WBD711 Audio Transcription
Macroeconomics & On-Chain Data with Nik Bhatia & Willy Woo - WBD Live in Sydney
Release date: Monday 18th September
Note: the following is a transcription of my interview with Nik Bhatia & Willy Woo. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
On September 9th What Bitcoin Did hosted a live show in Sydney. In this second of two podcasts, the guests were the founder of The Bitcoin Layer & Author of Layered Money Nik Bhatia, & and Bitcoin analyst & partner at Crest Willy Woo. Across these interviews, we discussed various topics related to Bitcoin, including its Bitcoin's volatility, its potential as a global currency and the prospects for Bitcoin's global adoption. The show includes the Q&A from the event.
“We know from history that increased trade reduces the likelihood of armed conflict…so what if Bitcoin can contribute to world peace?”
— Nik Bhatia
Interview Transcription
Peter McCormack: Nik Bhatia is one of my oldest friends in Bitcoin. I first met you in Los Angeles pre-COVID, which feels like a long time ago. Was it 2018?
Nik Bhatia: 2019.
Peter McCormack: 2019, was it? We must have done six, seven interviews. I've watched your career completely change. You've gone from a guy I met at OpenNode to writing a book, developing a whole content business. You agreed to fly over from Los Angeles to come in to be part of this. Danny and I are honoured that you've made that journey. How are you, man?
Nik Bhatia: Doing great and really appreciate you guys flying me out. I've had a bunch of conversations with all the local Aussies today, and unfortunately it's a very short stay for me because I'm teaching on Tuesday night. So, came on Wednesday and back on Sunday.
Danny Knowles: We should get into that. So, you're teaching Bitcoin at USC now, right?
Nik Bhatia: That's correct.
Danny Knowles: So, when did that start?
Nik Bhatia: So, I started teaching at USC in 2019, that's the University of Southern California, and in 2019, I started to guest lecture for one of the tenured professors. I got an opportunity through a colleague and the fixed-income professor over there that taught the bond market, he had me come in and give a lecture. And then he sent me a message and he said, "I want you to come back and teach us something else", and a third time and a fourth time. And after the fifth time, he sent me a message and he said, "Hey, I'm trying to retire, I'm trying to go toward retirement and I would love to grandfather you my course, and you can teach the bond market to these students". And I accepted that offer and I was teaching the bond market for three, four years at USC without really having much interaction with the university, because I'm a working professional, I'm not a tenure-track professor, I'm not a Doctor of Finance or anything, and so just kind of on the outskirts.
Then the Dean of the business school came across Layered Money, my book, through one of the accounting professors at this at the University. And he and I had a call and he said, "I loved layered money and I would really like for you to teach it at USC, because we have a new Digital Assets initiative funded by the van Eck family. You guys might know VanEck through the ETFs. So, VanEck gave a $5 million-plus donation to the university and they had to start getting curriculum items within that umbrella. And so, my course is one of the first courses in the Digital Assets initiative at USC, and it's one of the first business school courses on Bitcoin in the country, because Bitcoin has been taught for a few years in the United States in a university setting, but it's from a computer science.
Danny Knowles: So, how are you actually teaching it; is it the economics of Bitcoin, or what exactly is the course?
Nik Bhatia: I start with the whitepaper, and then I go to explanations of how Bitcoin works technically. So, we basically start with explaining Bitcoin's blockchain and mining. We talked a lot about mining tonight. Mining and understanding the way in which we turn, as Dan said, electrons to a hard currency, that process is very technical. There is cryptography involved that previously, from my finance background, I didn't know. But when I was going down the Bitcoin rabbit hole, I remember the moment, the exact moment that I learned what a nonce is, and that moment -- I don't know why everyone is laughing.
Peter McCormack: Come on! You really don't know why people are laughing?
Nik Bhatia: No, I don't.
Peter McCormack: Okay, so...
Nik Bhatia: Did I miss a joke or something?
Peter McCormack: So, English is a language that we share and Australians share, but the word nonce has a second meaning maybe in Australia and --
Nik Bhatia: I need to know because I don't know what that means.
Peter McCormack: Hmm. This is a tricky one.
Nik Bhatia: Do you want to whisper it to me?
Peter McCormack: So, God, have you heard of Jimmy Savile? No. Who's an American version of that?
Danny Knowles: I don't want to go into this!
Peter McCormack: Weiner. You know the --
Nik Bhatia: Yes, I do. I do know who that is.
Peter McCormack: So a nonce obviously is a big, yeah, but we would also refer to Wiener as a nonce.
Nik Bhatia: Okay.
Peter McCormack: So, kind of a sexual predator.
Nik Bhatia: Okay, so let's start this again! So, when I was reading Andreas Antonopoulos' Mastering Bitcoin Volume 2, and he explained what a "number only used once" is, in the function of Bitcoin mining -- did I do that correctly?! Okay, the light bulb's just started to go off! That's because I understood decentralised network, I understood asymmetric cryptography, public private key pairs; these were concepts that, okay, I would watch a one-on-one video or you know read something and I would understand it, but I was still not understanding how, "What is this computational lottery that miners are entered in and how do they participate in it?"
Well, if you understand that they select a number only used once and they have to reselect it, or come up with a new one, trillions of times per second and that is how you engage in the Bitcoin Network, and you find a hash that's small enough, that's when I understood how secure the network was, because that's what secures the network is the hashes, the number of hashes, 51% or 49%. And so, when I teach my students Bitcoin, I have to start with that. So, I apologise, but I do go in and write the word "nonce" on the board.
Peter McCormack: Do you stand in front of it? Because maybe in future...!
Nik Bhatia: You see, nobody chuckles when I do this in the States!
Peter McCormack: If you have an English student, he's going to photograph that!
Nik Bhatia: We have a strong Asian contingent at USC because of the proximity to Asia of California, but we don't have a lot of European students at USC.
Peter McCormack: We've made 700 podcast episodes, and I've managed to keep a straight face for 700 podcasts every time that word has come up. We come to Australia, somebody says it, and there's a load of giggles in the background; fucking Aussies!
Nik Bhatia: And so, I knew that, okay, I'm going to teach Layered Money, right, the premise of the course, the Dean gave me the course to teach layered money. But before I get into the history of money, I have to teach them that the blockchain is a chain of blocks, so what is a block; how are they chained together? And we teach Bitcoin mechanics, Bitcoin mining. Then we get into Bitcoin versus crypto, because people come in thinking that crypto and Bitcoin are the same thing. They're not, so I teach that. Then we get into Bitcoin valuation, and that comes down to economics and it also comes down to contextualising the rest of the financial world for them to put Bitcoin in context.
Danny Knowles: So, I assume most people in here are probably Bitcoin only, there's probably some people in here that have other shitcoins, but maybe let's hear your take on why you should be Bitcoin only and why it's completely separate to the crypto industry.
Nik Bhatia: So, I don't give other people advice. What I can tell you is that I only have Bitcoin, I don't have anything else and I've never bought anything else. So, that's what I can share from my perspective.
Peter McCormack: So, you don't have the shitcoin right of passage?
Nik Bhatia: I don't.
Peter McCormack: You're pure, ready for our altar!
Nik Bhatia: That's not what they call it in masonry, but that's a different conversation!
Peter McCormack: Hold on, you're very honest with that, just be honest, hands up if you own a shitcoin. Okay.
Nik Bhatia: No, it is an interesting dynamic and an interesting conversation to have with the students, because I do this and I say, "How many of you guys own this and that?" and I even asked the class last week, because we got into Bitcoin versus crypto before it was meant to come up in the semester, but I asked them, I even said, "And I bet you some of you guys traded Shiba Inu" and 7 out of the 30 students raised their hand that night, so a lot. And I had asked the previous week, "How many of you in here have a Bitcoin physical device, like a hardware wallet", and two or three students. So, more students had traded Shiba Inu then had a Bitcoin hardware wallet in my class. So, that's just giving you a sense of when people come in, they think that maybe crypto and Bitcoin are the same thing.
The way that I present it to my students is, first of all you have to give them numbers, so you have to give them some context. So, Bitcoin is worth $500 billion. It reached $1 trillion in 2021. Ethereum is about half the size of Bitcoin is in market cap. And then when you go to the third, fourth and fifth place, what you basically see is a drop so far that you're talking about different assets, different asset types. At least I'm looking the other way --
Peter McCormack: And that's what they all say!
Nik Bhatia: -- and not pointing to myself. I really walked into a trap here!
Peter McCormack: You're lucky the hand is the arrow!
Nik Bhatia: You think you know English, and then...
Peter McCormack: By the way, I can just throw in a great example here. So, as some of you know, because I don't shut up about it, I've just been to Argentina and I went to an event at a crypto exchange. I was invited as a guest and everyone was there. And somebody there said, "We've got name tags, everyone just write your name on a piece of paper and stick it to yourself". And so there was a girl, she said, "I'll do yours", in a nice Argentinian accent, "What's your name?" I said, "Peter", so she wrote my name down, laughing away. And so she stuck it on me. And as I went round, as I met everybody, they were laughing at me. So, we'll carry on, I'll leave you all to google what Peter means in Argentinian. Carry on.
Nik Bhatia: Where were we, what were we talking about?
Peter McCormack: I'll tell you in five minutes once they've all started -- because they're Australian, they'll be giggling.
Nik Bhatia: But seriously, what were we talking about?!
Peter McCormack: Look, I have a question. So, this course, how optional is it? Is it a module they have to do as part of a course or is it optional, and you get some kind of indication of how interested they are?
Nik Bhatia: So, this is the second time I'm teaching it. So, from January to May was the first time I taught it of this year. So, it is still a brand-new class, essentially. It's still in the trial stage, from my perspective. The university wants it. The first time I offered it, or the university offered it, in January earlier this year, it was offered to the undergraduate students. That was my request, so I wanted to talk to the 20 year olds, not the 30 year olds yet. The 20 year olds, and there were 30-some spaces in the class, I only had 12 registrants. This semester, there were 37 spots and there were 3 waitlisted, so they bumped it to 40 for me. And then you get a few drops on that 30-something.
So, there's no way for me to know. It's not required, it's an elective, and there's no way for me to know how successful is this going to be long term. The reason that I'm doing it is because I think that teaching is part of what a good writer should do. So, the opportunity to teach at the University of Southern California, where I went to school, my father went to school, and my grandfather went to school in the 1950s, fell in love with Southern California and moved his whole family from India, pit-stopped in London for ten years because you couldn't get a visa, and then brought everyone to California in 1968, it's a big deal for me to be invited to teach at USC.
So, I'm going to continue teaching because I love the university and I do enjoy teaching the students, and I feel like it helps me hone the message.
Peter McCormack: There's another thing here though. A lot of us are always thinking about, "How do we get people into Bitcoin?" I think most of us know that the times where we have one-on-one sessions with a friend or a relative, that's the time where you get a chance to really orange pill somebody, you get to talk to them directly, meet them where they're at, answer their specific questions. It's hard to broadcast Bitcoin because there's so much to teach and learn. But that said, in an education department, where you're teaching in probably a room like this, 40 people, that kind of is like a one-on-40 where you get to do it and you're creating 40 new people who can go out and educate other people. And USC wants it, like with anything.
We've got 220 people bought tickets to this event in Australia. We all saw the Andreas videos where years ago, it was like ten people in a room. But if Andreas does a thing now, there'll be thousands there. These things are spreading, and so hopefully other universities will see what you're doing and they will also start teaching them.
Nik Bhatia: And when you talk about trying to orange pill your friends or your family, I stopped doing that a long time ago. Because the people that actually want to learn, they'll come to you. And I don't enjoy trying to force Bitcoin upon people that aren't ready to hear it. But every student in my class signed up for it. So, that's the person that I want to teach, who's actually interested in it.
Peter McCormack: Okay, so first interview, Checkmate, we asked him what Bitcoin means to him. I think it's a great -- I should really ask Dan and Rusty, but I'm going to ask you as well, because I always think it's an important question, because there are very loud narratives on Twitter that people have shouted different things, what they think the world should be and what they think Bitcoin is. But actually, there's lots of people and it means different things to them. So, you come with a whole different bunch of perspectives, things that you've done, you educate people. What does it mean to you?
Nik Bhatia: Yeah, Check said a few of the words that I would invoke as well. He mentioned the Cantillon effect. For those that aren't familiar with this term, it basically means that when money is created, there are segments of the economy or the society or the population, however you want to call it, there are segments that get access to that created money before others. That's not a level playing field. That dynamic, not only is it present, but it dominates the landscape of money. Central banks, banks, even government contracts, you could loop into all that. And so, if that's the way that the world is set up, then those that have the button or that are close to the button, they'll always win.
Now, if me, if my family were going to be around here for 100 years, is that the world that you want to be in; or do you want to have something that's a little bit, I hate the word fair, it's not about being fair, it is about access, equal access, and level playing field. And when I think about Bitcoin, Bitcoin is the first way that I actually see that it's possible, and that can only happen through decades of institutional change. And actually, see, the internet levelled the playing field so that people can do business with each other all around the world. That didn't used to be the case, but now it's the case. Bitcoin will allow people to transact all over the world when that never used to be the case, but it will and it is now. I mean, I only sold books to people tonight that had Bitcoin, because I don't have a credit card machine with me, because when I'm in the States and selling books, they pay me cash or there are seven apps that we use. And you guys don't have any of the same apps because it's a different rail, it's a different currency.
So, money isn't global, except for Bitcoin. And you talk about crypto too. There is no crypto that's global. Tether is probably the closest thing in terms of number of countries that it's used in. So, what does Bitcoin mean to me? Bitcoin means -- hope is a word that Check used. I do derive a lot of hope from Bitcoin, because I think it will make the world a better place. But I think it's going to take a long time, so that would be -- Rusty said, "Everyone else will hype up Bitcoin". I really want you guys to know that I think it's going to take a really long time. And by it, I mean Bitcoin spreading throughout the whole society and actually starting to affect the way that the planet operates. Because right now we're not really there yet. It's affecting some people in some countries in some ways, but it's not affecting the whole world yet. It could happen fast, I think it's going to happen slow, but it gives me more hope than anything else.
Peter McCormack: I don't think there's anything wrong with the word, fair. I think we live in an unfair world. To have something fair, I think it's okay, I'm okay with that word. Nik wrote a brilliant book called The Bitcoin Layer. If you haven't --
Nik Bhatia: It's called Layered Money.
Peter McCormack: Is it?
Nik Bhatia: My company is called The Bitcoin Layer.
Peter McCormack: Oh, that's not the worst mistake in the world, come on!
Nik Bhatia: But really, people call my company Layered Money, or they call my book the Bitcoin Layer. I did the layer thing on purpose so that you guys are all tricked that that's just my word.
Peter McCormack: Why didn't you name them the same thing? Like, our website isn't What Did Bitcoin!
Nik Bhatia: Actually, you don't even remember this, Pete, but I DM'd you book titles in late 2020, and when I pinged you Layered Money, you were like, "That's the one"! When he's bringing Willy Woo up on stage, I'm actually going to go find the DM and I'm going to read it to you guys.
Danny Knowles: I'm Pete's short-term memory, so this is all my fault!
Peter McCormack: He's actually Woo Willy on stage! So, it's the Bitcoin Layer or Layered Bitcoin. Okay, Nik wrote a fantastic book. If you haven't got it, please go buy it. But you've also launched a media company. Congratulations on that, it's been very successful.
Nik Bhatia: Thank you.
Peter McCormack: But what is the Bitcoin Layer? Describe the Bitcoin Layer, because with titles there is meaning, right?
Nik Bhatia: In the book Layered Money, what I present -- no, I wasn't actually trying to be funny there! In the book, Layered Money, I present Bitcoin as a first-layer asset. What I mean by that is that it doesn't derive from the balance sheet of a financial institution. Because Bitcoin is a first-layer asset, it cannot be compared to any sort of dollar instrument, because all dollar instruments are the liability of a financial institution. US Treasuries are the liability of the government; cash, paper money is the liability of the Fed; and your checking account is the liability of a commercial bank. So, there is no dollar that's a first-layer asset. So, comparing the dollar to Bitcoin is actually nonsensical using the Layered Money framework.
So, the Bitcoin Layer doesn't derive from the banking system in any way. And what I'm saying with the company named the Bitcoin Layer is that there's an asset called Bitcoin and it exists on its own layer. And when we talk about global macroeconomics and financial markets, we look at all these financial instruments and we do cover the markets, the bond market, interest rates, we talk about all of that stuff. But in the background, there is this first-layer asset called Bitcoin that ends up getting, or receiving, energy from those that are frustrated with the layered dollar system. And it's the outlet. Bitcoin is the exit; people call Bitcoin the exit. It is the exit from dollar liabilities.
Peter McCormack: One of the interesting things about when you make content is you learn about what people want to hear about. We know our show actually isn't primarily a Bitcoin show, it's actually become a macro show. We can make a Bitcoin show with very famous OG bitcoiner and maybe 50,000 people listen to it. We can make a macro show, 100,000 people listen to it. So, that dictates a little bit about what we do. From that, we've learned what people want to hear about. We do mix it up. In making your content, Layered Money, in making your content, your experience now, what have you experienced that people actually want to learn about?
Nik Bhatia: Yeah, it's interesting. You guys deal with this too. You have to make the content that you want, but you also have to sell, so you have to see. I have tried to take the positive reactions and I feed off of that. So, people appreciate the -- it's not even about interviews, because I don't do many. I do some and I enjoy that, but that's not what the readers and the viewers enjoy. They enjoy the analysis. So, when I write, I'm writing to give people my primary source. I'm not trying to adhere to any narrative that is out there. I'm trying to translate primary source data into insight. It's very similar to what Check was talking about with Glassnode. So, I come in and I look at interest rates, I look at markets, and I'm trying to translate that for people.
People ask me often, who do I read when it comes to macro researchers? I don't actually read other macro researchers, because I have had to trade a $25 billion USD Bond portfolio myself with a team, on behalf, as a fiduciary for clients. So, in that seat, you don't have time to pause to go read what someone else tells you you should do with the money. You have to buy bonds in 15 minutes. And so, you don't have time to make or to get the advice of others. So, when I write, I'm coming from that perspective, that you're not getting something that I went and read a bunch of research reports and this is what I think is happening. This is what I actually think is going on from the primary source data. And that's what I try to do.
Peter McCormack: So, we do want to do a Q&A at the end, because I think everyone's going to have some questions, but we haven't even got through a lot of questions I wanted to get to. So, we have about three minutes. So, could you, in that time, explain what's happening with interest rates, ETFs and the SEC, Bitcoin today versus where it's going, dollar versus Bitcoin and BRICS, what the bond market is telling us, how long the fiat Ponzi scheme will last, and how Bitcoin will fix society?
Nik Bhatia: Yeah, I can. Let's do one sentence each. I can do it.
Peter McCormack: All right, let's go!
Nik Bhatia: One at a time.
Peter McCormack: I love it! Okay. What's happening with interest rates?
Nik Bhatia: Interest rates are going to stay high and the Fed is going to be as stubborn as you could possibly imagine before they cut, because they're terrified of losing their reputation as an inflation fighter, which they've actually gained in the last year.
Peter McCormack: Really?
Nik Bhatia: Yeah they've raised rates 5.5%.
Peter McCormack: All right. What's going on with ETFs and the SEC; will we see one; is BlackRock going to get one; do we want one; is it bad or good for Bitcoin?
Nik Bhatia: They'll get one, I don't know when. It'll be, I would say within the next year they'll get it. It does matter because it does unlock demand that is not accessible, and the 401(k) branding of Bitcoin will increase people's comfort with it, and yeah, it does matter.
Peter McCormack: What is the challenge that we have with Bitcoin today versus where people argue what Bitcoin is and that differential?
Nik Bhatia: Bitcoin is not a magic bullet. And so, the fact that it's going to take many years to actually invade the day-to-day economy, I think there's a disconnect that people think that Bitcoin actually fixes things today. But Bitcoin doesn't fix anything global until enough people are involved with it. Right now it's more pocketed.
Danny Knowles: Can I jump in there? How does Bitcoin help fix society?
Nik Bhatia: I think Bitcoin, one of the things I'm writing about in my second book is that, we know from history that increased trade reduces the likelihood of armed conflict. That is a very intense relationship. So, what if Bitcoin can actually contribute to world peace? I'm not going out and making that claim, but I'm definitely proposing that question to you guys, what if Bitcoin can help a more peaceful society? That's an enormous promise. You asked what Bitcoin means to me, and I say hope, it's because of that. Can it really do that?
Peter McCormack: Do we need to worry about BRICS?
Nik Bhatia: No.
Peter McCormack: That was an easy one! What is the bond market telling us?
Nik Bhatia: The Bond market is telling us that the Fed is not rushing to cut, that the Fed is going to be stubborn in their reputation preservation.
Peter McCormack: Is fiat a Ponzi; will it die, and when?
Nik Bhatia: Is fiat a Ponzi? It is a Ponzi, but will it die? I don't think that it's heading for a death, because governments will always need tools. A government currency is a tool a government can use. I think they'll always be able to have a currency. What value will it have is anybody's guess, but they'll always have them.
Peter McCormack: Nik, that was brilliant, a brilliant way to end it, also hilarious, bit of a comedy show! Thank you, thanks to Nik. We're going to get Willy up now.
Nik Bhatia: Number only used once. I'll remember that.
Peter McCormack: A number only used once. Willy Woo, come on!
Willy Woo: Hello, is it working? Now I want to know the answer. What is the answer?
Peter McCormack: Blowjob.
Willy Woo: Oh, it's like pajero.
Peter McCormack: Yeah, I was literally walking around and everyone was laughing at me. Yeah, hilarious. Woody, how are you man? First time I've seen you since Lugano?
Willy Woo: Yeah, it's been busy. Took a year off the scene.
Peter McCormack: Yeah how was that for you? Would you recommend it?
Willy Woo: Oh, well, I had a baby, and we travelled with her around the world, and that was very, very tiring for a 1-year-old. But it's been great. It's great, because you do it in a bear market, and there's not much to do in a bear market other than do other things.
Peter McCormack: So, we used to make a regular show, you and I.
Willy Woo: That's right.
Peter McCormack: And then we started making shows in person, and getting together would have been quite difficult. So, it's great to see you again and talk to you. I always like talking to you.
Willy Woo: I flew ten hours to see you!
Peter McCormack: Thank you, man, I flew longer.
Willy Woo: Yeah, you flew longer!
Peter McCormack: But it's great to see you again, always like talking to you. You are one of the most experienced people I know in terms of understanding market and trading and Bitcoin. You've seen it all. Again, I'm just going to ask that same question. I've been asking everyone, what does Bitcoin mean to you?
Willy Woo: It's changed a lot, you know, because I'm a tech guy, and when I got into it, it was this new thing, a new, not well-understood technology. So, that was really interesting to me, to be able to throw myself into something that wasn't well known, and try to make sense of it. And I think in the early days it was very much about, wow, this is something that's very, very disruptive and can change the world. And to a big degree, that's what I still see it as, is we are moving into a digital age. More and more of our lives are enveloped by what's online and digital. And it sounds extreme, but I'm really believing that nation states will not survive. They'll be around, but they won't be very meaningful in the next century ahead.
If you think about what happened in the past, we had empires and kingdoms and royalty, and not a lot of royalty make decisions on how the world works, because we had the Industrial Revolution and, wow, that changed everything. World trade, globalisation, democracies came up. Very, very nimble compared to an empire. And so, I see now you've got this internet, and we're talking about the internet state and this complexity which goes beyond national boundaries, beyond geographic borders, and for the first time we've got this asset that lives digitally, native to the internet. It's scarce. We never figured out how to make something scarce on the internet. Give me a jpeg, I can just print it off, right? And so, I think that is probably the main driver, if I think about it from a tech angle. That hasn't changed.
I've done a lot of learning about finance. Bitcoin educates. You see a whole world built around it. But I think the main thing is my roots as a tech guy going, "We're moving into this future and this is the first invention of a digital scarcity", and that still holds. I think Andreas Antonopoulos was the first guy that mentioned that and I was like, wow, that's stuck in my head ever since.
Peter McCormack: And so, I also know that a lot of people here will know you as a trader, and a lot of people in here will have very deep convictions about what Bitcoin is, what it means to them, the important role it has in human rights, but they'll also want to know, "When moon, Willy?"
Willy Woo: In moon all the time, just in different scales, right?
Peter McCormack: So, if you look at market structures, market cycles, like you have been here, you have a lot of experience, based on everything you've seen, you've experienced before, where would you say we are now?
Willy Woo: Yeah, you might not want to hear this really, as Bitcoiners. You know, there's a measure in the finance world called Sharpe ratio, and that really just is measuring risk, like how volatile are your returns over time? You're looking at your returns, and we love it, it moons, it's crazy, we're going to beat every asset, but how much risk are you taking in the volatility of your returns? And Bitcoin was killing it, it beat every other asset on the planet. It was like three to four; that's very high. Now, it's dropped down to around two-ish, something like that. But the thing is, it went like this, and then it went step change, like this. And where we are right now is actually converging onto every other macro asset on the planet, similar to equities, similar to gold, bonds, emerging currencies. This is like all macro assets trade within a range, and Bitcoin just entered that and it dropped. And it was a step change.
That happened in 2018, 2019. The question is, what happened in 2018, 2019? It was the financialisation of Bitcoin. We had the perpetual swap, we had calendar futures, paperisation of Bitcoin. Say if I'm the US Government, and I can print, you know, I've got $20 trillion of capital out there, M2 money supply, you can make policy, you can print more money, you can incentivise particular markets. And the reality is, Bitcoin's maybe a $0.5 trillion asset, there's 21 million Bitcoins associated with that. If I print $1 trillion, I can sell $42 trillion Bitcoin. So, this is the issue right now is we've got paperisation of these markets, and Bitcoin's traded like any other macro asset on the planet. I think that's a big worry for me.
We're talking about a spot ETF. Okay, we can buy up to 21 million. Well actually, 1 million probably, because that's what's available. But in the meantime, you've got these paper markets that have huge ability to control the market.
Peter McCormack: Explain how that's happened then. So, are you saying that is bad for you as a trader, or do you think that is actually bad for the asset itself?
Willy Woo: Well, Bitcoin's hope, right? How do you create hope for the world? When the world economy is $100 trillion, and this asset is $0.5 trillion, say we've got El Salvador wanting to adopt it as a nation state currency. If we want more people to exit the system, this pool of capital is not big enough for it to be serving larger countries. So, it does need to expand, Bitcoin needs to go to the moon. We like it because we hold it, but actually for the greater good, we need this asset to get bigger. And now we've got a mechanism, not we, but the system that we're in has a mechanism to tame that down, because you're competing like, "I'm backing the US dollar because I'm the US Government", or I don't know, whoever it is that has an incentive for whatever it is; if it's the US dollars, I want the US dollars to grow for whatever reason, and I want Bitcoin to come down.
The IMF does not like El Salvador going on the Bitcoin standard because it's against their incentives. So, it's really important Bitcoin gets bigger, and right now we've got a lot of headwinds, and the spot ETF is great. Maybe we can unlock demand from very liquid markets, from a lot of people wanting to buy into it with some amount of capital, but there's a systemic problem right now because there's a lot of headwinds.
Danny Knowles: So, we're going into the halving in, I don't know, eight months, whatever it is, April next year, typically a very bullish event, with awful economic environment. What do you think wins? Is it the supply getting cut in half, or is it macro?
Willy Woo: Oh, yeah, I think it's neither one nor the other, right? It's like, if you come in as an analytical viewpoint, you're going to go, what are the inputs into this box, right? And it used to be halving because you've got this demand coming in, its adoption S-curve. People are coming in at such a scale that it's pushing it up. And we're at a point where maybe in the Western world, I think it's around 15% to 20% of investors may have exposure, and then it goes like that, to capture this 100%, this is 0%, you're doing this S-curve. And there's that equation coming in, and then you've got this halving that happens, which is like the miners are selling, mining, sell, sell, because this inflation is dumping on the market. And then it's, where does it all fit in?
The interesting thing for me is we've always said four-year halvings, and we moon after every single halving, because the sell pressure halves. But if you were to look at macroeconomics and liquidity, it's also on a four-year cycle. And guess what, it's superimposed on the Bitcoin four-year halving. The world economy injects liquidity every four years. You can chart that.
Peter McCormack: I've seen this chart. I don't know if anyone's seen it, but essentially the period of the halving correlates directly with periods of an increase in injection of liquidity into the market. And nobody's shown me that before, and I saw it. And I even saw somebody tweeting last night, "Don't expect Bitcoin to moon without an injection of liquidity into the market". Which is leading which though? Because I don't think when you look back at, say, the first halving, that even if it correlated on the timescale, I don't see it related because I don't think people thought of the asset then in the same way?
Willy Woo: I want to go back to like the launch of Bitcoin. Bitcoin was launched at the perfect time, right? We had the World Financial Crisis, no one trusted the banks, the whole thing was perfect. It was like Satoshi released it post world financial apocalypse saying, "This is an alternative". What did the world economy do; what did the bankers do? They had to save this economy, so they injected massive amounts of capital. And that four year halving, their cycle is every four years, there's an injection of capital. I don't know why, I don't know why these cycles are four years in the macro economy, I know why it's in the Bitcoin, because it was set programmatically, but they superimpose.
But the key right now is that this injection of capital on the macro economy is happening, and the halving is weakening in power. And as the Bitcoin halving weakens by 50% each time, there's also this other dynamic inside our own industry, which is the Bitcoin trading. We used to trade just Bitcoin; now we trade paper Bitcoin, like we were saying before. I could buy 100 million Bitcoins if I had the collateral. If BitMEX could allow me to do 10,000X leverage long, I could put in 1 Bitcoin and buy 10,000. So, you could buy near infinite amounts of Bitcoin, and that creates a huge amount of trading volume. And this amount of trading volume is, you can see it already, the spot markets where you're trading the real Bitcoin is very low compared to the paper markets, very liquid.
So, let's get away from the volume but think about what the exchanges are doing. They are making a little fee on top of every single trade, and that accounts for multiple billions of dollars every year. And what do they do with that, is they make money, they sell the Bitcoin, so that they can pay for the infrastructure, their staff, and so forth. So, as this economy's getting more mature, you're getting fees harvesting and dumping, and as of the last halving, they were equal. The Bitcoin miners were selling some amount of Bitcoin and the exchanges were selling the equivalent. The next halving, the exchange is going to sell more than the miners. So, you've got the halving, sell pressure reduction is not instrumental, it really comes down to macroeconomy. And I said in the last cycle, probably a bit premature, but I said that was the last cycle, and then we had a bear market. But I think that it's going to get really noisy here on in and we won't see these coherent cycles anymore.
Peter McCormack: Is that perhaps a good thing in that, do we really want to have a market where it's just so obvious what's happened? It's like, everyone shares these charts, "Well, of course, this has happened before, it's going to happen again". Isn't it a good thing to get away from that?
Willy Woo: It's just going to be inevitable, right? It's like no market is predictable once it's mature. I launched a letter and it was very popular. It was, I think it was 85% accurate, and I closed it when it got down to 60% accuracy. And a lot of people thought this on-chain doesn't work, and whatever, but if you're a trader, 60% is really great. The thing is, that edge just erodes because there's so many people competing for that edge. And so in Bitcoin, we think halving cycles, it's just easy, and we're going to moon every time. It's getting efficient, and it's going to be really hard, and it's inevitable. I don't know if it's good or bad.
Danny Knowles: So, you were saying that the edge erodes, and Checkmate earlier was saying that he feels like on-chain is just getting more powerful. Which do you think it is?
Willy Woo: No, it was massively powerful before, right? Now, I know people that, it's not public, but they trade from 10,000s to probably a billion right now, and they keep it quiet. But that was on chain all the way. But now, you're not going to get that level of accuracy anymore. It was clear-cut back in 2017, there were no derivatives, everything happened on spot markets and you had X-ray vision onto all those flows. Now there's big, dark pools called exchanges that don't tell you what's happening. You look at Robinhood. Robinhood, really popular with millennials and Gen Zs and they're trading like crazy. Where does all that data go, because we can't see who's buying what? We see that on-chain, but Robinhood sells that data to the big guys and they have the equivalent on-chain.
But now we've got on-chain and then we've got exchanges that don't give you vision into what's happening, and that's getting bigger. So, yeah, it's getting weaker, but also if you're a TradFi guy, you're coming in and going, "I want to trade these markets, I only got price-time data, maybe some volume, I'm going to go and have to look for more data", and you have to go into on-chain to get a full picture. But in the bigger scheme of it, on-chain is getting less and less effective. But if you ignore it, you're going to get killed because the best guys have got a better picture. So, it's just another tool set. But it's very unique to Bitcoin.
Peter McCormack: So, if Bitcoin is getting harder to trade, less predictable, surely if we want Bitcoin to become a currency, a unit of account, if we start to lose the traders who can drive these wild swings in the price, that will lead to a more stable Bitcoin which will lead to something that's more usable as a currency. And when we talk to people about the future of Bitcoin, they're like, "Yeah, but it's volatile", if we lose that volatility, perhaps that's good for the use case of Bitcoin as a currency. Is that possible; is that utopian?
Willy Woo: Yeah, I mean, nothing's black and white. The lower volatility is great, but the lower evaluation is not so great. Our volatile behaviour has been from mooning, right? And that was great long term. So, you have this sort of short-term happiness, which is like, "Oh, I can buy bread, and it's not going up and down" But can a really large country adopt it? No, it's too small. So, I'd rather have upside volatility, not because I want to make shit piles of money, which I do, but really for the good of the world, it needs to get bigger. And so my view now is, this is the status quo we've got and it's a waiting game because the fiat system is going to collapse. And so you hold this and you wait and you wait until we get a runaway collapse, and that might take 20, 30 years, according to Nik, it might be quicker, and so forth, but you need to hold it in case everything goes to shit. And a finance guy would say there's a call option on the end of the world. Yeah, the end of the world is never the end of the world, but you know.
Peter McCormack: This is our happy ending, the positive ending! Are you just a trader in the Wall Street cheat sheet depression phase? Do you feel like this every four years at this bit, "Fuck this shit"?
Willy Woo: No, maybe I've gone from this guy that's a tech guy to like, this is a new shiny thing and then understand how it works and then, "Holy shit, this is how the world economy works and this is not so great". And I am very, very positive that ultimately, innovation will win, I'm really positive that we are moving into the digital age. I think crazy shit's happening. If you focus on that, look, I'm in finance now, I mean, it just led to this. But if the guy that's a tech guy goes, "Fuck, this is great, this is amazing shit, and there's a huge future", we've just got an overhang, well at least I have because I'm in the finance industry, where you talk to bankers, and there's either bankers that are like, "Great", but they don't take much notice of it; and then the guys that are really, really conscious about what this means to the everyday people, they quit and they turn into farmers.
It's like the guy in The Big Short who's like the big -- what is the guy, you know the guy in The Big Short?
Danny Knowles: Who's like left the finance world behind and he's buying --
Willy Woo: He's growing his own veggies and he's like, "Oh, screw this shit". So, that's the finance world and you see this sort of cynicism. But on the other side, there's the technology, and actually I would say one thing about -- people call me a maximalist, I'm not a maximalist. I just did my research and Bitcoin is the most stable bet, but the thing is there's a lot of innovation happening and there's a lot of innovation across the whole crypto sphere. The problem is 99% of it is scams, right? They're like, "You can make a lot of money quickly", and the incentives is to make that money, but actually there's a lot of innovation that's happening that can change the world. It'll take some time. We've got to get the bugs out of it, you know, get the rugs out of there, but there is a lot of good stuff happening there.
I think that we, as a cohort supporting Bitcoin, shouldn't be too religious about like, "That's all just scams, this is all bad stuff". And there's a lot of stuff in there that can help the future and it's part of this digital age that we're moving into.
Peter McCormack: Controversial!
Willy Woo: In this crowd, yeah.
Peter McCormack: Well, I don't know. I mean again, put your hands up who owns other crypto which isn't Bitcoin? Boo. Get the fuck out!
Willy Woo: No, that's incredible. That's like, what was it, less than a quarter.
Peter McCormack: I think the number was higher when we asked first, and I think a few just left their hands down this time. But we had that when we were in Bitcoin Miami. It was a Bitcoin Conference and I think somebody asked the question, expecting no one to put their hand up. I think like 70% of people put their hand up and they were shitcoiners.
Willy Woo: Yeah, we're just quietly making our little bets!
Peter McCormack: But you look at Bitcoin, you've talked about the importance of it, and you've talked about the importance to the world. You've talked about this changing market dynamics, you know, these paper derivatives. But you still obviously want Bitcoin to get bigger. You live on Twitter as well, like us, you have a large following, you see all the shit that goes on there as well. What are the actions; what can be done? Is the trading market holding back the growth of Bitcoin; is it Bitcoin that's holding back the growth of Bitcoin; is it something else? What do you think needs to happen?
Willy Woo: The question is, what's holding back Bitcoin?
Peter McCormack: Okay, even what could drive it forward? You believe Bitcoin needs to grow for it to achieve its end form, but you see both the market, the trading market, the people. What do you think needs to happen?
Willy Woo: I would say time, it just takes time.
Peter McCormack: It's a patience game.
Willy Woo: Yeah, like as much as Bitcoin is time and money is time for this to happen, it's a very, very patient game because all the things that don't work, eventually they fail, right? Every time we've had a fiat currency, it's failed without question. And so this current system we're in is a short-term game for a lot of people to make a lot of money and of course they're going to have a great life, but eventually the whole system does come down. There's the other side, there's a transition, there's a transition into a digital age that's happening. Probably both things are going to happen at the same time, but it's just time. From a market perspective, who's going to buy it, who's going to sell it?
I can't get around the fact that we can't break through a ceiling. Maybe it's a glass ceiling, but there is a ceiling there, and that ceiling doesn't disappear until what's holding it up collapses. And so it's patience. I can't see us having a strong American Government with a strong US dollar and Bitcoin becoming the world reserve currency. Diametrically opposed. So, we're in a rock and a hard place.
Peter McCormack: So, your belief is that we need a failing US dollar for a successful Bitcoin?
Willy Woo: The current incentives is, yeah, well, the US Government is going to defend the US dollar. And so, maybe it would be a whole lot of new experimental countries coming out, El Salvador, Singapore, Dubai, and then that will take time as well, and then you have the sort of soft landing. But you should talk to some geopolitical expert, not me! I'm just my view, not expert.
Peter McCormack: Okay well we'll move from that on to... But these are interesting to see because we all have to take this information in, right? I take in what checkmate tells me, what he sees on the data, I take in what you say as a trader, I take in what geopolitical people say, I take in what people say on Twitter. You have a lot of data that comes at you in different directions and you have to make decisions based on it. It's like, am I oversizing my position, am I undersizing? Usually, I'm always fucking wrong. But you have to think about stuff. So, how are you positioning yourself?
I own my house and Bitcoin and that's it, I don't do anything else. But do you have a more diverse set of investments; do you hold any gold; do you hold certain currencies? How do you position yourself as a successful, experienced trader?
Willy Woo: You're asking an investment question here, right? And investment, trading is like, "Am I going to buy this and am I going to sell it tomorrow?" And investment is where I'm going to allocate, and I just allocate to where I understand. So, at times it was like 95% Bitcoin. We need a house to live in, so you have a house. Don't really understand that much, but you need it. I allocate into, I think the TradFi guys call it fixed income, which is like a whole bunch of trading behaviours, quant funds that generate returns from the efficiency of the market, so I allocate into that. And really, I alternate between say something like Bitcoin and into, this is risk-on, this is risk-off. Bitcoin's very, very volatile and you don't know whether it's going to drawdown 80%, but it might go 10X. So, you allocate between the two, that's what I do.
Yeah, I don't understand, well actually I understand gold enough to know that I don't really want to invest in it long term because I understand Bitcoin better. And I think gold has got very large problems and it's scarcity coming ahead with the technology we can throw at mining gold. Equities, I think that's a really good bet because you're betting on the world GDP. I'm not an expert in it, so I don't allocate there. But maybe, you know, it's different. I just want to allocate into to stuff that I understand. So, yeah, my answer's probably not useful to most people; sorry about that!
Peter McCormack: is Will, co-founder of Iris. I think Dan's left a little bit early, so if you have questions around mining or Iris, he'll do it. I'm going to wander around with the mic. Put your hands up if you want to ask a question. All right, we'll start here.
Audience member 1: Hi everybody. First of all everyone in this room is a freaking legend, both on this side and this side. I've got a question more for Nik. In a potential Bitcoin standard, if we assume that it's going to be a deflationary system, and the credit is going to be completely different than what we know today, how do you see a world in this situation?
Nik Bhatia: That's a great question. Understanding how the current system works in a credit money system, it always needs to be expanding for GDP to grow, meaning that every year we have to lend more to create that growth. That is the current system. Going toward a Bitcoin standard that's deflationary that has different credit dynamics is a very major transition and I don't think that a more Bitcoin-centric system means that we are going to give up the credit money system; I don't see those two things happening together necessarily in the medium term. So, when I think about the future and what Bitcoin will provide, Bitcoin provides an alternative to allocating to traditional asset classes, but it doesn't just turn the credit money system upside down and cause us to go into an opposite dynamic.
Audience member 2: Question for Willy. You said in effect that the trading on the PERP futures drives the price of the spot. I'm curious how that happens.
Willy Woo: Okay, so markets, there's two types of ways you can move the price of Bitcoin or any asset. One is price discovery, "I've got this asset. I think it's worth this. You're not going to pay for it, then I'm not going to sell", and it discovers, right? That's long term. This is how the market gets to its wisdom of the crowds to find what something's worth. And then there's short-term bullshit, like positive news comes out and it dumps, right? What happens in that is it's urgent sellers, urgent buyers. If it's urgently selling, it forces the price down. And so, when we're talking about these paper instruments, they're all about short-term trading.
So, if I want to sell Bitcoins right now because I just think it's going to go down or I want to force it to go down because I've got a lot of money and I can make it go down, I will just sell down that derivative contract. I'll just sell and sell and sell. How much can I sell? Maybe ten times more than the money I've got. Maybe I've got like $10 million. I can sell $100 million all within one hour, maybe in five minutes, and I can push that price down. And does that affect the real value of Bitcoin? Does it? Who thinks yes? Who thinks no?
The answer is yes, because there's this thing called an arbitrage trade, which is actually our business. Our business is to make sure all the markets are equal. So, if this paper contract is down here and Bitcoin's up here, sell the Bitcoin, buy the paper contract and they will close up, and while I do that I earn a funding rate and the demand and supply from both markets will converge. And guess which market is stronger, paper markets or the real market? It's the paper by a factor of 10 and maybe a factor of 100 in some markets. So, if you control the paper market, you can push the price around anywhere and you can control that by having a bunch of money and you leverage it up, and then there's a war going on from these guys playing the paper markets. That's creating this irrational price in the short term.
Long term it's rational, short term it's like, "Oh, this thing dumped", and you'll see Bloomberg or whatever, Financial Times saying this, guarantee you'll read, "Apple stock dropped because…", and they'll pick whatever happened in the news, and if it was bearish in the news, because there was a bullish thing happening, they'll pick that and they'll say that's why it dropped. It was absolutely not the case. It was because these guys that are battling out to take money off each other in a poker game, just pushed it down and we're reporting the wrong thing. The real reason is it was a particular strategic set up, like you're playing chess, and it went that way because those guys won.
So, that's how it happens in the short term, but in the long term you can really do a longer-term incentivisation to really put a cap on that price if you were a government.
Audience member 3: With Visa, we understand that perhaps a coffee shop waits two months to get their money, but the speed of the blockchain, is there an opportunity? I'm just curious where that is all heading.
Checkmate: Yeah, I think we touched on this today actually in the podcast discussion. It's something that Jack Mallers' work -- because when he started talking about Lightning Network, I think he was the first one that kind of put Lightning on my radar. And I started thinking about, I mean Bitcoin is one of the few assets in the world with a trading pair in every fiat currency. Like everywhere in the world, you can find a Bitcoin, maybe a gold, and probably a dollar. That's it. You can't trade Australian dollars in Africa or Asia. It's Bitcoin, gold, and the dollar, which have these fiat pairs. And in many ways, if you just expand that big picture, right, can Bitcoin be this collateral blob in the middle where you could send Apple stock in, get euros out; can you send Japanese yen in, get dollars out the other side? Because there's a fiat exchange or an exchange for all sorts of things in Bitcoin terms, can Bitcoin almost be this collateral layer that things pass through?
Technology like Lightning, whether it's Lightning or something similar to it, I don't think it will be the blockchain. The blockchain will be that final settlement, because blockchains simply don't scale. But Lightning Network, why I think Lightning is so interesting is that it is quite explicitly not a blockchain. And that means it can scale, right? And you can actually do things that you just simply can't do with this constrained block space. So, in many ways, I almost see it as like a collateral layer in the middle that assets can pass through because of that exchange rate on both sides, and because of that instant settlement. So, we're a long way from that, but if I kind of run the ballgame forward, to me that makes a lot of sense.
I also think if you go to nation-state level, I mean if the world kind of moves in the direction I think it's going, there will be more final settlement in things like gold, right? Because we saw what they did with Russia's treasuries. I think more of the world is going to be cautious of the treasury as an asset. They're not going to get away from it, right? The dollar is going to stick around, the treasury is going to stick around, but it's those incremental marginal elements. So, if more governments are settling in gold, for example, final settlement, what is the asset that lubricates this whole thing? It's going to be oil. Oil is the asset that everybody needs to trade. What if they start trading just that tiny little layer on top, $100 million here, $1 billion there in Bitcoin? And we're seeing that energy, you know, Shell and the like are getting into the Bitcoin market because of its tie to energy. So, they become familiar with this energy infrastructure and you start getting this liquid layer of Bitcoin on top of the gold, on top of the treasuries; you can start to see how some of the things could play out over that long term.
So, I think it's that collateral component, and then also the instant settlement of something like Lightning, which I think is quite interesting at both the individual level, our level, but also up there at nation state level. So, it can go at all sides.
Audience member 4: Yeah, question for Rusty. You never got to the patience of Lightning part of your interview. I've been quite patiently waiting for it. So, I wonder if you could...!
Rusty Russell: Actually, I was really impressed with Nick's thing. I mean, it's time, right? This is generational kind of change. When you talk about changing money, it's pretty fundamental, right? And that stuff is never quick. I mean, so I have a 15-year-old daughter, and she's the same age as Bitcoin, and I don't let her drive. And it's not just because of the legality issue, it's just like, no, she's only 15, right? So, Bitcoin's the same. When it's 25, it gets kind of interesting. So, there's another ten years before you're like, "Okay, it's been around for long enough". And that is a very useful technical heuristic. I could point out all these kind of technical things, but at the end of the day, wake me when Bitcoin's 35 and we'll know whether it's succeeded or not.
So, that's my kind of Bitcoin thesis. I hope to see it in my lifetime, but we won't really know the outcome of this experiment until a while later. Lightning's the same, right? I've been working on lightning for eight years now, and including the whole stage when, "No, Bitcoin isn't for payments, Bitcoin is for hodling" and all these things and everyone's like, "We don't need Lightning", or whatever else, and I'm just head down, just keep working on it. But so, it's got to find its niche. And part of the problem is that it is weird. So, to use Lightning, you've pretty much got to have Bitcoin, although Jack Mallows' hack on the edge is kind of cute. But fundamentally to really use Lightning, you've got to have your Bitcoin, and you don't have Bitcoin.
The fundamental problem with Bitcoin has always been it's not the cash in your pocket. So, there are steps that we have to go through to get to this kind of ubiquity that people see. And then you end up with the problem of the whole nation states using Lightning. Probably doesn't work very well because Lightning works best with balanced payments. If all payments are going one way, then you end up just draining your channel and sending again. At that point, you're like, well, just use on-chain, it's more direct.
So, I've always said the Lightning use case was something weird. And I would look at it as an old person and go, "That is the stupidest thing I've ever heard of". And it'll be fucking everywhere, some niche use. But by definition, doesn't exist yet, because Lightning didn't exist so you couldn't do it. You couldn't do like a 2-cent payment because we never had the ability to do that. So, there's a whole thing, a whole industry that doesn't exist because we didn't have the technology. Now we have the technology, the industry doesn't just spring up. The right person's got to come along, figure out Lightning and they go, "Oh, this idea I had", and make it work and it catches on. And that just takes time too. So, I expect to be working on Lightning through my retirement, right? So, it's going to be a long road, I'm sorry. It's going to take a while.
Audience member 5: Question for Will. You guys are obviously Australian, and yet all of your mining operations are in Canada and now Texas. Can you comment a bit about where you see the future for mining, Bitcoin mining specifically, in Australia?
Peter McCormack: Give a clap; good question!
Will Roberts: So, I'll start by saying Australia's electricity network is actually similar to that of Texas, where we currently operate. So, it's deregulated, we've seen a high penetration of renewables, a lot of solar and wind build out. And I think we're starting to see similar challenges here to Texas, where we're getting a lot of wind and solar. So, during the day, you're seeing a lot of power in certain markets, it's going negative. And then you do get the occasional issues that you do see in Texas, where the wind stops blowing, the sun stops shining, people still need power, there's a lack of it. You are seeing some batteries come into the market, whether that's solving the problem or not, not so sure. So, all I'll say is it's a similar dynamic to Texas, so it's one that I'm sure could make sense.
Peter McCormack: I'm just going to add to that. So, do you think, because all these markets, we have a similar thing in the UK, we have similar issues in the UK; do you think with somewhere like Texas, the case study is being built to put the argument into other countries where they've been a little bit almost scared of Bitcoin?
Will Roberts: I think so. I think what's unique about Texas and Australia is, they have a lot of natural renewable energy resources. So, up where we're located in Texas, it's up in the Panhandle, so northwest Texas, and it's actually a massive renewable energy corridor, so a lot of wind and solar. So, for their market structure, they're building out a lot of wind and solar, and so you're seeing these kind of intermittent issues arise, which Bitcoin mining can solve. In other markets, they might have other types of generation and different issues but for sure I think Bitcoin can play an important role. It can't solve every problem but I think it can certainly help in these markets to provide another way to balance these networks.
Audience member 6: Regarding an ETF, a spot ETF, is there a precondition for that succeeding, such as Binance suffering a shutdown?
Checkmate: I think it's probably some concern, right? If you look at it from -- there's a couple angles here. If you look at one thing, at least from the data provider perspective, the thing that's interesting about Binance, it's very different to FTX. FTX was an absolute nightmare to track their wallets, right? Our data scientists, what they do is they build patents, right, what they're doing is they're looking at heuristics of how these things work. I'll come to the ETF in a second. But FTX was really hard to build patents because they would keep changing the way they moved their wallets, and that's because they didn't have the wallets, right, that was the problem! So, but that's the thing, right? We were trying to track them. We were like, "We must be missing something". We weren't missing something, they were missing something, that was the problem.
Binance, on the other hand, has a stack of coins. And in fact, to Binance's credit, they really don't do a very good job at hiding them. In fact, they are very, very explicit with what they do. So, what that doesn't do is tell you what their liabilities are. So, the problem with proof of reserves is you can see the assets, but what do you owe on those assets? Now, again, I don't have a great deal of an inside scoop on Binance, but I can certainly see that, I mean, clearly the pressure is fairly one directional, there's a lot of pressure being put from the US onto Binance. I would think that Tether is probably in that bucket as well, which I'm sure Rusty would agree with. There's obviously these actors out there that the US Government is pushing on.
Now, that said, they've really been taken to task recently by the courts, and I think that the argument against the spot ETF is becoming increasingly hard for them to keep maintaining. So, I don't think it's a prerequisite. And the other thing that's quite interesting about Binance actually, we did a report which tried to look at, we called the exchange reliance ratio, and we basically look at how many funds flow from exchange A to exchange B, or vice versa. One thing we found quite interesting about that dynamic is the US exchanges, pretty independent. Kraken, Gemini, Coinbase, they don't really have much reliance and they're big enough that it doesn't matter. Every other little exchange you've ever heard of, very tethered to Binance.
So therefore, you've basically got a US market and you have a Binance market. And I think a lot of people misunderstand how big Binance is outside the Western world. They're a major player. And in many ways, they offer financial services that people don't have. So, there's banks, unbanked people. But there's also clearly some -- there's smoke. And in this industry, when there's smoke there's generally fire, but again, on their wallets you've got to give them credit. They don't exactly try to hide it, which is very different to FTX. So, just some colour on all that.
Peter McCormack: So, to add to that, Checkmate, are you basically saying that detangling Binance from the US market and separating it actually is a positive for an ETF, knowing what the prerequisites are that the SEC wants with regards to data sharing, etc?
Checkmate: I think so, yes. I mean, let's play another playbook, right? Let's imagine that Binance is frozen in their current status. They're the same trading volume, it doesn't change. If Coinbase suddenly had an enormous uptick in their new derivatives platform, there's a whole bunch more US actors, spot ETF comes in, and regulated markets dominate, then Binance's share goes down. It's all about a relative game. So, I think if you were to see that kind of changing of the guard, that's obviously going to allay fears, but we're obviously not there yet. So, there's a process there. I mean, overall, it would be ideal if Binance didn't implode because of its scale, because of its size, and because you don't want people to get hurt.
So far in my travels, I've not seen anything that has been -- I mean aside from what I would call regulatory, Binance is a pirate ship. They live in the seven seas and there's no rules out there. The rules out there are that you have to survive like a cockroach, right? That's the game. It's a different game to a regulated market. It would be better if they were more structured, but they're not hiding stuff. I haven't seen many red flags, much to the point that many people would say, "Something's clearly wrong", and it could be, but it's very hard to spot it.
FTX in hindsight, clear as day. There was shit everywhere, it's an absolute mess. But Binance, it's hard to find something that's too wrong, at least from the on-chain side of the equation.
Danny Knowles: I think the important thing to differentiate the two as well is that FTX had basically no on-chain balance. No one could find their Bitcoin and everyone was like, "Oh yeah, they've got a sic OpSec, bro". But really, there was just nothing there. And we know that Binance have billions of dollars on chain. I think blowing them up is a very different prospect to blowing up FTX.
Checkmate: I fully agree. And actually a lot of people don't realise this, but if you look at the transaction volume of Bitcoin, when FTX blew up, off a cliff. And that's because Alameda and FTX was churning hundreds of thousands of coins every week, just over and over and over again; they were responsible for like 80% of Bitcoin's on-chain volume. And this is just coins washing around. Who knows what they were doing, but it was all them. Entity adjustment cleans it all out, but it just drops immediately the day that FTX blew up. So, they were doing some weird stuff.
Peter McCormack: What are you most excited about in the world of Bitcoin?
Rusty Russell: I'm excited about Lightning. I think it's still a real sleeper, right? It is something that we haven't had before and people are still trying to figure out how to use it, but I think it is going to be amazing. It just might take another ten years, but we are getting there. I am really excited about Lightning.
Willy Woo: Yeah, I agree!
Checkmate: I think it was Craig Warmke on your pod, Peter, and he said, "Imagine if you were pulled out from your body and placed in any of the 8 billion people, would you rather Bitcoin exists or not?" And I think, for me, of course, I'd rather exist because you could get dropped in anywhere in the world and it could be way worse, it's definitely way worse than here, right? So, I think that's a really important thing. You could get dropped out anywhere and you would want it to exist. From my side, I think the thing I'm most excited about, and there was a big discussion after the Bitcoin Alive Conference, which is the proof of work that we all go through to understand Bitcoin. And I think it's a personal journey and it transforms you.
I think long term, more and more people going through that journey and understanding it, just whatever, wherever you end up on the other side of it, the journey that you personally go through, I think makes you a better person and a more resilient person. There's nothing quite like seeing your net worth go down 85% three times to harden you up, right? And that's what we need. We need some harder people, right? Because we've got a lot of stuff that's not going well, and all we need is people to step in and do something about it.
So, I think Bitcoin is a path to people getting along that journey, and to me, that human level of us making better decisions collectively, I think, to me, that's the most exciting part.
Nik Bhatia: If we look at El Salvador, and there's a lot of excitement that we have a nation state that's adopted Bitcoin, I am not excited as much about El Salvador as I am about people using Bitcoin and discovering Bitcoin in non-US countries, or even non-Western countries, I would even say, so people that are in Latin America, Africa, and Southeast Asia, most specifically. There are countries in which the discovery of Bitcoin as a tool, financial empowerment, is happening. That is the most exciting thing to me because there is a couple billion people that can come into Bitcoin from a different angle than trading, number go up, different things that we think about in the West, and that's what I'm most excited about, global adoption of Bitcoin.
Let's thank our guests, an amazing group of guests.
