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Before we get into the episode, a quick reminder that this podcast is for informational and entertainment purposes only and nothing should be construed as investment or legal advice. If you are enjoying On RAMP media content, please like subscribe and share as it goes a long way in helping others find the signal through the noise. Now for a word from on RAMP. On RAMP is a Bitcoin asset management platform built on multi institution custody leveraging our partnership with Bit Go and their 10 plus year track record in securing assets and Coincover, the premier digital asset risk mitigation company on ramps. Multi institution custody is a segregated institutional grade vault requiring two of three institutions at any point in time to sign once a client's unique permissions have been met at on RAMP we understand that your Bitcoin journey is a multi generational pursuit catalyzed by the ideals of perseverance, aspiration and legacy. That's why we're proud to introduce on RAMP Heritage, a suite of private client services dedicated to ensuring your Bitcoin legacy is preserved and passed on, embodying the true essence of wealth that goes beyond mere numbers. If you would like to learn more, please schedule a consultation. Let's be clear, Bitcoin is an international. Asset. We are spending like drunken sailors. Bitcoin is the only economic entity where the supply is unaffected by the demand. If you want to preserve your wealth. You have to convert. That currency into an asset that's scarce, desirable, portable, durable, and maintainable. Hello, I'm Andy Edstrom and I'm happy to welcome you to the 10th episode of Scarce Assets, a show that examined scarcity, the most fundamental driver of economics and markets, and the scarcest asset of all, which is Bitcoin. I'm excited to be here with my great friend and Co host Jesse Myers and our guest, the brilliant VJ Boyapati. Now, VJ is simply one of the most impactful Bitcoin educators in the world. He's best known in the Bitcoin space for writing The Bullish Case for Bitcoin, which was an essay on Medium that he subsequently expanded into a fantastic book. I first read his thesis during the bear market of 2018 and it helped me and so many others strengthen our huddle grips and harden our convictions about bitcoins prospects. And it's really one of the cornerstone pieces of writing in the overall Bitcoin pantheon. So it's a key milestone on my Bitcoin journey and I'm delighted to talk with the author himself. By the way, he's been building products and doing great Bitcoin education work at Swan lately, and as always, he's talking about Bitcoin and educating us all. So VJ, it's great to see you. How are you? I'm doing great. Thanks for having me Andy, and and thanks for the kind words. Always makes me feel really happy hearing that I I was part of someone's Bitcoin journey, so I really appreciate that. Yeah, and it's absolutely true for many who will be listening today. So Viji, I think we first met in person in Santa Monica at the old King's Head, which is an English pub, and we were there to watch the real Bedford football team, and that was before they got good. In fact, I think they may have lost that game pretty painfully like 4 to one or something, but they've come a long way since then. I think they've won their league championship at least twice. So hats off to Peter and Danny and the and the management team there. But I think it's a good example of Bitcoin helping to improve a business, and I'm curious if you've seen any models of businesses adopting Bitcoin that are interesting to you. That's a good question. I've never been asked that question. I mean, obviously there's the big example of micro strategy. That's a company which really wasn't going anywhere for two decades if you looked at their stock price. It didn't, hadn't done anything. It's kind of a boring business as well. And then Michael Saylor, the CEO, came across Bitcoin and realized, wow, this is the greatest savings vehicle that's ever been created. And he came up with this strategy, which I think it's kind of amazing that no one else has figured this out, that you can start putting your savings from corporate earnings and profits into Bitcoin and that this can do great things for your company's stock price. And then he went even further and recognized, hey, there's this equity premium. Companies on the stock market seem to have a premium over what you really believe is the true valuation because the flows into the equity market, a lot of them are not very considered flows. They're just people throwing money into index funds. And the index funds just kind of sprinkle money across all of these companies without any consideration for whether the companies are good or not. They're not selecting stocks. So the equity market has a premium. And then Sailor realized, hey, wait a second, maybe I can, you know, take some of that premium, which isn't really very logical and put it into the the hardest asset that's ever existed. And then he went even further and did something even crazier and went, you know, the equity market is great, it's it's pretty big. But there's an even bigger market. There's the bond market. And and he figured something out that no one else had figured out, which is I could sell to raise money to buy Bitcoin. Convertible debt and convertible debt then gives the bond market exposure to Microstrategy's equity and through their equity gives them exposure to Bitcoin. Because MicroStrategy has become essentially a Bitcoin holding company. So I I find this absolutely fascinating. And you can look at Microstrategy's market capitalization has just ballooned since he figured this out. It tells you that there is a lot of appetite in these markets, the equity market and the bond market, even more fascinatingly to me for Bitcoin exposure. And it's not hard to understand why, right? The bond market is a tough place to be. You're surrounded by bonds which are yielding very little in. In some sovereign bonds are yielding near 0 or even negative rates. So if you're a bond investor and you're thinking how do I juice my returns, Well, he's Bitcoin. He's the greatest savings vehicle that's ever been created. Now I can get exposure to that. So I'm absolutely fascinated that he figured this out. This is like a cheat code that he figured out for juicing his stock price. And equally fascinating is that no one else has paid attention and looked over at MicroStrategy and said, Oh my goodness, this is this is a nothing burger company that didn't really do much of anything for 20 years. I mean to be fair, is profitable and well run, but the business itself is quite boring. And now this, this stock is out of control and it's sort of gained mean stock status. So people are piling into it just because it's the cool company to invest in and then you can kind of get into the issue, is it overvalued now because it's gone up so much? But yeah, that that's one example. Yeah, I love that. I love that example. I was also surprised at at him accessing the convert market. I think it was on swan signal when I when I hypothesized that he might do a debt offering but but I hadn't even considered the convert market as being the source of most of most of his capital and and that's been billions billions of dollars raised now. Really, really incredible. Yeah I want to point out that I almost feel like Sailor has been on the the VJ path of understanding of Bitcoin for for my personal journey of like you know I was I was into altcoins and I didn't really understand the purpose of Bitcoin. You know from the altcoin lens it's it's slow and and old right but so I didn't really understand and then 2018 bear market happens and Bitcoin does better than altcoins in that environment and OK what's going on here. Then I read your article Bullish case for Bitcoin and it explains really this like that core idea that you keep talking about is like a savings technology, savings vehicle, digital gold, gold that gets better and better and that's the that's the real line of reasoning to dig into to understand bitcoins true potential as an asset. And then the sort of for my personal journey that was continued with Bitcoin Standard and I think I know that Michael Saylor sort of points to the the Bitcoin standard as like the book that he read that changed his whole view on how to run his company. But in my in my opinion it kind of started with with your piece of bullish case for Bitcoin. I'm clearly articulating that this is how people should think about Bitcoin and how they should engage with Bitcoin as a savings vehicle. An asset that grows in value over time and all the other stuff is noise, and micro strategy has been using that understanding of Bitcoin, and I agree with you. I'm surprised that nobody else has has really figured out that that's the way to engage with it, though. In my view, it's just a matter of time still. That's a great point, Jesse, and it's something that I have written about on Twitter and I think in my book as well that monetary goods do not compete on the technological attributes, they compete on their monetary attributes. So I think one of the things is often an engineering mindset in in this sort of crypto space. I don't like using that term, but in the crypto space there's this engineering mindset and people are just like so drawn to the cool tech and they don't really look at the bigger picture that This is Money. And so they get attracted to, oh, there are all these bells and whistles or wow, Litecoin has a faster block time. But they miss the fact that the the, the, the, the real attributes that determine which one will win at the monetary attributes. And one other comment about Michael Saylor is what you said reminded me that very early on, just after he'd made his first purchase, he reached out to me and we had AI think it was an hour chat because he was just trying to learn. And one of the things I thought was really cool was that he was very curious. He'd gone down the rabbit hole himself and read everything he could. And then he took a bunch of materials. He took my article and he took Safe's book and he gave it to the the board of directors and a bunch of employees in his company and said this is important, I want you to understand this. And he forced them to go down the rabbit hole too. And I recall that call very early on and he very humble guy, very curious, and thankfully that gave me the connection to ask him to write the foreword to my book. Good move Sir, very good move and it is a great book and I highly recommend people read it, buy it and read it. And it confirms my suspicions that Michael Saylor sort of on the the bullish case for Bitcoin and Bitcoin standard view of what Bitcoin is first and foremost. Yeah, that's right. I think, I think Vijay your your work was definitely a milestone on on his journey. So hats off. So Speaking of the book and the essay, I think you mentioned the Gartner Hype Cycle. I'm curious how you might apply that framework to where Bitcoin sits today. Does it still apply? Where are we? Yeah, I think this was one of the most interesting observations about Bitcoin's monetization. That is a new, a new economic good becoming money. I mean, this process took thousands of years for gold, going from a shiny rock to becoming the global unit of account in the 19th century. And we've never seen this process happen in real time in the way that it is with Bitcoin, because we live in a digital world and things just happen much more quickly. Information travels much more quickly, Adoption happens more quickly. And you know, most economists prior to Bitcoin would have told you something like Bitcoin was impossible and that you just can't create money out of thin air. No one's going to accept it. Why would they accept it's not backed by anything. And so one of the things I find most fascinating is that there is a shape to monetization. We can sort of be students of economics and just look what happened with Bitcoin and it seems to adoption seems to grow in these fractal patterns of increasing magnitude. And what that really means is that you get these hype cycles which look very much like the shape of a Gartner hype Cycle. And you know you get this sort of slow steady growth and then this exponential blow off top and then a crash and then you crash to a level or a plateau which is higher than the previous level that you started at. And then it starts again. And if you take one of these cycles and superimpose it over another, they they look very similar. Not not exactly the same, but very similar. That's what I mean by a fractal pattern. I think this will continue. I think it's inherent to the social dynamic of monetization. And one of the things I found most fascinating when I was thinking about this and, you know, forming my ideas and writing my article and my book was I looked at the shape of monetization of gold. And I looked at the price chart of gold from, you know, the 1970s to the mid 2000s when I really started thinking about this. And I was like, wait a second, this actually looks very similar to what happened with Bitcoin, just over a longer time horizon. And So what I thought was if you have a free market monetary good, this is the shape of of monetization. It's part of the social dynamic where people recognize it as a good form of money. It has better attributes than what it's competing with. They get involved and slowly but surely, other people get involved. And as the price starts to creep up, other people pay attention and speculators start to join and they're like, wow, this is just a great profit opportunity. Then you get the madness of crowds, phenomena, and people pile in. People use leverage, they get ahead of themselves. And then you get the crash. I think free markets, this is just a phenomenon of free markets. People kind of go crazy sometimes, but the underlying dynamic is adoption is growing. That's why these cycles don't crash to a level lower than the prior cycle as a general rule. And it's also why I believe this is going to continue. I think this is just how the free market works. People kind of act in this herd behavior. And while we would like the monetization of Bitcoin to be very steady and predictable and linear, that would make a lot of economists feel better. That's just not how free market works. Those poor economists, you know, they just, they just they have a tough time. It's tough being economists these days. Let's let's talk a little bit more about the, you know, about the cycle and the development. I guess Bitcoin is about 15 years old. Where would you say it is on its path to monetization? Do you have a, do you have a view on that in terms of, OK, 15 years behind? You know, what does the next 5-10 fifteen look like? Yeah, I think, I think we're very, very early in the adoption. If you just look at ownership of Bitcoin globally, I think we're probably, if we're going to be very generous in the order of like 2% of the world's population and bitcoins existed for 15 years. If I sort of superimpose that on adoption of the Internet, I'd say that we're somewhere in the you know, area of like 2000 and three 2004. But even that I think is kind of too optimistic. I think Bitcoin's probably closer to the like the 90s, maybe mid 90s in terms of adoption. Even if we, you know, took took the more optimistic view of Bitcoin's adoptions 2005. If you look back at the Internet in 2005, there really wasn't much there that you recognize today. You know, things like Facebook wasn't really big. I think that was around the time when Google Maps became free and you know, before everyone had like in their cars, they had the Tom Toms and and we didn't really have smartphones. That was kind of more 2006 or 7. So it's prior to what we kind of think about in terms of the Internet being like a ubiquitous part of our life. The Internet was kind of important and useful. But now it's like clearly one of the most important and impactful things in our society as an institution. So I think we're still super early. The the important question for me though is when when does the, the, the vertical part of the S curve have happen? It's a very interesting question. I didn't have a definitive answer on that, but I I do think that this sort of mainstream institutional adoption of Bitcoin as a financial asset is going to help that that vertical part of the S curve happen, Especially the approval of the ETFs. Because you have this large majority of people out there who don't quite have the technological savvy to figure out. I mean it may seem easy to us where Bitcoin is but to figure out like a Bitcoin exchange or Bitcoin brokerage service, figure out what a wallet is what, what's a Bitcoin address and then not shoot themselves in the foot by like self custodying and then losing their keys, that's a that's a heavy lift for a lot of people. And for people like my parents for instance, it would be much easier to go to a brokerage account and they've already done KYC and everything that most investors have a brokerage account. And if it's as easy to buy a Bitcoin exposure as it is to buy a stock, the the cohort of people who are reachable in this cycle is much, much larger. So I I dwell on that and I'm fascinated by that and whether or not this vertical part of the S curve is going to happen this cycle. That makes a lot of sense. That's very interesting and I I do I wrestle with this myself of like you know you can look on chain and say see that there's 4 million addresses that have 0.1 Bitcoin or more in them. And and I tend to lean towards that as like true Bitcoin adoption is like if you understand Bitcoin enough you're going to take self custody of 0.1 Bitcoin of of Bitcoin savings. But you're right that like for a huge cohort of the world, they're just not going to be comfortable with that. And Bitcoin exposure does constitute some level of adoption. Does it? Is it true adoption? Maybe not. Is it good enough? Probably. And so then it's hard to place like exactly where we are in that adoption curve. But obviously if we're only at 4 million out of 4 million addresses out of 8 billion people that puts us like the very early stages of the innovators phase still versus you know how Wall Street has been talking about this as sort of crossing the chasm moment with the ETS bringing us into the mainstream like bulk of the adoption curve. And I think it's somewhere in between and and obviously it's it's up to how you define adoption and and what you think end state behavior with Bitcoin will be for all people. But yeah I wrestle with that too and I I I haven't figured out how I view it. Do you do you think that there's like? Do you think that the ETF investors will eventually become on chain Bitcoin holders? Do you think that we will never get there? What are your views there? So I have a a bit of a controversial take on this and I haven't spoken about this very much. I've only spoken about it once with Stefan Lovera. It's controversial because I think a lot of people haven't very. A lot of people in the Bitcoin community have a lot of have a very egalitarian streak and they they want everyone to own Bitcoin. I don't think that's possible. I do not believe and the way I framed it with Stefan was Bitcoin is not for everyone. And then I kind of contradict myself in explaining this and explaining it is actually for everyone, but it's not for everyone in the sense that not everyone will be able to own or control Bitcoin a UTXO. They will not be able to have a a private key controlling a Bitcoin on chain. It's just not economically possible given what Bitcoin is and the difficulty of changing Bitcoin. We don't, in at least in my view, we don't want to change Bitcoin or make it so malleable that it becomes essentially like the our current system, like the Federal Reserve. We want to be able to trust that Bitcoin supply is fixed. And the only way we can trust that is if it's an immutable institution in the world and currently it's structured in a way that it is basically immutable because it is so difficult to make any change to Bitcoin And I believe it's becoming more difficult with time as people and and nodes in the network become more skeptical of new changes to the to the Bitcoin core code. I think you're going to have less willingness to adopt changes or is it is it or more specifically less willing to adopt consensus changes even if they're soft forks? And this I think is important. So given that assumption, it's just not economically feasible for everyone on earth to control UTXO. It's more likely that you can have 10s of millions somewhere in the order of like 50 to 100 million people control UTXOS. But what I think is going to happen is we're going to have a world where there'll be a lot of financial institutions controlling Bitcoin on behalf of their customers. And the very early form of that is the ETF, where you have a bunch of people who have Bitcoin exposure because they own a part of the ETF, and then BlackRock is the one that custodies that ETF for them. I think this is going to be much more common. This is, I think, a painful realization for some people who really wanted Bitcoin to be a tool for ultra financial sovereignty where everyone controls their their UTX. So I don't think that's possible, but I think the benefit here is much bigger. The benefit is that the world will be on a hard money standard and that that has profound implications for, you know, geopolitics, for economies, for everything, and generally it's very, very freedom promoting. I think the world on a gold standard was much freer than the world on a Fiat standard. So for me, the big picture perspective, even if we can't get to a place where everyone controls the UTXO, it is a world which Bitcoin is for everyone because we all benefit from a superior monetary standard. So Bitcoin is not for everyone. Not everyone is going to control UTXO, but it is for everyone because we're all going to benefit from it. So to to that recent comment plus your earlier one about the earlier stages of mapping and everyone having a TomTom in their car, it makes me think, it makes me wonder if one you know is self custody hardware wallets, are we in the TomTom stage, are we unfortunately going to move, going to move past that And if we move to the smartphone stage, you know is that analogous to the sort of intermediated Bitcoin for the majority of people I guess? I I, I think that's a great comment. And yeah, I I would say I am not bullish on the hardware wallet market because I think it's a limited market just by the observation that you can't have more than say 100 million people controlling their UTXOS. So if they do really well, they'll capture the entire market, but that's still a small percentage of the overall population of the globe. So I am, I'm somewhat skeptical of the the hardware world market and that's not to say that I think fully of the, I have friends who work in that space and who I have deep respect for brilliant people. But it's not something that I really think is. I would, I would be super excited about investing in, let's just say that. Yeah, I guess, I guess the nature and the architecture of Bitcoin has limited the total addressable market for hardware waltz, unfortunately. Yes, that's a good way of saying. Fortunately or unfortunately. But, but that would also mean that not to put words in your mouth, but that you are bullish on like Bitcoin banking or flavors of that. I'm very bullish on layer two solutions to scaling Bitcoin, and I think there's too much of. This is not to disparage Lightning. I think there is too much fixation that Lightning is the solution. Lightning could be a solution and could be part of the solution, but I think we're going to have a lot of experimentation with layer two solutions, Fetti mints. Centralized custodians even like. To be perfectly honest, if I want to use Bitcoin for purchasing coffee, I don't care if I keep like you know, $200 worth of Bitcoin in a centralized custodian. There's certain things that I don't worry about ceding some control in terms of my savings. I hope there's a way that, you know, people can have sovereignty of their savings without necessarily having a UTXO. There is some kind of layer two solution that's decentralized in a way maybe not quite as decentralized as the underlying base layer network, but we need a lot more experimentation there. And I don't think Bitcoin should be too defensive about criticisms of Lightning. I think it's OK to listen to those criticisms and say, well, there are some shortcomings to Lightning. That's OK, but it doesn't matter because we have a lot of other things we can try here. It does not as the big blockers like to try and portray. It does not mean that Bitcoin is flawed because it didn't choose bigger blocks for scaling. It just means we need a lot more experimentation at layer 2. Yeah, I like that that that optimistic take we we don't have to put all the eggs in, in one basket in terms of any of the protocols that get built above the above the base layer. What we've been talking you know long cycle long term adoption let's let's zoom in a little bit. I think I heard you on Swan Signal talking a little bit about the phases of a bull market and I'd like to touch on that topic again. Could you enlighten us with respect to your model on that topic? Oh yeah, I I said in a bull market there are three kind of price movements and let me see if I can remember get the get the order of these correct. So the first is, I've forgotten the way I described it, but you you have basically a sideways movement, a zone of accumulation, that's what I call a zone of accumulation where you have the price kind of just drifting sideways for a prolonged period of time. And I wanted to explain what like what is the underlying dynamic of market participants that's causing this? And what you have is the price gets to a level where you have enough sellers who are motivated to sell at that price level and where supply and demand during approximately equal balance. And one analogy I use is of an iceberg and and ocean waves crashing against an iceberg and eventually you'll have a sheet of ice crash and break off and hit the ocean. And this is kind of what happens as the price of Bitcoin goes up. It goes up and up and up and then you hit some big holder of Bitcoin who's like it's hit my magic number. I want to diversify or I want to you know spend some of this money. And so they sell a big chunk and they they're attracted to the the current price and you can in the zones of accumulation you can have the price move a fairly significant amount, right. You can go up 10,000 or go down 10,000 and that's because you have a lot of chop where it's some big seller comes in and they they dump on the market like we've had a few in in the last few weeks who've sold big chunks of Bitcoin and then you have buyers when it drops sufficiently but who are like I I know this is a bull market I'm attracted now to start accumulating. Eventually though, the people who are attracted at selling at these price levels, they they've sold all that they want. And then what happens is the price breaks out of this zone of accumulation. You get a zone of price discovery. And this is where the price starts shooting up very rapidly because there is no natural supply that wants to sell at that new level and the price is just moving all over the place. It's trying to figure out where the next zone of accumulation is. And so this is when this is the most exciting time, you know, to be a Bitcoin holder is in in these zones of price discovery. And one of the things that's most fascinating as a Bitcoin investor is these zones of price discovery compressed into a very, very short period of time, right. If if you are out of Bitcoin for 10 days in a bull market, you've lost almost all of the returns. It's during those zones of price discovery. And then eventually, I'm trying to remember what I called it. But we you, you have these air pockets in a bull market. And what happens is when you get price discovery, people start to get ahead of themselves. And you have speculators who are just really interested in Bitcoin just for the profit motive and not necessarily because they believe in or even understand the technology. And so they start piling in using leverage. And what happens is people get ahead of themselves, they get over leveraged and then a small movement in the price downwards causes liquidation, forced liquidations that moves the price down even further. And then other people who had leverage are liquidated and these air pockets, when the price drops very rapidly and these are a common feature of bull markets, you'll see you know 5 to 10 of these 20 to 30% moves down. This is common in all Bitcoin bull markets. So what I wanted to do when I was talking about this is to try and explain to people what's happening behind the scenes in the market, what what's happening with market participants and what explains these price movements. Right now we're in a a zone of accumulation. I expect eventually we're going to break out of this and we're going to get into price discovery mode and then we don't know where it goes. Is it going to go from 70 to 80? Is it going to go from 70 to 90 in a straight shot? Price discovery is a really crazy, exciting process because no one really knows where you land. Yeah. And we're recording this on April 25th here, 2024. So could happen at any time. That's the thing about the I'm looking. At the price over here. Yeah, that's right. The accumulation happens for a while and then it stops and then you get a big move and you never know when that's going to happen which is why you know at on ramp we basically think that one should hold one's position, secure it very well in a multi institution, multi sig arrangement and not get too tricky with the with the trading, but people love to chase the rabbit, they can't help themselves. Yeah, the hardest thing as a as a Bitcoin investor is doing the simplest thing. It is very, very difficult to just sit and hold and do the boring thing. Human nature is herd based and we see what other people are doing and unfortunately we our emotions can take hold. So if you're able to just do the boring thing, you will outperform 99% of people who are doing complex trading strategies. Thanks for tuning in. If you're interested in exploring any of these topics further, or want to learn more about how we can help you secure a new or existing Bitcoin allocation, get in touch with our team at on rampbitcoin.com. We look forward to supporting you on your Bitcoin journey. So, so maybe let's talk a little bit about if you're comfortable about someone who didn't do the boring thing. I'm talking about Barry Silbert. I know you have views on his business activities, including at Grayscale. Curious if you'd like to make any comments about how that's gone, you know, where we are with respect to how that has affected the Bitcoin market, you know, whether we're past it or yeah, just any thoughts you have on it? Yeah. So Barry Silbert is the CEO of DCG. And DCG aspired to be the Berkshire Hathaway of the crypto market. And that is how be the be the owner of a bunch of companies that are very important in in that space. And so he owned actually two of the most important companies in the the crypto space, Grayscale and Genesis. And Genesis was a company that provided prime brokerage services, which meant that they they lent and borrowed Bitcoin, they provided options, they did this for institutions and then they did it for whales, high net worth individuals. And he also owned Grayscale, which is a company that provided the first kind of product in the equity market, GBTC, which gave equity market investors exposure to Bitcoin. The problem with GBTC as a product was that it was not an ETF, it was a trust, It was a trust based product. And while the the trust, the GBTC trust owned bitcoins and so gave equity market participants exposure to Bitcoin, it didn't have a redemption mechanism. And so the problem there is that you can this premium can develop where the value of GBTC as a fund exceeded the value of the assets underneath. And why? Why could that happen? It happened because equity market participants didn't have other ways of getting Bitcoin exposure. And there was so much demand to get Bitcoin exposure in, you know, from 2014 to 2021 that people were willing to pay a premium when buying GBTC over the value of its underlying assets. This premium then created an arbitrage trade that's been called the Widowmaker trade because everyone who got involved in this trade blew up. Everyone who got involved in this trade went into bankruptcy. And there's a lot of firms that this happened to. And what they did was you would put put Bitcoin into GBTC and six months later you'd get shares of GBTC for the the Bitcoin you put in. And because GBTC was trading at a premium to Bitcoin, you're essentially making free money, that premium. And so a lot of companies recognized this by 2020 and they're like, wow, free money, Free money is great. And and what they did was they started piling into this trade with leverage. And so you had a lot of companies, most prominent of which was 3 Arrows Capital and but unfortunately for these companies, the premium went away by early 2021. And the reason it went away was both because so many people were chasing the premium and they got arbitraged away and also because you had alternatives to to get Bitcoin exposure in the equity market and micro strategy became one of those. So you had competition as well. And when the premium went away, it actually went the other direction. GBTC turned into a discount. So people recognized that, hey, this you can't get your bitcoins out of here. There's no redemption mechanism. Maybe I don't want to own this. Maybe there's better ways of getting Bitcoin exposure. And then the the fund became worth half of its assets under management, which was absolutely crazy, right? Like it's got all of this Bitcoin. At one point it had 600,000 plus bitcoins and what was really gross about this was Grayscale was charging a 2% fee on on the assets under management. They're not really doing anything with those bitcoins. They're just sitting in cold storage. It's not like they're this hard work involved in managing these bitcoins. They were collecting 12,000 bitcoins a year on this fund. So here's the problem, right? DCG is sitting above these two companies, Genesis and Grayscale, and it has this perverse incentive to encourage people to borrow from Genesis and do this arbitrage trade. They really like it. They're like, this is great, go 3 Rs capital, borrow as much as you want and put it into, put it into grayscale. Because then what happens is when they do this trade, they're putting bitcoins into GBTC and those bitcoins are stuck in GBTC. This is why the assets under management went as high as 600,000 because GBTC was a Hotel California. You can go in but you can never come out. So DCG is looking at this and it's great, everything is great and and so it even took part in this trade. DCG even took part in this trade. But the problem is when the trade blew up, Genesis have lent money to all the companies that were doing this trade. It lent money to three Rs. Capital and it lent money to various other people who are doing this trade. And they all blow up. And then all of a sudden Genesis has a massive hole in its balance sheet. They suffer a $1 billion loss. Now what do you do when you have a $1 billion hole in your balance sheet when you're a prime broker? Well, the the correct thing to do, the legal thing to do is to declare bankruptcy. Hey, guys, hey, creditors, you know, you lend us Bitcoin, but we can't pay you back. Now we'll distribute whatever assets we have, and that's not what they did. What happened was DCG came in and created this promissory note, this fake promissory note to kind of fill the hole, the loss of $1 billion and to create the impression that Genesis was fine. They did not want Genesis to go under. And why did they not wanted Genesis to go under? Because Genesis had lent DCG money, and if they Genesis went into bankruptcy, it would pull it would call on all those loans that it made and call them immediately. And so DCG would have been forced to pay back a loan and DCG probably would have gone into bankruptcy as well. And then being liquidated. And you know what, Barry Simple, where did he come from? Oh, that's right. He is an expert in bankruptcy. He worked on the Worldcom bankruptcy and the Enron bankruptcy. He's an expert. And so he is an expert in structuring these things. And so with together with Genesis, DCG created a promissory note to make it look like Genesis was solvent. The problem is this promissory note was not real capital. It was not like cash or Bitcoin or something that you could easily sell. It was a promise to pay back a billion dollars in 10 years, which could not be redeemed and paid below market interest rates, so paid like 1%. So really Genesis was still insolvent, but it was going out to the market and telling people, hey, we're fine, we're fine, we've done stuff to mitigate the losses. You can actually, these tweets are still on Twitter. You can go look at the CEO of Genesis, Michael Morrow, and his tweets. They were actively lying to the public to solicit more loans from creditors. And DCG was part of this. So this was discovered. And the New York Attorney General sued DCG. It sued Barry Silbert personally. It sued Michael Morrow personally. And it. And it's arguing that they, DCG should no longer be able to do business in New York. They were involved in an alleged fraud alleged by the New York Attorney General. If anyone's interested, I think reading the complaint of the New York Attorney General is very interesting. It's very detailed and has very substantive allegations against DCG. But my problem and why I was really keen on explaining this is not many people understood what had happened with DCG and Genesis. It was kind of hiding in the shadows. Everyone was interested in the SPF fraud and what happened and all the drama involved in that. But I thought that that was far less important than the fraud that happened with DCG because that was at the heart of the 2022 market collapse. And FTX was just a domino that fell in that collapse. It wasn't really the precipitating thing. The precipitating thing was this, you know, very incestuous corporate relationship between DCG Genesis and and grayscale and and and the the catastrophe this cause for millions of investors. So that's why I I was interested in, that's why I, you know, wrote a Twitter thread on this, which got 2 million views. People were like, whoa, Barry Silbert's not actually a good guy. He was part of this horrendous collapse and he really needs to be held accountable for it. Yeah, that's well said. I remember that thread and it was, it was fascinating to read. And yeah, I have not read the complaint, but I do recommend people check out that thread the VJ that you put out on Twitter X Great, great detail, very important series of events in the history of the market for Bitcoin and therefore yeah, for Bitcoin itself. A lot of details. I I didn't. I didn't have the full picture until you walked us through that right there. So thanks for bringing all that to light. I knew the isolated events, but how it all connected together as a series I I actually didn't fully know. Yeah, I think it is. Sorry, sorry. Just go ahead. Just respond to Andy and say I agree with you that it's a historic event in the history of this space. It's as important, I think, as a collapse of Mount Gox. And people will look back on it and do sort of historical excavation and realize that Barry Silbert was really a big part of the reason the market suffered so much in in 2022. And I expect eventually he will be held accountable for what he's done. He hasn't gone to jail like SBSBF has, but once all the facts come out, I think the general perception of him as like the good guy and the responsible businessman will be completely blown out of water. What? What is it about? What is it about Bitcoin and people who have tons of success in Bitcoin that there's so many Icarus stories here? Bitcoin Derangement Syndrome or whatever you want to call it? Why does this happen? Vijay I. I think it reminds me of a quote that I heard about the US Constitution, that it was, it was written by geniuses so it could be interpreted by idiots. And I feel like Satoshi created this incredibly important invention. And unfortunately, a lot of the companies in this space that built up around it were just criminal, malfeasant, incompetent, just every kind of, you know, bad adjective you could throw at it, especially in the early days. So for instance, Mount Gox, Mark Coppelles had no idea what he was doing. I mean, he he bought the business when it was insolvent, and he he didn't realize that he had lost like hundreds of thousands of bitcoins in a hack until it was too late. We we really are. I think it's gotten a lot better, but I still think we're starving for great entrepreneurs. And so there's a huge opportunity here for folks because I think at some point it will be less obvious that the better investment is Bitcoin rather than Bitcoin companies. And for a long time, I said there's no point in investing in Bitcoin companies because the upside of Bitcoin is still too high. But eventually Bitcoin's value gets large enough that you really want to invest in picks and shovels and people who build the ecosystem around Bitcoin. And so if you're an entrepreneur, I this is a great time to start building on Bitcoin and building products or services or education like you guys are doing, there's huge opportunities ahead. Fully agree. So why don't I invite you to speculate a little bit about the future of VGA? Let's suppose I agree and say yes, you know some of the riff raff has been washed out. However, wouldn't it be a miracle if all of it had been? In other words, I'm trying to say it might not be the end of the story with respect to hubris and people building and then blowing things up in the Bitcoin space. Are there any areas of concern that are on your radar for potential future blow UPS? Yeah, I mean I still look at Binance as a company that I'm concerned about. It's not not like it has had the best history in terms of being responsible. I I think, you know, one of the things I'm optimistic about is that grayscale is this is something that should be talking about as well. This is great irony that Grayscale was the the company that fought for the Bitcoin ETF the hardest, but really damaged their business the most by doing so. They had more than 600,000 bitcoins under management and when they were approved as an ETF, they started bleeding bitcoins like a stuck pig. They and they continue to bleed bitcoins and I actually see this as a very healthy thing. I think those bitcoins going leaving Grayscale and going to other companies, be it Fidelity or BlackRock, you know, the actual more responsible players in the room, I think would be really helpful. I think having that value no longer under Barry Silbert's control is great for the market. And you know, there are only so many days that GBTC and Grayscale can lose $100 million worth of Bitcoin before they don't have any Bitcoin left. They in the first three months of after Bitcoin's ETF approval and the the ability of people to take bitcoins out of GBTC, it's dropped from over 600,000 to down to 300,000. Whether that pace continues is an open question, but I believe it will continue at a pretty steady pace. There's no reason to want to keep your money in grayscale when they're charging 1.5% fee when everyone else is charging me 0. Like, why do you want to stay with Barry Silbert? I I wouldn't. Fair enough. I've I've heard a few anecdotes from people I know of of unrealized capital gains is the only reason holding them there and and that's that's pretty compelling for some people who have been holding on to GBTC for quite some time. Yeah, absolutely. I I I think that's true. There is a circumstance if you own GBTC in a taxable account and you've got say you know a large capital gain on it, it may be more painful to sell and take that capital gain. But my view is that people who are using GBTC are not the same kind of people you'd think of as hardcore hodlers in general. I think people who become hardcore hodlers are, are people who are more inclined to want to own Bitcoin on chain. So I think this is part of my thesis that even though there isn't a disincentive to sell GBTC if you own it in a taxable account, I think the time horizon for some of those folks is probably, you know, six months to a year and eventually that turnover will happen. And once they leave GBTC, they're never coming back. Because Grayscale does not have the sort of natural organic client base that Fidelity has or Black Rock has. Like Fidelity has millions of clients that they can just market to directly, right, And say, hey, we've got this Bitcoin product, you want to Who does Grayscale? Have they? They're not like a major fund manager or anything. They just have some crappy crypto products. So once people leave Grayscale, they'll never come back. That's right. I have a a friend who sells fund products for a living, and he joined Grayscale. I can't remember how long ago. It was sometime in the prior cycle and he figured out pretty quickly what was going on, including that it might be difficult to sell new products because that was what he was hired to do, right? It wasn't. He wasn't hired to sell more of the Bitcoin Trust or more of the Ethereum trust or something. He was. He was there to sell new altcoin products and he figured out pretty quickly that this was going to be a a tall task for him to to approach the market this way. Yeah, could I just make one last comment on on this. Grayscale has one other very large product E which is similar to GBTC and it has quite a lot of assets on the management. I think it's, I think it's something in the order of 200 and Oh no, sorry that's not true. It generates 200 and it has over $10 billion in this fund and it generates $250 million in cash flow for Grayscale because they charge a 2.5% fee on this fund. It's just it's even grosser than GBTC because they're not doing anything with this fund either. The ether is trapped in there. They have an interesting question to answer. Do they actually want to pursue ETF approval? I think behind the scenes they are hoping, they're praying that the SEC will say no, no ETF for Etherium. We're not going to approve it because then they maintain that those cash flows, if the SEC does approve it, they're going to have the same outflow from this fund that they had with GBTC and their business is just going to crumble before their eyes. If I were them, I would actually be lobbying behind the scenes. The SEC, please don't approve this. Please do not convert our fund to an ETF. But hey, that's that's the situation they're in right now. It's not a good one. Yeah, agree. Agree completely there. It's a it's a tough situation. They have to put on that brave face. I think that I I agree with you. If it gets converted, it will likely be due to the legal efforts of one of the other providers. Maybe it's BlackRock that just makes the decision that they really want to continue to grow the space and they want to be a leader and they've managed to sort of take pole position in the Bitcoin ETF space, so why not the rest of it? But we'll have to see how it's we'll have to see how it plays out. I I I hope that that doesn't happen because I do have this fear that once you've greenlit an ETF, you've kind of that that really adds to the case of this is not a security, it's a commodity. And my view is that Ethereum is a is a security. It does not fly flies afoul of the Howie test and I have this fear that once you know once the green light an Ethereum ETF, then it's kind of no going back towards classifying it as a security, which I think it is. And I think if you know, once regulators do their homework enough, that's the nature of of what happened at the genesis of Ethereum. I think it also opens Pandora's box, Jesse, and I think it would be a very irresponsible for the SEC to let the market, the wider market, the people who are not, who do not have much sophistication, get exposure to all of these shit coins. I think it would be very, very dangerous. And I think they need to draw the line and they really should draw the line after Bitcoin and recognize that all of these things really were securities. I mean, Ethereum was a security. It started out as basically a share offering. You had a bunch of insiders dumping on the public, and if that had happened today, everyone would recognize that was a security, it was a securities offering, and it's it's it's clear for all of the other shit coins out there, they're all securities. And the SEC would do a huge disservice to the public in general if they expose them to this. Especially all the marketing scams around all these all of these shit coins that convinced the most unwary people to get involved at the worst possible time. Completely agree. Lots of lots of money. Lots of naive money has been lost, The public basically has been has been preyed on. So makes me think of one of the factors that may make Ethereum a security was that they changed the consensus mechanism. How could one do that if it were not a security? As an example, and it makes me think about the issue of ossification and upgrades within Bitcoin, and I know Vijay, you had some thoughts about that. You've been pretty clear that you don't want to see too many rapid improvements on Bitcoin because there are risks inherent. Can you tell us more about your current thoughts? Well, this is really cool. We're touching on 2 hot button topics in one episode. Yeah, I would call myself or describe myself as an ossification maximalist and yet might might re characterize what you said a little bit and say they're not improvements. I think changes to Bitcoin in in a lot of ways are detrimental to Bitcoin, even if they seem cool from a technological perspective. And I'll go so far as to say perhaps just to add some spice or controversy to this point. I would have been fine with Bitcoin not adopting SegWit. I think Bitcoin would have been as valuable today if SegWit had not been adopted, and it would have been more difficult to build Lightning on top of Bitcoin without SegWit. But I think the fundamental value of Bitcoin is that it's an immutable institution for transferring value across the world, and that you can be certain that your savings will not be debased. Those are the twin pillars of Bitcoin's value proposition. And I think this kind of fast and loose attitude to adding things to Bitcoin really undermine those pillars, those two pillars. So I am very much against, and I know I have colleagues who I deeply respect, who disagree with this. I'm very strongly against almost any change to Bitcoin at this point. I don't want covenants. I don't want anything else. I don't want any changes to the consensus mechanism. I I want it to be known that Bitcoin is essentially impossible to change. And actually the good thing is you can have ossification at the individual level by people who run notes saying, Nope, not going to upgrade. I don't want to upgrade and I don't believe that we need these changes. I think there's only one exception that I would support if there was a catastrophic critical bug. If we were in gravest extreme of Bitcoin being unusable, I would support a change to fix that bug. But I am against any so-called improvements because I actually think they're not improvements at all. They are changes that undermine Bitcoin's fundamental value proposition and I am against that. So I would say I'm an ossification maximalist. Love it, and I think we're living through the the unexpected unintended 2nd order effects of changes made with ordinals right now. I I learned this recently at the at the MIT Bitcoin conference from Gustavo from Wasabi wallet. But that block space is 30 to 40% cheaper for ordinals than it is for regular transactions because of SegWit and an additional 4% cheaper because of Taproot. And so it's that those two changes created an uneven playing field for block space and I and I don't think that that was properly appreciated when the pushes for SegWit and Taproot what were happening. A fantastic point. I think there are unintended consequences to economic changes. This is true for the greater economy and also true for Bitcoin. And it's important to understand, look back and to learn from the fact that the engineers who are involved in Bitcoin were very excited about these changes. I'll confess also that I was excited about the adoption of SegWit. But I think we need to learn lessons from what has happened. And I think if we do learn lessons from it, it's that we should be extremely cautious about changing Bitcoin. We have this precious thing in the world and it's really ours to fuck up. And I I hope we don't. And I hope people sort of take this stance that I don't want changes. You're going to have to really sell me on this change. If you want me to upgrade my node from, you know, version 26 or whatever it is to version 27, because I don't, I'm not going to do it anymore. I don't believe that it's worth it. And it might might be fun as an engineering project, but not, as you know, changing the most important monetary institution in the world. Well, and it's nice to, it's nice to hear very intelligent, experienced Bitcoiners say things like, you know, I wanted one thing before and you know, it may or may not have been the right thing. And so everyone learns in Bitcoin. We all make mistakes. We're all wrong at one point or another. And that's clearly an important lesson and clearly important lesson that Bitcoin imposes, let's say, on probably every single one of us. Even Satoshi probably couldn't have imagined the way this had gone, or imagined what Bitcoin would become in the long run. Well, notwithstanding that Bitcoin is now for Wizards, it's also for for everyone else, like we talked about earlier. Speaking of which, I think I saw you VJ, on the agenda for the Bitcoin is for Everyone conference in Portland. Shout out to Eddie, I'm going to, I'm going to try to make it up for that one myself. I'm trying to nail down logistics so. That's awesome. I hope people can make it out to that one. It's going to be a lot of fun. Yeah, I totally agree. I'm going to do my best and and and people should definitely come out and check it out, but we're we're coming up on time here. What else would you like to leave us with? Any final thoughts with respect to how people can check out either what you're working on right now or your Canon of work that you've produced over the years? You're on mute there. Sorry, I'm muted. All good. What am I working on? I I'd say right now, mostly I'm working on both being a dad, being a Bitcoin evangelist, and being part of SWAN. I'm super excited to be part of SWAN. It's such a cool company and I think. One of the things I really appreciate is Corey's vision of a Bitcoin only company. It's very rare actually. There are a bunch of companies who work in the space, in the Bitcoin space, and they don't have this mission of being Bitcoin only. And the fact that it's not just in product vision but in terms of the staffing, I think is what makes it so exciting. I love being surrounded by people who also care about the same thing and having the same values. There's no better workplace. And I I'll leave with a a message that I got very early on in my career, which was the only I I was trying to decide between whether I joined Google or Yahoo back in the early days when Google was very small and Yahoo was offering me a lot more money and I was just out of college. And I asked a friend of mine what I should do. I I really didn't know. And he said the only rational point of having money is if it can make you happy. So if you can work at a company that makes you happy, that's worth a lot of money. And that really made the decision very easy for me. I knew I would be happier at Google, the people much more exciting. It was a much less corporate environment. It was just like a crazy place to be, a great place to work. It worked out financially too, but I didn't know it at the time. So I have that same feeling about Swan. I get a lot of happiness from being at Swan because it's Bitcoin only. So that's part of what I'm working on. And you know, if other people are interested in in working the Bitcoin space, I would encourage them to consider SWAN as well. Well, I love that. I agree completely as a swan investor and a former swan employee as well. So 100% under score what you said And just to return to the theme of our podcast, which is scarce assets, it's great advice. Bitcoin is an extremely scarce asset. Also extremely scarce are work environments with great people, visionary people that are building amazing products. And I couldn't agree more. So VJ, this has been a tremendous conversation. Thank you so much. We really learned a ton and hope to do it with you again sometime. Awesome. Thanks guys. It's great speaking with both of you. Thanks VJ.
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