Larry Fink & Stanley Druckenmiller Describe the Bitcoin Endgame

[music] It all comes down to computers communicating. >> The information [music] superighway can be a confusing mix of on-ramps and off-ramps. Bitcoin is [music] worthless artificial gold. >> Is it still rat poison? >> Probably rat poison squared. >> We need to get into [music] the world of okay, this is actually foundational technology. What the internet [music] of money does is it creates a single network which can do a microtransaction [music] to a giga transaction. [music] The internet is going to be one of the major forces for [music] reducing the roll of gun. The one thing that's missing but that will soon be developed is a reliable ecash. Hey guys, welcome back to another episode of Final Settlement. This was uh an exciting and action-packed episode. No shortage of M&A deals and um new products and releases in the ecosystem. Quick word from On-Ramp, an on-ramp business specifically. I'm not sure we've had a chance to share it here. We launched this a few weeks ago. Incredibly excited about the product. Um, we announced a case study with a large firm, but also really foundational infrastructure needed for businesses across the landscape that are adopting Bitcoin as a treasury reserve asset. Not only is multi-institution a superior way to custody the underlying than trusting a single custodian, but then naturally what's existed or what hasn't existed in the digital asset Bitcoin um world is governance accessbased controls and everything that generally exists in the traditional financial system has not been ported over when it comes to just treasury management of the underlying Bitcoin. And so with on business institutions, enterprises get access to multiple users. They get access to uh creating quorum of quorum. So they can decide on who has access to uh check off or approve a transaction before the withdrawal takes place and then you get complete audit controls as well as multiple uh wallets, different quorums, everything that a large scale institution would need. Really excited about this announcement. and we're starting to onboard publicly traded companies as well as other large institutions. If you want to learn more, I'd encourage you to book a consultation or reach out. All right, on to the episode. I hope you guys enjoy. All righty, gentlemen. Welcome back. It's another episode of Final Settlement. Today is Monday, December 8th, 10:11 a.m. Michael's battling a flu game. We've got Liam here as always. Gentlemen, how's it going? >> I just thought about uh we're at this like, you know, 90k. and was wondering if we like went back 12 months or wherever when we first crossed 90K like how different uh the pod conversations sentiment um could be a good good thing to go find. >> Vibes uh yeah vibes are probably pretty different uh >> you know going into the '9s the first time around certainly felt uh felt a bit different than than dipping back into the '9s. I will say the '9s do feel a lot better than the 80s. Are we are we still above 90 right now? Yes, slightly. Um but uh lots of things to get to on the show today. Um lots of news and headlines and deals that are sort of focused exus. Um so sort of a a global theme or an international theme in terms of developments. Um I think it's it's easy for us to get lulled to sleep by US- ccentric policy whether it's on the regulatory front or deals and M&A but uh there's a lot happening next US. Before we get to some of those headlines, we did want to play a few clips um that stood out to us over the over the past week or so. This first one uh from Stanley Junken Miller is actually an older clip, but it is uh it's one of Michael's favorite quotes that gets quoted in here. So, uh we thought it was relevant here, so I'll pull it up now. Let me know if you guys can hear this. >> Well, my idea of risk control is a little nonconventional. I like putting all my eggs in one basket and then watching the basket very carefully. I think uh I don't know what they teach at Marshall, but at most business schools they teach I think a lot of nonsense called risk adjusted return and diversification. as a money manager, >> if if you look at a normal portfolio, most people will make 70 80% of money that year on two or three ideas, even though they'll have 30 or 40 things in their portfolio. My concept was to put into those two or three ideas that I had the most conviction in. I was also lucky to travel across asset classes. So, I traded commodities, currencies, bonds, and equities. and it gave me the discipline. If I didn't have a good idea in equities, I was happy to have no equities or the same thing with bonds. So, when you have a quiver with a bunch of arrows in it, you can usually find something to put a lot of money into. The only other thing I'd say is too many investors look at the present. The president is always is already in the price. You have to think out of the box and sort of visualize 18 to 24 months from now what the world is going to be and what securities might trade at. You know what a company's been earning is ridic it doesn't mean anything. What you have to look at is what people think what a company's earning what people think it's going to earn. And if you can see something two years it's going to be entirely different than the conventional wisdom. That's how you make money. My first boss used to say, "The obvious is obviously wrong. If you invest in conventional wisdom, you're going to lose your butt." >> Which one was it, Brian? The obvious obviously wrong, or the uh I mean, that clip by itself, you could just play on repeat and dissect and probably end up uh as a world-class investor versus, you know, the the notion of selling your um winners to buy losers and diversification. There's a lot in there. When I think of um concentration, when you think about like Bitcoin multi-institution, these are just like seismic uh opportunities, Bitcoin denominated investing to lead. But then uh the other side, if you peel back, and I'm sure this means different things to you guys as well, is um diversification of custody. You see this happen a lot where individuals to institutions will go park assets across five to 10 different locations. And everyone knows complexity is the enemy of security, but they do it because they have no idea where their losers are. Um, and so I've always been a big fan of you put your eggs in one basket, specifically with Bitcoin, it's been the best performing asset, and then you find the best ways to custody it. It's not to say there's only one way to custody for all your assets. And the same way, you know, your gold or your dollars, you don't leave it in one exact place. Um, but there's just a lot of timeless wisdom there that for whatever reason, you know, they like laughed and said, "Oh gosh." posture. He said something there and I listened to it and it was just like it's all very pretty straightforward. >> Yeah, the the crowd reaction is funny because I think what he's saying there um while it's sort of been his personal philosophy for a long time and and there are others like him, it does sort of fly in the face in in the face of sort of traditional thought around investment portfolio management when it comes to diversification. And really like that's what the 6040 represents as a as an idea or as a concept um is is diversification and you know spreading your your uh bets across various things. like I I think you're spot on with the custody parallel where my mind goes with it is more so just like the broader crypto landscape and and people getting distracted and conflating broader crypto with Bitcoin and and so you know I think if you look at a lot of the moves by whether it's stride firms or fintexs uh or banks that are now you know figuring out their plan for for digital assets um a lot of their motivation in doing stable coins and tokenization and all these other things is rooted in that thinking around diversification i.e. we don't know where the real value lies. So, we are going to spread out our bets across all of crypto tokenization, stable coins, do some Bitcoin things. Um, and so it's it really comes from a a lack of domain expertise on one hand. Uh, but then also just this this sort of framing or this thinking that's existed in in the Trady space for a long time, which is diversification and spread out your bets because you don't actually know what's going on. and and so it's sort of a tell in terms of like you know if you're looking at these firms and the the moves that they're making uh it's a tell that they're not really domain experts um and they're trying to figure it out but at the same time they don't really know where to focus so they're trying to kind of be everything to everyone um and so I think that that's you know even if you just look at cryptonative firms that have been here been around a while like a Coinbase like they have a similar methodology in that they're not just Bitcoin focused they they do the whole casino um and part of that again is is um stems from this thought around well if you don't actually know where the value lies then you need to play in all of it. Um so that's kind of where my mind goes but I agree with you on the custody side as well. >> Yeah both very good points. The real other thing that just came to my mind too was when he was talking about how he's able to focus on a bunch of different industries whether it's bonds, commodities, equities, etc. and um if there sometimes there's just no opportunities that are really appealing in any of those different industries and over time and he's been like all right well I can put my eggs anxious in whatever basket is interesting to me across a large spectrum but in reality over a long period of time that's not really been possible before the invention of Bitcoin because you know um I mean maybe it has been with gold but over uh like every year the growth of money supply is 6 to 8%. And so, um, you either have the choice of chasing, you know, potentially overvalued investments that you're unsure will really yield, um, returns over the risk-free rate. But now you can just kind of hold that in an asset there where there will only ever be 21 million and um really use that as the way in order to you know just save your capital and until you find the right uh opportunity that you want to put the the coin to work. >> Yeah, it's a good point. I mean the the the option for gold has been there to your point, but you know that has been out of favor as well in the trady world and sort of um uh you know most institutional portfolios have had very dimminimous allocations to gold over the past call it 20 years and yeah if they if they had larger allocations they would have outperformed their peers. Um and a lot of that came from the past two years of performance in gold but um again over over long time periods that that would have been the case. Um, so I think it is a wake-up call and and now you're seeing effectively the the debasement narrative continue to to manifest and percolate and uh I saw some chart over the weekend that was like Google search trends uh for the word debasement uh have spiked to like all-time highs. Um so that that's continuing that's continuing to to be out there um as a thing that people are thinking about. And then the the next question is well how do you actually protect against those things? Um real real quick, one thing on that that's fascinating is um like the notion I mean it truly is like this uh this idea of um like zygu/ um there's a shift happening because what Liam says and what he's sharing about gold like it's the same concept around people in Bitcoin when you think about well it doesn't have cash flows you can't do anything with it it doesn't fill to the overarching narrative of a 60/40 and where you would want and so this is where the same idea of like Bitcoin has been very hard for any investor including institutional investors to allocate. But there's this uh I was think of um the one of the guys from Bloomberg he calls like you know everyone wants a little hot sauce in the portfolio and he's referring to Bitcoin. Like Bitcoin's hot sauce will be the thing that actually gets it to cross the chasm of like everyone being like, "Oh, well, this isn't just like a small sliver for like uh zealots or ideologues because it'll be the volatility that was very interesting aspect of the first 17 years of Bitcoin. The volatility was its its friend in the sense of the having uh the reflexive nature. So brought more people in. It outpacked its weight when it came to like everyone talked about Bitcoin even when it was $10,000 because it was this thing. But then also the uh techn technology aspect of it when you think about what is it getting embedded into from crossborder to net settling with other assets to lending to technology when you think about it being infused across the internet and it will be that thing that like is able to cross the chasm because you can see gold going to 12k and people are still like well what do I do like I don't know how to go buy gold I don't know how to lend against it and bitcoin has that extra those extra facets that will help bring it to everyone else. Yeah, those are great points. Um, and you know, it it kind of bridges to the next clip, which is more recent. This was last week. This was Larry Frink at um I think this is the New York Times Dealbook Summit that they do every year. Um, but just some very telling comment commentary here from from Larry Frink around um the Bitcoin ETFs and what he's seeing on the ground. So, let's see here. We're seeing more and more legitimate long only investors investing in it. There was an article about a a foundation endowment just bought a lot of IBIT. Um but I can tell you there are a number of sovereign funds that are standing by. They're adding incrementally at 120 at 100. They I know they bought more in the 80s. >> That's fine. And they're they're establishing a longer position and you own it over years. This is not a trade. you own it for a purpose. We're seeing more and more legit. >> So, lot lots to unpack in there as well. Um, you know, he's he's referring to sovereigns plural, multiple sovereigns that are accumulating IBIT. Um, and importantly, like they're legging into they're building positions. It's not um, as he says, this is not a trade. I think that's probably the most telling line of of that entire clip is that he he is not thinking of this as a trade. So what has been deemed the debasement trade proverbally um Larry Frink himself uh actually doesn't view it that way. He's viewing it as more of a structural change in terms of the monetary order and and people wanting to protect themselves against debasement and um that's not just a quick trade. It's a it's a longerterm thing. It's a multi-year multi-deade um type investment thesis. And so I think uh you know what we do know in terms of the sovereigns uh Abu Dhabi has been adding to their position in IBIT. Um it seems like there's others. Uh but what what did you guys make of this clip from from Uncle Larry last week? >> Yeah, I mean I think it was timely based on all the news that was coming out of Tradfi with uh Vanguard and other firms getting in the mix. Um to your point, I think the thing we've been talking about for probably the past six to 12 months that feels structurally different is it's not a trade because what happened with gold? Um it just came out this morning that I think um Russia's gold reserve smashed through over 300 billion uh for the first time. So it's 42% of their national reserves. So basically 50% of their you know sovereign wealth is sitting in gold. And I think that um it was always this idea that once the sovereigns made their positioning and started allocating it doesn't go back. And so we're kind of like in this debasement narrative moving forward. And so even if we do these retraces like this is a global macro asset and you're going to have the challengers looking to keep on par with other uh sovereigns stacking gold. And what better way to do that than stack BTC. And so we've seen that with uh Abu Dhabi, uh UAE in general. Um but then across Asia Pacific, there's other countries and we'll touch on some, you know, new businesses getting launched out there. Um but yeah, I think the fact that it's geopolitical in nature also changes the entire like market structure from well, where are you selling towards if you start to realize you're going to gold and Bitcoin? Are you going to sell for bonds? You're not doing that. Maybe land. Um >> yeah, I think going back to some of his prior comments, uh Larry Frink, I mean, uh really over the past 12 to 18 months and some other interviews, he's deemed you know the the Bitcoin investment as um sort of resulting from fear in some sense of like if you are fearful of debasement, if you are fearful of um the loss of purchasing power, then this is your alternative. And so I think embedded in that sort of to your point, Michael, is like it's not um you know, the move is not to add to your your overvalued equities or your um overvalued real estate. It's to take it away from those things that you think are uh likely to lose purchasing power relative to other assets in your portfolio, sort of go forward over the next decade, call it. Um and so it's it's a reaction to, you know, what's happening in the world. Um but it's it's you know I think he's he's referring to it almost as this sponge like this can absorb um the capital that needs to go somewhere and likely doesn't want to go into overvalued equities. Um so it is sort of this out this um uh way for people to allocate that um gets them away from you know either negative yielding bonds or super overvalued equities like it is kind of the only alternative um sound money assets. Um but Liam, did you have any thoughts on that or or we can go to some of the uh the global headlines that we referenced at the jump? >> Yeah. Um I mean the only other thing that's uh definitely newsworthy coming out of it too is just because the um I think it was Mubata was um the one that back that's backed by Abu Dhabi sovereign um wealth fund and they said that Bitcoin is both a short-term and long-term core position uh similar to gold as a way um to store their wealth. uh and you're obviously just seeing at least that ind uh area of the world get a little bit more um more invested in in Bitcoin and and you know probably digital assets as a whole. We'll see. Uh they're kind of seeming like they're um you know putting Bitcoin and gold in the same bucket rather than Bitcoin and the rest of crypto. We'll see if they uh I don't think they've allocated to any of the ether stuff, but uh you know the Bitcoin Mina conference and and uh Middle East is definitely very crypto friendly and know that that's going on right now over there too and and uh know there's a couple other Middle Eastern topics too that we want to hit on. >> Yeah, that's a good point around the just the bucketing of of you know whether it's the sovereigns or even the Harvards of the world over the past couple months. It is very interesting and important in my mind that they are bucketing it with gold. Uh both Harvard and Brown when they disclose their IBIT positions, it was in tandem with the gold position. So I think that is kind of critical in terms of like well what are what are they actually doing from an investment perspective. They're not looking at it necessarily as this uh hyperrowth tech investment allaher crypto. They are looking at it as a hard asset uh more akin to gold. So I think that that is very important framing for just like what are they actually thinking um and how are they going about this. But um as it relates to um Abu Dhabi, there was this uh around Binance winning full ADGM approval for exchange clearing and brokerage options. Um this probably feels like a long time coming as we referenced Abu Dhabi has been uh accumulating uh Bitcoin exposure. They've also uh gotten into mining. Um so I think Liam, you brought this, but what's uh any takeaways from this? Yeah, I mean, uh, they also invested through MGX, uh, I think it was two billion in Binance earlier this year. I got to imagine that there's a lot at play here. Um, both one trying to get their, you know, get alternative and differentiated like we kind of talked at the top of the show, I would imagine that they're hedging their bets in where their custody is. And I bet that IBIT is one relatively small sliver because they're obviously doing mining um and you know investing in finance. They probably are asking them um to create their own custody solution in order for them just to um manage their own funds. And then, you know, probably something that's uh outside of Binance's scope where they can, you know, not have Binance or any other entity be aware that the Bitcoin addresses are um you know, known by any other third parties. So, I mean, that's that would just be my guess is um what's going on here, but the first company over there with ADGM licensing is is very big. the um region's obviously getting very large into the digital assets world and those are all a number of different countries that kind of follow each other's lead too and so I would imagine that the rest of the um region just uh like obviously knowing commodities very well probably hedges a little bit more into this area as well. Yeah, there's um there's a lot there in the sense of I think the big one overarching like a lot of the um national or global you know greenlighting of crypto it really comes from the west for better or worse when you think about ETFs getting approved uh approved it's really between I don't even know whose hand you know is kind of guiding whose because you had like fatif back in the day and there's western um like European and Switzerland, some of the rules around travel and asset movement, but end of the day, like the ETF approval and the new administration kind of really positioned everyone else to say, "Okay, now we need to have a plan." Um I don't know if it's just gains theoretical or if it's more there's just you know hands that kind of move geopolitics and this was one of them but either way um Binance has basically been rogue for its whole entire existence and them moving their uh office their data centers there matters for a number of reasons some that Liam touched on when it comes to well if the UAE and GCC countries want their assets sitting there they don't want them sitting in a different uh jurisdiction like um you know wherever I guess Coinbase would be San Francisco, but then Black Rockck. Um, but then ADGM in the UAE is um there's ADGM and the main two uh governing bodies are VAR, the virtual assets regulatory authority, and ADGM, my understanding, and VAR is more in Dubai. um that ADJ just has more of the older money, more of the oil money that's tied to that region versus VAR in in Dubai is more of a I don't call it transactional, but it's more of this like um central hub for east meets west and people that are coming in versus not people that are based or um have been in the region. And so that ADGM is a lot more I would say conservative um and they only allow for actually certain number of assets to be offered there. at least historically it was like the top quotequote blue was like top four currencies in crypto. Um but yeah, I think the only other thing is just this notion of game theory sovereigns becoming more friendly to these asset classes and the amount of capital that's fleed across the world given all the craziness that's happened since probably CO is the the most you know best uh kind of line of demarcation there. Money is moving to this region in this area. And so it's super smart and strategic for them to, you know, really put like a flag down and say like this is where we're operating. These are the people we'll serve and to build out global financial services um out of, you know, the UAE in general. >> Yeah, it's um something you said in there just around the you know the game theory aspect of it. I think that is very interesting to me just in the sense of what I kind of alluded to at the jump. It's like, you know, we're very focused on the US and what's happening here and and you know, I think there was a lot of fanfare at the beginning of this administration around executive orders and the Bitcoin strategic reserve which, you know, we still haven't gotten the audit on on how much coins the US government holds. Uh there was another large seizure of assets in the third quarter. So, we are building a reserve even if we haven't bought net new Bitcoin. Uh that reserve is growing via seizures. Um, but there's been a little less follow-through than I think most people expected. But despite that, I think the the broader takeaway here is that like there have been knock-on effects as a result of even just that fanfare. Even if the United States didn't follow through on buying Bitcoin, which with budgetneutral uh strategies or or however they phrased it, that kicked off effectively an arms race of of some kind um to say, well, you know, if if the US administration is going to be at at the very least favorable to the to this industry um and wanting to sort of reshore a lot of the innovation that was happening that left during the prior administration, then like it makes sense from for us as a game, you know, from a game theoretical perspective to to put our chips on the table as well and build around this new industry. And so that would be the biggest takeaway to me is like despite, you know, uh maybe things taking longer than expected here in in in the states, it's really, you know, been a shot across the bow across all other countries to say, well, we need to have a plan here. Um and and you know, that's what you're starting to see here. And so we have a couple other links from other countries that we can we can go to. Now, Michael, I think you brought this one. uh from Argentina weighing offer uh weighs allowing domestic banks to offer crypto services. Yeah, there was nothing real specific on this one. I think it was more of just the overarching um if you want to rattle off, I don't have it in front of me, just some of the I think it was like Indonesia. Um so like Argentina there, it's not fully green lit yet, but the fact that banks may be able to offer crypto services. There was Indonesia. I believe uh Robin Hood bought in a crypto exchange there to get live um in that market. There's uh Coinbase turning on India again. And then I think there was one other um you're actually seeing a lot of stable coin businesses start to be invested in uh in Latin America as well. I think there's um it's just truly a fascinating time when you think about money and capital movement. It it was making me think about earlier um when you think about like treasuries, swift and capital flows and the fact that it's been you know known for a while now that in the UAE um in Qatar and other countries they've been mining um you know with different forms of energy Bitcoin. But like how insane of a proposition is that that you just like take your natural resource, you mine it to like this asset, it goes and performs and does what it does and you can net settle in local currency, you can net settle in some other uh commodity good from uh any country on the planet earth. You can net settle in dollars if you want dollars. It's it's kind of a wild proposition. It's actually more wild that people don't know about it yet because imagine if everyone knew all of that across the world. How many countries would be like, "Oh maybe we should go put 10% of natural production uh and energy to go and just mine this stuff." >> Yeah. No, 100%. That's um there's a lot of countries out there with uh with excess energy. Basically, all of humanity as a species were very inefficient with energy. A lot of energy gets wasted. Um and so that's that is sort of a massive top of funnel and I think that's exactly what we saw happen in the Middle East, right? like before all these announcements around partnerships with Binance and uh accumulating IBIT, you know, for the past couple years, there's been rumors of them getting into mining as sort of their first fora. And it makes total sense um if you have natural resources or assets that are otherwise not monetized. Um why wouldn't you monetize those and and be able to settle into whatever currency you want? So I it makes total sense that that would be sort of um a an initial fora or path for folks to get into it. Um and then you build on that, right? You build around well then we need infrastructure players and partners in the region to to help uh bring financial services to people that want to engage with these assets. Um so it is it's a logical path forward. Um Liam, any any thoughts on either of those? Uh I was going to bring up the the block rise raise because that's sort of XUS as well. Michael, I know you wanted to talk on that one. Yeah, I think maybe it transitions to to that is um this is kind of where we're really bullish. I think in honestly every country because they're pretty much the same um country, continent region of the world, they're all pretty long crypto digital asset innovation, stable coins, and they're frankly pretty short Bitcoin and Bitcoin um innovation and Bitcoin financial services. It's a strange dynamic because I don't know really how to uh articulate it outside of you have like the fringe. You even think about like the Paul Tudtor Jones and we've talked to like people on our podcast and and I'm almost sometimes curious like how they custody because I think they're forced to like have it on a hardware device. Um and there's just not robust like market structure financial services for somebody that's holding this asset from 10 to 90% of their wealth. And so that was, you know, the idea behind Honor Amina and the excitement there in that region because there's so much capital and there's so much uh energy and inertia moving in the digital asset space. But at the same time, the smart money gets it. Like it doesn't matter if you go into a boardroom in Texas or if you go in a boardroom in Dubai or Abu Dhabi, if you go in trying to sell 10 currencies or a basket of cryptocurrencies are all valuable, like people can smell your your grifter. Like they can just feel it. And so it's it's just a crazy dynamic where you're shortch changing yourself by not actually being principled and being direct and going very deep on this one singular asset. And so anyway, that was the opportunity there. And I think that opportunity will exist in every country and then every continent and every region in multiple forms and fashions because it's not going to be one winner take all. And I think that ties into the the blockrise guys and what Yos and those the teams doing over there. Um because I think it's super impressive and they've been building, you know, infrastructure around Bitcoin for a while now. Yeah, that that domain expertise is something we've talked about a lot. It's um it's a really good point. You walk into a room and you're selling 20 different cryptocurrencies. Like you're actually selling nothing because you don't actually have a view. You're you're ignoring the view. You're going for the diversification play. Um and so it's good to see folks like Brock Block Rise um based in the Netherlands uh being principled and being focused on on Bitcoin only um and building around the asset in that way. Um, >> one thing um I was thinking about like keep me honest like how crazy is it that um we sit with this asset you know $2 trillion I think most people listening you know the market that even pays attention to it including Larry Frink is like this is groundchanging this is you know fundamentally um it's a radical new asset everything we know but nobody has not only addresses but has any plan or or um plan, I guess, is the right word for when the asset is $500,000 or a million dollars. Like there's no foresight. There's no discussion around how Coinbase doesn't work at that point. They already kind of don't work. They're understood uh by anybody in the industry at $800 billion. So, what happens when they're at 3.5 trillion or whatever? And so, you have that problem. And then, well, it's like, well, where do you go? Um because Coinbase has the track record, so you're going to go somewhere else. And then um you got Ledger and Treasure that exists on these like devices for 17 years. People put, you know, their first $10, $100, $1,000, even if it was, you know, $10,000 Bitcoin and you had $100,000 in disposable income or um being able to allocate. Well, 100K into a ledger, you know, it was probably still something. If somebody was worth a couple million, it's probably not a big deal. But now that same individual, if they're buying 10 bitcoin, it's roughly a million dollars and and that's only at 100k. So what happens at 250 and 500 and a million? And then you take into well what happens when bad people know? So because we're at two trillion, so what happens when this is a 20 trillion asset? Uh and you just start to like l when all that liquidity comes in, it just doesn't come into Bitcoin. comes into derivatives and lending and uh and then the maybe the biggest one to round it all out is a long way to say like what happens when you've never had a digital bearer asset in human history live online like it's just never existed and so uh it's pretty fair to say the level of sophisticated bad actors on there will be unfathomable because from anywhere on the planet earth whether physically or uh digitally you will be able to steal tens of thousands hundreds of thousands millions hundreds of millions or billions of dollars and now you go from two trillion to 20 trillion. So the bad actors that like XYZ now like to go and try to figure out how to take your Bitcoin. And the best we have is we got a Ledger, we got Coinbase uh or Binance, you know, it's just a very interesting dynamic that doesn't um doesn't get talked about. And so >> yeah, as long as as long as criminal networks are still like focused on stealing Rolexes off people on the street, like you know, uh the the crypto attacks are still going to grow from here. Like you know, we've we've seen more of it over the past 12 to 24 months in terms of kidnappings, ransoms, uh a ton of social engineering, particularly on on platforms like Coinbase. Um, but all of that stuff to your point is only going to accelerate as the price appreciates and more criminal networks wake up to the realities of digital bearer assets, people holding, you know, these on hardware devices or just on exchanges that could be easily social engineered. All that stuff is going to increase unfortunately. Um, and to your point like no one's really planning for that future. Maybe it's most people are just bearish Bitcoin. Like most people are not as bullish on the asset as as the three of us are on this call. So maybe it's difficult for them to see it, but you would expect at least people building in the Bitcoin space to see it. And I think the notion around, you know, just Coinbase concentration obviously doesn't get talked about enough, but like you know, uh maybe Michael if you want to just put a finer point on it like one, I guess what is the real problem as as assets continue to centralize in the ETFs? You know, the vast majority of the issuers uh use Coinbase as a subcustodian. We've seen several different partnerships over the past 2 months of uh Tradfi incumbents or banks partnering with Coinbase for subcustodian relationships. So I guess my my question is like we we intimately know the problem here, but I think it it isn't talked about enough to your point, but like maybe illustrate like how this plays out if we just continue to let assets centralize in Coinbase. Yeah, I mean I think the biggest one there's a there's a lot of ways to navigate it, but I actually heard it from uh some crypto guys that was talking about um I forgot what it was. It was a recent commodities exchange that went down like the was it CFTC? I don't know if it was CFTC but it was something big and it was just basically they said if there's a single point of failure then there will be a single point of failure. >> It was a CME wasn't it? CME >> outage last week. Exact. Yeah. CME outage I think like you know settles trillions uh in any in a year and some crazy number in a um month and it was out for x an amount of time. But point being is Brian's there's like multiple layers to it. I think um from a fundamental layer I don't think people have underwritten gold and Bitcoin appropriately and understanding what made gold valuable and then ultimately where it failed and gold failed because of its centralization problem like full stop. That's just you know you end up with too many claims on gold and that's how you end up going off of a gold standard. And so if you extrapolate that while to get to $100,000 Bitcoin half roughly half held hardware devices as that asset appreciates it's actually we're seeing it in real time because I think it's at like $500 billion has like changed hands in this kind of like runup which is crazy because that's not like uh if a $2 trillion asset a lot of that's not for sale. So he's probably like half of the the total market has like moved hands uh in this recent move to 120k which is crazy. But point being is though a lot of those individuals aren't holding plastic devices like they're sitting at Black Rockck they're sitting in single party custody and as the asset continues to appreciate like it only makes sense we're going to monetize. I think we widely underdis discuss how Bitcoin will like back a lot of stable coins from an integrity of the underlying asset um the collateral but point being is well what happens when you don't have any visibility into where it sits um and that's just like one aspect the other aspect is like the more likely any single custodian gets the more likely they are to fail because you basically put this huge honeypot or bounty on the underlying custodian so whether it's 1 trillion 3 trillion 10 trillion the the ROI on that violence or on that risk Um, and yeah, so I mean that that's kind of like in a crux of it. Um, the the thing is that I don't think I said all of what I was saying because obviously like multi-institution is the is the way out of this and it'll be recognized. I don't think there's anything that can be done. It's just game theory and market forces. It's the same reason we're like we're like how do how would Bitcoin get to be money and how will everyone adopt it? It's like well they'll just do it because they need it and people will tell them and they'll see it in purchasing power. It's exactly the same thing for multi-institution custody. It's like once inheritance and the price appreciates and your kid being able to get it and if you're, you know, allocating on it institutionally gets over 03% and you got to like keep your job because you didn't pick the wrong custodian. like all these things and because in a vacuum in the same way that um people are sadly getting kidnapped, people are sadly getting hacked, people are sadly losing their assets is custodians in financial service firms will lose the underlying and then we'll just like naturally navigate uh organically to this world where you don't trust a single entity with your Bitcoin. Um but it's just a pro it's just we got we're so early. >> Yeah. And I think that on the other side too, um, most people don't trust single entities with their Bitcoin too and they generally think that's a scalable process. But when you think about most of people's assets being tied up in just money rather than investments too, it makes completely illogical sense for somebody who is like a well-known billionaire who is a Bitcoiner or when everybody has Bitcoin to have to essentially self- custody their assets and they probably don't want to do it themselves. So, they have to outsource or get some sort of specialized help for it. And then you just have a very big target on your back. And so that's also something that doesn't necessarily scale on the other direction. Um, so I just don't think that there's a lot of great opportunities out there other than just thinking about multi-institution custody. I I would agree that, you know, it's it's probably been thought out a little bit less than than we would have hoped. >> Yeah. I mean, I don't disagree with anything either of you just said. I will say maybe just to play play devil's advocate on on one of your points, Michael. um just around the you know gold's gold's failure and centralization and the paper claims around it. Someone could say well you know Bitcoin is a transparent ledger. It's much harder to um have paper claims on Bitcoin for example um and it's easy it's more um transparent and traceable so you could have better basically better integrity of of what's actually happening in terms of paper games. Uh what would what would your response to that be? Well, I mean, I don't fully know where you're going, but like it's transparent, but like we don't know how much Bitcoin MSTR has, >> you know? Like, we don't know. >> Yeah, we're not Yeah, we don't see the wallets. >> We don't see the wallets. We don't see We don't know how many claims, how many derivatives. Like, we can't It goes back to the proof of reserves. That's what's like unique. There's multiple facets. Not I don't even know how we're going down the multiision rabbit hole. But like whether it's like you know just financial products like inheritance um or IAS are great examples of like no device is going to last 35 years but people put it in their IRA and they know that they shouldn't but that's all that people like businesses have and the product so they they do it and have to deal with it. Um similar with inheritance like nothing's going to last 35 years but that's what we do. Um and so it's pretty straightforward. It's just we're this early and the pain hasn't been felt in awareness. Um, but I do think the biggest thing that's the most interesting to me is um I don't know if we talked about it here, but it just reminds me the the closest analogy is like when Uber was going to build their business and they pitched investors and because we just think in in different forms, everyone looked at the TAM the to addressable market for Uber as cabs and it's like ah or like black cars. it wasn't looking at well um if you make the ability to get uh value and um the opportunity to click a button on your phone that you're already holding in your pocket and something just shows up and takes you down the street like what does that open from the existing total addressable market for a cab and repelling that to who will use Uber it's hard to prove it's like proving a negative and so it's the same concept for me in Bitcoin is that most people can't get off of zero because they associate Bitcoin is a Ponzi uh or speculative, but what they're really saying is that I keep just hearing about it get lost or stolen. And so if they understood that there's no way for that to happen, um then you allow for them to open up their aperture and say like, well, let me like hear what my cousin or, you know, nephew or grandson's explain to me because now like it's not my problem. If I see something that is attractive now there's an easy solution. I just click a button. And then when you go from somebody that's off zero to 10% to 90% um well that opens up in the same fashion. And that's why like if we're going to get to, you know, billions of people using this asset, these are the tools that need to exist because it's the same thing of somebody wanting to like use a computer. It's just like click the button, the box gets delivered, you open up the PC and you're accessing the worldwide web. You click the browser. It's like this is what's going to have to happen because the majority of the world is not going to like figure out 12 words and put 90% of their wealth on there. It's just not. So, um, but that's the, you know, that's the conundrum that we end up in, uh, from people getting allocations. And I think that's why we still end up with this kind of like world where it's risk and what Liam, it's a risk on asset. William was talking about early in the pot around well you can just like hold this underlying and then you can make these decisions on anything that outperforms it. The problem is that most people again aren't thinking that way because they don't have any material exposure to Bitcoin. So even though that's the rational move, that's how early we are is like people haven't even been able to come to the conclusion that like the first step to get off the rat race is like just to like you know move to a Bitcoin standard or a larger percentage of net worth and then you can start to like think of the world in a more kind of um you know pragmatic way but you can't even get there because people don't know how to custo. So they would never logically like put anything over a couple percentage points of their portfolio in this. >> Yeah. No, that's a fantastic point and it's it's something we've talked about in the past, but that is really the the existing solutions prior to to multi- institution that that have been on the market really, you know, have pretty significant trade-offs on either side. And so, uh, that has stunted adoption in my mind. Um, you know, I think Bitcoin's at a higher price if custody was figured out. I think that's a fair argument to be made. Um, just going back to the gold comparison for a second, I think where I was going with it is just like I think that is a common rebuttal of like, oh, it's more transparent, so it's harder to have paper claims. The biggest difference though is that like the gold in a vault, even if there's um, you know, 10 to one claims on it. The gold can't really just evaporate overnight. And that's the big difference with a digital bearer instrument where if someone screws up custody, the assets could literally just be gone forever. Um, and so the stakes are higher in some sense in terms of securing private keys and and key management and generation and and how it's all secured. Um, and so that even speaks speaks more uh acutely to why you wouldn't want a single counterparty because there are no bailouts and there's no there's nothing on the other side if if they do screw it up. Yeah. I mean, and you take it goes um this is a fun conversation. And it's a fun business to be in because like I think some people probably listening be like these guys are nuts. They like the pod but they like were like I'll never give up my custody. Um and I have good friends in the space that are well known that are like almost like I know we want when like they're using us for a portion because like they want their family to you know be able to get something god forbid worst case scenario happens. Um and then others are like get it. But the reality is like there's not many people in this industry that have onboarded like thousands of people to hardware devices and and billions of dollars and we've done it um and then we've done this and so you get a real taste for like the market, its uh willingness, what it will adopt, what it won't adopt and where it's going to go. Um, but anyway, where I'm where I was sharing that is because like it came up and it's pretty straightforward even though it sounds crazy is um this notion that like there's all this stuff happening in uh uh Venezuela around like what who who whether we are or aren't down there uh and drug trade and whatever. But it's like it's kind of crazy or very naive. You didn't believe that the US government basically knows where all like narcos are at any given time like right like from satellites to just like informants whatever. But where I'm going with that is like those are like drug runners. What happens when Bitcoin is worth you know 10 trillion 25 trillion? Most people here listening probably think it's going to be worth you know anywhere between 20 to 100 trillion and nation states are holding this and everyone knows where the nation states are holding it and they're probably not going to like trust a third party for all their money. It's not like you see where I'm going with this is like well what happens when from a geopolitical perspective cuz you you made me think of it with gold and if they're shipping it and you go and intercept the the gold and you're going out and um doing something violent to get the gold but like in a world with drones and all this stuff like there's just this notion you're going to like park all these keys in this like ceremony like it's not going to be impossible. Like I'm fairly certain as quiet as Coinbase is about their underlying ceremony, like you can dig in if you're uh a nation state actor from like um like a CIA or whatever and be able to determine how they actually do their thing. And if they're holding three trillion and then like now North Korea knows that, like it doesn't even make sense. Um and that's where it all go because if you're going to have an asset worth hundred trillion dollars anyway, that just came to mind. We don't I've never really talked about that, but like why wouldn't it go there is would be the bigger question, you know? >> I mean, uh didn't it come out recently? I forget if it was Coinbase or Gemini, but uh like somebody from North Korea applied for the company. I'm sure that they've all tried to get like uh people inside just to kind of figure out what's going on from the inside too. It >> I mean that's what happened with the Bybit deal in February, right? Like there was uh infiltration effectively. >> Exactly. Yeah. And that's the the thing that people don't get is like it's always the term I think of is ROI on violence. It's like u the ROI on violence whether it's like physical or digital or um you know penetrating organization it's like well when the assets 100 bucks or a thousand or 10,000 or it's a couple hundredk or million it's not worth it. But as it grows you can create the most work uh like sophisticated bad um attacks. And so that's kind of where that buy bit deal came in. It's like how long were they working to in to infiltrate change the hardware devices and everything else that happened. >> Yeah. Um I know we have a few minutes left. Um Michael did you want to talk about um it's kind of related to what we were just talking about but like uh the upcoming survey round table that ramp is going to >> Yep. >> Yeah. This is super uh exactly related to this um and super relevant for anybody that is allocating capital to the space or looking to build in the space or lead the existing world or if you're in trfy and looking to figure out like who the winners are. There's a quote I think uh Liam put together is there's roughly 11 thou or maybe it was Brian 11,000 commercial banks in the US and only a couple dozen legitimate Bitcoin infrastructure firms. Um, and it's really this acknowledgement and understanding that as Bitcoin monetizes and digital assets, there's only so many infrastructure firms. There's uh three that stuck out to me, which is um uh Zero Hash that is still impending, but $2.1 billion acquisition, Privy by Stripe and for a couple hundred million. And then the Fortify uh acquisition by Paxos, which was about a hundred million. And these are all multi-party computation kind of like more high velocity crypto stuff. And these large trady firms are having to acquire at basically 80 $90,000 BTC. They're having to pay a king's ransom for these products because a they don't know how to build them and b um they know they need to make bets because there's only so many businesses. And so that's why we're really excited what we're building at Honor and Early Writers in the companies we're investing in. So we did an industry survey to get a sense of like what are the gaps? What are people missing? What do they like? what do they do not like? And so we're going to uh present the survey results and then discuss what we're seeing in the market and some of the opportunities we're looking at. Um so I think we can put in the show notes and then uh maybe I'll pin this on my Twitter and you can anybody can sign up if they'd like. >> Yep. We'll put uh we'll put the invite in the show notes for sure. December 17th, uh, 3 pm, we'll be discussing all the findings that, uh, we got from the survey and and sort of how we're thinking about the space from an early riders perspective, as well as, um, what on-ramp is building. Um, all right, boys. You want to wrap it there? There were a couple other US headlines maybe we can just uh run through quickly. Um, the CFTC news, I think, dropped uh after we recorded last week, but CFTC is going to go live with spot crypto trading. Kind of a big deal. Um, and then another one, I think Liam, you brought this, but uh, US, uh, Texas Monet Bank converts into a lending institution for virtual assets. Any thoughts on either of these before we wrap? Guys, >> on the first one, just curious, does that mean like anybody plugging in to like commodities? Like, so if you have another brokerage built on top that's allowing for commodities, you basically now have access to spot. >> That was my question as well. Um, I don't know from this um from this uh press release, but that would be my understanding. It's like this venue is now open for other people to plug into and get spot trading exposure. >> Yeah, it's fascinating. >> Um, so something that, you know, I think has been uh predicted or thought that would happen eventually has now happened. Um, and so I think this is a pretty big deal just in terms of the the legitimization of the asset, people being more comfortable with traditional venues that are now offering actual underlying exposure. Um, >> yeah, I think that's uh very important too. I the Monae Bank offering Bitcoin lending was uh definitely a smaller one um and actually a very small bank in the grand scheme of things. Um, but I just thought it was interesting too. We've talked a long time about how the incumbents are not going to lead in the space um just because there's too much bureaucracy. Uh you know the 11,000 commercial banks out there, it's not the largest ones in the space that are actually launching Bitcoin lending or custody solutions. It's going to be the smallers the ch uh the smaller challengers. Um and there's just so much opportunity here. Um the one thing I will say that we didn't even really touch on too is just um the smaller and challenger ones uh like the Coinbases in the early days uh drive Black Rockck to you know offer ETFs just because people are going to go from Black Rockck to Coinbase and uh you know every other larger bank to Monaet type styles if uh if they don't offer products. So uh just like we touched on earlier with the US adopting a more uh friendly Bitcoin adop uh regulatory strategy driving adoption across the world. It's going to be the same exact competitive forces across smaller banks and uh driving the larger ones to adopt it as well. >> It's well said. Um all right, boys. We'll wrap it for there and uh see you guys next week. >> Thanks Brian. >> Later. Thanks for listening to this week's episode of the show. If you found the information valuable, please share the episode with a friend or leave a rating on your favorite podcast app. All the links we discussed in today's show will be in the show notes inside your podcast app. Before we finish, a quick reminder that Onra Media is forformational and entertainment purposes only, and nothing should be construed as investment or legal advice. Regardless of where you are on your Bitcoin journey, we'd love to hear from you. 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