Is Robinhood's Tokenized AMC Stock Actually Illegal?

Transcript

We're not going to see rate hikes. Kevin Worsh is talking like a hawk, but he's a dove. Two, we got productivity growth bailout coming from AI. That's going to save the day. We are in this disinflationary period with these temporaries price shocks due due to geopolitical concerns. Energy production's been higher than ever and it's going to continue to go up. Three, the AI buildout itself is inflationary. It's contributing like a point and a half to GDP. So that is part of the cost of this buildout. They're not going to get down to the 2% inflation target for at least a few years. That means that you should be owning assets that repric in nominal terms, especially equities that are indexed to the data center theme. Hey [music] everyone, welcome to Bits and BIPS, where we explore how

crypto and macro collide one basis point at a time. Today is Monday, September 7th, Labor Day, here in the United States, and we're still here to discuss the latest stories in the worlds of crypto and macros. So, before we begin, a quick commercial break. >> This episode is brought to you by 1-in Aqua, the shared liquidity layer from 1 in. Back multiple liquidity positions with one wallet balance and keep your tokens in your wallet until a swap fills. See how it works at 1inch.com/aqua.

>> All right, everybody. As always, I'm your host Austin Campbell, high scholar of Zero Knowledge Group. I'm here with Chris Perkins, the golden hand of Franklin Crypto. And Chris, today we're going to start with a fight. So over the weekend, AMC CEO Adam Aaron went after Robin Hood's tokenized AMC shares issued out of Jersey by Robin Hood Assets, calling them quote contemptable, outrageous disgusting detestable inexcusable, vile. He said AMC has no connection to it and does not condone it. Vlad Tennib's entire reply was, "What's the concern?" And Aaron's answer

was eight paragraphs in a demand that Robin Hood voluntarily cease and deiss. It was misspelled desist. Um with Robin Hood CLO Dan Gallagher, notably former SEC saying, "Send your lawyers and we'll educate them." Tenev in the same minute said, "We stand behind stock tokens." Now, weirdly, AMC stock jumped nearly 21% overnight to $3.7 on this fight according to the block.

And I think where to start is what is a stock token? So, in this case, tokenized debt securities issued by Robin Hood assets expose people to the share price, not the ownership, not the shareholder rights. They are unregistered in the US. They are not offered to US persons. So the substantive charge that synthetic equity decouples stock token ownership and a company having an ability to control its own capital raising efforts and that it sews distrust in markets generally. But the flip side is there's 13.4 billion of these things. to have some sort of price token like this,

you're either creating a derivative, which Robin Hood did not really do here, or having the reverse of what is called an ADR, that is to say, you have stocks that are backing this token, which you pass the price reference on for. So, previously, um, Open AAI had disavowed Robin Hood's tokens in July 2025, but this to me is a little bit different. OpenAI is not a public company. These are not publicly tradable. That is private stock. Often you need issuer permission for transfers in private stock in a way you do not with public stock. So while this fight has happened once before, it was not the exact same fight. So before we get into

the rest of what is going on in this space and how as always memecoins somehow get themselves involved, I want to start here with a first question for you Chris. You have a lot of thoughts on tokenization. You have been involved in this space for a while. What do you make of this dispute between AMC and Robin Hood? Is there a real disagreement here? Is this people not being informed? Like what are you seeing? >> I mean, there's so much going on right now where you're seeing um innovation, creativity. I'm sure we're going to talk about some of the uh the memecoin stuff pairings that are also going on on Robin Hood chain which are very hard to discuss at work because of the names involved.

But but gosh um I haven't seen this type of innovation and creativity like for for decades uh post global financial crisis. Um I I totally understand the challenges but like you know you were at Wall Street, I was on Wall Street. Synthetic products are a thing like they're everywhere. Um, and I think the challenge here, you know, did Robin Hood do anything illegal? I think it's very clear that they've done their homework if you listen to their general counsel. The second question is is okay, like why is there conflict here? Well, if you're a CEO, you would love for someone to buy your equity um rather than uh because like capital markets, US capital markets are where they are today because it's a

place for capital formation if you're a company. [snorts] And so they're making the principles argument saying, "Wait a second. This isn't right. This isn't fair because you're undermining the principles of capital formation." And and frankly, that's one of the things, one of the the core uh goals of the SEC to ensure that capital formation um is is is is available um and and thoughtfully takes place here in the United States. And so that's the conflict is like, hey, you're messing with my capital formation, but again, like you go to a Delta 1 desk on Wall Street, like there's constantly structures, there's constantly synthetic capabilities.

Oftent times those synthetic capabilities, you know, we're probably going to talk about Coinbase single stock futures as well. And futures have also struggled over the years for a number of reasons we can talk about, but but futures and spot assets generally um are actually helping each other. I'm a little bit surprised that um there isn't more coordination. I I I would think in the future you're going to see um companies like right now it's conflictual, right? Uh where AMC and and Robin Hood are fighting with each other. I think the next generation of this are real companies working closely with these mass distributors and really finding ways to to distribute true

tokenized equities for capital formation. You know, right now everyone's like every man for himself, but I think in the future you're going to see more partnerships being formed and that's where the real value is going to take place. What do you guys think? Oh, there's Rob. >> Great. Happy happy Labor Day. In our family, we call it happy capitalism day. Let's go innovation. Let's go American enterprise. Let's go productivity growth technology. >> A few things. >> One, capital formation is is critical. >> Derivatives don't create capital formation. It's risk transfer. Uh derivatives play an incredibly important role. Like you go back to the original use cases, the farmer planning for the harvest. They've got uncertainty on the price when they deliver to the market

versus all the cost, time, labor they put into it. And Doritos played a very important role in that risk transfer. That's win-win for everybody. That helps Coca-Cola, helps McDonald's manage cattle prices, sugar inputs, helps the end consumer manage inflation. Same story is true for oil. Now, where we're going now is like just it's just too much. Now it's like derivatives for the sake of derivatives. Derivatives properly conceived solve real world problems. And that's where we need to stay focused. We had a guest on last week talking about derivative contracts on poly market and ice cream sellers hedging their risk. That's not going to happen. It's not going to happen. It's it's just too much.

So that's one space. The second on the mechanics, Robin can pull this off. You know, the the other read through behind this is that the SPV and the venture markets are just so massive. It's a it's a capital market unto itself. And if you have an SPV and it's fully collateralized, you can enable liquidity in these securities. Um, you know, derivatives for the sake of derivatives, like I it's like a hammer trying to find a solution. >> But when you say too much, when you say too much, Ron, what do you mean? I mean, you're not putting the genie back in the bottle anytime soon. What do you what's what do you think is going to happen?

And you're right. lack of obvious lack of an obvious principled use case like derivatives like the mortgage back securities market and the creation of principal only strips and interest rate strips like you're phenomenal innovations and you can identify the commercial hedger the creator of the risk and you can see how that risk transfer unlocks value and expands the efficient frontier through these transactions You know, we're talking now about just derivatives and like we've gone on these varying niche use cases where it's an intellectual stretch. It's not obvious.

In the case of the farmer who can't control cattle prices, much less the weather, they're trying to lock in their input costs and the sale costs so they can fix on their margin. And they've got a sound business that's not at risk if there's a bad season. like all that makes a lot of sense. It's good sense. Uh but a you know I think one of the issues we've seen in the digital assets market more generally is VCs have had shiny object syndrome. Now VCs always have shiny object syndrome. It was 3D printing once in a time. It was cannabis another time. It was this and it was that. And sometimes those shiny objects go on to be really powerful things like

the transformation we're seeing with AI or DeFi like we've talked about. But I think in some of these cases like around derivatives more generally um and just speculative use cases that aren't addressing problems. It's I don't have no chair to pull out yet. Yeah. >> Does VCs have VCs have nothing to do with this? Right. This was between AMC which is a public company and Robin Hood is a public company. >> Fair enough. I think the general zeitgeist though, Chris, I think the zeitgeist though is all the same zeitgeist. Like is does Robin Hood building another layer one?

Like they they built it because Stripe Tempo had it. It was a meto copycat quick follow on fast follow response, right? The the legitimate innovation of Robin Hood was zero dollar trades. That was a legit >> I don't know about that. Have you looked at the financials of of Robin Hood chain? They're printing money right now. It was probably the best financial decision they could have ever made. Now, yes, it's full of meme coins we can talk about, but but if you look at the financials, I think I think it's uh I don't have in front of me.

>> I'm sure it's great. Look, Pump Pump Fund >> Pumped Fund prints money too. >> Full disclosure, I'm an indirect exposure in Pumped Fund through six-man ventures, right? So I I c I can you can make one statement around hey >> will this business make good P&L can make another statement around is this just like healthy and sensible for markets consumers and investors like do our finest minds need to focus their time and energy on let me create scalable memecoin infrastructure when we know these meme coins 99.99% are going to go to zero >> or do we get back to expanding ing, small business lending, access to

credit, transparency in our financial system, transparency in the ABS securization market where you get a win-win on both sides. >> To totally totally hear you. Uh we're already at memecoins and we haven't even uh >> we haven't even got through AMC yet. >> I I was going to say speaking of meme coins, um a couple of observations here. My starting one is that I think this reveals how little people understand about markets micro structure in general. So AMC, if you'll remember, is like again a movie theater company that burst onto the scene kind of riding the coattails of GME and thus becoming an investing darling in that same time frame. And they've always had a sort of like the man like

outsider type vibe to them. Fine, I get why they would be arguing here, but you really need to descend into what's going on to make some of these critiques. And I think they largely reveal somebody who does not understand how markets work, which hypothetically maybe some other things have also revealed in this case in the past. But a good example is this. If we look at what Coinbase is doing, Chris, you alluded to this earlier, which is perpetual futures for tokenized US stocks versus call it an actual stockbacked like deposit token that doesn't pass on governance rights or maybe even not dividends and can be traded by people. Those have two

different effects on markets, right? The futures are a funding trade. Maybe they can be used for hedging, but without a party to stand between the futures and the actual price token, right? Or use them in a hedging way. To Rahm's point, this is largely speculation. And what it's revealing to me is unfulfilled demand for US stocks by non US investors. On the other hand, doing the reverse of an ADR is actual demand for capital. you need the underlying AMC shares to do the lock the shares in a box and create a thing off the box. So in that case the critiques of hey we lose control of our like fundraising is like no that's strictly wrong. This actually gives you more people to fund

raise from not less and expands the audience of people who want to buy your stock. So again, I think the micro structure is really important here. And everybody just blitzed past this in the debate in very Twitter fashion to start screaming at each other without like defining their terms. And that sort of stuff is why these debates are so filled with screaming idiots on Twitter. >> Yeah. See, so you're not buying uh AMC equities with voting rights uh through this program, right? I guess Mike and Rom.

>> Well, hold on. Let me let me pause you. Depending on how you structure it, that depends on the you. It may be that Robin Hood is buying those, not passing on the voting rights, and that matters. >> That's right. But but the the purchaser of the token, the AMC token under this regime does not have voting rights. They are not buying equities. We we we're agreeing with that. Um but like if Rahm if they ha if these were true tokenized equities maybe you can make a case that yes that's wonderful because now it's um it's capital formation and but I got to push back the chain gives you that global TAM that global reach and and I I think we just need to separate the two

things. Is it is it the alchemy that that's frustrating you? Is it the fact that maybe it's not clear? I don't know if it is. I'm not a buyer of them. I'm not overseas. like what is it that's that's challenging you on this one? I >> think you're on mute, buddy. >> It's really the the focus the focus of the spirit of innovation, right? It's like uh where is this focus of innovation going? Like there's some problems to solve on enabling international investors to access US markets. Great. That's a oneand done. um you know enabling AMC to get uh shares traded you know that that won't actually create capital that's just secondary market liquidity as we all know it's

primary offerings that create capital so what create you know IPOs venture capital investments private equity investments you know those are things and innovation uh that that I get that I get excited about it's you know like co square 2.0 know like [laughter] we >> these are CEO swear to not >> but it's the it's the intellectual it's the intellectual fascination with the complex >> like when Sequoia invested in Citadel I looked at that it's the same reason why they invested in FTX I remember you know I had a former life doing market making and >> all this stuff and it's like it's

>> like these businesses they have blow up risk like night capital when they had fat finger risk like I don't think VCs truly understand the risks of these business. There's a reason why virtue trades at 10 times earnings and it's account for Citadel for example. That's what I mean by like are this capital is going after exactly what problem are we solving and is it really that big a deal? >> I mean >> so like these structures but these synthetic structures they're all over Wall Street. So is the concern then oh these are not accredited they don't understand what they're doing is that the issue because they go to any delta one desk >> it's like the focus of our brightest talent and entrepreneurs and corporate executives that you know are we solving real problem yeah the wall street you

know the wall street and as you know I mean they they've got netting they're solving real problems right if you are d generating a lot of offshore non-dollar revenue you need a dollar swap to manage your income come volatility. That's like a bonafide problem. They're, you know, these corporate CFOs, they're not like winging it. Unless you're the the blue whale at JP Morgan, that's different, right? But >> I'm talking about synthetic equity exposure, right? This is a case of synthetic equity exposure. >> Where do you draw the lines? Because one guy's a retail guy and he can't, you know, he's not sophisticated enough to know about it. Like that's a specific example here. It's it's synthetic equity exposure.

I think the opportunity set of innovation and the return on that innovation for consumers, small businesses and markets be a lot higher folks in that talent other area. This is this is like a oneanddone innovation for someone. It's like go build it, move on. Great. You enabled international access to US markets. Okay, this is not the transformational concepts that I think got us all excited like for example like DeFi without intermediary like that's that now that's a really interesting concept creating transparency on chain without any counterparty risk or settlement risk. Well, that that's that's really interesting. Now let's you know let's have those kinds of uh of those kinds of conversations. developing the first agency mortgage back security

so community banks could lend in their community and not be constrained by their balance sheet. Instead, they're constrained by the quality of credit worthy opportunities. That's legitimate transformational uh you know internet money uh bitcoin that's transformational concept right this is not at that level. >> Yeah. >> I'll be honest I was in London. >> Well, hold on. I'm not sure I agree with Rob on this. I think >> in the specific case where we're taking US stocks and finally making them easily available to average people internationally, which is not a thing that was easy for people to do before, that is transformational, right? A

little bit like the process of creating US dollar stable coins and distributing them globally. If the average person in India or Thailand or Russia or Nigeria or Argentina can now buy the S&P 500 in a way that they couldn't get their hands on before and actually have it be, if not the thing, a decent approximation of the thing because I concede like the SEC's points on voting rights here. I do think that's transformative. >> Let me ask you this. So are these tokens going to be investable in those markets or are these issuers of these tokens required to register in India under the same regulatory framework. If they're

required to register then it doesn't matter. There's nothing incremental here. If it's the former then you're right because one of the best thing you can do in an emerging market is invest in the United States. >> You want to store value with growth. So, >> so the way it's currently working, if you look at how these things are starting to be distributed is somebody's got to register in the United States to have a broker dealer here. Okay, I get that part. People are buy at least in the form that's good. We'll talk about the bad one next, which is some of these memecoin paired things, but let's talk about the good one is people are buying the That's right. I said it, Chris. uh are buying the stock, locking the stock in a box, and then using a reference on

the box as an actual token that can then be traded onchain. So now you're moving into the decentralized ecosystem is the way you're talking about Rom. So if I'm just a random person in like Argentina, I can actually go buy the token. I may not get dividends, I may not get voting rights, but I get the price exposure to say Apple, right, in a way that I could not invest in locally. And because they're doing it in DeFi, it's very hard to find an intermediary locally to regulate. >> We'll see what happen. It's it's interest, you know, you you do raise a great point like there's there's few things as good as investing in American business. And if you can broaden that access, it's a very good thing for people right >> now. Those local regulators will call it

a security. They say it must be filed and registered. That's what's going to happen. >> Yeah. >> So now what's going to happen is you got to say to those individual, those countries, hey, here's a token. uh do it anonymously on chain through a VPN and do not report it to a regulator and you must violate your tax reporting. >> Yeah. >> Which is like it is a good legitimate investment but it and fundamentally it's about bad laws in those emerging markets that that constrain the investment opportunity set of individuals trying to create a better life for themselves. >> Correct. Yeah, this is by the way it's the same existential problem that stable coins are creating for them because what do you need to buy these things? You need the internet and something of value to trade for them. So all of these

regimes based around like capital controls and locking their people into expropriate them are now facing the possibility that most people globally even if imperfect are about to have access to the US dollar and investment in US capital markets. I was uh you know I want to defend Robin Hood chain here for a second because I thought it was an incredible unlock. They are printing money. I was in London when they launched it and announced it and uh it's like wow finally you have a company with tens of millions of global distribution that has this chain. Um there is safety and soundness as you come in. It's backed by insurance and look what it's doing. It's providing

that that global access. Now we're going to get into memecoins I think. Uh, and one of the things about blockchains and and permissionless systems is that people can do what people feel like doing. Um, and maybe it's a tell of what it's more of a tell of humanity. Uh, and we can't control that. That's part of the things of running a decentralized chain. Uh, but but the way that they engineered scalable DeFi, I thought was very very impressive. It was the DeFi mullet in action. I So, actually, I'm going to get us in trouble if I don't do this. So, before we drag ourselves to the memecoin part of this and then give Rahm his once per episode ability to take a shot at Sam

Alman, we're going to pause here for a moment and take a quick commercial break. >> $540 million. That's how much concentrated liquidity sat idle in a given week in the first half of this year. about 30% of the DeFi TVL if you're wondering. That's according to Dune Research commissioned by 1 in. But there's a solution. 1-in Aqua is the new shared liquidity platform. It lets LPS back multiple positions with the same token balance and keep their tokens in their wallet till a swap comes. Why does that help? Because the LPS don't have to split their tokens across positions.

They can cover more market conditions and pairs with their full balance. That means more activity across deeper liquidity. See how it works at 1in.com/aqua. Remember that providing liquidity carries risk and fees aren't guaranteed. All right, everybody. Welcome back. Now, let's talk about some absolute deranged weirdness, uh, which is as always memecoins. So far, a NASDAQ listed Chinese dried mushroom seller with 15 employees, ran 350% to 50 cents on Wednesday. 720 million shares traded 90 times its daily average. It is because

of course of a memecoin on Robin Hood chain paired against a token using Farme's ticker. Uh, at the peak, the memecoin implied the valuation was about 60 million, 10 times that of the listed company. Uh, the defiant found the tokenized fammy was not a Robin Hood stock token at all. It just looked like a memecoin with a deployer keeping 38% and no issuer. Stonk ran 250% to 140 million cap after Stonk fund integrated like Radium's launchpad. Stonk itself is paired against SPY. So hopefully it's a function of the ETF, but again holders have no claim on the fund. Hard to see what's going on inside this box. So to

me, going back to Rahm's earlier critique, and in fact the AMC CEO's critique, these sorts of things do strike me as a little bit weird, right? Like capitalizing on thinly traded names at off hours to push price is exactly the sort of behavior you used to see from things like bucket shops. So, like I'm curious what you guys are making of like people trying to pair the memecoin angle to this. Is this purely parasitic and gambling and game playing? Is there something here? Like what what do you think Chris?

>> I think it's a game. Um, and it's not an investment. Even Gary Gendler didn't try to regulate memes because he couldn't. They're like they're like they're nothings. There's no value. No one's trying to make sure that there's value. And so, it's a game. Try try to catch the runner. uh try to and and people continue to innovate. Now, this linkage with equities is novel. Um it's it's GameStop 2.0. Um if you're if you're playing the game, I you're probably going to lose money. Should there be warnings out there? Probably. Um but but you know, and are these is is manipulation um regulated by the CFTC?

Absolutely it is. Um, so if you're manipulating these markets, do so at your own risk because it's illegal that they're commodities. Commodities are also regulated by the states. So generally, if you're manipulating things, probably shouldn't do that. If you're playing, buyer beware. Um, but look, there's an entire industry um, in New Jersey and Las Vegas casinos where you go in there and you play the game and it's wonderful entertainment value and you're probably going to lose money. You do it anyway because you know you're going to, but it's fun. Um, so it is what it is. I don't think uh it's it's what we should be focusing on to build the next generation of finance. However, there is one good thing that comes out of this. And the one thing that memecoins have been particularly amazing

at, they trade so violently is that they're incredible stress tests for blockchains. ETH had it with Pepe. Salana had it. When these things trade with this volume, there's no utility uh for the buyer. there's actually a lot of utility for the blockchain because it has to handle the throughput. So my hope is that all this activity and craziness paves the way for scalable real world assets that hopefully follow when when the institutions show up. My two cents >> I agree with what Chris said. You know I what's the motivation if someone's buying a memecoin? Now you're right.

It's all it's a kind of a modern lottery system where maybe it's I'm not it's not even positive EV. It isn't like look semiconductor stocks are up a couple hundred% the last year they've sold off 40 50%. Why are you wasting your time with memecoins? These things have earnings growth. They're indexed to big secular trends. Like focus there's a real opportunity. Your opportunity cost is is is quite high if you're spending time with memecoins. No, I I completely agree with that take and like it something about the fun absurdity of markets is that Cheesecake Factory has outperformed most of the semiconductors year to date. But the

common thing underlying all of these is there is a productive business in there, right? There is somebody doing something with their hands, be that making silicon chips or literal cheesecake. But if you can't find the activity, I think you're always vulnerable to the Warren Buffett critique of like what does this thing to do? where does the money come from? And that's something I think really is a clear line between utility and non-utility here. All right, so Rahm, let's move on to your favorite topic of things that have utility, which is in fact AI. So we've had a couple of pieces of news here. One, we saw Frontier releases. Anthropic shipped Claude Fable 5.1 and Mythos 5.1 on September 1. Uh

it's the same underlying model, different safeguards. Uh cache reads cost 75% less, 25 cents per billion tokens, cutting typical workload costs by about a quarter and highly agentic ones close to 50%. Um some of the like benchmarks jumped significantly. We're seeing fewer cyber safeguard interventions per session and we're starting to see some weird things. Um, Mythos 5.1 designed protein binders with a 50% hit rate across 12 targets. The industry norm in that space is 10 to 15%. Uh, pretty good. Now, is that going to replicate? We'll see. But early on,

it's showing interesting stuff. So, OpenAI GPT6 Astra September 3rd um, basically is crushing benchmarks. RKGI3 at 99.9% Frontier Math Tier 4 at 97.6%. It's the same token pricing as Fable 5.1. Uh it's also improving theoretical math problems that have existed for more than 80 years. In this case, the prime gap bound. So >> yeah, >> this is starting to get a little bit punchy here. Um, I'm gonna start with the cyber part and then we'll talk about this before we get to Bernie Sanders, which is Astro is the first open AI

model to meet the critical cyber security threshold under its preparedness framework. Uh, the exploit bench was 100%. It discovered and used two previously unknown zero days, both now disclosed. And both labs now gate their strongest cyber capability rather than just throwing it immediately to the market. Uh Anthropic built one with the US government. Open AAI is running Daybreak. And Anthropic said it's found no evidence of a critical severity jailbreak of fable safeguards. Open AAI saying Astra's written reasoning is harder to monitor and calls that a research priority. So I want to start here. These things continue to improve.

The frontier labs continue to all leapfrog each other. We've seen anthropic and open AI and then the Chinese models and now anthropic and open AI again. It just seems like a game of frogs chaining against each other. Rahm, I want to start with two questions. What does this say about the capabilities of AI and as they're going to be integrated for people? And two, what does it say about where value capture is going to end up in this space? >> Yeah. Well, one, like the pace of innovation is extraordinary. If you're not aligned and linking your human financial capital to AI, you're missing out. I spent most of this weekend spinning up agents on Grockbot. Like, I had breakfast with my kids. We played in the park for a bit

and I was spinning up 35 agents and it's extraordinary. I had Rockbot and Claude and Astra with GPT's latest model which is truly impressive in a slack channel coordinating different actions uh like we're entering this new phase of whereas in the rearview mirror was infrastructure build happening in parallel now you're seeing genuine innovation at the agent layer the consumer application layer you know startups like instinct and granola um you know the future is is coming out as fast. It's it's it's an incredible time. Uh we're not at the AGI stage yet. I know Jensen said that

because Jensen had to say that because OpenA is one of his biggest customers. And just the last week, Nvidia CEO Jensen invested in hugging face or or wants to make a big investment there and also poolside which are US openweight models which I think is actually the bigger news story and those models are designed to be competitive with the frontier labs. So the value lack leakage is likely to increase and spread out. So Jensen over the last few years has been investing in firms like Cororeweave and Nebius and others kind of almost anyone would take a check Marvel securing his supply chain and distribution to hedge against these hyperscalers. Now he's doing it at the LLM level.

So all this is really good for consumers. It's great for innovation. Uh it's a tremendous amount of competitive philosophy we're seeing from uh very very talented uh players. Uh but we're not yet at Astro. I use these models all the time. Like I it's not there yet. We're not at AGI yet. I I'll be the first to let you know. And the other big gap is AI doesn't yet demonstrate leadership. There's no vision. There's no agency. It's not telling you what it should be telling you even though you didn't ask it to.

Did you hear that, Austin? >> I did. Yes. >> Rah said something nice about >> I was gonna say I'm trying to remain calm right now. >> No, but regime change. >> Yeah. [clears throat] Joking aside, what I respect about Rom is he's willing to change his opinions when facts on the ground change. And I think, you know, as somebody who uses all of the models myself, OpenAI's products have gotten a lot better over the last few releases. Not just in terms of the core models, but also the tooling around them. And I think that relates to something that if you're working at one of the AI labs, you have probably underfixated on, which is to say one of the core problems in

emerging technologies is engineers building cool products for engineers because they think like engineers and assume all of the other stuff is easy slash will be solved. But as we all know, the best technology does not win. RIP Betamax. >> Yes. And what will actually win is making it usable in the hands of normal people. So actually what Rahm said that was most interesting to me and what I am keeping an eye very closely on is Grockbots. Right? If you could create a Gentic AI that is easy to use in a noode way for normal people and deploy that at scale, you are going to win. Because like my mom could probably with enough time figure out how to use Grock bots. I

don't think she's ever gonna use open claw. >> Yeah. >> Go ahead. >> Go ahead. >> No, just be like there's a difference between technology, the company, and the leadership. Like I'm an AI bull have been consistently so. This is where you should be focusing your financial capital and your human capital. You should be attaching yourself to those trends. Is open AI the great leading model? Yes, it is. Is it a great investment versus like owning a semis? Nah, probably not. What what I really like about the phase of the market that we're in is that you're seeing real comp competition, right? Everyone thought Anthropic was going to take take the prize and run away with it. Open AI comes back. Then

Grock comes out of nowhere and you're seeing real competition and all a sudden Jensen shows up with hugging face goes long on the open source models. You get the Chinese out there. This is what happens when you don't have regulation forcing consolidation and and that's exactly what regulation does. Eventually regulation will come in maybe uh there'll be a common fixed layer of costs and that this forces consolidation which which you hate to see. Um I love this phase where where these companies are pushing each other. They're they're uh accelerating and and you know the breakthroughs are real. The the ability for breakthrough is is incredible. So excited about that. Um, but we're going into a cycle and as much as the

innovation is exciting, people are really freaking out about it. They're freaking out about data centers. I'm very, very concerned. You know, as I start talking to people on the ground in Pennsylvania and other places, data centers are going to be probably one of the top issues going into uh midterms. And it's not often you see Democrats and Republicans align. They're aligning. And when they align, it's very powerful because they don't align on very much. And if data centers are in the crosshairs, um we could see a pretty quick change to how this country perceives uh the innovation that's possible. So throwing it out there.

>> I mean, the interesting part about the data center debate to me is how little facts are actually relevant to the debate. Right? If you look at most of the claims that people start with when they're talking about data centers, they are just factually wrong. Like they do not use massively disproportionate amounts of water. They are not often responsible for massive increases in electricity prices. They do often bring a lot of taxes to the local area. I actually think noise and nuisance is like the number one complaint for people very local to them. Get it? Totally fair, legitimate like point. But when you look at what people talk about, it's not those things. And so the fact that both sides are aligning to this really

seems to me more about social commentary because Rahm to your earlier point about the leadership not being the technology. You've had the leaders of some of these AI companies basically on the road being like, "So here's what's going to happen. Our machines are going to take all of your jobs. Like 100% of the jobs. We're going to take all of the jobs. You will have no jobs. we will have all the jobs. And then on top of that, we're going to start using AI to run the government and control you. And we're essentially summoning God or like some form of moral authority. And so, we're going to control everything. Hey, wait. Why are you opposed to us building data centers, right? To me, this seems more like a marketing and trust issue than it is like a core facts issue. Because if

people were building data centers so that Netflix could serve like shows faster, everybody would be behind that in the United States, right? If you look at the revealed preference of American consumers, it's not less internet. And so I think when you look at the opposition, you have to drill through sort of that first layer that's imperfect paint on it and get to the core of like why are people agitated about this? Because to leg into the second part, you had Bernie Sanders out there trying to create a bill to ban artificial super intelligence. And I want to be very clear, they have defined none of these things. But what he basically says is there should be a pause on advanced development until a regulator writes rules and a directive

to pursue a global ban. Good luck with that, Bernie. uh where the penalties are benchmarked to unlawful nuclear weapons development with the idea of stopping quote AI oligarchs from building machines that humans cannot control and ignoring the fact that none of the terms are defined in here. Like Bernie Sanders has been a cipher for like incoherent concerns by the American electorate for a long time. I view this as signal about people being mad that he is proposing this. Like Rom, what do you think? Yeah.

No, I I agree. I mean, he also proposed a regulation saying that AI can't be smarter than a human. >> What is that about? >> Computers could do math faster than humans right now or Excel. >> We need a panel determine like which human that is, I guess. And >> yeah, >> this Austin, I'm I'm okay with it. Or Chris, I'm okay with it. But kidding. Like it's like Harrison Berseron, right? Inspector General from Ker Vonagget. Everyone's equally dumb so we can achieve equality. This is what that that's what it smacks of. The bigger issue is the center. It's just populism. So they're all trying to run to the left of one another. You know, the political genius of Trump was a doubt between populism. I'm not a populist to be

clear. I'm a capitalist. I believe in free markets, technology, innovation, entrepreneurship, accountability. Let's go. Let's build. So, but what they've done is they're running to the left of one another. That's what it is, right? So, you know, selling fear, that's what populism does. Let's sell fear. Let's not sell the future. You know, anti- trade anti-technology. Uh that that's what this is about. It's not a winning issue. It's not a winning issue because people are going to and are deriving joy and satisfaction from AI. It sells itself. If you want to learn how to use Grockbot, you just say, "Hey, Grockbot, ask me some questions so I can use you." And it will show you.

That's it. There's no there's no complex on boarding process. You can mainline AI by asking it. >> I I think this is a wake I think this is a wakeup call uh for the AI industry. They're making plenty of money. Uh they're making incredible breakthroughs. Uh the potential is immense, but they got they got to stop not stop building, but they have to focus on education and they have to get the message out. And like if they don't, you're right, Rahm. It's it's a populist issue, but that populist, but but the world is becoming more populist and we could have some real policy issues that that really hurt the ability to innovate and and and

align with all those capitalist ideas that you and I both support. If they don't start deploying, they got to up their game in DC. They have to really get their message out. And look, no technology is perfect. It can be used for good or evil, but there's a lot of potential with with this technology that needs to be explained. >> I think if you want to talk about alignment, which is a favorite word of a lot of the labs, they need to start thinking about alignment with the American people if they don't want to have even more of a backlash. Right? If you're building technology that could be greatly enhancing to productivity, you can't be running around saying, "We're going to take all the jobs." Right? that is rightly seen by people as a pretty

aggressive and to be blunt anti-American in some ways stance. You need to be talking about all the benefits it's going to bring. And on top of that, you need to be making sure that people actually get those benefits. Right? Solving theoretical math problems, while it's cool on Twitter, as a former theoretical mathematician, let me tell you, many of those are of highly questionable value for long periods of time. On the other hand, sequencing cancer, right, like solving very specific problems in coding to improve information security and deploying all these sorts of things faster are concrete things. And I think the AI labs are making a mistake spending all of their time in a circle jerk in Silicon

Valley like talking about AI safety instead of just being out there trying to cure as much cancer as humanly possible and then demonstrate that loudly to people. And in some ways, the fact that they don't already see this tells you how incredibly out of touch they are. So, like my number one advice to these people, if you want to stop the data center backlash is get out of Silicon Valley, go to places like Idaho, go to Texas, go to Oklahoma City, go to Nebraska, go to North Carolina, go meet actual people, go to those communities, find out what's important, find out what they care about, and then demonstrate value for them because otherwise they're rightly going to be pissed, right? That you're essentially just ignoring them.

And this, you know, it's incredible for people who are allegedly so smart to be so incredibly tonedeaf about politics. >> Get ready to talk about data centers during Thanksgiving. >> Oh my god. All right. Well, let's close here on one other thing that people will definitely unfortunately be talking about at Thanksgiving, which is WSH and hikes. So, Chair Kevin Walsh uh put September on the table at Jackson Hole on August 28th, saying the Fed has work to do on inflation. Uh traders now think there's a 58% chance of a hike in September. Um hilariously,

War understanding a little bit about how algorithms work also used the word hike literally meaning like going for a hike repeatedly at the start of his speech, knowing what it would do to ALOS. I just want to say as a former volatility trader, next time buddy, get hike and cut in there at least three times each and you're really going to cause things to go crazy. But that aside, uh Waller came out on Thursday and said he'd support a hold if disinflation holds up, but if it quote, "If inflation comes in hot, I would consider a rate hike." He judges policy currently only slightly restricting aggregate demand. Uh Waller was talking about core being 3.3% and three-month core has come down, but

again future data seems to be what's driving this. Crypto took this as a dovish read. Bitcoin ran up. Uh spot Bitcoin ETFs continue to take money in. And then Friday showed up and payrolls came in at plus 162K against a 56k consensus. And interestingly, July was revised up to plus 21K from a previous decline of 23K. This is reversing a trend where payrolls have consistently been revised down over and over for a while here. So essentially what we're looking at here is the political overlay is becoming real.

Trump is saying lower the rate or I'll stop trading with countries with which we have a deficit. calling this an embargo better than tariffs. Um, and telling the Fed board to quote, "Be patriots for a change." Um, but on the other hand, you know, we have all these people at the Fed essentially expressing caution. So, Rahm, I want to start with you. I know you've been watching rates markets as a driver for equities here. What are you taking from the chaos around this whole debate? >> We're not going to see rate hikes. Kevin Worsh is uh talking like a hawk but he's a dove. Uh two, we got productivity growth bailout coming from AI that's going to save the day. We are in this disinflationary period with these

temporary price shocks due due to geopolitical concerns. Energy production's been higher than ever and it's going to continue to go up. Three, the AI buildout itself is inflationary. It's contributing like a point and a half to GDP. So that is part of the cost of this buildout. They're not going to get down to the 2% inflation target for at least a few years. That means that you should be owning assets that repric in nominal terms, especially equities that are indexed to the data center theme.

>> Chris, what do you think? Are we getting a hike in September? You know, and I I agree with Rahm, uh, speaking for myself, but a couple things that I'm watching is diesel. Diesel is hitting records shattering prices. Uh, I think averaging like 5.85 a gallon that hits, you know, real America. That hits the truck drivers. Um, and so it's no surprise uh off goes Kushner uh and Wickoff to uh to Russian Ukraine because a lot of that's hurting supply. And so if you're Trump right now, your eye is on the on midterm elections. You don't want to go through impeachment after impeachment. You know, if if the uh if if the Congress turns, so you need to keep as many seats as possible. How do

you do that? You got to adj the Middle East. He's been trying to do that. It's been difficult. uh Besset needs rates down uh which is another challenge. And so to me I I I I don't think anyone's in a position to raise rates under this environment whether they're independent or not. Uh we can decide but what can he do to bring inflation down? Is there anything within his control because he has to perform well in midterms. Inflation will hurt midterms. Um and people are watching markets as well. So, it's all about that from my perspective and he's going to try to do whatever it takes.

>> One of the interesting things to me about Trump is I feel like he's very much clearly a real estate and equities guy with the way he talks about markets because jawboning the Fed as the president will cause rates to go up. Let me say that as a former rates trader because people will look at this and say ah what is going to happen on a long enough timeline is the central bank will be captured by political interests which means I should trust this country less which means that I should demand more for the bonds. To be clear, every time Trump talks the Fed, add a basis point to the 30-year is kind of what's going on in my head, right? Like he's actually moving rates up with this behavior, not down. So the constant

political threats seem not to work the way he thinks in rates markets. The other part of it is Chris, you were just alluding to this and I think you're correct. If this is a supply shock, there's not much the Fed is going to be able to do to address this thing just by moving rates around because the level of interest rates does not create atoms, right? What we need is more fuel physically to do this. Now, is there some level where the Fed could get rates high enough that we've destroyed demand? Yes. Is anybody going to enjoy that outcome when we cause a massive recession as Vulkar did in the early 80s? Absolutely not. And so, I look at all of this and I see Bessant talking

about it. I see the Fed talking about it. I see Trump talking about it. And the great irony is over here who needs to talk about it and is not talking about it is Congress. Because fundamentally I think all of these three guys are like pushing on a string until Congress stops spending so much money. Do you think I'm wrong about that? Like what what do you think where I am? >> You're totally wrong. There's no way Congress is going to stop spending money. Like how is that a viable outcome? Seriously. >> I mean Okay. one, I think in the current framework, they're not. But I would tell people in general, you should probably expect inflation to continue if Congress is not going to stop spending money,

right? Like the balance of payments thing is real and eventually the pain will become severe enough that they're going to have to change their behavior. But Chris, you're right. It's usually got to get a lot worse than where we are now before people start actually reacting to it. >> Maybe we should wait till after midterms. >> [laughter] >> I mean, in fairness to the poor guy, Paul Ryan started talking about this what, close to 10 years ago, and they immediately kicked him out of Congress. So, I guess there's precedent for not doing that. Rom, what do what do you think? Do you think I'm wrong on just like it's a raw balance of payments issue in the end?

>> Inflation will be sticky for for a while. I think for all the reasons that we've talked about. So, the main thing you should just do is position your portfolio accordingly. own real assets that have earnings growth where you're a beneficiary of uh inflation. [clears throat] >> I don't think that's wrong. And you know, to that end, we're starting to see other people reacting in this way in the market. Like Norway is a good example. So Norway has I think it's the world's largest sovereign wealth fund at 2.3 trillion. Certainly, it's close if it's not the largest. Um recommended that the government bond share for US bonds fall

from 70% to 50% with treasuries taking the largest cut. So that's 80 billion off 215 billion of treasuries held at the end of June and the slice going from 34.1 to 21.9%. So, you're starting to see people who are professional money managers, long-term focus, not captured by US local interests, starting to bail out on US debt, especially longdated US debt. Like, do you guys think that's signal or do you think something else is going on here?

>> No, those are headlines you see when rates are topping out. That's it. I'm waiting for the vi viral Ray Dalio economic machine thing to go out. That'll be the top. That's when you go That'll be the time you actually buy bonds. You want >> That's when you buy the bonds. >> Yeah. Yeah. This is just It's what you expect to see during moments like this. It's >> Yeah. I mean, so where I'm finding it harder to interpret this than usual is Rahm, my gut is to agree with you. You look at these things and you say to people, well, when people complain like this and when all the usual talking heads are on and when you're getting front page articles about this, like when the time cover saying US treasuries are dead comes out, you buy treasuries,

right? Like classic signal. The flip side though, you know, and Chris, we've seen this in Asia in the 90s. Sometimes when you lose hold of the rope, it can go a lot further than you thought before you get your hands back on it. >> Yeah, I I agree. We saw, God, I can't remember what it was. I'm seeing if I can look it up. Um, that there was, yeah, it's HSBC. Um, noting parallels to 1997. So, this was Frederick Newman. Surging US yields, weak yen, unbridled tech optimism, and there the 10-year climbed from 5% 93 to nearly 8% by October 1994.

Now obviously had you bought at 8% you made a killing but Rahm I guess I'll ask you are you saying you think the top is near here in rates terms or are you just saying watch for the signals and maybe it's got room to run. >> Yeah know I think I think you're in the eighth to ninth inning around rates. There's an outside shot it runs to 5% but if that happens that's the top should be to be a better buyer of rate sensitive securities. I see in the equity market too, it's not just the bond market. You have all sorts of rate sensitive stocks are cheap like solar names surprisingly are rate sensitive.

Building supply material names and and homebuilders are rate sensitive. These companies have lots of debt. So I think you should be looking at opportunities in those areas. >> How are you how are you feeling about the insurance sector if this is your view on rates? That's a really good question because you know as you know insurance companies are balance sheets that are publicly traded have taken premiums and deploy and they go buy bonds and equities and longer duration assets. So when rates go up the fair value of their balance sheet declines. So when rates go down you know that could be bullish. Now the the trade-off is are they originating quickly on the front book versus the back book. So that that matters too. The front cloak is

like new policies and what rates are coming in at and to what extent they've hedged their existing book of business uh with rates. So it depends is the is a short summary of what was saying. [laughter] >> I was I was going to say get us a one-handed economist. All right. So on that note, I hope that everybody enjoyed us uh on this Labor Day episode of Bits and Bips. So thank you as always. We'll be back in one week to discuss more about how the worlds of crypto and macro are colliding. Until then everyone, thank you for watching and hope you enjoyed this episode of Bits and Bips.

Just remember, nothing we say here is investment advice and please check unchainedcrypto.com/bitsandbbits for more disclosures. Come on. Come on. >> [music]