Hey Fred, yeah, I can hear you just fine
assuming you can hear me as well
Yep, I can hear you great Kyle
Well, I'll do just a quick intro
and then we'll get started as people start logging in
for everyone logging in, go ahead and just give a
share on the space and let's spread the word
we're going to talk about Bitcoin ETFs
and I'm not going to lie, I've been looking forward
all weekend to talk with you Fred
Well let me, okay, let's jump right in
I'll do the introduction and then I've got
welcome everyone to Multichain Mondays
talking about anything that has to do
with multiple blockchains and
assets and users can move
across chain in a seamless
today we're talking Bitcoin
and we're going to talk about Bitcoin ETFs
I would say probably led the charge
Fred, do you mind just giving a kind of background
to what your background is
and how you got so involved
in understanding Bitcoin ETFs
my background is, broadly
speaking, I started at my career
years as a prop trader on
once you're in that world you never really quite
I've been trading now for
thirty years and following
the markets like a finance guy
but for the last six years
I've been involved in crypto
Bitcoin but really for the last
these two worlds, right, so
I see a lot of the crypto
at these ETFs and their impression
that's sort of from the Bitcoiner side
now from the finance side
it doesn't belong anywhere near
are somewhat right and somewhat wrong
really saw this ETF was going to come
listen I think I can add something to the discussion
from the point of view of
how I think these two worlds are
and that's really my angle
it's a relatively unique angle
you won't find a lot of people in crypto
I mean there's certainly some who really understand it
in particular I would say the bitwise
and he really understands
who cover it understand it
really deeply from the finance side
I don't think they completely understand it
Bitcoiners world so that's
my brief kind of perspective
maybe what you would call the die hard
Bitcoin maxis, the self custody
that's the purpose of Bitcoin
and then you have the other end of the spectrum
which is Wall Street, which is
I mean I would probably venture to guess
Wall Street's interested in just
how do we make money, how do we
diversify our portfolio, those kind of strategies
and so Bitcoin is just a tool
in the tool belt for that
is that maybe a fair framing?
Yeah, I would say Bitcoin
really isn't a tool in the tool belt
portfolios and kind of what I've said
a lot of Bitcoiners will say well there's all
this money on Wall Street that's just itching
to get into Bitcoin and I would say
skeptical of Bitcoin on Wall
from Jamie Diamond's comments
who's out to lunch or Charlie
kind of how a lot of people
kind of view Bitcoin, they don't
really view it as real or
Vanguard for example, saying
we will not carry Bitcoin ETFs
I don't think it's like they're
sitting there going how do we add this to our portfolios
it will get added to their portfolios
one of the things as a finance guy
weren't itching to add real estate
portfolios before REITs came out
they weren't itching to add
commodities before the Goldman Sachs
Commodities Index came out
element before the gold ETF
to use a Microsoft expression
not be today an asset class
by Wall Street but I think
it is about to become one
and that's what interests me
deeper into that because I would
that you have what you might
but then you had this one off that
just seemed to kind of catch the industry
by surprise which was BlackRock
I can't remember if it was you
or if it was Eric from Bloomberg but
somebody was talking about how BlackRock is essentially
the fourth branch of the government
First of all the one thing I would say is
a lot of this happened after I left Wall Street
I've certainly been following ETFs
and investing in ETFs but
how big the ETFs have gotten
especially over the last 20
and to put this in perspective
the total size of the ETF
ETF market worldwide today
it's due to a couple of key
the largest institutional
is actually a little bit bigger
it sort of depends on the year
but Vanguard is responsible
and I'm reading the excellent book by Erik
it's responsible for 1 out of
so basically you have these
$30 trillion which is almost the
that's how much assets they control
and all the numbers under my
days on Wall Street have not
been multiplied by 20, 30
are just absolutely enormous
and they're absolutely enormous
relative to the size of the
everybody's sitting there going wow
you know Bitcoin's at a trillion dollars
is kind of nothing on Wall Street
and it's really the flip side
of all these deficits that we've been running
when you're printing money and running trillions of dollars
a deficit where does that money go
well it goes into the bond market
it goes into the equity markets
so all this stuff is securitized
and all this stuff is managed
a few very, very large firms
crystallizing under these ETFs
leading edge of Wall Street
this is where things are going
and BlackRock, if you see
Larry Fink recently, he sort of said
this is where the world is going
they are going to take over everything
if you really understand that
you really understand that this is like
the resistance is absolutely
you are going to get converted
this is really cute what you are doing
with your own keys and everything
and it is great if you happen to live in
Argentina or Lebanon or whatever
the big money is coming and it is going to invest
and you are completely deluded if you think
that the system that is happening
right now is going to continue
five years from now because it won't
good segue I was going to ask the question
you actually did this a great
well of like you had Bitcoin
decentralization qualities like these
you know like the self custody
and then you have let's say
traditional Wall Street through ETFs
coming in and they are going to value other things
let's be frank like a better user experience
the ability for people to park money in there
and forget it and not have to worry about
see phrases or not have to worry
about this and that the ability
to kind of tie into a legacy system
that is going to kind of swamp that is going to
be the narrative for Bitcoin moving forward
is that it will be more of a legacy
asset than it will be this
currency that could possibly take over
I will say so first of all
this is likely to benefit
Bitcoin more than any other
that a year from now we have
want that but it's possible
Wall Street absolutely couldn't care
Avalanche they don't care
they are just in the business of making product
the thing that's the transformative
let's say you have a substantial
amount of money let's just say
who's going to invest a million dollars
a million dollars of Bitcoin
is going to be wait a second I got to go wire a
million dollars to Coinbase
so I don't trust Coinbase
I hear it's being hacked all the
time it's not FDIC insured
businesses crypto so if they start losing
their crypto there won't be anything
maybe Coinbase is not even going to be around
10 years from now it's being sued by the SEC
be even legal they're going after Binance
so I would say the impression
of Coinbase is not really
you know when you say well no what I
really want you to do is copy these
put the plate into your safe deposit
and then you know buy this ledger
two weeks to some new version
and trust a million dollars on that
that's a leap of faith that
are never going to do that now
I'm an exception I'm over 50
live and die that way so I understand it
you know I'm the you know I'm not
of that kind of people will ever do that
now you have the ETF where
no seed phrases not only there's
no metal plates or multi-sig
or any of that stuff right
my you know Charles Schwab
account along with all my other
tax time I just hand the whole thing
over to my accountant and there's no special
account no problem I don't have to do some
inheritance planning and I get
one for one with Bitcoin so
and that's really the only thing I care about
this asset that's the only thing I care
there's all this other aspect
all the stuff that you guys are doing with
ICP and everything right there's
plenty of other things that are interesting
and great and the network and
but bear in mind that does not interest
is holding this in their IRA one bit
and that's kind of most money
you know the most money is not
moving around in these kind of
self hosted wallets I mean
there is a large amount of Bitcoin
and so on that's in there just from historical
does not want to be in a self
your experience or your gut feeling
interested in Bitcoin I guess
I'm trying to dive deeper into like
Bitcoin or cryptocurrency as
the innovation side so you know if
it's a theory on the ability to deploy smart contracts
and have interesting software
or is it more just that they see
currency they're worried about
like fiat currency you know debasement
or is it even a third thing of
just hey you know what this is very speculative
I don't really know what's going to happen but I just want a piece
of the action and so I'm going to put a small
percentage in like do you have a feeling
of why people are buying ETFs
okay so why do people buy
I mean I think there are probably 10,000 ETFs
buying it I guarantee you they don't
know which stocks are in the
India index they have no idea
right they just sort of have
a vague idea that India might be a good
place to invest and they like
fund has done pretty well over the last
two years that's that's about that's
about the extent of the knowledge
like they read the white paper
or they you know none of that
not they're not not only they haven't
read the white paper they're totally uninterested
in reading the white paper they will never read
what they are interested in is
an asset that went up 160%
last year that's the only thing they're interested
in right yeah and they've heard
the brand name and so they like
Bitcoin that it's kind of
like the new bitwise commercial right
it's the guy saying you know what's
interesting Bitcoin right
and they're like huh okay Bitcoin's
interesting great let's see it went
up a lot the fund that owns
went up a lot I trust BlackRock
great let me put some money in that
could be the same thing right it could be
yeah I heard about that one my
very technical I don't want to get into the details
worth of that Ethereum thing it looks
promising that's about it
okay yeah no that I mean that makes
complete sense and it's a different use case
a different target audience that
the ETFs will appeal to then
then maybe what most of the people on the
space would would you know
from their own perspective I wonder
so one of the things that I've been interested
in learning more about is when
I think about you know you have a share like
I bit I go on I buy one share
of I bit I've obviously bought
that from somebody else who previously
owned that share of I bit
but how does how does that buying
demand for the selling demand
underlying Bitcoin like what are the mechanics
there that result in spot Bitcoin
getting purchased at somewhere
is it like an end of the day
I don't know how do they figure out
how much more Bitcoin to buy and to hold
of all it's very confusing
most people have got it completely wrong
okay and that was something that
was very clear to me when
that most people have no understanding
of these ETFs so first of all
how how are these shares created well
two ways they can either be created in
what's called a cash create
or they can be created with an in kind
create right now the best way to do
this is with an in kind create
here I'm going to send you let's just
the equivalent of one Bitcoin
a thousand shares of I bit
that's the easiest way to do it now the
they said we don't want people sending around
it's for a bunch of reasons
I won't get into it why they
what they did settle on is a cash
create and there are plenty of these
cash create ETFs out there too
and the cash create works like this
I would like to create an
so you sent let's just say
deposit this hundred thousand dollars
and the hundred thousand dollars
or the million dollars is used
at the net asset value of
that day right so there's a net
asset value of the day that's computed
computed as of in the case of
eastern standard time they say the net asset
means you can send money into the fund
and you can send whatever
cash you want right but you
send the cash first the net asset values
get the shares you know exactly how many
shares you are going to get now
BlackRock has another day
in which to buy the Bitcoin
right so they are basically saying
okay we got this cash we are now
it instantaneously we are going to
and by the end of the day
we will have deployed all this
batch of people creating the cash
are going to look at NASA value
Bitcoin the net asset value
so that is how the creation is done
than this because there is continuous
between the share price and
so if there is too many people buying
Bitcoin but if they don't have the ETF
how do they do it? Well they borrow
the ETF from another market maker
and so now they have locked in the
difference and they can buy Bitcoin
they can buy Bitcoin futures
there is a lot of ways they can get the
but they can arbitrage this
continuously all day long
and then at the end of the day
they can kind of close out their positions
they really need to understand this mechanism
but basically the mechanism
which in this case is Bitcoin
it keeps them very very much in line
they are not perfectly in line
there is a little bit of friction
there are things that can go a little bit wrong
and they can go more wrong initially
they just get bigger and bigger
and as they get really big
it is not going to impact things that much
or $20 billion in the case of the
whatever buying comes into the grayscale ETF
it is not going to matter
that actually makes a lot of sense
so it sounds like once a day
so there is two markets more or less
there is the actual trading
of the shares so I buy one
and then the second market is
or I guess where the arbitrage
that is only the authorized participants
from somebody else who created the
that ETF has been previously
when you are buying an ETF
you know that the cash has
either been deposited and converted
and then there is that one day's
worth of cash that might not have bought
but more or less you know that
for the cash so it is not
really possible to create paper
Bitcoin if that makes any sense
and then it also sounds like the price of Bitcoin
if not real time certainly
on a very short time frame
these two prices are going to be
for something like iBit they are going to be within
so these authorized participants
Jane Street and Goldman Sachs
efficiencies of two basis
points you know no problem
if the thing is deviating
gotcha yep they are going to do that
I want to talk about Grayscale as well
because I have seen a lot of talk of
essentially I don't want to say
blaming Grayscale but the fact
that Bitcoins price has not
the ETF was approved I have seen people
Grayscale their customers are
either selling their Bitcoin for fiat
selling it so they can buy one of the other
ETFs can you kind of walk us through
what's going on there? Yeah okay so
much more complicated right because
been around now for I think six years
it's had a very long history
and not a particularly good history
really right so you know it was
to people who were arbitraging
it in the very first period in
which it traded at a premium
I may be going into a little detail here but
in any case it started by
trading into a premium right
to Bitcoin and a substantial
one it was at one point about a 20%
premium if you bought if you bought
2020 you were buying Grayscale
at a premium because there was no
better way to get exposure
for example you wanted to get into
Bitcoin you bought Grayscale and
it traded at a premium it was a closed end fund
of three arrows collapsing
that premium went to a discount right
got trapped into Grayscale
bought Grayscale at a premium
and the thing went to a discount and even
when Bitcoin price went up
they were now underwater right
of last year that premium
extremely low discount right
and I'm one of them right
so I bought shares at Grayscale
Bitcoin was up one and a half times
I made four times my money on Grayscale
I mean I bought the thing at
at this kind of a discount
of natural flippers right because
part of the fact that you finally
because of the ETF conversion
can get your money out so for those
arbitrageurs they have an
incentive to sell there's other people
who have different incentives to sell
we don't know exactly how
much of this stuff has happened or
if it has even happened yet
bankruptcy estate holds a bunch
so they're incentivized sellers
and last there's a bunch of retail
people in tax advantage accounts
that even if they're in a
they're in profit on GBTC
of incentive and a lot of sell pressure
will continue a little bit longer
the big story here, the big story is
actually historically now
over the last week a greater
participants coming in and wanting
so that's neutralized the GBTC
but it's sort of neutralized
and people are like well so you're
telling me that all this is for nothing
you just got all this new demand
so that's what I'm looking
forward to. Yeah it definitely
is going to be like a short term
just again like you said flippers who got
in for the discount and now
you closed out that 40% discount
so now you've got some great gain.
They also have lost 10% of the
Right so there's only so much
Bitcoin that can go out of the fund until
and it's not going to zero
and they can still reduce the fees
but they're also not completely
suicidal. I think they're
very greedy people but they're
you know I think that they
if they lose half the fund
to a lower fee so they can
at least not lose the other half.
seem like their competitive advantage
is that they had a user base already
That user base may be in a lot of
profit and may not want to pay capital gains
at this time and therefore there's almost like
of their customers so why not monetize
correct. I mean the expression
is they're milking the cow and then they're
going to take the cow out and shoot it.
I've heard it say that it's basically
you know we have, is it 9 or 10
10 other ETFs other than GBTC
there's not going to be 10
that get equal, you know everyone gets their
10% of the pie and everyone's happy
dominant players. Does that create
a lot more advertising, a lot
push on this market to try to
as you know the Black Rocks
the ARCs try to become one of those
one, two, or three players?
the first thing to realize is this
battle is not for retail right now.
everybody in the Bitcoin side says okay great
I'm going to see more billboards saying buy Bitcoin
much more for an institutional audience
than for a retail audience
and this again is the structure
of the financial industry right?
and the advisors control the
wealth now that's no longer retail
there's 600,000 financial
those advisors have their own
BlackRock you know is another one
and Vanguard's another one right? And
they're basic but Vanguard doesn't do
special sort of attention.
They are not going to just be looking at a billboard
ad right? They're going to be
marketing materials that are
advisor right? They're going to be doing meetings
in person meetings and so on.
So I think that the kind of
stuff you're going to see more
that kind of marketing. It's
marketing to intermediaries
and not marketing to the end user
marketing is price right?
the only marketing you're ever going to
Well that's been its marketing
years right? And it will remain
is this is kind of the scenario
there will be buying from Wall Street
right? Why? Because it's now
loaf of bread on the shelves of the supermarket
some shoppers are going to come around and
take it now from the shelf right?
You know don't underestimate
the value of distribution. Distribution
in the supermarket. It's on the shelf
and people can buy it. Now
do they want to buy it? Well
they want a little bit of it. They'll take a little bit
they'll take a taste of it right?
But the minute it gets to
all time highs and they're seeing about
it on CNBC when they wake up in the morning
that's when they tell their financial
advisor hey can you get me a little bit more
once we get to like all time
highs right? So I think it's
going to be you know it's a little bit of a slog
getting to the all time high. We've got you know we've
got a 50% to go from here
once we get to that point
that's when Wall Street's
going to get very interested in this asset
couldn't invest right? Or they
had to go through grayscale or
micro strategies or some other
thing that didn't really fit that
wasn't part of the wealth management
channel and all that right?
This time around it'll be BlackRock
now these guys can come in and I think this is
going to act like turbo booster right?
It's going to be like have you ever seen the movie
So you know they're already passing
the guy and they're just to like
they push the nitro and they just go
that's kind of what I expect to happen
right? Everybody on the Bitcoin side is going to be like
well it's getting expensive it's at
100,000 and everybody on Wall Street's going to wake
up and go wow this thing's not actually
dead let me buy in right?
So you know their perspective
from our perspective right? Because we've been
watching this stuff for so long and you know
it's like okay there's going to be another rug
blah blah blah but their perspective
is completely different you know? They're not
particularly even focused on Bitcoin
and they don't really care
if some ad comes out right now
they're going to be very focused on when it hits
an all time high right? That's
when they're all going to be like
What I love about that is
in crypto we're used to being
degens it's the complete opposite where
as things get more expensive
there's more demand for that thing
and what you're saying is
Wall Street's no different so
it's just a human nature thing.
I'll tell you they're a little different. I'll tell you because
I posted one thing and it irritated a lot
of Bitcoiners right? But I said
you guys are always bragging about your diamond
hands and everything right?
But I said you know the real diamond hands
are Wall Streeters right? Because what
do they do? They have index funds right?
You know people bought the Vanguard
index fund haven't sold in 30 years right?
they buy homes they didn't
you know they're all like well my
dad bought this house and he bought
it in the 70s for like 20 grand
You know the boomer generation
the best investors because
closet indexers all of them now right?
They're exactly the opposite of
these degens who are like
you know an example is I sort of
made fun of on my Twitter feed
Arthur Hayes is a funny guy
I enjoy his tweets you know
but you know he's a total degen right?
He's like Bitcoin feels heavy
Bitcoin now it's great go yelling
you know like my point is
and the average index person
barely understands where the
they just open their brokers
accounts every month and they're like
Bitcoin is going to get introduced into these
portfolios is going to be
you know we think you should get
should be in Bitcoin right?
you have even the peak of
that'll be 5% and that'll be
But even if you're in 5% and Bitcoin
well great you just drop 1%
on your portfolio you know
it's not going to ruin your golf game
and actually anyone who has a 401k
and you think about how often you're
those are the true diamond handers right?
You set it and you forget it
and you wait 30-40 years and then you
In terms of so you mentioned microstrategy
you know I spent the last bull market
gave you exposure to Bitcoin but
it wasn't you know it was secondary right?
Or in case of microstrategies
the entire enterprise value was
what they were holding in their treasury but
all of those products probably
got a benefit from the bull market
and I'm guessing that was just because
basically get exposure to the bull
I'm wondering if the ETF changes that
so these are now so now those companies
will actually be valued at you know
some sort of like discount
model or something like that
and less of the speculative
I just want to get exposure to Bitcoin.
two things are very different right?
at MSTR there's a little bit of
that's happened with Michael Saylor at
this point right? Because he's just
such a voice in Bitcoin right?
He's been such a voice over the last
it's just such a meme at this point that
I think a lot of people are investing
in him just like they would invest in Apple
because they want exposure to Steve Jobs right?
I think they should not do that right?
I think I like Michael Saylor but
anything in his ETF which I think
point right? And I've made
Twitter but you know marathon
is a different and these miners
general a bad way to invest
But I understand that you know I understand
the excitement of you know even
more volatility than Bitcoin
fresh on all these miners and I think
the people just adding it to their portfolios
are much going to prefer the straight
so I do think it's going to
down on the premium and it has right?
I mean these miners have gotten slammed
not financial advice because they could go
I've done a tiny bit of Bitcoin mining
sort of like going to the dentist
it's just about as much fun
I'm going to stick to just pure
for anybody new coming into this
highly advise them to just get the ETF
as opposed to try to do self custody
for all the reasons I mentioned
right? I mean when I say new
in Argentina you're in Lebanon
and transactions and stuff like that
when we could talk about ordinals
and other things like that
and peer to peer payments using
Bitcoin and all that stuff
use case it's the more the usage
Right yeah no that's actually a good
I mean within Bitcoin right now
the halving which I would love to talk to you about
but before that we have ETFs
and we have really what you'd call
the Bitcoin economy which is
kind of took on it took a step
has been you know all along
Bitcoin's kind of taken a step that direction
in terms of the context of the
ETF do you see these as basically
just two different tracks
for Bitcoin and there's not really
one doesn't impact the other or are there
and for the benefit or for the
more interested in self custody
and in the potential uses
I've sort of gotten a little bit of trouble
among maxis for saying this because I'm pro
own the Bitcoin let's say you start
out and your first thing is you buy the Fidelity
Bitcoin ETF right like my
my wife just bought the Fidelity
she's a no was a no-coiner
she now you know now is a
she's a multi-coiner actually
but you know her coins are Fidelity
now once you start that route
right that's the good that's a great place to start
right because now you start caring about
you know it's sort of like you start
watching it every day you start caring about it
and you start getting curious
if somebody says well you already
Bitcoin maybe you should put
a thousand dollars worth of Bitcoin into one of these
I think that's a lot easier
you know at that point for that person to say
okay I'm going to go and get
the self-custody Bitcoin I'm going to go
I'm going to make that step right
I'm not going to view it as
my investment portfolio I'm going to view
transaction portfolio right my
and I think people will do
that right and then they're going to start saying
they're going to find a friend who
you know they need to pay and they're going to be like
is it okay if I pay you some Bitcoin
the person will be like yeah sure you know here's my wallet
address you know you have lightning here
here's lightning me you know
for the transaction economy of
ordinals are another you know clear
use case right in terms of
if you look at the total number of transactions
and you look at all the stuff to know
on the Bitcoin blockchain right
this number was around 300
thousand so you know the price of Bitcoin's
gone up but the number of transactions
you have did not really go up
the number of transactions
ordinals or minting ordinals
you know and you can argue
uses of cash and you know
I don't even want to weigh in on that because
and sell it to somebody I don't know
I don't care you know what I mean this is like
pointless too you know what I mean
Andy Warhol is not that great
500 different versions of
five million dollars each right now
actually does tend to work
and you know there's all these other tokens
again I don't think you need to pass a judgment
the only thing you need to recognize is
they're definitely being used
of putting data on Bitcoin is definitely
people have found they're
very interested in doing that
they're very you know it's something
you can't debate is there
a use case clearly there is
because it's half of the Bitcoin transactions
it doesn't appear to be going away
I think that you know for this reason
there are now a bunch of stuff that's
happening on Bitcoin that make it interesting
and I think that's going to
and for that reason I think
you know this is not going to be the way people
contrary to what somebody like Oody might
think right I think they're going to
that's how they're going to discover it
there's so much easier to do
worth of Bitcoin in your 401k
and then it is to buy $5,000
I just think that's the way
but I think it is net, net, net
this is going to drive price higher
and price number go up equals
it's all good for the thing
that only exists because that exists
so if self custody didn't exist
there would really be no need for an ETF
it would be somewhat like
the gold actually never moves from the vaults
right the only thing that trades is the GLD
yeah you're bringing up, that's the great framing
the way that these two things interact
1% or 5% of the population
that has an interest in it
to maybe taking it to 40,
50% and then on the other
side of that at the same time that that
you now have these layer 2s
and these side chains that are making Bitcoin
it more use cases as well
as improving the user experience
because that's I mean let's be honest
the user experience is not great and
so probably very early look
there's all this stuff very early right
I'm confident that eventually
for these things it will get resolved
there will be solutions to all these problems
and there's plenty of different
at some point this stuff becomes
more pedestrian and becomes more
but it's going to get more use
the next version of digital gold
I think that's a thesis that
stockholder, anybody with a broker's
maybe 40% have a broker's
majority of it is controlled by
we're not living in a fair world here
where does that 10% put their money
actually that's a good point from the other side
that 10% puts their money into a Bitcoin
ETF, they like what they see
number go up to more of like what is this
technology and then that's when they might start
thinking maybe I should invest in
leveraging the Bitcoin network to
different cryptocurrencies
I just think that most of these
people are just looking at
they're very conservative
50 years to get to that point
there's not going to be more than
in Bitcoin infrastructure
in any big way I don't think
I think when you're talking about
or building all these things
it's a specialty, it's a very
Wall Street that's going to fund this stuff
it's going to be people like
it's going to be people like
that's kind of the way the
VC thing worked in the beginning
how was Sequoia Capital created?
Well it was created by people who
had made money at Fairchild Semiconductor
I'm going to invest in a bunch of these other
let me invest in this little thing called Intel
path of how this stuff grows
it sort of grows from the inside
look I definitely think that we're
going to be in a multi-chain world kind of
but I think we're in a multi-chain world
with Bitcoin as I think the
going to be the numeraire
it's going to be the ultimate
how much Bitcoin is this?
it's not going to be how much
I think we're going to start thinking as a
Bitcoin's going to be the ruler for everything
whether it's a wrapped Bitcoin
Bitcoin that's stored in a lightning channel
I think we're going to move away from
what's the dollar value of that to
what's the Bitcoin value of that?
How many Bitcoin are in there?
and that's why I'm very very bullish on
economic implications of this
because I do think we're moving away to this
standard but I think that there's room
for all these other chains
notion of Bitcoin in them
you're preaching to the choir here
I know within the internet computer world
Bitcoin light node running on its
protocol and that basically just
gives developers an opportunity to
write smart contracts that interact
directly with Bitcoin. Well I think that's
that is the correct way to think
about this stuff, right? I think
trying to fight Bitcoin and sort of
say we're better than Bitcoin
you're never going to be better than
of view of a reserve currency. Nobody
will ever achieve that, right?
Hoskinson will disagree with
me, you know what I mean?
Vitalik will disagree with me
but I can tell you they're wrong
they're never going to compete, right?
you're blue in the face that Ethereum is
moment in time that this thing was created
you know I've met a lot of
very smart people in my life, right?
But if I had to sort of say
how smart was Satoshi, how unique
I would say it's not a one
in a million person smart
it's one in a billion person smart
like I would say when I was
on paper I was the smartest guy there
right? I mean two courses were
taught on my thesis there
but comparing myself to Satoshi
you know an insect to a human
being, you know what I mean?
you know the intellectual
vision of what he did and what he's
next level, right? It's just
I go back to people like Adam Back who are
you know super technical, right?
And they're like, you know
I remember reading this thing of Adam Back
he's like, or I think he was
and he's like, you know when Bitcoin
came out I sort of spent two months just
trying to improve it. Then he realized
that it couldn't be improved
you know? And it's sort of
like, it's sort of almost
canonical like it's almost like
solved the problem, right?
it doesn't mean that there's not other things
that can be built, you know
smart contracts and so on
but like that particular problem
trustless value that could
dollar, the yen and the euro
solved by Bitcoin, right?
And that's a sort of like
you're not going to have another one of those, right?
It's not going to happen, right? So
I kind of feel, you know, almost a
religious kind of feeling when I see this
because I do think it's like
you know, it's like one of the great
achievements. It's going to go down
as one of the great achievements of human
Sailor says, fire electricity
Bitcoin, but I would say it differently
10,000 years ago when we couldn't
speak to each other, right?
We'd just grunt and maybe draw on some
You know, that was 10,000 years
years ago when Pythagoras realized
Like, that was the birth of mathematics, right?
Like, I mean people realize
wait, there's this thing out there
that's not based on anything
it exists in some sense, right?
And I think Bitcoin's like that
I think it's sort of like
it's an illusion, but it's not
an illusion. It ties to the real world
and you know, the more you
study it, the more you realize it is
you realize it's just better than anything
else out there, right? From the point
of view of just providing this yard stick,
long story short, I do think that
for the next hundred years,
you know? And everything else
itself around that, you know? I think
the smart ones will build itself around
tightly as they can in their
protocol level, but in the
of all this stuff, right?
And if you get that really
tight connection with Bitcoin
I think that's when you can really
do great. You know, I think that there's
a lot of stuff that can be built
and will be built for that.
And, you know, Ordinals is just one area
but very interesting right
now, you know? There's a bunch of other
stuff. But, I mean, just peer to peer
payments, you know? Making
versions of lightning is sort
of very deficient in my view, right?
At the current stage, right?
good ways of just zapping people
for coffee at Starbucks, you know?
there yet, right? I mean, I'm not whipping
of Satoshi, which no longer even works
of apps and everything. I just think it's super
needs to be integrated really well with Bitcoin.
what's interesting in crypto right now.
the way you said that. I'll give a quick
plug and just say if you're a developer
who's interested in building a Bitcoin app,
the internet computer is a full-stack
I said, we have a Bitcoin node actually running
on the protocol so you can write... Maybe you can
I don't even know the name
that's sort of the ICP-wrapped
how do you do the wrapping, the
unwrapping? How long does it take?
What's the security model?
I'd love to learn more about that.
I think other people would be too.
a lot of new faces on this
space. So the first thing to
understand is it's not just the financial
side like you wrap a Bitcoin
and now you have it on a smart contract.
Bitcoin node running on the protocol
so it can read the Bitcoin state so
internet computer you can deploy an app that can
know from reading the Bitcoin
state exactly what the wallet balances
are, what the UTXO state is.
And then the flip side of that
sharded keys or shared keys
so essentially the way that it works is it can create a Bitcoin
address and then it takes
sends them across 40 different nodes
it then shuffles those nodes periodically
so that there's an added layer of security
and then the only way to reassemble that is
using the smart contract that created the wallet
basically reassemble the private key
and sign a Bitcoin transaction on behalf
So high level, the idea is you can
build any app that can interact
with Bitcoin but now you have a full stack
platform to build it with so you can program
in TypeScript, you can program in Rust
you can program in Python
extend, keep extending out the languages
to try to make it as web2 friendly as possible
the idea then is then so you can build
any kind of app, it doesn't have to even be a
wrapped Bitcoin app but there are wrapped
what you might call the same thing as a wrapped
computer and the way that does
the internet computer which is
smart contract owned by that DAO
Bitcoin coming in and the Bitcoin
going out so then you could have what we call
there's no third party, the third party
is just the protocol so ICP
one in between and people can then
way in a very decentralized manner
so any app can have those on and off
just protocol to protocol so
our goal is, is really just to again
of Bitcoin so that you can build
novel apps, deploy novel apps
now they're using it natively or whether they're
using the CKBTC, that's up to the developer
innovation around Bitcoin
from a technical standpoint
quite a while and I think he's
made the point that look, right
of soft work on Bitcoin with
some covenants or whatever
it also is kind of science fiction
thinking that's going to happen in this year
And I also think that there's a lot
is another year before it becomes even usable
right? So there's a lot of usability
does it all fit in with the smart contracts
and everything else, right?
Which is kind of the stuff you're working on
that stuff's as important
they're going to trust small amounts
long term investment money
that you're either going to put in cold storage
or you're going to have a custodian like
Coinbase use via your ETF
of what you guys are doing, there's a lot of different
of the best we can get to right now
Yeah, I mean I always like
to say holding native Bitcoin is always
the safest because then you're only trusting the
ICP and Bitcoin is probably the
second to just holding it native because then you're
only trusting ICP and Bitcoin
you don't need to have a third party
I would disagree, I would say the safest
reason I would say that is
I just have so much experience
watching people lose their keys
self custody that I think
and everything else but I think
for most people that's just not advisable
bad comment on my wife but
to my wife that she opens a multi-sake
up or down, she's not going to trade it
she's going to let it sit there for a while
and I think that's a perfect solution
as much as I like the Bitcoin
community and stuff, I'm out there
kind of recommending people that they
just put a little bit of money
into these ETFs and forget about it
that gets back to that user experience
specific expectation from using
user experience should work
the ETFs obviously get you there
because that's part of the user experience of the traditional
finance system to begin with
within the internet computer
our goal is obviously that
phenomenal user experiences
so one of the things we have is an identity solution
just basically ties to your hardware and your biometrics
so if you unlock your phone
with your fingerprint or with your face ID
that can then be how you access
your wallet on the internet
computer or how you access any app
so those kind of innovations
not just the internet computer
not just Bitcoin but where the industry needs to
go because you can't go from a web2 experience
really anything but degens to be interested
you have to rival the web2
experience in order for people to want to use
the apps built on cryptocurrency
the minute you're talking about
it's not just the user experience
it's just the process of getting value
and then moving it to one of these wallets
which is kind of the standard for Ethereum
even if the apps themselves are better
it's going to take a while for people
and I really feel comfortable with the rails
have done an okay job on this
I'd say better than most people
it's not a great experience
so it's not where it needs to be
enter in your social security number
that whole experience is sort of like
the best game in the world
the funnest, coolest game in the world
the best experience on the front end
you're not getting any users
and I think a lot of people don't understand this
long ago I had this wallet
I built the largest wallet on EOS
a long time ago called Lynx
it was a very fun wallet to use
and everybody used this app
a couple of these betting apps were running
you could bet the EOS and it was fun
it was completely addictive
and we had serious volume
the problem was people couldn't get the
currency in the first place
that's sort of the big problem
with using any of these cryptos
let's say more than $1,000
it's not a large amount of people
you get to that first $1,000
taking that and you're comparing it
to using an app like Instagram
where you sign up and you're using it
Tinder, Instagram, Twitter
you're up and running within 15 seconds
old enough to know and I know from you
giving your experience you probably remember these days
but when eBay first launched
it's hard to remember but you
used to have to mail a check
if you wanted to buy an item
so Fred if I wanted to buy a pair of
sneakers from you I would actually mail you
so that would take 3 days to get to you
you would cash that check and when you had
verified that you had the funds you would then
mail me the sneakers so it was like a 2 week
I did not know that but that's interesting
yeah so that was a user experience
but that was okay people were
again they weren't going to reach
you were never going to have a gig economy
based off of that you were never going to have Amazon
but it is today if we still only had
the ability to send checks over the mail
and I think that that's where we are at
within our industry is primarily
just you're still kind of sending these
checks if you're working with Bitcoin
6 transactions sometimes which could
take you, maybe it takes you 30 minutes
maybe it takes you 2 hours, either way the user
doesn't know when that transaction
and I don't know you can't compete
with the instantaneous aspect of
the internet experience now
with that kind of a model
with all these things you need network
it's hard to get a network effect
when the barriers to entry are this severe
I actually don't think the ETF fixes
in fact the ETF may make it more difficult
because it's very possible
that Warren and Gensler and
okay we've got this safe place
now that we've allowed that
let's crack down on these
Ethereum from Metamask back
you need to fill out form
require you getting a fingerprint
and going to an FBI office
attacking from a regulatory
or any crypto the network
but could it happen? Yeah it could
you touched on how this could
or 40% of the American population
but then the flip side of that is it also might
avenues or new ways to put
call legacy crypto at this point
I almost feel like we have a legacy crypto now
like with the focus on self-custody
is we're opening up crypto to rich
I don't think this is necessarily
opening up to the mass market
but it's going to be opening it up to
people with a million dollar
the real degen mass market
they already own GBTC or MSTR
the construction worker who doesn't
the ETF doesn't really help him at all
so I don't think it's a democratic thing
I think it's an elitist thing
a portfolio of index funds
great for the price of Bitcoin
and that's the other thing
that I think it's going to benefit but
I don't think this ETF is going to
it's not going to intersect
I know I'm going to wrap up soon
but I want to make sure we have time
I want to talk about the halving
that would obviously have been the big story
had the ETFs not gotten approved
I want to know within the context of the ETFs
is the halving about the same
the bigger story, is there any kind of crossplay
I would say my view of this
is Adam Back tweeted this and I
retweeted it and I highlighted it in a word
flows of the ETF are 30 times
who I consider one of the smartest guys
out there and who's referenced
this Satoshi White paper and he's
the impact of the halving
to some extent psychological
the mathematical value of it
into BlackRock and Fidelity
assume that doesn't exist
my point is we're definitely
pressure coming from ETFs
now I do think it'll have an impact
Twitter it's like Michael Douglas says in the movie
Wall Street he's looking at this painting
Bud Fox and he goes see that painting
I paid 50,000 for it now it's worth
the illusion has become real
Bitcoin is like it's an illusion
and the halvening is an illusion too
but because everybody thinks about it
because it's in the mythology
inner subconscious and stuff
I think that plays more of an impact
than the actual number of Bitcoin
that's going to be mathematically
subtracted from the supply
I think this is going to be the last cycle
really where this thing makes any
Bitcoin to the mass market
to Wall Street is the bigger
it's not an immediate thing
and you put it on the shelf at Whole Foods
day one, it's not going to sell out
I have a friend who is one of the
founder, the founder of Zevia
because eventually people recognize
the value of Zevia and they see it in
Whole Foods and they buy it
I definitely think this is a longer term
thing, it's going to be the story
of the next four years is Wall Street
adopting the CTF, that's the
story, nothing else matters
it's that simple, nothing else matters
the halving doesn't really matter
nothing matters, the buying
the selling, Sandbank and Freed, Mt. Gox, none
of that matters, the only one thing
and these guys pushing it
is going to make more of an
Fred Kruger could do, or anybody could do
this is not a technology thing, this is
an adoption by Wall Street
and we're just here playing it
we're just here, it's a Wall Street
world, and we're just living in
who the king is, the king is Larry Fink
man for one day, and I can
this is a force, this is a force of
poo poo BlackRock all you want
and this is the Borg, and
resistance is utterly futile
so I'm going to close with that
Well said, there's a story to be told
there about how you worked for him for one day
Very quick, so I'll tell you what it was
I was at Solomon Brothers, and
friend, I didn't actually
know him, but same vintage as me
with his Arb Desk at the time
but I was working for this guy
Moz, sort of in the quant
area, connected to an area
being a quant, and I really
wanted to trade, and then BlackRock said
so I accepted, I went to visit Larry Fink
on Park Avenue in the Bear Service Building
worked there for a day, I came back
handed in my resignation to John
Merriweather, and he said, resignation
refused, you're coming with me, we're going to go out
you're coming back to Solomon, and basically
said, what do you want to do
Fred, and I was like, I want to trade
Arb, and he's like, done, you're done
you want to stay in London, you want to be in New York
whatever you want to do, you're in
so I was just like, okay, this is
the most important guy in the firm
and he's kind of opening up the
you know, the red carpet for me
and I came and I told Larry Fink
the next day, I said, look, sorry
I'm quitting, and Larry's like
what? He goes, this is going to be
devastating for our firm, we are a
my career would have been if I
just kind of an amusing thing
you stick around long enough, you get these
if you're in the right time
that's my story of having worked for
that's an awesome story, and I love that you can just say
you stuck it to the largest asset
awesome Fred, I really do appreciate your time
this was an awesome conversation
I'd say I'd love to do it again if you're up
and you know, we'll catch you
we'll see how everything goes
thanks a lot Kyle for having me
awesome, thank you Fred, everyone
listening, give Fred a follow
and we'll hopefully talk with you later