Latest / Simply Bitcoin / Lawrence Lepard & Caitlin Long | Bitcoin BlackRock ETF | Simply Bitcoin IRL

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Lawrence Lepard & Caitlin Long | Bitcoin BlackRock ETF | Simply Bitcoin IRL · Simply Bitcoin

0:08
Hello everybody. Welcome to another episode of
0:10
Simply Bitcoin IRL. Today we have a very special
0:13
show lined up. We have Lawrence, Leppard and
0:16
Caitlin long joining us today. But before we jump into the
0:20
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DMS. All right guys, no more delay.
1:01
Let's do this. Hey guys, how are you?
1:04
Hey. How's life?
1:06
How are you, Caitlyn? Hey, doing great.
1:09
Thanks. How are you?
1:10
I don't know if you remember this, but we.
1:13
So I ran into you guys backstage at Bitcoin 2023 and I was like,
1:20
they would be amazing on a pod together.
1:22
Why don't we do that? So yeah, so I chased.
1:27
I chased Caitlyn for a long time.
1:28
I was like, Caitlyn, please come on.
1:30
Simply she finally. Thank you so much.
1:34
And then I approached Larry and I said, Larry, you want to come?
1:37
And he said of course. You bet.
1:39
So happy to have you guys together.
1:41
So a lot of things have been happening very, very quickly,
1:44
whether that is the announcement by BlackRock, whether the ETF,
1:49
the lawsuits against Coinbase, the lawsuits against finance.
1:53
So I feel like a lot of things that have happened in the last
1:56
month or two. And also you know the price of
1:59
Bitcoin has been kind of going sideways.
2:01
So Caitlin, from from your angle, what are your thoughts on
2:05
this whole thing happening with BlackRock?
2:07
We had a narrative back in 2018 and it was a coping narrative
2:10
when Bitcoin hit 20K and it went back down and one of the I never
2:14
forget and it was the institutions are coming.
2:16
So Caitlin, my question to you is, are the institutions here?
2:19
Is it finally happening? I don't know and I don't care
2:24
that much. I'll tell you why.
2:26
I've been consistent since that time I started writing in for
2:30
Forbes back in 2018 saying this is all a double edged sword,
2:34
including the spot ETF. It's a double edged sword
2:37
because you're bringing the big Wall Street games, paper money
2:42
games to Bitcoin and it's going to if you just if you pick up
2:47
any ETF prospectus. You're going to see that the
2:51
market makers have the ability, for liquidity purposes, to
2:57
create more fund units than they have actual collateral in their
3:03
proverbial vault. OK, that's true for ETF's, for
3:07
stocks, for commodities, and for Bitcoin.
3:11
It's going to be true. Now, typically you don't see,
3:14
say, more than 5% fake. Assets created that are not
3:20
backed by one for one, by the, by the real thing, but they have
3:24
the ability to do it. And once the ETF gets out there,
3:28
then you start to get into all the hedge fund, you know,
3:34
collateral substitution games, right?
3:36
And all of this ultimately ends in the same kind of.
3:42
Market structure that has happened to physical commodities
3:46
of limited quantity, and I know Larry's all over this issue as
3:51
well. Yeah, I couldn't have said it
3:54
better. I haven't had a chance to read
3:56
the BlackRock S1. Have you Caitlin?
3:59
No, not in detail. I'd love to see what's in it,
4:02
but yeah, it's a it's a double edged sword.
4:05
It's the correct way to describe it.
4:07
I mean the good news is here's the biggest asset manager that
4:09
said it was. Three years ago said it was for
4:12
money laundering, endorsing it. And of course they only do that
4:14
because they think they can make money on it and not not because
4:18
they are pure of heart. But you know, they can create
4:21
paper Bitcoin. And somebody on Twitter said, Oh
4:23
no, no, no, this is great. You know, we'll be able to see
4:25
their addresses and see when people buy.
4:27
And then I said, what makes you going to tell you their
4:30
addresses? There's no way you're going to
4:33
know what they're doing. And this has paper Bitcoin
4:36
written all over it and. You know I mean I've been doing
4:41
this for 30 years in gold GLD and and you know so so the the
4:47
good news is they're endorsing it and they'll bring more
4:49
investors into the fold for sure.
4:51
Because now a lot of people who can't because of career risk say
4:56
hey client put some money in the Bitcoin.
4:58
Now they can but the bad news is they'll they'll get their claws
5:02
on it and and you know we're going to see more paper Bitcoin.
5:06
So one of the and and just curious to get your guys
5:09
thoughts and of course you have you know tremendous amount of
5:12
experience both you guys isn't wouldn't you say that Bitcoin is
5:15
slightly different though because you know you have Gold's
5:17
physical characteristics. So we know that this happened in
5:20
the gold mark and Larry and I, we've had this conversation
5:23
before, right. We know in terms of what's
5:25
happening with gold but wouldn't you say that because of
5:28
Bitcoin's physical characters is it's ability for it for for
5:32
people to take self custody of it for for you to.
5:36
Just, you know, take it out easily, you know, without
5:39
encumbering this crazy cause. You try to do that with $100
5:42
million worth of gold and it's going to be a lot of security
5:45
guards and a lot of big trucks. But you do that with Bitcoin.
5:48
It's it's extremely cheap. So what do you say, Caitlin,
5:51
that there is a, there's a little bit of a of a check there
5:54
in terms of them being able to do what they did with gold?
5:58
You're laying out really well the reason why Trace Mayer
6:01
called Bitcoin the apex predator of finance.
6:04
Because ultimately, when that proverbial run on all the
6:07
institutions that created paper Bitcoin occurs, and it
6:11
inevitably will, then you will see, as Buffett likes to say,
6:17
who's swimming naked when the tide goes out.
6:19
OK, that's absolutely true. It's a lot easier for people to
6:23
demand to take physical delivery.
6:26
Of Bitcoin than it is for gold. Absolutely true.
6:29
The challenge is that I don't think these spot ETF's allow the
6:36
holder to convert to the physical the choice that you
6:40
have. And I could be wrong about this,
6:41
but the choice that you have with these spot ETF's is to sell
6:45
the ETF unit, not to convert to the underlying.
6:50
And see, this is this is where the games get played, right?
6:53
They try to trap people into. Thinking and the same thing
6:57
happened with the with the securities versions of gold,
7:00
right. It did no question bring in more
7:03
investors into the precious metals asset class when the ETF
7:09
was created. No question, increased liquidity
7:12
and temporarily increased price. But you know, and again, Larry's
7:17
been doing this for 30 years. It's it, there's no question in
7:21
the minds of most of the people in that market.
7:24
That all the paper gold that got created because you.
7:27
The same thing was true with the gold ETS.
7:31
You could not redeem for physical.
7:33
And your question is even if you could redeem for physical,
7:35
people couldn't physically take it.
7:38
They don't have the vault set up.
7:39
They don't have the security set up to transfer it.
7:41
You're absolutely right, it's a lot easier with Bitcoin.
7:44
However, folks get trapped in in in these securities versions
7:50
thinking that they own the real thing.
7:52
But if you cannot redeem for the real thing, oh boy, you don't
7:56
own the real thing at all. Yeah.
7:58
It's not your, it's not your coins.
7:59
I mean it to I believe there was some talk and I haven't read the
8:03
S1 I probably should have before this interview, but I believe
8:05
there was some talk that certain very large people might be able
8:08
to take the coins directly out of BlackRock.
8:10
Something like, I don't know 40,000 units or something I I
8:16
don't recall but. And that's possible.
8:18
But I mean, and frankly that's true with GLD too.
8:21
You can, at a certain size you can ask for the gold.
8:24
I don't think anybody ever does it and the size is quite large.
8:28
But to to your point, you know, I think I know where you're
8:31
going. You know, is it going to be as
8:33
easy to manipulate Bitcoin as it is to manipulate gold?
8:36
Is a question I ask get asked a lot.
8:38
And I would say, I would say not quite for a couple reasons.
8:41
One, because gold has been around a lot longer and they've
8:44
built up all kinds of infrastructure to do it.
8:47
So they've had 40 years to figure out how to do it, and
8:49
they've done it really well. And you know, Robert Ruin was a
8:52
J Erin trader before he went to Goldman and then he helped
8:54
Clinton write the bond market. And and so they, they've got a
8:57
great system and they and they did it all through the Cayman
8:59
Islands. They had all these entities in
9:01
the Cayman Islands that were, you know, buying and selling and
9:03
shorting gold. And they had an unlimited
9:04
balance sheet. I mean, I'm quite sure, I
9:07
believe strong. I don't know if Caitlin agrees
9:08
with me on this, but I believe quite strongly the government
9:10
runs two sets of books. And that that, you know they
9:14
they've had national security directives from the president
9:17
about doing financial things kind of off the books.
9:20
And I think that there were times when it was important
9:23
where they would short gold or go along the S&P future to do
9:25
whatever they had to do. And if it turned out that trade
9:28
whatever hedge fund they had to do that on their behalf did not
9:30
work out for them. They just printed the money and
9:32
filled the hole and and it was all off balance sheet, off
9:36
books. I mean Catherine Austin Fitts
9:37
talks about this too. So you know it's it's going to
9:41
be harder to do this with Bitcoin and and and one the
9:44
biggest reason eyesight is the price volatility.
9:47
You know with gold a big year is up 30% and a big down year is
9:50
maybe down 15 or 20%. You know look you can you can
9:53
short into that and hold it and wait and then you know I mean
9:56
they they can play that game. This is a whole different asset.
9:59
This is a whole different animal and you know Luke Grumman and I
10:03
have laughed about this a lot. I mean when.
10:05
When Bitcoin went from 5 or 10 grand to 50 grand in the space
10:08
of 12 months, that was a holy fucking shit moment for a lot of
10:12
central bankers all over the world.
10:14
I mean, they were like, Oh my God, we got a real problem here.
10:19
And so, you know, if you think about how they manipulated gold
10:22
and they did it through the Caymans, you know, you're down
10:25
30% in a position. It's leveraged whatever.
10:27
You can do it. But when you've got something
10:28
that can rip your face off to the tune of a 400% appreciation
10:32
very quickly. That's an entirely different
10:35
kettle of fish. So I, you know they're they're
10:38
going to have to be careful and you know to the to the question
10:41
of is it being manipulated today you can go to glass node you can
10:45
look at the futures contracts. You can look at the number of
10:47
derivatives outstanding and Caitlyn knows it's probably
10:49
better than I do but and there are billions of dollars involved
10:52
in you know playing around with paper Bitcoin.
10:55
But if you look at if you go to you know coin market cap and you
10:58
look at what's trading every day and you look at the total market
11:00
cap, it's still pretty small. I mean the paper gold traded as
11:04
against the underlying physical moving around.
11:07
You know they've been various computations done by some of the
11:09
really smart people that show that it's you know 10 to 100 X
11:13
and I don't think that's occurring yet with Bitcoin.
11:15
And and and what you're saying, Caitlin, is that you believe
11:18
that this is inevitable, You believe that you think that this
11:21
will happen in Bitcoin? Well, it's not inevitable and
11:25
and I don't have, back to Larry's point, I don't have.
11:29
Evidence and again I'm not an expert in these in these gold
11:31
markets of of what the US government may or may not be
11:33
doing. I'm not sure it's necessarily
11:36
off books because keep in mind there's a gigantic other on the
11:40
Fed's balance sheet and derivatives derivatives are as
11:45
you know they they can have I mean hell we've seen it in the
11:48
in in the Bitcoin markets 125 to 1 leverage okay.
11:52
So it might not actually be very high in value the derivatives
11:56
that are being. Bandied about and so, so you
12:00
know those any kind of derivative contracts, Lord knows
12:03
what's in that other category. And I don't know what it is off
12:05
the top of my head, but it was several $100 billion last I
12:08
looked, right. And that's you know, I'm sure
12:10
that's going to be the real estate that the Fed owns and all
12:13
and and all that. But there's more than just that
12:15
in there and people have been speculating for years what are
12:18
those other assets and that's what that is one of the places
12:21
where large derivatives trades that could move markets
12:25
including shorting. Derivatives trades may be hidden
12:28
because they're just not in hot. They're not very valuable in
12:32
dollar value, but you know, not that that huge other assets line
12:37
item isn't broken out. So, but back to your point, is
12:40
this inevitable? You know, it's so interesting
12:43
because if you go back to Trace Mayor's seven network effects of
12:46
Bitcoin, the 6th one is financialization.
12:49
And he and I had a big debate seven or eight years ago about
12:53
whether that was a good thing for Bitcoin.
12:54
Because if this is exactly what we were debating and and is it a
13:00
good thing that the big Wall Street balance sheets come in up
13:03
and start applying their the games that work in a Wall Street
13:06
context? Where privates profits are
13:10
privatized and losses are socialized because the financial
13:14
institution counterparties will get bailed out if they are too
13:17
big to fail. And we saw too big to fail now
13:19
includes, you know, some regional banks, right?
13:22
And so the point is that that. That those games work when
13:27
there's somebody backstopping and and and you know this gets
13:32
into the the whole question of should should these practices be
13:36
banned or should we just allow the sort of free banking version
13:41
and and let markets work. Here's the problem.
13:44
This is this is where I I started as a free banker and
13:48
ultimately evolved into a rough Bardian for one simple reason
13:52
that. Free banking is never a 0 sum
13:55
game. The moment that you start
13:57
creating paper versions of anything you're you're in,
14:02
you're impacting the supply demand dynamic.
14:04
And I did a big tweet thread and we can dig it up and put it in
14:07
the show notes about what does that mean when you create
14:11
artificial supply of something that goes to satisfy real
14:14
demand. And I was reading Kayak when I
14:17
was when I wrote that that tweet thread a couple of years ago.
14:22
And and Hayek made a really interesting point, which is that
14:26
it's not just about pushing the supply curve out and to the
14:30
right, which pushes the price down, right.
14:33
Anytime you create an increased supply of something, whether
14:36
it's artificial or real, all else equal, the price is going
14:38
to go down because the supply curve moves out to the right.
14:41
So you're you're the point at which it intersects the demand
14:44
curve is lower, ergo the price is lower.
14:46
But he pointed out that it actually influences demand for
14:50
the real thing as well. And you get hit on a double
14:53
whammy. And so that's ultimately why I
14:56
don't agree with the free bankers.
14:57
There is no free lunch. I think the one thing Rothbard
15:00
was, was was adamant about it, which is that any kind of paper
15:06
assets, i.e., a claim to an asset that's not back 1:00 to
15:11
1:00 in real time with the actual asset is going to have an
15:14
influence on the price. It's going to suppress the price
15:17
of the asset. It just is and and whether it's
15:20
free bankers who are willing to temporarily allow situations
15:26
like that to happen because they feel like the markets will self
15:29
correct. The problem is if you're caught
15:32
up in a situation like that in that moment the and the market
15:36
hasn't self corrected, you just got your pocket picked and
15:39
that's what's going to happen here and it is happening.
15:41
It is happening in in in spades, right.
15:43
I mean we saw it with FTX where they had.
15:48
Had sold allegedly Bitcoin but never actually bought the real
15:52
Bitcoin. So there were claims to bitcoins
15:54
outstanding that we're not backed by real bitcoins.
15:56
We saw it in Celsius, which admitted and block fight.
15:59
They both admitted that they rehypothecated again.
16:02
That's one of those those those Wall Street games that gets
16:06
played that you know it works and causes huge amounts of
16:11
wealth to be diverted into the hands of of people who control
16:15
the wealth on Wall Street. Because they're the first ones
16:19
to get the printed money. I do believe that there's a
16:22
cantile on a fact in that regard.
16:25
And they if they blow up, the worst thing that happens is they
16:28
walk away and the taxpayer ultimately gets, gets you know,
16:31
foots the bill for those of us who don't think that that is
16:34
ethical. Those kind of games should never
16:37
happen. And that's what Rothbard was,
16:40
was was saying and it was one of the few things that he thought
16:43
that that the government should do, which is to ban.
16:46
The fraudulent practice of invading property rights by
16:50
creating more claims to your property than there is actual
16:53
property. Let me just let me ask a
16:56
question here, Nico, if I can. Let me just understand.
16:58
You say, I know it pushes the supply curve about creating the
17:01
fake supply, you say it pushes the demand curve.
17:04
Is that based on perception? Is that how you're getting to
17:07
the demand being affected that therefore because the prices
17:10
don't understand that it's going up and there were people say oh,
17:12
I'm going to give up on this asset and therefore the demand
17:14
goes away. Is that what?
17:15
You. I wish I had that that Hyatt
17:17
quote at at hand, but that was one of those light bulb moments
17:20
for me and I ended up writing a big long tweet right about.
17:23
That's what you meant. I just wanted to clarify that.
17:24
Yeah, no, it's great and and again I'll we'll dig it up so,
17:28
so the listeners can can read it for themselves because Hayek was
17:32
brilliant. Hayek really, truly understood
17:35
all of these dynamics and. Also saw Bitcoin coming.
17:38
I mean his famous quote about how markets.
17:42
Lovely. Take it away from them, yeah.
17:44
Create a way to go around them exactly.
17:45
Sly, roundabout way. Yeah, absolutely.
17:49
Go ahead, Larry. Let me just build on Caitlyn's
17:51
point. And just to be clear by the way,
17:53
I put you guys both together, so you guys could do 99% of the
17:56
talking and I could just. I know you've got a question
17:59
you're brain to ask, but I just want to comment on Caitlyn's
18:01
thing. You know what she's alluded to
18:04
is when you can, when you can spoof markets, when you can
18:06
create paper, when you, you know, when you have a
18:09
derivatives quote UN quote market, you can manipulate the
18:12
price of things. Okay.
18:14
I mean you can set the price anywhere you want because the
18:16
derivatives game effectively becomes a balance sheet game.
18:20
And it's like being at table stakes poker where you know
18:22
there's a table limit and if you knew you had all the money and
18:25
you could make a bet and nobody else could call you, you'd win
18:28
by definition and so. That kind of thing is what
18:31
happens in these derivatives markets.
18:33
That's why I strongly believe, I think Caitlin probably shares my
18:36
view on this, that when bitcoiners rule the world and
18:40
there's no doubt in my mind that one day we will.
18:43
We need to ban and outlaw financial derivatives just as
18:46
Caitlin has talked about. There cannot be any paper.
18:49
I mean the derivatives were originally created futures were
18:52
originally created to allow a grower of corn and and a user of
18:55
corn to you know hedge out the risk and arrive at arrive at a
18:59
price that would allow each to do what was right for their
19:02
business. But of course they've gotten,
19:04
we've gone way beyond that and you know and now we see
19:07
multiples and multiples of the underlying corn.
19:10
You know, being quote UN quote bet on in a casino like fashion
19:12
where the people with the biggest balance sheet win and
19:16
the government has the biggest balance sheet.
19:18
I mean this is how Robert Rubin manipulated the gold price.
19:21
I mean remember, you know, Caitlin will remember this.
19:24
James Carville said I want to come back as the bond market
19:26
because I can scare the shit out of everybody and and and and
19:30
they knew, you know, Clinton wanted a better economy in order
19:33
to get elected and he knew that the only way he was going to get
19:35
that was if he printed money. He was fiscally aggressive.
19:38
And he got the economy rolling and he was like, how the hell am
19:41
I going to do that without having inflation take off?
19:43
And Ruben said no problem. You know, gold is the Canary and
19:46
we'll shoot it. So, you know, we've got to
19:49
outlaw derivatives. But that's that's multiple steps
19:52
down the road, You know, we got to win first.
19:55
Well, this is interesting, Larry, because I think we found
19:57
a place where you and I disagree.
19:59
It's not in a, in a. It's not going to end up being a
20:03
huge difference, but where I'm willing to go is futures
20:07
contracts that have no leverage are fine and that settle in the
20:12
physical underlying. That's what I meant.
20:16
Yeah, OK, great. You know, it's so interesting
20:17
because a lot of people will assume that folks like us are
20:20
anti debt. Absolutely we're not anti debt,
20:24
we're anti circulation credit, but pro commodity credit.
20:28
Absolutely no, no. The producer of corn and the
20:30
buyer of corn should be able to hedge out that risk, correct.
20:33
Right. It's it's, it's the gambling and
20:35
the derivatives on top of that that distort the the price
20:39
signals and and cost us all money.
20:42
And right now you can do 2 1/2 to one leverage give or take on
20:46
the domestic cash settle Bitcoin futures contracts.
20:49
So that's a lot better than the 125 to 1 leverage that offshore
20:53
markets will provide. In other words, a lot lower, but
20:57
it's still too high you and I would argue because you know the
21:00
the miners ultimately, I mean we're seeing this happening in
21:03
in Bitcoin mining, the miners are interested in hedging.
21:08
Their production and the futures markets are the things that give
21:12
them the ability to do that. What you don't want is the
21:15
mining companies to then become trading firms, right.
21:19
And this is once they become trading firms, you know, the
21:21
incentive to basically become a hedge fund is very, very high
21:26
and the the tools exist for. For Bitcoin miners to become
21:31
hedge funds where they're just basically trading these
21:33
financial contracts back and forth, that's not what we want.
21:36
We want the miners to be able to have price certainty by selling
21:40
forward their productions, you know three months from now.
21:43
But if it's physically settled and it's not leveraged, then I
21:48
think that financial instrument becomes very useful and and
21:54
helps take some of the the volatility and the and the.
21:58
The risk, which translates into the cost of capital for the
22:01
Bitcoin miners and that's a good thing for the industry.
22:04
Getting the whole industry's cost of capital down, that's a
22:07
good thing. But I think we're not saying
22:09
something different. I, I, I, I, it's so it's so
22:11
interesting, you and I point this out to each other, that
22:16
there's a perception that we stand for all leverage being
22:19
bad. Absolutely not.
22:21
You need credit in the economy. It's just that it should come
22:25
from. Prior savings rather than from
22:28
thin air. And that's the difference
22:30
between commodity credit and speculation.
22:31
Also having said that too, I think it I think a Bitcoin
22:34
standard economy credit and debt are going to be much less
22:38
prevalent. I mean I think that you know
22:40
it's it's going to be financed the way the 1800s were financed,
22:44
which is really equity capital, correct savings and equity
22:47
capital people are going to look forward to getting dividends.
22:50
Well, the US economy was was was equity financed up until 1968.
22:55
And what I mean by that was if you look at the cumulative
22:57
savings, you get the NIPA data from the Bureau of Economic
23:01
Analysis and just look at the cumulative savings in the US
23:03
economy and compare it to non financial debt each year.
23:08
Those two things roughly offset one year maybe one was a little
23:11
ahead, the other was next year, the other was a little ahead,
23:14
but they were pretty much two straight lines.
23:17
So in other words, we actually did up until 1968 what you and I
23:21
were just talking about, which is having equity financed
23:24
economy. And then something happened in
23:27
1968 and things went haywire ever since.
23:29
A lot of folks point to 1971 as the trigger, which is when Nixon
23:34
went off the gold. Standard.
23:36
Officially the last vestige of it, but what you see in the data
23:40
is that the US was under pressure three years before that
23:44
because non financial debt started going up for for the
23:47
guns and butter program. Very much so.
23:49
And that's why the gold drained from 20,000 tons down to 8300
23:53
and in. By the way, a lot of people
23:55
don't know this. Everyone says the reference
23:56
price of gold in in 1971 was $35.
23:59
No it wasn't. It was trading at $70.00 in
24:02
London, so the the peg had already been broken.
24:06
Right. What Nixon did was just
24:07
recognize the fact that the world was calling the bluff on
24:11
the US fiscal situation. Yep.
24:13
Yeah. So Caitlin, you said something
24:16
in and you said you said it as well, Gary, about this concept
24:20
of outlawing derivatives, right, outlawing this type of stuff
24:24
that that could hurt and. The bitcoiner in me, the
24:27
libertarian in me is like, wouldn't you just want the free
24:30
market to figure it out? And the reason that I truly
24:32
believe that I think it can is because of look what happened
24:36
with Celsius, look what happened with FTX.
24:38
I know what the other response is, like Nico, look at how many
24:41
people got hurt and whatever, but at the end of the day.
24:44
It did flush itself out by itself.
24:46
There was no, you know lender of last resort.
24:50
You know did you know the IT it it returned to the status quo.
24:54
Nature healed itself and of course I felt like that was so
24:57
bad. Bitcoin are saying this while
24:59
all these people were losing you know their life savings.
25:01
But at the end of the day you know if you just stayed humble
25:04
Stacks acts. You just bought Bitcoin.
25:06
You took it into self custody. You're just watching from the
25:09
sidelines I I I just get very. Hesitant when when we asked for
25:16
more government regulation because there's history has
25:19
shown that there's always unintended consequences to more
25:22
regulation. So I of course you guys have so
25:25
much more experience than I have.
25:26
I just want to get your thought, your guys thoughts on that?
25:28
Now you just articulated the free bankers concept very well,
25:33
which is that markets work. We had the flush, anybody who
25:37
rolled the dice chasing yields with those companies that.
25:41
Were paying in a 20% yields, but they probably should have been
25:44
paying 200% yields to compensate people for their for the credit
25:48
risk, right you you just articulated really well, but
25:53
here's the thing, what was the unseen impact of that and that's
25:58
where the real impact is. It was I would say three things.
26:02
Number one, it put a cap on the top of the price appreciation.
26:08
Because if we had a true free market, I do believe the stock
26:11
to flow model would have worked better #2 It caused us to break
26:16
through the trend of higher highs and higher lows.
26:22
We actually had a lower low because we broke through the
26:25
previous, but the previous high and #3 it it it, it distorted
26:34
the. Cost of capital for the entire
26:37
Bitcoin industry because of #1 and #2, right.
26:41
We had the top clipped off the the market because of the price
26:44
suppression. We had the bottom pierced
26:47
because of the higher volatility and the higher volatility as a
26:51
result of the you know, just the the to use the Hoover quote, you
26:56
know the the. The cannonballs on the deck of a
26:59
ship in a Tempest toss era. Money was just sloshing all over
27:03
the place, right? What did that do?
27:05
It increased the cost of capital to everyone.
27:07
So this is The Who is the New York Times?
27:09
Hazlett Hazlett. Hazlett wrote the book that that
27:13
made everyone think about the the.
27:15
The subtle consequences that you don't necessarily see in looking
27:19
at a market price and I think that that's the cost.
27:22
This is where I disagree again. I started as a free banker.
27:25
Exactly the Nico, the way you you articulated it thinking
27:28
let's let the markets flush. But the problem is that it's not
27:33
a 0 sum game. If it were, I would be right
27:36
with you. The problem is it does actually
27:38
have realworld cost. And those costs unfortunately
27:43
increase the cost of capital for everybody.
27:46
I think I can bridge the gap between your two positions.
27:50
So, Nico, I think when we get to a completely decentralized
27:54
society where there aren't as many big and powerful
27:56
institutions who can play this game and wreak the havoc that
28:00
Caitlin is talking about, then free banking works.
28:05
But I think that as long as you have the federal government as
28:08
they are, and you have the black rocks of the world, and you have
28:10
all this centralization of power and the potential for the abuse
28:14
of that centralization, then I want to have laws that say they
28:17
can't do it. You follow me.
28:20
I 100% follow you and it actually it reminds me of this
28:24
tweet and it actually it was it. You know when you say something
28:29
on Twitter and it pops off, you know you've resonated with a lot
28:32
of people. You know that a lot of people
28:34
are are putting the same amount of thought into this and the
28:36
tweet was this it, it's not winning.
28:39
That worries me. It's the transition, the
28:42
transition a non Bitcoin standard to a Bitcoin standards.
28:46
To go back to your point, Larry, then maybe, maybe, maybe, you
28:50
know, these imperfect laws are what's going to have to be
28:54
necessary. In order to push forward this
28:57
Bitcoin standard, I'm really, really enjoying this
29:00
conversation. So yeah, and Caitlin, I don't
29:04
know if you wanted to add to that, cuz I know you got excited
29:09
when I said my bit about the transition.
29:11
Well, Safey Dean and I recorded a podcast probably two years ago
29:15
on this very topic. Is this unstable?
29:20
Dollar system that we all, if we're honest recognize is
29:23
fundamentally unstable, right. We saw some of the instability
29:26
with the bank failures in March. the Fed was able to expand its
29:31
balance sheet and tamp that down temporarily.
29:33
We're going to just keep seeing those because we all understand
29:36
that it's all a confidence game, right?
29:38
That you know, our banks take our money in and turn around and
29:42
lend longterm and we all think we can all get our money out at
29:46
the same time. And if we all happen to show up
29:47
at the same time, then that bank.
29:49
The insolvency of that bank is revealed.
29:51
OK, so fundamentally, I don't think it's controversial to stay
29:56
that, to say the US dollar system is not resting on stable
30:01
foundations. It never has, and a lot of folks
30:04
are just waking up to realize that.
30:06
OK, so now if you if you grant that, would you rather live in a
30:11
world that goes to hyper bitcoinization very fast?
30:15
Or would you rather live in a world where the system ends with
30:18
a whimper, not a bang? If we go, if we live in a world
30:21
where the dollar system collapses very fast,
30:24
unfortunately I think we're looking at some pretty serious
30:27
instability in society and rights to whereas.
30:31
Though don't fully, I think they'll fully 6102 order if we
30:35
have, you know they'll try everything and anything.
30:37
Well, sure. That point you should expect
30:39
that. You should expect that and think
30:41
think through that in your own. As you think about the attack
30:44
factors on your own Bitcoin and self custody right, what you
30:47
know, how would they, how would they be able to get it from you?
30:50
If if there is another executive order like that But now we're
30:55
into the whole what's the likelier outcome and safety?
30:58
And and I ultimately agreed, not only is it better that it ends
31:02
with a whimper, not a bang, with people just voting with their
31:04
feet to go to the new, better world.
31:08
But it's more likely that that's going to be the case because the
31:11
central banks are just going to keep expanding their balance
31:13
sheets every time there's a financial crisis.
31:15
And you know, eventually there's something like last I looked, 95
31:19
trillion of non financial sector debt outstanding in the United
31:22
States. Feds balance sheet topped off
31:25
give or take 10 trillion. OK, So we kind of know where the
31:28
end game's going to be. It's when all 95 trillion of the
31:31
non financial sector debt gets monetized.
31:34
It is. It's going to happen before
31:35
then, well before then where the world wakes up and realizes the
31:38
dollar, you know is is built on a foundation of sand.
31:42
But it it I think we have a we have a ways to go and I don't
31:47
want to live through a world of financial instability, which is
31:49
why I actually care a lot. And I think Larry does agree
31:52
with this about how the transition takes place and
31:55
that's why Custodia. Did what it did.
31:58
Do you think I'm having fun dealing with dealing with the
32:02
Fed? And well, actually now I am.
32:06
But for a while there, I didn't. Let's put it that way.
32:10
It's go ahead Larry. Go ahead, Well said.
32:15
So yeah, and what I've noticed right is.
32:19
We're all kind of fighting for the same thing, but we're all
32:22
using our own unique talents or unique experiences and our
32:26
unique vantage points to sure kind of push it forward, right.
32:30
Larry is a macro heavyweights of Bitcoin, Twitter and he's.
32:36
He's a very well respected mind in the space and I look up to
32:40
him as a mentor sometimes and the things that he has to say
32:44
and and Kaylin, you're pushing forward the first Bitcoin bank
32:50
and the the powers would be literally moving the goal posts
32:56
to cuz I've been covering covering.
32:58
Many times wait till the whole story comes out.
33:02
It's not gonna shock folks in the Bitcoin community, but the
33:05
rest of the world's gonna be like, what?
33:09
How corrupt is that? It's process.
33:12
It's nuts and I have a daily Bitcoin show, so I have to keep
33:15
in daily Bitcoin use. So what I've been keeping up
33:18
with the process and it's at first it's like what did they
33:21
say at first? It takes 2 to 3 weeks to go
33:24
through the approval and then. Five to seven days.
33:26
Five to seven days and then they pushed it back and then they
33:28
waited for the blow up. To basically deny you and say
33:32
no, you know, so it was also, you know, clearly, clearly
33:37
they're not playing by the same set of rules that everyone else
33:40
is. And then this goes back to a
33:42
very important question for you, Caitlin, and it applies to you
33:44
mostly, which is I think the people that have the most to
33:48
lose if Bitcoin succeeds, the people that have the most to
33:52
lose if Bitcoin succeeds, are also the people that are tasked
33:54
to regulate this thing. What would you say about that
33:57
statement? I think that's right.
33:59
But if they it's it's it's like a taxi and limousine commissions
34:03
with Uber, right. Their first instinct is protect
34:07
the incumbents because the incumbents are their friends.
34:10
And there's a revolving door clearly where even Fed governors
34:14
are in revolving door situations where they leave the Fed and you
34:17
know go join a bank board and you know.
34:21
This is I'm alluding to both the the former Fed Vicecheffer
34:26
supervision, Randy Quarles starting an uninsured 100%
34:30
Reserve nonlending bank in Connecticut eight months after
34:33
he left the Fed. And then also Sarah Bloom
34:36
Raskin, who was a Fed governor who who joined the Board of
34:41
Reserve Trust and allegedly helped Reserve Trust get a
34:45
master account even though it didn't appear to be eligible.
34:48
We now know thanks to the Fed's master account database.
34:51
But there are 414 uninsured institutions that have fed
34:55
master accounts. So the Fed was clearly applying
34:58
a double standard when it was complaining that custodia was
35:00
not insured. And of course, one of their
35:02
buddies, it just went and started one of those uninsured
35:06
banks that has applied for a master account.
35:08
But we also on top of that know that there are powerful
35:11
incumbents who have master accounts that do not appear to
35:14
to be eligible for them okay. So that there's it's just the
35:18
feds just simply not following the law.
35:21
Period. That's objectively true.
35:23
So you know, we'll see. It's, it's, it's back to your
35:26
question, though, about, you know, should, should Are these
35:30
the folks that are the most threatened by it?
35:32
Sure. But but if you think about the
35:34
taxi and limousine commissions, right, the first instinct was to
35:38
protect their buddies and to to block change.
35:43
But then the change overwhelmed them, and that's where Custodia
35:46
comes in. The change is going to overwhelm
35:48
them. There, there was an internal
35:51
estimate of how much bank deposit withdrawals took place
35:57
during the last Bitcoin bull market, and it was, I believe,
36:01
$850 billion. OK, now on an $18 trillion
36:06
deposit base, that's not that much.
36:09
Banks keep anywhere from 7 to $0.10 in cash on their balance
36:14
sheets, so they the banking system could absorb A withdrawal
36:18
like that. But what's it going to be in the
36:20
next bull market? That's the real question.
36:24
And I actually think it's going to be a lot bigger than it was
36:27
last time, in part because the instability of the traditional
36:32
system is a lot better known and understood, right.
36:35
We just had the, the proverbial Twitter bank run.
36:38
So anybody who's watching social media now has a better
36:41
understanding that their bank might not be stable.
36:43
And and you know, this is where I, I, I, I do think.
36:49
You can't paint the banking system with a with with the same
36:53
broad brush. There are banks who absolutely
36:56
understand and respect this. And thank God there are banks
36:59
who do understand and respect this and are willing to take the
37:03
regulatory heat to serve this industry where the bank
37:06
regulators would rather shove it into the shadows.
37:09
And that's a wonderful thing. Thank thank goodness they're
37:12
willing to do that because it's it's keeping.
37:16
The the, the parts of the US industry that haven't left the
37:20
United States yet, it's keeping them, keeping them alive for the
37:25
next bull run. But in that next bull run,
37:27
that's when I think the bank regulators will rue the day that
37:30
they made a very short sighted decision.
37:33
To try to shove this entire industry offshore and into the
37:35
shadows because they will be playing whack A mole with
37:39
problems that will pop up in unexpected places in the banking
37:42
system and exhibit A for what happened the last time that is
37:46
going to keep happening again and again was this Moonstone
37:50
Bank thing where Alameda, FT X's hedge fund affiliate, acquired a
37:57
controlling stake in a existing. The FDIC insured bank without
38:04
applying to the Fed for a change in control and if you read the
38:08
change in control rules, once they took over, I believe it was
38:12
more than 25% of the equity of the bank.
38:15
They had to notify the Fed and get approval.
38:18
They took over something like 83% of the equity of Moonstone
38:21
bank didn't notify, the Fed didn't get approval and it
38:24
slipped through. Okay.
38:26
That kind of stuff is going to be happening in spades again.
38:30
And this is where the Fed will rue the day that friendlies.
38:32
We were a friendly at one time, literally trying to help them
38:36
and look what they did to us. Yeah, they got lucky on
38:39
Moonstone just because it was small, right?
38:43
Yeah. Well, I know of 55 similar kind
38:46
of things in the works right now where people have told me that
38:49
they're they're doing what's called charter strip
38:51
acquisitions of existing small banks and trying to slip them
38:56
through and hope the regulators don't notice.
38:58
But frankly, the regulator sent a hell of a message by the way
39:01
they treated us right. We were willing to apply at
39:04
Custodia with every rule that applied to them.
39:06
We even applied to become a Fed member bank, which would have
39:09
been directly regulated by the Fed.
39:12
And look what the Fed did. They they they in the denial.
39:16
I laugh at it now, but it was 41 times longer than the longest
39:22
ever denial in Fed history. And they literally threw the
39:25
book at us, refused to correct factual inaccuracies.
39:29
You know, that made me more angry at the time than it did
39:31
now because now I sit back and look at it going, man, did the
39:34
Fed ever make a mistake in not letting custodia in Because they
39:38
now have another lawsuit from a non crypto bank And there are
39:43
undoubtedly going to be more coming the the seal is broken.
39:48
And so just like the SEC. Ended up having a federal judge
39:53
make the decision over the case that the SEC thought was a sure
39:56
thing, which is XRP is XRPA security.
39:59
Well, a federal judge didn't deem that XRP is a security all
40:02
the time. Guess what?
40:04
That decision clipped the wings of the jurisdiction of the SEC.
40:09
Well, you know now there are multiple lawsuits over this same
40:12
issue with the Fed, and I suspect more will be coming.
40:16
Yeah. And and then also like the, and
40:19
I want to kind of go back to the unintended consequences of this
40:24
hostile regulatory environment. Right.
40:27
You, I, I, I remember very vividly Jack Mahler's did a
40:31
speech at the Bitcoin Policy Summit in DC shout out David
40:36
Zell with the the Bitcoin Policy Institute and he was very, very
40:41
straight up with the regulators. He warned them twice.
40:44
The guys, if you don't get your act together, I'm going to move.
40:47
And then he said something very striking.
40:48
He says you want bitcoiners paying taxes in Texas, You don't
40:52
want them paying taxes in Dubai. And then if you take a look at
40:56
what the CCP is doing, they're playing both sides.
41:00
They're using Hong Kong as a test bed to benefit from NGU
41:04
technology. But at the same time, in the
41:06
mainland, you know, they could still have their.
41:10
You know they're they're CBDC, you know, tight capital controls
41:14
etcetera, etcetera. So you can even make the
41:16
argument that one of one of the United States biggest opponents,
41:21
you know economically is, is literally saying hey guys, come
41:24
here, you know come here, do, do, do business here in Hong
41:27
Kong and you can't do business in Hong Kong without Beijing's
41:31
approval. You know, so I, I do believe, I
41:33
I agree with you. I think US regulators are
41:35
playing with fire completely. But I'm also very optimistic and
41:40
the in to kind of go back to your the taxi and the the the
41:44
the limousine medallion thing that you were talking about
41:46
earlier Caitlin, there's a non zero chance that we might have a
41:52
pro Bitcoin president in the White House.
41:54
On the Republican side we have Ron DeSantis and on the
41:57
Democratic side we have RFK Junior which has literally gone
42:00
out to say at the Bitcoin conference, I will protect your
42:03
right to self custody all that stuff.
42:06
Right. And he went even further at
42:07
Freedom Fest last week in Tennessee.
42:09
Oh please. Let us know there.
42:11
What did he say? What did he say?
42:12
Oh, he he I read a summary of it that that he would usher in
42:18
hyper bitcoinization. Yeah.
42:22
So I don't know if you use that word, but I'll also throw out
42:25
it's not just the the the two candidates in each political
42:29
party that are polling second right now in the polls.
42:33
There are also candidates in on the Republican side, Vivek
42:37
Ramaswami, Francis Suarez right, that are that are pro Bitcoin.
42:42
It's so interesting. I haven't seen Tim Scott come
42:45
out yet and he's he's in a he's he's in an interesting position
42:50
because he's the ranking member of the Senate Banking Committee
42:53
which may ultimately be forced to take regulatory action.
42:57
I actually think that the impact of the XRP decision.
43:01
SEC versus Ripple is going to increase the probability that
43:05
legislation moves before the end of the Biden presidency because
43:09
it it it just absolutely threw into further disarray the US
43:14
crypto regulatory question, right?
43:16
Because now the SEC had its wings clipped by a federal
43:19
judge, which it clearly didn't expect to do.
43:21
You rarely see federal agencies undertake bet the farm
43:26
litigation like that. Where they hand the judicial
43:30
branch a decision over the extent of their jurisdiction.
43:34
The SEC took that gamble and lost.
43:36
OK, but now what does that mean? It it probably does mean that
43:39
the Congress, there's a higher probability that Congress act.
43:43
I don't know that it's 5050 yet, but it's it's getting there.
43:47
And Senator Tim Scott, who's of course running for president, is
43:50
the ranking Republican on Senate Banking.
43:52
So he's going to have to be involved.
43:54
I have not seen. Him take a stance yet on
43:58
Bitcoin, but there are people around him who are pro
44:01
bitcoiners. And by the way I just talked to
44:04
somebody last week. There are pro, more pro
44:07
bitcoiners around Trump this time as well.
44:09
I don't think Trump understood when he put out his tweet and I
44:12
get I I answered him back in it was probably 2019-2020 because
44:18
Steve Mnuchin the Treasury Secretary is not pro Bitcoin but
44:21
people around him. Are people like Brian Brooks for
44:25
example, very pro Bitcoin, right.
44:27
So Mnuchin's got some people around him who are pro Bitcoin,
44:30
but Mnuchin, Trump was listening to Mnuchin in being anti
44:34
Bitcoin. And that sweet thread I I
44:37
responded to Trump's he was back back then he was on Twitter and
44:42
it got a lot of engagement from people saying, hey, you really
44:45
ought to sit down and listen to the bitcoiners because you're
44:48
raging against the deep state, so to speak.
44:51
And you have more in common than you realize with the Bitcoiners.
44:54
So The funny thing is I think there are some folks, I know
44:58
there are some folks around Trump because what's funny is
45:00
people have been reaching out to me and so I'm I'm, I'm hearing
45:04
from the different campaigns that, you know, there are more
45:08
pro bitcoiners than you think. Do not be shocked.
45:10
I'm not predicting it because Trump is certainly on the record
45:14
as being very, very anti Bitcoin.
45:16
But I think that that ICE may be thawing.
45:20
Yeah. And just to go ahead, Larry, hit
45:23
it. Let me ask Caitlin a question
45:25
because just go back to different.
45:26
Caitlin, you and I have discussed in the past you've
45:28
given me some clue and I think a lot of the listeners would be
45:30
very interested to know kind of you know, so the Fed really shut
45:33
you down in terms of getting your license.
45:35
Can you just talk a little bit, take us through the politics of
45:37
that and how that happened, what you think?
45:40
I know you kind of got the inside baseball on what was
45:43
going down and I'd be very curious to hear, I think the
45:46
listeners would too to hear kind of how you got shut down.
45:50
You know, was it was it Jamie Dimon?
45:51
Was it Powell? Was it Biden?
45:52
You know what was? What was the genesis of your
45:55
denial? Well we do know the White House
45:57
was involved. That is publicly disclosed and
46:01
you you could see it from the fact that the feds denial of
46:05
custodia was announced at the same time as an anti fed anti
46:10
crypto policy by the Fed and coordinated with a statement
46:14
from the National Economic Council at the White House all
46:17
released at the same time. And then Custodia's master
46:20
account was denied to exactly 2 1/2 hours later.
46:25
This was all military precision timing.
46:28
It was denied by the Kansas City Fed.
46:30
These entities are supposedly independent, right?
46:34
the Fed is supposed to be independent of the White House.
46:36
The Kansas City Fed alleges that it's independent of the board of
46:39
directors on such decisions, but it clearly was not.
46:43
And I am not just saying that by pointing to the timing.
46:46
Coincidence. I'm saying that because we had
46:50
insiders tell us what was going on and the name of the person at
46:55
the White House. I'd never met this person.
46:58
I have no idea how he knew who Custodia was.
47:02
But when I looked him up, guess what?
47:04
He's very connected to Elizabeth Warren.
47:06
So, you know, shooting the proverbial, you know, stallion.
47:13
To scatter the herd was seemingly the strategy.
47:16
And that's all I can say. I do no more.
47:21
But I I want to thank the folks who did come forward.
47:23
Because there were procrypto people in the Biden White House
47:28
who were appalled. By what happened to Custodia?
47:32
And yes, there is a lot more, but as you know, the end of the
47:37
story has not been written yet. There's some really great things
47:40
happening to Custodia right now and like I said, I'm having fun.
47:47
Yeah, I mean, they don't call this the peaceful revolution for
47:50
for no reason, right? And I'm gonna go back to what I
47:53
was saying that I think each and each one of us on, you know, on
47:57
this podcast right now are playing a role.
47:59
More in the the trenches battleground of the Internet
48:02
media warfare Caitlin, you're in the banking warfare and then
48:07
Larry Larry's in the In the trench right next to me as well.
48:10
With the money management, yeah, but his money management
48:12
business is a big part of this as well.
48:15
For sure, of course, rough. And then you're you, Larry,
48:18
you're you're also investing in Bitcoin companies, right?
48:21
So you know, very. Much.
48:22
So yeah, we're an investor, my fun is investor with Caitlin
48:26
custodian. We've done all the rounds, a
48:28
huge supporter. We've also invested in Jeff
48:31
Booth's Ego Death and then 1031. We're we're Bitcoin only in our
48:36
focus. We haven't done any other
48:38
crypto. I'm very much a believer that
48:39
everything else is a shit coin, so yeah.
48:43
What would what would you, what would you say to that Caitlin?
48:47
I'm a longterm maxi. This is how I've described this.
48:51
So here's where I do believe that every technology has a
48:54
right to exist. As long as it's not defrauding
48:58
people now, that's where people start to get into the shades of
49:01
Gray. But but I do believe the other
49:04
technologies have the right to exist and the right to compete.
49:08
I don't think anybody can say with certainty because nobody is
49:11
a soothsayer. Nobody knows the future.
49:14
We can't say with certainty that Bitcoin is going to be the
49:17
survivor. I think it is the likeliest
49:19
survivor. I don't see anything at this
49:21
point that is going to challenge its role as money.
49:25
But there are other technologies that I do believe have the right
49:29
to exist. That said, you know you see me
49:32
with the Bitcoin tshirt and the Bitcoin mug it.
49:35
We did publicly disclose that Custodia has filed it's it's
49:40
required advance notice with our regulator to launch Bitcoin
49:43
custody. We will be launching Bitcoin
49:45
custody soon subject to regulatory approval.
49:48
We don't have a date on that yet.
49:50
But it's it's when we do we're we're we're bringing the legal
49:54
and regulatory regime that truly respects Satoshi's ethos which
50:00
is we respect property rights. Now the difference here is I
50:07
believe in not your keys, not your coins, the split that
50:11
Custodia and the indeed the other Wyoming speedy banks are
50:13
making because this is the law that applies to the special
50:16
purpose banks in Wyoming that are designed for Bitcoin
50:19
custody. Is that we will provide the
50:22
service of managing the private key, but you keep title to your
50:27
asset. That's the law of bailment.
50:29
You've probably heard me talk about this before.
50:31
It's the same law as valet parking for your car or a coat
50:36
check You're not. Giving the service provider, the
50:39
safekeeper, in other words, title to your property.
50:42
You still own your car, you still own your property.
50:44
And if it's stolen, it's your homeowner's insurance that pays
50:47
for your coat or your auto insurance that pays for your
50:50
car. It's not the garage itself or
50:52
the restaurant that pays for it. They, they, they what?
50:55
What would happen in the insurance world is your policy
50:59
that insures your property, pays for the loss, and then.
51:05
Your insurance company will go after the restaurant or the
51:08
garages insurance company if there was negligence for
51:11
example. So that's the way it works.
51:12
It is a different model and here again I think one of the things
51:16
that is challenging and here's here, let me make a Bitcoin maxi
51:19
argument for one of the reasons that you don't want to go into a
51:24
custodian that is all things to all people and provides all the
51:30
the proverbial shit coin custody services.
51:33
Here's why. We saw it in Celsius.
51:35
In Celsius, the judge in the Chapter 11 bankruptcy created
51:39
what's called a constructive bailment.
51:41
The judge said, Yep, the custody customers, not the the earned
51:44
customers. The custody customers owned
51:47
those assets. But because it was all done
51:50
within the same legal entity as the earned products, the judge
51:53
would not let the custody customers take their money.
51:57
Why? Because in Chapter 11 there was
51:59
the threat of clawbacks and preferences.
52:03
Okay. In Chapter 11 that there is
52:06
always going to be that threat. So what does that mean
52:09
practically speaking? And I've had this very
52:11
conversation with a wealthy bitcoiner.
52:14
If you're holding your Bitcoin at a custodian that is, you
52:19
know, adding the latest Shipcoin protocol to its custody services
52:23
and let's say that that latest Shipcoin protocol has a zeroday
52:27
exploit and now the custodian just went bust, what's going to
52:32
happen? You're thinking, well, gosh, the
52:35
Bitcoin's fine. And that's true.
52:37
And you go to a Chapter 11 bankruptcy judge and you say,
52:42
hey, those bitcoins are mine. And the judge says yes, as they
52:46
did in Celsius. But then the judge says there
52:50
might be preferences and clawbacks.
52:52
You can't have your assets now. And guess what ended up
52:55
happening? The custody.
52:57
Customers of Celsius agreed voluntarily to settle for a 27
53:03
1/2% haircut just to get their money out now and not have to
53:07
be, you know, fighting for years over the clawbacks and the
53:11
preferences. Now why is the Wyoming speedy
53:14
bank structure better? Because a bank cannot be dragged
53:19
into federal bankruptcy court. And the the receivership rules
53:24
for a bank as a legal entity, as custodian favor the customers.
53:29
OK, So if you create a very clear statutory bailment and the
53:33
custodian is not trying to be all things to all people, so you
53:36
don't have that that that left field operational risk of some
53:42
shit coin protocol collapsing that brings your custodian down
53:45
and you've got a clear. Receivership regime that allows
53:49
you, even if the judge freezes your assets, you can run to a
53:52
court and say, hey, those assets are mine, give them to me now.
53:57
It's a much friendlier customer regime and one that is, I think
54:01
a lot closer to what Satoshi created with Bitcoin, where you
54:04
have clarity of property rights. Good fences make good neighbors.
54:08
Gotcha. And I mean and and and and and
54:11
I'll say this Caitlin, because. I'm debating whether I'll I'll
54:20
I'll talk about myself individual on an individual
54:23
basis. Once you get you should start
54:26
holding Bitcoin and it starts becoming you know a a a large
54:29
person of your life savings and what not.
54:32
The custody solutions become very technical obviously I don't
54:38
mind geographically separating multi cig and I'm very and I
54:41
could do that with my eyes closed but I've also been here
54:44
for eight years. Right.
54:45
My mom who's also has that set up, if I ask her to send me a
54:49
Bitcoin transaction from that multi sig cold storage, she will
54:53
have absolutely no idea how to do that right, even though she
54:58
has some pretty bad ass cold storage.
55:00
So I, I, I and I'm going to use that word that we use early on
55:05
in the conversation. I do believe that during the
55:07
transition, I do believe that custodians it.
55:11
A lot of people are going to prefer custodians and do you see
55:15
that's where custodia, I mean it's in the name, I guess you
55:18
see where custody that's where that's where it's going to play
55:21
a big part, I guess. Yes, but I'm still adamant.
55:26
Not your keys, not your coins. Just like Jesse Powell, who also
55:30
set up a Wyoming Speedy Bank. We both tell everyone teach
55:34
yourself self custody. You're better off learning how
55:37
to custody this yourself. What custodians building is for
55:41
clients like Larry, asset managers and even fiduciaries
55:46
who actually in in in ERISA, which is corporate pension
55:50
plans, there's personal liability for the fiduciaries.
55:53
They have to make a judgment call on what's the best custody
55:58
arrangement and by law they cannot both manage and custody
56:01
the assets. That's the 1940 Investment
56:04
Advisors Act and then the Investment Company Act.
56:07
That separated the two functions.
56:09
The management of the assets have to be done by a different
56:13
unrelated legal entity at arm's length than the custodian of the
56:16
assets, Okay. So what custodian is building
56:19
for is those long only investors, the long term
56:23
hoddlers who have to by law have a custodian.
56:28
That's the primary audience, the primary target for the potential
56:33
customers of custody for. Custodia, but let me turn it
56:37
over to Larry because he knows that institutional market much
56:40
better than I do. He's in it.
56:42
Yeah. So I, so I will be Caitlin's
56:45
first customer because my fund owns a bunch of coins and I'm
56:48
not going to say who because I'm kind of ashamed of it, but they
56:51
are, they are in cold storage at another firm and that firm has
56:57
has brokerage and other operations.
56:59
And of all the choices out there, I think we've done as
57:02
much due diligence. I feel like this is as good as
57:04
any. But honestly I don't think it's
57:06
as good as Caitlyn and so we will pay a fee to have Caitlyn
57:10
custody our coins and exactly I mean and we could you know I I
57:13
cold stores my own coins you know not multi sig just but you
57:19
know and and in theory we could do that for my firm's coins you
57:22
know the fund that I managed for the coin but but we couldn't as
57:25
she points out it would be illegal to do that.
57:27
So things Caitlyn needs to exist.
57:31
And firms need to exist. And to my way of seeing it, the
57:34
ones that are the cleanest are the ones I want to be and I want
57:36
to be in firms that are bitcoiners.
57:39
They're only doing this. They don't have any other shit
57:41
coins. They don't.
57:42
I know the legal structure. In this case it's in Wyoming.
57:45
I love the bailment laws and what she's done there.
57:47
I mean, she's the one who changed all these laws over the
57:49
years. So to us, this is, this is a
57:52
perfect solution that we will pay handsomely to have.
57:56
And I think others will too. I mean, I think other.
57:59
Institutional money managers have the exact same problem.
58:02
I have lots of them. So yeah.
58:04
And Caitlin, could you describe to everyone, cuz I don't think
58:07
people are familiar with that law.
58:08
There's a reason that that law was put in place because there's
58:11
a bit of a moral hazard, right, if that law wasn't in place.
58:15
So could you give a little bit of a background of why you think
58:18
that law is necessary and what are the benefits?
58:21
Well, first of all, we started with the reality that Bitcoin is
58:24
a bearer instrument, OK? And the way custody works in
58:27
securities. Is very different because the
58:30
legal title is owned by the Depository Trust Company.
58:33
Most people don't understand that 99.999% of the securities
58:37
outstanding to publicly trade in the United States are owned by
58:41
the same legal entity. It's a it's called the central
58:44
Securities Depository. And just for for ease of
58:48
paperwork, again, you know, we don't need to have this market
58:50
structure, but. It's a lot of people are making
58:53
a lot of money off that old market structure so they don't
58:55
really want it to change. But for ease of paperwork, the
58:58
Depository Trust Company holds legal title to your securities
59:01
and what you have from your broker, your Charles Schwab or
59:04
Morgan Stanley or Merrill Lynch is an IOU for those securities
59:08
and the law doesn't actually require them to hold one for one
59:12
securities they can sell. You remember what FTX did?
59:15
FTX was selling you Bitcoin and they weren't buying the actual
59:17
Bitcoin. That actually is true.
59:20
It's very small amount. There there are fault tolerances
59:25
allowing failure to deliver the actual securities in the
59:28
securities market because the mark that you know that the
59:31
infrastructure is so old and they can't, the systems don't
59:35
update at the same time. And you know probably in the
59:38
last five to 10 years the systems could be updating in
59:40
real time but they didn't upgrade to real time systems.
59:44
For a whole host of reasons. One of which was a lot of people
59:47
are making a lot of money off the float and and the ability to
59:50
be naked short and things like that for for for for brief
59:53
periods of time. So it's really important that
59:56
the Wyoming said wait a minute we don't have to do custody that
59:59
way where every client is in a debtor creditor relationship
1:00:04
just like you are with Merrill Lynch or or Schwab it for your
1:00:07
securities account you're in a debtor credit relationship
1:00:10
whether you know it or not. We can go back to recognizing
1:00:13
that this is a bearer instrument and create custody that that
1:00:18
allows you to keep the property rights.
1:00:20
So you don't have this third party that legally owns title
1:00:23
that changes the structure. It puts some of the
1:00:25
responsibility on the custody customer.
1:00:28
Just like with your car, you have to insure your car and the
1:00:31
insurance market is developing, but you're going to see custody,
1:00:35
you're going to see custodia offering insurance, private
1:00:40
insurance. More than we will offer as an as
1:00:45
a as a company there will be an ability for the customers to buy
1:00:49
up additional insurance if they want it and it it it's in that
1:00:53
way you know if just like you if you have a sports car you don't
1:00:56
have to insure 100% of the value, you can self insure some
1:00:59
of it. You make the judgment call, is
1:01:01
it worth it to pay the price to insure versus not.
1:01:05
And what's interesting is the insurance market at the moment
1:01:08
for Bitcoin has not distinguished.
1:01:11
Whether the custodian owns title to the asset or is merely in a
1:01:16
debt or creditor relationship, just safeguarding the coins.
1:01:21
But I think that's that will evolve over time.
1:01:24
That's my prediction that those that actually really are are
1:01:29
doing true custody, the way the old gold repositories which
1:01:34
ultimately revolved, evolved into banks in the 1800s.
1:01:38
You know some of the gold repositories were honest, not
1:01:41
all of them were and the dishonest ones collapsed.
1:01:45
And you know at the end of the day is the most important thing
1:01:50
in my mind is what's the philosophy of the management
1:01:53
team because the management team could be what committed to 100%
1:01:59
backing and not playing these financialization leverage games
1:02:03
that we just talked about under the current law.
1:02:07
But most of them don't, most of them as we saw, we just saw this
1:02:10
in Prime Trust. I debated the CEO of Bicco, Mike
1:02:13
Belser last week and you know pointed out some of the things
1:02:17
in Prime Trust's customer agreement, they were allowed to
1:02:20
rehypothecate customers Fiat currency assets.
1:02:25
And so that meant by definition anytime the word rehypothecation
1:02:29
is there, you're in a debt or creditor relationship, OK.
1:02:32
And so if the company went goes down then.
1:02:36
Those assets are going to be deemed to belong to the
1:02:38
bankruptcy estate. It's not a bailment and
1:02:41
therefore the the custody customers, we're going to take a
1:02:44
haircut. But even on the digital asset
1:02:47
custody, they have a line in their agreement that was not
1:02:50
customer friendly and it said for Prime Trust's convenience,
1:02:54
Prime Trust may keep title to the digital assets in Prime
1:02:59
Trust's own name. And that doesn't necessarily
1:03:02
destroy the bailment, but I saw, I saw the look on your face,
1:03:05
Larry. Yeah, I mean it, it clouds it.
1:03:07
Why would you do that, right, If you are somebody who truly is
1:03:12
there to serve your customers as opposed to looking at your
1:03:15
customers as a pincushion, as a means by which you can make
1:03:19
profits. There's a difference.
1:03:22
There's a big difference in philosophy and the white those
1:03:25
that sign up for the Wyoming Special Purpose Depository
1:03:27
Institution laws where the the the bank is prohibited from
1:03:31
lending the US dollar deposits and prohibited from re
1:03:35
apothecating customers digital assets.
1:03:38
Even if the customer wants the bank to re apothecate, the bank
1:03:41
is by law prohibited. Anybody who signs up for those
1:03:44
kind of restrictions is going to be philosophically committed to
1:03:47
putting the customer 1st I believe.
1:03:51
This is, this is interesting territory, is an interesting
1:03:54
conversation. This is all, you know, it's all
1:03:57
happening so quickly and and really I think it comes down to
1:04:02
kind of Bitcoin being introduced to the mix and the legacy system
1:04:06
not being properly set up to handle that right.
1:04:10
But I think I kind of want to boil down to because we're at
1:04:14
the top of the hour and I want to be respectful of your guys'
1:04:16
time. It all kind of boils down to.
1:04:19
Not your keys, not your Bitcoin, learn how to take self custody.
1:04:22
I think that in the vast majority of cases I think that
1:04:27
could be done. But to use that word that we
1:04:30
used earlier during the transition.
1:04:32
I believe that you know using a custodian and whether for legal
1:04:37
reasons or for someone who's not doesn't have the technical know
1:04:40
how. I think you know that's that's
1:04:42
that's what they're going to feel more comfortable with at
1:04:44
the end of the day so. Larry and Caitlin, I want to
1:04:48
thank you guys so much for your time.
1:04:50
I really, really enjoyed this conversation.
1:04:53
It was an honor to have you guys both on at the same time and
1:04:56
kind of bounce the questions off of each other.
1:04:59
So Caitlin, thank you. And why don't you tell everybody
1:05:02
what you're working on these days?
1:05:03
What's on your mind? Hey, stay tuned, Custodia.
1:05:07
Like I said, I've got a big smile on my face.
1:05:09
Stay tuned. We are.
1:05:11
Makes me happy, Caitlin. Yeah, I can't announce anything
1:05:16
just yet. But look, we're having fun.
1:05:18
We're having a lot of fun and hopefully doing.
1:05:22
Doing, doing well by doing right by our customers and prospective
1:05:26
customers. So stay tuned, but that's we, we
1:05:30
will survive. We will be launching a bank to
1:05:33
service the digital assets industry and I want to say thank
1:05:38
you to the partners who recognize the value of this
1:05:41
technology, recognize that it's not going away and you know
1:05:45
frankly did so much. Review of Custodia in part
1:05:51
because of what the Fed did that somebody, somebody laughed the
1:05:54
other day about. It's like the Monty Python scene
1:05:58
where where the guy loses his arm and oh it's just a flesh
1:06:01
wound and then loses his other arm and you know then loses both
1:06:04
legs, right. Yeah it it hurt what the Fed did
1:06:07
to us but we survived it and and and we're coming roaring back in
1:06:12
a wonderful way to to help serve the the the the right.
1:06:17
Type of customer in this industry, we are not here for
1:06:21
the low time preference quick buck, you know quick flip kind
1:06:26
of customer. We're here for folks like Larry
1:06:28
who are committed to this technology and that's who our
1:06:32
partners are as well and they understand and recognize that
1:06:35
and thank goodness for them. Well, thank you, Caitlin.
1:06:39
And Larry, same to you, what is? What's on top?
1:06:43
What? What are you working on these
1:06:44
days? And again?
1:06:45
Thank you so much. I'm just wrapping up my
1:06:46
quarterly report which will be out soon.
1:06:48
It'll be on Twitter. As you guys know, I make a lot
1:06:51
of noise on Twitter. I'm not not a fan of the central
1:06:53
bankers who I think are kind of the scourge of our of our
1:06:56
generation or our time. And you know I'm just trying to
1:07:00
make money for my investors which you know and it's, it's
1:07:03
interesting to me. One thing I will say it's kind
1:07:05
of, I think it's a very bright spot.
1:07:06
Here we are, we've had the tightest fed in well since
1:07:09
Volcker really and. And yet gold is within $50.00 of
1:07:13
its all time high, or $100.00 of its all time high, 4%.
1:07:16
And Bitcoin is up 80% year to date.
1:07:19
So this is how sound money assets perform when they're
1:07:23
trying to save the system by raising interest rates.
1:07:26
Wait until they're forced into flipping, which they inevitably
1:07:29
will be because they can't continue the path they're on
1:07:32
without creating Great Depression 20.
1:07:36
You know, this stuff is just going to scream.
1:07:37
So I'm pretty, I'm pretty excited about that and.
1:07:41
Always accepting new investors into the fund.
1:07:43
The minimum is 250 and that's because of the rules the SEC
1:07:46
places on me. So.
1:07:48
But if people want to contact me, I'm at ema2.com.
1:07:51
What's the name of the fund, Larry?
1:07:53
It's called the EMA Garp Fund. It's just a it's it's a sound
1:07:58
money theme. Gold, silver, gold and silver
1:08:00
miners. Bitcoin and Bitcoin venture
1:08:02
capital. Awesome.
1:08:04
Caitlin is prominently in there. In the Bitcoin venture capital,
1:08:07
she's our largest investment. Thank you for your confidence.
1:08:12
You guys are legends. Thank you so much for joining us
1:08:15
on Simply Bitcoin IRL. Really appreciate it.
1:08:18
This episode will be come out on Saturday.
1:08:20
Thank you guys so, so much and appreciate you.
1:08:23
Yeah. It's always fun to be with you
1:08:25
guys. Great job.
1:08:26
Likewise, thank you. Thanks Larry.
1:08:28
Thanks Niko. See you guys.