Why Jensen Huang's Open Letter Is Reigniting AI's Biggest Fight

Transcript

It's a marginal impact in the market. I mean, international investors have access to US securities. It does expand the market somewhat. You know, it's it's cute. It's a toy. Nice. We have ADRs on chain. That's what that is. It's not transformational. Transformation is where the opportunity, the excitement is. Hey everybody, welcome to Bits and Bips, where we explore how crypto and macro collide one basis point at a time. Now that my mic is working, we're here to discuss the latest stories in the worlds of crypto and macro. And just remember, nothing we say here is investment advice. Let's talk markets for a second. Bitcoin's around 65 to 64K today. Brent is down significantly.

Range has been 86 to 89 after closing at 100 on June 23rd. 10 years at about 4.65. FOMC hike odds are at [music] about 36% and they will decide on Wednesday. Now, before we get going, a quick commercial break. 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/chained.

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>> All right, as always, I'm your host Austin Campbell, high scholar of Zero Knowledge Group. I'm here with my usual two co-hosts, Ram Alawalia, maester of wealth, leader of Lumida, and Chris Perkins, the golden hand of Franklin Crypto, who has heroically stayed up late into the night to join us from Asia. However, we also have a very special guest today, Lorenzo Valente, Raider of Arc Invest, director of research. So, we're going to talk a bunch of things, but to start with, let's quickly take a beat on clarity. Um, there is allegedly a motion to proceed expected on Monday or Tuesday, but it's not certain that we have the votes. Uh the

live wire that we have right now is essentially that Senator Also Brooks called the White House's offer on ethics quote an unserious author and says she won't support the bill in the current form. Uh crypto groups are pushing for clarity to get 60 votes. So the Democrats most seen as getable are also Brooks, GGO, Warner, Cortez Mastro, Booker, Hickinlooper, and Waro. Some of those names will be familiar to you from Genius along with of course Gillibrand. But I think one of the other problems that we're hearing about now is fragmentation on the Republican side.

You may have lost Rand Paul. You may have lost Holly. You may not have Mitch McConnell showing up for a vote at all. Excuse me. All of this means polyarket odds are now below 40%. So Chris, I'm going to start with you. What are you hearing on this one? How are you feeling about clarity? Yeah, it's a numbers game at this point as you mentioned uh what's the path to 60 votes and what we're seeing you with every any bill that you saw we saw this with Genius things get really weird towards the end and that's where maximum politics takes hold and that's the era that we're in the 38% from poly markets a little bit concerning uh because it is and uh you know as as time goes on we're

seeing prediction markets are really starting to get pretty good at this stuff um but But I'm also very encouraged by what I'm seeing across broad industry. Uh we came out today and said that we were supportive officially of the clarity act. Uh saw Black Rockck did it. Um Charles Schwab. So so you're seeing a lot of buy side members coming together and saying that this is important. You also saw people like Goldman Sachs say as well and like for us folks around the table who have been around you know traditional markets for a long time. It's very rare that you get buy side and sell side you know sometimes together pushing uh in the same. So what does this mean? It really means that we're down to politics and that is the issue. Um anyway, go ahead

Austin, you have some thoughts. I'll add some more later, but um there is um here's my biggest here's my biggest concern. What happens if this law is not passed? Okay, if you are a Democrat who is against this bill at all costs or a Republican who hates this bill, what happens or a bank, by the way, like I said last week, I think all the banks love this bill. We get federal preeemption. It's going to be great. It's going to unlock business models. But you have to think about the counterfactual. What happens if this bill does not pass? Where are we? Well, we're back where, you know, this in this era where if if the issue is ethics, where those ethics, ethical provisions where we did make some progress are not

part of the law anymore. We're back to where we were. If you're a bank, you're back to the old Genius Act quote loophole. Um, so we're and if you're an entrepreneur, you're less to having that. You're back to having decent certainty, frankly, because our regulators are giving it to us, but it's not enshrined. And so I feel like, you know, through the rational lens, we're much better with a law than not a law, whoever you are. Uh unless you're trying to make political points going into um mid midterms. And then it really comes down to what I said at the very beginning, numbers, calculus. Uh [snorts] if you're Senator Schumer, does does your platform get you to a majority? And how are the numbers

looking? So we're in the maximum political error of clarity. So, I'll pile in to say I think it's pretty clear that the finance industry, the crypto industry, and to a lesser extent the tech industry have all made peace on this bill. And if it passed in the current format, I don't think anybody would be particularly upset by that. Right? I think the descriptions that we've heard coming from each of these groups of where their views are now are all varying forms of we can tolerate it slashwe support it. I agree the problem is strictly political and I think that problem now exists on two

fronts which I think is not well understood. Front number one is the classic Republican versus Democrat in the Senate. where are we going to get to the balance point assuming that we're attempting to advance a bill? But front number two that I think is a little bit less discussed and is something that changed with some of the recent primary results is within the Democratic party. Now I think you have the moderate Democrats and the far left also staring each other down. One of the dynamics that I am worried about is that you will get a lot of no votes from Democrats over the ethics provision that could have been yes votes a couple of months ago until you saw big wins for the far left in places like New York in

elections. And now they're worried about these people breathing down their neck. It may be that there's no space between what Democrats are able to do to protect themselves from their flank and what the Republicans will accept. and that that has quite frankly nothing to do with clarity itself at this point. Lorenzo, what do you think? I see you nodding along. >> Uh yeah, I guess I think you guys have summed it up pretty well. I was looking at the the thread from Alex from Galaxy, which is pretty good honestly on on each provision. Uh which one was kind of accepted extended?

I think the bottom line is like it seems like it's the like you there's you know some stuff on illicit finance like conflict of interest like consumer protection but it seems like really it's uh it's um the DOJ only enforcement right at this point and I think um you know it seems like Austin from what you said to get to 60 vote you need like seven or eight Dems at this point >> more more because you've lost some Republicans you Right. >> Right. So, I think it's pretty unlikely.

Honestly, it seems like the ethics provision is kind of the most important point here. >> Only somebody on this show had been saying ethics would kill this bill for months now. >> All right. Well, before I cause more trouble, >> not dead yet. Not dead yet. >> It's not dead yet. There's some real Monty Python vibes going on here as it gets thrown on the cart. Okay. >> I mean, what when is the recess like? in in like two weeks a week like it at this point like it's >> time is not our ally. Time is not our ally.

>> Right. >> I think I think the way you said it right is is correct is that it's about politics and politicians are the issue. >> Yes. >> And the political incentives aren't there on either side. >> It's better to look like you took a shot. You tried to help the industry fail to go raise money because you have a lot of single issue voters in this category around digital assets that are willing to pay for political outcome in the form of campaign contributions. >> Yes. >> So that's what's happening here. This is not going to pass. They're going to say we gave it a good shot. It looks like that terrible video of the woman from Brazil who went bungee jumping and you had her friends taking a video shot from nearby uh and they wake up like oh what happened? Well you were there you know.

So, the politicians uh are going to win because they're going to extract more rent concessions from the constituency. >> All right. >> So, three three nos and one still yes. Is that where we are? >> I'm holding out hope, fellas. Look, if we go to a vote, then people are going to have to be on the record. I think we're going to go to a vote. And when they go to that record, they're going to start running their algorithms and saying, "Hm, how's this going to affect my midterm? how's fair shake going to weigh in on this? And so I I just don't think that these numbers, these algorithms are very volatile in their outputs as well. And so I think you can't I mean 38% is not 0%. So I I still think it's alive. Uh but 3v1, we'll see

how it plays out. >> Donald Trump won a presidential election with much lower odds in 2016, right, Chris? >> Yeah, but that that was when we were relying on polls, not prediction markets, which made me a little bit more nervous. Um, and look, if if we miss August, does it get overwhelmed by um by midterms? Yeah. But, you know, does that mean that it's dead forever and ever? Probably not. Um, but it's Yeah, it's going to take a while. >> All right, speaking of things that have been going on for a while, AI, um, let's start with a bunch of different facts that are now rolling down the hill about AI capex and the open weight debate. So, one, Alphabet had a very good quarter. stock fell. Anyways, their quarterly capex had hit 44.9 billion,

pushing free cash flow negative to 5.9 billion, the first negative in their 22 years as a public company. It bought back zero shares for a second straight quarter, a point Rahm, you have been on about for a while. So, we can come back to that one. fullear capex guidance was raised to about 200 billion and the stock fell 7% uh on the day of announcement. So couple of points here Chimath has said do you know what Google's 25-y year average return on invested capital has been since going public? 32%. When you're a machine that compounds money at 30% or 32% over a 20-year average, you

give these guys the benefit of the doubt. The best thing that could happen to them is 500 different models proliferate and then they support all of them because they will make so much money at the silicon layer. They'll make so much money as the cloud provider. Jason Calcanis piled in fragmentation is good for them. So here's the bare case going the other way. Uh Mark Cuban said exact quote there's going to be a lot of data centers that are going to be turned into pickle ball courts. They're spending all of their cash flow on capex and then they're borrowing on top of that. That's planning for perfection.

On the president, he said fiber went from one gig to 10 gig to 100 gig and then there wasn't a bandwidth problem anymore. And Bur uh has been saying around and around we go. Nvidia guarantees 200 billion of chat GPT spending on Nvidia chips. So the sharpest framing of this question kind of splits some of these things apart. So Jay Yun said Google's capex is in two buckets. Internal compute for Google where the returns are weak and external compute sold through Google cloud to anthropic and open AI where it's supply constrained and priced well.

And this ultimately has been seen elsewhere in the market. miners are selling power into this. We've seen a lot of the crypto companies starting to sell into the data space. Um, you know, a good example of that is you have HUT leasing a campus. Imm doing cloud services contracts. Terowolf has a 20-year anthropic lease at roughly 19 billion. You're seeing people pile in on this. So before we get to the open weights component since I've said a lot, I want to take a deep breath and let's start Rom. I know you've been talking about some of these points. Let's start with you and then go to Lorenzo if we would like to unpack this. What do you

think is going on here? >> Yeah, great great framing. So I find myself in agreement with Chimath. So I have to kind of pinch myself and double check my premises there, but he's he's correct. So the question is this. Is the capex productive or not? Are you getting a return on capital? Is there a return on invested capital? So, Google's generated 24% year-over-year revenue growth. So, the revenue has gone up in lock step with the investment in capex. When you look at the capex, you've got to break it down by vintage. Google's revenue went up this year because of their capex investment last year.

And what I'm sharing the chart now here is a chart of Google stock price on the top and below is the uh PE ratio trailing. Now [clears throat] the bull case is you've got a high quality asset that's trading below the 200 day moving average and whenever that's happened it's been a good time to buy and the valuation on the PE ratio is also attractive right now. The bears are saying, "Hey, that earnings is artificially high because your advertiser spreading out the capex over many years. The in-ear costs are higher." Now, that's true, but they're showing the wins on the revenue side.

That's the relevant consideration. There are cash inflows that are real, that are there that are growing double digit. And then you just take another step back. What about the trend? The trend is in tech. AI adoption is real. We see it in doubledigit growth at Google. Microsoft will report soon. Amazon. These businesses are are sporting 40 to 50 60% growth. Google's earnings grew 80% year-over-year, by the way. It's just outstanding. They have strong capital allocation. The president of Google is a former Morgan Stanley investment banker.

They're very capital allocation disciplined. So I actually bought this name after reported and it was down 7.3%. I think within 20 minutes of nailing the bottom I posted on X2 went to an overweight. We were market weight before but I think this is a great high quality asset. They're also uniquely positioned because they have lower cost. They don't have to spend as many on the video chips. Uh they can internally consume any excess compute and if they uh and they also have an installed base of customers. Google one year from now may well be the largest cloud business on the planet which is which is says something because they were a number three they were the the mut in the

litter the uh they were a trailer now they've positioned to leapfrog ahead of their competitors so we think it's interesting the adoption story is real it's a good trend I think the fears around capex are overblown for Google >> so Lorenzo you may know a little bit about investing just you know as a setup for our uh audience here if I were to lob the ball to you and ask what are you making of the current like landscape and AI what are you thinking about this right now?

>> Yeah. So I think I I agree with the with the Bram. So look like when you when you look at the the cash flow chart per quarter of Google [laughter] and you obviously see the first quarter in history I think some investors are obviously sweating right like this this was the safest thing in the world cash flow generative machine and so obviously you know it raises some some eyebrows um look as you said it right like I think there's a couple of different concerns like most of that u you know some of that goes to pre-train training Gemini and inference on Gemini which is like their own their own model and I think part of the concern there is you know it's not frontier right if you compare

it to like open AI and anthropic and it's not competitive with the open weight models either the cheap models that you know we're probably going to talk after uh so so that's number one I think on the the pre-training and inference side the AI cloud business as Ram said like for anthropic and open AI look there's you know there's like 1.5 trillion of compute backlog I think in the next few years so I get the the the analogy with dark fiber with like the there is like real demand there right like there's real demand I think uh you've seen openthropic submit the um the confidential S1 so it's been a while

since we hadn't had like a an an update on their revenue and I I think it's part of why these topics are coming up and also Everybody's making a fuss of like Kimmy 3 model and open weight, but it's like I assume like we're going to get an update at some point and like both of them combined are going to go towards like probably 100 billion AR uh most likely in the in the coming months, right? Like Anthropic was at 45 billion and open air I think near 30 35 billionish. Uh and I think we're going to see, you know, more more revenue. Uh so yeah, look like it's it's an investment cycle. We think the return on invested capital here is going to be

fabulous and so uh we're you know we're not we're not concerned uh obviously. So that's kind of you know the the arc uh house view I would say. >> Yeah, it's I think Google has to double down when you're when you're in the tech industry. It's there's always barbarians at the gate. um people are always disrupting you and so I think across this across the board they're like not not in my house um you know we're going to double down we're going to go on offense we're going to win this space and I think to Lorenzo's point I think uh like Gemini's doesn't seem to be as competitive but I think it will be ubiquitous and it'll be integrated to entire their entire suite and we're using Gemini all the time and

many of us don't even know it at this point I imagine um but I know we're going to talk a little bit about the the open weight versus close weight debate here and like what we seem to be in like this max like bat protocol thesis now in AI or you know everything's you know attributing to the to to the foundation um and eventually the apps will will take charge but open versus closed weight is really really where crypto comes in I've been thinking a lot about this lately and if you look what AI is doing it's really disrupted um web 2 it's really disrupted and and I would say even Google we're showing this with Google right now as they're having to double down and change their capex and everything else. Um, we had SAS apocalypse, right? And and the one thing

that I don't the light bulb hasn't gone out on yet, and this really plays into the open versus closed debate. And you saw, you know, the all-in guys, you know, bantering about crypto versus AI, AI versus crypto. I got news for everybody. AI and crypto go hand in hand. If there's one technology that will power be powered by AI, it's crypto. And and I think the ethos of open weights is starting to play in. Um you know we published a piece Sandy call uh my colleague published a piece this week around the rise of the agentic economy and how it's it's really happening. Whereas SAS was disrupted by AI, crypto is going to be empowered by by AI once we get through some of these

security issues which which are getting solved. Um that's where my head's starting to go and I I just think it's under discussed. Uh, but I know we want to talk about open versus closed. And you know, I think all of us on the I don't know. I think at least one of us, two of us on the call are going to agree that open weight is the way to go. Uh, as as apparently does Jensen Wong. >> Well, let let's get right into the Jensen thing then. So, he posted I think his first ever post on X on >> Y. >> For my first post, I'm sharing a letter Nvidia signed on why open models matter. I'm going to summarize this using his own words like clipping out the most important part here which is open models strengthen safety and cyber security accelerate innovation and diffusion and

enable sovereignty. The world needs both frontier closed models and frontier open models. So the letter that was signed had 25 signitories at the start. Many major names on there including Nvidia, Microsoft, Meta, IBM, Hugging Face, Mistral, A16Z, Y Combinator, and Palunteer. Big ones missing. OpenAI, Anthropic, Alphabet, and Amazon at the start, but OpenAI and Alphabet have signed. Anthropic and Amazon are the holdouts.

Two days prior to that letter, Axios had reported OpenAI and Anthropic were lobbying the White House to curb them. So, let's talk about commentary online. I have reshared a thing my friend Nick Carter, former podcast guest, has said is the point is simple. The US government does not owe either of the large labs a business model. If the economics of selling tokens doesn't work due to distillation, cheap clones, or Chinese AI magic, essentially, so be it. Later this week, he said, "If their business models get exposed, better that they fail now when it's VCs and LP Capital at risk and not the general

public." Likewise, this fight, honestly, some pretty juicy drama. Um, Julian Schitweiser, technical staff at Anthropic, had replied sarcastically to Jensen. I'm so excited that Jensen is a believer in open source now. looking forward to the CUDA and GPU driver open- source release. Andrew Angang in the same thread, this is false equivalence. Everybody has the right to keep their code private. The problem is when someone tries to stop others from open sourcing. And David Saxs, White House AI adviser, said the entire tech industry, save for anthropic, has come out in favor of open-source AI. They won't stop until they kneecap opensource. So

the safety case was made by an anthropic researcher saying essentially that's just not true on the letters claim that the community catches vulnerabilities. If open AI's model that hacked hugging face had been open way quote anyone with a few chips could run it safeguardf free. Um the way I would ultimately put this I think is from Joe Weisenthal of Bloomberg. All these CEOs are investing heavily in closed source AI. How is this just not textbook virtue signaling that would immediately be called as such in any other context? So open weights closed weights and I

specifically Chris want to start with you because I want to start not with an economic question but with a structural question. If we live in a world where we accept that Chinese openweight models will continue to be a thing globally regardless of what we do in the United States, what does it say about what our approach needs to be in the United States on this? >> I think that there, you know, obviously we're big believers in open source. Uh we think that having looked at the Chinese models, you know, they're not a panacea. Um where's your data going? who's using your data, how, you know, and and yes, maybe you can in-house them, but these things are

not, you know, necessarily enterprise ready. Um, they're cheap, they have some benefits. I'm hoping that we, you know, competition is a wonderful thing. Competition is a wonderful thing in markets. It will accelerate um, development in a positive manner. Um, one thing that I think is really interesting about what you just talked about is the fact that we're now starting to see the major AI companies really finally ramp up their advocacy work in DC. Uh, we haven't seen that previous. They were late to the game and my understanding is that they're the capital that they're pushing into that space right now is on par with uh with with the crypto industry or is quickly approaching it. And so I think they're going to take a lesson from the crypto

industry. Um, look, that said, We're at the beginning of the story, not the middle or the end. We are technology is surpassed policy. Uh and it is moving at a pace that is very very difficult for many of us to fathom. Um in the end, what do we want? We want principles based approach. We want transparency, predictability. We want to be, you know, we don't want our civilizations to end obviously. Um but look, in the end, I'm I'm a big believer in open weights and I hope that they uh they win. Lorenzo, how are you looking at the openweight thing? I think you're a strong believer in the overall space.

How does this impact your view? >> Yeah, I think I have like maybe a more balanced take and also like a take from the investment side of uh of things, right? So like first of all as Chris said like these openw weight models are not the panacea like it if you look at Kimmy K3 in particular right um it's like half the price of Fable or Opus fight right but like he uses more than twice the tokens so if you look at it like from a per task perspect like we went from like which is the most performant now which is the most performant per number of tokens and now like per task which is like per unit of

cost, right? And so if you look at that like you don't you pay pretty much as same price and you don't get you know Frontier performance. So it's not like the like Kimmy K3 in particular it's not like 10x cheaper uh than than than Opus and Fable number one. Um number two is look I I think from the investment side uh and you know we're invested in both open and anthropic right if you look at which was I looked at this like earlier this morning right so uh deepseeek is raising right now you know it seems like they're raising at more than 70 billion of valuation they're I think over like 600 million of run rate uh kind of

revenue and moonshot AI which is the lab like that created Kim K3 I've seen some stuff like at 25 30 billion, right? So like those are and Chris those are huge venture outcomes, right? Like I mean forget about open AI and anthropic which are like have the cost of us like to over a trillion but like like if you take out like open anthropic like cursor was bought like at 60 billion and XAI was basically rolled up into SpaceX but it was kind of an internal thing. So it's like those are one of the biggest outcomes in AI.

Why don't we have competitors in the US? Like we have the best AI researchers. Why can't we compete like at the open weight uh uh front? And I think the dirty little secret is most of these models are probably distilling a large portion like to be trained from like US and probably like China is subsidizing a lot of the the first party API like inference or even pre-training, right? And so like the reality is like we have no idea what the cost structure of these models is. And if it were like obviously like this selling is um forbidden in the US which I think is the main reason why we don't see $50 billion deeps walking

around like in the US. I think we have the infrastructure we obviously have the talent and so like look that that is kind of the only point. I think the the other thing is just like uh data bridge concerns right it's like look uh if you look at open router I think like 60 or 50% of the token volume comes from a Chinese created uh um models but like most of that is hosted like in US inference right it's not hosted like in in China and granted like you can you can run this on prem and this is not something you can run on your laptop to be fair like you need a data center but like some some kind of like close like on prem there's still concerns I think about about uh data bridge right and

this is not like this is not new you know I I I looked into this like for cellular networks like I remind people like Huawei is forbidden like in the in Europe to build like cellular towers and I think it's the same in the US right and so why is that I think there's just not enough evidence that you know there are no data bridge or security concerns honestly and so I think as you know as long if we have like a regular that comes in and say, "Hey, like this model, you run it on prem, you're 100% sure you're not going to have like, you know, a data leak or or a data breach." I think that that is fine. Otherwise, honestly, I think for a lot of enterprises, it's just going to be tough

to use some of these uh these open weight models. >> There will be there will be room for closed weights as well. Um and and so totally different strokes for different folks. And you know it's not not dissimilar to um crypto where some people will want an intermediary like like intermediaries are never are never going to go away like there's a lot of value that intermediaries provide. I think what I what I but at the same time there should be open waitings as well that complement and let the let the market choose. Yeah, the the industry what's good for the public are open weights, right? The world needs more lowcost abundant intelligence, lowcost abundant energy, lowcost abundant robots and care and labor. So that's what open weights

delivers. If you uh are anthropic or you're open AI or you've got a proprietary model then you live in a closed weight world and you want to extract rents from that proprietary IP. That's their natural incentive and they're entitled to do so under capitalism. Now capitalism has distillation as a part of our core feature. Right? The Wright brothers created the airplane in 1905. A decade later, new companies, high- growth companies like Boeing and Loheed Martin were formed, distilled the Wright brothers IP and created these new uh planes and form factors. The Wright brothers Wright brothers did not benefit

from that. That's just called competition and capitalism. So let let the market play out. Let's see how it evolves. I hope that we do see successful open models. I also hope that the closed model framework can win too because they can then raise capital and fund more R&D. So, let the market do what it does best. >> Well, on that note, then let's take a quick breath there. Uh we'll go to our second ad break and then we'll be right back. >> If you hold crypto on your phone, your biggest vulnerability isn't your wallet, it's your carrier. AT&T, Verizon, and T-Mobile have been breached again and again, and SIM swaps are still one of the easiest ways for attackers to drain

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>> Hey everyone, we're back. All right, so for our next topic, we do want to talk a little bit of macro, especially as we have a couple of people in the investing world here. So, one couple of wars over the weekend continue to drag onwards. Ukraine stuck uh vessels in the Caspian Sea. Uh, Zalinski said the targets were carrying military cargo between Russia and Iran. Iran called it a commercial vessel, reporting a sailor killed. Um, Yaroslav Tropham, the Wall Street Journal chief foreign affairs correspondent, said the two wars have officially merged. Iran's foreign ministry said the strike cannot

go unanswered, and Tyrron was still threatening retaliation against Ukraine this morning. >> [clears throat] >> US and Iran. They both paused strikes over the weekend. The first multi-ight pause in about two weeks, I believe, uh with Tyrron and talks with Oman over Hormuz traffic. Again, Brent had already fallen significantly as a result of this news into today. Um the tenure hit on the 23rd 4.7%, its highest since Jan 2025, still hovering in the 4.6 6 range the last I checked.

The Fed is also on Wednesday following all of this news. Odds of a hike are allegedly at 36%. Uh but at no point over the last month or two have those odds reached 50%. But again, this is fairly odd to see such uncertainty so close to a meeting is the quote from Jim Biano. He also said since the financial crisis ended in 2009, the Fed has held 135 FOMC meetings. Only four had enough uncertainty for the probability to be between 33 and 66% in the days leading up to the meeting.

Bianc's read on why this is about the end of forward guidance. Bitcoin sits around 65K. So, I'm going to start here. Rahm, this time with you from the investment angle and then Lorenzo, which is what are you making of all this action? Is this a nothing burger or is something going on here? >> You know, markets are saying that we're seeing a peak in this conflict. You feel like the price of oil today and energy stocks. You we trim some energy names today also. I don't think this is much of an issue to worry about. Markets have had a lot of time to price this in. Oil is still well off the highs. More supplies coming online. market actors are adapting.

So, I don't think it's I don't think it's really an issue. You know, Trump is uniquely focused on the midterms. He is concerned about uh the House going towards the Dems, in which case he will be a lamed up president. He will not be able to advance his agenda and he will be under tremendous scrutiny. So, his focus is on getting gas prices down and getting out of this conflict as quickly as possible. He's going to do that by jawboning hawkish rhetoric and then walk it back two or three days later. And that's been pattern and practice. I see no reason why that would change.

>> Lorenzo, what's your take on the situation? >> Look, honestly, I haven't been monitoring this uh as closely. I think for us, like look, like the ETFs that we have like they're very forward like they're they're disruptive innovation ETFs, right? Uh and we have we're very long-term investors. we have like five-year outlooks for a lot of the the companies that we hold. So, you know, to to be totally honest, this this doesn't change a lot uh uh for for us. >> That makes sense to me. But I would also say to some extent there's some signal in the fact that you haven't had to be following it closely, right? Because like let me ask you in the opposite direction. Was that your view when this

war started originally between the US and Iran or were you monitoring it more closely then? >> No, same. It was the same. Yeah. >> All right. So, long-term thesis unchanged short-term noise. >> Yeah. And I think we had a high house house view that things were going to get resolved pretty quickly, which obviously, you know, hasn't panned out, but yeah. >> I you know what? I'm actually gonna say something that I think might surprise people. I do think that's kind of what happened. And what I mean by that is while there is obviously not been a formal sessation of hostilities and both sides have been trading punches occasionally, we've settled into a

relatively stable equilibrium that markets seem to be able to price with only occasional disruptions. So while things are certainly not over from a geopolitical standpoint, I have not seen big market girrations in the way we were seeing them at the open of this conflict as both sides trade punches. Chris, what do you think of that? >> I think sorry to be master the obvious, but Ukraine and Iran have been related since day one. Um, and I I it it's just so obvious to those of us who study it. Vladimir Putin had a lot to to to gain in the early days by having Europe and America distracted with Iran. And I think he was very happy to see that that kicked off, but now to your point, this is kind of stabilizing and and and not

in a geopolitical sense per se, but like there's a stasis that's been reached and so it's like not at the forefront of like all of our minds constantly or the market uncertainty is priced in. My my sense is that this is going to drag for a very long time. you know, we'll trade bombs, you know, and and the other thing that the Iranians have going for them is time. Time is on their side. Donald Trump will be out of office in a couple years. And so, it's not that's not terrible amount of time. Look at how long the the Ukrainian war's going on. So, the good news here is that we've we've we've reached a sort of stasis and the markets have are digesting. Um, which is wonderful. I think Rahm's point is spot on. It's all about it's all about midterms.

got to find a way to, you know, if you're Trump, you have to find a way to to somehow keep the House. Definitely want to keep the Senate. Otherwise, your life's going to be hell. And and so, like, in the beginning, I'm pretty excited that, you know, there's a 35% chance, according to Poly Market, of a rate hike. Um, why? Because I just don't see it happening. And and that means that the market, I I guess, isn't fully there. It's, you know, and there's enough there's enough uncertainty that that hey, there could be one. I just don't think there's going to be a rate hike particularly this cycle with with this chairman um and the conditions that we're seeing. You know, we haven't seen the worst of the worst. We haven't seen $200 oil. Um don't think that's happening. I think the market's adjusted

to that. So, I would expect personally maybe some more tailwinds between now and midterms to the extent the president can try to pull it off. >> All right. So, I want to hop then to what will probably be our final conversational topic, which is RWA taking over crypto. So, there was a stat I saw that started it uh from some guy named Lorenzo Valente, if anybody knows him, that said, quote, "For the first time ever, Hyperlid generated more volume from RWAs than crypto in a single week. RWA accounted for 54% of total trading volume. the numbers which were total decentralized exchange perpetual

volume of 79 billion that week. Hyperlid was 50 of which 26 billion was RWA trading. Lorenzo, you said Hyperliquid's RWA volume alone was larger than the combined crypto perpetual volume of every other DEX and that since June, single stocks have overtaken indices and commodities on HIP3 and 61% of all RWA trading volume is in fact individual equities. So here's the thesis and I'm going to throw it to you first. It said, "I'm no longer convinced RWA trading will naturally aggregate on the same venue as crypto. There will

likely be category leaders within RWA and owning BTC ETH Saul flow may become far less important than many people assume. Do you want to say more about that?" Yeah, look, I I'll think the background on this is I think the industry is going through like a huge transformation uh uh the crypto industry and I think a lot of the I don't know if we'll talk about that the shutdowns of exchanges has actually like a lot to do with the with this. I think there's a few things, right? Um Hyperloop just a juggernaut, right? Like they're continuing to grow um basically going toe-to-toe with Binance and some of the biggest exchanges out there. Um I think number two is we've seen like during the Iran

war just the amount of trading volume on commodities right on oil and then we saw preipo stocks on hyperlquid during like the cerebras and spacex IPO and so I think these you know these products just like have tremendous product market fit uh on chain like they use a lot of the core you know global 247 like you know worldwide reach and it it's pretty clear that you know they they have a very strong product market fit right and and I think if you ask me like two or three years uh back when we were like underwriting a lot of investments and things like that like if you weren't able to compete in terms of liquidity with like you know the Binance the centralized exchange on Bitcoin ETH and

Soul which were like the majors right you needed to attract that to get like the the traders uh it was like a pretty hard case to to make right and hyperl started like that but within RWAS like it's pretty clear it's very possible like a year from now like it's going to be 755% right like 75% of hyperlquid volume is going to be like RWAS like commodities indices uh single stocks like it's very possible and so within that new market environment you know it's very possible to bootstrap like very large exchanges that are more you know category focused like within uh within in RWA that you know cater more

like to institutional or like to consumer kind of uh of trading. And so um you kind of saw that with with prediction markets, right? Like prediction markets had huge product market fit and they didn't even need to bootstrap like the early BTC ETH soul kind of uh uh uh traders. Now they're they're adding that. Uh, but it's pretty clear like I think there's going to be a lot of winners on the RWA tra trading side of things. I think for the traditional exchanges, the everything exchange stasis when you're seeing like Robin Hood, Coinbase, like they're going to have to compete also like on uh on on those assets like not not only like Bitcoin, uh, Ethan. So, and so yeah,

that that was kind of, you know, what we were thinking. >> Chris, what do you >> There's a different Yeah, there's a bit of a difference. So, I hear you on hype and I and you know hats off to those guys. It's been incredible. I'd probably say that the disparity between real world assets and crypto will probably be bigger going forward. Um why? Because equity is $127 trillion market cap. You know, crypto's three. So, you're going to obviously see more activity. I I think what I love about what we're seeing is we're taking legacy products and we're using crypto technology, as Lorenzo said, to improve them. you know, for certain products that are yielding, you can pay intraday yield rather than lose it 247 global transferability, blah

blah blah. So, so that's the beauty of what we're seeing, but we're but we have some challenges like hyperlquid right now is banished offshore. We really haven't seen PERPS take hold on single stock per even more complex. This is an SEC, you know, this is going to be like an SEC security-based swap. We don't have security based features to my knowledge in the states like it. What I'm saying is that the technology surpassed our policy and the good news is and and our regulation. I think Robin Hood and Coinbase will be formidable.

You know why? Because they have the the they have the access to these markets and when you talk to the hyperlquid team, they're trying and everyone else by the way, they're trying to say how can I enter this market which is the biggest grandest market. Um but but we still have some challenges. We have the CME suit on swap versus future. Um, does it really matter what you call this thing? It should really come down to how it's risk managed. These should be very very capital efficient products. Um, so so the US remains an open battleground for all of these folks. We don't have winners yet. I do think in the medium-term you'll see consolidation around a couple of winners. Generally in derivatives markets liquidity concentrates at one place. We don't know why. It just happens and then then

people take off. So, you know, don't forget Khi. They have the regulated footprint as well. They've got the pers market. They're doing some really interesting things. So, uh I'm looking forward to eating some popcorn and watching how how the battles begin. But yeah, this is going to be a brutal battleground. Um there's a regulatory aspect, there's a commercial aspect, you know, and then where are the institutions? Um a lot the proponents of institutions can't touch Hyperlid yet despite the the uh the the success that they've had. they want to um early days exciting times >> so I'll pile in here I want to raise an interesting point [clears throat] that I observed in what was being said there and then Rahm I actually want your take on this one it appears that the RWA that

is getting most people's attention from a trading perspective because I know from a payments perspective Chris we've talked plenty about stable coins and the underlying architecture was singleame stocks And I'm guessing hypothetically, Lorenzo, you correct me if I'm wrong. That's probably not US people trading the majority of these things because trust me, we can get stock trading just fine over here. I've got eight brokerage accounts on my damn phone. So, Ram, what does it mean for the market if we're going to get distribution of US stocks either through perpetuals or the actual tokenized versions of stocks themselves on these platforms?

It's a marginal impact in the market. I mean, international investors have access to US securities. It does expand the market somewhat. You know, it's it's cute. It's a toy. Nice. We have ADRs on chain. That's what that is. It's not transformational. Transformation is where the opportunity, the excitement is. So, it's not novel capital formation. It's not opening access to new forms of lingan and credit to underserved populations. Those are more exciting up to. We've obviously talked about this in the past. You know, if you're an entrepreneur, VC, you want to get a cup of coffee, I'll write you a business plan, tell you how to get after this. We've talked about this for quite some time. There are opportunities with RWA. There's opportunities are not going

after the most crowded parts of the market, right? What does Peter Thiel say? Tell me something that's obvious to you that others don't know. Instead, what this market does is they run after the most obvious thing like lemmings and then go whole hog, crowd the capital under it, and then jump over the cliff. They wonder why they're not seeing better performance. Well, this is why. By the way, some breaking news here. Um, so speaking of just RWA, so there's always something always something. I'm gonna share my screen here real quick. Did you guys see this? This came out recently.

>> Oh boy. [laughter] founder of Multicoin. >> He says, "If you're building in the Salana ecosystem, you should understand that multicoin, which he co-founded >> is working against everything you are building." Now, if you if you wanted an engagement bay, he did that 130k. I don't think that's his goal, though. I don't know. This is something. What's going on here? You know, >> I mean, I'll I'll start by saying it's pretty obvious that Kyle and the folks at Multicoin have had the kind of ugly breakup that I probably haven't had since college. Like both sides hate each other, right? Like they're throwing punches back and forth. They've

materially diverged on thesis. He left with the affiliation with a Salana DAT. Multicoin got significantly into hype and I think I will gently say that one feels personal, right? Like I would suggest on an investment basis, hype appears to be winning. So I'm I'm curious like Chris, you've been a VC before. What do you make of this sort of public fighting? >> Um, you know, I I you hate to see it. It it's the reality of many situations. But um I understand why you say it hits it's hits really at its heart because you know Salana was this monolithic machine.

It is a monolithic machine. You know we're going to maximize TPS. We're going to be the decentralized NASDAQ. Um and generally if you're the decentralized, you know, exchange, you win in derivatives. Hyperlid comes along and uh has really challenged that underlying. But look, the Salana guys are fighting back. They've been really digging into tokenized equities. Um, and you know, I I still have my ear to the ground saying, "Hey, what when are they going to get some kind of derivatives product market fit? I would love to see it." Um, and you and look, hype's moving in their direction as well, prediction markets, uh, HIPP4. Uh, so like you love to see the innovation, you love to see the competition. I'm fortunate that, um, you know, you see that kind of public spat

love to both um both coin and and Kyle from my side. I got no beast any of them. What's that copy pasta from a few years ago? It said, uh, this is not good for the industry. This is not good for the family. >> Yeah. No, I recommend no more news. Like >> recommend this. You put that in that bucket. Like, you know, this is the issue. This industry isn't focused. That where's the focus? You know, you need to see winning. You need to see points on the board. >> Yeah. You need to win, but like we're decentralized, right? So, it's >> people are not the industry. The industry is not are not the people, right?

>> There were always themes even with decentralization. You had many actors trying to accomplish different things, but there were there were themes people were getting behind. You know, the >> yeah, >> the animal spirits and the soul of this industry is just weak and fragmented. There's a lack of just good thought leadership that's just not there anymore. It's weak. It's fractured. People going into AI. >> Who's the main character now, guys? Who's the main character now? We need a new main. Maybe Lorenzo can be the main character. >> I don't know. That's a good point. >> There's no main character. That tells you like you don't have that that ideological sparring or some momentum behind the scene.

>> Yeah. But the shelf life of of a main character is like less than a lieutenant in Vietnam. It's not good. So >> So Lorenzo, I want to throw the ball back to you with a last question here based on something that you previously said. RWA's diverging from crypto trading. All right, let's accept that hypothesis is true. Next question. Do all the RWAs end up in the same place or are we going to start seeing similar fragmentation to traditional industries where you'll have like stocks, bonds, commodities over here? Like how let's take the hypothesis. Where does it go?

>> Yeah, it's a good question. It's hard to say. Hey, look, I I think uh derivatives and synthetics like hyperlquid are just faster to market. Uh like for for spot like it's going to take a lot of time honestly like more time like we've seen this. We're look like we're we're trying to tokenize some stuff. So I can really talk be you know we're we're trying to do a lot of this stuff. uh you need to work with the issuer and and I'm I'm sure you guys you know securitize superstate are working on on on this some of the companies bullish acquired equinity which is like the one of the biggest transfer agents like you need the you need to play ball with the with the issuer right and and it takes it takes time uh there's a lot of legacy IM infra like custodian transfer agent you

know you need to integrate with these system so that's going to take time right I think for derivatives like Chris said like most likely it's going to aggregate like towards like one or two venues which is what we've seen even in crypto right like Binance has like pretty much like 50% of the of the the flow like in in BTC derivatives within RWAS like I'm not sure you're going to trade everything in the in the same uh venue right and I think uh we're making investment there like we're looking at that uh and so I'm I'm I'm less sure uh about that >> but the reg the regs comment period should be coming to an end and for those who don't remember it's the national market

standard national best bid an offer where looks like Atkins is going to kill that that that could result potentially if if it's waved in maybe a little more fragmentation but like at the end of the day consolidation of liquidity makes sense because you can afford yourself capital efficiency you can put yeah desperate you can put correlated products together for better capital efficiency that's the natural state affairs particularly as institutions come in the All right. So, on that note, we're going to call it here for today because we're at time. So, that is it for us on Bits and Bips. As for all of us, 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 unchanged crypto.com/ bits and bips for more disclosures. Come on. Come on.