00:00:00
sacks the United States is maybe not going to send weapons to Ukraine indefinitely and they're asking them to
00:00:07
sit down and negotiate something that people on the left started to do and got I got smashed for
00:00:12
something you've been pushing for so I guess mini Victory lap for you sax what what's the end game here well yeah I
00:00:18
mean I've been talking common sense about this for months just saying that we need to be open to diplomacy because
00:00:23
total defeat for Russia also means a a maximum risk of nuclear war I mean these things go hand in hand that's the
00:00:29
Paradox of this war is that if Russia faces the prospect of a total defeat that's when they're most likely to
00:00:35
escalate this conflict into something much much worse so therefore we need to be open to diplomacy but it was good to
00:00:42
hear Administration officials over the past week say things that I've been saying for months and that I've been
00:00:47
accused of being like a Putin sympathizer for so apparently there's a bunch of Putin sympathizers in the
00:00:53
administration and just to read you some of these remarks actually I want to play
00:00:56
like a fun game with you guys instead of just oh really yeah instead of just mentioning these quotes
00:01:03
I want to play a game called Millie or sax so I want you guys to guess okay whether
00:01:09
it was General Millie who said the quote or whether I said the quote okay does that sound like a fair fair game yes
00:01:14
fair game let's put some game show music here yeah Leo sax I'm gonna read you like
00:01:21
four or five quotes and you guys are gonna say whether it was Millie yeah or sax who said it first quote who said it
00:01:26
General Millie or sax one of the lessons that should have been learned from World
00:01:31
War one is that European powers refusal to negotiate compounded the human suffering and led to Millions more dead
00:01:37
million or sex sex I'm going sax I'm going sex it's a very historic Millie said that no next one next one go go go
00:01:45
okay a regional War turned into the first world war because all parties made Maximus demands and assumed others were
00:01:52
bluffing it can happen again exactly or something you said bluffing that bluffing is a word that you would use
00:01:58
all right that was sex that was sex maximalist yes okay would never say maximalist yes he would never say
00:02:03
bluffing yeah go ahead where there's an opportunity to negotiate when peace can be achieved seize it Millie Miller it's
00:02:11
very it's pithy it's pithy like Millie all right that was Millie yes good all right I'm two and one two in one me and
00:02:16
you two for one two for one it's deeply Earth responsible not to try for diplomacy when the stakes are so high
00:02:21
sax that's an emotional statement I go milk it was socks damn it two and two three there has to
00:02:30
be a mutual recognition that military Victory is probably in the true sense of the word may not be achievable through
00:02:36
military means and therefore you need to turn to other means oh that's Millie it's a word
00:02:43
to work it's a milli word salad it's too too convoluted for sacks Saks I'll go Millie I go Millie I think it's Millie
00:02:49
that's Millie yeah smart salad Millie Ah that's it I caught up now I'm three and
00:02:54
two tied with your mouth last one last one okay it must be our objective now to help achieve a ceasefire and negotiated
00:03:00
peace rather than protract the conflict um wow it's so formal nilly so formal feels like somebody said that on the
00:03:08
steps of like a building outside it's very formal it's well spoken it's crisp can we hear
00:03:16
it one more time may we hear it one more time it must be our objective now to help achieve a ceasefire and negotiated
00:03:23
peace rather than protract the conflict Millie it's a little too formal for a podcast
00:03:29
but in a tweet it wouldn't be so it could be a sex Tweed but I'm thinking this little podcast I gotta go melee I
00:03:36
gotta go Melly sex ah God damn it damn it you can't tell Millie from Saks is what we've learned what a great game
00:03:44
right now we're gonna play the next game this is called Bernie Madoff or SBF Ernie Madoff or SPF
00:03:55
[Applause] [Music] [Music] all right everybody Welcome to the all in pod with us again the dictator in a
00:04:18
beautiful purple sweater sweater Karen man it's The Fall season will be the inside the inside of this is suede oh
00:04:27
very nice very nice so uh multiple animals killed you are a pleasure yeah got it all right what animal do they
00:04:36
kill to make suede is that like a type of leather or what is that I hope it's an endangered one
00:04:44
well actually that version of sway that he's wearing is from a white rhino so they just take the hide and they throw
00:04:50
everything else away oh my God so hard can we take this out of this these are ivory buttons
00:05:02
I think it's baby seal fur around the house no how many baby seals were killed to
00:05:09
make your outfit all right also with us is uh the Sultan of science uh David Friedberg racing from the airport how is
00:05:15
that JetBlue mint yeah I heard you upgraded to Mint no comment well you don't want to talk about the
00:05:20
1200 upgrade you did to your JetBlue ticket wait you don't want to talk about JetBlue mint why are you embarrassed to
00:05:26
fly commercial what did you eat are you embarrassed to fly jaycal yeah I'm the president I'm like hold on mint
00:05:38
coming through all right then I start spreading out I think Jayco Class is like the seat by the bathroom
00:05:44
in the back do you think you save 150 bucks each way what is is JetBlue meant the name of like JetBlue mint is their
00:05:51
first class uh Coast to Coast it is so delightful they just have figured out a way to make
00:05:59
like sleeper seats you know that are very nice and it's an upgraded service where they they put like a little wall
00:06:04
between you and everybody else it's kind of like having a private plane if you didn't and um sax is here the whole
00:06:10
Cruise here basically uh we'll have a surprise uh bestie guesty jumping in in the middle of this I'm not going to tell
00:06:16
you who because nothing's going on this week nothing is going on this week I mean there's so much to talk about let's
00:06:20
just start with the elections and then we have to start with my mayor culpa throwing red meat to sacks but I mean at
00:06:28
this point all right so DeSantis won by double digits in Florida he got a huge amount to the vote but all the Trump
00:06:33
high profile Trump back candidates seem to have lost Dr Oz Dan Cox just it was a shellacking I
00:06:41
guess or the Red Wave became like a puddle or like an eye dropper or something but some of the Trump back candidates
00:06:48
did win some of the um Peter Thiel collection JD Vance one so I guess that's a big win I wasn't a
00:06:57
trump candidate though because if you remember when uh Trump went to stump for JD Vance he forgot his name I got his
00:07:02
name so anybody from your side you don't need friends anybody that Trump actually
00:07:08
cared about turned out to be just a complete dud and lost and everybody that kind of you know
00:07:14
had to keep him somewhat around just so that he didn't throw bombs actually did decently but I mean Trump
00:07:21
is a just a a weight on the neck of the Republican party and it's time to just get rid of him sax what happened to your
00:07:31
Red Wave yeah listen I got this wrong um I think there's a few reasons for it so I think when you get an election
00:07:37
wrong you have to admit it and figure out what you've what you what your mistake was otherwise you're not going
00:07:42
to improve I mean number one I was looking at you know the RCP polling this real clear politics were they taking
00:07:47
average of all the different polls they were adding a factor to it they were showing by the way plus three or plus
00:07:53
four in the center for Republicans but they were adding a factor to it based on the underweighting uh that the pollsters
00:07:59
did in the last election cycle and it turns out that the pollsters I think did a pretty decent job correcting their
00:08:04
polls and so the RCP overweight turned out to be just basically completely wrong the other thing that I got wrong
00:08:11
was I was looking at the fundamentals I mean three quarters of Americans think we're on the wrong track and we're in a
00:08:16
recession So based on that you would think that this would be a great year for republicans and in fact the out of
00:08:24
power party usually wins in a midterm and Biden's popularity is at historic lows at like 41 42 so everything was
00:08:33
teed up for the Republicans so what went wrong I think a couple of things number
00:08:37
one two days before the election Trump basically comes out in pre-analysis that he's running oh yes you know this
00:08:44
basically plays into the narrative that Biden has already created that this is a
00:08:48
this is not a referendum on Biden it's a referendum on democracy and basically Trump made it into a choice election who
00:08:55
do you like better Biden or Trump and the fact of the matter is if you look at the exit polling as unpopular as Biden
00:09:01
is Trump is even more unpopular so that did absolutely nothing to help the Republicans in it I think it really hurt
00:09:07
them at the margins the other thing that turned out I think the other big thing that helped Democrats was Dobbs and I
00:09:14
never thought that it wouldn't be a factor but if you looked at the polling before the election 15 of likely voters
00:09:21
said that it was their number one issue if you looked at Exit polling after the election it was 28 so Dobbs turned out
00:09:27
to be twice as significant as what the early polling was showing and if you remember Jason go back to the episode we
00:09:32
did on abortion I said the shrewd play for Republicans here was that Roberts compromise what did Roberts want to do
00:09:39
he basically was going to allow the 15-week restriction on abortion but not have the headline of Roe v Wade
00:09:46
overturned and that basically is what DeSantis implemented in Florida he basically restricted abortion after 15
00:09:53
weeks it's the purple State compromise it's where I think the purple States and where most of the country is going to
00:09:59
end up and the sooner Republicans get their heads wrapped around that fact the better they're going to be long term and
00:10:05
ask you one question their sax who stacked the Supreme Court deliberately to turn over Roe v win listen I mean
00:10:12
there this was a long-term priority of Republicans obviously that's not a question Jacob well no when we you have
00:10:19
to recognize that Trump said he would do that he did it so this is doubly Trump's
00:10:22
fault every party nominates justices that align with their values and it Cycles yeah but Trump said he's going
00:10:28
Trump said he would specifically do it in order to know what the president doesn't choose who dies in the Supreme
00:10:34
Court and when yeah right yeah it's also more complicated than that because what does Dobb's decision
00:10:40
did is throw the issue back to the states and the fact of the matter is that now it's up to each of these states
00:10:46
to determine where they're going to come out in this issue so if you look at there were ballot initiatives in red
00:10:52
States like Kansas and like Kentucky that's right that's what I'm saying is there a pro-life ballot initiatives in
00:10:59
red states that lost and so you can see all over the country that the Republicans tried to go too far or they
00:11:06
do try to go too far when they try to impose a total ban what it seems to be popular is this what I'm saying is the
00:11:13
purple stay compromise it's what yes DeSantis did in Florida it seems like most of the country tree we talked about
00:11:19
this on that episode yeah most of the countries in the messy middle they want abortion to be safe legal rare and early
00:11:26
they're willing to support it in say the first 15 weeks but then after that there
00:11:31
needs to be some restrictions that I'm saying most the country supports that now it's also the case that Democrats
00:11:37
though are staking at a pretty extreme position too because most of the Democrats were taking the position that
00:11:43
abortion should be legal up into the ninth month which is not even that's more radical than even Roe Roe said that
00:11:49
you can restrict it after 23 weeks so you know what we said on that podcast Jason was the party that gets the middle
00:11:56
first on this issue is the one that's going to do well not just this issue yeah and I and I think yes I think it's
00:12:01
true on this and I think it's true on other things so look I think the Republicans can correct here pretty
00:12:06
easily if they listen to folks like DeSantis and yonkin and Kemp uh people who understand that they have there's a
00:12:14
compromise here and the ones who basically insist on pushing a total ban are going to go down in flames there's a
00:12:22
couple of things I think that are worth looking at now that we have all the exit
00:12:26
polling and the results the Democrats strategy of helping to promote these extremist Maga candidates in the
00:12:35
primaries turned out to be a huge winning strategy because every single one that they helped put up against the
00:12:42
Democrat the Democrats won but number two so what that shows is the extreme right
00:12:48
cannot field a winning candidate but on the other side all of these extreme left-leaning Democrats
00:12:56
also did not do very well either and so you're back to David what you said which
00:13:00
is we have been saying for a while the winning strategy is that messy middle it's the moderate person that kind of
00:13:07
like talks to the center and this is what you see everywhere around the country all of the battle ballot
00:13:13
initiatives every time you had an extremist ballot initiative whether it was a complete ban on abortion in a red
00:13:20
state or whether it was a tax the rich policy in a blue State they failed and so I think the message that you have to
00:13:28
take away is the extreme left doesn't work the extreme right doesn't work right if you look at for example like
00:13:34
Kathy hokel almost lost in New in New York state because of who because of like AOC and all of that extremist
00:13:41
Progressive Rank and file of that party so people need to really understand and look at the data on the ground if you
00:13:48
want to win in 24 you got to be in the middle and you got to clean up all of this extremist rhetoric freeberg any
00:13:53
thoughts I think the Georgia Senate runoff race that we had in the 2020 election
00:14:00
cost the U.S 10 trillion dollars and I think it uh because if you'll remember that was the race that when the
00:14:08
Democrats won tipped the power in Senate to the Democrats and all this legislation for the last two years was
00:14:15
passed including a lot of the fiscal stimulus and spending that very likely may have faced
00:14:22
significantly more opposition than could have been faced where the Democrats had
00:14:27
the White House and the Senate and the house and so that single seat and and the loss of that seat in the runoff to
00:14:35
the Democrat Party I think ended up allowing a lot of loose Behavior over the last two years
00:14:42
that's going to cost this country for a very long time and in part perhaps we could argue a lot of the inflationary
00:14:49
pressure and now the debt load the U.S debt load increasing by 10 trillion dollars in the last two years since that
00:14:54
election by the way and so I think one of the most important things that perhaps people don't
00:15:00
cognizantly recognize but feel in some way is that having a balance of power is really important in this country and so
00:15:07
to some degree while there may be issues that folks can argue about disagree about there may be candidates that are
00:15:13
vile to us I think ultimately folks are recognizing the benefit and the value and having a good legislative debate and
00:15:21
a good check and balance in this country and so I I think that there's a lot of what sax is saying that that ties into
00:15:27
that kind of emotional conditioning that's probably underway okay sax Trump said he was going to announce
00:15:32
he went after DeSantis called him to sanctimonious obviously the the Trump endorsements here didn't help uh Roe v
00:15:39
Wade didn't help the situation what is going to happen here is the Republican Party finally going to cut
00:15:46
ties because they want to start winning or uh is Trump going to just announce next week and cause massive chaos what's
00:15:54
going to happen in the Republican Party in the coming weeks because we're 14 months away from Iowa right I mean this
00:15:59
is so now the next issue the question comes down to do Republicans want to start winning elections yes or no and
00:16:05
Freeburg brought up the the right point in the last election cycle he's right that the reason why we got 10 trillion
00:16:11
dollars of unnecessary spending is because of that Georgia runoff see we're about to have another one where Purdue
00:16:17
won that seat on Election night and then Warnock won in the runoff why did things
00:16:23
go against Purdue because Trump had a six-week hissy fit after the election the Georgia runoff happened on January
00:16:30
5th and it all culminated in the ride on January 6th so the fact of the matter is
00:16:35
Trump has been having this extended hissy fit and living in denial since the loss in 2020 and a as a result of that
00:16:43
we lost the Georgia runoff I think we did worse than we had to in this midterm I think we're going to lose the Georgia
00:16:49
runoff again if Trump continues with these Antics and so it really comes down to Republicans do you want to win and
00:16:56
look I know that there's call it 40 percent of the country passionately loves Trump but here's the problem he's
00:17:02
capped at 40 percent Independence and moderate centrists will not give the guy another look and so you cannot win a
00:17:10
major national election in this country with 40 percent of the vote no matter how passionate that 40 percent is you
00:17:16
know what 40 percent is 40 percent is Charlie Crist the guy who just answers beat who wiped out
00:17:22
in Florida that was a 60 40 election that is what a 40 of the electorate looks like Landslide it's a landslide
00:17:31
exactly so the bottom line is that who your messenger is in politics is incredibly important and Trump just
00:17:39
gives his enemies way too much to work with now if he weren't a republican it might be different take fetterman for
00:17:45
example okay this guy fetterman okay he's being portrayed as this man of the people he's got the goatee and the the
00:17:52
tattoos and the hoodie or whatever who is he really he's a trust fund kid who never had a job until his mid-40s but
00:17:58
the Press completely gives them a pass on that they would never do that for Republican if federmen were a republican
00:18:03
the Press would expose him in two seconds now that's a complaint but the fact of the matter is Republicans
00:18:08
deserve to accept it these are the rules of the game if you're a republican candidate for office you have to be
00:18:13
perfect you have to be focused you have to be disciplined you have to be DeSantis you cannot give your opponents
00:18:19
something unnecessary to work with every fight DeSantis pix has been a smart fight that he's won and same thing with
00:18:26
Len yonkin as well he doesn't give his opponents things to work with and unless Republicans realize that these are the
00:18:32
kinds of candidates we need to nominate in this media environment we're going to
00:18:35
keep losing elections yeah any final thoughts here as we wrap up election I'm going to DC next week doing
00:18:42
the rounds high five and back slapping yeah just to finish the thought one other quote from New Hampshire Governor
00:18:49
Krista Nunu who's kind of a he's a republican who's been in space with Trump he said listen the message of this
00:18:55
election is first fixed crazy then fixed policy if you're coming across like you're
00:19:02
crazy their voters will reject you now that doesn't mean you can't stand for principle Ron DeSantis says that Florida
00:19:09
is where woke goes to die he says we will fight woke in the boardrooms we'll fight in the classrooms this is
00:19:15
certainly not a liberal position these are pretty conservative positions he's taking but he does it in a calculated
00:19:20
disciplined way I'll say this right now he is a winning candidate and the scale of Reagan if the Democrats also don't
00:19:30
figure out how to clean up their act because the other message that's so interesting that I took away is the
00:19:37
legislative agenda that works is actually what Biden has always believed the problem is that Biden seems to get
00:19:44
distracted or confused or hijacked by the left wing of his party and they introduced all these unbelievably crazy
00:19:51
iterations of progressive policy that just are not popular even in blue States just look at the number of bills that
00:19:59
failed so he also has to fix what he's doing by the way because he doesn't think that
00:20:05
could fail uh the a U.S judge in Texas I'm not sure you can tell me if this is legit or uh or not no they stayed that
00:20:12
well we should talk about that in the context of the economy actually well that was predictable that was
00:20:16
predictable thrown out is completely unconstitutional for a presence of a trillion dollars without congress's
00:20:23
approval can I build on Jamal's Point here DeSantis won Miami-Dade County which went for Hillary by 30 points okay
00:20:29
he showed that a competent executive a a an energetic youthful operator who actually runs the state well okay can
00:20:40
win over moderation Independence and Democrats no he's the winner these are the types of candidates Republicans are
00:20:45
yeah he's a winner he's the winner we got uh we got a call breaking in here uh we have a special bestie guesty you know
00:20:50
it's been a big news week it's not just the elections FTX crypto exchange went belly up and uh we thought well let's
00:20:56
bring somebody in who's super credible in crypto and that's a friend of the past God it's credible because he's
00:21:01
wearing a tie yeah hey Brian I'm shrunk how are you doing brother Ryan Armstrong
00:21:04
you look fantastic yeah what are you testifying today I'm doing great it's not it's not Montclair and it's not uh
00:21:10
Laura Piana but um you know normally I just I just wear the black T-shirt and the hoodie but you know when times like
00:21:18
this I gotta go talk to Media policy makers regulators and it's a it's a good time to you know spruce up the image
00:21:24
this is a week to break out the tie yeah Hey listen Men's Warehouse it never looked better you look great thank you I
00:21:30
see a red tie and I think fiscally responsible I guess Brian just to kick it off FTX in
00:21:39
spectacular fashion blew up this week and uh it's pretty gnarly you run an exchange as well what's your take on
00:21:46
what happened with FTX and then what is your position in terms of making sure your customers understand that coinbase
00:21:52
is not going to have a similar Fate To All the Other exchanges that seem to be blowing up every couple of months yeah
00:21:58
well first of all I mean I think we were all shocked that somebody like Sam who seemingly is so smart and and capable
00:22:06
ended up in this really the situation where he appears to have done something quite unethical and illegal so you know
00:22:13
my job right now this week has been to go out there and just help people understand that coinbase is not like
00:22:17
that we've been pursuing a different strategy for the last 10 years we're a public company we're we're
00:22:23
regulated our financial statements are audited they can show that you know customer funds are segregated they're
00:22:28
backed one to one we're not investing customer assets without their explicit Direction and so that's been the first
00:22:34
step is just to make sure people understand that but then after that we need to kind of think about how we go
00:22:40
forward as an industry here and both take a long-term perspective make sure the good companies in the space aren't
00:22:46
allowing one or two Bad actors to kind of mess it up for everybody else and it feeds into the whole regulatory story
00:22:52
too because companies like coinbase are already regulated but we're regulated like a traditional financial service
00:22:57
business but we don't have clarity about the crypto specific regulations like what's a commodity what's a security and
00:23:04
that lack of regulatory Clarity I believe has pushed a lot of this business offshore to these less
00:23:09
regulated exchanges that's part of what caused the blow up today they were based
00:23:13
in the Bahamas you know and they just there's not sophisticated Financial Regulators overseeing what they were
00:23:18
doing Brian there's a lot to unpack but maybe we can just take a step back and for the uninitiated or for the person
00:23:27
who's only been just following this very superficially can you just in a nutshell
00:23:32
explain what happened yeah so my understanding is and again this is from people I've talked to and I spoke with
00:23:39
Sam and CZ briefly during this but I didn't get details from them I got it from other people you spoke to them this
00:23:44
week yeah I mean this was all going down I mean I spoke to Sam about you know he
00:23:48
was trying to raise emergency financing and things like that and I spoke to Cece
00:23:52
about why he was considering buying the asset I thought it was a bad idea but my understanding of what happened at
00:23:59
this point again I don't have all the facts this is just my my understanding is that
00:24:03
you know FTX was in a position where they had this Market maker Alameda that was investing in Risky things and that's
00:24:10
fine like market makers hedge funds they're designed to take more risk it appears at this point that back during
00:24:16
the last uh shake up in the crypto industry where you know it's Terra Luna and Voyager and Celsius and three arrows
00:24:23
went under it appears that Alameda took a big loss at that time as well they may
00:24:28
have even been underwater and instead of just saying hey you know this hedge fund's going to blow up too which would
00:24:34
have been unfortunate people would you know Sam would have lost money it's embarrassing but it's not illegal for a
00:24:38
hedge fund to blow up that happens with some regularity instead of just letting it blow up it seems like at this point
00:24:45
he took customer funds but you have to explain he all he owns both that's for the people that may not understand that
00:24:52
right so it's a related part he owns his own exchange called FDX and he owns his
00:24:56
own hedge fund called Alameda which operates inside of FTX as well as in other places right but again Alameda
00:25:03
seems to have blown up sorry Brian back to you yeah so it seems they had this solvency issue
00:25:10
and instead of just letting it blow up Sam basically said um hey we have a bunch of customer assets over here at
00:25:16
FTX or he somehow basically made a loan from FTX into Alameda to try to prop it up I don't know why he did that I mean
00:25:23
that that's the moment in my mind where he crossed the line into probably committing fraud and I I think he
00:25:29
probably lied to users lied to investors and he went around and tried to bail out
00:25:34
these different companies like like Voyager and blockfy and to sort of prop up this thing and and maybe he thought
00:25:40
he could trade his way out of it or something I I'm not sure but that seems to be where the mistake was made Brian
00:25:46
can ask one question which I which I think will help frame the contagion risk set of questions that everyone's having
00:25:53
when people have an asset we all talk about customer deposits and customer assets held at these exchanges but those
00:26:00
assets and those deposits are very often some form of coin I have someone amount
00:26:05
of Bitcoin some amount of ether some amount of something else is it the case that there's an assumption of total
00:26:11
asset value that's held in a in a portfolio of coins that doesn't necessarily match the individual users
00:26:20
accounts and then when one coin goes down in value nominally to dollars that the whole value of the portfolio goes
00:26:27
down and now you can't actually make the customers whole so in the statements that have been made by these guys and
00:26:33
other exchanges that we have enough liquidity to cover customers accounts that the Assumption might be we have
00:26:40
enough liquidity if you assume the current market price for a whole bunch of different coins but then if one coin
00:26:46
tanks the total liquidity tanks and they don't actually have it matched up correctly because now the customer
00:26:51
account value didn't go down as much as the exchange of the total uh asset value
00:26:56
does that make sense it does and is that part of the contagion risk that's going
00:26:59
on here is that they're not matched truly between customer accounts and the exchanges you know holding of coins so
00:27:06
not exactly okay so if you're a regulated financial service business um that's but you're not a bank
00:27:12
you know we're regulated as a Trust Company a money transmitter Etc you're required to hold customer assets one for
00:27:18
one and denominated in the the asset so in other words if you say you the customer has one Bitcoin you have to
00:27:24
hold one Bitcoin if they say they have a hundred dollars you have to hold a hundred dollars and so that's the case
00:27:29
with coinbase you don't have to take our board for it by the way you can look at
00:27:32
our audited public financial statements as a public company with a independent you know big four accounting firm who
00:27:37
went to go verify all of that and that's what various custodians and exchanges that's what they all should be doing if
00:27:44
by the way if you're regulated as a bank you can actually uh go invest some of those but there's very strict regulation
00:27:49
around that and capital requirements and whatnot and we're not a bank so we we hold one to one now if you're an
00:27:55
investment fund or a hedge fund or or something like that then you can try to take positions in different coins and
00:28:02
different assets and they could go up and they could go down you know you may you may lose your investors money but
00:28:07
there's no such thing as the customer assets being involved in that there needs to be clear segregation of those
00:28:14
customer funds and from from what an investment fund would be or corporate funds and that's where they got in
00:28:20
trouble they basically co-mingled customer funds with their hedge fund a massive fund yeah can you explain the
00:28:25
contagion by the way just so we can because everyone's been talking about the contagion and understanding what's
00:28:30
next so that's why I just want to yeah because I think people are going to be asking that a lot this weekend
00:28:34
yeah so I do think there's there is some contagion risk here I think there's other firms that had first of all
00:28:40
there's firms that had money just sitting in FTX and that's now going through bankruptcy court so that's been
00:28:45
bad I mean multi-coin came out publicly and said that they had 10 percent of their portfolio sorted on FDX
00:28:51
um there's other firms that Alameda may have had loans with and those firms are probably struggling
00:28:58
I you know I don't want to say who but we have received a couple of inbound calls from other people trying to get
00:29:04
emergency financing there's people who may have just totally different from fgx and Alameda they may have just had their
00:29:10
own portfolio that they took margin or leverage on to buy crypto and now as the prices have come down a little bit
00:29:15
they're getting stopped out so um that's all been very challenging and I again just for the sake of clarity I should
00:29:22
say that coinbase did not have any material exposure to Alameda FTX or ftt token can we just talk about this issue
00:29:28
of customer deposits because this is really a Crux of the issue from a legal standpoint right I mean I remember when
00:29:34
I was doing PayPal like 22 years ago and the company was like six months away from running out of money I remember the
00:29:39
lawyers told us really clearly you cannot use customer deposits to fund the operating expenses of your business
00:29:45
in other words if this business ends up going bankrupt you'll still have all the
00:29:49
customer money there and they'll be able to get it back and you know it was really clear like hey if you use
00:29:54
customer funds to pay for the burn of the business to operate the business that is a do not pass go go directly to
00:30:01
jail type offense and so like that's really the heart of this now I read in some articles covering this that the way
00:30:09
it worked is that Alameda had a bunch of these ftt or F these ftxt called ftt and they basically use that as like a
00:30:20
marker as collateral so that they basically borrowed what is it like six billion of customer funds
00:30:27
from FTX and then they use their own token to then as collateral so back stop it
00:30:33
yeah exactly and then what happened is apparently like CZ got wind of this and he owned a whole bunch of these tokens
00:30:40
and he signaled that he was going to dump it and the price basically went down and so now all of a sudden the
00:30:45
collateral for the customer loans was insufficient and then there was a run on the bank and by the way this has
00:30:51
happened this happens in the public markets a lot as well so like when you see heavily shorted names or when you
00:30:57
know that certain hedge funds are on the brink other hedge funds will go in and essentially Force
00:31:03
a margin call and a stop out because then it's what causes all these runs and if you look actually inside a GameStop
00:31:09
the reason why you got all this gamification in the game stock equity and a bunch of these other names was in
00:31:14
part because of this Dynamic folks that are highly levered folks that don't have
00:31:19
the right matching of risk and what happens is they're solvent but a liquid and then if you run the instrument into
00:31:30
the ground they both become insolvent and illiquid all at the same time so Brian the question is now that we
00:31:39
know what happened which is all of these crazy inner party related transactions and you know all of this stuff seems
00:31:46
very illegal there was a bankruptcy filing today and up until today it seemed like this issue
00:31:54
was really about FTX International and Alameda and it didn't touch FTX us which for a lot a long time tried to position
00:32:04
itself as you know well run and regulated as coinbase to be you know they tried to say that
00:32:09
but now if you look inside the Wall Street Journal all the Articles say that this is actually FTX group so the whole
00:32:15
thing seems to be imperiled can you just help us explain that because there now that's a lot of us people that were
00:32:21
following the rules thinking that this thing was matched one to one that maybe also affected yeah
00:32:27
so look I I don't know who inside ftx's and its orbit of companies actually knew
00:32:33
that the the fraud had been taking place I it would not surprise me I have no idea
00:32:38
to be honest but it would not surprise me if FTX U.S people and employees had no idea that this was happening I'm
00:32:45
imagining if Sam was doing when he when he started doing this he probably wanted
00:32:48
to keep it to a very small group otherwise this is the kind of thing that leaks and the whole thing blows up
00:32:53
now that being said I don't necessarily think FTX us is worth anything as a business right now because of the brand
00:33:00
being so tainted and there probably was not great separation of these entities in the sense of you know like did they
00:33:08
have truly separate boards and beneficial owners and governance and it Sam seems to have you know it appears
00:33:15
that they didn't FTX didn't really have a CFO or maybe even like a real board or
00:33:20
anything like that and so it's hard to imagine we found on there was an article that appeared that said that the head of
00:33:27
compliance at FTX was also the head of compliance at a poker site called ultimate bet which in
00:33:34
the 2010s did this exact thing apparently some version of this where they went in and they looked at whole
00:33:41
cards of poker players and then a few employees inside the business would basically play against these folks
00:33:47
knowing what the whole cards were ran this cheat stole millions of dollars somehow that person found a way to be
00:33:54
out of compliance at FTX yeah 10 years later which is incredible but back to this
00:33:59
question so so now what happens now is you have the international business and the US business and Alameda research all
00:34:06
rolled up into this one Frozen entity right with now Regulators having to so do you
00:34:13
know what happens in a process like this like is it that the the doj and the SEC
00:34:17
get priority or is there some international monetary like who who's who unwinds all
00:34:24
of this how how do people get their money back if at all yeah so I'm not an expert at this but my
00:34:30
high level understanding is that the bankruptcy courts will essentially and I believe they filed bankruptcy in the U.S
00:34:36
which is an interesting thing I didn't know why they did that versus Bahamas but anyway the bankruptcy court will
00:34:41
basically go through and try to find any assets of value so I mean they must they
00:34:45
still have some tokens and value they have a venture portfolio they you know I think Sam owns nine percent of Robin
00:34:51
Hood there's various things that they may own and then they'll kind of auction those off to various bidders on
00:34:57
distressed assets and then try to distribute those funds to the customers I I don't know the exact process beyond
00:35:02
that though I mean if you remember the Madoff wind down took many years and for years he was uh trying to find assets
00:35:08
and then he found a market sold them there's this the trustee and he's still active and then you know tried to
00:35:14
redistribute the funds obviously so many more customers here than I was with Madoff but it can be a very long and
00:35:19
winding process to identify all the assets then run the market sale process on them then figure out who gets what
00:35:25
first and then distribute there was an interesting thing that Larry Summers did I think for Bloomberg where he was asked
00:35:32
whether this was Lehman or Enron and he said it seems more like an Enron than it is a Lehman and Brian I'm just
00:35:40
curious how you think about it like is this sort of a fraud perpetuated by a group of Executives to essentially take
00:35:46
advantage of a situation or do you think that this is more like a Lehman situation which is a well-run
00:35:52
business I guess that just you know got caught in a liquidity trap I think it's my guess is it's a little
00:36:00
more like Enron in the sense that I mean yes they were over levered and that kind
00:36:03
of thing but the minute that they moved customer funds in some way shape or form
00:36:08
to backstop the hedge fund that that was in my mind fraud and you know that's more like Enron do you think now that we
00:36:16
have to open the gates on regulation like the whole point of crypto in some ways was you know trust nobody
00:36:23
and you know decentralization is the key but here what we see is a lot of people
00:36:28
were tricked into trusting FDX and having their deposits there and it was a centralized exchange which
00:36:35
caused all these problems so it's like it almost violates the principles of what the whole product Market fit was
00:36:40
supposed to be so what what should sort of the Observer expect and what do you expect as a
00:36:47
business in terms of how governments now react to all of this yeah well I think it's really important
00:36:53
to distinguish between the centralized players in crypto which are custodians exchanges Etc coinbase has a big
00:36:59
business there and the decentralized players which are you know self-custodial wallets D5 protocols web
00:37:06
3 that whole world so the centralized players should be regulated and today they're regulated already like like kind
00:37:14
of traditional Financial Service businesses but they don't have the regulation clear when it comes to the
00:37:19
crypto aspects so for instance in the US we we actually don't still have clarity
00:37:23
about what is a commodity what's a security should which one should cftc regulate or versus SEC that kind of
00:37:29
thing and that lack of regulatory Clarity and frankly the the climate of Regulation by enforcement the negative
00:37:35
rhetoric from you know chair ganzar in particular has created this sort of chilling effect in the U.S that has
00:37:40
pushed a lot of that centralized actors activity offshore in fact 95 of the trading volume in crypto is
00:37:48
now outside the United States and it's come down a lot since the beginning of this year even
00:37:52
now the decentralized players self-custodial wallets D5 web 3 this is where crypto really has an
00:37:59
opportunity to make a more fair and free and transparent system because you can go look at any smart contract to see
00:38:06
exactly what it's doing anybody can audit the code if you have a self-custodial wallet you you can just
00:38:11
trust yourself you don't have to trust any other intermediary out there and um that's where you get true
00:38:17
decentralization and I think that's actually uh you know those areas still have a couple of their own challenges
00:38:22
you know sometimes people will lose their password or their phone and they'll lose their own money so if
00:38:27
you're if you're trusting yourself you still have the you have to trust you know that you're going to do that piece
00:38:31
correctly but there's a lot of good things we can do there around making social recovery mechanisms and MPC
00:38:36
wallets and things like that we uh remember just a couple of months ago Gary gentler started saying hey these
00:38:41
things are all securities and you went and visited the SEC a couple years ago or you tried to they
00:38:47
wouldn't meet with you you were very public you did a tweet store and we talked about this on my other pod that
00:38:51
hey like we want to meet we want to talk about that now we're still in a position
00:38:55
where the sec's position is these are all Securities which means the anything that's trading it would have to be
00:39:01
limited to accredited investors Etc what should the United States do here and how
00:39:06
close are we to getting Clarity because I know you're trying to talk to the SEC directly about can we just get some
00:39:11
clarity here can people buy these tokens or not what is the status of are they tokens are are they Securities or are
00:39:18
they not here in the United States yeah so luckily since then we have had a lot of productive dialogue with both the SEC
00:39:25
and the cftc and Treasury and all kinds of people in Congress and I do think the
00:39:30
US is making some steps in the right direction there was actually there was a bill going through Congress recently
00:39:35
called the DC CPA or the staff now Bozeman Bill although it's having some challenges now frankly due to this FTX
00:39:41
blow up because SPF was one of the people sort of pushing that bill forward but regardless of that the the sort of
00:39:48
system that we should have is there should be a clear designation between what is a crypto commodity and
00:39:54
that can be regulated by the cftc and what is a crypto security now this is one of those legal by the way what is
00:40:00
also a stable coin and artwork and other things that are not any of those things
00:40:05
the challenge lies in that there's kind of a fuzzy line between what is a commodity and what is a security and a
00:40:12
lot of this law is based around the Howie test which says a security is an investment in a common Enterprise with
00:40:19
an expectation of of profit and so it's basically a point-based system and in the absence of really
00:40:25
getting a clear list between the cftc and the SEC are in this Turf battle I would love it if you know they could
00:40:31
basically put out a list get their heads together and put out a list hey cftc is
00:40:34
going to do these SEC is going to do these a bunch maybe are in the middle let's let the courts figure that out or
00:40:39
whatever but that just hasn't happened and it's a it's a missed opportunity in the U.S so if the Howie test is not
00:40:45
perfect given the dynamic nature of cryptocurrencies and all the Innovation if Brian Armstrong was going to say hey
00:40:52
this is in the best interest of Americans balancing you know some amount of security and safety for people making
00:40:59
bets on this currency and allowing Innovation what would you say is the best definition the best way for us to
00:41:06
regulate crypto coins putting nfts aside putting downside just specifically yeah
00:41:12
Jason hold up hold on let me just tweak your question sure because because we should switch to SPF as well and just
00:41:18
talk about the person but to me it seems the whole issue if you you come back like what is the first string that you
00:41:23
pulled that unraveled the sweater was the fact that these tokens were created out of thin air they had no meaningful
00:41:30
value somebody prescribed the value and all of a sudden everybody else in the economy all of a sudden said yeah I'll
00:41:36
take that as collateral look you cannot do that in the regular world I can't call JP Morgan and say I've invented
00:41:42
this thing it's called a share in XYZ and I'd like you to margin loan you know give me a loan against it so Brian
00:41:49
explain like there's a ton of these tokens that have been engineered right and there's been a ton of these tokens
00:41:55
that have been sold so what should people do that own these things thinking that there was going to be some safety
00:42:03
or value or you know like how do you think about all of these tokens that are that that could be as basically as as
00:42:09
fragile and shitty and worthless as ftt yeah well there there is this concept of
00:42:15
like an exchange token and there's a couple other firms out there that have them and that's something we haven't
00:42:20
done and I do I think I think you're right like the the actual utility of those things is a little questionable
00:42:25
and so if someone's gonna sort of Mark those up on a low Supply and then a low float and then somehow leverage that
00:42:32
that that's going to get yourself into trouble but look I don't want to throw out the entire concept of people
00:42:37
creating tokens I think there's actually a lot of good stuff there and it comes down to this idea of if if you're trying
00:42:43
to raise money for your company and through a token that's fine that should be a security and there should be a
00:42:50
regulated way to do that in the US like go register it with the SEC you know let
00:42:54
it trade on broker dealers that's that's what we've been wanting to do for a long
00:42:58
time and the SEC is taking their time getting there they don't you know cancer to be honest he doesn't seem that
00:43:04
um excited about the idea of this whole industry existing and so anyway but it should it should exist and it should be
00:43:10
happening in regulated ways so if people want to issue a token that's right raising money for a company let's
00:43:14
regulate it as a security if they want to issue a token that's truly on a decentralized protocol or has some other
00:43:20
purpose like voting in a dow or Rewards or something like that then that's probably not a security and let's be
00:43:27
honest about that and allow those things to trade in a different environment a different regulator under the cftc we're
00:43:32
probably running out of time with you because you said you had a hard stop so let's ask the million dollar question
00:43:36
tell us about SPF like what's who is this character when did you first suspect yeah what's your read on the
00:43:43
psychology that this wasn't legit do you think that it was his altruistic intent
00:43:47
that allowed himself to convince himself to do this or do you think this was like
00:43:52
malicious the whole way or what's your sense of the guy hmm so again I'm speculating here I mean
00:43:57
I've spent time with I've met him a bunch of times and I have to say I did not see this coming
00:44:02
like he he appeared to me to be a very bright credible competent person perhaps a bit young perhaps you know a bit
00:44:12
Reckless at times but not unethical and not not committing fraud I definitely did
00:44:17
not see that you know if I look back to see were there any warning signs that I should have thought twice about it you
00:44:23
know one of the things I noticed was that in 2021 you know coinbase had a good year we we did seven billion in
00:44:29
revenue for a billion of positive ebitda we went we became public as a company at
00:44:33
that time FTX did about 1 billion in revenue and I knew how much money we had for our Venture budget and just like
00:44:40
different Investments we wanted to make and I knew their revenue and I had to scratch my head a bunch of times and I
00:44:46
was like where is this guy getting all this liquidity because he was like buying nine percent of Robin Hood he was
00:44:52
putting like a billion dollars into this he was donating to all these politicians
00:44:55
and I was like I it did not make sense to me where he was getting all this cash people just kept telling me Oh his
00:45:01
Market maker Alameda is just printing cash like it's like okay I guess you know it seems like a conflict of
00:45:06
interest to own an exchange to Market maker that's why we haven't done it but more power to him I guess and so I was
00:45:12
surprised I didn't speak up I cannot I can't explain in the psychology of it at this point whether he's a pathological
00:45:18
liar or if he's started off good and somehow under the pressure of this whole thing went bad but
00:45:25
the minute you can you can go watch the interviews he's he's lying to people about why he's he's bare you know
00:45:32
bailing out Voyager and blockfy and these and he he knew at that time that most likely he knew at that at that time
00:45:38
that they were not solvent Alameda was not solvent and so that's where he crossed a major line in my book man we
00:45:45
see it time and time again Elizabeth Holmes Bernie Madoff I mean once the LIE gets too big you can't get out of it
00:45:50
anymore uh if that's the case really incredible and the most important thing at this
00:45:55
point Brian is that the United States makes a decision on do we want to be in crypto do we want to have a say in this
00:46:03
and create a regulatory framework that entrepreneurs like yourself can deal with that is the most important thing to
00:46:08
happen in the next year but you're saying the SEC is not motivated I guess why are they not motivated they're just
00:46:14
cya oh they're motivated now this is a political issue now so they but let's see yeah answer here what do you find
00:46:21
out who who did SPF give all this money to because he was touted as one of the future biggest donors of the democratic
00:46:27
party Democratic if you want signals so if you want signals I would say there are some pretty big signals here number
00:46:32
one he said he's going to donate a billion dollars Democratic party and he kept touting this like effective
00:46:38
altruism whatever the saving the world stuff now why do you need to do that unless your reputation laundering and
00:46:45
trying to buying political protection come on okay you don't think that was a little bit of a signal
00:46:51
right here I'll tell you I'll tell you an even more explicit signal we he pitched Us in that 17 billion dollar
00:46:58
round and I did a zoom with him and after the zoom I'm like this doesn't make much sense but I'll have my team do
00:47:05
some work we did some work and we sent him a two-page deck and we said here are our recommendations for taking the next
00:47:12
step one was the formation of a board the second was the creation of dual class doc the third was some reps and
00:47:19
warranties around Affiliated transactions and related party transactions and the person that worked
00:47:24
there called us back and literally I'm not I'm not kidding you said go [ __ ] yourself was quote unquote the response
00:47:32
to us we're like okay so that was the easy decision but message receives message received but I still thought
00:47:39
okay I'll just put that in the bucket of these guys are unbelievably arrogant and
00:47:42
smug but Brian I thought what you thought which is maybe it's because they've print they've created some money
00:47:48
making machine in the Bahamas and so they they have that level of it of confidence
00:47:55
you know I it but then to see this thing to the extent of which is now we're only
00:48:01
scratching the surface guys you know that we're going to find out stuff every day it's gonna be crazy but Brian to the
00:48:07
question I asked before about the SEC and what should happen you said I want to pick up on what you said which is the
00:48:12
SEC doesn't seem motivated why is the SEC in your mind not motivated well I think you're right that I hope
00:48:19
that they use this as a moment to come together and help you know local companies in the U.S being built here to
00:48:26
end up in a better place and I do believe you know David I think said it's it's right it is a political issue at
00:48:32
this point there's going to be a major impetus to get the clarity here in the U.S and hopefully to help build the
00:48:38
companies here in the US that are going to serve the rest of the world and in every major Financial Hub so we're
00:48:44
committed to building that together with all the Regulators around the world and
00:48:48
crypto is here to stay this is a temporary setback um but I'm I'm here to keep building and
00:48:52
make this thing happen all right we really appreciate you taking the time Brian yeah listen I mean story after Story
00:49:01
here about you know SPF was going to create this billion dollar philanthropy to you know save the world improve
00:49:08
Humanities long-term prospects number two donor to the entire Democratic party and on and on and on and like quite
00:49:16
frankly what this shows is you want to know what effective altruism means it means that you steal other people's
00:49:22
money while bragging about saving the world while taking a big chunk for yourself
00:49:27
that's what it means there's a research paper in 2011 and this research team looked at drug addicts and Drug abusers
00:49:34
4 000 people and they found that the biggest addicts had the highest intelligence that you were twice as
00:49:42
likely to become an abuser or an addict uh if you were any kind of intelligent uh quintile quantile that they were
00:49:48
measuring and I someone explained this to me at the time that the smarter you are the more you
00:49:56
can convince yourself that when you're doing bad things you're actually doing good things even if you're doing bad
00:50:01
things to yourself or bad things to other people that you really may actually care about you can convince
00:50:06
yourself that there's some reason to keep doing it he seems like a brilliant guy I think that to some extent he may
00:50:13
actually I don't know the guy but he may actually believe that the um you know the the ends did justify the
00:50:20
means and he thought that he was doing good for the world and this was something that had to be done in some
00:50:26
way and oh it just got a little bit away from me but it's it's still I think I think the problem is bigger than FTX uh
00:50:32
and I'll say the uncomfortable part out loud and nobody needs to necessarily comment if you don't want to but there
00:50:39
were an enormous number of venture firms that talk their their way into just completely doing zero work here I mean
00:50:49
and the the tip of the spear is this thing uh well who's the guy that works at Founders on bulgar bulgar is
00:50:57
zebul Jared thank you yeah yeah that tweet that he had where he basically took the snapshot
00:51:05
of the Sequoia transcript was one of the funniest things that I've ever seen I mean this was a 215 million dollar
00:51:12
decision and Sequoia documented it and put it on their own website and I think that's an example of
00:51:19
something that was happening which is people just looked the other way and didn't even want to do the layer of work
00:51:24
come on let me just sing together a couple of things we've talked about over the past few episodes and I think you'll
00:51:29
agree with this point but generally speaking there seems to be a very heavy lack of governance in investing given
00:51:36
the amount of capital and the velocity of capital in Silicon Valley particularly in private markets of late
00:51:41
and a lot of the stuff that's been talked about where last week we talked about super voting shares and the
00:51:46
founder does whatever they want and there's no governance and there's no board and there's no oversight and
00:51:51
particularly with this FTX situation where clearly there wasn't a board uh that that was you know getting the
00:51:56
necessary information that had the necessary influence that had the necessary controls the meta conversation
00:52:02
but all of these threads tie together the concept that maybe there's not a lot of governance and not a lot of diligence
00:52:08
going on and the amount of money that's flowed into Silicon Valley has allowed a
00:52:12
lot of this Lucy sequence of it let's thank Brian Armstrong for joining us I know it was a
00:52:18
very busy day and uh what a great uh candid insightful thanks Brian uh yeah thank you Brian thank you and insightful
00:52:24
finish your Dutch month I just want to say the second uncomfortable thing out loud which is there was a lot of venture
00:52:30
firms in Silicon Valley in this period of both not doing any work or diligence who also took the extra step
00:52:37
and actually created classes and would teach teams how to create these tokens okay and those artifacts those video
00:52:46
links and artifacts are sometimes on their website they're still on YouTube they're inside of Twitter and what these
00:52:52
folks would do when we talked about this the game that they played was they would
00:52:56
get a team they would create a token they would also buy Equity at some crazy valuation
00:53:03
the equity was locked up but the tokens were not and then they would put them on an
00:53:08
exchange and sell them to unsuspecting people and they would be able to dump these tokens
00:53:13
and if you look inside of that Trend what you're going to see and Brian just mentioned this those were the sale of
00:53:22
Securities except it was done in a completely unregulated way so if the SEC is really and the doj is really going to
00:53:29
take this ftt token issue seriously and what happened to FTX they're going to start to look at a
00:53:36
bunch of other tokens and token sales and you're going to end up looking at some very well known Venture firms
00:53:41
inside of Silicon Valley this is going to be super gnarly and we talked about it before on this pod there
00:53:47
are people who knew better so you get a bunch of kids who are living in the Bahamas in a house and and they're you
00:53:53
know winging this thing that's one level of responsibility and they'll go to jail
00:53:57
but when we talk about Venture capitals Capital allocators who've been at it for
00:54:00
decades point and they're teaching people how to do this and they're hiring attorneys and
00:54:06
creating offshore Panama you know BVI whatever uh places to put these coins and then teaching people how to do it
00:54:14
and then flipping them potentially this is we're just peeling back the onion on this I have a feeling that this is going
00:54:20
to be the turning point and all that token guys let's be honest is not the only token that has been engineered by
00:54:26
Silicon Valley venture firms and it is also not the only token that's gone to zero that was engineered by Silicon
00:54:32
Valley venture firms well I mean who knows engineered by but yeah adjacent to at the very least Jason
00:54:39
Jason there's videos today on some of the most well-known Venture firm sites on how to do this
00:54:46
oh wow I'm gonna have to see those um yeah so they're basically your point chamoth is they're instructing people on
00:54:54
how to do this and that is what it's what it's what they it's what they did can I ask your guys a point of view on
00:55:02
just one big macro philosophical question I'm obviously not big in the crypto world and haven't been but so
00:55:08
much of the positioning has been that these networks get decentralized through the cryptographic verification systems
00:55:15
that obviously enable you know them to operate effectively and truthfully and correctly and without centralized
00:55:22
control or manipulation But ultimately while these networks themselves may be decentralized the user's point of access
00:55:29
often ends up being centralized as a point on the network and it is that point on the network that accrues the
00:55:36
same level of influence power control and value as what we saw in the prior centralized Network model you know we
00:55:44
had biology on last year and you know I tried to get to this point with him we had to cut the thing up the conversation
00:55:51
short but I've still not heard from anyone and I've spoken with Brian separately about this point and and the
00:55:56
the the concept I use is like look media if you put all the YouTube videos on on
00:56:00
a decentralized network and anyone can access them and they're distributed everywhere you still need to have a
00:56:05
really good application and whoever makes the best application is going to get all the usage and then all the users
00:56:11
will use that application and that becomes effectively the point of control and influence and value once again and
00:56:17
so it seems to me like in this case the exchange was being used as a centralized
00:56:22
wallet certainly you can do met you know exchange through the exchange but but mechanistically these guys were storing
00:56:28
their coins their cryptocurrency inside of ftx's wallets had control over their assets and so the
00:56:38
network centralized and so does the decentralized model it's a question I'd love to just ask you guys your point of
00:56:44
view on does this decentralized model actually ever manifest where everyone has their own wallet I know there's all
00:56:49
these new protocols and these distributed wallets and B5 things but I don't know enough
00:56:58
you basically recreated an exchange without a regulator and of course someone ripped you off and it blew up
00:57:03
like I mean how's it any different than what we had in version 1.0 and is there really a model where decentralized works
00:57:09
or ultimately because of the network effect and the and the economies okay yeah all right we got the question yeah
00:57:17
no I mean I I have I have I don't know the answer to Freebird question because I don't I don't know this space well
00:57:22
enough I mean you know I my my biggest purchase ever was Bitcoin in 2011. you know I've bought a bunch of these
00:57:34
tokens that have massively depreciated in value I think lots of investors have you know I kind of fell into it as well
00:57:42
like I thought wow this is incredible I get to buy these tokens they do all of this cool stuff they represent all this
00:57:47
value and my experience has been the opposite of that I've lost a lot of money in these things
00:57:53
um and so you know I really hope that Regulators not just obviously I hope that Regulators do their do the best
00:58:00
they can to get investors money back in FTX but I really also hope they figure out
00:58:06
all these other tokens as well because you can just rank them in terms of market cap start at the top and work
00:58:12
your way down and you will see that these were unregulated Securities Jason that were manufactured and sold by our
00:58:20
brethren people who understand the law around accredited investors and the stuff very
00:58:27
well yeah do you guys think crypto investing uh is dead or what do you think how do
00:58:36
you think people think about that risk profile now inside of I think investing in the tokens is going to end investing
00:58:42
in the corporation is going to begin and any of the tokens are going to be super
00:58:45
regulated building on what you said chamoth about the ultimate bet is it possible that Alameda the trading hedge
00:58:52
fund was looking at the FTX data which they had insights into and essentially that's the same as seeing the whole
00:58:57
cards in the ultimate bet and so they're making their trades based on what they see the consumers are making their
00:59:03
trades front running their trades or otherwise that's not illegal you know Citadel does this in the regulated
00:59:08
market that's what payment for order flow is it's right it's the ability to front run retail volume and so you know
00:59:15
in dark pools that is legal by the law in the United States and that's what allows Citadel and you know I think Jane
00:59:24
Street and Susquehanna you know all these folks basically run these dark pool exchanges for regulated Securities
00:59:31
like options and bonds and and stocks and they get this order flow and they front run it by a millisecond and they
00:59:37
they just take small Vig but they can't print the ftt tokens and otherwise manipulate the market to the level that
00:59:44
I think sbl could I just think that there's there's there's these really uh strict walls and segregation as you
00:59:51
heard Brian talk about when you have those businesses in these regulated markets the problem here is that this is
00:59:56
totally wild west unregulated wild wild west so who knows what's going on really
01:00:03
and we're pushing the business acts off of the shores of the United States as you said 95 of this is happening
01:00:08
offshore what do you think should happen regulatory wise sacs in terms of America
01:00:13
and competitiveness or do we not to be need to be competitive in this no I think we should be I mean what if what
01:00:19
if crypto and Defy is the future of Finance I mean it's an important technology that I think we should enable
01:00:26
through some sort of constructive regulatory framework I think I think the regular should listen to Brian and help
01:00:32
come with a appropriate framework but to be clear look what Sam did is way worse
01:00:37
than people going on an exchange and speculating I mean look I I think that people who speculated in the buying and
01:00:44
selling these tokens they're they were using it like a casino okay like that's different than a
01:00:50
customer putting their money on FTX and having their money gets stolen that's a big difference so I think there's levels
01:00:57
here now jamas to your point about who's minting these tokens you're right maybe
01:01:01
that's like another category but I do think that the reason why this is on a different level
01:01:08
is because it wasn't Sam's money to give away there is such an easy solution I'm just
01:01:14
I'm just great I'm I agree with you on that point but I think don't underplay when there's an organized process to
01:01:21
create an illegal security with special rules for them that allows the liquidity for one class
01:01:29
of asset and not liquidity yeah you're right so that's a separate bucket I don't think it's the same as what Sam
01:01:35
did and I don't think no I agree I agree no I'm saying that's something that needs to be looked
01:01:41
at and we need a constructive regulatory framework for that there is such a simple Silver Bullet for all of this
01:01:46
which is these things need to be there needs to be proper governance people have to have skin in the game
01:01:53
insurance people signing off on the taxes boards onshore here in the United States and then we need to have and I'll
01:02:00
keep saying this a way for Americans to become sophisticated investors only six percent of this country fall into the
01:02:07
qualified purchaser and accredited if you want to trade in these things or you want to trade in nfts or private
01:02:13
companies we should have a driver's license-like test a Firearms a sophisticated test and about the
01:02:20
product into it with an education the problem is when you have guys like this it sets that desire back by a decade if
01:02:27
not more okay because it sucks I agree because every single so frustrating every single person inside of Washington
01:02:34
right now who's anywhere near this from a regulatory perspective or a policy perspective is meeting on Monday morning
01:02:42
and the meeting topic is how do we defend the mom-and-pop folks that lost money here yes that's the only thing so
01:02:49
we took this out of you know because I I remember I remember I texted into the group chat hey guys what what what do we
01:02:55
think the the legal ramifications are that drive prosecution and one of our friends said legal ramifications these
01:03:02
are political ramifications yeah which means that this is going to go to the utmost level and it's going to have the
01:03:07
most scrutiny and they're going to act really quickly it is they're gonna drop a hammer instead of having a path to
01:03:14
accreditation I agree with you they're going to drop the hammer because their constituents some grandma and grandpa or
01:03:18
some people put their college education to this and lost everything we just need
01:03:22
a test let people prove they're sophisticated and let them participate well first and only if they get a
01:03:27
license haven't you been a proponent for letting people invest in startups that are just Mom and Pops and democratizing
01:03:34
access I'm only allowed to do that with accredited investors I would like there to be a test and I actually teach your
01:03:40
course Angel University six times a year for charity I do it for charity it's a four hour course where you learn about
01:03:46
diversification you learn about the asset class you learn about 70 80 go to zero we teach you about the power law I
01:03:52
try to teach people about this stuff so that they can participate intelligently it would it would be the equivalent for
01:03:57
your brick and thank you for asking the question it would be equivalent if we had a poker test and to play in the
01:04:02
World Series of Poker you had to go to a five hour seminar and you had to take a
01:04:06
practical test and you had to say you know a flush beats a straight and you have to just prove that you had some
01:04:11
level of knowledge of how to play the game it's such an obvious path to removing these problems while staying
01:04:17
competitive as a country and instead we're letting people do this offshore like CZ with no rules or whatever rules
01:04:23
he chooses it's just infuriating it's so stupid our politicians in Washington are so dumb
01:04:29
can I just say something I think the challenge is there's always a spectrum of understanding and you'll always end
01:04:35
up seeing the people on the wrong end of the spectrum getting taken advantage of
01:04:39
there's this notion of adverse selection distributions are not equal people will
01:04:43
end up um you know kind of opting in to spend money on things or making Investments that they think
01:04:50
are good Investments but they're actually getting taken advantage of because they're not Savvy enough where
01:04:54
they miss an important angle or important perspective about the person or the thing that they're giving their
01:04:59
money to and there will always be some number of those and the way that regulation has worked historically is
01:05:04
not by first saying hey let's figure out the right way to create a framework for
01:05:07
operating it's that some sort of people got advantage that story then becomes the regulatory framework and that story
01:05:13
has repeated itself for 500 years across Capital markets we're talking about a multi-layered thing here we want to see
01:05:18
crypto have a framework we want it to Blossom here in the United States and then there's multiple level of people
01:05:25
who are um causing chaos in this ecosystem in this very promising technology with
01:05:30
their goddamn griffs whether it's VCS grifting or SPF or incompetence we just need to clean this framework up if
01:05:37
people sometimes people I understand in DC listen to this podcast if they're listening it's essential that America be
01:05:43
competitive here it's essential that everybody participate in Risk capital and get educated let's clean it it up
01:05:49
and make a framework that allows all Americans to participate and educates them and then stops these grifters from
01:05:55
doing stupid things if people were educated that's the first step and it's the best talk about the economy
01:06:02
sure you want to talk about Facebook with eleven thousand you want to talk about the uh Market popping so the
01:06:07
beginning of October yeah I think what we basically said kind of generally speaking is markets up right markets I
01:06:14
went from nibbling to being constructively positive and basically being positioned long here's this really
01:06:20
interesting setup we have a bunch of very positive news that I think we all have to process
01:06:27
first positive news was that inflation takedown now here's what I'll tell you there's a
01:06:32
caveat here I talked to a bunch of pretty smart Sharps on Wall Street and oh two things number one is they all
01:06:38
gave credit to David sacks and they said Saks was totally right double dip recession is coming but then they said
01:06:44
tell sacks that we think that these are the sharps we think that there's a double hump in inflation coming
01:06:51
which means it's coming down to come back up and there's a bunch of reporting vagaries that may cause that so keep
01:06:57
that in the back of your mind but positive news number one is inflation ticking down
01:07:04
um number two and Jason we talked about this a federal judge basically stayed Biden's attempt
01:07:12
at giving student loan relief now that would have been a 500 billion dollar transfer payment from the government
01:07:19
into the hands of individuals it is deflationary to not put give that money to people it's effectively taking
01:07:26
stimulus away from folks number three it looks like we're headed towards a split government
01:07:32
which means that we are not probably going to see any more stimulus over the next two years
01:07:38
number four uh Ukraine wins and Curzon I hope I'm pronouncing that right number five the United States uh announced
01:07:47
yesterday through the Wall Street Journal that they had essentially said no to Ukraine's request for advanced
01:07:53
drones and they said to Ukraine essentially you need to go and negotiate an end game here
01:07:59
and number six China has started to relax as covet policies and G is pivoting to economy
01:08:06
first so if you took all the way take seven don't forget seven Facebook which would not take the medicine they refused
01:08:12
Brad gerson's letter cut eleven thousand people 48 hours ago Facebook matters that much to be honest well but it
01:08:20
matters that big Tech is and they're taking but it doesn't matter to the economy to be complete I I think it does
01:08:26
if people are going to start cutting jobs but okay keep going my point is these seven things are macro level
01:08:31
things that affect everybody yep and I think if you take them together what it says is that wow there's there's the
01:08:37
potential for a lot of great positive developments over the next six or nine months and I don't think that that was
01:08:43
adequately priced in the market but here's the problem and this is what's why we've been rallying
01:08:48
the problem is that most of this rallying has been because of a bunch of short covering by folks that who were
01:08:56
pretty pessimistic and negative after the last few inflation prints so this is not really net new buying that we saw
01:09:03
over the last couple days so you take it all together we talked about this Jason when the vix
01:09:13
gets into the low 20s or the High Teens that's probably the short term top and then it turns around and unfortunately
01:09:19
we're here yeah the low 20s High Teens so that's kind of my thought on things right now okay Freebird you have any
01:09:27
thoughts on the inflation print yeah so I think there's two things one of which I'll give credit to a guy named Carl
01:09:33
uh two I hope I pronounced Carl's name right he's from William Blair he puts out these excellent research reports and
01:09:40
we used one of his Graphics a few weeks ago so I put it up here and basically he
01:09:43
showed that with the the NASDAQ move that we saw this week so you can see this here he basically tracked the move
01:09:49
in the 10-year Treasury against the the one day move in the NASDAQ and uh he said that it really
01:09:56
indicates a unique sentiment shift whereas in other times you've seen big moves in the NASDAQ that weren't really
01:10:03
seeing significant moves in in the treasury rate at the same on the same trading day and that this is such an
01:10:09
outlier what happened uh this week the only other time that we've seen anything like it was when the
01:10:14
bank of England issue happened back at the end of September uh in the last you know 20 times that we've seen this big
01:10:20
of a move in the NASDAQ in a single day and so we saw 31 basis point move in tenure treasuries in a single day at the
01:10:27
same time that we saw what a seven point move in the NASDAQ so he said because you don't normally see the bond Mark in
01:10:33
the equity market trading this way together it really speaks to a big shift in sentiment now what is that what is
01:10:40
that shift in sentiment that there is going to be less of a driver for the FED to raise
01:10:44
interest rates at this point because it seems like the inflation print indicates
01:10:48
that inflation is coming under control faster than what folks had otherwise anticipated and so there may not be as
01:10:55
many rate hikes as quickly as folks who are anticipating which will you know benefit uh benefit benefit equities and
01:11:00
the bond market traded that that with that perspective as well now the counter narrative which uh I
01:11:06
just put a tweet by a guy who I've never heard of before uh but someone shared this with me his name's Gordon Johnson
01:11:11
and he said um the CPI surprise may actually be due to a technical print that within the CPI one of the biggest
01:11:19
indicators is health insurance cost and um you know it the the health insurance cost plunged by four percent
01:11:28
October to September but at least healthcare costs didn't actually magically collapse there was just an
01:11:34
accounting difference in how they're shifting how they're accounting for health care costs uh that that took
01:11:38
place during the month and if you did not uh um if you assumed that that was flat uh month over month uh you would
01:11:45
end up actually with a 6.7 percent year-over-year print which was higher than expected so there is a counter
01:11:50
narrative going on in the market I don't know how significant this guy is or how
01:11:54
much of a voice he has but I don't know if we're out of the woods yet but some folks are saying that the market is
01:11:59
saying we're feeling a lot better but there are still analysts that are indicating that maybe there is still
01:12:05
risk uh to be had ahead of us I think the sharps tend to be on that second second perspective and by the way I'll
01:12:12
say this week I heard five and a half points even after that print so is where we're gonna get to I think consensus we
01:12:18
have here is is that we're in the end game now maybe what two quarters three quarters four quarters of choppiness
01:12:23
chamoth what would your gut tell you if you I I've been telling all of our startups that you need to plan to have
01:12:30
money through the first quarter of 2025. you must yeah you absolutely must and the way that there's a catch okay the
01:12:40
way that I framed that out to them is nine yeah eight or nine quarters of cash ideally nine
01:12:47
and the reason is that we have all of this positive news in the offing but but the but the problem is again
01:12:55
there is still a lot of risk to the downside we haven't seen David's second you know dip in the recession right so
01:13:02
that double dip is going to be expensive and again the sharps think that inflation will come back at some point
01:13:08
in the next six months that will keep the fed's foot on the gas maybe it's two or three more 50 basis
01:13:15
point hikes the point is Jason you could be at five and a half again we said this
01:13:19
last week we're going to get to a point that's probably higher than what people expect that's probably around five and a
01:13:25
half and will stay there longer than people want that's probably through the middle
01:13:30
part of 24. and if you don't prepare for that worst case scenario you're doing yourself a
01:13:36
disservice I think the market can start to Rebound in the second half of 24. but if you're a company you need to
01:13:42
balance and and plan for the first quarter of 25 because you know again most Venture investors are going to want
01:13:50
to see six months of data on the ground that things are better before their sentiment changes yeah and we're just
01:13:56
starting to see the drawdowns we're just starting to see the impacts in people's
01:14:01
portfolios that will drive Behavior change I mean this SPF thing is the tip of the iceberg in terms of the money at
01:14:09
risk you know I went and by the way I did it in analysis I shared it in the group chat hopefully we can show this up
01:14:15
Brad has a little chart Nick maybe you can throw up the the historic drawdowns so for people that care about early
01:14:22
stage technology since 2018 through 2021 and including an estimate for 2022 we have injected one trillion dollars
01:14:37
into venture capital and if you look at historically how money has been lost in periods like this
01:14:45
and you layer that into 2018 to now what it basically tells you is about 500 billion dollars
01:14:52
of that trillion from 18 19 20 21 and 22 is going to be destroyed we haven't even
01:15:00
started to see that yet right and then if you factor in another 100 billion or so from older vintages we're talking
01:15:06
about a 600 or 700 billion dollar destruction of paid in capital so there's still for all the good news
01:15:16
there's still a bunch of these unfortunate pieces of bad news that have to work its way through the system if
01:15:21
and for people who are looking at the chart right now and you can see the charts on Spotify or if you search for
01:15:27
all in on YouTube we have a video version there you just take a look at 1997 the peak tvpi was you know seven
01:15:33
and a half X seven and a half times you know cash on cash money and uh what actually got realized was 5x right so
01:15:39
what paper said and what got distributed were two different things anecdotally uh
01:15:44
what I'm seeing in the startup or ultramoth is people are taking the medicine and a lot of people are
01:15:49
shutting their companies down they're giving up on raising money and then asking me which portfolio company can I
01:15:55
get a job at because I on my personal balance sheet have been you know taking a 5k draw a
01:16:01
month and I had I have two kids I need a job can you get me a job at Amazon or another portfolio company
01:16:08
and a lot of Aqua hires have started to happen and so what's happening is the consolidation of talent people who would
01:16:15
be a great number three or four person but maybe they weren't suited to be the number one person are now consolidating
01:16:21
into startups with these layoffs at meta and other corporations we're starting to
01:16:26
see very talented people who had Peak comp of 300 700k a year are going to go to startups or go to smaller companies
01:16:33
and that is also positive more consolidation of talent stronger companies did you guys hear the story
01:16:39
yesterday that uh Nick if you could just bleep out the name told about his friend his friend
01:16:45
basically makes a hundred and forty thousand dollars working for a tech startup and then also makes two hundred
01:16:50
and eighty thousand dollars working for meta and so and he's been working at both of those companies virtually for
01:16:56
the last two years the guy makes 400 450 000 a year and nobody knows and he says
01:17:00
he works about 20 22 hours a week on both combined so the 80 hours and and remember when we started in startups in
01:17:08
the night late 90s and into the turn of the century the number of hours that was expected at
01:17:14
a startup was what sax when you were at six hours a week I would say 60 60 days I was expecting the Baseline yeah
01:17:20
Baseline yeah Baseline 10 hours a day plus come in on the weekend for a couple hours yes yeah for sure easily
01:17:27
probably more early days of Facebook are are our executive management meetings wouldn't start till 9 pm
01:17:35
I think elon's gonna be a Trailblazer in a lot of ways on this Twitter thing you
01:17:40
know first he did the big head count reduction but then he also just this past weeks everyone needs to come to the
01:17:45
office and if you don't come to the office you you don't have to come to the office you
01:17:48
have a good excuse if you're an exceptional performer and you've got a good reason they never have to but the
01:17:53
Baseline is everyone comes to the office by the way just to put this point into Focus Nick can you just throw up this
01:17:59
chart for these guys to see because I think it's just ridiculous so this is basically what we're dealing
01:18:04
with which is like if you look at and these are just a couple of examples but this is meta Amazon snowflake datadog
01:18:10
versus Gilead Raytheon and Exxon what is the point of this the point of this is just to show you that we have
01:18:18
had a massive rotation away from our industry is the point right where normally the things that we would work
01:18:26
on were just so well received by so many different kinds of investors that unfortunately just isn't the case
01:18:31
anymore and I think it just goes to show you that the reason why this is happening is
01:18:37
because people are hedging their bets about how long the economic pain lasts that's why you know they'd rather be
01:18:44
long Health Care stocks you know industrial defense companies and oil companies because at the end of the day
01:18:50
they're banking on oil and War and sickness of you know versus social media and e-commerce and SAS software and if
01:18:59
we look at this chart just no matter how good by the way so this is not an indictment on these companies go watch
01:19:04
the the prediction episode from last year I think that was a prediction episode yeah we you and I nailed it on
01:19:09
crypto we both said crypto is going to Crater these four horsemen here datadog meta Amazon snowflake down 23 to 27 and
01:19:16
then the Gilead Raytheon Exxon cohort eight to 28 up I think chamoth what this says also is we don't think your
01:19:25
management style and how you're running these businesses is appropriate for this
01:19:30
moment in time please consider uh some austerity measures and some thoughtfulness in how you treat
01:19:36
shareholders well I mean it's just watching the number uh you know how people are
01:19:43
running companies I think we took it too far in Silicon Valley we took it too far
01:19:48
whether you know Jacob I I know that I know it's sort of a pet issue of ours because we have to deal with
01:19:54
some incredible hubris and arrogance sometimes on the boards of these companies because folks don't want to
01:19:59
listen to to reasonable advice and we come off as wet blankets but that chart to be honest is is because of what we
01:20:07
explained last week which is the when rates go up the value of a dollar that you earn
01:20:13
today is just meaningly meaningfully more worthwhile than a dollar that you may earn even two or three years in the
01:20:19
future that's why that chart looks the way that it does and if you believe that David's forecast of a double dip
01:20:26
procession is accurate which again most of the sharps do and then you also layer
01:20:31
in this idea that inflation could come back you have to be really defensively positioned you know you can't take a lot
01:20:38
of risk which is why startups have to expect that if that's the dynamic and 600 billion dollars is going to get
01:20:46
destroyed in Venture Capital portfolios how open are VCS going to be for business they're probably not going to
01:20:53
be that open and so you have to plan I think for the middle for the early part of 25.
01:21:00
if Amazon and how do you get incremental dollars in these tech companies Amazon does a riff some austerity measures they
01:21:08
raise prices a little bit if they can you know maybe you see more incremental dollars coming today and maybe that
01:21:13
incentivizes people look at what happened I uh we were at 89 for Facebook shares last week tomorrow when he made
01:21:19
the Riff 107 he went up like 15 20 what does that tell you I mean I think it tells you that a lot
01:21:26
of people were short going into that and they were probably caught offside a little bit by the magnitude of it I
01:21:31
think that that's good the the issue that a lot of these companies have even in the face of riffs
01:21:37
is that you have to reset expectations now on earnings and if you do that the problem is that when you flow that
01:21:45
through to what people think the s p will look like in a year there's some real issues
01:21:51
so this is not free you know it's really hard treading and I just I would I would just encourage people it
01:21:58
feels wonderful to have a few days of like it's like a respite in the middle of a huge storm right it feels like
01:22:02
we've been getting whipsawed back and forth and the sun came out and the wind came out
01:22:08
but I would just really encourage people in this moment to to reset your energy which I think is good but you got to go
01:22:14
back into that office and you gotta find the money and the wherewithal I think to
01:22:18
last through 24 if possible it's Grind Time Facebook by the way you need at least two years two years
01:22:26
yeah yeah 24 months is the new yeah eight quarters is the new six quarters and by the way Tino the thing that
01:22:33
employees need to do now in this moment is to hold the management teams of your companies accountable because in those q
01:22:39
and A's hopefully you're not just glad hunting talking about [ __ ] you actually go and ask the question how
01:22:45
much money do we have what decisions are you going to make to get this company to
01:22:49
be you know in a position to survive that is really what's at stake here for the Venture Capital industry is just
01:22:56
survival of as many of these companies as possible through these next two years the conversation has to shift from like
01:23:03
culture and features to like the bottom line and grinding it out and just proving it to Wall Street into the
01:23:11
investment community that your business is worthy of investment as you're saying
01:23:14
the dollars today matter all right it's been a crazy week thank you to David Friedberg for showing up unfortunately
01:23:20
no time for science Corner apologies to the Friedberg stands who are many and we'll see you in the YouTube comments
01:23:26
for the dictator himself to my palihapatia with just a wonderful sweater going into the strong November
01:23:33
strong showing for November with that purple sweater I don't know if it's mauve or purple whatever you got going
01:23:37
there looks wonderful thank you for team Montclair Sasol himself David sacks people don't understand what
01:23:45
you're saying when you say that Jason oh they know you're an [ __ ] uh they they're no that's what they think you're
01:23:50
saying they don't know understand they don't know we're adding the Sass to it yes so uh David also is a great
01:23:56
executive in software as a service in addition to being an [ __ ] so you put the two together and you get [ __ ] no
01:24:01
I'm just joking David's a wonderful person people are really excited that you and I are uh friends again it's a
01:24:06
amazing moment that was your chance to make a joke so I actually missed it throw it up there for
01:24:12
you I threw up the softball for you to say you're not we're not friends all right we'll see you all next time bye
01:24:17
bye we'll let your winners ride rain man [Music] we open source it to the fans and
01:24:28
they've just gone crazy [Music] foreign [Music] foreign [Music]