Bitcoin Supply and Demand: The Next Big Short

[00:00:00] Speaker A: What happens when we run out of Bitcoin? When there's. You can't actually find somebody to lend you bitcoin? What happens to IBIT? What happens to the other ETFs, what happens to the COMEX, the futures? What happens to the perks on all of these exchanges? Coinbase Finance, Bybit, Kraken, like just go right down the road, right? Like they. There are derivatives trading everywhere. Deribit, which Coinbase just bought gigantic options exchange. This is again ginormous complex of derivative exposure to the underlying asset of Bitcoin. And at some point Bitcoin will become hard to borrow, right? Because just you can't continue to grow in an asset that's infinitely scarce. Those two things are antithetical to each other. So what I'm suggesting is we are running headlong into what will be the next big inverse, big short. [00:00:58] Speaker B: Hello, welcome to the Money Adjustment. I'm your host, Dr. Mark Cramer. I am a chiropractor who loves investing and trading. Are you interested in what's moving markets and your money? Great, let's get started. I love when I interview you because when I actually go back and can actually watch what we discussed and reinforce a lot of what you're talking about. Because I think if you're just hearing it for the first time, maybe a few things are over your head or something gets past you. Maybe you don't understand what a short is, maybe you don't fully understand the bitcoin aspect of it, it or the derivatives component, because there are a lot of moving pieces here. But if you listen to it, there's like a holistic nature to it and it's readily available for anybody to understand. It's not like either one of us is trying to hide something from anybody. Quite the opposite. We want everybody to be as educated and aware as they possibly can be so that they can appreciate the full gravity of the situation and to take preventative measures or do what makes sense for them to do. Hello, everyone. Welcome back to the Money Adjustment. I am very grateful and happy to have one of my favorite returning guests, Darkside2030/ underscore. I stumbled upon his spaces Bitcoin today. And one of the spaces, there's a few different ones, but Darkside hosts the bitcoin today. And I stumbled into one of these spaces and, and I was hearing things that I wasn't hearing in other sources of media that I take in that I found very fascinating and interesting. So I asked Darkseid to come on to do a podcast with me, which he graciously, graciously accepted to do. And when he came on the first time and we had a conversation, I just, it just opened up more and more questions for me and I got more and more interested. So he came back on again. So I actually have two post podcasts with Dark and if you're interested in listening to those, they're very informative and educational and I encourage people like, of all the podcasts that I've done, those are the ones, especially if you're interested in bitcoin or cryptocurrency, more bitcoin. This is really more bitcoin focused. If you're interested in bitcoin and money and even we're not political, but I think there's political implications or larger things happening that it's just interesting to see where bitcoin fits into all of this. So I was, so I was happy to get Darkside on again to help walk us through these things together. And one of the things that I've been hearing in the spaces this past week is Darkside has been making a case for you know what? I would like Darkside to just bring him in now and present his case and we'll dive into it. Go ahead, Dark, glad to have you. [00:03:50] Speaker A: Sure. Glad to be here, Doc. Thanks. You know, this is one of my favorite podcasts. I think you do an amazing job of boiling down some complicated issues, making it available for the small retail trader, the average investor. And I appreciate the opportunity to get my message across to every community. So thank you so much for having me. So, yeah, like I, I've been working on this thesis regarding bitcoin derivatives markets, what we'll call the paper Bitcoin market. And how does that really fit into a traditional Wall street model, right? And where I've landed is what, what I, I kind of am coining the inverse big short, right? So let's call it the big long. And the reason why I'm going there is because when we talk about derivatives markets, right, One of the absolute paramount, paramount traits of any well functioning derivative market is the ability to short the underlying asset, right? Now that might not make sense to a lot of people, but let me kind of walk you through why it's so important to be able to freely short the underlying asset. It's because in order to have a free, functioning derivatives market, let's just look at you walk in to my over the counter desk and you have, you own 10,000 bitcoin from a dollar of bitcoin and you say to me, I'd like to reduce my risk, right. I'd like to buy puts or the right to sell bitcoin if it were to drop. I still want to maintain upside bitcoin exposure, but essentially I'm looking to buy insurance on my bitcoin position because I own it for $10,000 and now it's worth a billion dollars, right? So when you come in and you say to me, well, Mr. Trader, what type of insurance can you sell me? And I say, well, look, I'll sell you insurance for one year and at, I don't know, let's say 88, $85,000 of Bitcoin, okay, Just taking a number out of that. And you say, well, I'd be willing to buy that insurance. What's it going to cost me? And I say, well, it's going to cost you, you know, I don't know, $500,000, right. To buy this insurance policy. So what's really happened there is you've bought insurance against your bitcoin, but I have assumed downside exposure to the bitcoin price because if bitcoin drops below 85,000, I have to make you good at that price. I've sold you an insurance policy right? Now, in order to do that, I need to be able to either short Bitcoin or gain downside exposure from someone else who's going to short Bitcoin. Right? So even though this is not an economic transaction around, I want to get. Get short Bitcoin because I think the price is going lower. This is a transaction around. I'm selling insurance and I need to protect that insurance as the derivatives desk by gaining short exposure to bitcoin. [00:06:58] Speaker B: Okay, now, yeah, I don't want to ruin. I love your flow and I just want to let you know that I love how you're framing this from the insurance aspect of it because I think, myself included, we're often thinking of bitcoin. Many people do, and mindsets are shifting, shifting around it all the time. But a speculative asset, something that you just keep a small position of your portfolio and something that you trace, like people will trade the actual asset, it's an app, the asset itself, or more likely the derivatives around it. And they're just looking at it. And I certainly was too, until you just said it that way when. Because my first impulse was if you short it, that feels like you have a negative sentiment on it. But the reality that you're describing and illustrating for people very well is that this is a protective mechanism. Because let's say bitcoin has that Self fulfilling prophecy that it's or and it manifests the way that the believers and bulls believe that it will. Your 10,000 now or your hundred, whatever allocation you have to Bitcoin now could be worth millions in the future. And so if you're thinking yourself, well, I don't care if I lose $10,000 or $20,000, that's fine, maybe that's your speculative bet. I'm just talking about the people who are taking that position on it. What happens when it becomes this larger asset that it's not what that number once was and it has maybe even grown outside, outside your position allocation initially where now and you don't want to sell it, then how do you protect yourself against that downside risk? So I don't want to veer too much off of, but I wanted to make sure that I'm getting this. [00:08:48] Speaker A: I think it's really important for the audience to understand that derivatives are not really intended for speculation. While there's many people that do speculate in derivatives, the real purpose of derivatives is risk management. And the example I just gave you is one of risk management, right? Take this client that we're talking about that went from a $10,000 position to a billion dollar position. He wants to manage the risk. If he sells Bitcoin, he's going to have an enormous tax bill. So he's not looking to sell Bitcoin. He may be borrowing against Bitcoin, right, taking loans which would be tax free, but he certainly wants to limit and ensure the downside risk. And when he comes into the Goldman Sachs trading desk and says, look, I need to ensure my downside risk here, you know, if I lost 10% or 20%, I'm okay with that, but if I lost 80%, I'd be crushed, right? So he comes into Goldman Sachs, he asked for a quote on this insurance policy, which is the way he's perceiving it as a risk management tool. But the Goldman Sachs desk, right, they're looking at this like, okay, I'm going to sell an insurance policy. I need to hedge my exposure to my insurance policy that I just sold. And they're going to need to short Bitcoin or a Bitcoin proxy. But either way that's going to end up down the road into a short in the underlying asset, which is Bitcoin. So now we have a short in Bitcoin that has absolutely nothing to do with speculation on price. It has to do with the natural mechanisms of maturing markets, which is risk management. [00:10:43] Speaker B: I hate stopping you but part of the reason I stop you is I love where you're going and I want to build off it and make sure that you get that in and people are digesting, including myself. So when I hear something I'm like, man, I really want to make sure I understand this. Because the way you're presenting this is, and you said it, and I'm just basically reiterating what you said to me is that people are shorting it, not because they are betting against it. It could even be quite the contrary. They're strong believers in the underlying asset class. They have to protect their downside risk. Anybody who's into investing or trading, like I think the longer that you pay attention to markets, the more you realize even though it might have been a get rich quick something that brought you in or just earn a living or survive or whatever the case may be that introduce you to the market, you realize charge. But like Jamie Dimon, he recently said something, he's like, I'm a risk manager. It's like they're not these bankers and you might have strong. I, I don't want to get into that aspect of it but just in the general sense that this is more about risk management then it, then we're speculating on price. Even though I think what you're the case that you're, we're building up to here is, is an interesting thing with regards to what might actually happen to price because of this inherent necessity. [00:12:11] Speaker A: Yes. So I think that's really well said. So when we talk about options and we talk about derivatives, we first have to step back and understand that we're not talking about the speculative side, although that plays a role in all of this. What we're really talking about is risk management. And as bitcoin has become an institutional product, right? And we saw that with the launch of the ETFs, we've seen that with the BlackRock's commitment. And all you have to do is look at the bitcoin treasury companies and the billions and billions of dollars that are flowing into the Bitcoin complex, right? This has become an institutional product. And the one thing we know about institutions is they're all about managing risk. Jamie Dimon, whether you're a bank or an insurance company or your hedge fund, you're in the risk management business. So that's led to the ever, ever growing derivatives complex around Bitcoin. So if you can understand that we have this gigantic derivatives complex built around an asset like Bitcoin. We also have it around gold. We have it around US treasury bonds, we have it around Nvidia. All of these assets have ginormous, if I can make up a word, they have enormous derivative complexes. Bitcoin arguably is growing faster than I've ever seen. I've never seen anything like this in my 25, 30 year Wall street career. Nothing like this has ever happened. To see an asset go from basically a few dollars to trillions in a very short period of time, then gain institutional adoption and then all of the derivatives, the futures, the perks, the options markets, the upstairs markets like the one. The example I just gave you will be a derivative contract between a wealthy high net worth individual and an over the counter trading desk. Let's throw Goldman Sachs, you know, you insert your bank here, right? And that derivative comp, that derivative contract doesn't show up on any exchange. It's literally a contract between two parties, right? So you know the amount of short interest that is growing in Bitcoin, again not because people are betting against a downward price move, but because people are hedging risk, okay? That number is growing exponentially. Now at the same time, unlike any other asset Wall street has ever seen, Bitcoin itself is infinitely scarce. And you can't print more, right? So let's take any other asset that you can think of. U.S. treasuries. Well, we know they're always printing more of those. Look at our national debt. Gold is rehypothecated, you know, countless times. We don't even know how many claims are available for each ounce of gold. And the gold supply is inflationary, right? There's more gold mined every year. You want to take Nvidia, if the stock went too high, right? What happens? The company comes out and they sell more stock. And if there was a short squeeze in Nvidia like there was in Gamestop, look, how did the Gamestop short squeeze come to an end? Well, a few things happened. The Wall street cabal turned off the buy button. That was step one, right? That, that sort of halted the squeeze. And then the company came out and sold billions of dollars worth of GameStop stock. And they increase the flow, right? Well, Bitcoin doesn't have any of those options, right? Bitcoin is infinitely scarce. There are only 21 million that will ever exist. We can assume 4, 5, 6 million have been lost, right? [00:16:17] Speaker B: All right, hold on, hold on, hold on, hold on, hold on, hold on. This is why I had you on. And I have to stop you because this is like the epiphany for me because I heard you say it in the spaces and I kind of like, I get where he's going with, but I don't. There's something about it. There's a key component to it that I'm not fully appreciating and I feel like it just registered to me now and it's this. And you used Nvidia as the example. So I'm going to use Nvidia as the example. I didn't realize that Misty wasn't just a bitcoin specific type product. It's a yield. What is it? Yield Max strategy. It's a product from a A Are they, would they be considered, what would they be considered a hedge fund or an etf? [00:17:00] Speaker A: Yeah, they're. They're an institutional structured product company. MSTY is a, is an etf which is a structured product, right? [00:17:08] Speaker B: Yes, but they have more than one etf. They have an Nvidia etf. They have a ton. Right. So to your point, just, just to see if I got this, is that within video again? It's going to sound like I'm repeating back to you what you said to me because it's like it's finally hitting me with Nvidia. Not that this is going to happen to Nvidia, but with Nvidia, if they were pigeonholed, for lack of a better word, into a situation where the only way to get out of it is to dilute the shit to put more shares onto the market. I think this ties into what you were saying with Microstrategy too, with. When you talk about how Saylor bought at the Money Calls a couple like a year ago or whenever he did it because he knew, he knew he needed to get a bigger market. I don't want to get too diverse. I want to finish. I took myself off track. [00:18:00] Speaker A: That's a, that's a very important point which is. Let's just, let's just go back to Saylor's ATM sales, right? He didn't buy at the Money calls, he sold stock ATM at the Money. Okay? Now when, when Saylor began his journey down that 21 billion plan of selling stock, he did so with a very specific strategy, pardon the pun, but he knew in order to have the best functioning options market on Wall street, he needed to have a stock that was freely available to short. This goes back to what I was just saying earlier. [00:18:39] Speaker B: Exactly. [00:18:40] Speaker A: If you have a stock or an equity or an asset that is difficult to shorten, then the options market cannot function well because participants in the market can't hedge themselves properly. So he goes out and he sells $21 billion worth of strategy stock. Right. And look at the options market today. Would Misty be possible? Would that. Would their strategy work? If there were not enough shares to short in mstr? And the answer is no, absolutely not. They would lock up the entire options market, liquidity would freeze up and pricing would turn into a catastrophe. So in order for Misty to have a free, functioning access to this options market, Saylor needed to create the landscape right, where you can borrow microstrategy. And there's no concern about a short squeeze. And if it ever even got close to a concern about a short squeeze, he would sell another $20 billion at the money because this is his business model. [00:19:53] Speaker B: Yes, but I feel like you interjected there, because that's an important distinction to make, is. It's not about. It's interesting because you hear the word short and my impulse as a retail trader is I hear the word short and I just think something's bad with a company. [00:20:07] Speaker A: So. [00:20:07] Speaker B: So they're finding ways to short a company because there's something wrong. So when I hear the word short, I picture somebody saying something's wrong. But what you're illustrating very well for people, anybody that's paying attention or just thoughtful about these kind of things, is that shorting is a necessity. It's a healthy part of a market. It's almost like this is like the worst metaphor to throw, but it's almost like taking a dump. Like there's certain bodily functions that maybe aren't attractive, but like your body needs to operate. So shorting, being able to short, having enough liquid float of a stock is important for the health of the market to have that liquidity. So differentiating MSTR versus like a GME situation, MSTR wasn't in a desperate situation where they needed to increase strike, where they increased the float. Able to have a derivatives market on top of that float. So now tying it back in to Bitcoin, and I know this is your thesis, so I'm just kind of repeating back to you what you were going to like, elaborate on. This is more about me and anyone who's listening to see if they really understand what you're saying, is that all of what we're talking about works when there's paper asset like an MSTR or GME or stock or whatever the paper asset is. What differentiates the Misti product from all of these other products that do the similar types of strategy is that Bitcoin itself. It's interesting. Misty only kind of works because MSTR is The paper, but the actual underlying asset is Stig. Misty couldn't do what they're doing on Bitcoin directly. So they're in a. It's all like you just said. Again, I know I'm repeating back to you, but MSCR set up the landscape for Misty to be built on top of. But now I know. So now I want you to get into it because now I feel like I'm with you when you're making your case. [00:22:03] Speaker A: Yeah. So what we're really talking about is the plumbing, right? To follow on your analogy, right, in order to have a very vibrant and active derivatives market, the plumbing has to be built underneath what will be that marketplace. Okay. Now we know in MSTR that Saylor has gone ahead and built this plumbing and will continue to build out the plumbing as needed because that's his very strategy, right, that, that he's going to issue financial products. The real issue becomes in Bitcoin itself. And by the way, yieldmax does have a product on Bitcoin. Right? So just adding to the size of the derivatives market, right? It's. It's nowhere near the size of Misty, but they do have a bitcoin yield generating strategy. [00:22:55] Speaker B: Can I just stop you for. Okay, I just. So again, they have a Bitcoin strategy. Like, I understand how you can short a stock because of what we just discussed, but how do you actually short Bitcoin? Or is this your point? [00:23:09] Speaker A: No, no, you can short Bitcoin by borrowing the same way you short a stock, right? Is you borrow it. [00:23:15] Speaker B: Wait, wait, wait. You're borrowing the bit. They're actually borrowing the Bitcoin. [00:23:18] Speaker A: They're borrowing Bitcoin from someone who's willing to loan it to them, who's a long term holder and willing to get paid a little bit of money, additional money to lend them their, their Bitcoin for sure. Right. There's an active Bitcoin short market. But again, the problem here is twofold. One, Bitcoin's a bearer asset, meaning that I can take it off the exchange, I can take it out of the bank and I can put it in a cold storage, in a hardware wallet or a paper wallet. And I've removed that Bitcoin from the plumbing. [00:23:55] Speaker B: Would that be like taking your house off the market? I can put my house on. No. Okay. [00:23:59] Speaker A: No, no. [00:24:00] Speaker B: Okay. What would be a better analogy to a bear asset? Yeah. [00:24:06] Speaker A: Gold. Gold in a safe. Right. There used to be bearer bonds, like when I first got into the industry, you used to be able to buy bond certificates that were Bearer, meaning you could take possession of them, they had little coupons on the bottom and you could clip the coupon and go to the bank. [00:24:22] Speaker B: Right, that's so does it have to do? But, but because it's not a house doesn't work. Because you could always build more houses and the market can just keep going on. But if I take the finite supply of something off the market and I put it in a safe, that has a different implication. That's why that analogy didn't work. Okay, Right. [00:24:41] Speaker A: So you know, let's assume that the market, that the market avail of the 20. We said what? Where there's 21 million bitcoin that will ever exist. Let's take that number down to 15 million because we still have 1.4 to mine and 5 million have been lost. Okay. And let's assume that of the 15 billion, seven and a half million are held in self custody, meaning that no bank can borrow them, they're not available to lend. Right now we're down to an available supply of seven and a half million Bitcoin. You have companies like 21 that are doing proof of reserves. Jack Mallers came out and published his wallets, right. So he's got, I don't know, 50,000 Bitcoin that you can actually see where it is on the chain. And if you can see where it is on the chain, then it's not being lent out. Right. [00:25:33] Speaker B: Real quick, real quick, because you brought it up. This I find fascinating because people who understood blockchain and understand the limited supply from a blockchain standpoint and being able to like publicly verifiable, that's a unique set of people that were able to do that. Not everybody moving into the future is going to be able to do that. But what I find fascinating about what's happening now is here's another person that we know, Grant Cardone, he's just publicly claimed that he just bought a thousand bitcoin and he's merging his bitcoin real estate fund. So now he's in that game. Now as at 1000, almost like putting his marker on the board. Saylor's in the game, Blackrock's in the game, Mahler's in the game, Cardone is now in the game. All these people are in the game and they're, they're publicly showing their statement. So whether you understand blockchain or not, just understanding the limited supply aspect of it of 21 million, the blockchain is, is proof, it's the mathematical proof that you're only Going to get to 21 million. Everybody else that is publicly saying where they're at are taking their position and showing you this is how much is now being claimed off of that 21 million. [00:26:46] Speaker A: There you go. And you're gonna get to a point sooner rather than later where the available Bitcoin that's available for loan shrinks to the point that the options market can't function. And you end up in the gamestop scenario. But it's much worse than the gamestop scenario because there is no solution. It's a problem that without a solution, you can't turn around to the bitcoin CEO and say I need more bitcoin because there is no bitcoin CEO and there is no more bitcoin. Right. And Wall street has never seen a 2 trillion dollar asset that they can't print more of. Never. None. Zero. This is the first time. So we have this options market which is growing by leaps and mounds every day. It gets bigger. More risk management, more hedging, more institutions, more trading desks are getting involved and they all need the ability to short bitcoin. We have the comex, the Chicago Mercantile Exchange where they short, they have bitcoin futures. I looked as of today, it was something like $15 billion were short on the COMEX. We have Binance perpetual futures. I think 13 billion were short over there. So just giving two little outlets, I'm up to $30 billion, I estimate personally. But I asked ChatGPT how much Bitcoin is shorted. They said about $50 billion. Okay. I'm guessing that they're about 10 times undervaluing the short size because they don't, they can't, they don't have visibility into the transaction that I outlined for you earlier, which is an over the counter short transaction. Right. So my guess is that we're probably at 300 to 500 billion dollars of Bitcoin which has been sold short. Now again, don't think that that means that they're betting that bitcoin's going down. That's not what it means. [00:28:55] Speaker B: Right. [00:28:55] Speaker A: It means that they are economically hedging risk. Right. Of the. Let's say there's 300 billion that are really sold short. Assuming I'm right, maybe 1 billion is betting that the price is going to go down. Right. The other 299 billion probably want the price to go up. [00:29:14] Speaker B: Right. [00:29:14] Speaker A: But they have to hedge their downside exposure. Now what happens when we run out of bitcoin when there's, you can't actually find somebody to lend you Bitcoin. What happens to IBIT? What happens to the other ETFs, what happens to the COMEX, the futures? What happens to the perks on all of these exchanges? Coinbase Finance, BYBIT cracking, like just go right down the road, right? Like they, there are derivatives trading everywhere. Derabid, which Coinbase just bought gigantic options exchange. This is again ginormous complex of derivative exposure to the underlying asset of Bitcoin. And at some point Bitcoin will become hard to borrow, right? Because just you can't continue to grow in an asset that's infinitely scarce. Those two things are antithetical to each other. So what I'm suggesting is we are running headlong into what will be the next big inverse big short, right? What we're going to see is a scenario where you can't short Bitcoin. People that are short Bitcoin begin to get scared. They need to buy back their Bitcoin because remember, you can take delivery of bitcoin, right? So if you, if you envision, if you envision a scenario where you can actually say wait, I'm getting scared because I bid is getting hard to borrow, right? The ETF and this happens to ETFs, okay? And all of a sudden investors say, you know what, I'm going to take my Bitcoin into cold storage. I'm just going to yank it off a coinbase, right? You're actually literally walking up to a fire with a can of gasoline and dumping it right onto the fire. [00:31:10] Speaker B: So I got to stop you because I mean there's a little bit, there's some dark side here because you said what's going to happen to these institutions? And I'm like, this is going to be interesting. Like what's going to happen? Is IBIT going to get more valuable or less valuable? Because at first I'm thinking more valuable because if the underlying asset is Bitcoin, then the price is going up. But then I got nervous because you said they need to be holding the asset. So when you're talking, this is where the cold storage story comes into play. Because if you're holding in cold storage and you take it off the market entirely, what are these people going to do? Because they can't even buy it from anybody. [00:31:49] Speaker A: Look, the only solution would be much higher prices. But I don't even know if that's a solution because as more Bitcoin gets pulled into self custody and forces more people to cover, then of course you're going to have very smart hedge funds like Michael Berry did during the big short that say, wow, I'm just going to buy Bitcoin and I'm going to hold it in self custody and this thing's going to spiral up and it's not going to stop, which is just. [00:32:16] Speaker B: Going to fuel the fire. It's just going to fuel the fire. [00:32:20] Speaker A: We have this setup that's been created by what I think are misguided Wall street execs that have been pumping the derivatives market inside of the Bitcoin complex that don't realize that they may be pumping their own demise. Because if bitcoin were to go, let's say tax in a short period of time, and I think the example I used was 2008 Volkswagen Porsche, that short squeeze, right, which was monumental, right. If bitcoin next in a relatively short period of time, let's call it a month, what is the net effect? What happens to some of these contracts that the banks have, these OTC contracts that they can't make good delivery on because they, they begin to fail. So you have, you have this asset, Bitcoin, which is sort of divided right now between a bearer asset, let's say 50% of it is a bearer asset and 50% of it is a fiat asset because it's held inside the fiat system. Coins on exchanges, coins in banks, coins that you're borrowed against that are pledged. So you have this two tiered asset that is uniquely positioned to run over the fiat side, right. And there will be knock on consequences to when this occurs. So let's just talk about one. If Bitcoin were to run from 100,000 to a million 30 days, right, what is the net effect? Well, a lot of shorts are going to be wrecked, potentially. Broker dealers are not going to be able to get their shorts back, albeit they thought they were hedged, but they can't get out of the one side of the hedge, right? This is what we call counterparty risk, right? You think you have a trade where I'm long here and I'm short here, but in reality your short side doesn't pay because they go bankrupt. So now you only have one side of the trade on, right? So either you get smoked, one person in that transaction gets absolutely killed, right, and can't honor his commitment and that's counterparty exposure. We saw this in 0809 with Lehman family. Okay. [00:34:45] Speaker B: Do you think this has something like this happens to Coinbase? [00:34:49] Speaker A: Well, we don't know how Coinbase is positioned, right. So if Coinbase is in good shape and they've taken the proper steps, then in theory they should be okay. If they're not well positioned, what would. [00:35:03] Speaker B: Be the proper steps? What would a company or someone who had this awareness that you have because it's not an affair. Scariest thing, per se, it like we set up in the beginning, it is just inherent in how the plumbing works. So when you realize this, yeah, Coinbase. [00:35:19] Speaker A: Institutional has all the bitcoin that they've lent out and they have the ability to just take it right back because they custody it, then in theory they should be okay. It doesn't mean that investors at Coinbase will be okay. But in that, in other words, if they're, they're meticulous and they're doing their job the way they should and they don't have IOUs with other big banks, if they don't have IOUs with Goldman Sachs and Morgan Stanley and, you know, Deutsche bank and Society General and ubs, like we just don't know because they don't publish proof of reserves. Right? So we just. Nobody really understands what Coinbase has, where it's located. [00:36:04] Speaker B: Can you see it time where they have to. Where they have to make that knowledge, make that information public, because it seems like it would be relevant to an. [00:36:15] Speaker A: This is one of the great promises of Bitcoin, right? Is that the way to solve a financial system run amok is with a financial system that can be audited and verified by every participant on average every 10 minutes, right through the next block. And running a node that literally solves the problem that we had in 0809, where nobody knew anything about anybody. And the entire system locks up because you can't trust anybody. You don't know if your counterparty actually has the money they say they have. So the answer is, yeah, it does solve the problem, but maybe we have to have a massive crisis first before the regulators and the government says, look, we're going to use this bitcoin blockchain to make sure this never, ever happens again. Everybody who's in the banking business is going to have to show proof of reserves. You can't claim to have bitcoin unless you show where it is on the blockchain. Well, that solves all of our global financial problems in one fell swoop. Not all. Let's say an overwhelming majority of our global financial problems would be solved by meticulous proof of reserves. [00:37:32] Speaker B: There's, there's almost like a Judgment Day quality about this. It's like we are headed to something that's inherently inevitable for the reasons that you've outlined and articulated pretty well here that at some point, and I've heard you say this where you're like, I don't know if it's a year from now or months from now or you know, decades from now. I don't think decades, but five years, like five years from now or five days from now, at some point people are going to have to come to this realization. It's one of those things, once you see it, you can't unsee it. So people who are in knowledgeable of such things are half are going to come to this realization. Let's talk about the people like that. Like you say, the hedge fund managers, the people that are playing with large numbers, that it's going to impact them a lot more to not do some type of proper risk management on this. And it's going to happen fast. It is going to. Because it's like that's the thing about a short squeeze. I remember being in my first trade that I saw witness a short squeeze happening, but I didn't know what it was. I was reading charts, like I like to read charts. And then I just see the stock is going up and up and up. And I was like, certainly it's coming back in. And then it, then it's like I buy the dip and it's like, no, it keeps going up. You're like, well now it's ridiculous. Certainly it's coming back in. And if you don't know what you're involved in, those things just, you're like, what the heck just happened? It's like this very strange kind of move on a chart. Now that's just like looking at a small stock in a trade. What you're talking about is institutional sized. Like I'm in terms of magnitude. [00:39:08] Speaker A: Well, with Bitcoin, remember, the problem's even worse. In as much as nobody can value a bitcoin, no analyst can come up with the price. There are no metrics, there's no earnings, right? When GameStop went crazy. Well, you can look at GameStop's earnings and look at their sales and look at their assets, right? Like there's all these different metrics by which you can say, okay, this is getting really stupid, right? But with bitcoin, if, if it was trading a million dollars tomorrow, it's a number. There are no metrics. There's no sales. There's no price to earnings. There's no price to book. There's no revenue numbers or assets. It's just a number, right? So in the case of a bitcoin squeeze. I'm not sure that this thing's going to be easily fixable. Right. [00:40:02] Speaker B: Matter of fact, I know, yeah, it doesn't sound like it. [00:40:04] Speaker A: Right. Matter of fact, it could just continue to get worse. And then the question becomes, well, if bitcoin trades a million dollars in 30 days, right. Isn't that the same thing as printing $20 trillion worth of wealth? Well, yes, it is. [00:40:20] Speaker B: Right. [00:40:21] Speaker A: Because bitcoin is easily fungible. You will. Now, if you think that printing $800 billion during the GFC was bad and $7 trillion during COVID was bad, imagine printing $20 trillion, you know, in the next month and see what that does to inflation, which would just drive the bitcoin price higher. Right. So, so we are, we have got ourselves into a pickle, to say the least. We being the global financial community as a bitcoiner. You know, look, this is the reason from even well before the gfc, I was a gold bug because I understood the system was fragile, right? I wanted bearer assets. I didn't buy the glt. I bought gold bars, I bought gold coins, I bought silver coins. Along comes bitcoin and you realize, wow, this is a bearer asset that is so much, so far superior to gold and silver. So I began to buy Bitcoin in 2013, right. And I've told that story in previous, in our previous podcast. So, so look, you know, this story, the inverse big short, you know, let's. [00:41:37] Speaker B: Coin the big long. Yeah, the big long. Let's go for it, right? Yeah. [00:41:42] Speaker A: I don't think that people really understand the knock on effects. I think people get the fact that bitcoin can be number go up, but they don't understand is that it become, it can become a systemic problem literally overnight. In a matter of weeks you could be going from number go up to banking system go down because they just can't handle the losses that they would need to take in order to cover their shorts and counterparty failure. Again, you end up back in the same situation we were in an 0809. But multiply it by infinite factors and remember that while Lehman was an unbelievably catastrophic situation, it was local, it was localized, right? They were able to contain it. Wall street was able to contain the problem. This is different. This is a global asset. Whether you're in China or the US or Europe or South America, you have access to bitcoin, banks have access to bitcoin. People are writing loans against bitcoin. There are all of these different things going on in the bitcoin world in the bitcoin complex that I don't know how the system deals with systemic risk that comes from what, what's invariably going to happen at some point. So that's why I've been ringing, ringing the alarm bells on this subject. Yeah, you know, look, I get a lot of pushback because a lot of bitcoiners and very brilliant people like some of the original cyberfunks, they, they think they can debunk the paper Bitcoin narrative. They view it as a narrative, yes. But as a guy who spent my career on Wall Street, I ran a self clearing broker dealer. Right. So I was a DTCC member. I was an OCC member. Right. I understand how this plumbing works. So the same way they understand the plumbing of bitcoin and the exchanges and the difficulty adjustment and the miners and all the different little components that go into even the ultimate minutiae of bitcoin. Now I have that same understanding of financial markets and specifically derivatives markets. And I can tell you that without a freely available to short and extremely liquid underlying asset, you are going to get to a point of full lockup, especially as this thing grows. Right. [00:44:32] Speaker B: Wow. [00:44:33] Speaker A: And look, you know, you can deny it, you can not get it. You can just look at the perps and look at the COMEX and look and just add that all up in your head. But that misses the point of all of the upstairs. Derivatives, over the counter derivatives, private contract derivatives. [00:44:51] Speaker B: You are a real whisperer in the sense of, you're like, I'm like, is he a TRADFI whisperer or is he a defi whisperer or is he just like the bridge between those two worlds to talk about how these two unfolding narratives. I think that's why I find all of this so compelling and I love talking to you so much and I think that's why so many people love listening to you and following you. So if you're not following this guy and any of this stuff is interesting to you definitely have to check in on one of these space. I think that's what's so compelling because that feels like the narrative of our time right now in the financial, if you're interested in finance and money, this is, I can't think of a larger narrative happening than the convergence or whatever term you want to use of the traditional finance world. The tradfi and the decentralized finance world. They are, are the decentralized finance is younger and coming of age and traditional finance has been, you know, I don't know how many Centuries, years old. And if you want to go back into like the BC era and when we were trading with like a bartering system, it's like, how old is that? But like this emerging systemic way of exchanging value between individuals and this, like, peer group. And I don't want to go too much off of it because my thing was that you, I do feel like you're an excellent bridge for these two things because it's not about there's a right and a wrong, but it's about understanding how the dynamics, again, going back to the plumbing analogy, it's just understanding how the complexes work together and how they affect one another. And I mean, I can't even think of anything more relevant for this past week since we just, we didn't even get into the bigger things that are going on, like the stablecoin bill and things like that. And I won't because it's 155. Like we're already in it. So I'm not going to try to confuse this topic in and of itself because to your point, it's hard for people to understand if they don't take a pause and like kind of talk through these things. Which is why I love having you on the podcast, because again, in the spaces, it's a lot of voices. It's a lot of kind of people trying to talk. Not necessarily intentionally. It's just a communal experience. And it's natural in a communal experience to have like a give and take. But in the podcast gives me an opportunity with you and people who are interested in what you're saying to kind of pick these things apart a little bit more in depth and to think about them more contemplatively and to. Because again, going back to what you said, once you see it, you can unsee it. So it becomes that compelling story. Because I'm like, I don't know how this is going to play out is to your point. It's like now and again, I don't care how high the price goes. What you're explaining is like, I is like another potential. I don't want to put words in your mouth because you're saying the big long. So there's still like a positive aspect of it, but it's another potential crisis. Right. I'm minimizing it because I don't want to absorb all of it at once. [00:47:52] Speaker A: But yeah, a spot, a place where a citizenry demands their government's transparency through Bitcoin, through a blockchain that's auditable and verifiable. On average every 10 minutes, like that is the solution to the problem. The issue is we haven't had the real problem. The Fedsters, the fraudsters, the banksters, Wall street, they still have their game, right? And until that game breaks and breaks hard, we're stuck in this loop, this doom loop of inflation, of you know, what I would call mischaracterization of economic numbers. I would even argue, my friend Infra does a great job of kind of laying out what we call the silent depression, right? That since 0809, one can make a very good argument that for 70 to 80% of America we've been in a depression, Housing's become unaffordable, the suicide rate's at all time highs, society's being torn apart at its fabric, at the fabric level. Right. And that inside of itself, one would argue is a depression. Right. The only issue is that the wealthy, the people closest to the money printing tap, are making so much money buying fourth and fifth homes with cash, but you know, like just ridiculous amounts of money are being sucked out by those closest to the money printer that a little bit of that money filters down eventually to the bottom 80%. But remember, 50% of America doesn't pay any tax because they really don't make enough money. And we know with the inflation we've suffered, the idea, the American dream, which I guess is a home of home ownership and two family, mother and father, home with mom, staying home and raising the kids, that's pretty much gone for 80% of America, if not more. [00:49:54] Speaker B: I don't know the statistic on that, but that is a scary thing to think about because it's pretty much gone. [00:49:59] Speaker A: Even high net worth individuals today are two family working parents. Childcare has gone through the roof, insurance has gone through the roof, health insurance. [00:50:08] Speaker B: That's my experience. Yeah, that's my experience. [00:50:11] Speaker A: Yeah. It's really, really bad. So this concept of this silent depression, right? And you combine that with this potential for a financial crisis and we know, look, we're gonna have a financial crisis. I mean, in my life it seems like every 12 to 15 years we have a financial crisis. [00:50:29] Speaker B: Right, right. [00:50:31] Speaker A: We're about due. Right. And you know, my question is, is the asset that was built to destroy the financial system actually going to destroy the financial system? [00:50:42] Speaker B: Well, here's the thing, because I'm like, man, there was something I wanted to tap with you and you re triggered. That is, I'm concerned that based on what you're saying, and I'm not, I have to caution myself, I'm Like, I don't. It's funny when you give the disclaimer, you all you, you bring it up, but it's like I don't consider myself an alarmist or conspiracy theorist or tending to like just be into those stories. I, I like narratives and stories, but I like the plumbing and understanding what, why those narratives exist. And I get nervous because you said earlier that this is a, this is, this is a potentially an enormous, A ginormous gynor. Whatever you want to call it. [00:51:23] Speaker A: Ginormous? [00:51:24] Speaker B: Yeah, ginormous problem. And I'm concerned that the same corruption that likes to hide other things because they think they're doing it for public safety or because they just don't have an answer. And because there's not enough knowledge around Bitcoin to understand really what it is and how it works, that they can spin some kind of bizarro narrative around this to try to fix the problem that you're talking about potentially that we might be facing. [00:51:58] Speaker A: Yeah, there is no, there is no good narrative. I mean, this is where we get into some scary stuff, right? What happens if we do see multiple money center bank failures? Let's just even, even giving the US policymakers credit, which it's hard for me to do, but let's just assume it comes out of Deutsche Bank, UBS Society, General, three huge European banks. You could probably throw a few Asian banks into the equation, right? Japan's a hot mess. If this unfolds and it even comes out of Europe or Japan, right? And it begins to take down the US because all of these banks through private derivative contracts have such counterparty exposure to each other. To each other. And look, I'm not a huge Warren Buffett fan, but he's been screaming for years about the derivatives markets, right? The what he, I think he called them a time bomb. And he has overtly expressed what I'm expressing right now. The difference is that in many of these assets, like commercial real estate, everybody who's going to listen to this podcast knows that we have a massive commercial real estate problem post Covid, right? With massive write downs buildings that people paid half a billion dollars for are now selling for 50 million, right? Like just crazy things are happening, but somehow it's getting papered over, right? Like you just said, the corruption, it's for our own safety. The banks are fine, everything's fine. We don't know how they're papering it over, but they're papering over the problem. The difference with Bitcoin is you can't paper over something that's auditable and verifiable. You can try, but it's an effort in futility. [00:53:51] Speaker B: If you're in cold storage. If you're in cold storage, is it audible still? [00:53:57] Speaker A: Mark, you have to understand something. Our government got rid of paper bearer assets. I talked about bearer bonds. They used to be the de facto way that people bought bonds. They bought bearer bonds. They held them in their safe at home. Right. Like they had to buy. [00:54:13] Speaker B: Right, right, right. [00:54:15] Speaker A: Why did the government get rid of them? Right. Why? Well, because they didn't want people to be able to suck the liquidity out of the system in times of fear. Now you have this asset, Bitcoin, that you can suck it out in a matter of seconds out of the system. So it's almost like a bank run on sterile rights of the likes of which the government knows that they can't stop. [00:54:43] Speaker B: Bank run on. You said it's like a bank run on steroids. Bitcoin is a bank. Bitcoin is the bank run. [00:54:50] Speaker A: You can suck those out of the entire financial system by taking delivery of your Bitcoin, Right? [00:54:58] Speaker B: That's the run on the bank scenario. [00:55:00] Speaker A: There it is. [00:55:01] Speaker B: But it's bitcoin and it's in cold storage. [00:55:05] Speaker A: So here's the difference, right? In the case of a bank run, you run to the bank, you yank out your money, you yank out every piece of cash you can get out of the bank. We know the bank doesn't have enough money to pay all its depositors. So eventually everything begins to fail. The government prints money, and the solution to the problem is to devalue the money that you pulled out of the bank in a bitcoin run. Okay? It's the exact opposite, right? As you pull your money out, it becomes more valuable, not less valuable, because they can't print more. The solution to the problem will not be to dilute the amount of Bitcoin, because that's not possible. So, yeah, we are setting the stage for the big long, the inverse, big short, whatever we want to call it. The ingredients are there, the plumbing is there, everything is there. It's just a matter of if, when, not if this is going to happen. This is almost a certainty. When I look at when I'm able to step back and apply my domain expertise of understanding plumbing of Wall street, this is going to happen. I can't envision a scenario in which it does not happen. [00:56:24] Speaker B: When this happens, I'm going to make sure that we have lots of good clips from this episode. So we have it for prosperity that you were someone early to see this because you're certainly early in my mind. I'm not aware of it. Have you on to actually hear from you directly to hear your case. And I think like you even say, even in the spaces there's, you know, it's a back and forth, it's a back and forth, but it, but it's like how many people understand it at this depth. Which is why I'm doing this podcast so that the people that do listen to your spaces and the people that community that you've built around you can have like an informative resource like to hear you be able to build it out more clearly so people can fill in their own holes in their mind. I think I used this the last time I was with you. I'm like, oh, I had all these holes that you're just kind of filling for me. So I can. My neural connections are stronger now because of having talked to you. So do you have any final thoughts on this before we wrap it up? [00:57:25] Speaker A: Yeah, look, let's end it on a positive. As I sort of touched on earlier, the solution to a lack of transparency is transparency. And this is what bitcoin offers us. It offers everybody in the globe the ability to audit and verify what our government's doing. So we have this new chance. We have an opportunity to stop our government from spying on us and allow us to spy on our government. Or better said, let's stop surveillance of the individual and let's surveil our government. Right? And I think that's where this is headed. That is the solution to our problem. I just think getting there is going to be very painful. I think bitcoin in self custody is the off ramp. It's what provides you security in the event this happens or when this happens. Right. I think that is the ultimate safety guard because remember, the financial system is going to try to take your bitcoin, right? They're going to try to take it. Whether they do it through a great taking, you know, David Rogers web approach. And I encourage everybody to watch that video. It's on rumble. It's on YouTube. Maybe we'll put it. [00:58:41] Speaker B: What's the video? Can you say it one more time? [00:58:43] Speaker A: It's called the great Taking. And what it describes is the laws and the regulations that have been installed since the Lehman Brothers collapse that enable the government to take Bitcoin or any other asset, any stocks, bonds, derivatives that are in the financial system as an, as a means to recapitalize themselves. It's a scary. It's a very scary. [00:59:10] Speaker B: It was positive and then it got scary again. But I. [00:59:13] Speaker A: Well, it's. But again, what I think is the positive is where this is going to end. Right. I think getting there is going to be difficult, but if you take the right steps, if you protect yourself by saving in bitcoin and self custody. Right. I think you're going to have the solution instead of into the problem. [00:59:34] Speaker B: Yes. The positive aspect, I love that. The transparency of it and I love how you said it too. It is instead of like the NSA watching you or just thinking about the government watching you, it's a checks and balances system where the system for the. Where the citizens of the government can honestly look at what's on the books of the government and the government because they know that the citizens can do this. Remain more integris and maybe we can start trusting each other again. Citizens to citizen, government to government. That would be a very, in my mind, more of a utopian and hopefully not like a lala utopian, but that would be a more ideal scenario is that we played to a stronger system, a healthier system. Yeah, right. I know. Man, I so love having you on. I'm going to ask you one thing that I may or may not have in this because it's a little bit out of the flow. I'll see if I could edit it back in. But when I was thinking about Coinbase and how they could protect themselves, I got a sense of like maybe they could self. They. They self custody like the institution itself can. Cold storage. They can cold storage. What they need to. To protect themselves in the same way an individual. [01:00:48] Speaker A: It's funny you mentioned that Brian Armstrong, CEO of Coinbase, tweeted out yesterday or the day before. We're buying bitcoin every week, right. So. So they're aggregating to this problem is that the government buys bitcoin, companies buy bitcoin, individuals buy bitcoin and we solve the problem before the problem gets us right. But again, from a derivative standpoint, I don't see a solution to the big long, the inverse big short that's coming. We are going to see bitcoin do something that very few assets have ever done in as much as you're going to see a squeeze. [01:01:30] Speaker B: That to me is just incredible. I love this. I hope, I love when I interview you because when I actually go back and can actually watch what we discuss and reinforce a lot of what you're talking about, because I think if you're just hearing it for the first time, maybe A few things are over your head or something gets past you. Maybe you don't understand what a short is. Maybe you don't fully understand the bitcoin aspect of it or the derivatives component, because there are a lot of moving pieces here. But if you listen to it, there's like a holistic nature to it and it's readily available for anybody to understand. It's not like either one of us is trying to hide something from anybody. Quite the opposite. We want everybody to be as educated and aware as they possibly can be so that they. They can appreciate the full gravity of the situation and to take preventative measures or do what makes sense for them to do. I love that concept of being the bearer. I rarely think about that, but it's true. To actually have an asset that's in your possession that you feel true ownership of that unadulterated true ownership of that asset, in that it's not an asset that can be manipulated by external variables, whatever they may be. So I love that as a takeaway for me personally, and I'm sure there's a million takeaways. I hope there's at least a bunch of takeaways for anybody that's watched and listened to us for now about an hour and 15 minutes, which I love. I think that's like the sweet spot for us, is that, that 115. So thank you, Darkside, again, for being on the Money Adjustment. And I, I might have to change the name to this, to the, the Bitcoin Complex Weekly or something because I really love having you on and hopefully as I'm listening in on your spaces and, and, and know that there's something that we can delve in deeper together, that we can do that and, and have a little audience around that. You, it's your audience. So anytime I have you on, I try to really respect that. And thank you everybody for watching this episode of the Money Adjustment and tune in for the next one. I'm going to try to have Darkside on as much as possible. Thank you again, Darkside, for coming on. [01:03:33] Speaker A: Thanks, Doc. Really appreciate it. Great time as always. [01:03:36] Speaker B: Yeah, yeah, yeah. That was awesome. Thank you for watching this episode of the Money Adjustment. If you want more like comment and subscribe, you can follow me on xarkramer until the next episode. Stay healthy and wealthy, man. Yeah, I'll let it run, but like, we could keep it casual and whatever that was. That was really good, man. You really helped. [01:04:06] Speaker A: I'm looking forward to it. I tell you, I put out a tweet on this subject today. That's gone sort of a little viral. Okay, you might have seen. [01:04:15] Speaker B: Yeah, let me know what it is. I'll take a look at it right now. [01:04:18] Speaker A: Here. I'll send. Let me send you the chain. Well, I'll send you Adam back's tweet and then you can. You can look at the chain and then where I hopped in and. [01:04:30] Speaker B: Okay, are you. You're sending it to me via X, right? [01:04:33] Speaker A: Yeah, I'll send it to you right now. So this was tweet and now you. [01:04:40] Speaker B: Can read down paper selling. Yeah. Cool. All right. I'll. I'll find where you. Where you count where you were in on there. Two cents on it. And then I might use that to help kind of plug and promote what we just did here. I'm so. It's really cool. Like, I. I know we talk about it, you and I go back and forth, like, oh, we should do these, you know, regularly, and scheduling and everything, but I'm gonna try to just stay on you a little bit because I. I like that I can. We can get this hour in. And honestly, like, you know, and I. And just like, this is all this. I don't make money from this. This, for me is just like, like work. But it's because I know I'm gonna have to edit and do the stuff on the back end. But I feel the value in the sense of the knowledge that you're bringing to the table. And I. And I know that it's well received because when I post, these are the ones people go nuts on and want to comment on. And I really love to hear what you have to say. Yeah, thanks again, man. Are you doing a spaces right now? Are you doing starting a space? [01:05:38] Speaker A: No, I see that Fred's got one going, but I'm going to go see what the wife wants to do. And we're going to the rodeo tonight. We're going to a movie this afternoon so I could. [01:05:46] Speaker B: I love it, man. Have fun, dude. You earned it. And enjoy it. [01:05:51] Speaker A: All right, brother. [01:05:52] Speaker B: Take care. [01:05:53] Speaker A: Thanks, man. [01:05:54] Speaker B: Yeah.