[upbeat music] Welcome back to the Block Space Live show. This goes live now, Monday, Wednesday and Friday at noon Eastern. So if you're in New York, you can watch us while you eat lunch.
And if you're on the West Coast, uh, you don't, you know, you don't have a real job, so you're probably going to brunch on a Friday, so. Um, we got a banger lineup today. Uh, there's a lot of...
We have a lot of guests, a very packed guest lineup. We are kicking off with Alex from ARK Labs on their massive raise led by Tether. We got some giga brains over at CleanSpark and 2Prime talking about miner financing.
The IRS is trying to catch you with your pants down. They're trying to lure you into, uh, giving away a little bit too much info. And then also, uh, everyone else got the 20 million Bitcoin rollover story wrong.
We were the few that actually caught it on the actual time that we hit 20 million Bitcoin.
And then of course, we got Luxor in the house towards the end talking about how bad the ASIC market is, but also how interesting it is. So Colin, welcome to the show. Thank you, Charlie. We also have Binance's big week.
CZ- Oh, yeah... leapfrogging one of the most, uh, infamous tech billionaires, and also, uh, Binance going after Wall Street Journal for allegedly fake news. We're gonna get into the, well, he said, she said for that.
But- Yeah. But CZ mogs on, uh, Bill Gates is the, is the lead. I wanna say that shout out to CleanSpark. This show is brought to you by CleanStar- CleanSpark.
And, uh, yeah, I think we're just gonna riff on the price, Colin. Yeah. We're, uh, we're starting today on a high note, and I'll get the BTC price chart up here.
We are up almost 10% over the last five days, and we are up 2.4% today. We actually topped out at almost 74,000.
We're getting dragged down a little bit as we're recording, but apparently World War III is good for Bitcoin, but it's not really good for the rest of the market. This is from Watcher Guru. Oh, man.
Nearly $1 trillion was wiped out from the US stock market yesterday. Red Square bad- Bitcoin was the head to give me anxiety- Nvidia and Microsoft. [chuckles] Yeah. I mean, look at this.
I mean, the, the tech giants are all selling off, which makes sense, you know, i- in, in some, some capacity.
I mean, a lot of these companies are just incredibly overvalued at this point, and, you know, tech is going to zero in, in the age of AI. I'm kidding, but also not kidding.
And if we look at the, uh, action today so far, the S&P opened down, um, about 0.4%. Let's see what the Dow is doing. Uh, Dow not down as much. Kinda makes sense to me a little bit if you think about the fact that...
O-okay, straight-- We're not gonna get into geopolitics too much, but Strait of Hormuz is closed.
A lot of, uh, of, of America's industrial capacity for, um, any things like chemical manufacturing, oil production, things like that, is somewhat insulated from this.
You know, oil prices are going up, that's gonna have a deflationary shock on certain industries. But the US is in a better shape with oil flows seized up in Hormuz versus, you know, Asia or Europe, right?
So for Dow, an industrial indus- index, maybe not as bad. Y-you would expect it to see some resilience with regards to this.
But, um, I wrote about the conflict in Iran and how it affects Bitcoin miners for today's newsletter. If you're interested, check that out. Overall, Charlie, I mean, nice to see Bitcoin up when everything else is down.
People are starting to say, "Is it finally acting like a safe haven asset?" I'm like, I'm always hesitant to accept those narratives. It's only been a few days, right? Yeah. It could totally crater in the next week.
But I think more likely what we're seeing, the resilience is nice, but Bitcoin already had its sell-off in early February. It got crushed. I, that's what I'm telling, that's what I'm telling myself.
Look, Bitcoin's up, oil's up. I guess technically digital oil might be up. I don't look at that chart too often. I also don't really care about it. Um, you love to see Bitcoin go up when everything else, uh, crashes.
It does. It feels good. Um, I think we should talk about the hashrate index. We do
hashrate index review at the top of every episode here. Um- Yeah, this is, uh, Luxur's data platform. Yeah. If any- If you've never used it before, if you're a Bitcoin miner, you should be using it. If you're- Yeah...
not a Bitcoin miner, but you're interested in what's going on with the Bitcoin network vis-a-vis mining metrics, there, there isn't any better resource out there.
And as you can see, Charlie's got the hashrate chart pulled up, and it's kind of been the same thing week in and week out, Charlie. I mean, hashrate is really just flat. It's basically been flat.
I mean, I'm- Maybe if you zoom in enough. You know, every Bitcoin telling you to zoom out. Volatility. Let's zoom in. Yeah.
So- If you smooth out the volatility, it is unchanged since September of last year, which shouldn't-- isn't that surprising because mining revenue, uh, i.e. hash price- Yeah... is just above an all-time low.
I believe the all-time low was $27 and a few odd cents per petahash per day.
So that means if you have a petahash of mining equipment, which is like roughly, which is like five S21s, a, a new-ish model, y-you're making 27 bucks a day.
For context, and this always blows my mind, at the peak of the hash rate, uh, or, or the hash price bull market in 2021 after China banned Bitcoin mining, miners were making like $400.Per petahash per day. Yeah.
And that's not even- and we didn't measure it by petahash at the time. That was a terahash- Yeah. Back in terahash days... hash price in the market. And ASICs were on a what?
Nine-month to twelve-month delivery timeline if you wanted to get new batches. Yeah. Very chaotic time. It's kind of also like- And they're also super expensive. Yeah.
It's also kinda like trying to buy H200s right now- Mm-hmm... if you're in AI HPC. A lot of analogies there. We've actually in previous episodes riffed on this topic with other Luxor folks.
Um, but before we bring on Alex B from Ark Labs, let's take a look at I think one of the most disappointing things on Bitcoin.
This might actually tee up a fun context for Alex, which is the average Bitcoin net- the transactions on the Bitcoin network. Now, if you're not like...
You know, if you're in mining, you probably care about your, your, the hash price. But hash price
eventually will be more driven by these, this, this transaction chart here, which is down pretty significantly, um, in terms of gross number of transactions per day and then transaction revenue per day. Um, it's--
there's not a lot of light at the end of the tunnel, uh, here for, like, just gross, uh, gross activity on Bitcoin.
Um- It's also an incredibly damning fact that the most transaction volume that we've had in Bitcoin in recent years is from gambling on monkey pictures. You know, like the ordinals and inscriptions crowd.
To be clear, we're gambling on tokens related to monkey pictures. [chuckles] Sure. Sure. Uh, but yes, it is. Yeah. Yeah, I mean, what, you know, runes, whatever. It, it's just the fact that the, uh, Bitcoin
NFT and then fungible token, you know, universe that was sparked with ordinals being introduced in twenty twenty-three was the primary driver for transaction fees.
I mean, you could even go back and say it, it, it's, it's the largest source of transaction fees since twenty seventeen. Basically, since before SegWit became standard for wallet formats. Yeah.
And there's gonna be a bunch of different ways to skin this cat and describe like the nature of transaction fees and their origination.
But, um, yeah, we're gonna have to figure out what the next, uh, major stepping stone for Bitcoin users is, and I think that's where our next guest probably comes in, Colin. Um, I think let's go talk to our first, um,
guest. Well, let's get the- let, let's get the news- let, let's get the headline up, and then- Oh, yeah... so people can know what, what we're- Yeah... doing here. Yeah. Let's, let's intro the story first.
Perhaps one of the more exciting fundraisers. Yeah. A wild fundraise, five point two million seed round for Ark Labs led by Tether, the stablecoin giant, to build, quote, "programmable finance on Bitcoin."
They put out a press release,
um, this not, not, not just Tether, but this, you know, we've had Draper Associates, Fulgur, Axiom, Ego Death, BIG, Bitcoin VC, Epoch or Epoch, Sats Ventures, Anchorage, um, and some notable angels. Uh,
yeah, big story this week. It's done a lot of numbers on socials. I think let's just bring up the man of the hour, Alex. Okay. Alex B, welcome to Blockspace Live. Big week for you guys. Big week.
Um, it's been a long time coming. I mean, kudos to the rest of the team.
I had a little small part, uh, to play in terms of communicating, you know, how it all went down, but really it was the work of, of Marco, our CEO, and, um, and mostly really the work of our technical team who've been absolutely grinding in the background.
And it's, it's really serves as a validation of the, I think, technology direction that we took, um, I think a little more than a, than a year ago now.
S-so I've, uh, I've tried out the Arcade app, and, um, one thing I think a lot of people actually get confused about is like the difference between Ark Labs, Arcade, and then like what is Ark in general.
Do you have like a one-minute pitch to try to explain- [chuckles]... the difference here? [chuckles] Um, yeah. We'll try to make it quick.
Well, you know, Ark is kinda like the founda- uh, fundamental primitive, um, that is being leveraged here. It is this new technology that was introduced, um, you know, talking about three, at least three years ago now.
Um, and it is now being deployed by different teams, um, in different ways.
Um, and I think the best way to go about, uh, at least the way that we explain it, is Ark, uh, fundamentally speaking is kinda like a batching protocol for on-chain operations, allows you to nest, uh, and compact a lot of off-chain execution into taproot trees and allow users to get a bit of a dynamic that, you know, people that have interacted with other applications and protocol across the pond in the Web3 environment where, you know, you use rollup, you do your stuff off-chain, you commit, uh, the, the finality of those operation on-chain.
And so Arcade is our implementation of the Ark protocol. Arcade is kind of like our co-commercial, uh, platform.
And Ark Lab is, uh, initially what was more so a research company, um, you know, pushing forward p- uh, development of the Ark protocol, but, uh, I think now we're turning into, uh, an infrastructure provider, uh, and we're also looking at avenues to actually create products ourselves on top of our own platform because we think, you know, we work closely with the protocol.
Um, we know exactly how to leverage it best. So the Arcade wallet, which you've used, is our first iteration of this.
It was kind of a bit of a throwaway prototype i-initially, but, uh, yeah, we, we are starting to have some, uh, interesting ambitions for a lot of that stuff.S- so with regards to you talking about like Ark is the primitive behind this whole thing, and then Arcade is y'all's wallet, are you hoping other teams to build on top of this?
Is that the, uh, the roadmap and, and-- or is that in the roadmap? Is that part of the strategy? A hundred percent. Uh, I mean, we're already talking with a lot of partners.
You know, we have people that are building on top of Arcade at the moment.
Um, one of them, the major one really being Bolts, uh, the, one of the, you know, gold standard in terms of cross-chain, uh, Bitcoin non-custodial bridge, really.
And Bolts came to us and, you know, we had an early relationship because, you know, obviously Lightning is an imp- an, an important part of, uh, the stack that we're building, but we didn't wanna build Lightning in-house and operate the service ourselves.
Uh, and there's a lot of reasons why you wouldn't wanna do that. First off, we don't have the expertise, uh, to be doing this.
Uh, and it, it was kind of obvious for us to go to a team like Bolts, who's really been, you know, spearheading a lot of that stuff e-early on.
They're probably covering most of the existing, you know, liquid to, uh, Lightning swaps, on-chain to Lightning swap across the entire industry.
And so we know that they operate one of the biggest, most reliable nodes, nodes on the Lightning network, so why not partner with them?
And what this gives us also, uh, is I think it re- it creates a bit of a separation of duties, right?
So you don't wanna be running all of the rails going in and out of the Ark protocol because you wanna remove any appearance of sort of, you know, ability to kind of censors, uh, censor people g- moving in and out.
And I think if you do that, you kind of
avoid creating this sort of single point of failure, where if we go down or if we, uh, get compromised for whatever reason, at least, you know, Bolts more likely than not is not compromised at the same time, so this gives stronger security properties for the users of the system.
And, you know, we also have people like Landersat and Landerswap that are building on top of Arcade. So it's very much an ecosystem efforts that we're building here.
But again, obviously, we wanna kinda like lead the charge, and, uh, we're looking to maybe set a bit of a pace in terms of what we think, uh, is really, uh, cool to build with, with the entire stack.
And, you know, we're gonna work organically bottom up and top down as well in terms of, uh, integrators.
So one of the su- like super clear, uh, you know, I'd say points you guys have, have shout out is, uh, stable coins and settlement.
Um, especially with the Tether lead, uh, I guess like I wanna, yeah, talk a bit about this, uh, the focus on stable coins and potential collaboration with Tether.
Like stable coins are kind of the holy grail of, of like, uh, fic- of this new financial rails use case. [laughs] Uh, what are your thoughts on this?
They're definitely the, the, the hot, uh, you know, they're, they're definitely the hot topic at the moment and, and for good reason.
You know, you look at, uh, any charts in, charts in crypto right now, and a lot of the action is looks like things are stalling or whatnot.
But if you look at the stable coin issuance, uh, chart, it's up and to the right, uh, and it continues to, uh, really climb because there's definitely this sort of, you know, there's progress, uh, from a regulatory perspective.
I think that that was the break, big break, right? Uh, and the, the Clarity Act and the, the, um, the other one, which I forget.
But anyways, you know, you can feel like institutions are getting, uh, uh, warming up to the idea. And, and therefore, um, it becomes very important, I think, kind of...
I mean, you can't avoid having some sort of stable coin, um, i-infrastructure if you're building a, a platform for digital finance. And at the end of the day, that's kinda like what we're building.
We're not necessarily building-- The way that we look at it is like we have Bitcoin foundations, but we don't necessarily have a Bitcoin identity.
Ultimately, we're Bitcoiners, and we all, uh, we, we very much believe that Bitcoin is, uh, the most important asset in the ecosystem, and it's more likely than not going to be, uh, the form of money that everyone uses in the future.
But from a pragmatic perspective, we have a landscape where people are using stable coin. People are using stable coin for payments much more than probably they're using Bitcoin for payment.
And so how do we, are we able to kinda create a ecosystem where people are able to move in and out of stable coins, use stable coins at their convenience, but always, if they wanna, you know, stay with their Bitcoin, be able to kinda like keep the properties that we, we appreciate from Bitcoin, which is self-custody and all that stuff.
So obviously, Tether, uh, becomes a major partner from that perspective.
Now, um, it's gonna be a bit of a process for us to eventually, uh, hopefully see issuance on the, uh, Arcade platform in terms of Tether actually being minted there.
And it's interesting because there are different ways that this is being played out now, especially because, um, all of these
siloed component of different chains are kind of being broken apart right now, if you look at the USDT Zero protocol, which allows cross-chain.
Uh, and so where the, uh, Tether is being issued nowadays doesn't matter too much because you're able to move it across chain, uh, in a very, very, very efficient way.
And so, um, something like USDT Zero becomes interesting, and this is where we think we have a bit of a leg up because in order to be implementing those cross-chain protocol, you need native programmable easy components.
And this is what has been lacking, we believe, uh, when having conversations around payment is at the end of the day, payment is just not, not just sending money from A to B.
There's a whole commercial realm where, you know, you need different functions, and you need different features to be able to really be able to process payments at scale.Um, you, yeah, you guys have this, uh, you put out a great article, uh, this past week on, uh, stable coins payment, the case against payment blockchains.
Mm-hmm. Very spicy because all these payment blockchains, Tempo, s- uh, they're, they're raising millions, uh, to just be a payments blockchain. Um, why programmable money, not platforms? Well, I mean,
I think when you look at what exactly you're trying to do and, uh, when, when you're sending payments and how the actual payment infrastructure and architecture operates in the real world today, um, you look at h- uh, what Stripe is as a business, what, what Visa is as a business, it is not a business of simply again, moving dollars from one, uh, end to another.
It's a business that handles fraud, that handles accounting, that handles chargebacks, and all these, all these kinds of things which are not going to disappear just because we're moving our payments from, you know, dollars in a bank account to dollars i- on a-- in a stable coin or Bitcoin, right?
So I mean, there's an argument to be made that obviously if you're doing end-to-end payment, peer-to-peer payment, maybe you don't need the fraud protection, uh, i-in certain sur-circumstances.
But I think there's clear value in, uh, those features, and this is why those companies are so successful.
So if you're thinking about, well, how have you-- we thought about, uh, payments in the, in the, in the Bitcoin landscape so far, it really has been, you know, lightning and, and on-chain and, and these things which are great because, you know, we say they achieve finality.
The pay-payment cannot be reversed, and we kind of proclaim that as a feature, and it is to a certain extent.
But there's a lot of scenarios where the fina-- like an instant finality of a payment can be a pain in the ass actually, if you need to and handle disputes between buyers and sellers and things like this.
And then why do we need programmable money rather than pro-- uh, than, than platforms?
Well, really it's, it's a perspective where you look at what Stripe is building w-with Tempo, which Stripe brings a lot of value in being this sort of like this economic agent in the payment architecture where, yes, they're able to provide a trustworthy third party, which is able to remediate relationship and commercial relationship between, uh, entities.
But you don't wanna be put in a s- in a place where
the settlement layer, which actually orchestrates, you know, the settlement of whatever is the outcome of these, uh, commercial operation, is also controlled by, uh, someone like Stripe by, by way of Tempo, right?
Because then you create sort of issues with regards to neutrality.
Obviously, they're gonna create all of these bigger consortiums and say, you know, "Listen, we have a bunch of, uh, very important institutions sitting on the board of Tempo," and we're not, you know, I'm not suggesting they're going to, you know, s- you know, compromise people's money.
But at the end of the day, if you wanna build from a global perspective, right, Tempo could be very successful in the US, but is someone in, you know, the Global South, is someone in China, in Asia is going to trust Tempo's sort of commercial payment infrastructure, we think that's unlikely.
And so all of the features that these guys are busy delivering on, you know, again, those payment blockchains, we think actually if you look at closely at the Bitcoin architecture and the way that, you know, Bitcoin UTXO function, you're able to replicate those.
You know, these guys, for example, like with Tempo just a couple of days ago, pushed a feature.
Everyone was sharing it on X, and it was basically they were basically shilling a-as if they found out about deterministic wallets.
Like the ability to create like single addresses for, uh, deposit and there, and then be able to sweep that like in a single transaction without...
And, and, uh, so I, I, I think, you know, when we go back to first principles and see, okay, what are we able to build with the stack that we have, and using Bitcoin, but extending Bitcoin via Arcade and the programmatic, uh, the programmable component, we're able to go head-to-head with these, uh, platforms while, you know, maintaining a sense of neutrality for all actors that are participating.
So Alex, zooming out a little bit, can you tell us what the ideal user profile is for Ark and Arcade, and also give us a few examples of how people might be interacting with this? Sure.
I mean, I, I mean, you, you gotta look at the bit of the timeline of how we're delivering, uh, products and services.
So at the moment, the main use cases that, um, we've been putting the foundation for is very much transferring, uh, money.
So, you know, we had to create this A2B transfers, these lightning swaps in and out of the system to bring connectivity to Coinbase and all of the exchanges now that really support lightning.
But then you look at escrow components, so what if you have kind of a, a, you know, a local market for, um, to, to buy Bitcoin.
You know, we, we forget about, uh, things like local Bitcoins and, and platforms like this, which normally would've used escrow systems.
But the issue with escrow systems built on-chain is they were kind of very inefficient and ca-came with all of the issue of, of using Bitcoin on-chain.
So, uh, you know, there's, for example, if you're familiar with Peach Bitcoin, which is a very sort of very popular in Europe, uh, in terms of being able to intermediate, uh, these, these transactions between buyers and sellers, um, there, there are things like thisBut ultimately,
you know, we wanna get into a position where payment processors, uh, we wanna get into a po- a position where lending businesses are able to work with us because you're able to kind of get the clear, transparent program- pro- programmable, uh, assurance that you normally get out of Bitcoin, but make that work at scale, and, um, with kind of the security that, you know, we've all come to, to expect out of Bitcoin, most importantly not having to bridge your money in and out of different systems with much lesser security guarantees.
Um, and in the future obviously as we accelerate forward with, uh, the help of this fund, uh, raise as well, is we've got a crack team of engineering who's putting together a, a, a full stack sort of modern development experience, uh, for Bitcoin which has never existed before.
And, and it's going to be something where any developer that has been familiar with the Web3 environment, whether it's Sola- Solana or DVM, is finally going to be able to come to Bitcoin and, and look- and be like, "Okay, look, I don't have to build kinda like, uh, op cat script, uh, directly on top, uh, with the, with the stack," and very, very kinda like, uh, hard and just unfamiliar type of development environment.
No, we're gonna give them compilers, uh, languages which they're familiar with, and with the beauty of AI now and the beauty of abil- being able to deliver that, you know, through agent skills, um, it's going to be very interesting, you know.
Uh, Charlie might be put in a situation where he's going to be able to create his own, uh, lending and borrowing service or maybe create his own equivalent of a Morpho Vault, uh, for, uh, to, to deposit whatever token, um, he wants to play around with.
Uh, so this is really the goal, you know.
For us, um, I think the audience is developers, I think the audience is businesses and institutions that really wanna do, uh, more, uh, advanced things with, with their Bitcoin than just, again, sending it, sending it from A to B.
Yeah, I'm excited to vibe code some apps on, uh, Arcade. Um, I guess to round this out, um, you know, you're talking about like some big ideas: stable coins, settlements- Mm-hmm... agent to agent payments.
Like, what's like one of the curve ball, uh, goofy things you think you might, we might see on Ark, uh, assuming you see- [laughs]... lots of folks trying to like throw stuff at the wall? I don't know.
What's, uh, what's the most fun- Well, I mean, I think something that would be really fun is that maybe we're kind of able to
shake a bit of the conversation in Bitcoin around covenants and around, um, all of this soft fork, uh, debate because we'll be in a position where, listen, you guys have been talking about covenants for the last five years- Yeah...
why don't you come play around with covenants, uh, on, on Arcade? We've had teams already approaching us, uh, wanting to build like ZK verifiers on, on top of like Arcade script.
And I think that's gonna create an interesting, uh, you know, again, curve ball to the conversation because then people are gonna realize that while you might be able to do that on chain if we kind of are able to wrangle all of the script component we need to be able to do it on chain, but are you going to be able to kinda replicate the experience that you get out of having this off-chain execution, right?
And most likely it's not going to be the case. But I'm also very interested about
this ability for people to get familiarized with, uh, covenants and this, you know, all of the FUD that has- because at the end of the day, listen, if there's covenants that are coming on chain, we'll be some of the biggest beneficiaries, so we're certainly not against them.
But I think it's going to be interesting for people to build applications with it, and certainly it's going to help kinda like probably fight a lot of the FUD that surrounds, uh, this conversation and say, "Listen, this is how it's playing out.
You can test it, you can look at the code, and this is what you're able to achieve." So maybe, you know, I don't know which way it's going to shake things up, but, uh, certainly that's gonna be interesting.
Alex, we're running up on time, so quick lightning question. Uh- Yes, sir... no pun intended. [laughs] Uh, does Ark identify as an L2, and is that even a useful identifier anymore?
Well, I mean, I don't answer it for Ark because I think there is no such thing as Ark anymore.
Um, I mean, there is a bit of a spec of a protocol, uh, with, again, key technology pillar about how people are able to leverage it, but as I said early on, um, everything that's building on top of A- of, of Ark now has taken a quite a different technology direction from what the original proposal was, and therefore, um, Ark itself I don't consider a layer two.
Ark I consider a technology that, A, enables people to be able to build what could be layer twos, but I think the bigger question is do people even wanna hear about layer twos anymore?
And I think we've come to the conclusion that that's just not the case. I think- You're right... uh, what you should be trying to do is just build on Bitcoin.
And I think people are not trying to hear about lightning anymore. They just want products and services that leverage the best technology, but really they, most people don't care about the technology.
Certainly you care about the security guarantees, uh, and that's for something, that's something for integrators, uh, and operators to, to, to discuss.
But ultimately, you know, the, the getting bogged down into the layer two conversation, we've decided to completely move away from this because it's not very productive, um, and it just a bit of a...
It, it, it, it, it really is much more, it, it, it's nerd sniping more than anything it feels like. Alex, thank you so much for coming on Block Space today.
We'll certainly have you back as Ark continues to roll out cool stuff, Ark Labs continues to roll out cool stuff- Arcade. Arcade...
Arcade continues to roll out cool stuff.And you can correct me every time that I say it wrong. Cheers. Thank you very much. Thank you, Alex. Thank you guys. Thank you so much. Have a good one. We are CleanSpark,
America's Bitcoin miner, a publicly traded company with the largest operating hash rate, powered entirely by self-operated infrastructure across four states.
This is our proof of work, and we are setting the standard for what's next. Learn more about the intersection of energy and Bitcoin at cleanspark.com. Got our next segment coming up.
We have Rory Murray of CleanSpark and Alex Bloom of Two Prime. We're gonna be talking about the market a little bit and how
Bitcoin management is changing for some of these public miners, and also what the lending landscape looks like as Bitcoin's recovering off of a yearly low. So Rory and Alex- Let's roll them up here. Here we go...
welcome to the stage, gentlemen. How we doing today? [laughs] Hey everybody. Doing well. How are you? Pretty good. You know, we were opening up this live stream looking at Bitcoin
actually doing really well as the world is falling apart, it seems.
And, you know, we pulled up this Watcher Guru tweet where the S&P and the rest of the market hemorrhaged about 1 trillion yesterday, but Bitcoin is up almost 10% over the last week.
So Alex and Rory, uh, we'll start with you, Alex, then move on to you, Rory. What's your take about the- the action right now? Is, are you cautiously bullish about this?
Is it too late to s- is it too early to say that Bitcoin's actually acting as a safe haven asset during this conflict? What's your take? Uh, I would say it's definitely too early to say that.
I mean, there's very limited, like, correlation right now and, or y- you know, Bitcoin's down 50%, so that if it's rebounded 10% off the lows, I, uh, that doesn't really, like, compel me as a great store of value.
And, you know, definitely gold has shined much better over this period than- Why did we invite this guy? I- [laughs] Be more bullish, Alex. I'm just kidding.
Bitcoins just- just eat steak and buy Bitcoin and everything is, is solid, I promise.
[laughs] Um, and then I think if you just look at, like, a historical correlation study, there's just not enough data to say that this really means anything.
You know, I think there's kinda Bitcoin-specific factors maybe around ETF flows and stretch buying, uh, an absurd amounts of Bitcoin the last couple days that might be buoying the price.
Um, but you know, we front ran the whole collapse of the market, and so it might front run a, a run back up, but I, I wouldn't say it's, like, an amazing store of value now that it's down, I don't know, 45% instead of 50% from the highs.
Sorry. [laughs] No, it's okay. We like pragmatism. Rory, give us some hopium, though. No, just tell me what you think.
No, no, [clears throat] seriously, and, and this is why, look, when we were, we were talking about doing this, this is, I, I think it's great to get, um, you know, I, I, we certainly don't, and, and, and, and, you know, obviously we're talking to two of the, the best in the business here, but there's not necessarily a dearth of Bitcoin podcast content out there.
Um, what I do think that there is a dearth of is real market practitioner talk, people that are really in the, in the weeds every day, making markets, kind of tr- you know, tr- trading between things, uh, managing deltas and gamma and, and kind of all that, all that kinda thing.
So I'm really happy to get on, hear a little bit more, talk about it from our side, from the buy side, and then A- Alex is kind of in between, but also, you know, obviously with Two Prime, um,
is, is kinda servicing a lot of clients there too, and so I, I think it's, it's great to hear those, those takes. I appreciate the pragmatism. I, I'm with you ph- like, philosophically on the, you know, it's...
I, I was looking at the Arthur Hayes tweet last night and it's, you know, BTC up 7%, gold down 2%, NASDAQ down 50 basis points since the US-Iran war started on February 28th.
Now, I saw another tweet that's basically been saying that we've been pricing in, in Bitcoin the closer, closer, closure of the Strait of Hormuz since September.
[laughs] So, um, you know, so there's definitely that aspect of things as well. [laughs] Like, let's be very, let's be very frank and, and honest about it.
That being said, you know, um, I think all the d- I think all the things you- you're talking about, Alex, are, are absolutely contributing to it.
It definitely feels like there's a stretch bid in the market in the last couple days.
Um, you know, I'm, I'm not following the story tick for tick, uh, and, and, and not super in the weeds on the technicalities, but I'm seeing a lot of kind of, you know, news flow on, on Twitter about they're seeing this amount of volume, they kind of, the read-through generally, the correlation is that generally means that sailors in the mar- if they're getting this amount of volume in the, in the underlier, that means that he's able to be selling this amount,
and you're likely to see kind of some future flows into Bitcoin. That is outstrap- that is outstripping, you know, minor supply right now. Um, I also just think we've got- we've reached...
But I also think it's, it's like everything in, in Bitcoin. We've reached a point of exhaustion to some degree, I think, my goodness, let's hope, in kind of the OG coin selling.
I think that there we've reached a point of, if not exhaustion, at least a place of pause, where I think some of the, the weaker BTC TCs and DATcos have kind of slowly started to see themselves out in certain ways.
I think the ones that have, um, more staying power, like I, I really have always been a big fan of, of Metaplanet and Dylan McLaren, what those guys are doing over there.
They announced some really interesting things the other day.
You know, I've, I, um, you know, continue to believe that, uh, Sailor has, um, has, has, has, has resolved in a way that I don't think that people necessarily fully kind of price in.
You can, we can debate kind of the, the merits of, of that. So, you know, I, I, what I see is, is I think that Bitcoin often leads things because it's a tip-of-the-spear assetIt often leads things to the downside.
It often leads us to the upside.
Um, the price action I've been seeing is it feels like we are, uh, the sell-offs are coming due to macro conditions and getting caught in with kind of the daily sell-offs or risk, or, or kind of risk management, people not wanting to be long into the weekend.
But it feels a little bit like a beach ball right here, where it keeps kind of trying to pop up, and then some more macro stuff kinda comes up, and then there's more flows on the other side.
And, and Bitcoin's always been a, been a, um, been a stock and a flow asset, where the stock kind of constricts, um, to the point where, um, you know, sailors buying up X percent of it, you take less kind of supply off with the OGs, and then you kind of have a lower flow asset.
And then you just get a little bit of that flow in there, and you get these kind of up- you kind of get these outsized moves to the upside or the downside. So I, I actually am...
I wouldn't even just say I'm cautiously optimistic. I'm fully into the optimistic category.
Not, not painfully optimistic, uh, but I would say I'm, I'm optimistic with the price action that I've seen over the last couple of weeks and, and some of the developments in the market. Yeah.
Uh, thanks for that h- that bullishness, Rory. I'm gonna throw a question to Alex here, which is, so Bitcoin drew down 50% over the past several months.
Um, what, how did your loan book fare, and then what are you seeing as far as, like, borrower behavior? What are they doing right now in the $60,000 and $70,000 Bitcoin? Yeah.
Um, well, I should say for us, you know, the minimum loan size we do is $10 million. So it's much more on the institutional side. I think our average loan size is something like $60 million.
Um, and so I think you see a lot more of these liquidations occur on the, um, retail side of things.
However, actually for the first time in our history, we actually did have to actually liquidate a client, uh, and sell off couple, $10 million of Bitcoin.
Uh, we saw other clients that weren't liquidated in the sense of a default, but they said, "Hey, we wanna sell our Bitcoin and get out of this loan and pay off the debt."
And so that was new for us, but it's much more orderly than, like, a retail lending book, and I think in a, you know, proportional smaller scale than you would see.
You know, I believe, like, Ledn, they, they did this ABS securitized loan book right in the midst of the, the market crash in February, and I believe 25% of that $188 million loan book was liquidated while they were trying to sell it, which one hand shows, oh, we can do orderly liquidations and protect principal, which is a good thing.
But at the same time, 25% of the book got blown out, and I think that was comprised of 5,000 loans. Uh, we have one- single loans greater than $188 million. So it's just a completely different market.
That being said, you know, I would say lending in general is pretty highly correlated to the price of Bitcoin. You see more lending activity when the price has gone up, and you see less when the price is down.
There are some groups that, uh, are ta- Like, we've done, like, $50 million of loans this month, and there are groups taking advantage and, um... or they just have to.
They need to pay for things, and they don't get to choose when they take out the loan. And so some groups like that, but it definitely slows down.
I think the other thing that worries me about the lending market is a lot of funds in DeFi are in, like, there's nothing to do in DeFi right now, and the rates are very low, and so you have people willing to allocate to lending protocols at 3% to 5%.
And then so it's reduced the rates of lending all across the board, where institutions are now like, "Oh, I'm getting offers at 5%, 6%." Uh, however, the money in DeFi is open term, floating rate money, right?
Which means it could be called back sometimes one day, seven-day notice, and the rate can change depending upon supply and din- demand dynamics.
So what you can have is if Bitcoin goes up to 80K, 90K, and the DeFi market comes back alive, you get a huge rush on all these money being pulled out of these protocols, or the rate goes up to 20% or something.
But these lenders in the middle, DeFi lenders, are lending out fixed term, fixed rate loans.
So they're in a year-long loan with some institution or Bitcoin miner, and on the other side, their money's actually leaving the door, and I think there's a potential for that to cause real harm, uh, in the market.
And I think some institutional borrowers don't even know the end source of their money are these DeFi pools, and so they don't even know it, that they're exposing themselves to this risk.
We've, of course, uh, don't do any of that stuff, and that's why I'm obviously biased towards not doing that, but I think, um, that could really have a, a problem on the market, right?
When the market picks back up, you might see people trying to move loans out of DeFi stuff into more stable sources, but not being able to make the leap in time, and you could see major, major problems.
And, and one of the other maybe not unspoken, but underappreciated aspects of the DeFi ecosystem is you're interacting with a smart contract that may have been poorly audited.
I mean, I'm sure some of these shops do their due diligence, right? No doubt. But we, we've seen headline after headline of, of these places having vulnerabilities.
So- Yeah, just, and, and AI's exploiting them too- Yeah... but that's another topic. Um, Rory, kicking a similar question to you. H- how does this volatility change how you manage CleanSpark's Bitcoin stack?
I mean, this has gotta be... Is it... Are, are you thriving in this? Are you in your lane and flourishing, or is, does this have you kinda on the edge of your seat?
Uh, you know, as we talked about back in, I think, uh, was it, when were we in Nashville? January. Talked about how every...
Yeah, January, how, how every day is, is, is kind of a bad day in, in, in digital asset management- [laughs]... because your, your job is to be on the other side of everything, essentially.
Uh, so, you know, w- we talked about, you know, the, the, the long-term big picture is, is we are definitely thriving.
You know, the day-to-day is, is we are, you know, we are, uh, we definitely benefit from the volatility we talked about.
I think, I think particularly last quarter when we threw up those, what I thought, what I personally felt like were some, some really nice numbers. We did about $13.2 million in revenues for the last quarter.
We definitely benefited from that volatility and, and were able to harvest that.I think this quarter it's a little bit more mixed. Um, you know, I think that we are still benefiting on kind of the call rewriting side.
We're benefiting from some of the higher, um, overall volatility.
Uh, we have run a two-way book, and so there have been some things where the other side of the book has, has kind of worked against us, which we would expect in a, in a period, particularly in a period of, of, of, of high...
of, of extreme volatility. You know, we saw the third-worst kind of drawdown day in, in, in Bitcoin history, and the other ones were kind of in very different eras. Um, you know, that definitely...
W- we weren't, we weren't com-... You know, it's not like that was, um, completely outside or we were c- totally unimpacted by that.
But again, that's why we have the way that we do things, which is that we have two sides of the book. We benefit from the call, um, from r- from rolling the calls down for...
and both as volatility goes up and then kind of being able to double, triple dip. Um, we like to kind of... You know, we like to sell high and buy low, and we like to do that structurally.
Um, there will be periods where that will be, um, that might not mark the absolute best or, or kind of look the best, but we believe that over a cycle, that puts us in a strong position to accumulate dollars, accumulate coin, and benefit from volatility over time.
And what I would say is that we haven't... You know, we've been in constant, constant, uh, communication with our investment committee and our management team about kind of how things have been unfolding. Um,
there was a little bit of risk management, just because one of the things I learned kind of early on in my career is that, you know, it's like anybody with a...
You know, say any pod shop, any value at risk, as that volatility goes up, sometimes- Yeah... you do have to take some exposures down. So there... We did...
There was a little bit of that kind of in ear- in early February, where we just said to ourselves, "Hey, um, you know, the, the outlook is a little bit more unclear.
The volatility's high, and we're getting these really, really outsized moves." So I would rather trade smaller and lower for longer, uh, rather than try to be a hero and really kind of end up in, in a big hole.
And so, you know, sometimes you gotta take down your exposures, and then you gotta kind of start hitting singles and doubles rather than kind of go for those triples and home runs, which we've been really doing at the end of last quarter because we had that kind- kind of we had that, um, that, uh, margin, uh, that we were able to play with.
And so I just think we're in singles and... I think we're in singles and doubles territory. You know, we're continuing to benefit. Um, I've taken the overall size of the trading down.
If we were doing kind of 100X at a time, we're doing 50 to kind of 25. I even just over the last couple days, I think we're starting to get, um...
Or, or last week or so I would say, I'm starting to see that margin come back.
I'm starting to see kind of my, um, the signals that we like to follow and watch are, are kind of giving me some, some, some comfort in, in starting to get, to get back out there.
And so I think that we're very comfortable that at least through... You know, I think January was a very good month. I think that, um, you know, February was, was very volatile and we, we kind of felt that.
And I think March we're kind of back into that singles and doubles territory. Feeling really good about this quarter, but really just about the overall strategy for, um, for the rest of the year.
Well, Rory and Alex, to put a cap on it, I wanna believe in the beach ball. I really do. But I, I think Alex has got s- got a point here that, you know, maybe drawing down 50%- Well-... and then acting a little...
then acting good during this, uh, you know, this conflict is maybe not what we wanna see. But anyway. Well, I would just say, you know, on the flip side, things have been so bad, we've wiped out so much leverage.
When we touched 60K, we saw a huge blowout of implied volatility. Went up to 100. Funding rates went down to negative, like, 20%. Like, this is what a bottom would look like statistically, at least a local bottom.
It could be just a local one and not a, you know, cycle bottom. But, um, we definitely hit some very extreme moments there, uh, in February.
And so I'm hopeful the worst is behind us, but I, I just wouldn't argue this is an amazing inflation hedge at the moment.
Y- yeah, and I think just to, to close out, the worry that I have, and I think a lot of people who are looking at the macro environment has, is like if Bitcoin did that while stocks are still close to their all-time high, what happens when we get a real market downturn, right?
And so hopefully we pop up a little bit. Nice to see 80, 90, 100K again so we have a little more cushion, uh, if the sky falls through. But Alex and Rory, thank y'all so much for joining. Really appreciate it.
Uh, great commentary, and we hope y'all have a great weekend. Thanks everyone. Appreciate you having me. Thanks, guys. All right. All righty. Next up- Now... we have the Luxur folk.
Specifically, we got Jamie Gill, who slings ASICs over there at Luxur. Let's bring him up on stage. Hey, guys. Jamie, welcome. Thanks so much. Thanks for having me. Stoked to be here. Yeah, good to see you, man.
And you're our, uh, you- you're closing out the guest segments for today. And, you know, we, we started on a bit of a high note with ARK, and then we're kind of s- kind of receding into the more bearish news.
A- as, as kind of we talked about at the hash rate index segment, the mining market is brutal now. You know, we published a synopsis of Luxur's look-back series for February. Uh, really great.
Go check out our Twitter page if you're interested in some data on how February shook out for miners, because it was the most volatile month since the summer of 2021 after the China mining ban in terms of difficulty swings, Bitcoin price, and all of these metrics.
But, you know, Jamie, as we were discussing on the segment at the b- top of the show, hash price is super compressed right now. It's just above its all-time low.
And you also have this AI pivot for miners, where they're selling machines into the secondary market.
So I'm curious from y'all's end, when you look at the ASIC trading desk, who is buying machines right now, and what regions are actually active in the market? Yeah, it's a, it's a great question.
And the bear market doesn't always need to be so bleak. You know? It can be a time for action.
It can be a time for consolidation and an opportunity to, um, set yourself up for success to be able to accelerate when that bull market comes back, and that's what we're seeing.
The most sophisticated operators, um, have set themselves up for this. They've been through multiple cycles. They're ready for these bear markets.
Um, and they've enabled themselves to be buying when there's blood in the streets, as the, as the saying goes. Um, and compression-Compressed hash price and all-time low hash price brings with it cycle low ASIC pricing.
And as we know, ASIC prices do track hash price, um, pretty closely. So we are still seeing meaningful demand in our, on our ASIC brokerage desk.
And for reference, uh, this quarter alone, we've transacted over thirty-five million dollars worth of, uh, uh, brokerage, uh, revenue, and a large majority of that is on the secondary market.
About eighty-five percent of that is, is used machines. Um, so yeah, the demand is largely concentrated on those operators with access to, to low cost of power, of course. Um, and i-i- you know, there are, uh,
th- these, these operators that are still buying right now, they're using this to their advantage, um, and i-it's mainly, uh, ASIC fleet refreshes.
So those miners, there's still a ton of mid-generation machines out there that aren't at their breakeven hash cost, and they're feeling the pain, feeling the pressure, and now is really the time where, uh, even if you're optimized, you're using LuxOS, you, you've made sure that you're running as profitably as po-possible right now, the- now's the time where you get pushed to either, you know, refresh, continue on this hamster wheel, or pivot.
And to your point, yes, in some cases a pivot to AI HPC does make sense, um, for, for some of the larger operators with more access to capital.
Um, but there is still a large market segment, um, that maybe don't have the, uh, we'll say like, uh, expertise or access to capital to make that pivot.
Um, and mining still i-is, is the most profitable way to, um, to monetize that, that, uh, access to energy.
So it-- this is the strong push needed to, to move into that fleet refresh, um, and those miners at this point generally targeting, um, like a sub fifteen joules per terahash kind of model, moving away from the twenty-five to, to thirty joules per terahash models like the J Pros and the M30s coming up aiming for those twenty one series, which right now are at, you know, cycle low prices of like sub...
A21XP is going-- Uh, we've got a batch right now going for less than nine dollars a terahash, which is crazy to think just a few months ago, you know, those were at, like, sixteen dollars a terahash.
Um, JPro's now trading under a dollar a terahash. It's- JPro is looking like the S9, brother. I mean, you know what I mean? Hey, yep. At some point you're-- Yeah, you'll be paying us to come pick them up in a truck.
Like it's- And, and I just- It's the S9 over in summer twenty twenty And, and just to highlight for those who are not, you know, uh,
Bitcoin mining data hogs, the S19 at the peak of the twenty twenty-one bull market was going for like ten to twelve thousand dollars. And now- And now it's- They're going for like- Eighty bucks...
five hundred, eight hundred. Like, not even- Eight-eighty dollars Eighty bucks. No, eighty dollars, man.
Eight-eighty a T at a hundred, a hundred terahash average for the JPro, and you can get them for, for eighty dollars with DOA- That's crazy... cleaned and tested from our, uh, repair partners.
And, um, but there's still a market for those to be used because with, with LuxOS on a JPro, you move it from twenty-nine point five joules per terahash, which is stock nameplate.
You bring it down, you can get like twenty-two, twenty-three joules a terahash, which moves it entirely from an old-gen machine to a mid-gen machine.
It makes it viable at five cent-- Well, in current hash price environments, uh, let's say four cent power. Uh, but, but, uh, expecting a rebound, uh, it, it does make it viable for some operators.
Um, but it is flirting with scrap value. Like S19 Vanillas, the ninety-five T, that's over thirty joules a terahash. That's pretty much at scrap value, uh, which is what we're seeing right now.
With the market rebound, those 19 Vanillas might come back, so those scrapping it may kick themselves later down the line.
But assuming sustained compressed hash price like this, then yeah, we're definitely flirting with scrap, uh, getting close to scrap value for a lot of those older gen miners.
Yeah, and this is pretty interesting 'cause aftermarket firmware is really only started like really changing the game in the past few years.
Um, I know firmware may not be necessarily your specialty, but like, do you think that going forwards, like firmware, especially for the, the secondary market, is, is gonna keep the-- is like maybe the deciding factor for a lot of those, uh, older rigs?
Firmware is and has been for, for some time, a deciding factor for those operators on even new gens. So we're not even just gonna, uh, keep it on, uh, focused on mid-gen.
Those operators on new generation machines, we're, we're talking like on an S21XP LuxOS default, still at two hundred and seventy terahash, we can increase efficiency by ten percent.
So right off the bat, you get those machines, you plug them in, you put LuxOS on there, you got ten percent less power consumption, ten percent increase in efficiency.
So, like, it is a differentiating factor for operators, and using LuxOS is, is a key, a key factor, especially in times of compressed hash price or when the bull market's happening, you gotta be maximizing, and you want the freedom to, to be able to adjust that clock speed.
Um, but yeah, now is the time. Unfortunately, a lot of operators, they go into a hole. They don't wanna-- It's the bull-- it's the bear market. It's, it's winter, you know. It's time to...
But what really should be happening is it's time to accelerate.
It's time to get aggressive and step on, step on the gas, and like our ecosystem as a whole is built to-- for, for times like this, for the bear markets as well as the bull.
It-it's built for people to be able to sell forward their hash rate, receive that upfront capital, execute, buy hardware now, and then reap the benefits when that bull market does come back. Go ahead, Charlie.
Uh, well, I just got another question on the secondary market 'cause, like, I don't know if you get this question before or I-- or how lo-- We haven't had a whole, like-- We haven't had, um, I'll say, uh, water-cooled rigs in the market at scale a-a-for a long time.
Um, I'm kinda curious what you're seeing on the secondary market for those, if there is a secondary market.
'Cause a lot of those have to be built, like, into-A whole, like, closed loop system and it's not like-- it's not the same as kinda like rack and stack as the air-cooled.
I don't know, like, are you seeing differences in how the secondary market, if there is one, for these, uh, water or directed chip cooled, uh, rigs? Absolutely.
And this time next year, I think we're gonna have a very different conversation, and there's gonna be a different answer for that question. Um, manufacturers are pushing hydro, as we know.
Operators are moving towards hydro because that gives them a, you know, a more efficient footprint, of course.
It also potentially down the line leads to some optionality for AI swap outs because of the, the footprint, the form factor being, um, in some cases, uh, you know, compatible with some AI build outs.
So that takes time because it takes time for hydro build outs. It takes time for operators to feel comfortable with this pivot from air-cooled.
Um, it's happening and there are-- there is a s- a small market for these used hydros, but it's not something we're transacting frequently.
We are moving, uh, new gen-- or excuse me, like, new, uh, hydro models and increasingly more so, but from a, a secondary market side, we're not seeing as much volume there.
Jamie, as a closing question here, you know, we wrote about the conflict in Iran and the close of the Strait of Hormuz for today's newsletter.
I contacted Lauren Lynn of, of Luxor, Head of Software and Hardware, about this question.
Just wanna kick it to you, what are the immediate knock-on effects of this war as it relates to logistics for Bitcoin mining, ASICs, and for trading them, shipping them?
And wh-wh-how do you think this will affect CapEx regarding shipping costs over the next year or so?
Yeah, I think there's a lot of factors, um, and even if there's a ceasefire signed, like today, I don't think these factors rebound or, or come back to normal immediately.
Um, so like obviously shipping lines just totally rerouted away from the Strait of Hormuz and the increasing, uh, fuel costs. Uh, in general, this increases lead time, increases costs.
Um, the Middle East region, uh, obviously is, is gonna be the most immediately and directly affected, but the Asia to US, uh, uh, route is still one that recei-- that feels the, the, the pain of this.
Um, and yeah, that could be attributed to the factors we just talked about there, longer lead times, lower capacity, uh, increased fuel costs, and it's, it's something that, uh, will, will likely persist.
There's also the consideration of like war risk insurance, uh, the, the cost of that increasing and that probably not coming down after a ceasefire right away either. Um, if the conflict con- uh, persists here, then
the-- it-it's only gonna get worse. It's only gonna get more expensive. Uh, so in terms of CapEx coming from Asia, um, then it's, it's gonna continue to increase.
Now, n-n-new generation machines coming out of Asia, the, the manufacturers have sort of-- there's been a pivot from, uh, the primary market, um, as a whole, and volume has decreased there, and that pivot can include, like, manufacturers turning and looking for capacity to build out to start mining themselves in an increased way right now, which helps with optionality and it helps, uh, monetize as well as, uh, decrease available supply.
Um, so yeah, it's really just moving, moving to, um, what makes sense.
So if those shipping rates get too high, I could, I could definitely see a, a continued decrease in volume out of Asia into the US, and then that obviously puts a premium on US-landed stock.
Yeah, I think that's one of the more interesting things for me at least kind of trying to game this out is that if you're a miner in the US, you already have the secondary market flush with machines, so in terms of the shipping costs, you're, you're probably not that worried about what's going on right now, right?
Unless you're trying to buy new equipment.
Uh, but if you're in the US and you're trying to build out or refresh your fleet and you're okay with older equipment 'cause you have-- or even not that old, like the S21 series, like you said, you, you have a lot of options to choose from.
Yeah.
And to quickly touch on your point of, of some of these larger miners moving away from, uh, and these pubcos moving away from Bitcoin mining and into AI HPC, it does create some more liquidity for new generation used hardware in, uh, the States, and we've seen a ton of that volume, and that's really what o-o-operators should be looking to execute on in these times of compressed hash price.
It's not necessarily grabbing a, a JPRO for, for eighty bucks, which maybe makes sense if you're like, you know, your power is, like, super, super cheap.
But for most operators, it's trying to grab the most efficient air-cooled model on the market at that lowest possible CapEx, uh, and, and really try to reduce that time to ROI and, um, yeah, look forward to, to when the, the bull market comes back.
Jamie Gill, thank you so much for joining, man. I really appreciate the insights, and I always love having the Luxor team on here. We will see you- Thanks for bringing the energy, Jamie. Yeah. He definitely- No problem.
Happy to be here, guys. He, he's a Miami man. He's gotta bring the energy. [laughs] Oh, yeah. Absolutely. So with that, we will see you in May for Consensus. Looking forward to that.
I hope you have a good weekend, brother. Can't wait. Stoked to have you guys here in my backyard. We'll see you soon. See ya. We still got news on the table. We still got news on the table. Still got news.
Yeah, we've got-- I think the last three segments are actually super fun here. And I mean- Yeah... well, this, this next one isn't actually, and I'll let you take the lead on this.
But the IRS sending out a crazy form to track all of the places that you have sold or traded cryptocurrencies or bought them. Charlie, what's going on with this? Yeah, this story comes from probably a number of sources.
I saw it first on TFTC, um, and it goes as such. The IRS just created a new crypto audit form designated-- designed to make you incriminate yourself.
It's form ten99DA, and it's a historical digital asset form that makes, that lists, you know, a bunch of exchanges and wallets, and you basically go through and you check yes or no if you've used them,
and you sign it under penalty of perjury, as are all IRS documents. And, um, at, at first blush, like if you're not in crypto or Bitcoin, you might be like, "Well, yeah, of course, just, you know, check the boxes, you...
Obviously." But if you are- Just log the trade, bro. Yeah, just log the trade. That's not how it works.
Um, these, if you, you know, the services, uh, it's like very few wallets and even exchanges have like full tax reporting integrations.
Um, it's only recently that they've kind of like helped handhold you in like the filing process for some of the leading ones.
And, um, the average Bitcoin and crypto user touches a bunch of these platforms, and so much so that you probably do not remember everything that you've done.
Um, and so this form, quite frankly, is being received, uh, very poorly and negatively because it's really a way to either damn you if you do or damn you if you don't.
Did you, uh, did you accidentally check a box that you may have forgotten in previous ones? Well, maybe they're gonna come and, and claw that back based upon the new knowledge.
It's kind of giving them a b- breadcrumbs knowing where to look. And vice versa, if you missed something, technically that's, that's a, that's a, that's a mark against you, so they could also use that against you.
So, um, the, the, the, the ending statement from TFTC on this, it says, "If you get this form, do not fill it out with a tax attorney.
This is the kind of overreach that pushes people towards self-custody and privacy for preserving tools like Bitcoin. The government doesn't send forms like this to help you. They send it to help build a case."
We have a tweet as well from a, um, one of kinda like the more, I would say, taxfluencers, I'm gonna coin that term, uh, an accountor, an accounting guy named Andrew Gordon, um, saying he's, it's, it's a perjury trap.
Um, the IRS demands you to list the date first used and usernames and emails. If you get it wrong, you could be, be committing perjury. If you forgot something, IRS could say it's fraud.
If you list everything, now they know where to go. Um, so like, yeah- And, and this guy is a lawyer and CPA. Yeah. So he, he's got the creds on both sides of the aisle for this issue.
And, and he was the one that I saw first tweeting about this, and he kind of drew out that damned if you do, damned if you don't. And that's what's so crazy about this, 'cause if you think...
Like the onus is on the taxpayer, but, you know, one of these forms had EtherDelta, which is a, I think now defunct decentralized exchange.
It was one of the earlier ones on Ethereum, and I mean, could you imagine just going through this?
For what you were saying, Charlie, centralized or decentralized exchange, if you're not logging this information, in a lot of way, cases, there's not a really good way to do it.
Like imagine you used Binance before Binance off, before Binance pushed US users off and had them come onto Binance US. Exactly.
All of that information that you traded on Binance before it was changed to the Binance US entity is probably gone. So I don't even think that there is a good way to get some of this information.
And just to double tap something that you said earlier, this isn't like using Charles Schwab or Fidelity or going to Edward Jones and talking to your, your certified, you know, financial advisor.
Th-this is, they will handle that tax stuff for you. There are processes in place.
Crypto very much was the car that was built as people were driving it, and a lot of the best practices for tax, uh, for, for, for taxation reporting are still kind of being fleshed out, and that's also because they keep moving the goalpost on what you're supposed to, how you're supposed to report.
I believe last year was the first year that they really changed the rules for first in, first out accounting, which is the kind of standard for, uh, a- any investment.
Basically, the first time you make a buy, and then the first time you sell it, you know, that's, that, you have to log that gain, right?
I could be wrong on that front, but they've been changing the rules, and also the IRS landscape has been changing too.
I think what's funny about this is maybe you wouldn't, maybe this is a holdover from the Biden years, but you might expect the Trump administration's IRS to be a little less hawkish on crypto.
I mean, Trump reduced the IRS from about 100,000, over 100,000 employees down to 70,000 during the government, uh, employee cuts o- last year. There's an effort to reduce it even further to around 60,000.
But, you know, you might think that the cro-cr, uh, the, the, the pro-crypto president wouldn't be going after people for their crypto taxes. Now, of course, we don't actually know who's receiving these.
They could be laundering money for all we know, right? [chuckles] And that's why they're being audited. But the fact of the matter is,
it just seems like for most crypto users, the tax problem is, like you said, Charlie, a lose-lose situation, especially if you're getting one of these forms. So- Yeah.
I will say, I'm looking at this form here, and, um, you know, OGs, uh, may notice names like Crypsy or, um, Bittrex or BTC-E.
I believe all of these are defunct and have been years and years defunct. Um, some have closed shop, uh, under very bad, uh, negative stories like BTC-E. And so, um, man, these are-Shout out to Bittrex. Yeah, Bittrex.
That was one of the twen- class of twenty seventeen shady offshore exchanges. [laughs] Yeah. You know?
There was a golden era right before crypto entered the Overton window for policy and, and, uh, bureaucratic scrutiny, where you had all of these exchanges that were God knows where, based God knows where, and you could still access them as a US user before they started kicking people out.
Yeah. Then you had to use a VPN. And well, speaking of, um, platforms you had to use a VPN on, um, I think the next story is pretty interesting, uh, 'cause it's around Binance founder
Changpeng Zhao, otherwise known as CZ,
who totally mogged Bill Gates, uh, this past week according to a Forbes, like, n- net worth, uh, estimation, where CZ now leapfrogs Bill Gates in net worth.
Uh, so Forbes estimates Zhao, CZ, holds under ten billion in net worth compared to Bill Gates' pithy one hundred and eight billion.
CZ, according to Forbes, uh, uh, had a net worth increase of forty-seven billion last year. That places him at number seventeen richest person globally, top twenty.
He has a super majority stake in Binance, supposedly ninety percent stake. Um, two years ago, this man was in federal prison in the United States. Quite a comeback.
Yeah, one hundred percent, and I, I wanna pull up before... There, this is kind of a two-part story, but before we go over to the next part, what's funny about this is CZ himself pushed back against the Forbes article.
Yeah. I guess because... And I, I guess the reason he's pushing back is because he doesn't want more scrutiny on him- Yeah...
in terms of his net worth, or he does- he just doesn't wanna be in the news, and we'll get into why in a second.
But in this tweet, I just thought this was funny, "Didn't read the Forbes article, but if you just look at the little chart, you know it's wrong.
Crypto prices dropped by more than fifty percent in twenty twenty-six already, and my net worth went up. [chuckles] Um, w- wish they could apply some common sense and logic."
Now, I think this discrepancy is easily resolved if you think that Forbes was probably running the numbers on this at the peak of last year's bull market.
They were probably looking at this in twenty- in Q4 of last year when Bitcoin was at an all-time high. And so, of course, you would see CZ having a higher net worth then. You know, it's not...
All else being equal, he would be worth about fifty percent less than, than, m- f- forty, fifty percent less than what he is now based on his ninety percent stake in Binance. Which, if that's true,
if that's true, CZ holding ninety percent of Binance even today is wild, is absolutely wild. But why would CZ push back against this?
Well, let's look at one of the other news items for today, and that's that Binance is going after The Wall Street Journal for defamatory comments regarding a recent story they put out.
I'm gonna try to keep this brief because there's a lot to unpack here, but, "Binance is suing The Wall Street Journal as the newspaper says US Department of Justice is investigating Iran transactions."
This is a headline from CoinDesk. Now, this defamation lawsuit comes as The Wall Street Journal alleges that
transactions that flowed through Binance ended up with Iranian entities, and that the compliance team members who flagged these transactions were eventually fired by Binance.
Um, and Binance is pushing back on this in, in a, uh, in a lawsuit filed in the Southern District of New York.
The company said the newspaper published, quote, "false and defamatory statements about its compliant practices and handling of Iran-linked transactions" in an article published on February 23rd.
Now, a few kind of housekeeping items on this, 'cause there's a lot here.
The basic argument from The Wall Street Journal is that one point seven billion dollars worth of funds flowed through Binance to Iranian entities, um, specifically using this kind of Hong Kong fiat-to-crypto, uh, platform,
and Binance allegedly knew about this, according to The Wall Street Journal. Uh, and, and that, that fiat-to-crypto, uh, converter is called Blessed Trust, which is just hilarious to me.
And u- allegedly, like I was saying earlier, Binance knew about this, and then someone brought it up, and compliance, uh, offic- uh, compliance employees brought it up, and then Binance allegedly fired them.
Now, Binance is pushing back against this, and they are saying those, those compliance employees weren't fired because of this.
They do acknowledge that they were fired, but they said it wasn't because they flagged these transactions.
It said because they, they, uh, basically accessed files and databases at Binance that they weren't supposed to access. Who know-- It's like a he said, she said. Who knows what's actually true?
The other thing that Binance is saying is wrong about this story is that no funds left Binance and went to the Iranian entities, and I think this is really important for understanding, uh, Binance's argument here and where maybe The Wall Street Journal has it wrong.
I'm not saying they do. I'm just trying to give both cases here. Uh, Binance was saying that the funds flowed into Binance, but they did not leave and then go into the sanctioned addresses at, for Iranian ent- entities.
And these sanctioned addresses were tied to, uh, the, uh, the Iranian Revolutionary Guard and also, I believe, the Houthis, the, the terrorist organization.Um,
now what Binance is saying is they left Binance and went to another wallet that was not tied to Iran, and then they went to the Iranian entities.
Binance is also saying that once they saw these transactions flowing through their platform and then eventually ending up with the Iranian entities, they actually flagged them and then alerted law enforcement officials.
Who knows if that's true.
That's the defense they're going with, and they also make the case that Wall Street Journal just doesn't understand how blockchains work, so they [chuckles] thought that, uh, Binance was sending-
Some things never change. What's up? Some things never change. Well, you know, and that's one thing I will say about this. You know, I'm not gonna stand for Binance.
They've done a lot of shady stuff in the past, and I've gotten a lot of tips throughout the years that I could never reliably chase down about them doing funky things with customer deposits.
But that being said, like, mainstream media has had a terrible track record- Terrible track record... a terrible track record of actually being able to read blockchain data.
I mean, wasn't it, was it The Wall Street Journal a few years back that labeled, like, hundreds of millions of dollars going to Hamas through crypto rails, and then actually the real number ended up being, like, ballpark a million?
Yeah, I think it was, yeah. And, and Senator Warren actually tweeted about this and talked- Yeah... about it, I believe, uh, on the record in Congress, and the whole thing was wrong.
Chainanalysis came out and actually gave a breakdown of the real f- flow funds, and they said that it was completely erroneous the way that they were being tracked and attributed to Hamas fundraising.
So all that being said, it's hard to say who's in the right here and who's in the wrong. I could see it on both sides. I could see The Wall Street Journal misunderstanding something here.
I could also see Binance maybe looking the other way at certain things, right? Not saying they definitely did, I'm just saying that there is a chance that maybe Binance is, is maybe hiding something here.
The last thing I'll say is the, partly the reason why Bin- well, why CZ doesn't wanna have any more press is, as Charlie said, CZ went to jail for about four months, um, for alleged, uh, sanctions violations.
Prosecutors alleged that Binance allowed more than 1.5 million crypto trades totaling roughly 900 million to flow to sanctioned addresses, including ones involving Hamas's, um, uh, uh, involving Hamas, Al-Qaeda, and Iran.
Now, the flip side of this from Binance's perspective is Zhao was in the UAE at the time that he was served with charges for this. He ended up coming to the US to actually stand trial.
He ended up only getting four months when, uh, federal prosecutors asked for three years, and guidelines really called for 12 or 18 months.
And CZ's lawyer also said, "Look, you basically charged BitMEX's founder, Arthur Hayes, with the same thing, and he got a slap on the wrist. He didn't end up going to jail."
He ended up basically paying a fine and I think having some sort of probation period. And I think he's been pardoned too, or exonerated or something. He can come to the US now.
He was, he was avoiding traveling to the US. Arthur Hayes? But, you know- Yeah, yeah. And, and Trump pardoned CZ- That-...
which depending on who you ask is further evidence that they're, that the Trump administration is corrupt or just that they wanna do business with CZ, which may go hand in hand.
But I mean, needless to say, CZ has a very troubled relationship with federal prosecutors and federal officials here in the US.
And with regards to The Wall Street Journal article, just to put a cap on it, who knows what's true?
The fact of the matter is, though, um, crypto exchanges are often maligned unfairly, but they also probably get up to some stuff that may be, uh, how should we say? Gray area.
Now, that's not to say that they ended up funding any terrorists. I don't think that's true at all, but the truth of this is probably somewhere in the middle. Yeah, and then again, it's, uh,
you know, if you are the wealthiest known, uh, Bitcoiner in the world, uh, you don't really want that to be a news story. Um- Yeah...
and also considering, like, the origins, like CZ comes out of China, and Binance has, you know, years ago when they were starting out, kind of danced around the delicate nature of what it means to have, to be a billionaire coming out of China.
Uh, and so not surprising he lives in the UAE, um- No, not at all. And before we move on, I think that kinda caps this, Charlie. Before we move on to our next story, quick internal shill here from the Blockspace team.
Oh, yes, we gotta shill, shill, shill. Up Next is revving up.
We are a month out from our Bitcoin Technical and Investor Conference in New York that we are hosting at the Times Center, and if you look at this neato little graphic from Blockspace co-founder Will Foxley, you will see that a bunch of companies are slated to be participating this year.
We've got Citrea, we've got Ledger, BlackRock, Chaincode, Coinbase, Luxor, Anchorage Digital, CoinKite. We've got the Human Rights Foundation. We've got H.C. Wainwright.
We've got NACA, and we've also got NYU and Columbia getting involved. Grayscale. Huge showing from a lot of big names in Bitcoin and outside of Bitcoin.
If y'all are interested in attending the conference, which you should be, check out upnext.dev for tickets, and get them before prices increase.
And also tell your friends because it is shaping up to be a really good lineup. Charlie has been crushing it with the speaker, uh, programming for this one, and we're really excited for the third year of Up Next.
Upnext.D-E-V, that's upnext.dev, April 16th, New York City, the Times Center, that's the New York Times Center, very cool venue. Uh, it'll look like a TED Talk, so hope to see you there.
The whole Blockspace team will be in the house, as well as other notable people, Alec in it, Project 11, FCAT-Everybody's in the house. I think we wrap up with a cry corner today, Colin, and it's not really a cry corner.
Um, this- We're decrying- Decry... the shoddy standards in- Yeah... Bitcoin media. We're... It... We weren't... It... We weren't late to the story, we were just biding our time. So here is, uh, the news.
Uh, this past week, the 20 millionth Bitcoin popped into existence. Um, and really, I think the more interesting story is that it's...
it was not clear when that happened for a lot of people, and it's subject to a little bit of debate. So to review, every time a Bitcoin block is made, Bitcoin is created with that block and paid to miners.
Um, so then given that there's only 21 million Bitcoin, eventually we'll get to 20 million, and we hit that this week.
But due to some very obscure things with how Bitcoin works, and specifically how that Bitcoin is created in a block, um, some, uh...
The, the expected supply of Bitcoin is actually a little bit ahead of the truly issued supply of Bitcoin. What do I mean by that? Basically, something can happen as follows: a Bitcoin miner gets a Bitcoin block.
They normally get to pay themselves, um, 3.125 Bitcoin. However, sometimes, due to intention or most likely error, a Bitcoin miner can accidentally forget to pay themselves.
That's happened a few times over the past 16 years, and because of that,
um, while a lot of, uh, news outlets reported that we crossed 20 million circulating supply on Monday, it was actually the wee hours of the morning on Tuesday that we actually mined the 20 millionth Bitcoin.
A lot of people, this might come as a surprise to a lot of people because we've literally put into our DNA of Bitcoin there will only be 21 million Bitcoin, but guess what, listener? That's not true.
There will actually only ever be 20,999,000 something, something, something Bitcoin because we've destroyed somewhere around 518 Bitcoin. Those don't exist.
So because of this, um, we put out the story on Monday, and other, uh, news outlets put it out Monday. Now, this is really not that big of a deal. Um,
it's just, like, sometimes, you know- It's a cute technicality and a- Yeah... fun piece of Bitcoin trivia. Yeah.
Put this in your local Bitcoin meetup trivia box, um, because I think it might surprise a lot of people, and it's a great way to, like, try to understand the... some of the important, like, knobs we can, um, uh...
We can twist for the, uh... to understand the, uh... like, how Bitcoin works under the hood. I believe we've managed to get all the way through all the stories, Colin. Yeah, I think that does it, man.
We are wrapping this up. W- like Charlie said, we are going to start doing this three days a week, Monday, Wednesday, Friday, same time, 12:00 PM ET, 9:00 AM PST for those left coasters. Uh, worst time zone.
Best coast, though. Worst time zone. And next week we've got some pretty fun, uh, guests lined up.
We've got Ledn coming on, and I also hope to get Valentin Rousseau, who penned a report on the best and worst p- places to mine Bitcoin for Hash Labs.
So if you're curious about where you should mine Bitcoin if you're trying to deploy and where you shouldn't, we should have a segment on that next week. Otherwise, peace and love, everyone. Have a fantastic weekend.
Thank you for tuning in with us, and we'll see you all next time. Peace. [outro music]