The Hidden Truth About Tether's $500B Valuation: What Wall Street Isn't Telling You

It all comes down to computers communicating. >> The information superighway can be a confusing mix of on-ramps and off-ramps. Bitcoin is worthless artificial gold. >> Is it still rat poison? >> Probably rat poison squared. >> We need to get into the world of Okay, this is actually foundational technology. What the internet of money does is it creates a single network which can do a microtransaction to a giga transaction. The internet is going to be one of the major forces for reducing the roll of gun. The one thing that's missing but that will soon be developed is a reliable ecash. Hey guys, thanks for tuning in to another episode of Final Settlement. We had a really jam-packed and tight episode this week covering all the recent investment and business news related to CloudFare and um Google launching stable coins as well as uh some really bullish indicators coming in from Vanguard um Deutsche Bank and also BNY Melon around digital asset adoption. Quick word from On-Ramp. We have a lot of exciting things coming out in the coming weeks as far as products. We're also piloting a new pricing structure. We've uh you know heard from the market that we have the Rolls-Royce of custody. A lot of clients and prospective clients love it, want it, but pricing has been a big uh prohibitor of adopting. And so we're piling out some new pricing that I think you all will enjoy. If you want to get ahead of it and learn more about it, shoot me a note personally, michael@honorbitcoin.com. I'll relay it to you or happily take the consult one. Um, we look forward to hearing from you and hopefully you enjoy the podcast. On to the show. >> Alrighty, gentlemen. Good morning to everyone. It's another episode of Final Settlement. Today is Monday, September 29th, 10:05 a.m. Eastern time. Gentlemen, how are we doing, Michael Liam? >> Well, if we just got the last shakeout before it's it's game time, then I think doing pretty good. We're going to sit for another quarter at uh you know chop solidation of 100 to 120. I don't know if my my body can take it. Let's just >> I was almost >> I was almost going to say let's let it rip to like 70 just so we can I almost honestly I wouldn't even mind if it went there because then we we probably wouldn't get the uh I think we've talked about this. we're going to get the upsurgence or the the resurgence of the the DAT insanity uh and then the real um craziness or the real carnage will occur, you know, 18 months from now. I don't think that would happen if we got to 70. It would just get flushed and everybody be like, "Ah, that was a good game. Next scam, next." >> That's a good point. That That's a good point. It does feel like, you know, one thing to point to to say that, you know, we definitely haven't topped is that a lot of the uh a lot of the Treasury plays haven't even bought Bitcoin yet. They uh, you know, they've announced allocations or announced plans to announce uh, you know, business operations andor Bitcoin buys. A lot of them, most of them haven't even happened yet. Um yeah, >> I mean just imagine like the level of uh again the main reason we haven't talked about it because I don't I think they come back and then it'll be the next level where the the real carnage and losses but imagine the amount of like from all-time highs where these companies are trading nobody out there talking just just silence uh you know and how many people bought at these like tops were sold billic goods I see these notions on Twitter we're like I'm down 200k you scam scammers like what happened? It's not supposed to be. Um >> I was promised better Bitcoin and I've gotten wor and I've gotten worse Bitcoin. >> Well, look, it's the the old notion if you if you're newer to the space, they used to say um you know, you are the yield if you don't know where the yield come from comes from, but also that the friends you made along the way uh are the real. >> So, your community will will ultimately be the the yield you can hang your head on. But, uh, >> no, in all seriousness, >> just be careful out there and stay away from the debts. Just buy the good stuff. >> Buy the good stuff. Hold it well. Um, all right, guys. We didn't get to talk about this last week, but this was the biggest news uh item in my mind from last week. Tether $500 billion valuation on this latest uh private raise that they're doing. They're raising 20 billion. Um, Michael, I'll kick it to you first. Thoughts? Yeah, I think um I had more time to think about it and I think that's where starting it's it's obviously huge news. We didn't get to chat about it, but also um I think there's a very interesting notion of how much assets Tether is holding is filtered into that valuation. One, the valuation is obviously pretty insane. It put it I believe like top five private uh companies in valuation. And I think it it said it made the the co-founder that's uh behind the scenes one of the most uh wealthiest men in the the world I think even like second maybe um ahead of Satoshi I think was the headline. But anyway um I think that there is a lot to the fact that they probably end up getting some level below this. Um there's a number of assets sitting on them. I think they generate $5 billion last quarter in profit. They're the dominant stable coin issuer. So there's a real opportunity um to get access to that business. They probably don't get the full 500 billion. Um we talked a little bit about it. You know, the notion of strategic investors is probably one of the biggest ones to align with who whatever parties you are going to to insert, you know, Tether dominance globally. Um the thing that I think is probably the most interesting not talked about is really how Tether and USDC are actually different businesses. And um when I say that is and maybe Tether's going to be try to be USDC and maybe USDC is going to try to be tether which probably is likely but tether is really for like I don't want to say even emerging markets because I think that's how they hide under the uh emerging markets and what was the other one that was like a scop the global south um those are just like these terms for people to get an investor's you know capital in to for it's almost like a ESG for venture point is they work in like black markets they work in dollars that exist in large amounts you know nobody body's working in emerging markets get to a $500 billion valuation. Like there's real serious capital being moved. Um and point being is they're more on the street like they're more on the corners. They're going to be in different networks across the world. And those dollars are going to be fundamentally different than where you see Circle and uh USDC playing which is more in trad uh regulated. You're going to have a lot of KYC uh constraints when it comes to you know interacting. and I think it just came out last week, CFTC allowing for stable coin deposits for derivatives. Uh you can imagine they're probably not using Tether to start there. Um so I think they're just different companies and I think what's most fascinating is who else will will come about and will participate at real scale in this world of stable coins. Um so yeah. >> Well, what do you make of uh whatever they're calling it uh USA? So, you know, their their new stable coin, their new tether stable coin that's specifically for US markets because that that to me is um you know, a pretty pretty overt play against the circles of the world. >> Yeah. I mean, I think it's similar. I mean, it's not similar. The first thing that came to mind is um Tik Tok. Like, Tik Tok didn't necessarily at first have a bifurcation of different geopolitical regions. it started in one and everyone could have access to it. Um, so now when you go and like segment it out, it already has like a certain level of penetration to just shift over versus something like this, even though they have the liquidity. It's like you're starting over from scratch. Um, and I think this is what Liam had brought up a while ago when we talked about it. It's not to say that they won't have the connections. I think that they're just starting in a different um level and they're probably going to be launching at the same time Fidelity and a few other larger players enter the space. And that's really probably goes back to the um investment opportunity is because if you're going to go to whatever largest financial institutions, asset managers, you're going to want to be able to get liquidity already like baked into the offering. Uh or to be able to like white label or whatever they're going to do from an issuance perspective. Um, that's honestly probably the real reason to give up any of your business that's producing $5 billion in net profit on a monthly on a quarterly basis is because you're looking for, you know, to win the whole game. And to do that, you need to make sure that you can basically entrench your your coin in um their rails. >> Yeah. There there was a few things that stuck out to to me around this as I sort of digested it over the past week or so. Um, one of them was was interestingly over the weekend they put out sort of a um an ad or sort of a a video commercial for USA, the new US um version of of Tether Stablecoin. And I just found it interesting because they opted to create uh a video from AI. Like they didn't go hire somebody to do it, spend a ton of money. they probably, you know, spent a couple thousand dollars to create like a pretty good looking AI uh commercial or video. And it just struck me as like, you know, this massive company that's just valued at 500 billion um is going to be discerning with their capital and leverage deflationary tools to create an AI commercial as opposed to going out and spending a ton of money, which they clearly have and and could have spent um to create an ad. And it just struck me as as very um sort of aligned with with how they've done everything from an efficiency efficiency standpoint, how they think about their balance sheet, holding a ton of Bitcoin, holding a ton of gold. Um I just thought that was a you know a little little detail worth highlighting uh in all of this. >> Yeah, this is going to be really fascinating to see who they bring on because to Michael's point, like the the real thing is this is a net new coin and just like anything else, they need liquidity. So, it's probably going to be some of the largest financial players in the space, maybe even uh a little bit of a nod to the US um sovereign wealth fund as well, possibly in there, even though they're pretty much already the same thing. Um and I would also say um MGX is uh the same one who invested in Binance recently is an interesting one. There are a lot of different exchanges all across the world who would be potential investors in this. Um, but 500 billion does seem a little bit rich, especially if uh interest rates are going to be going down um in the medium-term, especially on the short side of the curve. Um but yeah, I mean it's I I wonder what else they're doing this for if it's not just uh because they don't need the money. They have all the land, they have the gold, they have the Bitcoin, and they're printing cash with the other side of their business. So, it it has to be strategic investors that they're really looking for. Otherwise, why raise any capital? >> Well, I wouldn't say they don't need the money in the sense of Brian actually. I I would say if they can keep the same trajectory of how they've been efficient and prudent with capital spend, then any money in their hands is worth almost 10 to 100x in anybody else's hands. And if you're getting uh any near anywhere near this level of valuation and getting 10 to 20 billion dollars, you can park in Bitcoin because you know that's where it's going and you get any form of lift um into that whether it's a 50% 100% which is probably conservative based on our you know personal projections of where Bitcoin goes, you're effectively getting 40 to50 billion dollars to give up 2% of your business. uh it's pretty asymmetric along with the um the u the partnerships and and if Yeah. And I guess the last part is like I think that they really recognize and I' and I've been going down this ra we'll talk about a rabbit hole. just like the level of power um the level of power needed for AI and like where this is all heading is really kind of it's going to put us in a weird place and I think they know that and ultimately whoever has the most capital uh is going to be able to be kingmaker in that sense of controlling the data centers and I think they're probably wanting to play in that world that it would make sense to bring on capital especially right now at the price I don't think I think most people probably be shocked that we're sitting in late 2025 and We're only at $100,000 Bitcoin. >> Yeah. Um, in a related headline, Michael, I think you brought this one um along the lines of stable coins, but also AI, and we have some other AI links to get to, but I'll bring up this one. Google AI, stable coin payments, a first protocol for autonomous agents. What' you make of this, Mike? Yeah, I think the there was this link and then the other one um because I can loop them together is uh the cloudfare and the new stable coin. Um I think there's a couple interesting parts. We touched a little bit about just the notion of um you know digital native money online is people are waking up to it probably wasn't really um couldn't happen before because of interchange and the microtransactions. I think you take that coupled with the amount of like uh agents and proliferation of just software online and you're starting to see it make sense. Um I think we all understand on a long enough time horizon you want a neutral money that's probably has more programmability and um really the two aspects are you don't have the uh regulatory and the just everything that would come with the apparatus of something like this. So like at face value it goes back to being the lipstick on a pig, right? Where like stable coins are the lipstick on a pig and in a trady world where you know Bitcoin, Lightning, other forms of um rails on base layer Bitcoin are the real innovation. So I think like that is obvious. the one that's a little bit less obvious that it goes back to the power generation that um when you have these cycles being run and the number of tokens that are increasing um because it's my understanding like now OpenAI like has 800 million users right it's like fastest growing business ever um and then the amount of inferences based on what they were initially cycling for based on now with reasoning has incre increased exponentially as Well, and so you basically have to get in real time, not only that spend from the user, but spent back to whether it's your power users, what you're paying for with getting GPU chips. Like the whole production line has to effectively be streamlined or somebody's having to hold the float on whatever capital's being spent. And I just I never really like thought of it in that way where it makes complete sense that as you start getting the proliferation of AI models across applications on the front end all the way to the power production, it's going to make more and more sense to start having payments just flow through all of that, which is very bullish Bitcoin because at the end of the day, like there's a 10 different reasons why you'd rather take Bitcoin and SAT streaming versus uh USDC. But anyway, so that that was just like I don't know if you're expecting that take, but that's kind of where my mind was going with these different dollar stable coins with these like AIdriven internet economies. >> And then this was the other or I just found this link related to CL Cloudflare launches uh net dollar stable coin for AIdriven internet economy. Was this the other one that you were referencing? >> Yeah, this sounds like Chuck-E-Cheese tokens I guess because this is like just their own internet. Uh I don't even know how it would work or what's the interoperability. Um, but it's still the the same point of like they they Cloudfare um has its own payment gateways or gateways in general to protect the internet and if you're going to be, you know, moving across them, you're they're going to naturally want some form of payment. Um, and this just streamlines that whole process. >> Yeah. >> Liam, any thoughts on on either of these? It is interesting because I'm not uh that's an interesting point you bring up about just the instant payment. Uh especially as these types of businesses scale faster. I think that there's going to be a lot of credit that these companies are just used to uh like paying with net 30 net 90 days um with discounts if they pay upfront. I think that they're going to still find that credit elsewhere if they're not necessarily given to by their other partners rather than just saying like, "Hey, you can pay us in 90 days or or whatever it is." I don't necessarily know how that's um that's going to play out, but that is a really fascinating opportunity. Um and then kind of on a related note, I thought that it was really interesting about uh the Circle Explores reversible USDC transactions. Um, I think that many people when they're looking at, you know, getting paid, they they essentially just want exactly what they have right now, but with slightly lower fees. Like it's too much to understand that transactions can be final, especially when you're dealing with significant chunks of payment. And so, um, I think that this is, uh, this is naturally going to happen and going to be the most popular kind of B1. I think that there will be fraud from this, but um it's going to be interesting how they enforce it. I think it's going to be really capital intensive and I think that Tether will probably um likely also follow suit just because the market forces will demand it. I was curious your guys thoughts as well. >> I agree. I I think this is the big thing that um it's the biggest one of the biggest opportunities for anybody listening whether they're building or investing in ours is the delta between what the uh utopian or I don't even want to call it utopian but vision for digital currencies and Bitcoin's final settlement versus when it gets there might be a hundred years. like it's truly a a great renaissance like a complete rethinking of everything because what you're describing in finality that everyone accepts really changes the whole dynamic of like a relationship with the merchant. Meaning maybe you long enough time horizon we get to a world where businesses actually do what they say they're going to do and they return the money or the or the goods if they the client doesn't receive it and they don't want their social score and there's other things. But that's just like a whole different way from a user interacting. And so to your point, Liam, if everyone is used to whether it's both sides, if you're the, you know, merchant, you're used to this way uh and it's made sense and your mental model of everything is aligned with that. And on the other side, if you interact with if you buy something increasingly in a world where client services and products are degraded, you want to be able to have recourse, but you can't like everyone's going to get more famili comfortable with just the marginal increase. And we have to be okay with that. Like we can't it goes back to do you want to make money or do you want to be right? Most people be like, "Well, that's insane." And like, sure, I agree. There's a lot of value in just accepting final payment for uh goods and services in Bitcoin, but there's a time and place for that. And there's very like, you know, small things. Today, we talked about it on, I think, last week. If you're selling gold and you ship gold to somebody, it's like, I want the Bitcoin before I ship the gold. Uh, but if you're selling a shirt or somebody has to do a return, it just makes a lot more sense. Um, so >> yeah, I mean I think what what I have on screen here I think captures kind of what we're we're referencing here like immutability doesn't reflect how institutions work while immutability is central to blockchain design. The idea of every transaction being irreversible under all conditions has only served the ethos of early crypto industry does not reflect how financial systems operate at institutional scale. And I think that actually it's fine if it's essentially just moving money forward and back between uh pretty large parties of you know exchanges and uh very large hedge funds through banks. Those are kind of like the three large touch points that stable coins touch at this point. Um, but as it goes to more on the margins and there were final transactions for anybody who buys and sells large goods and services that doesn't actually have a direct relationship or somebody they can call up if something doesn't go necessarily according to plan, there's just going to be so much fraud, especially in kind of the B1s of getting these stable coins to decent scale. And so they they're either going to accept, all right, well, I'm going to lose a massive amount of money on the fraud on the B1 of trying to integrate stable coins into our payment flows, or I can use reversible transactions and uh kind of settle this with Circle. Um, so I don't know exactly how it's going to play out, but that's it's interesting to see. It's such a great point because something that I'm ashamed we haven't even talked about or or uh I've never thought about it personally is like so if everyone's holding these stable coins, well theoretically they're holding private keys somewhere or authentication moves. So we already know like there's a certain sample size of people holding Bitcoin that are just getting robbed and hacked and social engineered all day long that nobody hears about. Well, theoretically that's going to increase with stable coin proliferation from an order of magnitude from like two to 100x, which would mean if they're holding their own private keys, well, people can barely hold their own personal, you know, house keys. Uh, and then if they're on a on a server somewhere and your phone is authenticating, goes back to you're going to have to reverse these things and how do you credibly prove that somebody else didn't lose it? So that's like on that side and then it ties into the like self-custody route which I've always already gotten to this place when once you get enough you're long long enough in Bitcoin you kind of like you know you would see value. I think it's going to make more and more sense where if you had a bank account your savings account held Bitcoin you have your checking account and let's say your checking account is either depleted or you need a larger purchase how it would just autocon convert from your savings into your checking and you could spend those dollars into it. And um point being is like you can't do any of that with self custody. Like so are you just never going to spend the money? Like what's the plan? You know, um these things just haven't been fully thought through. But anyway, that just came to mind when you were referencing about fraud. It's like so everyone's going to hold stable coins and that's better Rails, but like what happens when somebody logs into somebody's account drains their full account on Charles Schwab or whatever? How and then like how do you reverse it? And if that gets autoconverted into BTC, like who's on the hook there? Yeah, all great questions. Um, one other stable coin related headline uh I just wanted to share. I saw it come across this morning, but uh Swift to work with consensus on blockchain prototype for cross border payments. I just thought this was a poetic headline uh just given you know I think a lot of the crypto narratives over the past decade have been um you know the the sort of proverbial thing is like we're just going to replace Swift with XYZ protocol uh more efficient database etc. Um and now Swift is just going to disrupt themselves and create a better database themselves. Um so everybody's getting into it the incumbents and the crypto crypto natives. Um, but I just I thought this was a a curious headline given given sort of the past 10 years of people claiming to disrupt Swift, >> you know, but this kind of uh maybe we've gone like full circle of um what I've really enjoyed about having these podcasts is more in client meetings and discussions, you get to really get your position work through because we're just effectively having like and you have to be a little bit tighter obviously on a recorded podcast. Um, so point being is what if this is this actually makes logical sense of the way we had to get to like a decentralized Bitcoin futures like you effectively had to go from a centralized storage system or or database however the construct was and then you had to come to the false primitives that you know again not decentralized blah blah blah but it at least had the concepts of Bitcoin and then as because it was it's again too big of a leap to go from like X all the way to Y where whatever Y is in the future we just talked about like this kind of actually makes sense that it would go down this route. >> Yeah, I mean it's not a bad thought. I I would normally file this under just noise to to ignore, but I think I think you are right in the sense that this could be just the logical progression of it's it's the same thing we talk about with the stable coin stuff uh in in generalities around the normalization of of these digital rails um necessarily helps the adoption of Bitcoin over the medium to long term. Yeah, and I think the one caveat is uh I don't even know what this is like to be honest. I just I'm just mainly referencing like Swift, consensus, ETH, stable coins. It's makes sense that would be the the choice or whatever. I do think that with all that said, whoever has the clear vision for the future, we will will be the winners and key makers in the future because they will have more time to look at the problem and we'll understand where the market's going. having a 10 to 100 year time horizon. So, it's not to say to do any of this. It's like if you had a good like Jack Dorsey is probably a great example at Square. There's probably things that 5D chess that they're playing and what they're what they're doing because they understand Bitcoin is a long-term winner and it lets them take a longterm horizon versus a lot of the stuff. Some of them may never make it out because their businesses won't uh you know make it through whether it's the solvency because that's the craziest thing when I think about stable coins and derivatives and collateral is just the thinking about the amount of rugps that are going to come in when like Liam mentioned um interest rates being reduced. That's another concept hit me hit me the other day is like so interest rates go down, more capital is inserted in the system, more tokens, more USDC, tether are created, more insanity ensues in the uh token tok economy and like that's effectively going to draw that's eventually going to to pull everyone down with it at a certain point. It feels inevitable. >> Yeah. Yeah. Liam, any any other thoughts on that or we can move on? >> No, we can move on, I think. >> So, I wanted to talk a little AI. There was a a headline and a a Bloomberg article that caught my attention over the weekend. Hedge fund legend David Einhorn of Greenlight Capital. Um, I guess was interviewed by Bloomberg. Um and he's cautioned that the unprecedented amount of spending on artificial intelligence infrastructure may destroy vast amounts of capital even if the technology uh itself proves transformative. Um, and I think that this is reflective of a lot of what we've been talking about on the show over the past several months, honestly, in terms of all these headlines that we see every week around AI spend. Um, and effectively, you know, even from Zuckerberg just saying we're going to throw hundreds of billions of dollars at this. Um, and we basically can't afford to lose. Like there's there's a achievable goal so great that um, all capital discipline is effectively out the window. and and Einord is kind of just calling out that line of thinking um and saying, you know, there's a reasonable chance that a tremendous amount of capital destruction is going to come through this cycle. Um I'm sure it's not zero, but there's a reasonable chance uh of a tremendous amount of capital destruction. So, wanted to get your guys' thoughts on this. I think it's it's very reflective of of what we've been discussing on this show around capital discipline and and just you know how what capital allocation is going to look like as we move forward into a new world where we have sound money where we have all these deflationary forces and then we just have you know uh massive amounts of capital being thrown at the infra infrastructure build which you know there there seems to be a you know a pot at the end of the rainbow but it's still an unknown generally speaking. So, um, there's likely to be a lot of capital destroyed as as a result of this. But curious your guys thoughts. >> Yeah, I think that's very well said and that just kind of happens every single time there's a new industry that's gets to be pretty large. Uh you can think about the internet and how much was destroyed in the dotcom boom and bust as well as just even like the digital asset space in general and uh just how many different tokens have been created, how many different hedge funds and venture capitalists have been uh born trying to you know create a better bitcoin or uh you know better digital token. I think that it's just anytime that there's something that's truly transformative that has just a massive total addressable market, there will be like a massive misallocation of capital because everybody wants to get in there and they think that even if they're on the periphery, they somehow will be rewarded just because they're in the same type of category. And also just because there is a lot of the investors will demand that they are in the hot category even if they can't necessarily be in the right deal. And so the investors necessarily have to chase bad deals in order to continue to raise capital. >> Hey everybody, hope you're enjoying the podcast. Wanted to give a quick word from Early Riders, uh the venture firm pioneering Bitcoin as a hurdle rate, the only Bitcoin denominated venture fund. Um there's some real exciting announcement that recently came out uh the stables. If you haven't seen the news, um Bitcoin magazine did a report and you can also go to earlyriters.com to check it out. But ultimately why it matters is if you're building in the space and looking um to either leave your company job or looking to partner to get you know funding to build things in the Bitcoin ecosystem or even outside the Bitcoin ecosystem but coming at it from a first principles lens of trying to make more Bitcoin. Um we're going to have a 4-week fully funded sprint at the uh Texas Hill Country campus that we are launching next year. We'd love to hear from you. You can book time with us or you can shoot us a note. um a lot of exciting things happening on that front. So encourage you to check it out and if you just want to stay ahead of some of the research that Early Writers is producing, you can actually go to early riders.com and subscribe. Uh hope you guys enjoy the show. We have a great last trade coming up this week and again some very fun um exciting product announcements in the coming week. So hopefully you stay tuned. Thanks. >> So I'm so glad you brought this up because I was just thinking about this. Um I think What Liam said is obviously right. In technological waves, capitals destroyed. We saw this with the railroads, fiber, dark fiber is one of my favorite because I had experience with like 20 years later than fiber getting rolled back out. Um, I think it's completely different though with AI and because I've been thinking about this and I don't Yeah, it's different in the sense that it's not apples to apples. I've been thinking about this a lot because it what Brian said it's instinctually makes sense. Like there's all these numbers being thrown out there. Like how can everyone recoup it? We we've loosely talked about this, but I hadn't been able to reconcile like what's actually happening. This is going to be a little fringe, but I'm curious your guys thoughts and I I think this is directionally right is nobody's going to get paid back in real terms. And I don't even think they actually other than the companies that win. Um, and the angle is that we know, I mean, we don't fully know, but the things I've been listening to is like the level and the amount of energy that we do not have to support, and this is where the renaissance of like nuclear fusion and all this stuff happening. But it it was said that the amount of solar that um, China is going to put online this year, I believe, is more energy total than all the US, right? like they are just so far ahead and the main point is this. So when you look at the capital intensity of this race from the AS6 to the models to the data centers to um energy and standing up the different forms of power generation that it's exponential in the sense that as more compute's being used more people are using it goes back to the inferences and amount from when GPT first started to where it is today. Point being is energy is going to go through the roof, right? And energy already is like a proxy for kind of like human growth and and intelligence, all the things we know flourishing. Point being is every I think this is how we usher in UBI. Seriously, like I think that if you're holding hard assets or if you're holding real um assets that acrew in real terms in the future, you are going to be fine. If you're not acrewing that, you are going to be losing in real terms. But because AI is going to be ubiquitous from every aspect of everything we touch, it's going to be looked at as a public good that everyone needs to use it. And so people are going to get all this capital to spend whether it's tokens or dollars. I don't know what it looks like because that's what's going to allow for the capital to be returned is those in nominal terms, not real terms, is all this cost is going to go up because the energy is the main output, right? And we don't I think we'd all agree that energy is going to go exponential from here if like this is where the race is on. Um I think I did a decent job there because I just came up with this this morning. I was I was listening to some stuff before this, but like it's kind of starting to come together on like what the actual strategy is and that's why these numbers nobody cares about them because they're not playing for like the tokens anymore. They're playing almost for like global uh superpower. And anyway, and this is where Bitcoin fits beautifully into the whole thing. Yeah, that's an interesting thought around, you know, UBI taking a a form that isn't necessarily dollar-based even. What if it's just, you know, the AI tokens or credits that that the humans need? >> Yeah. And the last part, this is really where um also this is like where different information starts to connect and you don't even know it is uh Paulo from Tether had a great podcast. I don't remember who it was with, but he was ultimately saying like we don't even know for certain if like it's inorganic when you think about these um you know the status of the world right we have these like centralized you know banking institutions or whatever you want to call it media companies and it makes more sense for things to be distributed for for a number of reasons and the notion of compute and AI to be run locally right from privacy perspective to even how you would train the model uh there was other reasons he used but the point being is that um we don't even necessarily know like to your point on the UBI stuff is like if you have these tokens we've seen digital ID come in right so now you're tied to getting it through that but then there's going to be like almost like this parallel track where you're going to have your own models they're going to be on prem or maybe they're going to be other localized they can verify that data is not shared I don't know but point being is you're going to be able to interact with that if you have a form of money that's better that's censorship resistant um you can see kind of how like this starts to play out already today. And so that's the I think the angle of the UBI. It's like well if that's ubiquitous across everything, it's like sure you get it, but you need to like be able to do X, Y, and Z. And it'll start easy at first, >> right? You've got to be a good you've got to be a good digital citizen in order to receive your your credits of any kind. >> That's that's for sure. >> That's already happening here in New York, though, which is uh Governor Hochel announces inflation refund tracks are being sent to 8.2 million New York households. uh you know as a way it just goes back to the fact that you need to be in control of the token if you're going to and be able to increase its issuance any time if you want the UBI to be um directed on that certain token otherwise you're necessarily going to run out of them in the long term just because no value will acrue to it. >> Yeah. Um I do want to move on. We have some other links. But be before moving on from AI, I did want to share um this tweet which summarized a note from JP Morgan around, you know, how much of the stock market in particular is just being driven by AI related stocks. I thought some of these numbers were pretty uh startling. So 75% of the S&P 500 returns since Chat GBT's launch in November 2022 uh have come from AI related stocks. 80% of earnings growth over the same period and 90% of capital spending growth. Um, so this is it really just reiterates everything we've just discussed, the amount of money being thrown at these things and really sort of this hopeful um this hopeful thesis that it all works out that that it's all worth it, right? And um that that hopeful sort of trajectory is now being um sort of manifested within the the stock market itself and and that you know potential is being priced in effectively. uh where you know a lot of the the growth we've seen over the past year is you know really just being propped up by a lot of this AI hype. >> Yeah. I mean I know you want to transition but I think this is a good uh indicator of nobody talks about enough. You hear a lot of the trady crypto people and definitely trad people talk about the the Fed uh Fed speak around GDP growth and we're not in a recession. It's like we've been in a recession since basically 1971 because GDP correlated to the amount of monetary units has been uh I guess inversely correlated. That's right. Um point being that when you hear like we know the job uh numbers are cooked, we know GDP and nominal terms may be up but in real terms it's not because cost of everything is going up. So when they look at like price earnings and you know revenue, they're not actually like the right numbers. They're not using the right benchmarks. And then this is the latest example of that because it just conveniently happened. I don't know. I won't make any claims because I don't really know. like 21 when everything seized up or 22 after everything seized up with low interest rates, how AI just stepped in there because when velocity of money goes down then naturally things start like seizing up and AI like naturally stepped in for like all the different hedge funds, LP funds, uh endowments to start stepping into those markets and then again goes back to the stock market which majority of people hold their wealth in outside of houses also got juice but there's no growth happening there from a you know GDP perspective and so people like dance around AI and that we're going to get this growth out of there. It's like yes, on a longer time there going to be a lot of crazy things, but today there's not that much GDP growth happening. Like nobody knows anybody really using effective uh AI outside of like individuals and maybe some units that have found really specific niches when it comes to like legal and accounting and certain things that are just like data set structures. Um but yeah, this is just yeah, >> a lot of that near-term stuff would also, you know, likely be net negative for GDP as well if it's replacing jobs. Um, >> exactly. With all the layoffs, you're looking at that and those people aren't entering the workforce back. Like that's a >> Yeah. >> Yeah. There's a there's actually a random plug for all this I think you guys will appreciate. I'm only halfway through is um the Hong uh like he's from a lot of smart people. They call him like he's just a puppet for this Ponzi. Was it's the Nvidia CEO and he was with Brad Gersonner and uh Bill Gurley half of that. Yeah. >> Yeah. Yeah, but like this is the kind of notion of um this is the the speak in Silicon Valley. Like this is where it's all going and I think it's directionally right, but they're not the second and third order consequences are not fully understood or appreciated. Um or maybe just it's just you know being oblivious to it for because it's your own bug. >> Um all right, moving on slightly. This is kind of related actually um in the sense that you know we've been talking around AI and and sort of the glut of capital spend headed to to that trend or that narrative and uh this was a tweet from our our buddy Eric Balcunis um talking about wind solar uh and general ESG ETF closures that have been occurring over the past couple years and it's sort of accelerating. And so to me, this is uh it relates to everything that we're talking about in terms of capital destruction, uh fads, narratives that ultimately Wayne. Um and that's, you know, effectively what we saw with with ESG. A lot of issuers got excited about ESG ETFs, this sort of new area of thematic investing. Um and the reality of it was that, you know, there was no sort of excess return or alpha there. Um and most of these things ended up underperforming just broader indexes. Um and so the sort of fad and the narrative around them began to wne and there was obviously sort of um social pressures or social sort of more cultural evolutions that occurred in the ESG space as well. Um but I I just thought this was interesting in light of everything we've been talking around uh AI is I think you or even crypto for that matter. You know, I think you could see something similar play out with, you know, all of these ETPs, all these ETFs for Doge, 2X leverage, you know, all these things that feel very hot and in vogue right now. We could look back in a few years and see a lot of these these things just close as the issuers realize there isn't real demand for them. >> Yeah. The one thing um this reminds me of that I wanted to say on the AI stuff um is ultimately it goes back to the the claim of the future's here. It's not evenly distributed in the sense that there is a way to make money on Bitcoin and it means that you understand the tailwinds of what's happening and then the businesses that are uh leveraged for them in a positive way are going to create meaning like Bitcoin adoption different things that we'd be seeing in this new world. But if the investor isn't aligned, if they're paying back in dollars or they're investing in ESG or what we just talked about in the capex around AI, you're better off holding spot Bitcoin. And then as that price appreciates, the market's going to naturally find an equilibrium where you can get a return on your Bitcoin. Um, and I think that's the like maybe the most biggest takeaway I would leave anybody listening with is like if the investor doesn't understand what we're talking about or um you don't feel confident that like the tailwinds of what their business will produce, you know, especially if a 10-year horizon is going to pay dollars. We don't even know where the dollar is in 10 years. But then going back to if you believe that Bitcoin's going to proliferate, AI agents, you know, custody, like whatever it might be that's going to have a positive spin in and the other side of it is imagine if it was Tether's founders, CEOs that were building something not even adjacent to Bitcoin, but they swept everything in there. I would still take the bet with them because they just are good business builders. They're efficient and that would produce a higher outcome than what they're spending their money on. But I think that's my big takeaway is there's going to be a lot of capital to store. It doesn't have to be yours. you can just sit in the background and then wait for the right opportunities. That's what Bitcoin affords. You don't have you don't have to get rid of the the dollars that are losing purchasing power uh yearly to figure out to go into private investment. Yeah, I would say on this one as well, it's just it didn't make any sense any of the ESG stuff because it came top down from government mandates and then the S&P 500 companies had to make changes in order to um be compliant with every rule that they had and then the ETFs came out of it because it was a trend that of mandated by government. Same thing that you saw over time especially with too much hype and then capital destroyed from top down mandates from anything from solar and EVs etc. Um on the other side of this, one thing that we haven't chatted about is the bottom up um demand and the Vanguard now looking into Bitcoin ETFs for their clients as well as other crypto ETFs. We've seen um that's just been a a bottoms up type demand from all of their clients. They've uh I don't know what their actual numbers look like, but I'm sure that they saw a number of their clients just net leave the the platform because Fidelity, Black Rockck, etc. offered Bitcoin ETFs as well as they just saw that Black Rockck is um that's their most profitable product is their Bitcoin ETF and so naturally it's just going to kind of like we can talk about all the stable coins etc but it's just going to be natural uh economic and market forces that are going to drive all of the companies and um consumers to adopt Bitcoin rather than any other savings technology over the long term. It's it's definitely not evenly distributed in terms of knowledge around the asset, but it's just going to increasingly drive more and more people into the space. And that's kind of um you know to Michael's point about why you should focus on businesses that are that consumers are actually adopting rather than just top down based on any demands for stable coins and uh etc. >> Yeah. Oh, that's very well said and and nice transition to this uh infographic that I wanted to pull up which sort of just summarized a lot of headlines from the past week or two uh around tradi incumbent firms um you know placing their chips on the table in in terms of um you know getting their clients access to digital assets, crypto, bitcoin. Vanguard is um you know one that's very notable in the sense that they uh for a while were very anti and I think um the ultimately the end client demand I think probably spurred them to to change their positioning on this and so now they are going to eye crypto ETF access for their brokerage of clients. Some other headlines on here Morgan Stanley close to offering crypto trading through Erade calls it the tip of the iceberg. JP Morgan to enable crypto purchases via credit cards in a Coinbase partnership. Uh Black Rockck filed to uh launch a Bitcoin premium inco income ETF which I believe will use a covered call strategy. Um and Croup considers custody and payment services. Charles Schwab plans to launch crypto uh trading and Visa uh announced a partnership with Fold and Stripe to bring Bitcoin credit card rewards to the checkout aisle. Um, Michael, any thoughts on on all these headlines from the past couple weeks? >> Yeah, I think um Liam made a good point on ultimately what's going to drive market adoption is, you know, a better product. Um, and Bitcoin's just a better product from a store of value. And so, these companies are going to be forced to play. I think from a pure market winning and investment perspective, most of these companies don't end up winning long term. And mainly because I've seen this firsthand, but it makes sense too is that um Bitcoin really starts at first for these businesses as a revenue driver, revenue driver, but unless they hit a certain market uh penetration and revenue, and you could make the case Black Rockck could get there or not, their existing businesses will eventually start to uh compete with them. And unless they can transition fast enough, they start to have to uh effectively like uh hamstring or um just deliver subpar goods and services. Uh the best example is when you think about custody because most of these businesses are familiar with how they custody traditional assets and that's completely different with Bitcoin. And if we go back to Bitcoin's bottoms up in the best product will win, well then eventually these businesses will lose capital because people will go to the best product and service. And something that we've shared a little bit here, the guys have probably heard me say this a hundred times, but I'll say it again is because Bitcoin was an emerging asset. It started from the individual and worked up and just has to do with being consensus of one that you don't need a you know a board or a um you know you don't need any kind of consortium to to outside of maybe somebody's wife to agree to go and purchase material amounts of Bitcoin but because of individuals that have been in this market for the longest time they are the most sophisticated investor I don't think that's ever really happened in any asset um probably outside of just gold's monetization hundreds or thousands of years ago point being is these companies build products for other companies. They don't build it for the individual. And um individuals just make up companies. So it's it's not even logical to say, "Well, individuals won't hold a bunch of Bitcoin. It'll just be companies." Like, no, no. Individuals just have the longest time. So they'll first get to what the best exposure is, but then secondarily, the com and individuals are made up of companies. So if the individuals are using it, then why wouldn't the company eventually use it? And so I think that's another just big uh gap in opportunity because it comes up a lot of like well why would an X Y or Z just do on-ramp when it comes to like BYML it's like well they probably will on a long enough time horizon but they have no reason to do it at first for like a hundred different reasons. Um so that's kind of my big takeaway with this. I'll pause if you guys have thoughts on that. But then um I did want to pull up two other reports that tie into this because I thought they were very uh interesting that I >> Let's let's move on cuz I know we have a we have a hard stop in a few minutes. So uh the Y cominator one. Do you want me to pull that one? >> Well no before that just on the trady stuff. Uh I'll quick. >> So the first one was BNY Melon put out a report last week and um this wasn't tied to cryptocurrencies. It was basically titled uh 2025 investment insights for single family offices. They did a report on I believe 284 family offices across all um uh asset classes. The core concept here was on digital assets are becoming mainstream. 74% of investment professionals have either invested in cryptocurrencies are exploring the possibility. 21% rise in 12 months. The share of those with no exposure interest has slumped 37% year-over-year driven by favorable uh regulatory developments. And then they have a whole page and I thought it was uh so cryptocurrencies the future is now nearly threearters of family office professionals have either invested in cryptocurrencies are exploring the possibility of 21% increase. So that's the first one. The second one I wanted to share was uh I know this bank is like not I don't think they're solvent uh but but there's still you know a name is Deutsche Bank. Um they had this report that I don't know if anybody's even pulled up yet. I need to like do a tweet so we can have a link that's easy to go to, but um it effectively is breaking down uh the title is uh let me find real quick. So, Bitcoin versus gold, the future of central bank reserves by 2030. And the core thing I want to pull out from it here is while gold has long been the standard alternative, the Trump administration's landmark decision to establish a US strategic reserve this past March reignites the argument for central banks to hold Bitcoin as a reserve asset. Uh and then it shows USD share of central bank reserves versus gold and the you know heavy increase in gold over the past um I guess this is 12 months. The point being is that uh this stuff is like really happening fast now and you can make the claim it's inflation, it's new regulatory, new administration, whatever it is like it's only going to accelerate from here and this is why these market cycles and structure is completely different from where we're heading. Uh is just complete uncharted territory. >> Yeah, we haven't even really chatted gold this episode which is a shocker. We've been talking gold every week but um new alltime highs almost every day. I think we're over 38 3,800 an ounce and yeah, it's it's uh indicative of everything we're talking about that that Deutsche Bank note there's been other um research notes and just headlines from a lot of you know more trady incumbent folks that are you know at least vocalizing support for you know material allocations to gold right so not the not the typical 1 to 3% that we've seen for many decades in the trady space as sort of this uh doom and gloom boom, end of the world type hedge in portfolios. Um, now it's being talked about in a much different light. Um, you know, anywhere from 15 to 25% in gold, uh, being talked about as reasonable. And as as we've discussed many times on the show, that is just the natural evolution of things that, you know, how we get people ultimately to Bitcoin is by first understanding that there's a there's a stop u, you know, a spot in portfolios for sound money, for hard assets. um with gold obviously having the longest track record as such. And so um encouraging to see a lot of those um headlines and and people vocalizing this because I think it's it's just more and more in the zeitgeist every day uh particularly as gold continues to run here. Any thoughts? I know I did want to uh I'll pull up this uh South Korea up bit deal because I know I know you had some thoughts on that. Um >> yeah, there was just uh I mean in addition to everything that we've just been talking about about tribe by adopting Bitcoin, um South I'm definitely no expert on South Korea and their regulatory structure, but it seems like they're getting more and more uh open to digital assets. The whole they're uh and there's this deal is pretty interesting to me. So Upbit is the largest crypto exchange in South Korea. seems like they have around 80% market share and neighbor is a internet e-commerce as well as payments and financial platform over there. Uh it seems like they're worth about $40 billion USD and this deal is interesting to me because they're not tra a traditional bank but they're more of a payments company as well as a little bit of lending too. Um and they are buying a crypto exchange. Uh I know outside of the US there's a lot more focus on just crypto in general rather than just Bitcoin only. Um and so I thought this was particularly interesting as we see everything from Kraken and and all those other digital asset companies here in the US starting to go public. Um but it's also interesting that there are natural exit opportunities of just traditional payments companies. They uh they have a large amount they're essentially like the one of the blocks uh or squares over in South Korea. a lot of online payment terminals um as well as in person almost like a Stripe as well. Um and so it was interesting. I I think that they're probably doing it to incorporate stable coins deeper into um the usage of their platform in order to reduce cost as well as just continue to gain market share and and hedge on their bets. But to Michael's point earlier, I think that this is kind of just a a competition of their business internally. And I don't think that these types of buyers are necessarily going to be the ones who survive long term. But it is interesting to see the aperture of potential buyers for um digital assetbased companies open up wider than banks and other financial institutions um in terms of just that that hold capital. And I think that's a sign to come of uh everything that's that's is coming in the US soon as well. >> Yeah, maybe this ties into um that last link is the main one. Uh Brian, the the YC. You don't have to play the clip, but if you just pull up the the video, I think um to Yeah. So, this is a YC uh most recent podcast. Why now? The time is to build in crypto. And it's with the base, I don't know, founder, whoever runs that unit at Coinbase. Um, it goes to a few things. One is like I do think we're going to see we'll see some premium on Bitcoin companies, but really that premium is going to be lifted, I think, in the the downturn of the next cycle when people recognize that a lot of this stuff was like lipstick on a pig because you naturally need a lot of like risk management and conservative building if you're messing with money, especially digit digitally native money. And on this podcast, they were referencing, you know, um these use cases that actually make a lot of sense when it comes to like areas of focus that I don't think Bitcoin is really focused at a at a, you know, best-in-class scale. When you think about YC and and Silicon Valley, when better buying experience, social lending, scaled networks, creator economy, a lot of these things that have been niche deals, I think will eventually win on Bitcoin. Um, but then they obviously like missed the boat on like how the rails will be run. And a good example was referencing how there's interesting opportunities now for local fiat currency, stable coins. It's like, well, who wants their local fiat currency in the stable coin? It just makes zero sense. Um, but the other thing that ties into where I think a premium ends up with the Bitcoin companies and it's really widely missed in this space is I didn't know that Bellagi had this tweet or a presentation at the Bitcoin magazine conference referencing that somewhere between 100K and a million dollar Bitcoin that Bitcoin billionaires will eclipse uh billionaires on the planet Earth. And why that's interesting whether it's $500,000 a million dollars is as long as we have a long-term time horizon believe that number will get there then that will happen probably not at the exact number because the other person's assets are also you know increasing in um dollar terms but the point being is nobody's focused on that like nobody's focused on where do they hold the underlying they're focused on stable coins they're focused on crypto but that underlying base well that individual is going to naturally not only need financial services but if that asset is increasing, well then there's going to be more monetization around that base asset. Uh it's just a huge gap. It's obviously something we focus on, but I think that's like a huge opportunity. While everyone's focused on payments and ecash and all this other stuff, it's like how do you get your arms wrapped around the client that's holding the underlying because that is who is going to dictate the future of where that money goes, how it gets spent, lent and everything above and below. >> Yep. Very well said. the the primary use case is store value and that will continue to be the case for for the foreseeable future. Um any uh parting thoughts? I know we got a wrap here. >> Good rip. We got to do them quick now. Next time that was uh I thought that was a good one. >> Good tight rip. Thanks, boys. Thanks next week. >> Thanks for listening to this week's episode of the show. 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