Discussing Yield Curve Inversion, The Eurodollar And Bitcoin

This is a recording of a recent Twitter Spaces conversation about James Lavish’s article “Yield Curves, Inversion, The Eurodollar And Bitcoin”

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Transcript

[0:41] P: Thank you so much for joining us. This is Bitcoin Magazine Live. We are doing this is as a Twitter Space. This is being recorded and will be released on some platform or another in the very near future. We’re joined by an incredible group of people and we’re going to be talking about- as the title would suggest ‘Bitcoin, yield curves, yield curve inversion, the Euro dollar and what that means for all of us.’ I’d like to start by having each of you on stage introduce yourselves and give context for why you’re part of this conversation and who you are. James, do you want to kick us off?

[1:24] James: Sure. So, I’m James Lavish. And as you can see, in my bio, I claim I’m are formed hedge fund manager. And so what that means is, I’ve been in investing in institutional investing for over 25 years. I’ve had my own hedge fund. I’ve been theHead Arbitrage Trader for hedge funds. I’ve been a Risk Manager for hedge funds, private equity units and most recently, with the CEO of a private equity unit, a hedge fund unit within a larger family fund.I came to the space, a little less than a year ago. And I had dove deep into Bitcoin in particular and after doing just a little bit of research on different protocols and I realized that Bitcoin was the one that had you know, it’s the shiniest and most stable and safest and purest form of money that’s ever been created. So that to me, it just gave me so much confidence to come into this space and know that this is where I want to spend the rest of my career, the rest of my time in finance and investing. And helping people understand from my kind of lens. And hopefully, I can give a little bit of a different view than you typically would hear in this area, so that’s who I am.

[2:55] P: Fantastic. Resh, do you want to give us your bio next?

[3:00] Resh: I’ll be the most under qualified person here to be honest. Everybody’s going to share their background purely as a Bitcoiner. I’ve been in the space since 2017. The reason why I got interested in Bitcoin, like everybody else, was number go up technology, but then I realized it’s another layer that people are not focusing on which is the protocol here. I believe that whatever we see the exciting projects on all the other protocols eventually will end up on Bitcoin’s protocol layer. Either the Layer 2, Layer 3, side chains — it doesn’t matter. I believe Bitcoin as the asset, is the money layer. Bitcoin the protocol is the innovation layer. In our armchair, basically, a person, armchair economist as I would say myself, who chases at my own personal wealth in the markets. That’s all.

[3:54] P: Got it. All right. And who else do we have on stage joining us? Is it Chiente?

[4:01] Chiente: Yes. Hi, everybody. Thank you for having me today. Before I start introducing myself, may I have a request to pull [inaudible] as a speaker as well because we work very closely with [inaudible], obviously who is the cofounder of theBlack Stack at the moment as a CEO of Trust Machine. So if we could pull [inaudible]as well as the speaker, I will be very grateful. So everybody, thank you for having me again. My name is Chiente Hsu. I came from Academia. I was a tenure track professor in Economics. And I joined Wall Street 25 years ago as a Quant. So I was ahead of Quang, The Credit Suisse, as well as Morgan Stanley. What my wonderful team there and myself did, was to come up with a rule based systematic investment strategies for pension funds, for corporate, for hedge funds, etc.So, basically we were writing smart contracts. We have already had smart contracts our whole life, but not on the public fraction. I’m a very private ledger, I would say. And then I got interested in Bitcoin really starting about 2008 having personally experienced the 2008 Global Financial Crisis. I was on the second floor of a fixed-income trading floor. As in not far from James experiencing one thing after the other fail. The whole system in the blink of a failure and subsequently, the over-regulation and over-bloated middlemen, etc. making a whole banking system become so inefficient.We start to get interested in Bitcoin and realize that this is really just a perfect world where we can build Goldman Sachs on blockchain. That’s how we started a year ago.The Project Alex extends throughout admitted equity change. We build the defy, a completely new defy on Bitcoin via stacks, the smart contract layer. Thank you.

[6:16] P: Got it. All right. Hadan, and I’m sure I’m mispronouncing it, please correct me.

[6:20] Hadan: No, Hadan is fine. Thanks. So, my background is Harvard Physics. After that. I went to work at Goldman Sachs as a fixed income trader in emerging markets. In 2014, I worked with Chiente when she wrote her book on rule based investing. I’ve been in the Bitcoin space since 2017. And when Chiente got the Alex Project going, it appealed to me immediately. My interest is really that there’s a profoundly human story behind the coin. This is the first time in history that we’ve had a currency that is divorced from the violence of the sovereign state and I believe through Bitcoin finance is the first time that we’ll have finance divorced from the exploitation of the weak by the powerful.And so that is the narrative that I work to craft as a part of the Alex Foundation. Honored to be on the panel.

[7:22] P: Fantastic. I am your host today, P. I’m the head of programming at BitcoinMagazine and let’s just dive right in. There’s an article that you wrote, recently, James titled- again, it’s the title of the space might suggest, “Yield Curves, Inversion, The Euro Dollar And Bitcoin.” If you’re in the audience and you haven’t read it, I highly recommend it. It’s a short article that does a really good job. Very concisely, articulating what’s going on here and what we’re talking about. Let’s just start by talking about what is the yield curve? You go through it in this article, but James, can you give an explanation for the audience what is the yield curve and why is it important?

[8:03] James: Sure, I may not be the most knowledgeable on this subject in the stage we have had on up here but, you know, basically, what I do is in my newsletter, I tried to take super complicated subjects for normal people who are not in finance and just simplify them and put them in everyday terms so people can understand them. Because these concepts are not that difficult to understand if you break down the terminology and just give it to you piece by piece and build on it that way.So, basically, the yield curve is just if you take all of the bonds that are in the market.And we’re talking about the U.S. Treasury yield curve. And you take the one month, two-month, three-month. And you pull it all the way out to 10-year, 20-year 30-year bonds and treasuries. And you just plot the yields against that chart. So, normally, a yield curve will kind of look like it’s a slope upwards from the left to the right because as you take on risk by lending money for a longer period of time, and locking into that longer period of time of lending. You want to agree to return on that money. It’s a simple dynamic. It’s just time preference.If you’re going to lend somebody money for a year, well, you may ask for a few percent and if you’re you’re going to lend it to him for 10 or 20 or 30 years, you’re going to ask for more so and that’s the typical yield curve. But what we’re seeing is we’ve watched this whole Fed situation play out recently. As we’ve watched the Fed try to dance around the fact that all this inflation is embedded in the markets and the asset prices of everything around us. Anything from commodities, to homes, and you’ve seen[inaudible] silver and palladium just spiked up in prices.You’ve all seen your home prices go up, and they realize that this is problematic just because there’s so much liquidity in the system. So they’re trying to manage that by raising the interest rate. The Fed funds interest rate. So, all of these yields are kind of based off of that Fed funds interest rate, which is, it’s kind of the benchmark that the banks used to lend to each other overnight. So if they have excess capital in their balance sheet, they can lend to each other. Somebody might need short-term liquidity, one bank might need short-term liquidity. And that kind of set the benchmark for them to do that, the discount rate. All of these rates are based off of that. The problem is, once you see these rates move around in a way that’s not consistent with that upward slope, then the market is telling you that it expects something different to happen in the future, right?So if you start seeing the 2-year, that 2-year bond with a higher yield than say, the 10-year bond, well, that’s telling you that the markets expecting that in the near future, we’re going to have a downturn and that rates are going to have to go lower again. And so that’s what we talk about when we say there’s a yield curve and inverted yield curve is when that slope dips lower on the longer end and it could look like a bucket. It could just look like a slope that turns over and you have lower rates on the longer end. And that’s telling you that the market doesn’t really believe that these short-term rates are going to hold. Does that make sense?

[11:42] P: Yeah, absolutely. Also, I would say-

[11:46] James: That was a long answer to your question but that’s basically what the point of the article is.

[11:51] P: No, I think that was a great explanation. And again, if that is confusing to you, go check out the article, which should be in the nest at this point or not yet but I’ll put it there in just a moment. And it goes through and has some really good charts that sort of help to explain the context for what we’re talking about and where we are right now.The other thing I would say is that for anyone else on stage. Please view this as a freeform conversation. If somebody says something you have thoughts on, just unmute and jump in directly. Don’t worry about interrupting people.

[12:22] Resh: If you look at the chart right now, on 1st of April, the yield curve actually inverted. Just a small dip to be honest. And that’s the first sign that the problem is in the markets. And if you look, it usually leads to a thing within the next 12 months, we should see some problems either recession lab economy, but it’s also hard to say in terms of will we go lower right now? I think we will. And when that happens, I think there’s a lot of signs even though you look at the yield curve. If you look at the other reports from the other local Feds, if you look at Chicago feds, and the NFCI charts, they all start to show a tightening of economic conditions. If you look at the Philly Fed index, and the EmpireManufacturing index, they’re all slowing down. So this is all correlating to exactly whatJames said. The economy is slowing down drastically and within the next 12 months. If things only work, which I don’t think they will. We’re going to be in a recession.

[13:30] Chiente: Let me jump in here from Quant’s perspective. Obviously, the yield curve, the shape of the yield curve is what the fixed income market, the bond market telling us. What the market expectation is or what the market is currently pricing. But if we look at over the past… I would say, maybe 20 years across. If you look at that, how often does the shape of the yield curve or inverted yield curve, really accurately predicts the upcoming recession. I think it’s still about 50/50, right? It depends on statistical significance. It depends on your horizon or forecasting.We did have a very small dips as Resh mentioned. I think just one or two days at inverted yield curve but now it has normalized. The only place where you see the little bit, these locations between seven and ten years James, correct me around. And I think that there’s just some, a microstructure of that particular 10 years around there.But having said that indeed, yield curve is something that even as a Quant, we all observed and not just the shape of the yield curve, but also the transition how you transition from one- flatten the yield curve to see their yield curve. That’s really important.And that’s exactly why [inaudible] or the bond market is trying to tell you. Now, I know that lots of people like to say, this time is different because we are in a completely monetary regime. We are now in a monetary tightening regime of the yield curve still telling us the same story is yet to be seen. However, having said all that I think we all agree, and as well as a mainstream economist agrees, that it is a 35% of a recession being predicted over the next 18 to 24 months.We know we are all in deep trouble, I think so. The market is volatile not today. We know that the market is looking at which point that Fed is going to play. At which point that financial or conditions are going to be so tight at the Fed is going to play. So that’s what we are all holding our breath at the moment to watch. Thank you.

[15:53] P: Got it. Would anyone else want to add anything to that? Chris, Alex? All right, let’s keep going. All right, so given that context, do we feel like we have explored what like yield curve inversion means? There was a great tweet thread that Lyn Alden posted that you referenced in your article. Can we go through that a little bit more?

[16:17] James: She’s referencing the fact everybody looks at the 10 and the 2-year.That’s kind of what everybody references when they’re thinking about inversion. When the two-year rate is above the 10-year rate that’s kind of an alarming factor, but I think what she was saying was that if you look back, then the 10 and 3 actually has a more accurate measure to what Chiente was saying, that looking at that point in time. I think this is a couple of months ago, that there wasn’t a recession in the site where the 10 and 2 were saying it was because they were inverted.The thing is that 10 years is kind of a benchmark for the whole market. It’s the one that everybody looks at. So that 2-year in the 3-year can move around a little bit and that’s basically what you she was referencing to. For the actual empirical data points, the 10 and 3 were a little bit more accurate.

[17:34] P: So given that context, let’s talk about where the Fed tries to step in. So what is yield curve control and why do we need to worry about it, and think about it? What does it mean for us as Bitcoiners?

[17:50] James: All right, so when the Fed sees this happen, and they try to… the Fed is trying to make sure that yields on the long end are not, you know. The problem is as you are issuing bonds to pay off your former debt, which is what the Fed has to do. The Treasury has to keep issuing bonds in order to pay off their debt. So the problem is if you’re issuing bonds that have a higher yield, then you’re able to capture, then you cannot pay off that debt. They try to manage the actual curve in order to prevent that.But then it’s kind of a self-fulfilling prophecy where they’re printing money to buy bonds in order to manage those curves. And that just ends up putting more liquidity in the system and creating more inflation and creating a bigger problem.So, yield curve control is not usually the best route. That’s kind of a last resort and I don’t expect them to do this. I don’t expect the Fed to do this, but we’re seeing it happen real-time right now, in Japan. So, this is a really big issue and Lynn and Luke Gromen have talked about it, Luke has been talking about it quite a bit and I agree with him.Then the problem is you’re watching Japan do this. And so, what they’ve said is that on their 10-year treasury, they want that yield to stay at .025%. They’re going to buy every single Japanese 10-year that anybody sells in order to keep it at that .025%. So if you’ve got all of these holders of Japanese debt that are selling the 10-year and theJapanese government is buying it. Well, there’s a lot of pent-up pressure there so they’re selling this treasury, and they’re receiving yen for it. So, what do they have to do? If they want to turn that currency back into their base currency, they’re going to sell the yen or if they want to hold a currency that they will trust a little bit more, even though the US dollar has its own problems. It has fewer problems and most of the other major countries in the world so, you’re going to want to use and U.S. dollars, so they sell the yen to buy U.S. dollars.So that’s why we’ve seen such a massive move in the yen recently. So now what do they have to do? Well, now the bank of Japan has to decide. How are we going to manage the yen pressure now? Because now we’ve got the Yen kind of imploding and so we have to make sure that that is under control and keep that fire out. And the thing is they own about 1.3 trillion dollars of U.S. dollar-denominated treasuries. And another 1.2 or 1.3 U.S. dollar-denominated assets. So the result is they have a choice of either having the U.S. government step in and buy bonds with them and help them or manage our rates so they aren’t so much higher than the interest rates of Japan that we’re not diverging in our policies that they don’t have to sell those assets in order to shore up the yen, but that’s one thing they could do. They could just start selling U.S. Treasuries and start trying to balance out the yen versus dollar exchange rate.

[ads] [23:37] Hadan: I would say that’s definitely accurate and I think what we still see reflected in the bond market and the moves that we’ve seen recently is what they call an investor flight to equality, which means when things start to get a bit choppy, investors flee to what they consider the safest place to park their capital, which for the most part remains U.S. dollar treasuries, And I think it’s important to zoom out and just really have a sense that the economy really is an unhealthy place. It’s an unhealthy place and having gone from a four trillion dollar national debt to now close to 30 trillion, which added 3%interest rate means one trillion dollars a year, just to service that debt.It’s the trillions of dollars that have been in the printed lately and how the officially stated member [inaudible] inflation, likely drastically overstated what people are seeing actually on Main Street when you go to gas up your car, when you go to buy groceries-

[24:48] James: And then and then on top of that, Hadan you’ve got your unfunded liabilities of 170 trillion. So I mean, it’s so far beyond the reach of what we can deal with, its unhealthy is actually a very complimentary word.

[25:05] Resh: I just want to-

[25:07] Hadan: Yeah, go ahead.

[25:08] P: I’m sorry to interrupt. I just want to say, I want to welcome Dr. Jeff Ross to the stage. Excited to have you. [crosstalk] [25:14] Jeff: Thanks P. Thanks, everybody. Good to see you all.

[25:18] Hadan: Yeah, I was just going to jump in and say that also, people have to keep in mind that, [inaudible] was saying that earlier this year of holding bonds at the moment is almost like a stupid thing to do because if you think about it, you’re holding a 10-year bond for less than the 3% return and then the inflationary environment for the official figure is what? 8-9%, unofficially it’s actually likely in the double digits.And the only reason that people are doing that is because you’re losing even more money if you’re just holding cash. And so, it does create this almost that in the crisis at what point do. One of the things that the media does is that they often quote TD, DOW, they quote the S&P as the economic indicators. Those are just the derivatives of the debt market.The debt market is the ocean of money that really drives global macroeconomics and finance. I think the concern that some people had is that at what point do people start to lose faith in the sovereign currencies in these bonds that they’re tired of getting ripped off and just losing money with the supposedly secure instruments and start looking around at something as an alternative.

[26:45] Chiente: But I think it’s very different issues, Hadan. Currency is one subject.What you’re saying is that to what extent do people lose faith in the dollar as a fiat or let’s say shall we throw away the whole modern monetary theory that we do need fiat not gold or Bitcoin as the anchor of the currency. I think that’s one subject. And the other subject where have been discussing privileges is really about the bond to be a stock, but I think these are two different subjects- actually, I’m a little bit lost of what we’re discussing here.I want to say that the stock is a bond and I’ll go back to James about Japan CentralBank, Fed. For investors, a pensioner- everybody heard the most important thing is about diversification. It’s about the de-correlation between stocks and bonds. I think over the past few days what was most scary is that there were a few days that these two bonds as well as that they are highly correlated. And when does this happen? Where the market is in extreme distress.When diversification is lost, people are panicking. And I think that’s one thing that we have observed. About currency now dollar is always fly to safety. Somehow the world still has this faith in the U.S. economy, rightly so at the moment compared with China, compared with Europe, U.S. growth still has the most rosy outlook, so you have these fly to safety to the U.S. capital market through U.S. dollar. That is why the ESY has been strengthening against basically, a base of currency. But coming back to Jame’s point about Fed, would they ever come out to try to manage the yield curve and why not?As you know, unlike Japan. I would say they’re following since 2008, since the 90s, Fed has come up with a variety of measures other than controlling, Fed fund, etc. the quantitative easing. They’ve become much more I would say, innovative. You can see that during COVID they come out to pretty much buy everything they could and allow to buy to expand their balance sheet, they pay mortgage, James, did they buy some corporate, I think they bought some corporate, you know that better than me, all right-[crosstalk] [29:24] James: They bought everything.[29:26] Chiente: Yeah, they bought everything. So I think their bag of tools are still quite innovative there for them not to come out to loudly say that they want to control the yield curve. If that makes sense. So that’s my contribution as a market economist. Thank you.

[29:52] Resh: I just want to ask one question, Chiente, just to follow up what you just said, based on your experience of 2001 and 2008. How often or how long of a period of correlation between bond and equity needs to be or tends to go before the market breaks?

[30:12] Chiente: Usually the correlation breakdown or does it, usually the bond and stocks are highly correlated really only where the market is in distress. And usually, they don’t last more than two weeks and we saw that in 2008, we saw that in 2011, 2013, and 2018 when the Fed came out to start to tighten, to start a hiking rate, and the market just completely puked, right? We call that temper tantrum and then, the past few days, they were just one or two days that happened. So I would say that’s really the extreme scenario, Resh that you don’t observe that much, you know, 50/50 60/40 is still the golden standard of our asset allocation. If that breaks down, I will say, I don’t know if James agrees with me, I would say that’s a much more scary signal of the market compared to the inverted yield curve. Thank you, Resh.

[31:15] P: Wait, sorry. You’re saying 60/40? What was the allocation you just described?

[31:21] Chiente: That’s 60/40 or 50/50, that’s like the benchmark of portfolio diversification.

[31:29] P: You’re saying like 60% stocks, 40% bonds?

[31:31] Chiente: Yeah or 50/50.

[31:34] P: And you’re saying that right now, is that what you’re recommending personally?

[31:40] Chiente: Oh, no, that’s not what I recommend, that’s what we have we’ve been educated rather whole say-

[31:46] P: Okay for a second there, I was like, oh my god. [crosstalk] [31:51] Chiente: That’s like a benchmark. [crosstalk] [31:55] James: If you look at the history of investing that’s what Chiente is saying, that’s kind of been the model portfolio of course, yeah. The problem is that all these massive funds, whether it’s the Texas teachers or scalpers or these enormous pension funds.They have these mandates that demand that they own a certain number of bonds. And that’s why when people ask me all the time, why would the German bonds be yielding negative? Who is going to buy those? Who’s going to buy negative-yielding bonds?And the answer is, well, European pension funds who have no choice but to buy bonds because it’s in their mandate. And it’s actually structurally mandated, they have no choice; they have to own a certain number of bonds. If that starts to break down and you see mandates change- we have such massive problems, which I expect that mandates are changing a little bit because you’re not getting yield anywhere and just like Hadan had said, you’re getting negative real yields.If you buy a bond for 3% and the inflation rate is 8,9,10,12%, you’re losing 5 to 9% in real dollar terms every single year and that’s the issue.

[33:16] P: It’s totally nuts. And one thing that I don’t think we’ve really articulated here is, that these are supposed to be and I feel like some people still laboring under the delusion that we are operating in “free markets” and all of the measures that we’ve been talking about the fact that, there is even a concept of something like yield curve control. Whether we’re talking about the bank of Japan or the United States or wherever. The fact that you just said that the mandates are a huge part of what’s propping up these markets is just a massive perversion of what is supposed to be a free market. Do you agree or disagree?

[33:56] James: Yeah, that’s totally right. And then the issues and Dr. Jeff and I have talked about this ad nauseam is- how are you doing, Jeff? We have this asset out there, that we are all looking at and I know a lot of people in your room here I see a lot of people that I know and follow and they follow me, and we’ve talked about this quite a bit, is that you’ve got this asset out there and this new form of money that’s absolute as close to perfection as you be in Bitcoin. And it’s still so incredibly highly correlated to the risk on asset world and it’s going to continue to be correlated to the risk on asset world until we get a broad and deep understanding of what this actually is. And the problem is, that has to decouple in order for these investors to have an asset that they can go to.You can go to gold, okay? So that’s been an argument for a long time and I think that gold is not a bad asset to have as a diversifier in your portfolio. Being a risk manager,I’m not all-in on anything and that’s not a bad thing to have. The problem with gold is that it’s so manipulated with the paper market. You have a lot of ownership of gold with no underlying gold tags and that’s an issue.But with Bitcoin, you’re seeing the same sort of manipulation because you’ve got theFutures, the Bitcoin Futures, ETF that is just a paper Futures. It has nothing to do with the actual underlying asset, it’s just the price of it and it’s priced daily and you settle trades that way. So the problem is that you’ve got these major hedge funds and massive amounts of money. Trillions and trillions of dollars that are using Bitcoin as a quasi and sloppy risk-on hedge. So, if they’ve got a big portfolio of tech stocks and they want to hedge that out and they don’t want to just short the cues and they want to have a little bit more leverage, they can over-leveraged with Bitcoin, leveraged short. And ride that out ahead of the price moves and it just becomes a self-fulfilling prophecy.I’ve gone into a little bit of a rabbit hole here in answering your question. But the thing is, we have this asset out there that should be a fantastic diversifier and will be an incredible store value at some point in time, it’s just not there yet. And until we do, we’re going to continue to see stresses in the system.

[36:35] P: Interesting.

[36:36] Chiente: I totally agree with James. If you think about why all the central banks or all the economy started to pack on gold and now we have technology out there that’s obviously so much more superior to go because it’s just easily transportable, is transparent, the transaction you’re on they never can be reversed. It’s just almost a no-brainer that this is a super trend that we’re all going ahead in towards. And you know, the volatility is there, but I keep on saying that the value of Bitcoin would depend on other cryptocurrencies. It depends really on the perceiver’s likelihood of them becoming more widely used as a payment system. As you know, the denominator of the economy. And that perception obviously fluctuates dramatically, even like [inaudible] collapse. We push that likelihood further to the future and that’s what we have been seeing right now. Thank you.

[37:41] P: Well, you said that we pushed the Terra collapse into the future?

[37:45] Chiente: No, I would say the event, like, Terra’s collapse pushes the likelihood-

[37:51] P: Oh, I see. Got it.

[37:54] Chiente: How the cryptocurrency has become more widely used a little bit further in the future. [crosstalk] [38:00] James: And to the point, we’ve seen a lot of crypto traders realize that there’s an empty bag out there and they’re going to get caught holding it in almost all of these other protocols. Not all I mean, I’m not out here to dish on anything else, but clearly,Bitcoin is the safest and it’s safe. And so we’re seeing a migration within the community back towards Bitcoin, but like Chiente said, the broader universe of investing and money control, they’re not ready. They just don’t understand it yet. And there’s a lot of noise out there and Bitcoin is having to know whether that noise again in this environment because of something like Terra Luna.

[38:51] P: I would say they’re two totally separate things. You’ve got Bitcoin which is designed to be sound money. And I think you’re right that the perception of that thing certainly influences its short-term USD denominated value. But I consider everything else to be something that is designed to do something very different. And some of those”cryptocurrencies” are designed simply to create a vehicle that allows VC’s to pump and dump them in the same style that they’re so used to doing with startups, but I just think of them I think we’d all agree, they are just completely different things.

[39:31] James: Yeah, no doubt.

[39:32] Resh: I think that’s two things we got to bear in mind, in my opinion. We’re just going off-topic here but Bitcoin is money. Everything that’s not Bitcoin, it’s going to be more seen as a venture bet or a tech path. So I think if people start putting that in mind frame at the heart of your decision-making, then you start placing your bets accordingly.You’re not going to put your entire life savings on a bet that might yield 1,000 or 100. I know, 10,000 to one bet, right? If this is a venture bet, you’re going to put, maybe- if you’re interested in that kind of stuff, a small percentage of the innovation that might come up because some tech is going to come up from there. So I think there’s a different way of viewing it but to mention what Chiente said, it doesn’t matter which, is it Terra or stable coin, or any of these cryptocurrencies has gone down. When they go down, the market interprets the volatility as it’s not ready to be used as a payment mechanism. So it gets kicked down the can, down the road. In time, I think once volatility subsides and I always believed, I think everybody believes volatility, the long-term holder’s best friend because that’s when you want to get the gains to be honest. And short-term, like you say, P is just noise.

[41:02] P: Yeah, this kind of volatility for me is just more time to buy, more time to accumulate this as a precious asset. Chris, you had your hand up. Go ahead.

[41:11] Chris: Go ahead, Chiente, I’ll go after you.

[41:13] Chiente: Thank you so much. I’d like to say volatility is a path to equilibrium.Without volatility, we can’t go to the equilibrium. And I want to say, there is a lot of noise out there, if it were just crypto, it would just be Bitcoin. I think we’ll all be worried, but I think it’s also our job to tell the whole world, put out the statistics, put out the numbers saying that this is a global market event. It’s not just crypto or Bitcoin. Actually, Bitcoin as James said, it has outperformed NASDAQ. If you look at that year today, and these are just some numbers again, I apologize [inaudible] a year today, Bitcoin drops 37%, NASDAQ drops 27% but guess who has a better shop ratio? If you think about theBitcoin’s volatility is double that of NASDAQ. No brainer, you would choose Bitcoin.They showed me a very interesting TikTok yesterday. I just want to keep people kind of mindset on the historical landscape. We are still in our infancy. So, for example, in the early part of the 20th century, there were 1900 plus automobile companies in the U.S. and everyone knew. Everyone knew the automobile is going to be huge but guess what? Only three companies became huge and that’s GM and Chrysler. And I guess we can just replace forward with Bitcoin given the current vision of crypto.And let’s talk about 2000-2001, the dot-com bubble. In 1999, alone, I was on the train forCredit Suisse. There were more than 470 company not went public, obviously most of them were dot-com companies and subsequently, NASDAQ fail 78%. It took 17 years to recover. And Amazon started to drop from a $100 to $6 at one point. So I think our job to tell the world and separate the noise from the truth is that this downturn is a global market event. Actually, Bitcoin came out really well. That’s what I wanted to say. Thank you.

[43:50] P: Well put. Chris, what you got?

[43:53] Chris: The conversation was just flowing so I didn’t want to interrupt it. I guess this ties back to a few minutes ago. So James was mentioning the downfalls of gold and stuff like that, that it centralizes and obviously there’s a lot of paper markets that move that keep the price locked. I guess, this is just a question to the floor. Do you guys see the same thing potentially happening with Bitcoin? I’m not familiar. I keep joking that Gary Gensler is doing the investors a favor by keep blocking the spot ETF because he’s just telling you that you should get Bitcoin yourself and self-custody and put it in distributed multisig. I understand that that is more difficult for like, my grandmother would not do that and it would definitely help her to have something that would be like a spot ETF or something like that.Is there any issues or do you guys see any issues with potentially having a spot ETF or how that can manipulate price or cause issues in the future of centralization?

[44:51] James: I’m gonna answer and I do want to hear what Jeff has to say on this but I think that’s inevitable: Number one, for us to get the spot ETF. Number two is it will absolutely do the opposite and my opinion of what the future’s ETF is doing. And the problem is, the SEC wants to regulate. They want to regulate every single exchange at this thing trades on. So they’ll regulate the CME. So they don’t care about the futures.That’s fine. It’s the spot that they worry about because they don’t know these exchanges, they don’t know the crack and then the Coinbase and they’re not they’re not regulated in the same fashion that the other exchanges or the public exchanges.So the problem that they’re at least pointing to. So, eventually though the cascade of demand is just going to force their hand and they’re going to have to approve it. And then once that happens, it just enables a lot of smaller players, smaller family offices.RAS who don’t have the ability to custody self custody for their clients. It’s going to be a much easier vehicle for them to use and get into, and get exposure to Bitcoin for their investors. Now, we’re talking about Bitcoin as an investment here. To me, the long tail on this is a much greater play, but just as an investment, the problem is it just takes so long for a large institution to get approval to do this. You guys have heard me talk about this before. A lot of people, I can see on in the audience, have heard me say this before and I apologize if I’m repeating myself but people don’t understand. You’re getting the chance right now to buy something that the institutions just can’t yet. They have to go through so many steps to get there. They have to get a portfolio manager to actually understand what Bitcoin really is and why it’s a separate asset class, why it should be created as a separate asset class in their investment portfolio.Then he’s got to get the chief investment officer to agree to that same exact conclusion.Then they’ve got to go in front of the investment committee, and this is a board meeting with 10, 12, 15 sometimes, 30 people sitting around this table. And you know what it’s like, when you try to get a consensus on something. It’s extraordinarily difficult and they’re all sitting there debating whether or not this should be a separate asset class.And once they finally do get buy-in from that board, which takes a long time. It’s not one meeting. It takes two, three, four or five meetings, which is two three, four, five months.Once they finally do get buy-in. Then they’ve got to get the compliance committee to get buy-in on it and the chief compliance officer and the general counsel. And once they get that buy-in, then they’ve got to decide exactly how the protocol is going to work within their investment world.Who is going to custody it? Who is going to hold the keys? How are they going to make sure that the risk management on that is proper and they don’t trip any fiduciary duties.