology and later on i would take full responsibility for leading the blockchain and cryptocurrency strategy at the firm um and i can tell you one sort of funny thing on my first day that i joined sinnober the firm we had a customer there and it was the canadian the canadian securities depository so it's called the canadian depositories of securities cds

and they were becoming a client of synovo to receive exactly a settlement component the csd component that i was talking about previously and i it was my first day on the job and i had just traveled up from lund to stockholm and i had a 40 degrees fever but i had taken multiple painkillers so that that i wouldn't miss my my first day on the job and on that first day they told me that okay so we have the canadian csd here and they've just said that they are not going to purchase a csd solution from sinover unless it is blockchain based and eric you are the only one that knows anything about csds

running on blockchain technology so why don't you go in and uh yeah tell them what what we have in store for them and you know you know i i am a computer scientist and i had at this point in 2016 i still had a very not in-depth understanding of finance yet that would come come later so during that meeting and i was still i was still confused about the financial terminology side so so when they asked me if the csd component would be able to settle equities i had to i had to figure out equities is that security yeah yes equities that's stocks right so it was very difficult for me to jump in that quick quickly but it was uh it was uh it was like learning the fire test right you get thrown in

and you have to learn everything on the spot so those uh a couple of years that i worked for sonovo came to be my a period of extreme learning where i had to figure out how the entire plumbing of financial infrastructure for uh regulate regulated markets uh work so yeah that's sort of how i got started there wow thrown in at the deep end you you already said that cinebo was then acquired by nasdaq and uh you worked for nasdaq for another couple of months before you left right so what was it like to work at nasdaq because from the outside it seems like this gargantuan grey organization and uh tell us about this i'll try to use nice words about this experience but

basically what happened was that the cenober company they tried to spread out their businesses in too many fields at the same time and doing that our treasury like the cash balance of our company uh became dangerously low and the stock price subsequently uh dropped and nasdaq saw that as an opportunity to just outright acquire the firm so i had at the time been uh structuring and building out my position in the firm as the so that i would have full control over the blockchain and cryptocurrency strategy and build out my trust within the firm so that people understood that you know if i say that this is the best direction for our

company in terms of what we should do with cryptocurrency then i wouldn't have to argue with people people would just you know after i'd proven myself in within the firm they would just pretty much accept that i knew that what i was talking about um so when nasdaq acquired the firm it happened at quite a weird uh time for me because i had just uh sold a matching engine the the same matching engine that we delivered to the london metal exchange and the australian securities exchange it's like a world-class highly performant i think it's the fastest matching engine in the world and we had just assigned a contract to deliver that technology to bitstamp and they now run on that technology but while the

inc was uh right about to touch the paper with a deal with bitstamp that's when nasdaq made their bid on snowboard so then you know my whole process of building a cryptocurrency offering uh from within senoba sort of got uh shaken a bit by this whole nasdaq acquisition and later on not long after the acquisition from nasdaq was complete uh they shut down the entire cryptocurrency offering that i had built and you know just replaced it with their own so um my work the things that i had been working at cinova pretty much got shut down by the nasdaq acquisition and after when the merger uh was starting to happen i got thrown into the

nasdaq blockchain team and in the still nasdaq today they're not the cryptocurrency first company they do deliver matching engines to some cryptocurrency exchanges but i was all about you know i was in cinoba i was all about you know actually meeting the cryptocurrency industry head on i was we were one of the 500 first companies to run a lightning node and we were really trying to engage with this technology whereas nasdaq sort of want to have a back seat and in in that hole in that whole development so the team that i got thrown into was still a team that was working on trying to blockchain everything so they had a blockchain network between some mutual funds and some banks

and they were trying to onboard customers onto this private blockchain and i got to sit down with the team and look at how they've architectured the blockchain that they were using and now i could notice like several points within this blockchain architecture where things were happening in a completely centralized manner and so i raised you know the concern that you know you you have a blockchain right it has the blockchain name on it but you're not actually getting any of the benefits that uh of a blockchain when you're when you're when you're matching orders in a centralized manner then only later they were just using a blockchain as a place where you could record events that already happen but there was no decentralized

aspect to that at all so i think that's probably the main reason why i didn't stay why the my relationship with nasdaq wasn't long-lived was primarily primarily because that yeah there were some agreement disagreements between me and the team on how you do blockchain correctly i would say yeah and also another thing one of one of the first things that they told me when i joined the firm was that you don't have to worry you know on nasdaq you'll never have more than six bosses above you and you know i was used to having just one boss and i thought that was sometimes too much you know so having six bosses and you have to try to navigate a cryptocurrency

strategy with six bosses above you where from each step from each boss the knowledge about cryptocurrency and blockchain decreases and at the end it's uh basically no knowledge at all so that's not the yeah for me i think i was better suited to work in a startup one inch is a decentralized exchange aggregator that sources liquidity from the top dexes and amms to save you money and time on swaps one inch finds the best possible trading paths across over 20 supported liquidity protocols and splits them up across multiple market depths i started using one inch last summer and since then it's become my go-to aggregator i use it every time i need to make a swap

they recently launched v2 which has a brand new api it greatly improves their routing algorithm and my favorite part about the v2 is the new ui it's super clean and easy to use these improvements ensure that you get the best rates on your swaps with the lowest possible response time so the next time you need to make a swap forget about getting the best rate or optimizing your gas fees make it easy on yourself just use one inch and you can let them know that we sent you by go to epicenter dot rocks slash one inch that's one i n we'd like to thank one inch for their support of the podcast actually around the similar time i was working for this enterprise blockchain startup too and you know we were kind of a technology provider to

you know to some banks and you know insurance companies and so i'm kind of a bit familiar with that space although i haven't touched it as well since late 2016. i'm curious like how is it all played out you know this entire effort that happened you know it started with you know r3 was at one point like a big and there was this digital asset company right was doing a lot of things and you know a bunch of others and you know they're basically relying on the premise right that you could use blockchains as this underlying substrate in the traditional finance ecosystem right you wouldn't have to deal with

cryptocurrency so much but you could use it in there and you know get all of these benefits and improvements like have you followed this at all and like how how do you think that has developed um yeah so i was uh for in 2017 i think i was as immersed and involved as you can could be in that whole space we had conversations with r3 and we were running blockchain experiments on hyperledger fabric like we were way deep into all of that and i the the problem that i identified was that if you wanted to build a financial substrate using blockchain technology

for a large network of participants that was very difficult to do because when you had that many people around the same table making progress was extremely slow paced and difficult and at the same time there were some startups that were acting in a much leaner fashion that basically developed the whole solution uh with one or two parties and then after that tried to get buy-in from existing networks and that also proved very difficult to do because the existing incumbents didn't want to get on board into a system where they had no they haven't hadn't been participants in in producing that solution so it's uh fundamentally i

i found that the two paths that you can approach the problem both of them have bootstrapping problems um so in 2018 or around that time i said that uh you know while i think that eventually i i believe that the entirety of finance at least if you focus on the settlement aspect of it will run on a blockchain based network i didn't find it that it was productive to be engaged in this industry at this point in time because you know it could happen that the permission sector finds a solution and starts using that but it could also happen that it's

that they instead connect to the open blockchains and start using those and that's a much more interesting and you know genuinely a place where innovation truly happens and where there's a lot more passion it's a decision between do you want to try to make the internet happen through the means of an intranet or do you want to go to the public open borderless internet and try to bring on the masses from there and so i i chose i choose to go the public route i have more faith and the possibility of that being a success for finance so i in 2018 i basically left and i cut all my you know i stopped reading all the information that was coming out from the

private blockchain space now i've heard uh from some of my colleagues that are still in that industry that the private blockchain space for finance is still moving forward and that you know they are pretty excited about where things are going but i haven't seen like any firm examples of any real world deployment where people are using these private blockchains in a way that should be no noteworthy for us or something that we should pay attention to so you are now the cio cio at a fund named arcane assets so that's obviously a hard gear change coming from the

from the permissioned blockchain space so i know that uh for regulatory reasons you can't tell us everything about this fund but uh can you tell us a little bit uh yeah sure and i mean i i suppose it sounds like a a gear change but from my perspective it was uh something that i had been doing from the moment that i got started in the cryptocurrency industry it was like i was doing it on a personal level where i was managing my own cryptocurrency portfolio uh and i was doing that uh starting with bitcoin from 2012 and kept doing the doing that in 2014 2015.

in 2017 when sort of the mainstream got attracted to the cryptocurrency industry and they start to talk about okay we want exposure to cryptocurrencies uh but i've heard that bitcoin is not scalable or that it's consuming as much electricity as the small country shouldn't i have some of these other cryptocurrency assets and then i found myself in the position of advising them and trying to correct the misconceptions that they had and if they wanted some old coin exposure you know i can facilitate that but i want to make sure that we subtract 99.99 of everything that's just pure uh out there and even i think sometimes in many cases it would even be

better decision to have short positions on on some of those altcoins because that can be a profitable uh strategy if you want to maximize your bitcoin holding so i i i had all these requests and i started actually in 2017 as a sort of side project while i was still working at sonuber to launch a fund together with two other financial professionals in sweden so when the nasdaq acquisition happened i and i quit nasdaq then i sat down and i wrote a list of all the different opportunities that i could join and participate in in the cryptocurrency market and running uh managing a fund was on that list and then and i just eliminated

all the different options on that list until i was only left with one or two and then i chose to to go down this route because it is genuinely like if i if i could imagine you know one dream job one thing that i can imagine myself you know waking up and you know completely being in love with what i do then managing a cryptocurrency fund is the thing that gets me closest to the things that i'm passionate about and and for those who know me and follow me on twitter you know that one of the main things that i am passionate about is debunking altcoins reading white papers finding flaws uh so by running a fund i can put that interest of mine to full-time use so that i can just detect what are the things that we

should avoid in the [Music] crypto currency fund should be avoiding and there was a norwegian company uh that had recently launched it's called arcane it's about to become a publicly listed company it's uh it will be the uh second the uh the the second company in the nordics that is a publicly listed cryptocurrency company and they were uh very happy to embrace my ambitions at the firm and facilitate uh so that basically all i have to do is decide on you know portfolio construction and all the other aspects when it comes to building out the partnerships with the custodians exchanges and complying with regulation

all that would be taken care of by arcane and i will only manage to fund so that's sort of the ideal relationship between me and the arcane company and we started the fund in in april and i've been managing it since so far i'm very very happy with with that job and what it's been like especially in this type of environment which we have been in which has been extremely exciting and interesting but yes sadly i cannot talk about uh what the strategy of the fund is and other metrics about the fund because we do have to abide by method two regulations and they are

extremely extremely harsh when it comes to talking and marketing uh cryptocurrency funds to retail investors so yeah i cannot say that much more about that unfortunately okay well then let's let's dive a bit into sort of talking about your own investment thesis and how you think about you know different assets and you know their value proposition and let's start with bitcoin which is the thing that you know you focused on the most what's the case for bitcoin what's the your thesis behind bitcoin at this point in time uh during all these eight years that i have been looking on at bitcoin i don't think that there has ever been

a moment where i've been as bullish on bitcoin as i am today and the reason for that is quite simple really and i think this has been repeated in multiple outlets as of late but it's it's just that bitcoin is becoming accepted as an asset class in the mainstream view so you have uh some of the largest hedge funds in the world and largest asset management asset managers in the world that are now looking at bitcoin not as this weird uh funky technology that is used by people who want to purchase drugs on the dartmouth like genuinely they're what when i speak with these

hedge funds today like what the conversation is about is how much liquidity is this is it in this asset class if we want to allocate 200 million dollars will there be enough liquidity for us to enter and more importantly will there be enough liquidity for us to exit the asset class so it's being treated now uh completely as you know how they would look at any other asset it's just an investment opportunity for them now not this strange thing and i think that the only thing that bitcoin needs to succeed is that people start to think about bitcoin in a serious manner because when you start to treat bitcoin as a real asset class as an investable good

and then you start then you start looking at the the fundamental uh properties of bitcoin and you look at uh the how scarce is this asset what's what is the supply uh like for example if you start comparing it to gold you will immediately recognize a number of different advantages that bitcoin has and not only in terms of how easy versus hard it is to transfer the asset or how you can program the asset but also in terms of like what is the market cap of bitcoin uh relative to gold and it's it's orders of magnitude's difference right so in terms of the return profile like how many multipliers of returns that you can expect if bitcoin continues on this

trajectory then it's looking like the investment opportunity of of a decade or a century or or a millennia even so uh the investment case for bitcoin i think it's just that this is if we look at the most recent announcements from uh i think the cio of blackrock which is the largest asset manager in the world uh came out and said that you know cryptocurrencies are here to stay bitcoin could replace gold and that's just on the back of a number of other high-profile investors such as uh stanley druckenmiller bill miller paul tudor jones uh you know each of these investors coming out and just talking about bitcoin in that completely like this the rhetoric and the the phrasing

on how they talk about bitcoin now it would have been like if we sent if we screenshotted those articles and we sent them back to reddit in 2016 and we saw what people wrote that would be like you know people would say like i mean yeah i mean i in my in my most optimistic dreams this is what i thought was gonna happen but seeing it actually happen is like it's it's it's so bizarre and it's really like it's it's it really blows my mind to understand that we are in a point in time now where this is actually happening and i think that you know now we've had enough macro investors uh that have endorsed bitcoin in such a way that you

know the acceptance is there and it's only a matter of time before this acceptance uh spreads to other investors so i really do think that bitcoin is going to become like this store of value use case that we have talked about in the cryptocurrency industry this store of value use case for bitcoin i think it's going to happen i i don't think that there's any way that we can put the genie back in the bottle uh it's generally going to happen and if if the store value use case for bitcoin happens then the medium of exchange aspect that comes later in in this evolution it it follows naturally like if if you are if if you are completely comfortable with storing your wealth

in bitcoin then you wouldn't feel strange by accepting bitcoin as a form of payment for something right like if you if if somebody wanted to settle a debt in bitcoin and you use bitcoin as a store value asset then that wouldn't be a strange thing for you to do so i can start i can sort of see now how all of these things will just unfold one after one and that we are on a trajectory in such a cemented way that it's starting to look like it's starting to look like ins instead of it being a long shot it's starting to look like it's unlikely that this wouldn't happen you know so i i i went in a stephan leverage podcast recently to talk exactly about this because i i there are of course you know some issues

as well especially when we talk about me bitcoin as a medium of exchange you know people will immediately start to talk about you know okay so how are those how is the bitcoin blockchain going to process all those transactions and what are the transaction fees going to be and if the transaction fees are going to be very high is that going to lock out uh you know the poor people out from the system so there's a lot of once we get into the medium of exchange era of bitcoin i think there's going to be a lot of other problems that we'll have to address and that will have to solve but i think that where we are now where the store of value use case is getting cemented is at least you know a very very big and important step on the way there

i think that was a great explanation and i i very much agree with your assessment i mean the thing that strikes me here is so i i became interested in bitcoin in like middle 2013 which was just like when this bull market of 2013 was starting and the interesting thing is it was the same stories that were like we sort of told back then because it was kind of obvious to everyone okay well if if this is really be you know the price potential was obvious right if everybody starts using this as a store of value then the price would go so high and then obviously you know institutional investors and stuff they will start holding this and then if one recognizes even a chance of that happening

and the signs like some probability then it kind of makes sense to like frontrunners just and then it becomes a self-fulfilling prophecy right so that was already there as this expectation back then and i remember people were like yeah no this is going to come right and the bitcoin etf was already you know this kind of image people were aspiring to and it's interesting that you had you know back then of course it didn't happen and then he had the 2017 bull market again it kind of didn't happen and now it's happening so why is it happening now it really felt like it's the way that you describe it like bitcoin was in a way like a rigged game from the st it worked it was rigged in such a way that we could sort of see all of these steps

uh fall together ahead of time but it was still like just seeing it actually play out in in reality is a wholly different experience from fantasizing about it but yeah why it's happening now i mean i think that uh the the most obvious answer that to that question is of course that we are currently right now in a period of the greatest monetary expansion of all time i mean if you look at the uh money supply charts since the corona various pandemic spread and the government the fiscal and the monetary responses to that uh have inflated the money supply i mean those are

that's i mean that's got to be the trigger i mean if you look at what uh paul tudor jones and rocket miller and these other high-profile investors that we were talking about previously what are the what are the rationale that they are giving and they are almost always referring to the uh macroeconomic environment and about the macro economic environment i know that a lot of people are talking about you know that we are headed for hyperinflation and i don't think that inflation you can measure it in a number of different different ways it's a kind of a sticky issue but i think that the the mo the fundament the fundamental driver that is catapulting bitcoin into the spotlight right now is not necessarily the macroeconomic

factors themselves but it's more about the narratives that the macroeconomic factors give consequence to so when you see central banks expand their balance sheets and you see the the broad money supply that is out there that's actually out in circulating in the economy when you see such heavy expansion happening there and you and you you it it leads you to start to think about scarce assets in a in a light in in a more positive light so it's not necessarily that something needs to happen i don't think that the global financial system needs to collapse in order for people to start thinking about the negative sides and the impact

that the central banks have on the economy for people to start looking at bitcoin and i think it's pretty interesting if you look if you if we go back to in march i remember distinctly i remember two different forecasts one was given by mike novogratz and the other was given by arthur hayes who's the ceo of bit mix both of them in march immediately as uh the stock market plummeted and the money supply was being expanded that's what both of them predicted at that point in time that we would see bitcoin at twenty thousand twenty thousand dollars uh by the end of the year so i don't think that anything necessarily needed to happen

uh other than that bitcoin would be brought back into the limelight and what's been beneficial for like what's been so beneficial like i think bitcoin has been quite lucky in a way that we had this uh huge bull run in 2017 and like you said you know nothing really happened into in 2007 except that a lot of retail investors were speculating on bitcoin being adopted by the institutions and then after the cme futures launched in december of 2017 there retail didn't you know you couldn't you could no longer front run the institutions anymore because the the cme the chicago mercantile futures they were out there and they were available to institutions

well at least the retail retail investors thought that they were but in reality there's a more complex process for that how that really works but so so the only thing that happened when when those futures launched was that the retail demand disappeared from the market because there was no you couldn't front run wall street anymore and then demand disappeared and then prices collapsed and we went into a three-year bear market but what was really lucky about that was that at least at least in 2017 bitcoin got sufficiently large and there were sufficiently large transaction exchange volumes that it got a number of industry participants like in a large in industrial actors such as for example

fidelity to start to build out custody solutions for bitcoin and you had other futures market launching that options exchanges launching and professional custodians launching and ways that you could aggregate deal aggregate execution flow from different trading avenues so all these different tools that sort of institutional investors want when they allocate to bitcoin because bitcoin peaked in 2017 and it was put on the map for many of these players the infrastructure slowly got building out built out and got hardened over time so now that the macro economic environment the catalyst for the macroeconomic macroeconomic environment happened in 2020 all that infrastructure

that we needed for bitcoin in order to able to be able to truly blossom uh had been built out so the timing was perfect i mean i i describe it as like 2017 was like a knock on the door uh so that everybody had time to get all those things together and get their papers done so that when the real train departure was coming three years later everyone had every all their stuff in order so that's where we are right now all the bags have been packed all the passports have been stamped and we are ready to go so it's a i think it was very lucky that you know we had exactly three years time to prepare everything and that's i think that's you know exactly what we needed so the timing is just you know like a godsend i think so you think the primary value

proposition of bitcoin right now um is store value so if you look at how miners are compensated for keeping the network secure the mining reward is actually going down and down and down so in the end basically the only fees that will go to miners who in effect keep the net network secure will be from transaction fees right and so how does how is this commensurate with them this store value hypothesis that's always like the the one question that uh sort of puts a name like it's i think that it's probably the best argument or one of the the the most difficult arguments to tackle

as a bitcoin like what are we going to do like are the uh incentives to uh secure the network going to be strong enough when we rely on these volatile transaction fees and as we've seen you know transaction fees can sometimes be very high when there's a lot of load on the network and then they can be like drastically they can be like one percent or even less of that when you know it's not like a linear function like you you increase the load by uh 50 then transaction fees don't necessarily increase 50 they can increase 5000 right so it's this sort of unstable dynamic and building a security for the system based on that very unstable incentive uh yeah i mean that's uh that is a a problem right

so the way that i see it it's going to take a number of years uh decades even before the block reward becomes so small that it's going to be a problem and it's i think it's very difficult to start to sort of uh it's it's very difficult to have a conversation right now about how are we going to tackle the problems that we're going to face several decades from now i think that you know we are still in a phase where this problem is getting better understood and more studied and the technological solutions that you could possibly design to address that problem they are also still

not i mean i don't think that we have a clear answer on what the best answer is yet but i think that uh you know somebody explained it that the bitcoin is a bet on human ingenuity uh so it is in one way a bet that we have the brainpower within the cryptocurrency community to eventually address even problems like this and i think that you know 10 years from i mean who knows what type of solutions that we could come up with to address this problem i think that uh for instance if you look at the ethereum they they've just uh there will they have one method of addressing the this problem which

is called the ethereum improvement proposal 1559 it's a way that harmonizes transaction fees over time so i think that you know we have still have so much to learn an experimentation that can be done in terms of how consensus networks both handle fees and how they secure themselves over time so i think that it's perhaps premature to say that oh we're never going to find a solution to this problem i think that we will almost definitely find a solution to this problem and even and i'll say something that sounds perhaps not very uh kosher to what other bitcoiners find to be kosher but i mean let's say okay let's say that uh bitcoin you we weren't able to secure

bitcoin on transaction fees low alone and we need let's say a one percent inflation rate in bitcoin let's say that that's what we need and let's say that all the bitcoiners they refuse to to this would be a hard fork in the protocol it would be a new currency let's say that all the bitcoiners they refuse to get onboarded onto this fork because it would extend the bitcoin supply beyond 21 million and that's the cap that everyone you know loves so much but you know somebody can still take the bitcoin utxo set and they can secure the bitcoin utxo set under any type of mechanism any type of consensus mechanism that you want so for instance you could secure bitcoin using

a very small inflation that could be one way to do it uh you could secure bitcoin by using let's say a highly distributed federated chain that just sign science transactions on a trusted basis where you just trust them to to act in the best in the best manner for the network uh you could uh potentially do something like ethereum is doing where you're securing bitcoin under proof of stake and you you allow a sufficient portion of transaction fees to be burnt over time so that the inflation rate in the system still nets out to plus minus zero and that's how you would still have the cap limited to 21 million and and you know we are so still so early and trying to figure out this

the the solutions to these problems i've listed three different options and i'm just some guy and i let's see who can come up with better solutions 10 years or 20 years from now right that is super interesting and i love the answer here i agree if you there are going to be many solutions and you know you mentioned a bunch and i think they're all you know they all sound pretty plausible but the big issue is you know if you think back to the block size debate and of course for people who've been in bitcoin probably newer people don't remember this much but for years that was the thing that dominated like what you know the bitcoin discussions and there was such

such controversies around it and it was really about a very simple parameter change to say basically oh do we want to stick with a one megabyte block size or go to something higher and you know what we saw was just an inability to come to some agreement about how to change things and of course there is a big benefit to that because if it doesn't change thing you know you can rely on this right you don't have to worry about bitcoin kind of changing in these unexpected ways and you know that's a benefit in some ways over something like ethereum but then at the same time i think if all of the solutions you propose they are much more radical changes right

than a block size change and i think as bitcoin actually gets more adopted and more dispersed and you know more people hold it in different ways that maybe have also less connection to how does the system actually work i think it will just become harder to make those changes so but to go back to that block size i mean we have to also keep in mind that something did happen right we did increase the block size segwit was a block size increase so it's we had this block size debate edit but it actually ended with bitcoin increasing the block size so something did happen so we we didn't increase the block size

by eight megabytes or more than that and we didn't come to agreement on how to increase the block size for the future but at least we we did something right and i think that um all it's going to take like uh in in the block size debate it was still like people understood i mean the block size debate started in and he started to heat up in 2015 in 2016 but the transaction fees were still pretty low then it was only in 2017 where the transaction fees reached uh like 20 dollars that were at its peak and that was uh so that was not the climate that the block size debate had been discussed in by that point in time we had already

deployed uh segregated witness right so i think that if we are in an environment where the there's a lot more urgency i mean it's just going to take that someone when we are reaching a point where the subsidies or the block awards are getting scaringly low people are going to analyze the hell out of this and some university or trusted academic institution is going to come out with very convincing evidence that in three years time we're going to have an unstable dynamic and some people will say that's fud and then you know one and a half year down the line it's gonna we're gonna start to see the effects of of that happening

and it's just gonna take you know i i still believe that the most of the bitcoin core developers like if they are prevented with hard evidence that this is not going to work then they will say yeah that's not going to work so we have we have a few different options of what to do now either we stay on this chain that has no inflation and we we just hope that the transaction fees are going to resolve themselves like they're gonna gonna secure the network and be stable enough in order for that to be viable if it gets sufficiently bad there's gonna be sufficient urgency for a large portion of people to want to try other alternatives and if they don't want to try that if there are people who stay on a chain that doesn't work then that chain is going to go to zero

and a fork of the system is going to continue living on and the nice thing about it is that all those people that had utxos like all the people that had bitcoin on the fork that died and didn't survive all those people are gonna have bitcoins on the system that does survive so you don't actually have to make a decision you just you can hold your bitcoin doesn't matter which fork of bitcoin even and i'm not saying that we necessarily you know i have to play nice with the bitcoiners that are listening to this podcast i'm not saying that the bitcoin needs the hard fork to survive but let's say it has to survive then you're still going to have bitcoin on whichever fork of it survives even if it has uh inflation or if it is federated or using an ethereum

type of solution where you burn transaction fees to keep the supply intact so yeah i think you know urgency is going to be the the key here and whatever happens those who own bitcoin are going to own bitcoin under surviving solution i think that's a completely fair point to make um so the other big tribe in this ecosystem are the ethereans so you are somewhat of a rare breed and that you are not a big bitcoin maximalist or an ethereal maximalist you live somewhere in between so what to use the value proposition of eth when bitcoin is store value yeah i think um the value proposition of ether

uh has gotten pretty clear this year for me it's always been very difficult to talk about ethereum because uh most of my uh community friends they are bitcoiners and they see they cannot they'll they're never they're they're never going to shake the idea that ethereum is this scam it's vitalik's pre-mind scam and he was doing uh fake quantum computers before and uh ethereum is full filled with bugs and uh everybody's just gonna lose their money and you know so it's it's i i do see you know a value in ethereum as a platform but it's hard for me to talk about that

so i didn't do it it took a long time before i was until i said it you know i'm just gonna say what i think in this regard uh so while i wasn't you know public about it on twitter if when i spoke to my people that i was speaking to in real life and i was speaking to my bosses and i wrote an email to my uh to the ceo of synod in in uh end of 2018 where i was describing uh what d5 was going to be like and this was uh this was shortly uh after i think the d5 word was invented so i in my email i didn't know whether to call it open finance or decentralized

finance because it was so new but the way that i saw it was that all these different uh financial primitives that we see in ethereum today for example you have different ways to to do lending different ways to do leverage different ways to build decentralized exchanges different ways to build stable coins all of those are different components that can interact with each other and they can build uh [Music] exactly like what you would see in when internet when the internet started happening and you could see how people were starting to build on each other's small portions of internet solutions if somebody built a a website you can build build another

website that reads from that website if somebody builds a scripting language that you can use on a web page you can reuse that on another web page so you have this permissionless environment for innovation on the internet and that's what was what allowed it to become successful over time and i think that we are seeing that in ethereum today that you have all these people that are experimenting with different ways to build financial primitives and i think that's exactly what if you want to revolutionize finance not just create the store value asset if you actually want to revolutionize finance and then i'm talking about the exchange business and the clearing businesses and the settlement networks if you want to impact that in a

way that is transformative in the same way that the internet has been transformative for how we produce read and view content then a network like ethereum is exactly the type of network that you would want i mean and if we look at what's happening in the ethereum environment today i mean you are we are seeing that in innovation happening we are seeing things developing so quickly that it's impossible for a human being to keep track of it and what i think what most bitcoiners do is that they get lost by looking at the the failures that happens in ethereum they look at the the d5 hacks but why don't you look at the examples that are successful why don't you look

at the examples where you have composability between different smart contracts i mean many bitcoiners they like to do like funny uh speculative things on exchanges like bit mics they like to go 10x long leverage so they like to trade with options on there a bit and what's so nice about ethereum is that it doesn't have to be like you can view ethereum as one large exchange but any builder can come in and start to build their own specific individual component so for instance you can build a there are some people that are only focusing on building flash loans in ethereum that would be like the equivalent of you would have a whole company working inside of bitmex

to build one specific function inside of that platform the and those that company in the ethereum version of this i mean they don't have to shake the hands with bitmex to get the chance to build this component and once the component is built everybody else can leverage that component and the market will sort of decide which flash loan component is the best flashlight like which one pays the lowest fees so you have a marketplace of ideas where the best ones will survive of course we're going to see hundreds and thousands of them that weren't well designed fail on the way while we find the the good components that will survive

and then we'll have good components that can interact with each other and it's going to be you know if you you can and you can get this experience today like you can you can uh use ethereum today and you can play around like if you can play around with the different uh defy tools like you can use leverage you can uh swap your assets to a stablecoin you can use that stablecoin as as collateral for another leverage position you can play around with all these different things and when you're doing that and you're only using like your metamask plugin in your browser you don't have to sign up with each new different like you just go to a website and then you execute a new financial product i think that once you play around with that and

realize like how open and free finance could be then it's i i don't know what kind of person you need to be to to make the argument that no all financial innovation is going to happen inside of single centralized companies and and that's the best way to i mean if you if that's the way that you think then i don't think that you have understood anything about you know what drives innovation and how much permissionlessness is a factor in creating innovation cool i think that was a great uh a great explanation of sort of ethereum and i think both federico and i certainly agree with you what about ethereum as you know as an asset i mean you've talked about how

you see bitcoin being on the track of becoming this like asset that's accepted in mainstream finance and you know so far we've seen various of these investors go in and i think in general they've always talked about bitcoin and adopting bitcoin do you think like how do you think ethereum is going to kind of get adopted in mainstream finance and what about you know the all of the other crypto assets that's an interesting question because i i do often play it safe when i talk about ethereum i talk about it as this permissionless open network technology and sometimes i even say you know that ethereum is a side chain to bitcoin and its main utility is that you can now use

trust minimized bitcoin derivatives to engage in all this funny stuff that we've kept out of bitcoin and i don't i often don't take on any like reputational risk by talking about what i think about the ethereum asset in particular but i can i can do that uh now i think that i'm shedding my skin and i'm at a place now where i feel comfortable to express my own ideas and i think that you know personally for me if i have to choose a cryptocurrency asset i am sold on that concept that having predictability on the monetary policy is what's going to be most important for one of these assets to be successful in the long term i think we are still as a humanity we

are still uh having like these ownerless digital assets i think that building a structure that makes it predictable that's the only way that you where you're gonna look at the digital asset and think of it as a real thing and not just something wishy-washy cyber cyberspace you know something that can change and if you want to store value in something you want that predictability so if i have to choose if i have to choose something i still choose bitcoin uh as the asset of my preference but as an investor i can't only bet on you know what i think i have to make bets on what i think that other people will think that's what investing is all about it's all about understanding how other people will look

at this asset and from that lens i do think that it's looking bright for ethereum because uh while many bitcoiners disagree that bitcoin has a negative environmental footprint uh because you know we often talk about how bitcoin is revolutionizing green energy and how it's seeking out the most uh energy sources that have been trapped and uh that it's actually much more lucrative for miners to be using renewable sources of energy i think that that's a complex argument and i think that ethereum if they can successfully deploy proof of stake which many bitcoiners don't think that they can and i definitely think that they do can do that then i think it's going to be appealing to a large portion of

investors when you say we don't burn any electricity we just lock up our liquidity and come to consensus that way and they're going to say wow that's so smart like so you don't burn a whole country worth of electricity on securing the network but you are as secure because if somebody doubles if somebody creates a conflicting block in ethereum the amount of capital that the violating party gets slashed is more in proof of stake than it is in proof of work then uh they're gonna say you know wow uh how come bitcoiners didn't figure this out so i think this environmentally and especially where we are going in terms of the environment like if you just put the environmentally friendly label on any product there's that's going to be appealing to

a large portion of investors and i think what uh like it's very interesting what the ethereum uh is doing now with the eip 1595 where a portion of the transaction fees will be burned and that's perhaps going to make ethereum be even more like if bitcoin is always obsessed about this stock to flow ratio right uh that the the units that get minted in relation to what this total supply is needs to be as small as possible and the asset with the lowest stock to flow uh is going to be the asset that everyone will store their value in well i think that ethereum might get a higher stock to flow higher because the stock

in relation to the flow and the stock of flow needs to be high i think that ethereum will have a higher stock to flow than bitcoin and so if you say that we have a network that doesn't have any environmental impact and we have a lower we have a higher stock to flow so the asset is more scarce i just think that uh that's going to be appealing to a large portion of investors and especially like there are other metrics that you can look at as well like which network is settling the highest number of billion dollars in transaction volume on the network and if that's going to be ethereum because they are settling all the stable coins and they are doing their exchange settlements on chain instead of off chain which in the way that bitcoin is

doing it then people are going to look at like bitcoin ethereum they're doing more transactions in the network they're transferring larger amounts they are environmentally friendly and and there are also other things that ethereum can do extremely well for for example building privacy solutions within the protocol so that you can send around an ether or a stable coin where the sender is the receiver and the amount has been anonymized by zero knowledge proofs you can do that in ethereum too so i i think that there are a number of different reasons why i can see that investors would look at ethereum and they would pretty much look at it the same way that you know bitcoiners think that mainstream investors look at gold and

bitcoin so here's one asset uh here's another asset this one does a lot of things better and it's cheaper so obviously i should have a position in that one because if it reaches the valuation of the previous one which is should because it's more secure it's faster it's doing more transaction volumes and that's a less of an environmental footprint i mean that's why i think that's the investment thesis for ethereum for me and that doesn't mean you know that i necessarily think that the loose monetary policy or whatever is the or a flexible base layer that is prone to bugs is the best way to build a monetary system but you know i have to bet on what i think that other investors will do and i think that other investors for a long time will will see ethereum in the same way that

ethereums see ethereum i'm not saying all of them will so i think that the you know i'm still major primarily i'm optimistic about bitcoin but the the factors that play in favor of ethereum are so large that i think it's a good investment and you can't have 100 of your net worth in bitcoin right it's you got to put some you got to take at least 10 or 20 and put it in something else and i think that ethereum is excellent as one of those other things that you can that you can have in your portfolio another way that um the bitcoin and ethereum communities um differ from one another is um the bitcoin community's almost categorical rejection of all things token

right where do you think that stems from and um why do you think freno from from my very ethereum biased eyes it feels very stubborn because token economics you know they work you know at least i mean i'm not going to say that every token design is a good token design but i'm going to say that there's many things you can do with token that you can't do without so this almost categorical rejection of tokens seems weird to me can you explain that i think i agree with you in 2000 in the beginning of 2020 a lot of people were making forecasts for the year

and i only made i only made one forecast and my forecast was that we would see governance tokens come back uh these dividend earning uh governance tokens that we see now in in a lot of these platforms like compound uni avi that type of governance token i mean it's not uh it has a lot of issues but i think that genuinely why is the stock market so large it's because people want to own equities of successful successful businesses and that's exactly like of course that's going to be happening in the ethereum landscape as well actually it was a a bit of a shock to me because i was one of those hardline bitcoiners that

had also become very negative towards every different type of funny talk like all the different tokens on ethereum what was the purpose of all those things but i think that the these new types of tokens that you have on ethereum today they are very different from the the tokens that we saw in 2017 in 2017 the type of tokens that people were launching were basically like i have a service that runs on ethereum and in order to use the service you have to pay me in a specific currency it's like why why can't i just pay you in ether or you know why why do i need to pay you in this shitty illiquid volatile token and i think that and then there were a few other tokens like uh some of them were like just

upfront breaking securities law so i think that bitcoiners saw all these failed token experiments and came to the conclusion that you know we have seen hundreds and thousands of different token experiments all of them have been embarrassingly poorly designed and failed in number of embarrassing ways and i think that now it's 2020 and we have governance tokens now that are more equity resembling and actually can actually benefit some decentralized protocols because they have voting rights and they take away some of the control from the central operator like if you have if you need to have an admin key and a smart contract you can distribute the control to a number of token holders and they can vote on changes that need to be uh implemented into the smart contracts

i mean that's generally like a good thing it's an improvement of the uh centralized alternative and it at least creates a modicum of decentralization in many of these financial stuff that you have on ethereum but i think that you know being a bitcoiner is hard if you have been a bitcoiner for many years you are constantly getting attacked like people are uh always like the mainstream media is always coming out everyone like using misinformation to slander bitcoin all the time the old coin industry is also fighting with bitcoin by talking about how uh bitcoin is slow and that there is no reason for a cryptocurrency to to be doing only six transactions per second and like

oh bitcoin is is such a hostile environment you're getting attacked from all different fronts and i think in order to survive in this climate for a long time you build this sort of immune system like it's a shell that you build around yourself where you have the same answers to everything like so in order to not get lost in the weeds with all these people that want to distract you distract you from working on bitcoin you just have this immune system where you shut everyone down as soon as they say something you say well you're a scammer and that's a that doesn't work and i think like for those people that have limited time like not everybody has the privilege that i have like my job is literally

to look at different token constructions and scalability solutions and privacy like i have time to look into all that stuff but if you are like a normal person you want to get into cryptocurrency you you you learn bitcoin and then as soon as you step out of bitcoin you get eaten by wolves right and you learn that like you that happens to you for for a lot of people that try to do something out of bitcoin they do get wrecked it happens a lot so then they build this it's like a survival instinct like you have to come up with a solution like how can i be a bitcoiner and how can i survive in this climate and that's why i think that they are the way that they are and i think it's just a it's a time constraint it's they don't have time to meet every

argument all the time but that of course yeah it does lead them to miss general genuinely useful things that's why i always get into arguments with bitcoiners like for instance when roll up technology was new that's a specific layer two type of scalability solution that works on ethereum and frankly i think it has a lot of usability advantages over lightning that like now i think that you know perhaps roll-ups are a more interesting short-term scalability solution than lightning can be i cannot talk about that with bitcoiners because it comes from ethereum so it needs to be a scam right so yeah this it's an immune system it does cause some problems that's how i that's how i summarize the situation

yeah that makes sense and i think it it's definitely you know when i speak with people who are like not so much in the crypto space and then they come in and you know they interest in different tokens then it it often just shows like how hard it is to assess like the quality of a project if you're not really deep in the industry and of course it's very true that there's just so many bad projects that have very very high market caps and so i think from that perspective it makes a lot of sense what you're saying and i think actually it's just saying like oh yeah let's put 80 like i don't know 80 in bitcoin 20 and ether or something it's probably a great strategy for like you know

98 of people who don't want to actually spend the time and like go deep right yeah so we talked a bit about you know this bull market and you've spoken about you know first of all this infrastructure that has gotten built out you know after the 2017 market that's now here with you know custodians and a lot of these other types of service providers and you've talked about the macro environment you know what else is different in this bull market i think the for for a person that really wants to understand how the uh bitcoin or and cryptocurrency landscape

has evolved i think that uh there are two articles that i that i can recommend that's really good reading and the the first one is by nick carter where he talks about uh nine different bitcoin charts that are already at their all-time highs the second one is by arjun balagi uh where he talks about how the uh market infrastructure has changed i think those two pieces together they they overlapped pretty well but they gave you sort of a cohesive picture of how things have transformed in the in the industry if you look at for institution for what it's like for an institutional investor to get exposure to

cryptocurrencies as an asset class today so for instance i can i can name some of the takeaways that i personally found was very useful uh if you look at the liquidity of cryptocurrencies uh as an instrument in bitcoin in particular if you went to an otc dealer in 2017 these spreads were between 50 and 200 basis points and now three years later it's decreased from that to between 5 and 20 20 basis points so it's basically an order of magnitude tighter spreads and for institutional investors tight spreads that's like that's their bread and butter that's what they want and the reason why that has happened has to do with a

number of different things for instance one major thing that has happened in the industry that we didn't have before are lending institutions so now you can loan both retail both retail investors and institutional investors can loan bitcoin um which they couldn't before in 2017 there was basically no lending at all available and now it's a three billion dollar like it's a massive industry right now you also have to make a cryptocurrency transaction can be quite tricky uh sometimes in terms of the security like if you want to sign if if you want to execute a bitcoin transaction on the mainnet if you are like you cannot if you're an institution you cannot just do it from

a laptop you can't just sign a transaction on that laptop because then that person would have the power to send that transaction where wherever he wants and most like multi-signature solutions that you can use have before been too clunky too untested to use nowadays you have solutions where you can use like multi-party computation solutions that aggregate signatures in a in using very nice trader suitable workflows so that you can sign on-chain transactions in institutional caliber capacity uh so it's uh like the infrastructure has gotten much more mature in that way and that's also reflected like if you look at the volumes that we're seeing in

different bitcoin products you can look at the options market in 2017 we barely had an options market for bitcoin now it's a it's a booming market it's uh it's getting very large a few the futures market which was uh uh spot traditionally is what the spot market has been the main one the driving one in in in the bitcoin industry but now three years later it's actually the futures market that's the largest market in that's trading the largest amount of volumes in in the cryptocurrency industry and that has to do with the fact that there are more professionalized players trading these markets now the chicago mercantile exchange that

everyone was expecting in 2017 to bring the institutions into bitcoin that didn't really happen like in 2017 barely anything happened when they launched but now uh spot volumes in the retail market are still far away from their all-time highs it's still like if you look at the how much uh volumes the retail people are doing on the stock markets now when we are approaching the all-time high it's still uh a bit away from where we were in 2017 but meanwhile if you look at the institutional platforms like the cme then we are already at all-time high uh volumes there so it's while the retail market has sort of been lagging a little bit the

institutions have sort of come in and the retail market haven't really i i think it's kind of funny like the way it happened in 2017 where the retail market was trying to front from the institutional investors and the only thing that they got was this big collapse where bitcoin crashed from twenty thousand dollars to three thousand dollars and then the institutions really did come in successfully slowly before anybody noticed it and now we're back at two twenty thousand dollars and now it's the retailers that are like oh where's my bitcoin did i have some did i did i sell at the bottom in 2018 so like they tried to beat to wall street and i think that for a lot of retail investors they kind of failed at doing that so that's a

bit sad i suppose to see yeah but we can we can go now through a number of other different things that have changed i think one of the one i think one of the things that i want to uh make sure that i mention is that bitcoin used to be the uh main trading pair to all other types of cryptocurrency assets so if you had litecoin uh it would have made the majority of its volume in uh in a litecoin bitcoin trading pair but now uh the largest trading pairs on all exchanges in terms of volume are stable point denominated so instead of instead of bitcoin being the central asset to all these other cryptocurrencies you now have stable

coins like tether usdt that is now the centerpiece to all these cryptocurrency markets so that's uh also very interesting to see i think that was bound to happen i mean you cannot have all these other assets priced in yet another volatile asset you need i mean the dollar for what it's worth i mean it's still the most stable one uh in terms of volatility so that was bound to happen but it's still like a major shift in how this industry works and and how it operates uh yeah i have a like a long list of other examples i don't know maybe it will get too boring to go through all of them well one thing i would love to ask you about and you you brought this up right which was

uh you know the enormous retail interest we saw in 2017-18 and how how do you think that's gonna play out so first so or let me let me step back a little bit how do you think this bull market overall is going to play out because the last time right we had this uh insane fervor crazy exuberance it went up like a rocket and then down like a rocket and then it was kind of dead for a while and of course it was very retail driven so how you know how long do you think this bull market is going to be what is going to end this bull market and when is

when are retail investors going to come in and in what way yeah i think those two questions are heavily in interlinked i think that the bull market is going to end the moment when the retail interest sort of climaxes in the in exactly the same way as it did the last time uh but i i think that the meanwhile the institutional interest is building up for bitcoin and bitcoin is appreciating in value right now it's mostly institutions driving this but that's going to drive in the retail investors as well so i think that for the for the short term or midterm we're going to see retail investors and institutional

investors driving up the price of bitcoin sort of in parallel with each other in a like a joint force and but i do think that it's impossible with an asset like bitcoin to avoid the phenomenon where speculation and fervor gets the better of the the retail investor so i think it might take longer this time to to reach the peak because we might have this nick carter described it in a nice way i think he called it instead instead of having a melt up we have this sort of slow burn so that can could go on for for a longer time where bitcoin just keeps growing and growing but i

i personally do think that once bitcoin crosses the all-time high which is going to happen pretty soon bitcoin is going to come back into the mainstream press the retail uh people who dismissed bitcoin and i think even though that there were a lot of people who got attracted and and actually bought cryptocurrencies in 2017 they were an even larger portion of people who looked at it and said that's a bubble and i'm not gonna buy any but the way that this the the psychology of of uh the markets uh and in bitcoin in particular works is that yeah it's it's it's uh it's easy to dismiss something the first

time that you see it like you you never heard about it before it's it's gone up two thousand percent in a year uh you don't understand how it works it's probably a scam warren buffett is saying that it's rat poison uh bill gates is saying that he would short it if he could uh like all these people that you turn to are looking skeptical about it uh so it was it was a easy decision to make that bitcoin was a scam in 2017 and i thought i think that that's generally how most retail investors a much larger larger portion of those who actually bought it i think really rejected it but when it comes back like a second time now and now it's coming back with

all these endorsements from like people that you would never have believed with endorsed bitcoin like uh stanley druckenmiller is the uh viewed as some like the greatest investor of all time it has that type of endorsement and blackrock that is saying that it's it's going to compete and start to out compete gold i think that with that type of endorsement when it comes back at you and these retail investors that just wrote it off as as nothing when they see it coming back they're gonna understand that okay i was wrong to dismiss this the first time because if i was right then it wouldn't be coming back like most financial bubbles they don't pop in your face and then they they swell to the same exact same size again if that happens that's a that's the best

way that you can convince somebody that they made a incorrect assessment of what it actually is so i think that the the retail investors they are gonna come back and they're gonna come back in large numbers and what's inevitably going to happen when that happens is that uh i mean retail investors they are still so skittish when it comes to holding an asset that they don't they can't see and they can't touch so uh i do think that we're going to have a big run up and we're going to have a very tragic collapse at some point and i mean that's just the nature of bitcoin i bitcoin always crashes it's going to crash again even though we're going to land much softer on a

higher level this time because there are institutions that can do a fundamental valuation of bitcoin and really make the assessment that no bitcoin shouldn't be worth less than five percent of gold and if they make that assessment then you know bitcoin shouldn't be trading under twenty thousand dollars so they're going to be buyers under twenty thousand dollars so we have like a price floor now which which is gonna at the end of this bull run we're gonna have a price floor that is going to be much more robust because there are serious allocators behind the asset class now but we're still going to have that same type of over speculation and hysteria could even become bigger this time so like

i don't want to give price points like where i exactly see this happening and i don't want to give time frames either but yeah that's my general sentiment that uh it's it's it's gonna happen again but uh if you just hold you you're gonna be better off than you were last time do you think volatility is the biggest risk um facing the crypto industry right now or do you see something else no i personally i don't see volatility as a risk at all it's just the growing pains like it's having acne when you're a teenager right it's uncomfortable it looks weird but it's not necessarily a bad thing like everybody goes through that every ass class in the world that wants to go from zero dollars to

a hundred trillion dollars needs to be volume like how could you how could the asset not be volatile during that time if there is no uh if it isn't easy for a normal person to do the valuation the most obvious risk is the same one that uh are still keeping a lot of people on the sidelines and i think perhaps ray dalio is the best example uh who's a person that bitcoiners believe like he would be the ideal person to understand bitcoin because he has the right type of understanding for gold and for financial markets and he completely understands how the central banking regimes leads to financial bubbles and unsustainability so why can't he like why isn't he on our

team and why doesn't he understand bitcoin and that has to do with that he doesn't he can't envision a future where bitcoin would be allowed uh into the financial mainstream that the governments would come in as soon as bitcoin becomes sufficiently large to be a real threat and they would ban it they can they have different ways to do that they can they can make it extremely cumbersome to to use uh through taxation uh they can also do it the way that's looking more likely that they're going to do it now which which is by imposing kyc on centralized exchanges and making sure that they cannot withdraw bitcoin to a wallet that hasn't previously been uh approved and whitelisted by the exchange that they

know the name and the user of that that wallet so they can try to to destroy the privacy of bitcoin and that would be a way for them i suppose to co-opt the system because if you remove privacy from bitcoin you also remove its security because you would have at the end of it you would have a network that would be much more where the gates would be much more closed the network would be more permissioned and if everybody stays in these uh exchanges and they don't see any point of withdrawing to a wallet where the government can still track you then they can start to do other things like they can introduce fractional reserve banking on these uh exchanges so that they wouldn't be fully

collateralized by actual bitcoins in the exchange and then you know we're just coming back to this same exact same type of financial infrastructure that we have today so i think personally i don't think that that it's going to happen i don't think that the i think personally that the bitcoin is too hard to stop and even though that you can successfully stop it in one country i don't think that you can stop it in every country and if you cannot stop it in every country the only thing that you are doing when you're trying to fight bitcoin is you're shutting yourself out you're shutting your own population out from bitcoin while other people in other countries are getting to to benefit from the value appreciation

while your own population doesn't benefit from that and it's going to make your own population poorer while the other people get become richer so i think that when governments realize that that they're only shutting themselves out by by trying to fight this thing that's when they're gonna stop trying to fight it then start trying to win on being bitcoin optimistic so but i i wouldn't say that i know that this is for sure like that bitcoin is gonna going to beat the governments for sure i think that if i had to come up with one big risk that could disrupt this whole industry i would say that the biggest risk is that the g20 gets together and puts out extremely adverse

regulation for all types of cryptocurrency assets that would be the worst thing it could definitely happen and i think that that's just one of the risks with our industry right yeah absolutely well let's let me ask one last question so let's say all your bitcoin dreams come true and you know bitcoin is like wildly successful and you know you're looking kind of let's say 15 20 years in the future if you think of kind of like your average person let's say where you live in in sweden what do you think the biggest change is going to be because of that like in their in your in their life and in their

own reality i think that the absolutely largest change for an average person is their whole mindset when it comes to how they deal with their finances because right now if you have money in your bank account and it's starting to reach a point where you don't want to see this portion of cash get swallowed by inflation and i mean i i personally do not feel comfortable leaving let's say a hundred thousand or one million swedish kroner on a bank account i i don't feel comfortable doing that because i know that it deteriorates in value over time and these the inflation that we have it is still like substantially large that it is a problem uh that you would

be stupid not to invest in other things so most people today they know they feel the urgency to invest their capital in the stock market or buy real estate so those are the three things that people do with their capital i would say primarily uh buying index funds or buying a house but if bitcoin if we reach this ideal scenario where bitcoin becomes a universal hard money where the supply is fixed then you're not going to see a depreciation of your wealth over time you are actually going to see appreciation of wealth over time just by holding on in bitcoin so then you won't have to

allocate your capital you won't have to lock up all your capital in a house for your entire adulthood and you don't have to have these scary real estate loans that make you sleep with fear every night that the housing market is going to collapse and you're going to go broke from that and you're not going to i think that it will create a much less nervous climate for people in terms of how they manage their wealth and i think it's going to deflate some of these unsustainable asset bubbles that we have in the stock market and it's going to going to return a lot of assets to their sort of rational pricing so the house could for

instance be priced by the utility value of the house like what do you actually want to pay to live in a house and not how much of capital do you want to deploy to your mortgage because that's a good way to to deploy capital so it's going to deflate a lot of asset bubbles it's and it's going to decrease stress i think for a lot of people and i think that if you if you're if you don't have to have your capital locked up in loans or in the stock market and it could be like your capital could actually be the same currency that you have in your uh account then i think you you a lot a lot of people are scared about that bitcoin is going to lead to this environment where nobody spends their cash and the whole economy is going to collapse

i think that the easiest way to get people to spend is to allow them to have cash in their wallets i mean now we force people to to deploy the capital to large assets where they are locked away and people don't touch them forever but if they still have if they instead have just bitcoin and that's where the value is aggregated then i think that they're going to have no problem yes i can pay a little bit more for this coffee look at how much bitcoin i have here in this world than they and i think that it's it's it's going to create positive effects for for commerce and of course there's going to be major consequences also on a national level between how countries can settle debts and these these currency wars that we are now

seeing between so many countries where they are playing around with their monetary policy as a type of a war mechanism almost i think that's if we can get away from that that's also going to be usually beneficial perhaps that's going to be an even bigger uh have a bigger bigger impact on the world uh but it's it's a bit more difficult to ration to reason about how exactly that would look like oh well thanks so much it was a pleasure that i really enjoyed to hear your view about bitcoin and ethereum and i think so many interesting points so thanks so much and i'm excited to kind of like follow along your thoughts and this uh encrypt the future ahead of us thanks so much for having me it was a pleasure thank you for joining us on this week's

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