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PBD Podcast Episode 212. In this episode, Patrick Bet-David is joined by Michael Saylor and Adam Sosnick.
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Patrick Bet-David is the founder and CEO of Valuetainment Media. He is the author of the #1 Wall Street Journal bestseller Your Next Five Moves (Simon & Schuster) and a father of 2 boys and 2 girls. He currently resides in Ft. Lauderdale, Florida.
0:00 - Start
2:21- Michael Saylor destroys Sam Bankman Freid
15:18- Was Sam Bankman an unethical person?
22:42- Why did nobody catch Sam bankman Fried?
39:22- Michael Saylor on ripple
47:33- Reaction to three crypto billionaires dying under mysterious circumstances
56:45- Is Sam Bankman Fried a puppet to the system?
1:02:06- How could the markets expose Sam Bankman Fried?
1:13:55- Miami nightclubs mourn absence of high rolling entrepreneurs
1:36:52- The Difference between centralization and decentralization
1:40:42- Why do the market and bitcoin follow the same trend?
1:48:05- Michael Saylor on losing 1.8 billion
1:53:43- Michael Saylor on Elon Musk
This world of entrepreneurs, we get no value to hated.
Howdy, run, homie.
Look what I become.
I'm the one.
We're ready?
All right, all right, all right.
Okay, so this is part two with the one and only Michael Saylor.
Obviously, Michael, from the last time we sat down to today, last time Bitcoin was 44,000.
Today it's 17K.
Ethereum was 3,000.
Today is 1262.
I figure we do a part two because it's been very quiet the last nine months.
Not much has happened in crypto.
It's not like there's been a guy that screwed a lot of people over.
It's not like there's a lot to talk about, but we're so happy to have you back here for part two.
I was worried you'd be bored of me.
I think that's the last thing.
Yeah.
Crypto space, very boring right now.
No news, nothing of note.
Very bad.
I ran out of stuff to talk about.
Well, you know, since you ran out of stuff, I think some people worked very hard to create new content for you to talk about.
So, by the way, have you ever had any interaction with Sam Bankman Fried or have you guys ever spent time together?
I haven't spent time with him, but I've talked to him.
Okay.
What do you think, like, was anything that's going on with him?
Anything, I mean, you're a guy that I've seen the numbers.
I don't know what the numbers today.
Was it 100?
You own 139,000 Bitcoins.
It's a big number.
130,000.
130.
At MicroStrategy.
At MicroStrategy.
And then that also doesn't include what you have personally as well.
Yeah, and I own like another 17.
So 17 personal, 130,000.
17,000, not 17, correct.
So it's not like you're...
I'm somewhat long Bitcoin.
Oh, yeah.
I saw what you said in the article.
You said this is the first bear market.
If you're in this business for just kind of messing around and you're not in it long term for four years, you're not doing yourself a justice.
But going back to SPF, so any of the stories that came about, did the guys in the industry like yourself, the heavyweights, were you aware that something was going on at SPF or no?
Yeah, I mean, I think that you have the Bitcoin community opposite the crypto community, and there's been a low-grade sort of boiling guerrilla war between the two camps for the past two and a half years.
And Sam is kind of like the poster child of the crypto world, right?
Sam makes billions of dollars on an unregulated exchange offshore.
He makes billions of dollars issuing his own air token.
He spends hundreds of millions of dollars giving to the crypto lobby and to politicians.
And one of their messages is, you know, Bitcoin is bad for the environment.
It uses too much electricity.
But not to fear, we have a staked air token which does the same thing as Bitcoin, and it's environmentally friendly.
So we've always seen that going on.
And I think that the Bitcoin community would say, there's something ethically broken about being able to issue your own unregistered security, right?
They call it committing the sin of shit coinery.
Yep.
Right.
So Sam and most of the people in the crypto world were always guilty of the sin of shit coinery or pumping and promoting unregistered securities.
And that was obvious.
I think, you know, that was obvious to the chair of the SEC, to most politicians, right?
The phrase that pops up over and over again is the vast majority of all crypto tokens are unregistered securities.
But I think the diabolical twist in the FTX story that none of us saw coming, but it is particularly diabolical.
So Sam creates, you know, $8 billion worth of Air token with SRM and FTT.
Then he issues himself locked token, secret locked token, marks it up on his balance sheet by another $4 to $8 billion and calls it $16 billion worth of collateral.
Okay.
Then he goes shopping for a bank to give him a loan against this.
Well, if I took a billion dollars of Apple stock and I went to a legit bank, Bank of America, JP Morgan Goldman Sachs, I say I got a billion of Apple stock.
They would say, well, we will give you collateral value for up to the amount you have or 5% of the daily trading liquidity on a legitimate regulated exchange.
So if you show me a security that trades a billion dollars a day and you have a billion dollars of it, I might give you 50 million of collateral value.
And that means you could borrow $25 million against it at 50% loan to value.
But I'm going to margin call you if it moves a tick.
So it means, practically speaking, a billion dollars of that legit security is probably going to give you $10 million worth of a loan.
On a billion.
On a billion.
That's 1%.
Okay, right?
Because the gating factor is what's 5% of the trading liquidity of that token or that asset.
Because if I have to dump that thing in the market, I want to sell the entire position without moving the price.
Okay, so that's the traditional world on shore.
What Sam did was generated $14 to $16 billion worth of Solana, you know, FTT, Serum.
And then he went shopping for a bank to give him a loan.
But he didn't want, you know, you wouldn't get a loan from Goldman Sachs on it.
No one's going to borrow you money, at least no non-crypto company.
So what he did was he went to himself.
He runs a bank called FTX.
He applied for a loan from himself.
He granted himself for a loan from himself.
Well, secretly applied.
He didn't tell anybody, but he granted when they say, well, Alameda had a margin account and the margin position was slightly bigger than I thought.
What he means is, oh yeah, they pledged a few billion dollars of AirToken, gave themselves a $10 billion loan and they extracted, even if he had pledged $15 billion worth of AirToken, giving yourself a $10 billion loan means that you gave yourself about 100x the collateral value you would have got on a regulated exchange on shore.
So what he did was, in essence, extract $10 billion of real stuff, dollars, Bitcoin, salable assets, and he pledged $10 billion worth of Air token stuff.
And of course, it's a double diabolical thing.
Here's the problem.
So I create a token.
I have 300 million tokens, and then I basically trade it with myself.
Like I give it to you, and you work for me, and you give it back to me.
Then I lean on it, so I lever it up 10 to 1.
You know, on FTX, you could lever it 20 to 1.
Then I borrow your money.
You're a depositor.
So I take your money.
You have $10 million.
I lever it up $20 to $1.
I have $200 million.
I buy my own token.
I drive my token up by $5.
$5 times $300 million makes me $1.5 billion in collateral.
I post the collateral and then I withdraw $1 billion of 100,000 people's money.
I put it in Alameda and then Alameda gives a $3.5 billion loan to Sam, right?
He gave $3.3 billion to either himself or his personal family holding company.
So here's the diabolical twist.
I didn't just generate $10 billion of an unregistered security to dump it on the unsuspecting retail.
That would take me 500 trading days dumping 20 million a day, right?
He didn't do that.
What he did is he generated $10 billion in unregistered security and then just borrowed $10 billion secretly from his depositors and then went and gambled it, traded it, spent it, lost it.
How?
And that is like, it's particularly impressive.
So here's a question.
You know how he goes and he raises the $2 billion, okay?
And he gets the $2 billion from not small people.
He gets it from the best of the best of the best, right?
You got BlackRock.
You got Insight.
I think you know the names.
I don't need to give you the names.
You know the name.
Major names.
They don't get any seats, board seats in return.
These are very, very smart people who are seeing this.
Are they just as responsible for the fall of FTX as Sam Bankman Fried is?
The Bitcoin maximalist would say that the problem in crypto is greed, arrogance, and foolishness.
Anybody that's investing in it is either greedy, arrogant, or foolish.
So there's three constituencies that got taken for billions of dollars here.
The VC investors put $2 billion into an offshore exchange.
The exchange, just to be clear, was unethical and illegal from the very beginning.
It's illegal to do what they did in the U.S.
And it's unethical if you think I am front-running my customers, issuing a token, manipulating the price of the token, dumping it on them.
If you did that in stocks, you're going to jail if you front run.
It's absolutely illegal.
FTX was its own regulator, its own market maker, its own exchange, the issuer, right?
All at the same time.
This is such a con and the hedge fund.
Too much conflict of interest.
But the three constituencies are the VC that put the $2 billion into FTX.
They were supporting basically an offshore, unregulated casino, you know, running in an opaque fashion, you know, counter the interest of its own customers.
They didn't ask for a board seat.
They didn't do due diligence.
They were chasing what they thought was insane gains, right?
FTX is showing a company that goes from 50 million in revenue to 500 million in revenue to a billion in revenue.
And they thought they just had the next great thing.
So, you know, Sam lies to any con, right?
It's like, I think I'm getting a deal that's too good to be true.
And the con man is lying to me.
We're all lying to each other.
And so that's the first $2 billion goes down the drain.
There's another $4 billion or something like that in just loans made by, you know, crypto industry.
I think Alameda borrowed hundreds of millions and billions of dollars from Genesis, from Three Arrows, from Voyager, from Celsius, from, you know, BlockFi, et cetera.
So it's like if you start with this fiction that FT ⁇ T is, FTT is a real thing.
If I create, you know, again, like yo-yo token and I, and I manipulate the price up to $10 billion by trading 2% of the float, if you think it's a real thing and I act like it's a real thing, then I pledge it as collateral and you give me real stuff for air thing.
And so there's like $4 billion of that and they went and they lost half of that.
That was part of the reason that Voyager and BlockFi going bankrupt.
And the reason that Sam wanted to bail them out is he didn't want to actually have the loans called.
He was actually trying to buy BlockFi and buy Voyager with FTX equity, which of course is fraudulent and worth nothing.
But if I borrowed a billion dollars from a company and they want the money back and I can simply give them a billion dollars of equity, take over the company and not pay the loan back, I can roll the entire fraud forward.
So that's the second.
The third is, you know, This is also diabolical.
You know, FTX said, we're built by traders, four traders, and Sam bragged that they only charge like three basis points trading fee, and he was 30 times cheaper than Coinbase or much cheaper than Binance.
So he's stealing customers off of the other crypto exchanges by, in essence, offering near-free trading.
He's not trying to make money off the trading.
He's trying to actually get the assets on his platform because once he had the assets on his platform, he basically used FTX like his own personal piggy bank.
It's like there's $10 billion there.
Everybody else is going to get wiped out if their margin positions trade down 20% for a minute, except Alameda.
Alameda has God mode.
They never get margin called.
So in an exchange, you know, like in the U.S., it's illegal to go more than 50% loan to value.
That means you're kind of like you start with a million dollars, you borrow 500,000, you're 1.5x levered.
Okay, well, FTX started with 100x leverage, and then they backed it down to the responsible 20x leverage, which means that you post a million and you can take a $20 million position.
Who allows that?
Now, here's the insane.
What if I put a billion dollars of air token, FTT, on the exchange?
I recognize you and I let you take a $10 billion bet.
Like, whatever.
You took a $10 billion bet.
Now you withdraw $4 billion of real cash and you use that to buy property and buy everything under the sun.
So Sam basically, he scraped billions from unsuspecting investors in Silicon Valley.
They should have known better.
He took billions from crypto hedge funds and crypto banks like BlockFi and Voyager.
They should have known better.
And then he took probably $10 billion or more from depositors on his exchange.
They have the best argument.
It's like they were staring at terms and conditions that said he's not going to rehypothecate or use their assets.
And he just, you know, he lured them with the promise of cheap trading, high leverage.
And, you know, if you thought, well, Sam is manipulating the price of FTT in Surum and Solana, and he was, right?
That's illegal and unethical, right?
It's a pump and dump scheme.
We talked about this before.
But if you accept the idea that crypto tokens that are issued by some offshore, you know, dude are okay, then you're thinking, well, I guess I want to go buy some of that and get behind Sam and Alameda because they're going to drive the price up.
And I think Solana went from three bucks to, what did it go to 50?
You know, it went way up.
And FTT went to $50 a token or something.
So you could have made a lot of money trading those tokens, but you probably would have wanted to go to the FTX exchange because, you know, guess what?
Newsflash, it's illegal in the U.S. Can I ask you a quick, just a question about SPF?
Not so much the inner workings, the mechanics, the inner plumbing of how it all works, just more the person.
You've used the word diabolical multiple times explaining what he's been doing.
Do you think, like, he's been compared to Bernie Madoff, Ponzi schemes type of thing?
Sam the person, do you think he's obviously brilliant and smart and was able to get away with a lot of stuff?
But was he a criminal from the onset?
Did he just make some foolish mistakes?
Mentally, where was he throughout all this?
Sam, he's like the 14-year-old kid that stole the family car.
He doesn't have a driver's license.
He got eight of his high school friends in the car.
And then he found out that there's like $100,000 of cash, a bunch of drugs, and a gun in the car.
And then they went George Saturday night.
Wow.
And the entire thing ends, you know, horrifically with the car wrapped around a tree, half the people hopping.
But that analogy, I think it's very important to clarify that analogy.
And maybe he's an honor student in high school, but the point is he was not ready to drive the car.
If he had 30 years of experience, if he was surrounded by 200 good attorneys and accountants and banking credit managers, then they would know what they don't know.
And maybe they could have constructed a company that might have managed this amount of risk.
You're saying he's not smart enough to have conn people?
You're saying he did that accidentally or it was intentional, like knowing what he's doing?
I'm saying that he basically incompetently, foolishly, greedily, enthusiastically pursued what he thought was a good idea, but he didn't have the combination of the real world experience and the ethics and the legal understanding and the banking understanding to even know what he didn't know.
So is it criminal?
Absolutely.
It's criminal.
It's like if you roll over a bunch of people in a car and kill them all, it's illegal, right?
But at the end of the day, it's not clear to me that Sam understands what he did wrong now.
For example, what did he do wrong?
There's accounting fraud here.
There's basically equity fraud by creating an air token.
There's all sorts of credit fraud.
There's investor fraud misrepresenting the equity you sold the investors.
There's self-dealing.
He issued himself loans.
There's front running.
There's insider trading.
There's wash trading.
There's such a litany of ethical and legal lapses.
But if you look at all the coverage in the crypto world, they miss the fundamental issue, which is it's illegal and unethical to issue your own air token.
But the entire premise of the industry, an exchange that trades unregistered securities and an issuer of unregistered securities, that fundamentally is unethical everywhere in the world, illegal nearly everywhere in the world.
And yet they built the business on that premise.
On top of that premise, then he inflated the accounting values, built back doors into the.
There's just nonstop illegal stuff going on.
What were you going to say, Pat?
Yeah, here's what I was going to say.
So two things.
One, last night I'm watching a documentary.
And let me just, before I forget what this documentary was, I'm watching this documentary last night.
It's the story of the good nurse.
The movie and the documentary came up at the same time.
It's a dark documentary.
I don't recommend it.
It's called Capturing the Killer Nurse.
I don't know if you've seen this documentary or not.
It just came out.
So it's a story about a guy named Charlie Collin or something like that, where he's working out of this, just type in the capturing the killer nurse.
And this guy, you know, intentionally gives this drug to his patients that they don't track at all in the ICU.
And over a 16-year span in this hospital in Jersey, he kills an estimated 400 people with this shot that he gives.
And if you look up what the drug is, the drug is a joxin.
I don't even know how to pronounce this.
It's D-O-G-X-I-N, something like that.
Okay.
Rob hit images over there.
So he gives this drug and he kills him.
And eventually one of his co-workers is like, why are all his patients dying?
Why are so many of his patients dying?
And so they eventually gets caught.
One of his coworkers mics herself because she's dealing with the FBI and goes and sits down with him and talking.
And she says, why are you doing this?
And then all of a sudden the mic cuts off.
And then there's a live interview of him.
And he says, well, and he starts crying.
He says, I'm just doing this because I didn't know what I was doing.
I'm just doing it because I want to put these people out of their misery.
And, you know, I don't want him to experience this pain.
You know, it's kind of like Sam Bankman Freed is like, hey, today's Wall Street Journal, FTX founder, Bankman Freed, said he couldn't explain what happened to the billions of dollars that customers of his failed cryptocurrency exchange sent to bank accounts of his trading firm, Alameda.
What do you mean what happened?
He doesn't know what happened.
So to me, this guy knew what he was doing.
This guy behind the captain.
So he knows he's killing people.
And this guy knew what he was doing.
So the part that this leads me to is two different things.
One, let's say Bitcoin goes to 100.
Let's say Bitcoin doesn't drop the way it did.
Let's say Bitcoin goes to 100.
Let's say Ethereum goes to 6K.
I'm just making numbers up right now.
Saying Ethereum goes to 6K.
Bitcoin goes to 100,000.
Does anything happen to him if Bitcoin goes to 100K and Ethereum goes to 6,000?
Would he have got away with it?
Yes.
He had created an extremely fragile situation where he had one account, Alameda, that had a $10 billion plus margin position backed by AIR.
And if that Air token, FTT or Serum, if they had been attacked by anybody, the entire thing goes up like a house card.
So I think if you look at all the blow-ups, right?
Celsius, BlockFi, Doquan, Luna, Terra, Three Arrows, Genesis, and FTX, all of them were going to blow up at some point because like Luna, Terra, it was a $20 billion worth of a stablecoin backed by $2 billion of real assets and a $50 billion Luna thing that had $50 million a day of real liquidity.
So they were all running on 100x rehypothecated leverage and they were going to blow up.
It's just a question of when they're going to blow up.
I think that this is, it's a painful deleveraging of the entire industry.
But if you look at everybody that was kind of behaving badly, like doing stupid things, like again, aggressive lending in the real world is 1.4 leverage.
That's insanely aggressive lending.
These guys were all running at 20x, 10x.
That's insane to me.
So you had a lot of people behaving badly.
They were destined to blow up.
It might have been held off for a bit, but I have seen pretty credible evidence circulating in the Twitter sphere that Alameda had already taken a $3 to $4 billion loss in 2021 during the bull market because they were just doing stupid things.
So how come nobody caught him then?
What was the tipping point?
Was the tipping point when he went to the Binance CEO and says, hey, I need you to, you know, why don't we partner up?
And, okay, I need a billion dollars from him.
He said, oh, yeah, we'll do the deal.
And the last one, no, no, no, we're not doing the deal because even if we buy, that's just not the interview that he did, which was fascinating, by the way, the CO Binance.
So very impressed by that guy.
He said, no, we're not even touching him.
He says, are you concerned that you're losing a company like FTX as a competitor?
He says, he's not a competitor.
If you know this business, we're not competitors.
So what was, if you're saying last year they lost $3 to $4 billion in a very bullish market, what was the tipping point when all of a sudden, hey, we got to get it.
The reason he got away with this, he's running a private, unregulated set of companies, right?
He had his private holding company, Paperbird.
He had Alameda, a private company.
He had FTX, a private company.
No transparency, no disclosure.
If you were running a public company, you got to actually publish audited financials every quarter and make 8K statements.
And you have adult supervision.
I have lawyers, bankers.
I have two sets of lawyers, two sets of accountants, an army of internal accountants, external accountants, et cetera.
And if I just came on your show and said, hey, I just wanted to announce that MicroStrategy has 175,000 Bitcoin, my phone would start ringing by the time I put that down.
They'd be like, what are you doing?
You're crazy.
And you know, they would say it not just because it's wrong.
They would say it because their careers are on the line and they don't want to spend 10 years in litigation hell.
So there's a way that you run a public company and there's a way you run a regulated company.
And on the other hand, Sam was his own regulator.
He could make up his own rules.
He was accountable to no one.
And if you have $10 billion in the bank and then you lose $4 billion and the bank doesn't have to disclose what it's done with the money, you just go and give yourself a $4 billion loan secretly.
You know, he didn't tell anybody.
So they were able, in essence, because they had so much power as private, unregulated.
It's not just unregulated.
It's one thing to be unregulated.
It's unregulated and opaque.
If you look at and poorly run, right?
There are some offshore businesses tether Binance that are not regulated and they're not onshore in the U.S. They're not public.
But by common wisdom, they generally are viewed as better run, like adult supervision, because when people ask them to redeem $15 billion, they can do it, right?
I think that FTX, Three Arrows, these companies that went bankrupt, Doquan and Luna Terre, they were just really poorly run, opaque crypto organizations.
And it was destined.
Now, what was the pen?
I think, look, there was a simmering war going on between the Bitcoin movement and the crypto movement in D.C.
And the Bitcoin movement is Satoshi gave us ethical money.
Nobody controls it.
You have to pay for it by burning energy or by buying it with real cash.
And you can't corrupt it.
You can't issue more.
It's capped at 21 million.
Nobody gets to co-opt it or use it in a userist fashion to make themselves rich.
That's Bitcoin.
The crypto world is, well, we invented Solana to be better than Bitcoin and we invented such and such FTT to be cleaner than Bitcoin.
And don't mind the fact that we gave 80% of it to ourself, right?
And that we're going to dump the rest on the general public and we're opaque about it.
Now, that war is going on in Capitol Hill where the crypto lobby is lobbying for light or no regulation.
Let us basically issue these tokens and make them commodities and so we don't have any securities laws constraining us.
The regulators that understand better, like a guy like the chair of the SEC, would say, look, they're all securities.
You can't just let them trade as commodities.
That's the same as saying anybody can issue their own equity and lie, cheat, and steal the general public.
And that would threaten the entire $100 trillion securities market.
But, you know, Sam, you know, Sam was the number two donor of the Democratic Party.
He was the number three donor to the Republican Party.
They've admitted to 200 million to 300 million in donations, but they might have donated hundreds of millions more.
You're saying that he was donating that much to Republican?
We're very familiar with how much he's donated to the Democratic Party.
He was, I believe, number two because he needs both sides.
I tell you, it's diabolical.
We know that he was the number two donor to the Democratic Party.
And until about a month ago, that was the narrative.
And then we found out that the chief operating officer that worked for him was the number three donor to the Republican Party.
And that guy gave $25 million to the Republicans in the last few weeks.
So not he himself, not himself.
He is fully supportive of what the Democratic beliefs are.
Look, I mean, he wanted to be viewed as, remember, he said he was going to give a billion dollars in the next election cycle?
He might have given a billion in the last election cycle.
We don't know.
But he wanted to be viewed as the great progressive savior and financier.
So they gave hundreds of millions of dollars to celebrities.
They gave hundreds of millions of dollars to academic institutions, hundreds of millions of dollars to politicians, huge amounts of money to journalists, right?
Why wouldn't you?
Keep in mind, if I can generate $10 billion in air token, in order to make a billion a year, all I got to do is take $10 million, lever it up five to one, lean on the liquidity on my own exchange, and the price moves three or four bucks.
I get $2 billion more.
I made $2 billion in the year in investment income, and then I go and I borrow one or two or three or four billion in my margin account.
They were counterfeiting money, and then they were using the counterfeit money to steal other money or either to steal it from their deposit or steal it from their investors or steal it from creditors.
Then they were funneling that into the political and the marketing process.
And that's why you saw them on the Super Bowl ad.
That's why the FTX arena was named after them.
That's why every celebrity is getting sued right now.
What business is better than counterfeiting money as a business?
Okay, so what bursts the bebel here?
Well, this can't go on forever.
And in D.C., there's a war over whether or not the SEC should regulate crypto or whether the CFTC should regulate crypto.
So Sam supports a bill, the Stabenow-Bozeman bill, and they give huge amounts of money to politicians.
And if you read the bill, the bill said crypto will be regulated by the CFTC.
What's the CFTC?
The Commodity Futures Trading.
Okay, gotcha.
We know what the SEC is.
Okay, the CFTC would regulate if you were trading soybeans or pork bellies or anything commodities.
Got it.
Okay.
A commodity is an asset without an issuer.
Okay.
A commodity is a much more ethical thing to promote and to trade than a security.
A security is yo-yo coin or penny stock.
I invented it.
The difference between a security and a commodity is if I looked at you right now and said, you know, I don't like people in Japan.
I'm just going to turn off all their steel.
I can't do that, right?
I can't make steel not work in Japan.
I can't turn off electricity in Japan or turn off oranges, right?
So a commodity is an asset without an issuer.
No matter how much money you have of pork bellies or lumber, you cannot invalidate somebody else's lumber.
Okay.
And that's why it's impossible to commit securities fraud.
Is that because these are natural resources?
These are natural resources, everything.
Lumber, pork, everything.
Because they're there, again, it's land, right?
If I said to you, buy land in Texas, and I was wrong, okay?
It's like I didn't create the land in Texas.
I can't remove the land in Texas.
But what if I said, buy Texas coin?
There's only a million Texas coins.
It's going up.
And then you buy Texas coin.
And then I go and I give myself 10 million more unlocked Texas coin.
I dump it on the market.
The price goes to zero.
Now, do you feel like you got cheated?
You see how it's possible to cheat you with a security because I can manipulate the characteristics of the security.
A security is an asset with an issuer.
So if you have an asset with an issuer, like for example, a publicly traded stock, like MicroStrategy, MSTR is an asset with an issuer.
I have ethical civil obligations, right?
You know, if I lie about it, I can't just say, I can't, I'm not even going to say what I'm going to say, right?
I don't even talk about it.
I wouldn't tell you to buy it or not buy it.
I would say read our disclosures.
There's a thousand pages of risk factors.
Everybody on the board of directors, everything we've done, everything we think we're going to do, if we change our mind about what we're going to do, you're going to read it in 8K within four business days because I have an obligation to be transparent on a security.
But on the other hand, if I say, I really think you ought to stock up on lumber in case, you know, you need to burn it this winter.
I'm promoting a commodity.
Maybe you stock up on lumber and you overpay for it.
Maybe you stock up on lumber and you don't need it during the winter, right?
Did I defraud you?
I'm promoting lumber.
Maybe I gave you bad advice, but the difference between promoting lumber and promoting lumber coin is I can print a hundred trillion lumber coin on Saturday night and dump it on you and drive your lumber coin to zero.
I can't create a hundred trillion forest overnight by snapping my fingers.
It's a natural phenomenon.
Doesn't that speak to just a bigger question about the crypto market in general?
Like a lot of people will be like, yeah, I don't, you know, I can't touch it.
I can't hold it.
Even with NFTs, meaning real estate, I can hold it.
I can touch it.
Commodities, cash.
These are tangible assets, even the stock market.
However, with crypto, it's all very digital.
You can't touch it.
And I feel like a lot of people are uncomfortable with that.
Yeah, it gets to the fundamental point of what are those assets.
Some of those assets are crypto commodities.
A crypto commodity is a token without an issuer that cannot be manipulated by some CEO or corporation or other party, right?
There are crypto currencies like Tether and Circle.
They are actually tokens meant to represent the U.S. dollar or some other stable asset.
They have an issuer.
And generally they're going to be regulated as securities and as currencies by the banking establishment, the SEC.
Then there's crypto securities, Solana, FTT, Serum.
Those were all securities.
They had an issuer.
There were companies behind them.
There were CEOs behind them.
People could make more of them.
People can destroy them.
There are some people, insiders, that had disproportionate interest in them.
Those could only be ethically sold to the general public pursuant to a full and fair disclosure, right?
This is common sense, right?
If you create something and you dump it on the general population, you have an ethical obligation to tell them who made the decision, how much is there, what is your background, what's going to happen next.
That's what you do when you take a company public.
So coming back to this crypto issue, you had a little war between the two factions.
And the right answer is if you're selling a crypto security, it should be regulated by the SEC.
If you have a crypto commodity, then it's not a security.
Now the question is, what's a crypto commodity?
The chair of the SEC has said the only crypto asset that's clearly a commodity is Bitcoin.
The chair of the CFTC had said as of a few months ago, the only crypto assets that are commodities are Bitcoin and Ether.
But Ethereum's not really a commodity.
Ethereum is a security, and that has been a big fight in the community below the surface.
As of last Wednesday, the chair of the CFTC went to Princeton, gave a speech and said, the only crypto asset which I deem as a commodity is Bitcoin.
So now you have the CFTC and the SEC and certain other regulators, the head of treasury, the head of the Federal Reserve, you know, all of them, in essence, endorsing Bitcoin as a commodity and leaving us to figure out what we're going to do with the securities and the currencies that exist in this system.
The thing that brought FTX crashing down is that Sam went to DC, spent a lot of money on lobbyists, lobbied for this bill that would have made both Bitcoin and Ethereum commodities and would have put the CFTC in control, would have created light regulation, would have created a path for other crypto tokens to be viewed as commodities.
And in addition to like giving a lot of money to the media, a lot of money to the academics, a lot of money to the politicians, and a lot of money to the celebrities, he also inserted in the bill that the crypto exchanges would send fees to the CFTC.
And they, in essence, try to bribe the CFTC with crypto usage fees in order to get light regulation.
That didn't go over well with a whole set of regulators that thought that that was a way to undermine the securities industry.
It was at a deadlock.
That's why we haven't had any regulation because of this deadlock between, I think, people that know better.
And look, the crypto people have, they have billions of dollars of counterfeit money.
Sam alone spent billions of dollars of counterfeit stolen money.
But imagine if everybody that was generating a crypto tokens doing the same thing right now.
And I'm not going to go into the others involved, but you can probably figure out what's going on.
You have a lot of money trying to get a very light regulatory regime.
Why'd Sam blow up?
Well, Sam went to DC and in addition to trying to get fairly exceptional treatment just for his exchange, he then started badmouthing Binance and implying that the other offshore exchanges were much shadier than his.
And that pissed them off and that pissed off CZ.
And so CZ said, okay, well, and that combined with the leak of the balance sheet, when the Alameda balance sheet leaked and it was clear that something like $10, $12 billion of $14 billion in assets were air tokens backed by nothing, it became pretty clear that they were rickety.
Imagine if I said I have $12 billion of air token, it trades $10 million a day.
Okay, well, all you got to do is dump $100 million on the market.
It's going to zero.
So once they saw that, I think CZ has a lot of people.
Is CZ the heavyweight of heavyweights?
Or would you put offshore?
That's the CEO of Binance?
Yes.
Offshore, right?
Offshore, the most influential person in the industry is CZ.
But worldwide, I think the most influential person in the industry is the chair of the SEC.
And the entire, yeah, Gary Gensler.
And the entire industry pretty much is waiting to see what Gensler will do.
And Gensler is pretty much the one person who could provide a playbook, a set of rules of the road that would cause this industry to move forward in an economically responsible, ethical fashion.
This guy's not a light guy.
He's a guy that some people are in the middle, are careful on what to say about him because they know they need him.
Some people are very careful to see if you push too much, he may over-regulate you.
He may take, because he's got a lot of power.
He's like the same.
This guy's a very powerful person in America.
Yeah, you brought up Jerome Powell as he was.
Bigger than Powell?
No, he's not big.
I don't know if he's big.
No, he's not bigger than Powell.
Powell may be, Shamat says Powell may be the most powerful man because he controls wars.
If the interest rates go high, you can't finance a war.
But what are your thoughts about what he's doing with Ripple?
The Ripple Army, I had John D. Eaton here, the lawyer representing Ripple.
What are your thoughts about what's going on with Ripple and how he is handling the Ripple case?
Ripple's an unregistered security.
It's pretty obvious.
It's a company.
The company owns a bunch of it.
They sell it. to the general public, but there's no, they never took the company public.
There's no disclosures, right?
So the SEC's position is you're selling an unregistered security.
It's a crypto token, right?
Just like Ethereum is an unregistered security.
It's controlled by a few people on the Ethereum Foundation and Consensus.
Fair.
Just like FTT, just like Solana.
Perfect, but here's a follow-up on that.
They're all unregistered security.
Here's a follow-up on that.
I don't own a single Ripple, just so we know.
So full disclaimer, I'm not a Ripple guy.
But if both of them are unregistered, why target Ripple and not target Ethereum the way he is targeting Ripple?
And by the way, this is coming from a guy that owns Ethereum, not Ripple.
Yeah, I think the best thing for the world would be if the SEC pretty much shut down all of it.
It's all unethical, right?
I mean, the Bitcoin position would be Bitcoin is an ethical commodity.
All of these other altcoins are unregistered securities.
They're all just equity tokens issued by a company in order to get around going public, and they're committing securities fraud.
Ethereum included.
Of course.
Especially Ethereum.
You know, Ethereum's got $20 billion of ETH token locked up in the staking contract right now, and there's a couple of people that may or may not give it back to you ever.
Now, isn't that the definition of investment contract?
If a bank took $20 billion of your assets, froze the window and said you can't have your money back ever, maybe in the year 2024, we're not sure.
We're just going to keep it.
We may actually give you interest on it.
We may take it all.
We may, you know, we may slash it.
That's the definition of a security, right?
It's an investment of money in a common enterprise, you know, relying upon the efforts of others and expectation of profit.
The whole point is if you want a crypto asset to be a commodity, you can't rely upon four engineers, a company, a CEO.
If a person can make a decision, it's not a commodity anymore.
The fact is, Ripple's got a company.
Ethereum's got a company.
Ethereum Foundation has engineers.
You are literally waiting on the engineers that work for the Ethereum Foundation to write the code to give you your money back.
And then you're also waiting to find out what the monetary policy will be.
They change it half a dozen times in the last six years.
It's always changing.
To you, it's XRP and Ripple the same thing.
They're both unregistered securities.
XRP and Ripple.
Yeah, XRP is just the equity token of Ripple.
Yeah.
I mean, it seems quite obvious, right?
If you want a roadmap for how you create a commodity, you have to do it the way Satoshi did it.
You create a protocol, you give it to the world, you disclaim beneficial ownership of it, you disclaim control of it, and you disappear.
That's what Satoshi did.
It was a gift to the world.
If the founder is still around and the founder is a billionaire and the founder is spending hundreds of millions or billions of dollars to defend the token, isn't it obvious that it's a software company with an equity?
So I think that that's pretty evident with all these crypto tokens.
What you have is you have the complete sham Ponzi schemes, you know, like the collapse in a hurry, like Terra Luna.
Then you have crypto tokens that are unregistered securities that are perhaps somewhat pseudo-competently managed that don't collapse, but they're still unregistered securities, which makes them unethical to promote.
And then you have cryptocurrencies like Tether and Circle.
They attempt to have backing, right?
Circle purports to have 100% backing for their coin.
We know that like 83% of Tether deposits are backed by U.S. treasuries if you're to believe their attestations.
But again, those are not publicly traded companies.
So I think the one thing that's missing in the crypto industry is by and large, nearly everybody in the crypto market has never taken a company public.
They don't understand securities law.
If you're going to be kind, you're going to say they're well-meaning technologists that are enthusiastically pursuing new ideas.
But generally, they're pursuing new ideas in an irresponsible, inappropriate, unethical fashion.
Is that based on greed?
What is that based on?
The same reason Sam did it.
Is it one part greed, one part enthusiasm, go fast and break things, one part lack of adult supervision, right?
What you could say is that the regulators ought to just be very, very clear.
If you were very clear, you'd say, look, you've got like 180 days in order to register your token with the SEC, and you register and fill out these forms, give us all these facts, answer our questions, and we'll tell you whether you're a currency, whether or not you're a commodity, whether or not you're a security, and whether or not you're allowed to trade.
And at the end of the 180 days, if you haven't actually registered, you're shut down and nobody can buy and sell and trade this thing anywhere in the world.
And that would actually clean up the industry in a hurry.
I got a crazy question for you.
Can you pull up the article that I sent you a bunch of articles while we're talking?
Pull up the one about Maxine, her tweet, if you can pull up.
Maxine Waters, here's her tweet that just came out.
We appreciate SPF Sam Bank McFreed.
We appreciate that you've been candid in your discussions about what happened at FTX.
Your willingness to talk to the public will help the company's customers, investors, and others to the end.
To that end, we would welcome your participation in our hearing on the 13th.
Wow, she speaks more respectfully to a young kid than she does to a former president, which is interesting how her style of communication.
But you know, I will tell you this.
So you know how the story just came out with Twitter and Hunter Biden, okay?
And Talibi that is the one that put the tweet out.
There was a whole five and a half years ago.
No, no, no.
Matt Taibi.
Yeah.
There was a Twitter live yesterday hosted by Amario.
He invited me on, myself, Elon, and Jordan Peters.
There was like eight of us that were supposed to be on.
I was on a freaking flight back.
I missed the call, but I heard everybody has to listen to it if you haven't heard it.
That's when Elon Musk confirmed, I have no desire to commit suicide.
The question was asked, which was kind of interesting.
But there was a part, there was a part where he talked about he certainly has to be protecting himself because he wouldn't be surprised.
His life is at risk, in other words, kind of the way he put it.
So the more and more these guys go through the emails and they find out how the Twitter executives were communicating with the Biden administration on what stories to post and what stories not to post and how he was colluding and all this other stuff.
And some people are now saying, well, at the time when he was colluding, he wasn't a president.
These stories that are spinning.
And then you hear a story that comes out that three crypto billionaires died.
I don't know if you saw that one or not.
If you want to pull that up, go a little lower, zoom in and go a little lower.
Three crypto bosses died in recent weeks.
I think these guys were all billionaires.
Nikolai Mushean, 29 years old, Tian Tian Kulander, 30 years old, and Vyaslav Turan, 53 years old.
All of a sudden, they all died within a week.
It's kind of weird.
You know what countries they're from?
I mean, it's all over the place.
One is Russia.
Anyways, you can kind of see where these stories are coming from.
Russian entrepreneurs are one of them.
The causes of deaths are helicopters.
Stay at the top.
See at the top I was reading it.
Helicopter crash while sleeping and drowning.
Kind of weird.
Helicopter crash while sleeping and drowning.
Those are the three different.
Those are the three, which kind of, that's a little weird.
Helicopter crash near Monaco.
And then, yeah, so this is kind of weird.
Now, here's the part.
Some of these guys who know a lot, if they know, I don't know if you've seen the story or not.
In fact, I can read it for you, Michael, if you're not following it.
So the 50-year, three-year-old Russian is the third cryptocurrency boss to be found dead under his mysterious circumstances after his helicopter crash near Monaco.
Indeed, it appears that the crash occurred in good weather conditions and after another passenger allegedly canceled the flight last minute, thus raising suspicions.
For these very reasons, the deputy prosecutor from Nice, who visited the scene, said that the fault of a third party cannot be ruled out.
Taran, co-founder of the trading and investment platform Libertex and Forex Club, and was flying from Lausanne with an experienced pilot in a single-engine H-130 helicopter when it crashed around 1 p.m. on 25th of November.
The 35-year-old French pilot was also killed.
Anyways, we can go on with all these stories.
So here's the part.
So you're seeing how Maxine Waters and many of these folks, he had an event with Bill Clinton.
He had an event with a lot of these guys.
They're being extremely, extremely respectful to this SPF guy.
Now, as a street person who grew up watching power plays and different kinds of things being done and who respected who for what motives, they're being very careful with this guy.
Does he know some things that they want they don't want people to know about?
Is there some speculation there?
Do these three bosses on the crypto side that are going, there's a lot of conspiracy stories, theories that you're hearing about.
Just a lot of weird things going on in your space.
Do you have any commentary on everything I just said here?
Yeah, well, helicopters are dangerous.
That's my first comment.
You know, probably 10 to 20 X more dangerous than traveling in an airplane.
And, you know, Kobe died in a helicopter.
Lots of people die in helicopters.
So that's tragic if it's just a helicopter wreck.
There's a war in Ukraine.
There's Russians, Ukrainians are caught in a life and death struggle.
And so there's a ton of...
The difference is if LeBron, Kobe and Michael died the same week, it's a little weird.
No, I'm agreeing with you.
If you're a Russian with access to a huge amount of money moving freely through Europe in the middle of a time period when there's a war between Ukraine and Russia, right?
You got to wonder what money was moving to whom.
And maybe I asked what country these guys were.
Maybe you stiffed the wrong person.
I don't know.
But I don't have any insight one way or the other.
What I'd say is be careful around helicopters.
That's my first thing I'd say.
Second, it's not easy in Europe right now for a Ukrainian or a Russian.
It's not easy for anybody, especially for someone in the middle of a war.
It's a tough time.
Third, I think everybody wants to interview Sam because Sam's the big get.
And if you can get him in front of your committee, you get all the TV cameras on you.
It's a huge media score.
And it's not very often that someone that stole $10 billion is willing to give interviews, right?
You know, and my thought about that is it's obvious he stole billions from creditors.
He stole a billion from investors.
He stole billions from depositors.
You know, they're going to do five movies, probably three TV shows, four books, and there's going to be a thousand lawsuits.
And you're going to be reading about this horrific findings for the next five years on this thing.
And it may take years and years for them to sort out everything that happened.
And so it's not surprising to me that the wheels of justice would move slowly just because it's so complicated.
But if you're in the industry and you have a modicum of common sense and some life experience, you look at it and you say, what happened?
Well, it's pretty obvious what happened.
It's kind of like they got high on free money.
I created a $100 million token.
It became a billion-dollar token that I could borrow against it.
Holy crap, I could borrow $2 billion against a billion-dollar token.
If you could borrow $2 billion against a billion-dollar air token and it only costs $10 million a day to get your air token to double in value, wouldn't you be tempted to recycle the money you borrowed back into the money you counterfeited?
So it just got to be too easy.
And once they got to that point, right, they go from nothing to he's worth nothing in 2018 or 2019 to being worth $20 billion.
Now you've got politicians, you've got Clinton, you've got Tony Blair, you've got everybody in the world wants to talk to me.
I'm on the front cover of every magazine.
It goes to your head and then you just want to go harder.
And then at some point you start to embellish and cut corners this way and that way.
And it's like if you're going, you know, speed kills, you start going fast enough.
At some point, you're going 180 miles an hour down a highway and then you decide to take a rocky road and you fly off the side of the road and everything is just fine until you go off the road and then you look down and you realize it's a 500 foot drop and you're going 180 miles an hour.
And at that point, you're going to go up in a ball of flame.
You can't pull it back.
Now, you know, at what point did it happen?
Isn't it the human condition that like young men with a huge amount of power, you know, let it go to their head and then they overdrive the car and then they wreck it?
Yeah, but there's a problem here.
I mean, the difference is you're hoping that young kid or young man was raised properly to not be able to do things like this.
We know what his mother wrote in 2013 in a paper as a professor of Stanford.
I don't know if you saw this one, where Sam Bankman Friedza, a professor mother penned 2013 essay, Shredding Philosophy of Personal Responsibility, which a kid raised with a mother who doesn't believe in personal responsibility would do something like that and say, who cares?
But I'm not that, that's not even my concern.
My concern is the following.
Here's my concern.
You're a very sharp guy.
Very.
My understanding of crypto changed.
I sat with a lot of different people.
Until I sat with you, your way of teaching, you'd be the kind of a teacher I can sit there and listen to you because the way you explain is works for me.
Maybe not for others.
I like your style of teaching and explaining.
So, you know, for somebody to be used, the other day I had Ari Fleischer here.
I don't know if you remember Ari Fleischer was the former press secretary for President Bush from 01 to 2004 at the peak of 9-11 when all that mess is taking place.
So imagine that job every day you're answering all these different questions that you have to answer about what happened, who was behind it, you know, all this other stuff.
And then a story came about a CIA agent, CIA, director of CIA, George Tennant, that George Bush kept Clinton's CIA agent, director of CIA, George Tennant.
And he was the one that walked into the room and told President Bush, Rumsfeld, everybody, and said, hey, what was the word he used?
Without a shadow of a doubt, they have weapons of mass destruction there.
And President Bush went on his intel to say, if they do, then we got to do what we got to do here, right?
It's kind of like Adam Schiff coming out and saying, without a shadow of doubt, there's collusion with Russia under, right?
Okay.
So then I said, okay, who are the ones that are simply using President Bush?
Would a Donald Rumsfeld, if you've seen a movie Vice, use President Bush to make money, stocks, all this other stuff because of, you know, the military equipment being sold and it was a great business model, et cetera, et cetera.
Okay, maybe.
So in this case, because I don't trust George Tennant giving counsel to the president and he was representing, you know, President Clinton, the only two presidents that chose the prior director of CIA, one was President Bush, the other one was John F. Kennedy, right?
They used the same one as the prior one.
Do you think this guy right here, our friend, Sam Bankman-Fried is being used as a puppet to protect him?
And there's a lot of paper trail behind closed doors that if people really found what he was doing, others knew that this guy was doing shady business, but they were protecting him because a lot of money was coming in.
Do you think there could be any of that coming out?
Or no, it's just a guy that was extremely smart, found a way to make money.
And his passion because of his mom was to give a bunch of money to the Democratic Party to make the biggest advancement for progressive philosophies.
I think he gave a lot of people a lot of money.
And so it's a bit embarrassing to a lot of people that they all took his money.
And then I think there's this question of will they give it back?
The fascinating thing here is, is every organization, is the media, the academics, and the politicians, are they all going to give the money back to the bankruptcy trustee to go to the depositors or not, which is the right thing to do or not?
So I think, you know, if you just got a lot of money from someone and then you find out that they stole it, you know, if the message is they stole the money, then that's a fraudulent conveyance and you were paid off with stolen money.
Maybe you got to give it back.
That's a challenge.
So I think that a lot of people are going to be slow to come to that conclusion because they've got a conflict of interest.
But I don't think he's going to get away with it.
I think that the wheels of justice are slow, but they do grind forward.
And it's just so many smoking guns here.
You can't very well steal $15 billion to $20 billion from so many different constituencies and not be held responsible for it at some point in time.
They're just going to play with him in the media as long as he gives these interviews and as long as he's willing to show up.
A lot of people are going to indulge him.
But, you know, like what should happen?
He should be arrested right now.
I was just going to ask you that.
You used the analogy that many movies are going to be made about Sam Bankman-Freed.
So how does this movie end?
You know, we talked about personal responsibility and being held accountable.
Do you think he's going to see jail time?
Should he see jail time?
What kind of sentence should he be facing?
He stole billions and billions of dollars from innocent people.
Yeah, he should be in jail a long time.
Really?
Because a lot of people think that he's never going to see jail, ever.
You know, it took three years, I think, I read before they brought charges in the Enron case.
Okay, so Twitter, Twitter is a high, a fast Twitch response system where somebody posts something and five minutes later everybody is indignant if you haven't come to a conclusion, yes or no.
But, you know, when you're building a case or a complex financial case, if you were to build it in two months or four months, it would be light speed for complicated financial cases.
So I think that justice will arrive.
And I think it's pretty obvious.
Again, as I said, every type of fraud imaginable.
The complication is half the frauds, like the securities fraud and the like, half the frauds are harder to assert because he was an offshore jurisdiction.
Sam wouldn't have actually gotten this big if he had been operating in New York City under the U.S. law because nothing that he did is legal.
You can't, it's not legal to issue a token.
It's not legal to trade against your customers.
It's not legal to give 20x leverage.
It's not legal to, you know, to trade without a license.
You know, so he couldn't have gotten there in a mature environment and a rule of law.
You know, he went to a sunny place for shady people, maybe.
They literally searched every jurisdiction in the world.
I mean, he wasn't, he was in Hong Kong and it was illegal to do what he was doing in Hong Kong.
They were in Singapore.
It was illegal to do what he was doing in Singapore.
They just tripped every which way.
It would be illegal to do anything that they were doing in Europe.
It's illegal to do anything that they were doing.
You have to assume that it was pretty much illegal to do anything that he was doing anywhere except for a small handful of places.
And then even given that, the stuff he agreed, he disclosed that he was doing is only half of what he was doing.
The other half of the stuff that he didn't disclose, that was not legal in the Bahamas either.
Pat's initial question, I think, is very valuable about, do you think he would have got caught if Bitcoin would have kept going and the crypto market would have kept going up to $100,000?
Like, what's the famous phrase?
He would have been caught because he was counterfeiting money and then he was recklessly pledging it in order to borrow more money and spending it.
But would have taken decades.
Like, you know, the famous phrase, like, only when the tide goes out, you discover who's swimming naked.
Like, Bernie Madoff, the greatest Ponzi schemer ever, he was operating for decades, decades, decades.
And it was only until 2008, the financial collapse and there was bank runs, people needed money, did finally his Ponzi scheme get exposed.
So meaning if crypto would have kept going and going and going, could it possibly have been decades before Sam Bakeman, Fried, and FTX were expensive?
No, because they were too reckless.
I mean, Madoff was extremely buttoned down controlled, right?
Very deliberate and actually in the greater scheme of things, conservative.
You know, Madoff didn't put his name on a stadium.
He didn't splash.
Did Madoff give a billion dollars to politicians?
Did Madoff ever put out a press release saying, I'm going to give, what happens when a person with no money 24 months ago puts out a press release saying, I'm going to give a billion dollars to the Democrats in the next two years?
Good point.
You don't think he wrote his head down, wasn't looking for headlines.
But SPF was searching for headlines.
But if you listen to people that talk about how they came into NASA, you know, guns ablazing, he came in, he bought every piece of real estate.
You know, they said, well, you know, here's this penthouse.
They want 40.
Offer them 32.
It's like, it doesn't matter.
It's a rounding error.
Give them 36 or whatever.
He was just splashing money around like it was free.
But Michael, you're in the crypto world, right?
Pat and I are, I mean, maybe we own some Bitcoin Ethereum.
But I feel like, and rightfully so, there's a lot of Monday morning courting back about Sam Bigman, Fried, and FTX.
Well, it turns out illegal.
Turns out this.
Were there stories circulating a year ago, two years ago, during all the fraud, not the aftermath?
Look, the stuff in the domain a year ago was Sam makes $10 million a week at Alameda.
Alameda is a money machine that generates $10 million a week or $500 million a year, and that's his cash cow.
And the exchange is just the exchange.
And then people couldn't quite figure out the rest except for the fact that obvious, you know, all these tokens are air tokens that are being manipulated offshore, right?
So the belief was they were good traders and they were manipulating air tokens and running an unregulated exchange.
The truth, of course, that comes out now is they weren't good traders.
They were goofballs.
And really, the machine that made this all work, the brilliance of it is to generate $10 billion worth of fake collateral and then borrow $10 billion.
That's crazy to me.
Well, I mean, three things.
I generate $10 billion in fake collateral.
I take $10 billion of money out of my bank from my real customers.
I show fake fraudulent accounting statements to investors and get them to give me billions more.
And then I pledge the token collateral to other crypto hedge funds and get them to give me billions of loans.
So you could say that last part, that was, you know, was I took advantage of some other crypto bros that were also a bit, you know, a bit, what is it, risk addicted, like, you know, too aggressive.
And I took advantage of venture capitalists that threw caution to the wind that weren't paying attention.
And the first part is, you know, I attracted all those billions by just telling people I'll give them extreme leverage and let them trade these tokens and make it cheap.
And then again, there are these diabolical twists where Sam would he would like buy BlockFi and then pressure them to put their assets on his exchange.
And so a lot of, or he bought a lot of things.
And when he bought the things, he would pressure the people to put their assets on his exchange or trade with him.
So I'm issuing equity, like the equity in FTX, you know, was worth, I mean, Sam would say, oh, it's a $32 billion valuation.
You remember reading that in Forbes and Fortune?
Okay, I've got a $32 billion company.
I'm going to give you a billion dollars worth of FTX equity.
And then I've got my shadow equity, eight, $10 billion worth of FTT.
At one point, FTT was worth $15 billion.
So they generated these two equity tokens that are based on what?
Opaque financials that are fraudulent, right?
If I have fraudulent financials and I crank up the two equity tokens, then I can use them to do acquisitions.
You're rolling the entire thing forward.
So it was, I guess my point here is if you're doing that and you're extracting $5 billion of real cash and then you're buying, he put a billion into a Bitcoin miner.
He put a billion into marketing.
He bought a billion worth of other stuff.
If you're actually extracting real cash, you're burning the candle at both ends.
And so it was destined to blow up because they were just too aggressive.
Just like with Terra Luna, you know, Terra UST was a stable coin when it was a couple billion dollars and Luna was a few billion more.
It's like a six, eight billion dollar unstable thing.
But what blew it up was when Doquan decided he wanted to offer 20% yield on UST and he took that $2 billion stable coin to be worth almost $20 billion.
Now you've got $20 billion and then Luna became worth $60 billion or $50 billion.
So you've got like this $65, $70 billion complex getting big too fast.
It's like I borrowed, if I borrowed $20 billion and I agreed to pay you 20% interest, I have to come up with $4 billion a year in real cash to roll that forward.
And if I'm printing my own equity token to pay the $4 billion, eventually that equity token crashes because it gets diluted in the market and the entire thing just goes to zero.
So going fast on a Ponzi scheme cause it to blow up.
Bernie Madoff went slow.
And that's why he was able to roll.
And he didn't wave a red flag at the bull, right?
I mean, Sam was going hard.
He was basically attacking the entire Bitcoin community by supporting all this ESG BS about using electricity.
He was also attacking the other crypto exchanges like Binance.
He was also going head to head with the SEC.
Those are three powerful sets of enemies, you know, why you're going 180 miles an hour.
Do you think he knew he was going to get caught at some point?
No, I think he was.
Really?
You think he's doing all this illegal stuff?
You use the 14-year-old kid who stole the parents' car analogy with the drugs and the gun in the back.
He's doing all this.
He's defrauding people, investors, consumers.
He's doing all this stuff.
All this illegal stuff in the Bahamas.
It's left, right, illegal, illegal, illegal.
And you generally think he didn't think he would ever get caught?
He's delusional.
Novograd says he's delusional.
Like a week after he blew the entire thing up, he was thinking he could just make a phone call and raise $10 billion in order to save it.
He's going to process this for the next two, three, four years.
And, you know, many years from now, he may look back if he's honest with himself and figure out what he did.
I think he's just deluding himself.
You know, it's like these stories we tell ourselves that if we tell him, we tell these, like, for example, if you listen to Sam's language, he doesn't say, okay, I stole $10 billion from my customers and I used FTX like my personal piggy bank and I gave it to Alameda and then Alameda gave $4 billion of it to me and then I spent it on stuff.
He doesn't say that.
He says, I didn't realize that Alameda had a margin position.
It was a little bit bigger than I thought it was.
And we had a little bit of messy account.
I didn't realize I marked it up $6 billion and took the money.
Our accounting was messy and our margin position was a bit larger than I understood.
He doesn't say, I counterfeited $14 billion worth of air tokens.
He doesn't say that.
He says, well, we had $14 billion in assets, but we just didn't have the liquidity at the time we needed the liquidity.
If we'd had more liquidity, then we could have met these particular demands and it would have all been fine.
So living in this world of liquidity and margin is a way for you to say, you don't have to say, my customers put $10 billion in my bank and I took it and lost it and spent it.
He just says, my customers had margin positions.
I had margin positions.
It was all everybody.
Ours was a little bit bigger.
Now, he still hasn't kind of admitted or fessed up to this fact that he had God mode and there was no way for Alameda to be liquidated.
What's God mode in your mind?
What it means is, is you put it in.
Untouchable, no, no accountability, do whatever you want, playing God.
No, it's like I run a casino.
Everybody comes in the casino and you roll the dice.
And if you lose, you lose your chips.
But my son is able to bet infinite money.
And if he loses, he can double down with infinite money, and he never has to pay it off.
And so there's one player in the casino that never loses, only wins and can always double down.
And so the result is Sam set up a casino.
Everybody else was subject to being liquidated.
And Alameda had this God mode where they could bet and they could withdraw any amount of money and they could bet and if and they would never be liquidated.
So what that means is over time, Alameda ended up with a $10 billion debit.
There was $10 million credited to the rest of the players when Alameda went to a $15 billion debit, right?
The entire thing collapses.
And he still hasn't kind of come to grips with the fact that that's unethical.
Michael, but to have that kind of confidence for you to ask the question, did he know he was going to get caught?
There's a part of me that agrees with Michael.
There's a part of me that agrees with you because to Michael, it's like, yeah, you know, he didn't think he was going to get caught.
You're saying he eventually was going to get caught.
He knew it, right?
But to me, when you give money to lobbyists, somebody has to say, don't worry about it.
I got your back.
Don't worry about it.
We got your back.
Keep going.
Nothing's going to happen to you.
To play that reckless where you believe nothing's really going to happen to you.
We got you.
Whether that's lobbyists, whether that's politicians, whether that's whoever, you have to realize the ripple effect, not to say ripple XRP, but the ripple effect of an FTX going down.
How many YouTube channels were doing sponsorships about crypto?
We got calls from every single crypto company for us to do sponsorships.
We said no to every single one of them because it's too, it's too, you know, you got to be careful taking that kind of money because you don't know the stability is not there yet.
But how many YouTubers were making, oh, I'm making 20 grand a month sponsorship from FTX?
We'd go to meetings.
One time you and I were with somebody.
It's like, oh, yeah, you would be amazed.
Crypto companies are throwing money at us.
Lock cry was ready to give us.
So anyway, so you have those guys.
You have Scary Mucci, you have Kevin O'Leary, you have all these athletes.
You got names, you got celebrities, you got FTX Arena, I think, got 135.
I don't know the exact number, but it was a large number that they got.
You know, all of these people, you were talking about the nightclubs, Miami, if you want to bring that up on what's going on with Miami.
The story there.
Well, we both live in Miami, so this is a story that's near and dear in my heart.
But obviously, FTX sponsored the Miami Heat Arena, formerly known as American Airlines.
Love it.
But there's a story out there in the Financial Times that, here it is, Miami nightclubs mourn the absence of high-rolling crypto entrepreneurs.
So they started interviewing people I know, friends of mine who run Groot Hospitality, Dave Grutman's nightlife place, and then also everyone over at 11, right?
And I think Gino Lapinto who runs 11, he says last year, $6 million was spent in crypto.
This year, it's down to 10K.
So the ripple effects is what you're asking.
Wait, wait, wait.
You got to say that slower.
Yes.
11 started accepting payments in crypto in April of 2021.
The club processed more than $6 million of transaction in 2021.
But in the past three months, the club has only processed less than 10,000.
Right.
Holy moly.
Michael, you got to go back to the money.
A lot of money he was making enough lately.
Two thoughts, right?
First of all, he bought everybody.
And how did, okay, and let me just make a stark observation.
He counterfeited $10 billion in one year.
If you could counterfeit, if you created 10, look, you have a 300 million FTT tokens, move the price 30 bucks.
Do the math, right?
$30 on a token when you give yourself 300 million of them is 10 billion.
And that's just one token.
So if you fall off the turnip truck and you find that you can generate $10 billion in a year, what do you do?
You go buy everybody.
You buy every influencer.
You buy every politician.
You buy every celebrity.
You buy the stadium.
You buy all of Albany.
You buy the government.
You buy everything that's for sale.
Right?
It's hard to find a crypto influencer that didn't take FTX money.
But he hired everybody.
Go as fast as you can.
How much can you spend?
A billion in a year?
Two billion a year?
They thought they had found the fountain of money, right?
There is nothing more lucrative than a license to print money.
This is why the Bitcoin maximalists just get so angry, right?
They declare a war on the shit coiners and shit coinery.
The idea that you can just create your own token, sell it to the general public, and manipulate the price of it and dump it on.
But here's where the poor Bitcoiners never figured out.
Their view is they're creating a shit coin and dumping it on retail.
But again, Sam's twist on it was: no, I'm not going to dump it on retail.
I'm driving it to the sky.
I'm never going to sell it.
I'm going to use it to buy other banks.
And then I'm going to drain the assets out of the bank by giving myself an under-the-table loan.
It's so much more diabolical than just dumping a shit coin on unsuspecting retail traders.
So, yeah, he did it.
He, you know, and he invited that scrutiny and it was inevitable.
He reminds me of one other person, by the way.
If you want to know the antecedent, 10 years before Sam Bankman Free came along, Jolo.
Jolo.
Jo Lo.
Jolo, if you talk to these same club guys and say, Jolo fit, this is a different one.
Who was Jolo?
Not J-Lo.
Jolo.
How do you spell that?
Yeah, billion-dollar whale, I guess, was like Jolo said.
Oh, check out one MDB scandal.
One MDB Jolo.
How do you spell Jolo, Michael?
J-O-L-O.
Just like Jolo.
Okay.
So here's what.
Malaysia.
Yeah.
This is what happened.
27-year-old guy comes all of a sudden hooks up in a relationship with the prime minister of Malaysia, convinces the prime minister that they should set up a sovereign wealth fund, and they're going to raise money and invest it for the good of the Malaysian people.
Was the Malaysian president a male or female?
Male.
So they're gay lovers.
No, it was Najib.
It's all Najib Rajak was the prime minister, and Najib was in cahoots with Jolo.
And Jolo ended up raising $14 billion.
And the way he raised it was he sold fraudulent bonds.
They took the money.
And of course, none of the money found its way to the Malaysian people.
Jolo just took it, stole it, and spent it.
$1.700 million was wired into the prime minister's personal account.
$50 million worth of diamonds and shoes got bought by the prime minister for his wife on a weekend.
The Wolf of Wall Street, the entire movie, was financed by Jolo.
Get out of it.
There he is with Leonardo DiCaprio right there.
There he is.
At the Wolf of Wall Street premiere, it looks like it's very famous.
The great get out of here.
Okay, that entire movie cost more than $100 million.
It was paid for with money stolen from the Malaysian people.
Jolo wanted to be a movie star.
Jolo dated Starlitz.
He bought multi-hundred million dollar yachts.
He would spend $5 million a night in clubs.
He would come down here to the Miami nightclubs.
Damn, I wish I ran into him.
Yeah.
Joe Lowe, J-H-O-L-O-W.
Two words.
Joe Lowe.
And here's the point.
The guy would, he would walk into a nightclub and he would spend $4 million.
He would buy $100,000 bottles of champagne like that, spray it everywhere, buy 100 more of them.
And people said, how can this guy spend a million a night or $2 million a night or the like?
And the answer is he stole the money.
He stole billions and billions of dollars and he spent it like he stole it.
If you made $20 billion, you wouldn't spend money like that.
Right.
Any event, he's a fugitive internationally.
But before Sam came along and the entire crypto thing blew up, it was this massive sovereign wealth scandal.
And there are lots of colorful stories.
Yeah.
You bring up such a good point with this wasteful spending because anybody that legitimately makes money knows how hard it is to make money.
Kevin O'Leary talks about if I forget to claim my air miles, like I'll go back and call the airlines because I know what it takes to get the amount of money to do this.
But these people that fraudulently just come up with money, they'll gladly make it rain millions of dollars because it's fake.
It just came too fast.
Yeah.
Too fast.
Who's the next SBF?
How many more SBFs are out there that we don't know about?
Or maybe nowadays.
Hopefully we're running out of them.
Right.
I mean, if we look at this entire thing, right?
It reached its peak.
Peak was, you know, Terra Luna is worth $70 billion.
And, you know, Doquan and a couple of people are all of a sudden the whales.
And I think the, you know, the bubble popped on this cycle when the Fed started raising interest rates.
To your point, Jerome Powell is the most powerful person because he sets the price of money for $500 trillion worth of assets.
So that's a pretty powerful job.
They took the short-term rates, you know, from six basis points up to 470 basis points on the one year in 12 months.
And so when the Fed started tightening, that put pressure.
The first thing to break was the most fragile thing, which was a poorly engineered, unstable coin called Terra Luna.
That brought down three arrows.
Three arrows crashed and brought down Celsius and Voyager and BlockFi.
And it fatally wounded Alameda.
And maybe we'll see what happens with Genesis, but it definitely fatally wounded a lot of other players, but it wasn't obvious.
And the reason it's not obvious, again, just to make this point, is publicly traded companies have a fiduciary obligation to disclose transparently within four business days or less on an 8K.
Like if my CFO said, guess what?
We just did something stupid and we lost a billion dollars.
I don't sit on that for a year.
I don't sit on that for a quarter.
Like some number of hours at 9.30 a.m. on Monday when the market starts trading, people are trading my stock.
And if I have material information that a rational investor would think is material to their buying or selling the stock, I have an ethical and a legal obligation to disclose it.
It's pretty obvious why.
I mean, if you were on the other side of the trade.
I would want to know.
Yeah.
So at Celsius, Celsius went and they borrowed $500 million from, you know, I think Equity First or something.
And when they returned the money, they didn't get their collateral back.
And they got, you know, somehow they made a, they borrowed money and then their creditor kept their collateral and they lost half a billion dollars, but they didn't disclose it to anybody for a year.
They just kind of went on and they raised more equity from pension funds and then they took more deposits and then eventually they were rendered insolvent.
And then at that point in the bankruptcy, you find out that a year and a half early, they just made a $500 million boo-boo.
Okay, and that's what you're finding out with Alameda.
You will find out that, oops, it turns out that like 12 months ago, they lost $3 billion, but they didn't tell anybody.
They probably didn't tell, I bet you they didn't tell their equity investors.
Nobody puts a billion dollars into a company with a $30 billion valuation if you made billion-dollar trading errors or $2 billion trading errors.
So what you had was a bunch of opaque private operators that they were in essence lying, dissembling.
It's like, I didn't technically lie because FTX didn't lose the billion.
Alameda lost the billion.
And the investors, you know, they should have said, wait a minute, these companies are all related parties.
And unless I know the financials of Alameda and Paperbird and FTX and I can compose it all, there's no way that I can put money in this.
And I think that, you know, the answer is when you're private, people can cut all sorts of corners when they're doing private deals.
It's like, so Sequoia, they're adults and they blow a few hundred million dollars.
Okay, adults doing stupid things, but they're adults.
Who the hell negotiates that?
You give $2 billion without any board seats.
I mean, that's the part that I'm – because the back and forth of that, when you give that kind of money, I mean, it's just like, yeah, we want some sort of accountability.
By the way, does this kind of – There's nothing right about it, right?
There's nothing appropriate about it.
I understand what he did.
I totally get it.
No, it's nothing right about them investing.
That's what I'm saying.
It was totally inappropriate.
Because you would ask for a board seat.
Are you managing me?
You're giving to whoever gave the most out of the $2 billion.
You have to be asking about, you have to be asking about monthly reports to see what's going on.
What do you mean you lost $3 billion?
We don't know for a year.
That doesn't make any sense to me.
The lack of accountability.
And by the way, that's what happens when you go a, I'm having dinner with David Solomon Goldman Sachs as a CEO a couple nights ago in Miami.
And they're talking about this, right?
How for 128 months economic expansion, what happens?
You start becoming a little bit cocky.
You start thinking this is going to be like this forever.
You start thinking money is just going to be printing and each is, yeah, here's a billion, here's 100 million, here's 50 million, here's 200 million.
And then now all of a sudden everybody's going back to what's your EBITDA?
What's the real business plan?
Who's on your team versus, yeah, we're going to turn this $2 billion into $20 billion and our investors are going to love us for it.
By the way, does this kind of validate, and I'm actually curious to know what you say to this now, not nine months ago, the fact that are you yourself sitting there saying, honestly, I'm kind of like hoping they figure out this regulation thing fairly quickly, sooner rather than later?
Are you leaning now towards more regulation than maybe you were nine months ago so they can filter out the actors of the game?
Look, I think that regulation's a good thing for the industry.
And I've never really been against it.
If you're holding Bitcoin or if you want to act as a responsible, sound institution, you don't have a problem with regulation.
The people who have been fighting regulation are those that actually want to sell the unregistered securities or manipulate them.
So my position was always the industry should be regulated.
The roller coaster ride that is Bitcoin is because of unregistered securities trading on unregulated exchanges.
That's why Bitcoin is so volatile.
And so to the extent that your life is miserable in the Bitcoin world, it's because of unregulated exchanges manipulating unregistered securities.
So, yeah, I mean, I think that if we look forward, you know, what's important, people sometimes they can, what is it?
think that regulation's a bad thing i mean it's it's should you be able to cheat people Like, if you went on a vacation in the Bahamas and someone put a gun to your head, stole all your money and beat you half to death, and then you came back, you know, in a stretcher to the United States, would you then say, I really appreciate the unregulated environment in the Bahamas?
I mean, certainly not taking a helicopter there.
Everybody, so everybody, with regard to the money, they expect things to be fair and equitable, right?
And the real problem in the industry is it's too hard or it's too easy for unethical actors to victimize honest people.
And so we need to fix that, whatever you call that.
Now, if we look at the future of the industry, I'm going to take a very pro-crypto point of view for a second, which is here are the good things about crypto.
Digital commodities like Bitcoin, that's a good thing.
Digital currencies like Circle or Tether, a dollar that can move at the speed of light to 8 billion people on a mobile phone.
That would be a good thing.
Digital securities.
Maybe you want to create a Solana, an Ethereum.
I don't have a problem with smart contracts and all the rest.
It's just that if there's a company or a set of developers behind them, they ought to disclose who's making the decisions, who owns the stuff, and what is my risk?
Can they simply seize all of my money tomorrow if they want or not?
So digital securities would also be a good thing.
And then digital tokens.
If you're Katy Perry and you want to issue a Katy Perry token, you don't want to spend $40 million on lawyers and accountants and take three years to do it and spend $25 million a year to keep it current.
That is the cost to issue an analog security like Microsoft or like Apple or like MicroStrategy.
So it would be great.
And it's very reasonable if you could issue a digital token as one of 100,000 celebrities and do it ethically and technically in a sound fashion.
And maybe you spend a couple hundred thousand dollars or a million dollars to set it up, but not 100 million.
And if you're going to do a digital security, you ought to be able to do it, but it shouldn't be as hard as maybe it is to take public a very complicated company.
Now, what's good about those things?
24-7 trading to 8 billion people, personal property rights to your iOS or Android phone, the ability for artists and creators to monetize their brand, and then with a commodity, the ability to have a non-sovereign store of value beyond the corrupting influence of a company, a CEO, or a government.
Those are all the good things.
That's the promise of digital assets or the crypto industry.
Smart contracts would also be a good thing.
These are all good things.
What's the problem?
The problem is most of the ideas have been built on an irresponsible foundation or an unstable foundation.
That is, economically, they collapse and they're not engineered properly or ethically, they're not quite right, or there's no regulatory clarity.
So the guys at Circle, they're not public at Tether.
They're not public.
Well, if you were going to have a bank that held $500 billion of money and you issued $500 billion worth of tokens, wouldn't you think they ought to actually have to make public disclosures?
If the CEO dies over the weekend and there's a new CEO, don't you think that you should tell the people with the $500 billion at risk what's going on?
Well, here's the challenge.
We are in a passive aggressive environment right now, which is no one in the crypto industry has been given a path to register their asset with the SEC.
There's no obvious way to register a digital commodity.
If you thought that your token was a commodity, you can't just file a form and get back an answer.
There's no way to register a digital currency.
The currency has been caught in a fight between Treasury Department, the FDIC, the SEC.
And it's like, how do I actually register one?
And what do I got to do in order to be anointed as a ready-to-trade token?
There's no way to register a digital security.
There is no definition, no taxonomy of a token versus security versus a commodity versus a currency.
Most people don't even understand what I just said, define a digital currency, digital token, digital security, digital commodity.
How many lawmakers would give you a one-paragraph definition of the difference ethically, technically, economically?
Zero.
Yeah.
So if you're an entrepreneur, you're like, well, I just, if I come to the U.S., what can I do?
I can buy and hold Bitcoin.
What else can I do legally?
Nothing.
Okay, I'm a publicly traded company, MicroStrategy.
What do we do?
We buy and we hold Bitcoin.
Why do we do it?
Because that's a regulatory safe harbor and an ethical safe harbor.
Everybody agrees that's a commodity.
Everything else, you know, there is no obvious path forward.
So if we want a progressive environment, you know, people in DC, the regulators and or the lawmakers, they have to say, here's a definition of a digital currency.
You want to register it, register it with the SEC or with Treasury.
They can't decide who to register it with.
CFTC, SEC, Treasury?
Probably the SEC ought to be the first stop.
Everybody sends their token to the SEC and the SEC says you're either ethical or unethical.
Like, you know, if you're a Ponzi scheme, they should just reject it, right?
But if you're ethical, they say, this is the disclosure we need from you.
You're a commodity.
You're a currency.
You're a security.
What's the difference between Katy Perry token and Apple stock trading on a digital exchange?
Well, clearly, I think you could agree that Apple is a much more complicated company than Katy Perry fan token would be.
So presumably Apple spends $100 million a year to stay in compliance with securities law.
Katy Perry shouldn't have to spend $100 million a year to actually issue a token.
And so what we're waiting for is for someone to give us a taxonomy and a process.
And the deadlock at congressional level was stuck.
The way this gets solved is either the SEC just publishes the guideline.
They could do it, right?
If you're the chair of the SEC, you could just put out a 20-page memo and say, this is the way it's going to be.
And everybody would just fall in line within the next 12 months, almost certainly.
Or Congress has got to put out a law and the law has got to say, these are the classes of digital assets.
And this is the regulator that gets to register you.
And then, you know, what is a digital exchange?
A digital exchange is a 24-7, 365 trading venue, like a Coinbase or like a Binance.
So you see, the traditional world is $100 trillion of analog securities trading on traditional exchanges that trade 9.30 to 4 in the afternoon, Monday through Friday, except on bankers' holidays.
And the problem with that is service level is bad.
It disenfranchises 7 billion people.
You can't take personal custody of your Apple stock on your Android phone.
That's not going to happen, right?
And so it's, and your bankers have a monopoly on your assets.
You can't lend or borrow against your assets except through the bank that controls them.
So there's lots of monopolies in the traditional world, and they're not evolving.
Well, a different idea would be a digital exchange world where everything's circulated 24-7, 365.
You could take custody of it on your phone.
What if I could take a share of Apple stock and Zap it to someone in Zimbabwe and they could take it in cold storage on a hardware wallet?
Like they could really own it.
You think we're going that direction?
No, I think I've laid out the most progressive policy, which is a world where digital assets, 100,000 digital assets circulate to 8 billion people with full empowerment.
I don't think we'll get there.
I think the best we can get to is a few digital exchanges that are regulated, that trade a few dozen assets, a dozen stable coins, a dozen crypto assets that are either securities or commodities that have passed through regulatory jurisprudence or regulatory review.
And I think 98% of all the stuff that circulates in the ecosystem is probably going to get squeezed out.
Most of the crypto entrepreneurs get squeezed out, and the control of the industry is going to move to the fidelities and the blocks and the, you know, a publicly traded, regulated company or bank in the U.S. or in Europe that's got an army of lawyers and accountants behind it.
Layman's terms, how do you explain the difference between centralization, regulation, or decentralization or deregulation, if you were to explain that to a sixth grader?
A decentralized asset is one that is so diffused on so many different computers in the hands of so many people that no one person can change it or corrupt it.
Means Bill Gates can't corrupt it.
The head of the SEC can't corrupt it.
A president of, you know, the head of Russia or the U.S. or the UAE can't corrupt it.
No company can corrupt it.
If I own a billion dollars of it, I can't corrupt it.
And so a decentralized asset is like the cold virus.
You get the cold.
A billionaire gets the cold.
You both have the same cold.
The billionaire doesn't duck the cold.
You can't give the billionaire a different cold than you got.
It is just a force of nature.
We all equally share and benefit and suffer.
If I give you an orange and I give a billionaire an orange and I give the head of Russia an orange, you all got the same orange.
Nobody gets a better deal.
That is a decentralized commodity.
A centralized asset is like Apple stock.
If Tim Cook gets up and decides to print 10 million more shares of Apple stock, he could.
If Tim Cook decides to cut the price of the iPhone to zero, like Mark Zuckerberg, here's an example of the risk of owning a security.
Zuckerberg decides that Facebook should be meta and the price of the stock falls by 65%.
And is it legal and ethical for him to do it?
Yeah.
If you bought Facebook stock, you read the report.
You know he controls the company.
You know he's the CEO.
You know he could do it.
You can complain about it.
But that was the risk you had going into it.
You're never going to wake up and be holding an orange in your hand and find out that some dude that hates you around the world cast a magic spell and made two-thirds of your orange disappear.
You see?
So one of these things is a natural asset.
The other is an artificial asset.
Securities are man-made assets.
Commodities are nature-created assets.
They both come with risks.
But when you buy a bar of gold and you lose money, it's not because the CEO of Gold Corp made the gold copper, right?
And then made it like rot away on you, right?
It is what it is.
It's a natural risk.
And so that's why securities laws are structured such that the liabilities of officers of companies lie in the manipulation of the securities.
And so if I was explaining it to a kid in school, I would just say a truly decentralized thing results in a commodity where no one can corrupt it.
And a centralized thing is a security.
You're relying upon the effort of somebody else and you have to trust them.
And if you trust them, you may get a benefit.
But, you know, just like trusting a bank, you know, when you own someone's fiat currency, you trust the government not to print more.
When you put your money in a bank, you trust the bank to give your money back to you.
And when you buy a stock, you trust the CEO or the management team not to destroy the company through ineptitude or not to dilute your stock by just giving it all to themselves secretly and not telling you.
I got two other questions before we wrap up.
We got 18 minutes.
Let's see if we can pull this off or not.
So I don't know if you remember or not.
That article came out talking about the fact that how Bitcoin matches, I don't remember the exact numbers, 74% of the time.
I'm sorry, it was 74 of the last 90 days.
Every time the market went up, Bitcoin went up.
Every time the market went down, Bitcoin went down.
I don't know if you remember this or not.
There's an article that came out probably, you know, nine months ago, eight months ago, even around the time that we sat down together.
They tracked the correlation between Bitcoin and the stock.
Very, very close to each other, right?
But now Dow went all the way down to 28.
Okay.
S ⁇ P went down to, I want to say 3,300.
I don't know the exact number.
I'm going to say 33 something, maybe even 3,280, give or take.
And then Dow's up right now.
How much is that?
Can you look at what S ⁇ P 500 is at right now?
I don't know what the exact thing is.
Dow's at 33.9 by the end of the day.
S ⁇ P is 4,080, 4,020.
No, 39.99.
39.
Okay, perfect.
So if you look at the rolling 12 lowest was what, 52-week low, 34.91.
Okay, so 34.91.
But if you look at Bitcoin, go on Bitcoin at the same time.
And let's look at what Bitcoin's at.
Bitcoin is currently at $16.90.
Okay, but if you go high, high is what?
Rolling 10?
For the year, I want to say 50.
Rolling 12.
Go one year.
Go one year.
52.
One year, one year right there.
No, that's one month.
Go to one year.
One year is at what?
50 something?
If you go all the way at the top, go all the way at the top, 50 something.
So gold, they would say, if you print money, gold will go up.
Inflation goes up, gold will go up, right?
Bitcoin was matching the market.
Now it's not matching the market.
At least it was matching the market when the market was going up.
Now the market went up.
And if you look at this, it's flatlining and going lower and lower slightly, right?
If you look at every time it comes down, boom, spike up.
Every time it comes down, boom, spike up.
Comes down, boom, spike up.
Today, Draper comes out and says, by the end of next year, you know, Bitcoin is going to go up to, you know, $250,000.
I think he said that earlier today, but at the same time, he was supportive of Elizabeth Holmes till the very end.
So, you know, when you look at some of this stuff and you compare them with the numbers that you see, why isn't Bitcoin no longer responding to the market the way it was before?
And now it's kind of the correlation is no longer the same.
What do you think is the cause of that?
I mean, Bitcoin goes through phases where it's either positively correlated to risk assets or is negatively correlated or it's uncorrelated.
And it all comes down to the micro dynamics.
Like how are all the exchanges and all the other crypto traders, how are they behaving?
And then the macro traders, how are the macro traders perceiving it?
And that's continually evolving.
Let me give you one interesting stat.
You know, like on August 10th, MicroStrategy decided to get into this business.
So August 10th, 2020.
So if you go back to the summer of 2020, when it was just unclear, what are all these assets going to do?
You said August 10th?
August 10th.
So I track this because this is my scorecard because on August 11th, we announced we bought a quarter billion dollars worth of Bitcoin and we've been long Bitcoin ever since.
If you had taken a billion dollars and you had bought bonds, like long bonds, 20-year bonds in the summer of 2020 and held them through today, you would be down 19%.
Eight to 10.
19, the BOND index is minus 19%.
That's what I'm saying.
A billion dollars will be $810 billion.
Yeah, if you bought gold, you'd be down 13%.
If you had bought the NASDAQ, you would be up 3%.
It pretty much chopped.
Sure.
Right.
If you had bought the S ⁇ P index, you would be up 19%.
Not bad.
Not bad.
Sure.
Not bad.
If you had bought Bitcoin, you'd be up 43%.
Bitcoin doubled the performance of those other assets, even as it got beat around the ears.
And if you had gone into big tech and you bought Google, you'd be up 34%.
Not as good as Bitcoin, but better than NASDAQ.
Apple's up 30%.
Microsoft is up 19, about 20%.
So those three are monopolies, the three most powerful tech monopolies in the world.
But Netflix down 34%, Amazon down 42%, and Facebook slash Meta down 54%.
And that's why NASDAQ chopped sideways.
Now, what is the point?
Well, Bitcoin is really volatile, no doubt about it.
It's hair on fire.
But if you, and if you're going to be an investor for less than 12 months, you are just a speculator and you're a trader.
And God bless you.
If you go short, you make some money if you pick it right.
But if you pick wrong, you get your face ripped off.
And I don't know how to do that.
I mean, you have to be a trader.
But if your time horizon is four years, two years, four years, eight years beyond, and if you're buying it as a long-term store of value asset and are you disgusted with the manipulation of the fiat currency, then you buy Bitcoin because you're angry that they keep printing more pesos and bolivars and dollars and Euros.
Are you disgusted that the CEO of your favorite company screwed you by making bad decisions?
I won't name the company.
Fill in your own.
Then you're going to buy Bitcoin.
There's no CEO of Bitcoin.
So if you want to escape that particular risk and what you want to do is you don't want to trust a CEO, a company, a government, or anybody.
And if you want to buy something that you can hold for 30 years, well, I can tell you, I can't pick a single company that I would want to hold 30 years.
Can't?
You know there's not a piece of land I would hold for 30 years, because I don't know that the mayor wouldn't.
You know, the guy that replaces the mayor next might decide to triple the property tax, and you know.
So there are a lot of things in this world that are just very risky.
Bitcoin fits in a portfolio and it's performing just fine as long as you have a two-year plus time horizon.
And if you have a short time horizon, if you want to look at 12 weeks, 18 weeks, one year Every single investment in the last 12 months looks pretty hideous.
And I can probably tell you that, you know, if you lost 20% of your money, you're a fool.
If you lost 40%, you feel like a bigger fool.
If you lost 60%, you feel like a bigger fool.
So real estate investors, securities investors, bond investors, crypto investors, Bitcoin investors, there's no winners in the current environment on a short timeframe other than the shorts, the guys that are just short hedging.
Somebody, I mean, I can say this.
One thing, you know, having been Series 7 since 2001, financial industry 20 plus years, myself, not at your level, you'll see mutual funds that have come out with their perspectives and you look at the date they run since this time and since that time, we can run dates to make your argument better or worse.
Everybody can do it.
We can do it.
Everybody can do it, right?
Some may say, well, you know, MicroStrategy, the article that came out saying the fact that you guys lost $1.8 billion, right?
And that happened.
By the way, did you guys have a margin call or no?
Did you get margin calls or no?
Of course not.
Okay.
And I didn't toot our own horn, but I will say while we're at it, we outperform Bitcoin.
We're up 54%.
MicroStrategy stock has outperformed every big tech, 95% of the NASDAQ, all the asset classes, while we've been criticized for losing money on Bitcoin.
So why is it saying you guys lost $1.8 billion?
When Bitcoin got to $50,000 a coin, we sold a billion dollars worth of stock at $700 a share.
We converted the equity into Bitcoin.
Bitcoin traded down.
And so technically, the Bitcoin that we bought at that point is worth less today.
And so you can say that's a non-consuming.
The one you bought at 32K or 39K, something like that.
You bought it at 39,000?
If you bought Bitcoin more than the current trading price, then you can say that you lost money buying it.
But if you actually paid for it with cash or equity that was valued proportionate, then you've actually created shareholder value.
We've actually created enterprise value.
The company's enterprise value has expanded by a factor of five.
Our shareholders have made more money than any other investment, so they're all fine.
People are just cherry-picking random trading periods in order to make some observation.
Got it.
And then this story here, to the Ethereum folks who would love for me to ask you this question.
There's no second best.
MicroStrategy would be up $1.6 billion if it invested in Ethereum.
This was a month ago.
What are your thoughts on this wonderful article?
The problem is Ethereum is a security.
I mean, look, I don't mean to be mean about it, but it's pretty evident.
Vitalik is the CEO of Ethereum.
There is a 10-year roadmap with 160 blocks.
One of the little blocks in the roadmap says elect secret leader.
Another block is give people the ability to unstake their coin.
Another block is set the monetary policy.
Ethereum is an incomplete crypto network.
It's a work in progress.
And so the problem fundamentally is it's a security, which means to promote a security is securities fraud.
It's just, it's that simple, right?
When you're promoting Ethereum, you're promoting Joe Lubin and Vitalik's company.
And it's their token.
There was a pre-mine.
There's an ICO.
They changed the monetary policy, and they currently are holding $20 billion worth of their investors' assets hostage.
And we don't know when the money will be released.
So here's the issue.
At some point, the SEC is going to deem them a security.
If they are a security, it's illegal to trade them on any exchange in the U.S., really in the world, right?
I mean, unless someone creates a path to register a digital security.
Look, I would have nothing against Ethereum if they said, look, we're a company.
This is a security.
We're going to register it.
Okay, what's the board of directors?
Who owns it?
What's the rules?
Give us all the risk factors.
I mean, a very simple question.
Do you know who's going to make the decision to give the $20 billion of ETH back?
Because there is no representation as to when you'll be able to unstake ETH.
It's not clear who makes the decision.
What happens if that one person disappears?
What if they decide to never give you your ETH back?
Okay, that is a problem.
So as a publicly traded company, I'm going to make a technical argument.
Publicly traded companies can't hold more than 40% of their balance sheet in a security.
Like if it was Apple stock and it had 100,000 pages of disclosures, I still couldn't hold more than 40% of my balance sheet in it because an operating company can't hold any more securities without becoming an SEC 40 reporting company.
It's a totally different thing.
So technically, we couldn't buy securities if we wanted to.
And otherwise, look, Bitcoin's protocol has been pretty much set in stone with a series of only soft forks for 13 and a half, 14 years.
Ethereum changes every six months.
And so it's a different thing.
As for backtesting it, I mean, I could go back and say, what if I had bought such and such yo-yo coin token too?
But as I've said, the 22,000 tokens, nearly all of them are unregistered securities, which means they're trading illegally, unethically on illegal exchanges.
What could go wrong?
Like, I wouldn't put a penny into any of those tokens.
If you said, you know, my cousin Vinny's, you know, got yo-yo dying and do you want to buy some of the penny stock and just trust me?
I was like, no.
I mean, it's no different than Boiler Room, right?
Or, you know, the Wolf of Wall Street, right?
The Ethereum people have an aggressive technical ambition, but ultimately, it's not a complete project.
They've got a 10-year roadmap.
When it's complete, five years after that, you'll know if it breaks or doesn't break.
And at some point, there's the question of, you know, is it decentralized or not?
It's pretty obviously not decentralized when you're waiting for the supreme leader to give you the plan.
Final question on this, what's his name, this top customer service representative who became a billionaire, Elon Musk, who just bought Twitter.
Do you have any opinions on Elon Musk, what he's doing with Twitter?
I think that Twitter's coming back to life.
I think Twitter had too many training wheels on it, too much governance on it.
If you look at any economy, I mean, any economy at all, I mean, the recipe for crippling the economy is too many well-intentioned bureaucrats regulating and everything, telling you what you can and you can't do.
Ronald Reagan, you know, fix the U.S. economy or Margaret Thatcher, the intelligent thing they do is when they deregulate, get out of the way and stop second-guessing the people.
I think on Twitter, I mean, they axed so many accounts, right?
When you ask people that disagree with the current thing and you obliterate their accounts, it's very chilling.
And so Elon has, I do believe that his motivation is give free speech to the world.
I think it's a very complicated thing to do when there are so many laws about what's acceptable speech and what isn't.
But I think that Twitter was kind of stuck in a malaise.
And they were basically, they're a digital monopoly on public speech, and they were siphoning off all of their energy simply to regulate the speech.
And when you step back and say, what if we just let people talk and we put our energy into improving the product, like make the product better.
I mean, there's no reason why you can't provide, like give 100 million people the ability to get verified.
Why didn't they do that?
They had a very socialist communist idea, which is 300,000 blue checks and no amount of money or effort on your part will get you verified.
So 300 million proletariats, proletarians, 300,000 elite.
And even if you wanted to write me a $10,000 check to verify you, I'm not taking it.
So it was very stuck.
Well, some employees took some checks and they gave verification behind closed doors without telling.
Same thing with Insta.
And the same thing happens in communist regimes where you have rationing.
Invariably, you have a black market form.
So I think that Elon is, he's making moves to improve the process, improve the functionality, open up free speech.
There should be debate.
People should not live in fear of what they say.
You say the wrong thing, you express the wrong opinion, and your account gets locked and you get shadow banned.
And I think that that undermined the use of the platform.
And so I'm in favor of where they're headed.
I think it's good for the world.
I think it's auspicious.
It's going to be a bumpy ride.
Like most of the time with Elon's business, they're all bumpy rides.
Tesla was a bumpy ride.
He likes that.
But when you step back and you're like, Tesla's a bumpy ride, but it looks like we're getting to the point where cars will drive themselves.
And you start to think, well, maybe when we get to the end of the ride, it'll be a good thing.
Last question for you on my end.
This Bitcoin halving that happens every four years.
Obviously, you're very familiar with this.
So the next halving is March of 2024, correct?
Where do you see Bitcoin in March of 2024?
So if we do another interview 15 months from now, best case scenario for Bitcoin?
I think we're really close to the bottom of the deleveraging cycle.
I think we've taken out a lot of the bad actors.
I think that a fire is lit under the DC, the DC politicians and the regulators.
I think that we're going to get clarity.
And I think that that clarity is going to bring in a bunch of institutional money, a bunch of institutional banks and big investors and big corporations.
And at some point, you know, maybe not between now and the end of the year, we're going to get to the bottom of the market, and then we're going to begin the next bull run.
And I think that we'll be midway into a really nice bull run.
And Bitcoin's going to be way north of where it is right now by the time.
North of the high of 60,000 or north of 100,000?
You know, I don't want to give a hard number because it would be irresponsible of me.
But I just feel like Bitcoin has suffered the deleveraging.
Guys like FTX, they took $10 billion and then they panic sold it.
Our fire sales sold billions of dollars of assets and that's what's got us to where we are.
Once all of the bad actors and all of the irresponsible players have fire sold and panic sold all of their Bitcoin, then what you've done is you've transferred it into much stronger hands.
And so I just, I think that certainly we ought to be back to a solid place.
What you're saying is the future looks bright.
I think the future is definitely bright.
There you go.
Folks, if you learned as much as I did, give it a thumbs up, subscribe to the channel, and we're going to put the link to Mr. Saylor's Twitter account for you to go there and follow him, give him feedback about today's thing.
Every time you're here, I learn, man.
I get smarter and smarter.
It's like my brain is having a workout listening to you, and the muscles are getting more and more cut up.
Appreciate you for coming out.
Really enjoyed it.
Tomorrow we're doing a home team podcast.
It's just going to be us.
We may have a surprise podcast sometime this week with somebody that's currently a controversial figure.
Not who you think, but maybe, maybe not.
We'll see.
We'll see.
Even Adam doesn't know about it because we'll keep it a secret until this thing becomes verified.
