[upbeat music] What's up, y'all? Welcome back to Blockspace Live, brought to you by CleanSpark. Iran wants your Bitcoin.
Well, they don't want your Bitcoin, but they do want the Bitcoin of shipping companies that are trying to navigate the Strait of Hormuz during the two-week ceasefire that was announced last night.
That will be our lead story today. One of the stranger ones I think I've come across since we started doing Blockspace Live.
And then we will follow it up with one of the biggest news items so far this year, certainly this quarter in Q2, Morgan Stanley becoming the first US bank to offer a Bitcoin ETF.
And we also have some banger interviews lined up today. We've got Antoine Ponce of Chaincode Labs on first to talk about the things that he's been working on in anticipation of our OpNext conference.
We also have Jay Patel, the CEO of Lygos Finance, to give us a rundown of the cracks that we are seeing in the private credit market and why insurers might be in hot water with their exposure to private credit, but maybe not as much as some doomsayers might say.
And then to close out the show, we will be touching on Bitdeer's new ASIC, the A4, and The New York Times figured out who Satoshi was.
Psych, they probably didn't, but we will be unpacking a story that dropped today from The New York Times, a one-year-long investigated exposé on who the identity of Satoshi is.
Probably won't shock you because you've heard this name thrown around- [chuckles]... for Satoshi before.
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And if you like this, you will love our newsletter, newsletter.blockspacemedia.com, coming at you on Fridays. Good long-form deep dives from Colin and I. Lastly, we have a conference. It's just over a week out.
You can still book that flight. There are a few tickets left. We are sold out on VIPs. This is a technical conference and investor conference in New York City, OpNext, O-P-N-E-X-T.D-E-V.
There's only a handful of tickets available. I'll see you in New York next Thursday. This show is brought to you by CleanSpark, ticker, NASDAQ-listed CLSK. More on them later on the show. Let's kick it off.
Colin, I'm excited to talk about Iran with you because we've noticeably skirted the Iran issue because, like everybody else and their dog is covering this.
But finally, finally, it has something to do with Bitcoin, so we can finally unshackle ourselves and talk about Iran and Bitcoin. But before that, we have something a little more timely.
That's a joke, which you'll get in a second, because I've got in the wings, I've got Antoine from Chaincode Labs, and we're going to talk about this very interesting thing going on on Bitcoin Signet.
I'll have him explain. I'll bring him on here. Antoine, welcome to Blockspace Live. Hey, guys. Thanks for having me. Yeah. So, um, you are leading a very interesting demo, and this is
pretty technical and a little bit deep to start off this stream with, but we're going to dive into it. Antoine, what is happening on Bitcoin Signet right now?
So we're doing a demo of blocks on a test network that take a long time to validate. These are blocks that are not the worst case, very far from the worst case, actually, uh, but would be valid on the main network.
So let's get into this a little bit more. What does it mean to validate a block? And then why is it bad if it takes a long time to validate a block? Yeah, sure. So, um,
in Bitcoin, you, uh, check the state of the system for yourself. You check that you, uh, indeed own, uh, your own Bitcoins and that people transferring, uh, Bitcoins make valid transactions.
You don't rely on a third party. So in order to do this, you need to do some computation. And, um,
the amount of computation that you need to do necessarily bounds, uh, the accessibility to this, uh, sovereignty that, uh, is provided by full validation of the system to not have to rely on a third party.
So accessibility to full validation is one issue with blocks that take a long time to validate.
But another one is probably more important, is that it creates perverse incentives for miners to try and delay their competition. Because in mining, as you know, uh,
something like a handful of seconds of, uh, a head start can be a very big advantage for one miner and drive off their competition.
So there, there is today on Bitcoin ways to make trans-- uh, to make blocks that take a very long time to validate.
The worst case would be like over ten minutes, over half an hour on a regular server, and over a dozen hours on something like a Raspberry Pi that people use nowadays.
But there is also the ability-- Because the, the very worst case is not-- I don't want to, to say that it's an existential threat. It still costs some money to, to the attacking miner to create this very worst case.
But there is also al- uh, va- via [clicks tongue]
different blocks that you can create that cost a lot less to the miners, but still delay their competition for like five seconds or ten seconds.So this is a range of like what we would consider to be edge case scenarios, but they do allow perverse incentives and various forms of unfair advantage or just really undesirable toxic, um, things to happen on Bitcoin.
Um, so and you guys are testing this. I guess like why do we need to test this? Um, you know- [laughs]... Bitcoin's been around for 16 years. It, it feel like-
it feels like, you know, uh, there's a lot of people working on it, like why is this test significant? Well, it's really, it's not really a test. Uh, this issue has been, uh, demonstrated in private environments before.
Uh, we didn't release all the details, and today we're doing a, a demonstration rather so that Bitcoin users can experience for themselves on their own nodes, on their own hardware, how long it takes to validate such blocks.
And it's, again, only a minimal version of what an attacker could do, so they can see it for themselves.
And the reason that we want them to see it for themselves is that the fix for this vulnerability is a consensus change. It's a soft fork. And we need Bitcoin users to activate soft forks eventually down the road.
There is no activation proposal right now, but we want to build consensus so that Bitcoin users will eventually upgrade to a soft fork. And this gets into what you're working on.
Colin, did you wanna- Well, I, I just wanted to ask a, a question to clarify, two- a kind of a two-part question.
So I understand correctly the poison block attack, a miner, uh, sends, ah, basically broadcasts this block that takes a long time to verify. The other miners can't verify it in time before the next block is mined.
That gives that miner an unfair advantage to mine the next block in the chain. Is that, is that roughly h- how this goes down? I'm just trying to, um, contextualize it for listeners who might be less technical.
Well, there's two issues with the, the way the, the current Bitcoin network works, uh, the validation time is going to also affect route propagation time.
Block propagation time is going to increase the stale rates for all miners, but it's going to increase it more for small miners than for big miners.
So there is this unfairness, uh, giving an advantage to big miners with, uh, which is going to push mining centralization. But there is also... it's not necessary. Like, we can upgrade.
We could in theory upgrade the network such as we can propagate blocks faster.
But the, the validation thing is that a miner needs to validate a block before they start wor- uh, working on the block building on top of it. Today, they sometimes skip the validation for a very small amount of time.
But if they skip it for longer, it can create systemic issues for the network. And so they, they, they are blocked by, by this, uh,
uh, by this validation time, and the attack would be for one miner to delay all its other competition to be mining on a stale tip for five seconds or 10 seconds. So that, that's essentially what, what you said. Yeah.
Yeah, yeah. Right. So that... And thank you, I appreciate that. That makes a lot of sense. And my second qu- part question, if this, if this vulnerability exists, why do you think we haven't seen it, uh, exploited?
Or, or, or why do you think big miners haven't, you know, used this to their advantage? Uh, big miners have been do- not doing a lot of optimization.
Uh, th- there is many things that pools could be doing to reduce the stale rates, that reduce, uh, the pro- block propagation time that they have done.
But most, most of it has been done by open source developers in, in the past that were just providing the public network with the resources to reduce pro- block propagation time, and the pools just adopted it.
But there is many things like so for instance, they could upgrade to Stratum V2, uh, to communicate with the hashers, which does reduce latency, which, which removes one of the main vulnerability that they expose themselves, uh, having the hash rates stolen, and they just don't do it.
Uh, we have seen also irrational behavior from some mining pools that had vulnerabilities that were well known, where you could just send a specific mes- message on the pe- peer-to-peer network to one mining pool, and they would waste 30 seconds mining on a fake block hash.
This is massive. The... And that was one mining pool that has 15% of the, of the hash rate of the network. So we have seen that mining pools today have not been the most optimizing.
But it doesn't mean that es- especially as the block subsidy decreases exponentially, that they may not be incentivized to start optimizing more in the future or be replaced by other pools that do optimize better.
So I think we should fix the incentives of the system before we start seeing such evil optimizations. Yeah. It sounds like, uh, it's really just a minor skill issue. Um, so, uh, so this fits in.
You said there are fixes, and the reason why I, you know, we're, we're you, you're leading this demonstration is kind of really lead- it just leads into the fix that you are, uh, spearheading on this called The Great Consensus Cleanup.
Can you give me a short TLDR of that and, like what it is, why it does? How do you explain this to, like the normal listener? Yes. So I think the, the rational and the motivation is one- is the one that I just described.
There has been longstanding bugs, uh, vulnerabilities in the Bitcoin consensus protocol that are not an existential threat to Bitcoin today.But—and there's four of them and the consensus cleanup proposal, which is now BIP fifty-four addresses these four issues.
Uh, it addresses them, uh, in a better way that was initially proposed.
There has been in-iterations on the proposal to try to make the fix as non-intrusive to, uh, Bitcoin users as possible, and I think we have achieved this. And the motivation is, I guess, just long-term risk mitigations.
You don't want to have security holes in your protocol, even if they are very unlikely to be exploited. Uh, some of them can be catastrophic.
It's like very low likelihood but very high impact, uh, sort of, sort of thing. It's like a plane crash. Planes don't crash often, but when they do, they crash hard.
And that would be the same if such a vulnerability would be exploited on, on Bitcoin, something like the Timewarp vulnerability, for instance, that BIP fifty-four also fixes.
So the proposal is fix for long-term vulnerability in the Bitcoin protocol. So last question before I let you go. You are presenting on this at OPnext next week. Uh, what can we expect?
Just a deeper dive into what you've described here. Um, you've given this presentation before. Um, yeah, just, you know, what are we, what are we expecting? Yeah. I think
I gave the presentation at OPnext about the, um, various bugs that have-- and the various fixes that are proposed by BIP fifty-four, uh, last year.
Uh, I will attend OPnext in New York again this year and speak on this topic.
So I think I want to maybe do a small recap on what we are talking about, but I also want to, I guess, emphasize the progress that has been done and probably the expected next steps from the engineers that are working on this proposal.
And really, we are talking of a software proposal.
So at some point it will have to move from the hands of the engineers that are proposing it into the hands of the Bitcoin users, which is why I'm trying to do s-such things as the demo because we knew, we knew about this bug for a long time.
We didn't have to do a demo on Signet. We're just doing it to try to popularize. Well, I've got my Signet node running.
I haven't monitored too closely, but you're doing-- This is the first of, I believe, three demonstrations- Yeah...you're doing, so I'll be keeping track, and maybe I'll throw out some tweets on observations I've had.
Um, otherwise, best of luck, Antoine, on the rest of the day, and excited to see user reaction as the demos continue. So thank you so much for coming- Cool...on to Blockspace. Thanks for having me. See you guys.
See you around. Always something lurking around the corner of the next block, you know? [chuckles] Yeah. Let's go to Iran. Yeah. Not, not physically- No...just in the conversation. Hopefully not.
We're not, uh, Citrini Research. We're not gonna send analyst number three. Don't ask about what happened to analyst number one and two now. Yeah. [chuckles] Okay.
So some context for this, and I'll go ahead and read the headline. I, um, Iran demands crypto fees for shipping pass-passing Hormuz during ceasefire.
So for those of you who haven't been paying attention, Iran and the US and Israel reached a ceasefire agreement in the late hours last night.
Uh, a little bit slippery because apparently strikes are still ongoing from U-uh, from Iran to Isra-Israeli and Gulf State targets. So I'm not really sure how long this will shake out.
Not a geopolitical strategist though, so I don't have to. That's the great thing.
But the Financial Times published this this morning in the wake of the ceasefire being announced that Iranian officials are asking for Bitcoin so that ships can clear the Strait of Hormuz.
Now, Hormuz has become a choke point for oil trying to leave the Persian Gulf, and this choke point has then really siphoned a lot of the...
or choked out a lot of the energy resources and exports, imports rather, that many nations that are dependent on foreign imports of oil need to actually keep the lights on, you know, to keep their houses warm, et cetera.
And it's become a central point for the entire conflict, and in the ten points that Iran drafted, uh, reportedly to send to the US and Israel for negotiating points, one of the key points there is that they want to have control, continued control over the Strait of Hormuz.
And it seems like they're going to start by trying to levy a toll on ships that are passing through in Bitcoin.
Quoting directly here from the Financial Times, uh, Hamid Hosseini, a spokesperson for Iran's Oil, Gas and Petrochemical Product, uh, Products Exporters Union, told the Financial Times on Wednesday that Iran wanted to collect tolling fees from any tanker passing and to assess each ship.
Quote, this is directly from Hosseini, "Iran needs to monitor what goes in and out of the strait to ensure that these two weeks aren't used for transferring weapons," he said, um, whose industry association works closely with the state.
Continuing, "Everything can pass through, but the procedure will take time for each vessel and Iran is not in a rush," he added.
So what this basically looks like is they are telling shi- they are telling shippers, they're telling freight captains they need to email the Iranian government, tell them what their cargo is, and then they have to send a payment in Bitcoin for a dollar for every barrel of oil.
So that means for a supertanker that can hold two million barrels of crude, that would be two million dollars to pay the troll toll to get through the Strait of Hormuz.
And obviously they wanna use Bitcoin because you-- it can't be stopped. There are no bank rails. There's no central party.
There's no centralized source that could end up blocking those payments from going to the Iranian government. And that's really important to contextualize because Iran has been under the yoke of Western sanctions for,
I wanna say almost a, a decade, maybe longer at this point. It's been a long time that they've been under Western sanctions.
This has-Given way to something of, I wouldn't call it thriving, but Iran, but Iran's Bitcoin industry, or rather its Bitcoin adoption rate is probably higher than you would expect from a nation like that, because Iranians had turned to Bitcoin and other cryptocurrencies as a way to skirt sanctions.
When I was a reporter at Bitcoin Magazine, I spoke to an Iranian
citizen who was a vocal, a very vocal and outspoken pro- protester against the Iranian government, who said that he would use Lightning to buy, uh, PlayStation Network credits, uh, 'cause there's no other way for him to buy, uh, PlayStation Network credits for his PlayStation other than using the Lightning Network, and Bitcoin, and a VPN to purchase them off of something.
I don't know if it was Bitrefill or another service like that. So Bitcoin has had some rate of adoption in the country as a way to skirt these sanctions and get around them.
So it's, kinda makes sense, although it's still pretty astonishing to see a government official, or rather a, a private sector,
a private sector actor who works closely with the government say, "This is what we're gonna do. We're going to take Bitcoin in exchange for pass, safe passage through the Strait of Hormuz."
Now, the one question I do have with this, before I toss it over to you, Charlie, is if the sanctions still exist, which they do, what... where does that put Western shipping companies?
Because they technically, they, they still, this is still the law of the land, right? They're not allowed to transact financially with Iranian entities, be they private or public. So will Western nations
give them some leeway if they do end up paying this toll to get through? Or will they then be under legal threat from their own countries for interacting with a sanctioned entity in Iran?
I think that's kind of a looming question that, to me, was the first thing I thought about when I saw this.
I was like, "Okay, well, that's great for, like, Eastern countries that don't care, or, you know, uh, Asian countries that might not be, you know, uh, subject to the same sanctions that Europe and America are, uh, that they levied against Iran."
What are these other nations gonna do that are actually subject, or what are these other shipping companies going to do whose nations have levied sanctions against Iran? Are they just gonna have to
basically do a q- uh, uh, like, do a coin toss? Say, what would you rather have?
Would you rather get, you know, bombed by the Iranian military and navy, or would you rather face, you know, maybe some scrutiny legally from your home country? Yeah, like, that's the big question.
I mean, there's so much to unpack here that's really, really fun, and the Bitcoiners have, uh, we've got a nice decade of talking about what this might look like.
Um, it's been a popular thing to imagine what it would look like for oil to settle in Bitcoin. Now, this is not
oil settling in Bitcoin, this is a fee to transport oil, uh, that you can, that technically the Iranian government says crypto. But, like, okay, let's be realistic here. Are they gonna be paying in Eth or Solana?
Probably not. Um, are they gonna be paying in stablecoins, which are probably the, you know, from a, from a unit standpoint, the more desirable 'cause you can peg it to the US dollar.
But most stablecoins, the big ones at least, uh, do, far enough down the stack, actually have, like, domiciled, like, entities in the United States, and, like, need to purchase US Treasuries, which means they gotta have access to US, um, you know, financial rails.
In the US, if there is one country you can't send money to, it's Iran. So, like, what are they, you know, what are they gonna do, pay in a stablecoin? I think it's really kinda just Bitcoin.
Bitcoin, you know, for, if you're, if you're watching this clip, and you kinda stumbled across it, you're not, like, a crypto person. Why Bitcoin as opposed to, like, another asset like gold?
Well, Bitcoin you can send digitally. Once that transaction is confirmed, you cannot reverse it, and then it doesn't have to pass through any centralized intermediaries in order to get into the account of the recipient.
Like, just the idea that you could, uh, from your shipping vessel or from the office that owned your shipping vessel, get email, get a Bitcoin address, send $200,000 in Bitcoin, five or six Bitcoin,
to an address so you can pass your vessel through, and, like, nobody has to go in between that, that's incredibly powerful. That's the whole reason Bitcoin exists.
Now, the devil, the devil's in the details, 'cause, like, [laughs] you know, we know the latency of communication. First you have to send an email, which is kind of hilarious in the first place. Yeah.
[laughs] Then you have to send your Bitcoin. [laughs] Do you imagine the subject line, like, "Free passage, please"? Yeah. You know? [laughs] "Attention, uh, to whom it may concern- To whom it may concern-...
come, come ready at all"... here's 20 Bitcoin. Don't bomb us. Yeah. I, it's like, [laughs] the, you know, g- [laughs] it's like, "I swear, bro," like, "the transaction, here's the mempool at Space Link.
Um, please don't shoot us down." Or imagine, like, a slow block or you get the fee rate wrong, and, you know, the Bitcoin's not con- um, confirmed. There's this hilarious, um, tweet from Clemente, uh, [laughs]
showing strips, uh, ships in the Strait of Hormuz while they wait 45 minutes for the Bitcoin transaction to go through, and it's that clip of the Mexican standup from The Office, uh, [laughs] because it's- Yeah. Yeah.
A- and, you know, I'm, I'm glad that you mentioned the confirmation times because one of the quotes in the article says, this is from Hosseini, quote, "Once the email arrives and Iran completes its assessment, vessels are given a few seconds to pay in Bitcoin."
What does that mean? What does that mean? Right? Y- a few seconds. Is it like, "All right," like, "timer's on now.
If you don't pay, we're, you know, you can't pass through," or, "We're gonna bomb you," or something?You know, like you said,
at least ten minutes on, on the heavier end, maybe forty-five or an hour if you have a really slow block.
I mean, obviously there are zero confirmations, and, and, and if they see that it's in their mempool- Yeah, but are you gonna, are you gonna take a zero-conf tr- transaction for two hundred thousand dollars in, like, the most geopolitically tense, uh- I mean-...
environment? Maybe. I mean, it's not like, you know... I, I guess my point is either, one, the person monitoring doesn't know enough to know how that works, and two- Yeah...
I mean, could you imagine, like, a Maersk ship pays and then, you know, does a replace-by-fee and says, "Psych," when they're halfway through the, the strait? [laughs] And they end up rugging the Iranian officials.
Uh, I mean- Right... it, it, it is kind of funny to, to game theory that out. But on a, on a more serious note, looking at what this means,
according to the Financial Times, and these are estimates based on, I would assume, industry data and also transponders for the ships, which the transponder data is not very reliable because a lot of ships have turned off their transponders for security reasons as they've been stuck in the strait for the past, gosh, over a month at this point.
But the, the Financial Times estimates that there's around a hundred seventy-five million barrels of crude and refined products currently loaded onto a hundred and eighty-seven tankers in the Gulf.
Other industry executives estimate that in total, I don't know what the difference between this, the previous number and these numbers are, but these industry estimates ex- ex- executives estimate that there are three hundred to four hundred ships waiting to exit the Gulf,
and one of them said it's going to take weeks to get this backlog through. It's basically like a massive traffic jam. I mean, there's no way that you could just clear this in a couple of days, right?
These are massive ships, and they can't all leave at once. But so you're looking at a hundred and seventy million dollars worth of toll fees here for the Iranians if people play ball. Again, it's really
remains to be seen whether or not shippers and shipping companies will play ball. Yeah.
And then, like, e- there's even more edge cases, like, okay, um, about 30 to 40% of the h- of all blocks are produced from American-domiciled entities' pools, and right now, as far as I'm aware, none of them enforce OFAC sanctions.
There was that back and forth. There have been a few of these, you know, considerations over the past several years. But currently, as far as I'm aware, none of them currently, like- None of them do... do that. No.
And yeah, for an abundance of reasons, it kind of is meaningless. But, like, maybe this is a conversation that comes back on the table where the United States says you can't include these Iranian-bound transactions.
J- I can see it happening just because of its, like, prominence on the global stage now. Um, previously, like, how do you... You know, you can blacklist a few hundred addresses on the OFAC list. But, like,
you know, how do you reference the OFAC list if the Iranian government just spins out 400 new, you know, uh, addresses? Because depending on how
deep you wanna go into, you know, Xpubs and different public keys, you know, you can... It, it gets really hard to, like, track this. So- 100%. And super interesting story.
W- one last note on this, just for people who are thinking there's no way this is real. Are the Iranians actually asking for Bitcoin? I mean, it is the Financial Times.
I will say their track record on Bitcoin reporting hasn't been the best, but, uh, this seems like a legitimate scoop.
But just to contextualize how important, or rather how, I would say, quietly essential Bitcoin and cryptocurrencies are to the Iranian regime,
Fox News reported on this this week, and I thought this would, this beared mentioning here on the stream. I'm quoting directly from the Fox News article.
Quote, "Researchers said they detected more than 1,100 active cryptocurrency nodes operating inside Iran." Now, the question for that, for me at least, is how many of those are actually government-affiliated?
How many of those are civilians running their own nodes so that they can make their own transactions and they don't have to worry about being gated out of the Bitcoin network because of firewalls, et cetera, things like that?
R- regardless, though, the point, the, the whole, uh, the headline of this article and the focus of it is that Iran has moved hundreds of millions in crypto during nationwide internet blackout, a report reveals.
So the Iranian regime and Iranians definitely lean on Bitcoin a- as a way to supplement financial flows that they would, uh, that they're blocked away, blocked out of because of these Western sanctions, and I, I just think it, it bears mentioning that there's, there's quite a lot of activity with Bitcoin going on in that country.
You know, I'll, I'll point out, um, a lot, pretty much every one of the, uh, like, nation-state intrigue Bitcoin stories over the past four or five years, really since El Salvador, has been various versions of, is the government gonna buy Bitcoin?
How much is Bitcoin gonna go up? Who's gonna acquire Bitcoin or nation-state mining?
This is a very different type of story because this gets really into the heart of the adversarial nature of Bitcoin that's designed to function when the most powerful country in the world, the United States, is at heads with another nu- you know, nu- soon possibly nuclear-armed country, Iran, and
the whole world is divided around these transactions, and yet Bitcoin still functions. This is not a Bitcoin number go up story.
This is a, does the Bitcoin network function in a nation-state level adversarial, uh, scenario? And I'm gonna bet that it does.
So I would almost, like, hold this as an exampleTo say Bitcoin is thrust under the nation- national stage. And it, it's beautiful that I think it happens at sixty-seven thousand dollar Bitcoin.
Like, it's not a, it's not a-- it-- this is not a bull market right now. So it's not a-- it's not Bitcoin screaming towards two hundred K. It's Bitcoin's now down fifty percent, and it's still, like, front and center.
So, you know, this is a really cool, um, uh, users and function go up for the Bitcoin network.
I think that probably- It's like that, it's like that meme, heartbreaking, the worst person you know just made a good point, not you. Yeah.
But the fact that, you know, one of the more notable and salient examples of Bitcoin being adopted on a nation-state scale is with the Iranian dictatorial regime.
[laughs] I mean, the benefit of that, the, the, the positive is that there are civilians using it. And I'm not gonna ov-exaggerate that.
It's not like everyone is using Bitcoin in Iran, but I've talked to Iranians who do use Bitcoin, and they tell me that it... there, there is at least some level of adoption among civilians there.
But also clearly, the Iranian regime is using it as part of their financing and as part of their monetary regime.
And it is a more, I would say, you know, again, going back to the Yor- the worst person you know made a good point, to me, it is more impactful than the kind of LARPing we saw out of El Salvador.
The, the whole Bitcoin as the tender thing was, I guess, cool. It made splashy headlines, but the wallet that they rolled out for it, for civilians, Chivo, did not really work very well.
People would report paying a lightning invoice, and then it didn't get satisfied, and then their Bitcoin was gone out of their lightning wallet.
There were all of these UX and UI bugs, and they eventually ended up, I think, reneging on it, right?
I think the IMF basically said, "If you want loans, you have to drop the Bitcoin as legal tender thing," and so it's no longer even a thing over there. Um, also, I do think that there's kind of a...
It's, it's a weird ethical question, like forcing people to take this payment of, of, you know, take this method of payment that most people, a lot of people barely know how to use.
A lot of people who actually own Bitcoin barely know how to use it. So, but yeah, we'll, we'll leave that there with one last note, though. Bitcoin is above seventy-one thousand right now.
Markets are rallying on news of the ceasefire. So let's keep that, let's keep that going. Let-let's- Yeah. Let's keep the vibes going. Let's keep that going. Yeah. We want number to go up. Yeah.
No more doomsday tweets from our president, commander-in-chief. Please. [laughs] Those... No, yeah. Those are... I, I... Please let me turn off notifications on Truth Social. It's my least favorite notification to get.
Um- Yeah, a hundred percent. But also, it does, it g- does pull you out of bed at 5:00 in the morning Central Time. Yeah. And I'm, "Oh, what the heck did he just say? [laughs] Oh, my God." Yeah.
I, I, I think the, uh, the loose cannon charisma, or rather the charm of the loose cannon charisma of our, of our president is, is, is I think wearing off even among his most ardent supporters.
But we'll leave that there. We won't wade too far into the realm of politics. We got another story here in a second, but not before a word from our sponsor, CleanSpark. [gentle music] We are CleanSpark,
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And with that, we will move on to our next story, the long-awaited launch of Morgan Stanley's Bitcoin ETF.
So Morgan Stanley rolled out MSBT, the first spot Bitcoin ETF from a major US bank, as Unchained's headline here reminds us. Now, a few high-level notes on this.
This was announced, or rather the news broke a few months back when Morgan Stanley filed for this ETF.
It's listed on the New York Stock Exchange, Arca Exchange, and it is, once again, the first US bank to issue a Bitcoin ETF.
Now, if you're confused about that, you know, BlackRock, Fidelity, these aren't banks in the traditional sense.
They are asset managers, and I'll get into why those were some of the first movers within the Bitcoin ETF space here in a minute.
But this is the first US bank, not just the first major US bank, the first US bank at all to issue a spot Bitcoin ETF, and it's going to have the lowest management fees on the market.
It's, uh, zero point fourteen percent, so fourteen basis points.
That is well below IBIT's, BlackRock's Bitcoin ETF, at twenty-five basis points, zero point two five percent, and below, just below Grayscale's, which was the lowest on the market at fifteen basis points.
Now, a lot of people heralded this as more important a-almost than the Bitcoin ETFs being approved in the first place.
Maybe that's exaggerating it, but a lot of commentators have said this is at least on par with that milestone for Bitcoin.
Part of the reason for that is Morgan Stanley has sixteen thousand wealth management advisors who manage nine point three trillion in client assets. So
you already have this massive war chest of client assets, and if you're Morgan Stanley and you're starting to advise one, two, three percent into Bitcoin, that's a substantial chunk of that nine point three trillion.
They've offered Bitcoin ETF trading from third-party ETF issuers for some years. This is their first entrance into the actual ETF issuing space, though. Coinbase will be providing custody.
BNY Mellon will do cash custody and administration. Now, going back to why now and why are we just getting the first bank, I, I...
That was kind of the question that I was most curious about with this.So I, I interfaced with our LLM overlord, specifically Claude- [laughs]... and asked, asked Claude what- why is this, why is this such a big deal?
What's the really the difference between an asset manager and a bank issuing an ETF? Why are the banks, or rather a bank just now getting to it?
[sniffs] And the, the key points it came out with was the first one was regulatory structure and culture.
Quote, "Banks like JP Morgan are regulated by the Fed, OCC, and are subject to bank holding company rules, so they face much stricter capital requirements than their counterparts in asset management and regulatory scrutiny around crypto exposure.
Asset managers are primarily SEC regulated, which is a more permissive environment for launching investment products." This is partly why asset managers got there first.
The regulatory route was a little bit easier for them. But also there's the business model incentive to factor into account. Asset managers make money purely on fees. They offer you some exposure to some sort of asset.
They manage your assets for you. They take a little cut off the top of that. So a B- a Bitcoin ETF's pretty straightforward for them. It's like, yeah, this is what we do for everything else.
We have ETFs for a lot of commodities. This is a natural extension once we get regulatory clarity and once, you know, institutions and retail are, are comfortable enough with these assets.
Once they've matured enough, we can go ahead and offer them. A bank, though, uh, the, that, that equation's a little more complicated.
They have wealth management clients, prime brokerage, custody, trading desks, all of these different interests, and the Bitcoin ETF sometimes complements or competes with those, so they needed to figure out how to structure it first.
Um, and the, uh, last few, distribution and client base.
Morgan Stanley's, uh, uh, wealth management arm is geared towards high net worth and ultra high net worth clients, and for a long time, they were cautious about offering crypto even to those clients.
Um, whereas BlackRock, uh, you know, they had much broader reach for their ETF through retirement accounts, retail brokerage, institutional things, et cetera.
And then there's also the reputational and risk tolerance aspect of it. Like banks have a lot more reputational risk. An asset manager like BlackRock, you know, they can kinda go in. People expect them to have...
to, to give them a- exposure to assets that might be a little riskier, but banks, you know, it's where you store your money. You don't want to lose your lunch.
You want to trust your bank, make sure they're making sound decisions, so there's more reputational risk involved for banks as well.
Uh, and then there's a custody element to it, but it's a little too subtle for this, so, um- [clears throat] I'll, I'll tap in 'cause I can't speak too much to, you know, wealth managers versus investment banks.
But I can say the custody, they're custody with Coinbase Custody. For those of you not in the know, of the ETFs, I believe everyone uses Coinbase Custody. That's the BlackRocks. That's the BitWises, except for Fidelity.
Um, so Fidelity does their own custody, so not surprised that Morgan Stanley's gonna be using Coinbase Custody. Uh, I am kinda curious, Colin, like given that, um,
Morgan Stanley's ETF has the lowest fees, I mean, they're half of BlackRock's, will we see like intra-ETF flows to the, you know, the, the, the less costly product? You know, I don't know this business enough.
We might actually, uh, um, uh, pop this question on, uh... We might, we might hit this question, uh, w- uh, to our next guest, Jay, here in a second to see if he has any insight.
Um, but anyway, yeah, Morgan Stanley, it's great.
They were, they were very prominently and conspicuously fading Bitcoin, fading broader crypto, uh, for a long time, and here they are coming out big with like the, uh, biggest institutional news, I believe, in a long time.
Uh, 100%, and they also will be launching retail crypto trading on E-Trade, which they now own, sometime in 2026.
So obviously these two product launches were incubated in tandem with each other, and it makes sense that they, one would follow the other. Definitely big news. Uh, enough to get us back into more bullish territory?
Probably not, but just another example of Bitcoin's increasing institutional adoption, even if it's slower than a lot of people would like. We're gonna wrap that story up.
We'll bring up Jay from Ligos here in a sec, but not before we shout out our friends and sponsors of the show, Luxor.
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And without further ado- We will bring- Let's bring on our next guest, friend of the show, Jay from Ligos. Welcome back, Jay. Hey, how you guys doing? Pretty good, man. Thank you for joining us again.
For those of you who just- Let me- Oh, go ahead. Let me hit you with a question. You were listening to our co- conversation about ETFs. We're kind of the blind leading the blind here.
You know more, you know your way around this more. What are your thoughts? Like, what's your take on the Morgan Stanley ETF? I think the, the...
So from what I've read about it, the fees are much lower, which I think is, it was almost necessary because, um... and, you know, I know you mentioned it, but Morgan Stanley's got a huge wealth management business.
They've got a bunch of, you know, uh, bank-You know, they've got a huge advisory business where they have high net worth clients, and they have advisors who, you know, allocate them into various products.
I think there was this sense that, oh, if Morgan Stanley launches an ETF and the fees are not lower, and said advisors shovel their clients' monies into s- the ETF, it's not a great look 'cause, like, you know, why are you gonna, why are you gonna put them in Morgan Stanley's ETF if IBIT or, you know, other, other ETFs are charging less?
Um, so I think from that perspective, because I think the primary buyer of the ETFs are actually their wealth channel, they had to charge less.
Um, but I mean, I think that space is just gonna continue to see compression.
Like, you know, if you think about the custody fees, like the reason that Coinbase is able to charge so little, and I think in some of the cases none, like I think it's public that maybe there was a custody fee waiver for, for IBIT and others, is just, you know, they can make the money on the trading, you know, the flows in and out of the ETF and, you know, all of the, uh, spot activity that happens around that is more than enough for them.
Um, but it is kind of a longer term concern if all of the ETFs... Like I know Fidelity's the custodian for their ETF. I know Anchorage is a secondary custodian for a few, but by and large, they're all Coinbase.
And I mean, I don't know. There, uh, there is like a weird kinda concern there if all of these new bank products and asset management products are all just Coinbase custody underneath. Yeah.
Concentration risk on concentration risk. If it's not Bitcoin mining pool concentration risk, it's asset manager concentration risk. But we won't be talking too much about that.
We will be touching on private credit once again, and I appreciate you double-tapping on this subject with us, Jay, because it's at the heart, private credit is at the heart of
the AI CapEx boom that we cover a lot here, and in fact, it is the fun- it, it's the flow of funds working in the background I think most people take for granted or don't really know how it works.
And, and we're starting to see maybe some troubling signs and, and you're gonna give us the fact versus FUD on whether or not people need to start worrying right now.
I wanna start though with Moody's giving negative ratings to these so-called business development companies.
Now, business development companies are publicly traded vehicles that will extend loans to smaller mid-sized businesses that have trouble accessing credit markets,
and, you know, so in- investors who want to have exposure to private credit, which can be high return but also high risk, will, you know, buy these BDCs.
But Moody's just rated BDCs negatively for the first time in two years. Can you unpack what this is saying and why this is happening now? Yeah.
So I think the primary, you know, reason if you kind of look under the hood for the, for the Moody's D rating was the investor exodus, as they called it, you know, everyone trying to pull out their capital.
Um, and I think the, the, the thing that underlies this, you know, we discussed private credit briefly last time I was on here, but, uh, th- the story under the story that not a lot of folks are talking about is the fact that private credit only really works because there's bank leverage.
So if you think about pre-'08, most of these loans were just made by banks. Like the private credit industry wasn't as big because it didn't need to be as big.
You know, all these middle market companies could get loans from a bank. Um, you know, with regulatory changes and capital requirements, a lot of that has shifted to private credit.
The way the banks play a role now is instead of lending to the end company or, you know, a infrastructure project or whatever, they lend to the private credit fund who's making the loan, and the private credit fund, you know, posts their loans as collateral so, you know, they can get a turn of leverage.
Um, and I think what Moody's rightfully called out is like a lot of these BDCs are already near their leverage limits, right?
So like if people want their money back, it's not like they can borrow more money from the bank to give them their money back.
They're gonna have to sell some assets or they're gonna have to do something to get new investors interested in putting assets in, which, you know, seems fairly unlikely right now, um, which, you know, which is why I think, you know, the, the negative outlook stands.
You know, I think the one thing that would swing things around is if all of a sudden there was some new flow of capital into the space. Um,
and I guess, you know, that kind of segues into this, uh, repainting of the narrative that all of these managers have tried over the past couple months, which is like, "Oh, we're not lending to software companies.
We're lending to hard assets, you know, the heavy assets, low obsolescence. We're lending to industrials and manufacturing." It's really just data centers mostly, but yeah.
So just I wanna double tap on something really quickly.
Are you saying that the reserve requirements post 2008 have taken a lot of these banks out of these credit markets, and that's why it's shifted over to these private credit funds? Or did I, did I mix that up? No, no, no.
I think directionally, yeah, that like the, the capital requirements for these banks to make these kinds of loans just made it so that it's not economical.
Um, and I actually think that it's like, you know, I, I think Bitcoiners like to just, "Oh, everything that goes wrong in TradFi, it's doom and gloom, like the impending collapse of the financial system, and we're all gonna be sending SATs to each other from now on."
And like, you know, maybe one day we will, but I don't think this is that.
Like the banks are not in like a systemic risk position because they are now lending to the funds which have their own equity capital who are making these loans. And so, uh, you know, you...
At worst, maybe these banks, you know, if these, there's massive drawdowns, all the equity gets wiped out. The banks see
a couple billion, you know, maybe even if it's $100 billion in losses, like that's like, you know, a couple days of printing money. Like there's no systemic risk here.
But yeah, basically a lot of this activity shifted to, uh, you know, like the, let's say, unregulated private credit segment. And it's... Oh, go ahead, Charlie. Go ahead. Oh, you, you go ahead.
I have a, I have a dumb question. Okay.
So but it's also attracted companies that I think that you wouldn't expect to be playing in these markets, and one of those are insurers, insurance companies.I think that people typically, if they think at all about where insurance companies are earning yield on their cash to make sure that they have enough to pay back their obligations, if anything, if people are ever thinking about that, which I don't know how many people are, they're probably thinking that they have it in pretty liquid assets or something that is more or less pretty safe.
I think most people would probably assume bonds, you know.
But a lot of these insurers actually have, some might call it overexposure to the private credit market, and they're starting to ha-- There, there are some headlines now that are going back to the jitters saying that they might be over their skis with some of these funds.
You know, going back to the fact versus FUD, how much stress are we seeing from insurers right now within the private credit markets?
I, I, I do think this is probably the one interesting piece of this that could shake out either way. So, uh, as a quick background, you know, we're not talking about like your auto insurance, right?
These are mostly like life insurers or term insurance, uh, companies. Um, so if you think about the last ten years, private credit kind of sees this take off. They're getting all these assets, making loans.
It's great for the managers because they get to charge fees on assets. But if you wanna make more money, like, you know, like every business, you wanna grow your business, they wanna grow their business.
How do they grow more their business? They need to bring in more capital.
Um, insurance, you're right, historically has always invested in kind of very liquid or relatively liquid instruments, um, you know, publicly traded bonds, things of that sort.
And you kind of think of insur-- like insurers are a bank in a sense. You know, people put in money, they buy policies, and there's an expectation of a payout in the distant future.
And in the meantime, the insurance company does safe stuff with the money to make sure that they can meet the payouts that they have.
Um, so, you know, these managers decided, you know, if I'm Apollo or I'm KKR or another private credit manager, you know, a great idea would be for me to buy an insurance company, stuff the insurance company with private credit products that I am also managing and taking fees on, and then I get kind of money on both ends.
Um, and I don't think it was like fraudulent by any means, like these were rated vehicles, but a bunch of the money that went into private credit over the last, you know, ten years has been from insurance companies.
Um, and you know, if there is kind of significant decline in the value of these assets, then that could be in trouble for insurance companies.
Um, and the other thing you gotta keep in mind with insurance companies is like a lot of them are not US regulated in the way that like banks are.
Um, you know, there's much less transparency in terms of the assets that insurance companies hold.
A lot of them are regulated in places like Bermuda, which, you know, I think is still strong regulation, but, um, it's not the level of transparency that we get from banks in the US.
So it's kind of hard to see how levered these insurance companies are and what their exposure really is. Yeah.
I'm having trouble sharing it right now, but going back to what you were saying about the exposure here, we have this Financial Times graph that you linked to us, largest private credit managers forge partnerships with insurers.
It shows the estimated share of credit assets funded by insurers at top seven North American-listed private capital groups. Apollo is over sixty percent. KKR is nearly sixty percent.
Blackstone is just over forty percent. Carlyle is at forty percent. Brookfield is almost at forty percent. Ares is fifteen, eighteen percent. Blue Owl at the lowest at about ten percent. That's a huge chunk. And
my question going back-- O-one of my follow-up questions on this, and I'll kick it to you, Charlie. Going back to what you were saying about these pr- these private credit
issuers saying, "No, no, no, these aren't software companies. These are infrastructure companies.
We're backing data centers," which is mostly true, but I, I think that one of the fears is that might downplay the risk on the ROI for these things.
Because there is this fear that the CapEx spend for the AI builds has just been so munificent and so large that there's no way that, that this capital could be recouped within even the next decade.
I, I, I recall a report, I think from JPMorgan or, or Morgan Stanley a while back, where it was like an absurd number.
It was like something like five hundred, three hundred billion or something would only net a like ten to twenty or twen- ten to fifteen percent return on the, the, uh, CapEx for some of these data center builds worldwide.
A-all of that to ask, long-winded way of asking you, do you think that the actual ratings for these private cre- for this debt is too high for what, what, what, what people are actually putting their money into? Like,
are these AI builds probably less safe than some of the private credit funds were making them out to be? I think espec- I think so.
You know, I think you've seen the Oracle CDS charts, I'm sure you guys have discussed them, where, you know, Oracle CDS is trading at two thousand and eight levels, basically.
And the idea is basically that investors don't think that Oracle will meet all of these obligations because they've committed to so much CapEx for building out data centers for OpenAI, and I think the idea is like, will OpenAI meet their commitments in terms of spend with Oracle?
Um, and I think the same is true across like all these private credit companies. You know, if you go back to the original, I think Blue Owl did a, a placement with Meta for data centers.
I think that was the first one, you know, maybe mid last year. Um, the rates are-- You know, they're-- The spreads are almost too low.
Like in my mind, I'm thinking that, you know, if you think AI is this revolutionary thing that's gonna upend the entire economy, and that's why there's gonna be so much demand for these data centers, why are you okay getting seven percent on the-- or, you know, eight percent?
And like it's, it's just not enough return for the amount of risk.
Especially because, you know, in my mind, um, like the way that, uh, they're, they're modeling things out is basically that there's gonna be so much demand for these data centers, um, that the data centers will produce enough cash flow, and they'll be able to meet the payments on these loans.
But if they don't, yeah, there's physical assets. It's better than software. You know, they have-Infrastructure, power agreements, GPUs, all of that.
But like GPUs without demand or a data center without customers doesn't produce cash flow, and there's always the risk that like, you know, there's delays, something happens, and you don't get paid.
And I don't know if that's completely priced in. Um, the other thing that I'm like hesitant to, uh, think about there is just like, you know, if you are a credit investor, you're inherently short volatility.
Like when you make a loan, the best outcome is you get your money back and the borrower pays you the interest. Like there is no upside, right?
So like credit investors, historically, you've been inherently been like, you know, they are, they are, um, long the status quo.
You want the world to stay the same today for the next five years until you get your loan paid back.
And, you know, um, every story you guys have discussed, whether it's AI or Iran or geopolitics, whatever, like the world is changing a lot.
Um, and I think in that world it's a lot tougher to be a credit investor just because, you know, your assumption that- You can't price, you can't price the uncertainty. You have no idea. Yeah. Right? Exactly. Um.
Especially when you don't have a share in the upside. Right. Sorry, Charlie, I lied. I have one more question just because- Go ahead... you said something that's like the perfect segue for my last question.
You said that for, I believe you said for Blue Owl or for, for Oracle's debt, um, from Blue Owl for its data centers, its credit, the credit default swaps on that are reaching two thousand and eight levels.
That's, that seems pretty, pretty frightening, uh, you know, to people who were around and who knew what happened with the credit default swaps in two thousand and eight. And so when I hear that, alarm bells go off.
D-do you think that private credit is the tip of the spear for a market downturn then? Is that... Do you think that signals that or is that an overblown concern?
Uh, I don't think it's the tip of the spear, e-especially 'cause the Oracle one was a little separate, right? So the Oracle CDS is for bonds that Oracle has issued.
And I don't know if, you know, if you remember, I don't know, maybe it's been a year plus at this point, when there was that whole press conference that Trump had and they're gonna build Stargate in Abilene, Texas, and Oracle's gonna be putting a bunch of money into it, and OpenAI is gonna spend five hundred billion dollars, I think it was, over the next ten years or something, maybe less.
But like insane numbers.
And Oracle's stock just, stock just went up and to the right until people were more like, "Okay, who are the customers that are going to pay Oracle these hundreds of billions of dollars over the next couple of years?"
You know, if Oracle's fronting the cash or borrowing the cash from lenders to build all of this, then someone's gotta pay for it in the end.
And I think the concern is really like all of this hinges on basically four companies, right? It's, um, Meta, Google, OpenAI, and Anthropic. Like those are the customers of all of these data centers.
That is the GPU demand.
So you are making the implicit bet that they will have enough demand that they will be able to, you know, that their customers will pay them enough so that they can pay you enough, you being Oracle, so that you can pay your lenders enough.
And I think there's just a lot of assumptions in that chain. I wouldn't say it's like impending doom.
Like I think it's, you know, it is the, the CDS is at two thousand and eight levels, but I think Oracle is very levered.
Like, I think their play on the AI story was, "We're just gonna build data centers and kind of pick up on the AI trend." Um, you know, I think that's not the position that all the other hyperscalers are in.
They actually have, you know, meaningful cash from other businesses, but the CapEx numbers are big. We have a comment on YouTube, uh, from JHY says, "It's the new Abilene paradox." I think that's a pretty funny take.
Okay. J, my dumb quest- my dumb kinda question is, um, you know, when the two thousand and eight happened, nobody, nobody knew any of the words or the lingo. Nobody knew what credit default swaps or whatever they...
Nobody's, nobody knows what they are still to this day. But over this weekend, I had a normal person ask me what I thought about the private credit market. And I was like, "You are in an unrelated profession.
You don't... Like you, you saw some news story." I'm like, this, this, this, this story seems to now be crossing into normie territory. Do you get this idea?
Do you think the average person is equipped to even like analyze these types of financial news at all?
Um, so I, I, uh, probably not, but I will say the one interesting th- like look, I am y- you know, uh, like I'm, I'm very much in the camp that this is not like systemic collapse, but I think the one interesting thing in this whole story has been like s- un- probably with the exception of COVID, since two thousand and eight, there's been no story where there's just been consistent bad news week after week after week for a prolonged period of time, right?
Like we had blips, you know, you had like the, the run up in rates, you know, in twenty-two and twenty-three, the whole inflation story.
You know, there was some macro headwinds in like, you know, twenty seventeen, twenty eighteen, but it was never like, you know, you saw one story and then it was gone, right?
Or like, you know, everyone's like, "Oh, there was like a bad treasury auction or something." But this has just been like, you know, story after story, different companies, different managers, different problems, right?
So in that sense, I think it's kind of permeated, but I do still think that like, you know, the private credit market as a whole is like two trillion dollars. Um,
if you think about like a trillion of that being equity and like, you know, certain dro- like even if you assume worst case, there's like three hundred billion dollars of losses to banks, that's not a ton in the...
I know it's a big number, but it's not a ton in the grand scheme of things. So, um, you know, the one, the, the, the one kind of unknown is maybe the insurance thing that you guys were mentioning.
Like, you know, that's a little opaque and what is the exposure for insurers, you know?
People don't withdraw from their policies often, but if they think that their insurers are not good for the money, maybe they will, um, and, and that could be an issue, but yeah.Yeah, we'll have to see.
I think to-- for me, it's one of the things to keep an eye on, and hopefully not the end of the world, but definitely something to keep track of as we plow through twenty twenty-six.
Jay, CEO, Ligos Finance, thank you so much for joining us, man. Hope you have a good week. Likewise. Take care, guys. Cheers. See you around. And with that, we will do a quick ad read from our sponsor, Ligos.
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We are doing, we're doing a tour de force of, like, every type of Bitcoin story here. It-- You know, just wanna pat ourselves on the back. Yeah. We, uh, the- Crypto, code, trade, tech. Yeah.
It's a very eclectic show run today, all of the sundry headlines. And for this one, our friends at Bitdeer are back in the news with the launch of their A4 SealMiner series.
Now, for those of you who don't know, Bitdeer is a publicly traded Bitcoin miner that is transitioning into AI.
They sold all of their Bitcoin recently to aid in the CapEx spend for that transition, but they also are novel in the sense that they are a publicly traded Bitcoin miner that actually produces the picks and shovels to mine Bitcoin.
They have their own ASIC miner manufacturing line known as SealMiner. Of course, Jihan Wu, the CEO of Bitdeer, formerly a co-founder and the CEO of Bitmain.
So if there was any company that was going to do this, try to give Bitmain a run for its money, it was going to be Bitdeer.
But things have changed a lot since Bitdeer started rolling out its ASIC line, and we'll touch on this later in the segment after we get to some of the high-level notes for this.
But you gotta wonder, with all of these Bitcoin miners pivoting to AI, is the ASIC arms race a losing race for whoever's competing at this point? And again, we'll touch on that in a second.
But just a few key notes for this.
The Seal04 chip has a headline power efficiency of thirteen point five joules per terahash, and they also have come out with not just an air-cooled model for this, [clears throat] but also two hydro models.
The Ultra Hydro model has nine point four five joules per terahash. Joules is synonymous with watts, by the way, y'all. I'm actually just gonna go ahead and start using that 'cause joules is kind of confusing.
No one uses that. A-a-and this, the Ultra Hydro model comes out at eight hundred and eighty-six terahash a second.
The Pro Hydro is ten point nine watts per terahash at six hundred and eighty terahash a second, and the A4 Pro Air is ten point nine joules per terahash at thirty-three point six terahash per second. So,
a few more notes on this before we get into kind of larger commentary for the ASIC manufacturing space. This rollout is actually coming late.
As we covered on Blockspace at the turn of the new year, Bitdeer was actually under fire from one investor in a class action lawsuit that claims that Bitdeer was misleading about their timeline for the, uh, for the A4 SealMiner series.
Now, what this lawsuit basically-- what this lawsuit charges against Bitdeer is that they were misleading about the timeline for the rollout for this.
Bitdeer first announced the Seal04 ASIC chip as part of the SealMiner roadmap in June 2024, advertising it as, quote, "as low as five joules per terahash or five watts per terahash energy efficiency."
A-and they said that the chip was expected in Q2 2025. That is from a Bitdeer presentation that was cited in the lawsuit. Now, things did not shake out this way.
Bitdeer ended up actually delaying the launch, and in its Q3 earnings call, it said that it was going to have a Q4 2025 tape-out and Q1 2026 mass production for the SealMiner A4 series with a six to seven joule per terahash efficiency.
Now, that is at the chip level for the Seal04, so we didn't get to that efficiency for the full shoeboxed unit for these things 'cause, you know, the fans, uh, the control board, other equipment on the miner increases its energy load.
But it also said that it is aiming for a five joule per terahash target in a second round of the SealMiner A4 series.
So this is the first round, closer to that six to seven, and then it's saying that they want to do another one with the five joule per terahash target in a second round of the Seal4, uh, SealA4.
So all that being said, this is coming a little bit later than s- than Bitdeer probably would have hoped. But that being saidHow much does that really matter?
Because now all of these public Bitcoin miners, the largest customers for these ASIC manufacturers are pivoting towards AI, including Bitdeer itself. Now, the cool thing about Bitdeer is they have optionality.
They produce the ASICs, so they can either mine with them themselves, they have extensive mining operations, or they can sell them into the open market.
But Bitdeer is also moving into AI, so are they actually going to want to allocate rack space or megawatts towards this if they can repurpose that space for AI compute? Almost certainly not.
And so my question then becomes, i-i-- how, how big is this rollout for Bitdeer? How many machines are they actually producing of the A4 series? What was their tape out?
You know, it's my understanding, and they're working with TSMC, I'm pretty sure.
My understanding is if you're going to TSMC, the greatest semiconductor manu- fabrication company in the world, you really kinda have to up the ante each time to make sure that you keep your spot in the queue for a, an ASIC chip tape out.
Because there's just so much demand that otherwise you're just gonna get kicked out, and they're saying, "You're small potatoes, we're not gonna worry about you."
So I'm curious how big this production run will be, how many machines will they actually produce, and what will they actually do with them? I mean, obviously, they will replace their older machines with them.
How long will they actually mine with them, though, if they are chasing this kind of AI golden rabbit? The other question too is, will they actually be able, if they wanted to, to sell them in the open market?
I'm not totally convinced because ASIC prices are low, low, low. And Charlie, I'm almost done here, and then I will shut up.
But if we-- we're looking at data from our friends at Luxur's hash rate index, as of yesterday, the most-- the newest machines or the tranche that they indexed for the newest machines, anything under nineteen watts per terahash are trading at four point thirteen dollars per terahash,
which is insanely low. Um, just to give you an idea, so if you have like a, a two hundred terahash S21, y-you can get one of those things for under a grand.
You can get it for like eight hundred bucks according to this right now. So there's very little demand in the ASIC market currently. And as we see, demand has fallen off a cliff. This year, it's wow, look at this.
This is crazy. Starting in February, it just absolutely tanks.
I assume that's because of the introduction of newer models into the system, or maybe there's just, you know, something broke in the ASIC market as all of these public Bitcoin miners are selling their machines on the secondary market.
Last note on this, Bitdeer is not the only company that has launched an ASIC manufacturing line in an attempt to jockey for market share with the largest manufacturers, Bitmain and MicroBT.
F- uh, Valora, formerly Ordyne, also started its own ASIC manufacturing line.
This was one of the more trumped-up entrants to the ASIC manufacturing business when they announced their attempt to build ASICs back in, I believe, twenty twenty-three.
They had a bunch of funding, tens of millions of dollars from Marathon, from Mara, and they did launch a-- their Teraflux line. Ordyne has ASICs out in the wild.
Mara purchased some, and I believe they are operating them. But now the company has pivoted to Valora, and they're not really making the ASIC miner a feature of their product suite anymore.
If you go to their landing page, they say Valora is, quote, "innovative AI solutions driven by ultra-low power technology." But they're making AI part of their pitch now. They're no longer focusing on Bitcoin mining.
And then obviously, there's another newer entrant Block with their Proto miner. Be curious to see what their plans are now that the industry is churning towards AI. That was a lot.
I'm gonna shut up and toss it over to you, Charlie. Yeah. It seemed like we were having, you know, for years the, the narrative in, in Bitcoin has been like, how do we, you know, Bitmain's this dominant
almost monopoly, now more of like an oligopoly. You know, there's been competitors. Now, those competitors are dialing things down. Like, man, is it just gonna be the Bitmain story again?
Is this a broader trend that we could see something like this happen at Bitmain? I mean, who knows? So this is a very interesting trend we'll have to see. Yeah.
And going back to Bitmain, last thing I'll say on this, it's also unclear what they're going to do in the future. Yeah. There, there have been rumors that they are phasing out air-cooled entirely.
We have not been able to confirm those rumors, but I've heard it enough times to think that there might be a case for that, especially considering Bitmain has been really trying to push their hydro line for the last few generations of, of Bit- uh, of antminers that they've rolled out.
So they, they might be going to only hydro, and then that really does raise the question, well, I mean, are, are miners going to just move over all their infrastructure to hydro to get new machines?
Are we going to enter this limbo period where Bitcoin's hash rate doesn't really increase that much because a lot of the largest miners are decommissioning machines and moving towards AI?
Um, the miners who are still around don't wanna make the CapEx spend for, you know, dry coolers and hydro setups, so they just stick with older generation hardware. You know, th-there's this,
you know, there's this general feeling, or at least, you know, historical wisdom would say Bitcoin's hash rate is up and to the right.
And I mean, I don't think that it's going to necessarily shrink over any meaningful period of time or over the midterm.
But y-you do have to wonder over the next few years how much Bitcoin's hash rate will grow given all of these headwinds against it.It's-- Yeah, it seems to me that we can actually put a much better ceiling on the hash rate projections for the foreseeable future.
That's really just limited by the foundry space, like how much tape outs are we gonna have, and that is your absolute upper boundary for hash rate, so- I mean, uh, it's hard not to be a little bit bullish as a miner right now, I think.
I mean, Bitcoin's kind of... Like, its price is in the toilet, but you have to be thinking that can it really get... I mean, it can get that worse.
Bitcoin could get cut in half, and then your profitability is cut in half as well.
But if I'm a Bitcoin miner that has low enough power costs right now and I have new enough equipment, I'm probably feeling a little comfy because y-y-you have to think there's probably not that much room for difficulty to edge up right now, so-
But yeah- You're- I'm, I'm-- Yeah, if I'm a miner, I'm probably flat on difficulty for a long time. You know, be very-- don't expect difficulty to go up. And then also,
you know, we see this industry whipsaw back and forth. Um, I will make a big observation, which is it's probably way easier to convert an AI build into a Bitcoin mining build than a Bitcoin in-build into an AI build.
So, like, you know, if, if the whipsaw happens, it could happen really fast the other way. So, you know, in that case, the hash rate could be very good to own because we, you know, there is a bottleneck. Um,
however, if Bitcoin doesn't go up, we have another problem on our hands. So, let's move on to our last and final story of the day, which is another publication.
Another major publication has figured out who Satoshi is. We have heard this story before. We've heard it multiple times before. The New York Times,
a reporter for The New York Times did a long, uh, investigation deep dive into who Satoshi could be, and they came up with the answer. It is British cryptographer Adam Back.
Yes, the conclusion from, uh, John Carreyrou [laughs] points to- This is insane though... Adam Back. Yeah, I mean, we've heard this story a bunch before. Um,
I like to kind of chuckle, brush it off, point fingers at trad fi- you know, traditional media and go, "Oh, come on, we've heard this a million times before."
But I think you wanted-- I think, Colin, you may have wanted to maybe cave fade this a little bit where we ta- you know, where you, where you, uh, actually, um, point to
the fact that this guy did a little more legwork, I think, than your average, say, Financial Times or average reporter. Uh- Yeah... and it does bring up some good, some good points.
First of all, shout out to John Carreyrou, the journalist who wrote this, for sharing a gift article on X. Doing the Lord's work, man. I really appreciate that.
[laughs] I did not wanna have to re-up a New York Times subscription.
There's some meta commentary here, though, before I get into the evidence that the reason that he dove into this, he was already interested in this topic, but a year ago, or i-in the, in the fall of twenty twenty-four, we actually covered this on Writers Room, for those of you who have been OG Blockspace fans back in the day when it was still Bitcoin Season Two.
We covered the HBO documentary that claimed that Peter Todd, Canadian Bitcoin developer Peter Todd, was Satoshi.
Anyway, our intrepid journalist here, John, did not find the evidence that convincing, so he decided to do his own research after watching the HBO documentary. And the thing that tipped him off to looking into Adam Back,
and I will say this is very, I think, to me at least, a little specious. He says that he was-- Adam Back, as part of the documentary, was interviewed in Riga, Latvia, I assume during Baltic Honey Badger.
Quoting directly from the article here, "The filmmaker casually rattled off the name of several Satoshi suspects. At the mention of his own name, Mr.
Back tensed up, strenuously denied he was Satoshi, and asked that the conversation be kept off record." Having encountered my fair share of liars and developed something of an expert- [laughs]...
taste in their tells, this is like the equivalent of someone being like, you know, um, ornithologist here when they're on, on bird Reddit or something- [laughs]...
or someone tw-tweets something about birds, you know, and th- when they're making an appeal to their authority.
I don't know what encountering your fair share of liars means other than just living in reality because people are not always honest. But- It's 'cause he works for the media. He works- [laughs]
He works for the elitist l- coastal, coastal elites, you know, who write for The New York Times. Okay. Pr-probably true, but he said that, "Mr.
Back's demeanor, his shifting eyes, his awkward chuckle, the jerky movements of his left hand struck me as fishy. When the credits rolled up, I replayed the sequence several times on my TV." And that,
that is the jumping off point for John Carreyrou to- I, I, I'm imagining, I'm imagining in a dark room, and it's, you know, three AM, and he's, like, bleary-eyed, and he's, and he's, you know, doggedly like a detective, uh, going through the evidence, and he just pauses at the critical climactic moment one-third of the way into the film, and he, and he figures out, and he rewinds, and he plays it over and over and over again.
I mean, we're just imagining that. [laughs] Yeah. Right. He's like, "Wait, there it is." Yeah. The Leonardo DiCaprio from- Yeah... Once Upon a Time in Hollywood pointing at the TV. Exactly.
But so he spends a year researching this, and a, and, and as far as I can tell, the bulk of the analysis, or rather the bulk of his evidence really rests on linguistic analysis, looking at Satoshi's writings on Bitcoin talk-And in the white paper versus Adam Back's own writings in Bitcoin talking on X.
I'm gonna share a few of those findings here because I, I will say I'm not convinced that, that this is a smoking gun.
I do think that some of the evidence though is at least worth pointing out because it seems like it could be directionally correct.
One of them is over 100 words and phrases from Satoshi's writing match Back's usage on X and mailing lists, including rare terms like partial preimage.
I don't really think that that would count, that, that's more of a technical term. Um, burning the money, okay, and abandonware. I don't actually know what abandonware is.
That- That's the other thing is a lot of these- A lot of these com-- abandonware is common, a common term. It's for- Yeah... yeah, software that nobody maintains anymore.
So that's one reason why I did wanna bring this up is this is-- those might be rare to people who are not tech literate or people who are not cypherpunks, but th- those are things that you would see thrown around pretty commonly, I think.
Um, both use two spaces between sentences. I thought this was funny. An outdated habit suggesting an author over 50. Okay, that could be a lot of different people.
Uh, Back shared 67 of Satoshi's exact hyphenation errors, nearly double the next closest suspect's 38. Both alternated inconsistently between e-mail, e with a dash mail, and email all one word.
Check spelled the British way versus check spelled the American way, and British and American spellings of things like optimize, so using the Z versus the S back and forth. I could see that. You know, I could see that.
Yeah. Both confused it's with its possessive versus, um, plural, and ended sentences with also.
Back was the only person among 620 mailing list candidates to match all of Satoshi's key writing quirks simultaneously according to th- according to this article, and Back denied ever using the word bloody, but the authors found it in a 1998 post where he did.
I don't know why that matters.
The one thing though, the circumstantial evidence that I think is interesting is Back was conspicuously silent on the cryptography mailing list during the entire period Satoshi was active, late 2008, 2011, despite being a prolific contributor before and after, yet later claims he had participated in those discussions.
To me, this is one of the actually the more- That's a good, that's a good point... this is one of the more compelling pieces of evidence because, uh, Adam Back's Hashcash is cited in the white paper.
Adam Back, as the New York Times article points out, had made a lot of the connections that Satoshi seems to make in terms of combining these cryptographic, uh, these cryptographic functions to create Bitcoin early on i- in some of his writings in the '90s.
I'll get into that in a second.
But this idea that the man who, who's cited in the white paper, who has talked about decentralized money, who is very fluent in the, the jargon, and also is well read up on the research and white papers of the time to try to create something like a decentralized money, the fact that he would be missing from the cryptography mailing list during Bitcoin's bootstrapping phase and then pop up after Satoshi disappears is very odd.
You'd have to think that he would be involved in the early days. He would-- Certainly he would've known about Bitcoin. He was on the cryptography mailing list.
He would've seen Satoshi's emails in the cryptography mailing list with the white paper talking about bootstrapping the network.
So I, I find that to be one of the odder aspects of this story, that one of the f- founding fathers, you know, if you're gonna have the Mount Rushmore of Bitcoin, right? Adam Back would be up there for Hashcash.
The fact that he would be missing from the discussion from the onset for or from the outset makes no sense to me. That is a very good point.
Um, so we do have to at least point out that the reporter did some legwork, kinda m- mixed bag on, I think, like, how, like, re- you know, how compelling some of the data is.
But there are, there are some conspicuous connections. Um, but I'll bring up, uh, Adam has consistently denied unilaterally that he is Satoshi every time that he's been asked as far as I'm aware.
Um, and, uh, I'll just say that my subjective observate-- observations on, uh, on, um, Adam Back is that just really since then he hasn't done things that, like, Satoshi would do it seems.
Like, you know, he's been, he's been prominent in the discussion, but pretty low-key from a, like, like, heavy-handed protocol, like, proactivity standpoint.
He's always had opinions, but he's not, you know, like, he doesn't like... You would-- Like, you know, someone who is Satoshi would probably be a lot, uh, stronger willed on some of these points.
Okay, but that's subjective. Here is Adam's response to that, um, to this article.
Adam says, quote, "I'm not Satoshi, but I was early in laser focus on the positive societal implicat- implications of cryptography, online privacy, and electronic cash,
hence my 1992 onwards active interest in applied research on e-cash privacy tech on cypherpunks mail list, which led to Hashcash and other ideas."
Um- So- And he goes on One thing I would add, you know, of course he would deny it if it's true.
I'm not saying it is true, but as one of our listeners here, JHY8557 says, "Poor guy's gonna get kidnapped now thanks to The New York Times."
Yeah, and I think that is, like, kind of the ethical question and problem about this. If you do try to dock Satoshi, you're putting a, a million Bitcoin target, up maybe a million Bitcoin.
We don't actually know how many coins Satoshi mined and then locked away, but you're putting a target on someone's back.
This was a lot of the uproar over the HBO documentary that claimed it was Peter Todd-You know, there was less of an uproar, but someone did analysis last year about how Jack Dorsey is Satoshi, which I will say the New York Times article is a lot more compelling than the Rube Goldberg evidence that you get from that article where it's like- Oh my God...
it's all this- It's almost like this crazy numerology. Yeah. And, you know, this semantic analysis that looks at, you know, he left all of these Easter eggs and clues that end up matching up, and
it, it's a little bit too much. The, the last thing I'll say about the New York Times stuff, and then we can sign off, but there was a ling- a linguist that did stylometry analysis with Back and 12 other...
and, and, and, uh, 11 other suspects, and said that Backs was the closest to match Satoshi's white paper, although the analyst still called it inconclusive.
So I think if the author here is being honest, even the linguistic analysis doesn't obviously prove anything.
Um, I, I do think there are some compelling points in here, I think one of the better attempts to try to explain who Satoshi is. Not endorsing it, but... Yeah. So, um, this will just be a regular story.
There will always be the media calling someone else Satoshi. What's interesting is like it feels, Colin, like we're getting some bull market stories at the bottom of the bear market.
Like this is a Bitcoin's been screaming upwards type story that you see in like TechCrunch or like, you know, New York Times. But [chuckles] here we are down 50% and we're getting the who is...
You know, we found Satoshi story. So, um, it feels a little different this time. Uh, love to see it. Uh, I'd like to say we'll cover who the media thinks is Satoshi, but
every Bitcoiner knows it's not super great to just speculate endlessly on this because Satoshi clearly does not want to be connected to a real identity. And with that, we're gonna wrap things up.
Thank you for watching Block Space Live, coming at you on Monday, Wednesday, Fridays at noon Eastern everywhere streams are found. This will be a podcast shortly after we wrap up. And
if you haven't already, you can still buy a ticket to our conference in New York, Thursday, April 16th. Up Next, O-P-N-E-X-T.D-E-V. I'm Charlie. This is Colin. We'll see you on Friday.
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