Why Crypto Keeps Picking the Wrong Trillion-Dollar Fight

Transcript

Hey everyone, welcome to Bits and Bips, where we explore how crypto and macro collide one basis point at a time. We're here to discuss the latest stories in the worlds of crypto and macro, but before we begin, a quick commercial break. >> Fidelity has been investing in blockchain since 2014. They're not wondering if digital assets will shape the future, they're hiring the talent to help ensure they do. Explore opportunities today at crypto.fidelitycareers.com. Fidelity is an equal opportunity employer.

This episode is brought to you by Cape, America's privacy-first mobile carrier. Same premium service you'd expect from any other carrier, but designed so your number, your location, and your data actually stay yours. Get 33% off 6 months at cape.co/unchained. >> Welcome back. I'm your host Austin Campbell, high scholar of Zero Knowledge Group, here with my usual two co-hosts, Raoul Pal Alawalia, master of wealth, leader of Lumina, and Chris Perkins, the golden hand of Franklin Crypto.

Today we have a very special guest, which probably Laura, you need no introduction, to be totally honest, but Laura Shin, founder of Unchained, OG crypto journalist, in my opinion, one of the better people in this space, period, full stop. And if you're not following Laura, you need to be. So, let me just start by saying that. But, to a reminder to everybody, we've also moved everything to our new dedicated channels, so subscribe on X, YouTube, Spotify, Apple Podcasts, or wherever you get your podcasts, importantly, that are actual podcast channels. And why do I say it that way? So, today we want to start with something

contemporaneous that just happened with regard to Unchained, to explain to people exactly how things are still working in crypto and how to keep yourself safe, which is somebody tried to spearfish Laura earlier today. So, Laura, can I have you tell the story of what we were talking about before we went live and what happened? >> Yeah, so it wasn't today, it was last week, but I had agreed to do a podcast with somebody and when I logged in, the link wasn't working and I was getting this notice saying that I had to download some software and so it's so funny because they did actually convince me to download the

software and I even got to the point where I even executed a terminal command and here's the crazy part. The whole time like if you look at the screenshots of my conversation with this person, the whole time I kept saying, "Oh, this is how people get hacked." And I cuz initially I kept refusing to do all the things. And I have covered hacks, I've covered, you know, phishing attempts, I've covered just all kinds of scams in crypto. I was I think the first person to write about SIM swaps back in 2016 and even before crypto, I covered personal finance, I covered identity theft, I covered so much about scams and social engineering. Like I interviewed the main social engineering people well

before I ever got into crypto. So it's just so funny because I keep saying to this person, "Oh, but you know, I like I would refuse and then and then I would be like, this is how people get hacked." But so here's the thing, like now I realize, okay, here is how this person got me to override all of my internal alarm bells and all my learnings. Um they said, "Oh, well, it's a special crypto podcasting platform." And they sent me the link to the X account. And I looked at this, you know, X account and 153 people that I follow are following this account and I was like, "Oh, I guess it's a crypto podcasting platform I've never heard of.

And so, then the notion that like maybe I actually needed to download some special software was no longer so strange, but I also remembered that I had this moment where I was like, I feel like I should tweet to ask my followers if this is, you know, like I but then because this person kept messing with me and >> [clears throat] >> do that and so I just kind of like didn't do these things that floated through my head. Um and then when when the software of course didn't work, um then he was like, oh, well, there is these like terminal instructions. And even then I was like, what the hell?

Like I just was and I think I said no again multiple times, but then they were like, no, no, no, I swear like all these people use it and I think they again use the X account. So anyway, point is, the good news is I don't think I lost anything. I didn't have like I have to um there there's a lot of things I have to do cuz I had to reset my computer to factory settings. I had to take it offline. Like there was just a lot of things I had to do and so even today I'm still downloading apps that I use. I'm still logging into them. Like there's I'm still changing passwords. There's kind of like a lot that's going on. Um but yeah, it's just funny and embarrassing because like I knew all the things. I knew I had so much knowledge.

I'm literally trying to teach the guy about social engineering and and how, you know, and anyway, so yeah, I still I still didn't listen to myself and that's exactly how social engineering works. It's exactly it preys upon your desire to be a nice person. And oh, and by the way, you know, this quote-unquote podcast, like of course, you know, I looked it up on YouTube and yeah, it's a legit podcast, but is that account that was trying to get me to do all those things? Were they really connected to, you know, that group? Probably not. In fact, like 99.999% not. So, um yeah, last thing I'll say is just SEAL 911. They've been on the show so many times. Everybody always talks

about them, but they truly are an amazing resource. And they helped me, you know, over the weekend. And um >> [clears throat] >> yeah, they yelled at me a little bit, too. >> [laughter] >> I deserved it. So, that's that's basically that's the story. >> No, and I I think you raise some interesting threads in there, which is if you think about like this is something the banking industry struggles with as well, right? And if you think about the threat vector of social engineering attacks, even people who are informed about how they work do fall for them because the attackers are trying to prey on you at the exact moment where your mind is occupied with other things and you are not fully aware. And that's

one reason they always try to create time pressure. Like we need you to log in for this podcast. Oh, the cutoff is coming at 4:00 p.m. Oh, it So, rule number one for anybody, when you have somebody on any form of social communication or even text applying time pressure to you and you're not certain about something, the first question you ask is is this truly catastrophic if I don't do it? And if the answer is no, just don't do it. It'll be fine. Like let that go. Number two from some of the good security researchers, I've been told the easiest rubric to not fall for these things is have a set of rules that you never ever ever violate ever. Like, "Sorry, I don't download

programs or click links like at all." If that is what your podcast requires, I cannot do it. Go tell everybody right now. The answer is never. And then by the way, always blame your infosec people. You If you want to be a nice person, you don't need to own this decision. You could be like, "I'm not allowed to. I don't have the authority to." Like punt it. But like, don't ever for that reason cuz once you create a rule with yourself that you're internally consistent on that you cannot violate, it makes those tactics worse work less well. Three, one thing I do individually cuz like there've been a bunch of compromised like Telegram attacks recently where I had people trying to get me to click on things and download things and join meetings and whatever,

just always put the link into an AI model and ask is this a scam? You'd be shocked at how good they are. They'll be like, "Yeah, don't trust that. Like, that's definitely never real." And don't copy the text, copy the actual link and put it in there and very frequently they will shut you down. But, like, I want to raise one other thing that I was saying that Rom reacted to. Rom, I was telling people part of the way that I've become semi-immune to these attacks now is I looked at the value of self-custody compared to the risk and I hold all of my crypto in ETF form now.

Like, what would you have to say to that? What do you advise people at all? >> Yeah, 100% 100%. You know, ETFs are safe, secure. You've got the implicit backing of BlackRock and their net equity. Uh you get liquidity, you get cross-margining, you get convenience of an integrated statement. Uh so, yes, uh the vast majority of people should be using ETFs to manage their digital asset exposure. >> Is it only BlackRock? I I digress. >> [laughter] >> Um anyway, you know, I I think there's a couple other hygiene things you can do to the extent that you you want to have self-custody, that that's fine. Um and you know, really advise people to use a hardware wallet where you can. And there's some amazing ones out there.

I'm going to admit something to you guys I've never told anybody before, but uh I got hacked. I got hacked a couple of years ago. It was a Friday, had a couple beers, and uh the good news was that I kept good hygiene. I put most of the stuff that was that that that I wanted to on that hardware wallet, but I was messing around, clicked on something, and they stole my Snoop Dogg NFT. And uh you know, it still hurts to this day. Um but it was it was I'm glad it happened cuz it was such a stark reminder, like you're in the big leagues, you cannot mess around.

I also think that this is going to get much worse going forward on the social engineering. Um we need solutions, we need tech solutions. You know, every time you're on the anytime you're you're you know, your voice is out there, they've got your voice, they've got your likeness, it's going to get much much tougher. And so while I do think security across crypto is actually going to exponentially improve as we start finding angel vulnerabilities, I do worry about the the social engineering attack vector. That's why I'm bullish on like proof of human type solutions out there that that can really identify humanness. So, lot lot lot to take away from this one, guys.

>> Last thought on that, the read-through could be negative for crypto brokerage firms because ETFs are an implicit form of competition because of the security benefits they confer. >> Well, yeah, with an ETF, you're outsourcing a lot of the security, the cyber uh I'm seeing this in real time right now with with my transition, and it's there's there's you know, when you look at crypto, decentralization is something we all believe in, we all think is wonderful, and and and it's really important that that persists.

But that doesn't mean intermediaries are going away. And the question is is do you want to pay them? Do you want to hand over some of that sovereignty or some of the value that they can give you? And for many people, the answer's yes, and that's fine. Um that I think that's what we're talking about here. >> I mean, I think for anybody prominent, like, you know, where you have a public persona that is associated with crypto, it makes a lot of sense to have somebody else in charge of your crypto. And so that's why, yeah, like for me, like I don't know why they were targeting me. Maybe they don't know that I just don't really even have that much.

Um but yeah, if uh I would say, you know, I I know people who you know, they'll like well, I I don't I don't know how public they are about this, so I don't want to get into too much detail, but but there are people that you all know in crypto who go to extremely great lengths to not have anything e- even if their face is known, they try to not have anything with their name that would identify like where they live or what other accounts they have like, you know, so just there's so many ways uh you know, to to kind of get around this. Like you don't have to just become a hermit. But these are things that if you are publicly affiliated with crypto, you should definitely be

thinking about. >> And I think that has broader implications, Laura. To bring this all the way back around to where you started with fraud and identity theft writ large. Cuz these same tactics are going to be happening with banks. Right? With payments companies, with you get that phone call that is using the perfect AI voice of your kid like, "Hey, I had a car crash. I need money." Right? Like we've all heard these stories and I would just remind people we're in a threat space where this stuff gets more intense, so they're going to try to use your own emotions and like behaviors against you.

And awareness really matters, recovery matters, but this is one area where as Ram was saying there's going to be a market opportunity for people who figure out how to interdict these things as well. Like that might be a positive use case of AI for the world, but we will see. So >> Speaking of interdictions, we are coming up on the 250th anniversary of the United States. And uh I do still think there's a strong policy response that we should see, which is to allow the private sector to recover to recover these assets.

And so I'll keep speaking about it till I'm blue in the face, but give me the privateers. >> So, whoever recovers Laura's money that was lost in this crypto >> Well, I don't think I lost that >> if any we'll have you on the show to explain how you did it. There we go. We can promote our privateering right there. But no, joking aside, Laura, we were talking about that. I just think it's good for the world to occasionally get the reminder on security and like how sophisticated these schemes are and what can happen. So, thank you very much for explaining that. Remember everybody assume the account is compromised. Do not click the link.

>> [laughter] >> Yeah, well, thanks for inviting me last minute just pop in and talk about my my tale which yeah, is is definitely a lesson for everyone. >> It it really does matter though. Like every incremental gain we get here. Like I want to remind people of the scale of this problem is tens of billions of dollars are scammed like annually just out of America. If you look at like the taxonomy of the pig butchering scammers who are operating out of Cambodia or like some of the Russian scam farms and things like that. This is a very severe problem that's destroying lives. So, if you're in this space at all, you need to think about this. You need to act on

this stuff. You need to take it seriously. >> Yeah. >> All right. >> All right. Well, have a great show. Thanks so much and I will catch you later. >> Thank you, Laura. >> Bye, everyone. >> All right. So, now let's talk about something else that's not doing great, Bitcoin. We'll call this one markets in a holding pattern. So, we had the worst ETF month on record. Bitcoin is near multi-year lows and the tape is just sitting around. I want to start with Bitcoin as a vector here and then zoom out further into the market. So, let let's talk about that for a moment and then we'll scale out. But, Bitcoin itself printed like a 58,000 level over the

weekend, its lowest level in years. We saw 3.4 billion leaving ETFs like those of Franklin Templeton. Um a lot of that came out of IBIT to be fair. Coinbase spot is at a discount to offshore for 50 months straight days, longest on record. Exchange reserves are at a 7-year low. And 79% of Bitcoin held by long-term holders appears to be underwater. Something is probably going to break in Q3 is my read on this. The bear read right is what we just said. And at Simply Bitcoin was saying the chart suggests Bitcoin could bottom near 25,000 in 2026. Let's hope it's wrong.

The bullish case is almost every bottom indicator is flashing and imagine betting on lower prices per Quinton Francois. So, Rom, I want to start with you as an investor in this space right now as we're looking at everything that's happening here. Like, where do you line up? Are you with the bulls? Are you with the bears? Do you have a different view here? >> Sure. Well, I'll start off. If you want to get a view on Bitcoin, you have to start with MicroStrategy. Right? Market MicroStrategy was a marginal bid for Bitcoin. And it risks becoming the marginal seller for Bitcoin because of these funding obligations around its debt securities, STRC and STRF, which we've talked about in the past, right?

Those are trading below par. Then they've got to find a way to generate cash. And if they can't, they've got to issue stock, dilute themselves, or sell Bitcoin. So, you should start with MSTR. You do see a lot of heightened volume recently. So, you're seeing some evidence of people throwing in the towel. Okay? So, that's in the bullish side. Um on the other hand, you know, these lingering issues are still there. So, I think at best, it's a trader asset. Meaning, you could get a tactical rally just on a short squeeze, right? Today, you see mag seven stocks rallying and Tesla rallying.

These are also shorted securities. So, shorted securities had a a rally on a Monday. Mondays are probably the least informative day of the week cuz there's a lot of retail interest and hope around that. Uh but, you know, if there is a rally, it probably gets sold. It probably gets faded. It's still on a downtrend. Uh and, you know, we've talked about before, these are attention assets, momentum assets. They need momentum like oxygen. If that momentum is not there, uh then it can be can be punishing. So, it's a it's a trader's asset at at this point.

>> Chris, what do you think? >> So, I don't remember, we worked in finance for a long time. And you remember when like we were waking up every morning and all you could hear about is pigs uh over and over and over again, which was a sovereign crisis going out of Europe. Like and like the market was just like hung up on it. I just couldn't get over it. Um it feels like in order for this market to cycle forward, we need to digest what's going on with strategy. And I'm not here to say we should buy or sell strategy.

Uh sorry about that. I just got off for a second. I'm not here to say we should buy or sell strategy. Um can you guys hear me? >> Yes, just fine. >> I think you said sell strategy. >> [laughter] >> No, no, no. I'm not here to say if you should buy or sell strategy, but what I am here to say is that we have to work through this. The market has to work through this in order to move forward. Um you're seeing some really interesting price action today. Uh in fact, strategy made an announcement. Uh the board's come out and it looks like they've put some governance and they put also delivered some flexibility to to the CEO. Um the market actually uh responded very favorably because now it seems like at least there are some tools at Michael Saylor's um

uh at his disposal to be able to manage his liquidity uh out for some time and and maybe we can go through them if you guys would like. But for me, this is what's been holding up our markets. And I feel like as we met navigate forward and today was a big step forward, it's kind of like going through the stomach and through the intestines and coming out. And once we are able to digest stretch and strategy, the market will move on. But let me tell you what um cuz I tend to be the the bull here. Let me Let me tell you what makes me excited. I'm running around the UK uh this week. The it's a big institutional week. There's a bunch of companies that have big events. Um and I just came from dinner with uh a whole bunch of different market makers.

And it's really interesting what they said. They said, "You know what, Chris? Volumes are down and it stinks. But my onboarding team is the busiest they've ever been. I can't keep up. I just can't keep up. And I don't know what would happen. I'm certainly not staffed if the bull market came back because like I just have this this I'm I'm being inundated with onboarding across old institutions, new institutions, institutions that have never been in the space before. I didn't hear that from one one of the big uh players. I heard it from multiple.

And so, I feel like we're still in this interesting phase of the market where strategy's getting digested. Um sentiment is really really bad. But the fundamentals continue to improve. And I also heard some of these conferences I'm I'm heading out to are more than sold out this time. >> So, I'll hop in and I'll say something that I think sort of highlights the position we're in and maybe reinforces Rom what you were saying, which is I was talking with a friend at a hedge fund. He's a global macro trader, in my opinion one of the better ones out there. And I was asking him about Bitcoin and he was saying it's really hard to see the next leg of adoption coming from

very institutional people like pension funds, sovereign wealth funds, central banks when Saylor is out there holding 5% of Bitcoin and is as big of a personality as he is. Exact quote, it might be best for that guy to get blown up and then this thing will go way, way up as other people pile in. So, to your point on digesting like strategy, it's this problem of whenever somebody becomes the main character in crypto, their demise is imminent. And strategy has been like the main character for a bit here. I But I also wonder if in a way that has made them a blocker to Bitcoin going up and that itself has created their own problem.

Rom, I'm curious about your take on that. >> that's a I think that's a great insight. Like the best time to buy Bitcoin the last cycle was after FTX blew blew up. Yeah, and when when Genesis was shut down, November 16th, that was to the day. It was the best time. I think that's a very, very good insight actually, you know. Uh you need a scapegoat, you need something to blow up, you need somebody to float to the surface where people say, "Okay, there's no more marginal seller here." Uh so, yeah, no, like I think MicroStrategy drove retail adoption.

But retail is going elsewhere. There are a lot of exciting themes in the market right now like biotech and the AI trade. Uh where are the sovereign wealth funds? You know, you can go look at the 13 Fs for institutions and type in IBIT. I'm not seeing the institutional adoption. That's the issue. Where are the flows? >> I I agree. We're not seeing like that next leg and part of what was interesting to me was this whole thought process on actually you want to wait for the next leg until that guy is out cuz like how do I go face like central bank officials or like managers of a pension fund and say, "Yeah, I want to buy that thing while Saylor has 5% of

it has been in front of everybody and is doing this." But Ram, to your point, it's also a mechanics question. Right? Like if you look at the document strategy put out today outlining how to manage liquidity one of the options in there is probably not great for Bitcoin prices. Like what do you think? >> Yeah, I know. I haven't looked at the details of it all, but you know, the digital asset space needs product market fit in a revenue and cash flow generating way that drives value accrual back to token holders and there's just a handful of assets out there that's doing this. One is Hype.

It's the only asset that's going up to my knowledge. Uh, it's the only asset I have exposure to. It's really kind of that simple. If you don't have those dynamics in place, it's difficult. You know, I was talking to an early investor in digital assets and he said, "What about machine to machine transactions?" Well, you can authorize Claude to take control of your browser and shop on Amazon for you. And they're going to make it easier with an with an API key, too. Crypto doesn't actually unlock that.

Well, what about physical AI? Like Yeah, I'm sure there's a lot of onboarding of institutions because they're co-opting the regulatory framework and they're going to lower settlement costs and free up capital with their friends. So, it's a difficult picture overall. I think you can't deny that. It doesn't mean that there aren't tradeable short squeezes. Uh but the you know, the bigger trend is is is still down. There's a lot of pressure from MicroStrategy. The market sees where MicroStrategy is. Like, they're front running MicroStrategy.

>> Yeah. No, it makes sense cuz like if you read the strategy document, they basically put Bitcoin sales on the table as a way to fund this thing and explicitly, this was the part that caught my attention, when advantageous for long-term shareholder value, like for dividends and interest if better than equity issues, which means if we start having MSTR traded a discount to like the Bitcoin, they should be selling the Bitcoin to like pay all of that instead of issuing even more equity. And I think the market is wise to that cycle right now. So, I want to use that as a framework of the market being wise to what's coming to zoom out to the greater market action

and I want to put something in front of both of you. Chris, you've been an investor in the venture space. You're back at a real money firm now. One of the things that caught my attention as I was looking at the market over the weekend were price increases from Apple that were quite significant on the back of memory prices going up, which is showing like demand for hyper scaling AI, like the structural shift underlying that market. When you see that sort of price pressure in the market, where else do you think things are coming out right now? Cuz I like we have a lot of things chopping sideways as people are trying to read the tea leaves.

>> Look, when it comes to crypto, it's a volatile asset. It's a frontier risk asset. It's volatile down. It's also volatile up. And you know, Ram, You that there's only one uh that's working right now. That doesn't mean the fundamentals aren't improving for many other tokens and that utility is very much in focus as this institutional um era takes hold. So, there's a ton of focus on fundamentals, on value, and utility. That's something happening under the surface under every project you talk to. They learned their lessons. They know that like having a meme token token out there does not mean that you're going to be successful and maybe at any point. Maybe you get lucky, you catch a catch and win, but there is a lot more discipline amongst founders, a

lot more discipline around value accrual, and frankly the regulators are now allowing them to have this discipline to think through value accrual to the token. And mind you, um value does also accrue to to equities. Um now, as you think about themes going into the future, you're talking about AI. AI is a massive theme. And what we need to think about is how when you bring these two technologies together, what's the unique value and utility that you get? And we're already seeing evidence of that with the government taking pretty robust actions against some of these uh AI firms, Anthropic, a little bit of uh of OpenAI as well. And so, is there a need for uh a decentral decentralized components here? Um and and maybe the answer is no,

that's just going to be niche, you know, forget it. But there is a lot of things that are happening, you know, at that intersection. You mentioned uh agentic payments. Really hasn't taken off. It's a little bit hyped right now. But what happens when you start seeing you you know, it it when we see these trends, they typically don't happen in the way that we imagine them. But then, you know, there's hype, it blows up, and then there's the real utility that emerges out of the ashes. We saw this time and time again over cycle after cycle. So, that that as you look at, you know, that unique uh fault line, you know, we talked about human uniqueness. How do we How do we introduce it back into the internet? We know that there's problems coming. We know that social engineers coming. How can we use

crypto technologies to really address those challenges? Then like with other system civilization defining technologies on the horizon, quantum quantum's coming. You know, the White House tweeted about it or recently and they're like, "Guys, it's coming." They put a date on it. Um so, what are the unique intersections at the intersection of quantum and crypto and and crypto? There's definitely interesting things. Most of the initial focus is really on defense. Is my cryptography good enough? You know, am I am I am I quantum resistant? Defense defense defense.

Eventually, we're going to pivot that on offense and have apps of unscaled uh of of like of of incredible exponential uh upsizing. So, like that's going to be the next step. And then what happens when we put all three technologies together? Um you know, so I think it's important as an investor to to focus on the long term. Uh you're going to hear noise up and down. These markets are technologies of volatile space. Um the Chinese uh open source models. You know, I was thinking about this over the weekend. You guys remember um back in the day people said some of the Soviet computer scientists were the best in the world.

Uh and why were they the best in the world? Because there were no computers. And so, they would have to put it all in their head and when they got finally had that that precious time in front of computers, they were able to program just magnificently and elegantly and fast and efficient because they didn't have that resource. A lot of Chinese models right now, yes they're open source, but they don't have that compute. And and so, they they and the chips and so, they have to make the things very, very efficient. That's going to be something that we need to focus on. Um So, I mean I I could go on and on, but like I don't think it's as doomsday as you guys think. Yeah, it's a tough market to trade. Uh we didn't even talk about about Kevin Warsh and and and and

macro. A lot of this comes down A lot of this price action frankly in the near term comes down to rates and macro. Uh I think the market's complete I continue to think that the market's, you know, mispricing him uh, and what he's doing with Bessent. But uh, anyway, just uh, sorry for the uh, for the iteration here, but uh, I just don't think it's as as doom and gloom as you guys are are letting on. >> I think for my part, part of my concern actually comes back to the core macro thing that you mentioned, which is to say, we have significant debt to GDP, the long end keeps backing up when we don't do things that the market likes.

We have a structural problem with spending continuing on the current trajectory. I think all of the other market action is fundamentally downstream of that right now, and I think that's something that Congress is in denial about to be totally honest, because politicians have every interest to be in denial as long as humanly possible. On that subject subject, excuse me, but Chris, part of what I look at from the macro perspective is actually the fiscal dominance angle of I don't think it's Warsh, I don't think it's Bessent, I think it's Congress. If you just consistently insist on spending way more money than you take in, that game can go on much longer than people think, but when it stops, it stops ugly.

>> Isn't that bullish for Bitcoin? >> That fundamentally probably is bullish for all real assets is what I would say. >> Commodities, right? >> Yeah. All right, so before we go down that rabbit hole, given that we're already past half time, let me pause us here and say let's take our second ad break and we'll be right back. >> Fidelity has been researching and investing in blockchain since 2014, long before it was a headline, and they're hiring crypto and DeFi professionals to join their team and discover what's next in finance. Fidelity is looking for people with fresh perspectives from different backgrounds, whether it's tech, UX, or product design, whether you're crypto savvy or crypto curious.

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>> All right. Welcome back everybody, and now as we talk about what the future would look like, I want to start this segment, which we're going to call the Clarity Act push, by saying this. The White House currently is throwing everything at market structure before the August recess. We've seen Bass and Witt both pushing. They're meeting with law enforcement who have concerns. They're meeting with Congress. Senator Lummis is pushing, and a CEA report reportedly dismantles the bank's main stablecoin yield objection. Um House committees have scheduled Clarity Act hearings for July 17th.

Um and the Senate, as you can see, is continuing to push on this. But, let's talk about the bear case for a moment. Mary Landrieu, the full court press meets a hard wall, 60 Senate votes, there are still seven Democrats missing, plus DeFi, AML exemptions and loopholes all remain very difficult. So, I'll start um by sort of laying a question out here is a framework thing is to how I'm thinking about this, which is one, one of the things I think is bedeviling people around clarity as we look at DeFi and AML is we have a lot of problems

that we have glossed over or ignored in the traditional financial system, and now we are experiencing the legislative equivalent of tech debt. And the way I can describe that is to say in Dodd-Frank, there are still something like dozens of pieces that are supposed to be written that are not done, very hard taxonomy questions that have just been completely punted on, like is stable value a swap, which the CFTC was supposed to have answered, I believe, in 2011 and still has not answered. And market structural questions of the difference between how you trade derivatives, how you trade spot, and how the heck you would integrate a platform trying to do both

derivatives and spot, which, Chris, I know you've done a huge amount of brain damage on over time. So, I want to start with this question for clarity for the group, which is is clarity really the problem or is it the things pre-clarity that are now holding it up? >> Well, let me give it a shot. >> Why don't you go ahead, Chris? This is your domain. Go for it. >> All right. Look, I I think pretty soon the light bulb's going to go on amongst the banks that, gosh, if something doesn't get past here, we're actually going to be back at genius, which is a terrible place to be.

So, maybe at a certain point the tide turns and they get on board. Uh lately actually I've been hearing uh positive sing- signals out of the Democratic camp. I don't know Austin if you have as well. >> So, I'll say I think if we're being honest, I find the Democratic stance currently to be a very mixed bag. And what I mean by that is you have a wing of the Democrats that you can almost draw a line and put old people above it and younger people below it. So, if you're looking below the line, you're finding like the Gillibrands, the Gallego's, the Also Brooks's, the Ossoffs of the world, who I think are a little bit more technologically fluent.

And they are looking at some of these things and asking a lot of questions. I also think the Supreme Court decision today on geofencing is super helpful to them. And the reason I say that is if you read their description of when a like warrant is needed and what a search is, the Supreme Court may have just opened the door to declaring significant portions of the BSA unconstitutional as it currently exists. Right? Because they were very clear that if you can reconstruct somebody's personal travels, effects, and affairs, you need a warrant for that, even if it's with metadata.

And you can certainly do that with payments metadata for people. So, the BSA as applied to payment systems may now be unconstitutional, and that's going to be a problem. So, there's going to be momentum to rethink this, to modify it, to use less intrusive methods. I think that gives covering fire to them. That's good. Two, I think the law enforcement part, if we're going to be honest, is horse trading in Congress. Right? These are people who are trying to get something. They have a point of leverage. They want to get something for themselves on other concerns. If they get that, I think they'll let go here. So, I think that's probably solvable.

The one that I remain worried about that I haven't heard anything positive on and why I say it's a mixed bag is the ethics provisions. Like, I have not yet found Venn diagram overlap between the administration, the Democrats, and the Republicans who are going to have to send them a bill. Right that, I'm I'm not sure where we land there. So, I'm going to stand on my prediction that clarity doesn't go, but I think it doesn't go purely on the ethics basis. I think everything else is solvable right now. >> Yeah, ethics is a tough one. Um particularly because the of various family members involvement, uh not just the principals. So, I think that's going to be tricky.

But, of course, we've said this over and over again. We've got we've got ethics problems across very many asset classes. So, I think that is a big problem. Um things get weird towards the end. We saw that uh with the genius act. There's a lot of horse trading. There's also a lot of chips. I think the president uh and his cabinet are willing to to pay the chips. I'm at 51%. I still think it gets done. >> Mhm. >> Uh but it it's certainly not easy. And this is like the Hillary step of of clarity. It's it's it's hard. It's dangerous. I I would like to understand a little bit more um about your thoughts around the BSA, Bank Secrecy Act, Austin, and what the Supreme Court means. Do you think this is going to be, you know, helpful for new legislation that will, you know,

in in clarity that addresses what people want to see in that bill? Like, how is this how's the Supreme Court ruling going to impact crypto? >> Got it. So, to drill into the heart of the ruling today, the Supreme Court was basically asked, uh is this geofence warrant a search under the meaning of the Fourth Amendment? EG, do you need a warrant to do this? And their answer was like, yeah, no, you totally do. And one of the interesting things about the BSA is the last time this was litigated was before the rise of electronic commerce.

So, we would live in an era where you Ram's wearing the jacket today. So, we'll say Ram is your banker, right? And that means Ram's involvement in your life in the 1970s is when you were buying a house, or when you were buying a car, or other large ticket purchases. Ram has no part in you buying a sandwich. You're paying for that with cash. Right? If you go to the grocery store, you're probably not paying with a check at that point in time. You're probably still paying with cash. Even if you pay with a check, they're finding out about it on a trailing basis. Okay.

Today, if you use a debit card, or you use a credit card, people often have a like hourly log of physically where were you? Cuz they're like, "Oh, you bought a coffee here, and then you bought lunch here. And oh, at this time you were sitting in front of your computer, cuz we see an Amazon purchase through the internet web portal." And like those kinds of reconstructed things. And that's specifically what the Supreme Court just said you need a warrant for this data. Right? And although they specifically exempted bank records, they did not say like payments data. They were talking about like your bank balances.

And so, I think as we look at the previous BSA decision, as we look at what happened today, and as we look at how ubiquitous electronic payments are, the exact same argument that was just made there now applies to data around payments. That means the third-party doctrine doesn't work anymore, Chris. Right? Like they can't just go to your institution and Hoover all this up and be like it's not a search. And it also means that some of the things like SAR filing requirements may no longer be constitutional. And if that's the case, and Congress can see coming like, "Oh god, if we don't do something, it's possible the BSA just gets lit on fire and burned down," then you're going to have a lot of

pressure to reform it. Because again, at the time it was passed, and people forget this, it did not work the way that it works. In fact, if you read the decision upholding the BSA originally, even in like the decision upholding it, there are some questions about, "Hey, if the scope of this is much bigger in the future, do we still retain the current opinion?" I think that date has just arrived is what I'm saying, and I hope that puts pressure on the people being like, "Oh, we'll just keep doing the BSA and burying their heads in the sand." That actually, you know, the bridge that you were planning to be there for your retreat may have just been burned down by the Supreme Court.

>> So, you didn't impact clarity? >> I mean, we've had a whole problem around people saying, "Well, we should just KYC everyone and collect all of the data and expand the BSA into this whole space." And the Supreme Court, I think, just clearly said you can't do that without a warrant. So, a whole thing that was the affirmative suggestion from the grouchiest side, I think, was probably just taken off the table. That has to be >> You think it's net You think it's net positive? >> I Well, I think it's deeply positive because the people who were the hold-up, the basis for their hold-up was just knocked out from under them.

Right, expanding the BSA almost certainly makes it unconstitutional. >> Then you're down to ethics, and that's it. >> Correct. >> Uh Ron, >> quick quick history in the honor of bicentennial World War II. I know you both know this history, the Maginot Line. It was a response that French created to create a a wall against another invasion by Germany, put a lot of infrastructure in there, and then the the Germans did a blitzkrieg through the forest and did an end around. That's the clarity act right now. It's not addressing the core thing. The core opportunity, which is actually what Chris what you mentioned earlier, is the civilizational advancement from DeFi.

This is not unlocking that opportunity. That's the real unlock in this innovation. That's one. The second is the idea of community-based funding of debt and equity. So, there's no reconciliation of how we think about community or crowdfunding and digital assets. Those are the two main contributions uh from crypto along with self-sovereignty you can put in the mix. And so, but clarity is a one of the things that you get the win, great, but who cares? You've just built a Maginot Line.

>> Well, yes and no. The win is enshrinement. The win is that you have transparency and predictability because it'll take an act of Congress to change it. That that's really the win here. Like, even if clarity doesn't get passed, we're still going to enjoy like pretty good quote clarity and predictability for the foreseeable future. Uh we've got two great chairmen who are coming up with very clear um hey, this is a commodity, this is a security. Uh probably should have been done long ago. But, it's what I what I think is most important to the entrepreneurs and founders is that taxonomy that allows them to seamlessly operate in the two regimes that we know today. And again, maybe, you know, it's it's that's all we need. We need

There's plenty of other important stuff in there that will address certain issues, for sure. I'm net net bullish on the bill. No bill is perfect. No person is perfect. But, it's the enshrinement that we get. And if you have something that's enshrined, it gives people confidence to deploy and accelerate their budgets to solve for that regulatory perimeter, which isn't going to move as much if there's a change in the election. And again, I think net net, you know, we're marching forward with incremental clarity every single day. And it's interesting we're getting like the reverse court challenges uh as we're trying to figure out what's a swap and what's a future.

Um but either way, these things are going to result in in clarity, which helps in our entrepreneurs build. Um so, but it's the enshrinement that we get with this bill. >> So, Ron, if I'm understanding your argument correctly here, what you're ultimately leading towards with community-based lending, community-based finance, like the ability to call it ad hoc, form groups, or disaggregate things is actually, to look at it from the opposite direction, a solution to the too big to fail problem. Right? That is to say, okay, go ahead.

>> Capital formation, right? What what are what are capital markets about? It's about capital formation. Who has access to capital? The firms like the Mag 7 companies that can issue debt and equity. Who doesn't have access to capital? Small businesses, entrepreneurs. Who's best in a position to underwrite bonafide investment? Individuals in their communities and their local banks, community banks, which are also under pressure. They have the information. They have knowledge of the customer, reputation, the business model. They know whether the the new McDonald's being built on that corner is going to make money or not, and the bank's willing to finance it. So, there should

be someone there willing to take equity risk. That's actually the opportunity around digital assets, capital formation. It's a major unlock. I mean, small businesses drive uh job creation, it drives wealth creation. So, you know, it's been unfortunate to see so much of crypto is like, let me just go take on BlackRock and go after most competitive markets in the world and just tokenize this thing. It's it's been an incredible act of hubris, not recognizing the infrastructure, the distribution, the systems, the lock-in, the vendor ecosystem that powers Wall Street. And there's a

such a tremendous and noble purpose in unlocking small business lending and in equity capital. And digital assets are ideally suited at due to the nature of community capital. >> I mean one of the great failures of crypto, I think both in the clarity debate to my earlier discussion with Chris, and also just writ large as they've looked at finance is, like you said, pointing at the biggest institutions and just trying to do that.

Community banks are dying. Like I will remind everybody in the United States that in 2009, close to half of deposits in the system were in banks outside the top 20, and now that number is probably a hair under 20%. That is a staggering decline over the past like 20-ish years. And it's not showing signs of reversing, but those are often the places with the most alpha for local lending, as you've said, Ram. And the problem is in the modern world, we're compacting all of the duties of being a bank into like 12 dudes in Arkansas, which is nearly impossible. But this model of how about we have a pool of capital, we allocate it to the people with alpha, with

lending, we take that back, and somebody else can do the ALM and maybe the KYC, and like run an anti-financial crime program. It is a decentralized bank. Um has a real place to be, and crypto is just completely punted on that. >> Yeah, well, they don't recognize it because they don't entrepreneurs don't have that background history or knowledge. Most crypto entrepreneurs think that JP Morgan is going to eat up these community banks. But they don't realize that these community banks make loans and service customers that big banks don't. JP Morgan's going to service Microsoft and GE and help their debt and equity financing needs. And if you're raising money below a certain level, you get kicked out to Jefferies for middle

market. And if you're if you raise money at a level below that, you're in the land of the lost. And that's where community funding can come into play. This is also true for social media. People are big critics social media, as they should be, but you have these gatekeepers in LA that are tastemakers now. When in fact, creators can raise money and get underwriting from their customers who have unique position to assess I you know, I like this. That's the assessment. And they can fund it and share in the promotion of it and align with the upside of it through a share of the ultimate profits.

So, no one's gone in these area. That's the non-consensus opportunity. It's also the obvious opportunity. The The challenge in crypto is that it is such a momo category that people leap after the latest hottest thing. Oh, agentic commerce. Let's go do the machine-to-machine thing. Instead of saying, show me an underserved customer segment with a large TAM, with a pain point that I can address. >> Yeah, you're talking about utility. You're talking about the democratization of finance. But I'm sorry, in equity markets, they chase the shiny new toys well, all the time.

And what you're saying, the reason why you're saying that is because it's a retail dominated market. Uh and I think that regime is changing in crypto as we speak. Uh it's hard to change retail. I think retail is changing over time. In my career, I've seen retail become much much more sophisticated as they have better access to information. I think AI's accelerating that, but you're right. People can't help it. There's a reason why so many folks are obsessed with prediction markets now as they've come on the scenes. >> Oh. >> Um >> Well, Craig, you're you're right. Wall Street's about the hot new shiny thing. We know how that ends, too. We know the space stock's IPO had a up a trillion, now down a trillion, now it's underwater.

We know 3D printing was up a bunch, now it's down a bunch. We know cannabis was up a bunch, then it's down a bunch. And that story is going to keep playing out again and again. So you're right. It's actually the onus falls on the venture crowd. Cuz even the venture crowd doesn't understand how these small banks and regional or regional banks intermediate credit. That's the issue. >> No, I >> following the VCs. Good. >> Ram, I think you've hit something really important here, which is if you're looking for market disjoints, you want to look for the area where there's a structural problem in understanding.

That is definitely these banks. And what's interesting is because of how bank holding company act and like laws around investing in banks work, it's not easily fixable for a non-bank to do this. To some extent, one of the most profitable things you could do in crypto is probably create a banker's bank to facilitate for these people and then take the deposits and form a stable coin. >> Yeah, I think you're onto something. Like you have you have indicia of traction. You just gave an example of that right there. In others, like the growth of the SBA 7A loan program.

>> Yes. >> Right. It works it works. You can graft onto that. You can build around that. You have channel, you have distribution through these banks. You can extend upon that and right have an equity component, have a a debt funding crossover. You've got players like the Fiservs and the FIS's and the Jack Henry's of the world, these oligopolies that are trying to maintain relevance, too. They're leaning into stable coins. Uh their stocks have been hammered. They want relevance. They want to help their customers grow, too.

And it's it's the kind of innovation that Congress should get around because it's about helping the local communities, you know. Congressmen are supposed to represent the community. They want to help their local community banks. >> You know, I want to say something un >> Go ahead, Chris. >> I was going to say something un-unpopular and and Ram, you you were critical of venture funds, and I think that's a fair criticism. But venture, you know, in its true form is a very noble endeavor. It's a very noble profession. >> Mhm. >> And it it's the reason why our country and our economy is great. What do we do?

We accumulate capital from investors and we go and we try to find the best entrepreneurs in the world that are building real value, real utility and trying to to solve some of the world's hardest problems. That's that's that's what venture is supposed to do and and and the and why? Because they want to drive asymmetric exponential returns to the people who trusted them with their capital. >> Yeah. >> Very noble profession. I think it's gotten um like it like other things, there's good, there's bad and there's ugly and I think in many cases it's transformed into hype chasing. You know, these these strategies are are typically multi-year strategies, 5-7 years. And so, you know, it's a noble profession.

>> Um >> Yeah, 100%. >> And I think I think there's an opportunity, you know, to refocus on what you're talking about. What is crypto? Democratization of finance. Capital formation, right? Where do you apply that? And you guys are, you know, identifying a huge issue. Community banks are dying, guys. That's the problem. How do we use crypto to solve that community-based lending? Very, very obvious. Very, very obvious as one of many solutions. >> I agree with everything you're saying, Chris. It is a noble profession. I mean, VC is like basic research and a subsidy for the rest of us.

They're doing these net NPV investments and we all get better off for it. So, I I agree with that and I I also agree that it's about refocusing where venture is. The other thing I'd add to your point is the venture invest some of the brightest people in the world. Extraordinarily talented people. Uh they usually created wealth in a narrow field and they want to deploy that and invest in paying the future, which is also a wonderful, wonderful quality. It's it's about focus. So, if you go to McKinsey, they'll charge you a million dollars and they'll sell you a PowerPoint presentation. And what the PowerPoint presentation says is focus on a niche underserved segment that has a big pain point they're willing to pay for. That's it. That's strategy 101.

>> What's What's What's Anthropic going to do to that business model? Sorry. >> You know what's funny about that? Actually, it's a really good point. So, like the big old consulting firms are getting destroyed. You've seen the stock prices. They're growing, but their stock price is getting hurt. But the specialized consulting firms, I talked to a guy who's on a board of one of these, and they're getting referrals from Anthropic, actually. Anthropic hires them. Explosive revenue growth. They It kind of reminds me of like Sapient and Razorfish from the dot-com days. Like everyone needed a website overnight. So, you had these public IPOs come out of nowhere.

Then they went away. In the same way that when people needed a prompt engineer 3 years ago, that that JD is gone now. I do think you have this explosive demand for workflow tailoring over the next 2 to 3 years until the technology becomes so much more usable that even the demand for that goes away. >> Yeah, the other thing I heard this week when you look at this intersection is um tokens. Right? How often are we hearing about tokens for AI? And I I felt at first I was like angry. I'm like, "They took our terminology." Every All these big institutions are spending tokens for AI. Tokens for AI.

I think those And now you're starting to see some manipulation amongst those tokens. So, if only there was a technology that could prevent things such as double spent, um I think that could be interesting. But yeah, spot on. And like you hear about all these people firing cuz AI is coming. It's not that. It's just restructuring and repurposing. It's a re- It's a refocusing of skill sets. So, I'm not worried. >> So, as a final point to close out on, I will tell everybody one of the things that you would need to do to get this right though is bilateral education on these exact topics. It's part of why we do this podcast, but there is an open door. Like, I'm going to remind everybody that French Hill,

the chair of House Financial Services, is a former community banker. >> Yeah. >> There are definitely people who will listen on this exact topic. And by the way, French Hill is a gentleman. Like, I am a New York Democrat who he called to testify because he thought I had good ideas on crypto, and he treated me very well. So, like, the door is open there. You need to find a bridge between these two spaces to unlock that. >> Yeah, he's a very thoughtful individual. I mean, he would understand what we just described, like, capital formation in communities riding with the channel that small banks have created. He would He would get that.

>> Absolutely. All right. So, on that note, we are out of time for this week. So, thank you for joining us for this episode of Bits and Bips. Special thank you to Laura for joining us. And we'll be back in 1 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/bitsandbips for more disclosures.