Michael Saylor on Crypto Casinos, Regulation, and Bitcoin's Volatility

I would never buy a penny of a crypto

token because they're unregistered

Securities which means they're being

manipulated in an unethical fashion by a

central party whether or not the central

party knows they're manipulating it or

they don't understand some people

generally don't understand the ethics it

doesn't occur to them that if you change

the monetary policy of the token you

have you have manipulated the value of

the token thereby defrauding

investors in the token

right when you turn off you know yields

to Big to minors in the ecosystem and

you shift it to stakers you have

defrauded everyone that bought eth based

on eth mining and you have you have

actually robbed the miners of their

property right you have devalued their

property

so normally when you devalue the

property of your securities holders

right this class action lawsuit right

they would sue you because you stole

from them

[Music]

hey everybody welcome back to the

blockburn intelligence podcast this week

I have on Michael Saylor Michael welcome

yeah thanks for having me of course so

Michael this is your first Bitcoin bear

Market since being deeply involved in

the space how are you thinking about the

extreme volatility Bitcoin has

experienced over the last 12 months

well I'm at I've counted uh three boom

and bust Cycles so far so even though I

technically I'm only involved in this

space since August 10th of uh 2020. we

did have a massive run past 60 000 and a

crash when the Chinese you know banned

Bitcoin mining and then we had another

run back above 60

000 and then we had a crash and then we

had a you know kind of a false rally

whereas moving up into the 40s toward

the 50s and then we got the crash to

here

so I I would say even though I'm a

newcomer to the space I'm starting to

get used to the volatility

um

you know it's it's impossible to know uh

the future but I I think that

when we got into Bitcoin I knew that

Bitcoin is um is on one hand uh a really

good thing I mean Bitcoin represents uh

the extreme

uh the extreme and uh in asset

um and an asset uh responsibility like

the most well-engineered most ethical

most economically sound asset

so we can think about Bitcoin as well if

I wanted to invest in something

and I didn't trust a company and I don't

trust the government and I don't uh I

don't want to I don't trust nature you

know it's possible there's a glut of oil

or natural gas it's possible that it's

hard to move the natural gas a thousand

miles or the pipeline burst it's

possible uh that you buy into a company

and the company changes its Mission or

it dilutes the stock or the CEO gets

fired or maybe the CEO gets you know

caught in a helicopter skiing accident

and dies and you lose your money

it's possible that some some politician

changes some Rule and uh you know the

business that looked really good is not

so good anymore so there's a parade of

horribles when you're investing in

natural Commodities or natural

securities

and Bitcoin represents this ideal

extreme right it's it's all the benefits

of a commodity but it's uh it's Immortal

indestructible and it's a scarcity so I

would rather have it than a billion

dollars of any kind of commodity and it

also represents the best of a security

because there is no CEO there's no board

interactors there's no product to ship

there's no ability to dilute the

shareholders there's no Nexus there's no

headquarters all the things that cause

people to lose money investing in

Securities uh Bitcoin can't take on debt

therefore it cannot be rendered and

solvent you know I'm so that's Bitcoin

it's on a barbell it's like this extreme

and maybe one of the great ironies of

life and history is that the exact

opposite extreme is crypto so uh So when

you buy Bitcoin you get the the best

asset you know created in the history of

the world but then you had to stomach

the very very worst worst assets and the

worst circumstances because if I look at

uh crypto it's much much worse than any

commodity because it takes no energy to

create it right you can create twenty

thousand cryptos right you can't create

twenty thousand Silver Mines in the snap

of a finger you can't even create twenty

thousand orange groves or or bushels of

corn or whatever

so it's uh it's an infinite Supply

commodity

but it's also worse than every security

because with Securities there's

Securities laws like there's no way that

the CEO of a publicly traded company

would do to the company what people in

the crypto industry routinely do all the

time

so uh crypto is kind of the worst of all

worlds it's a it's an unregistered

security and it's an unbounded commodity

and uh

so here we are we're in this volatile

world and you say well so how do I feel

about volatility well this the source of

a lot of the volatility is all of the

vice and the crypto World which is which

is just poorly engineered

unethical

not economically sound assets

and if you want the world's best

engineered most ethical most

economically sound asset you have to

agree to live in a world where it is

cross

collateralized with the worst assets

and and you have to have the a thick

enough skin that you're willing to

actually wait until the marketplace

sorts out uh the world's best assets and

the world's worst assets and uh and uh

the price you'll pay is going to be that

volatility

yeah in a way Bitcoin I guess is the

least uncertain asset there ever has

been

um I think your quote there is no second

best crypto asset is like you said kind

of becoming more and more obvious you

know we have the Ripple lawsuit we have

a small group of people changing the

core consensus rules of ethereum why do

you think these tokens are still trading

for for billions of dollars

um I I think that um

The Regulators have uh have been fairly

slow in there and uh enforcement of the

regulations on the books everywhere in

the world and uh regulatory enforcement

actions both they're very expensive and

they uh they take a long time and

they're not

they're not as effective as you'd like

them to be

um

you know the the assets themselves are

trading on offshore unregulated

exchanges

and the exchanges have been cut in

Corners right if we look if we take the

FTX example

if you can set up an exchange where

you're the market maker you're the

issuer you're the prime broker and uh

and then you trade against your own

customers what you have is a bunch of

crypto casinos where they have a vested

interest in creating the assets

promoting the assets manipulating the

price of the assets and The Regulators

for whatever reason have been very slow

to shut them down

right like why did FTX even exist while

the the U.S Regulators don't want to

shut down

uh you know an illegitimate exchange

offshore

and then when they see something they do

want to shut down it takes years and

years and years to win the case in court

so I I think it's been just really slow

expensive and effective execution of the

existing laws on the books

and uh

you know they just don't keep up so

that's why the assets exist I I don't

think they will continue to exist

forever

um just because

FTX is uh has made it so obvious

in the past few months

right the danger of uh of allowing these

things to continue to exist that I think

that uh the The Regulators and radar

enforcement actions are getting amped up

by a by a substantial factor in the

coming year

very cool yeah

um going back to microstrategy I vividly

remember the day that you guys announced

that you were considering Bitcoin as a

potential treasury Reserve asset and it

was very exciting why do you think many

other public companies have not

necessarily followed in your footsteps

adopting Bitcoin as their treasury

Reserve asset

the primary impediment's been fasbi or

Gap accounting the Gap accounting if I

made a list at the top of the list would

be uh indefinite intangible accounting

it's toxic to a public company balance

sheet

that's the number one issue uh I think

the number two issue is the volatility

of Bitcoin

which has been driven in large part by

the market manipulation of the crypto

exchanges especially the offshore crypto

exchanges I think that's the number two

thing the the ftx's of the world trading

with

20x or 40x leverage with counterfeit

stolen money I think that that's that's

created volatility I think the third is

the reputational

um the reputational toxicity of having

the asset class conjoined with crypto

casinos

so if you're a really large legitimate

company

if you bought a billion dollars of

Bitcoin and doubled your money you would

be showing that you lost 800 million

dollars

I mean that's it's obvious uh strike and

then you'd have to explain

to your outside shareholders what

Bitcoin was and then you would also have

to deal with all the negative publicity

that comes from the blow ups of the

three arrows or a Celsius or a block Phi

or a Terra Luna or FTX

so if you've got a really really good

business and you've got other things

then this is a distraction you don't

really want to get distracted by it

if um if you had a business where I the

majority of your assets were cash

and you saw the cash was generating zero

percent yield then it becomes more

interesting you just have to be sort of

a private company or you have to be

closely held so a lot more private

companies and family offices and the

like have discovered Bitcoin because

they don't have that Gap overhang issue

and they've got a smaller group of

decision makers that can more easily get

comfortable with Bitcoin and

you have to be committed to hold the

Bitcoin until the crypto you know

excesses go away

right until the crypto industry gets

adult supervision and all and and 98 of

the Bad actors get squeezed out and the

big exchanges all get regulated and they

and they become transparent at that

point then this is a much easier

decision but we're kind of in this uh

this transitional period where the

industry is transitioning from

the first decade which is

entrepreneurial and offshore and

anything goes kind of wild west

you know

um and then uh we're you know the Next

Generation maybe maybe we get through

that Chasm by 2024

and from 2024 to 2034

it's more like uh institutional

mainstream adoption where you have uh

trustworthy transparent institutions

publicly traded companies regulated uh

institutions uh big institutional

investors big public corporations

and they're trading far fewer assets

maybe they're trading Bitcoin maybe

they're holding a stable coin that's

fully backed by treasuries or something

that they Trust

that publishes its reserves every week

kind of like a an ETF or a mutual fund

would publish its Reserves

with um

a license you know in in New York or

London or the like when we get to that

point then I think the industry grows up

it's 10x to 100x bigger

but right now we're kind of Crossing

this intermediate transition period

before 2020

I don't think any institutions would

have gotten into the space at all it was

almost impossible to get into space and

then I think after 2024 they'll probably

have worked out a lot of the accounting

issues and the regulatory issues and

you'll have big you'll see the Bank of

America as the Goldman Sachs or the like

or the JP Morgan's they will go ahead

and buy and custody you know your

Bitcoin for you and they'll be stable

coins you know who knows I don't know

whether we'll have other digital

Securities trading or not because it's

not clear whether or not

the SEC is going to allow digital

Securities to trade and how it's just

unclear but um

but I think that right now we're kind of

in that right in the middle of that

transitional four-year time period

yeah that makes a lot of sense as

institutions and corporations eventually

do decide to move into space how do you

envision them uh custodying Bitcoin do

you do you see a possibility where they

may hold their own private keys in like

some sort of multi-state configuration

or will they always use you know trusted

custodians but maybe demand like a proof

of reserves type uh concept to verify

that they're not maybe rehypothecating

the Bitcoin or they haven't lent it out

to someone else

I think you'll see uh you know a layer

of approaches but for the most part

holding your own uh your own private

keys or in a multi-sig relationship is

going to be much more common with

individuals families family offices and

and uh small to mid-sized private

corporations

I think that with public corporations

and large companies or with uh

governments

or agencies

uh and mutual funds and the like when

they do it they will do it with a

regulated trustee or a regulated

custodian like a Bank of New York Mellon

or Fidelity or or big public

organization uh even potentially FDIC

insured Banks like JP Morgan or Goldman

Sachs or the like and the reason why is

there's those those organizations

aren't even allowed to trust their own

CEO

for example if if well if you were the

mayor of New York

and you lived in New York would you want

the mayor of New York to walk around

with the private keys to 50 billion

dollars worth of New York's Bitcoin

like what happens when the mayor of New

York gets unelected and there's a new

mayor of New York what if the old mayor

won't give the keys to the new mayor

right you you would think uh no okay so

then you get to this issue of well I

guess we need three people okay would

you want three government officials you

know making you know minimum wage or

whatever would you want them to hold a

hundred billion dollars worth of uh

Bitcoin for

you know for the FBI or this or whatever

the agency is what what's to keep them

from just taking it

right you don't even trust you don't

trust your own employees right do you

really want the bank to elect a bank

teller take two billion dollars of gold

bullion home with them

at 5 PM every night and bring it back no

no so

with those kind of organizations you

tend to actually have to have a you have

to construct something with checks and

balances

a lot of checks and balances they're

built into sarbanes-oxley controls and

other I.T controls like there's a

segregation of Duties where the person a

lot of times the big organization the

person that has the power to Grant you

access doesn't have the power to move

the money it's to other people and those

two people or those three people they

have to do it but in conjunction with

the outside you know an outside vendor

and on the vendor side there's two or

three people that have to sign off and

then there's uh and then there's a set

of processes like everything is logged

everything right like like uh the you

can get fired in a in a bank for not

logging the fact that you change the

permission of one person from you know

you know security clearance 3.2 to

security clearance 3.3 you don't have to

have done anything you just you can get

fired for having made it temporarily

possible for five minutes just for

someone else to actually change that

permission or not log it right so

they've got layers and layers and layers

of controls

because they need they need to have a

separation of power and checks and

balances so

so for

just like um

another example you know you're

your

grandfather's life savings

you know he's got his private Keys he's

on the death bed in the hospice you know

and now how when he dies

okay how do you get the money

okay so you're okay so there's 12 kids

okay so the twi so are the 12 kids going

to pick one of them to have the keys or

are they going to say I think we'd

rather have uh Fidelity or some Trust

Company hold you know the uh the read

the last will and testament like the the

Escrow Company and the lawyer they're

going to read the last will and then the

keys or the trust company and you know

what happens if your grandfather decided

that he wanted to leave the Bitcoin to

the 12 kids 16 grandkids and then allow

for a b quest to 37 organizations and

also to you know to potentially The

Heirs

of the grandkids

it you know it's pretty obvious right

it's like who in your family exactly is

going to be carrying the the keys around

and and that's it's an Institutional

thing so

so

um

when you get to an Institutional scale

you're going to have institutional grade

custodians that are expected to outlast

all the people you will get fired as the

CEO or you will quit your job you will

leave as the mayor right your if you're

running 10 billion dollars of money for

a pension fund

you know there's no way that the pension

fund wants you to show up and say hey no

worries I have the 10 billion dollars in

my Hardware wallet but I gave the extra

key to my cousin like no no way right so

um so this is a blessing and a curse

right I mean if you're a hardcore

maximalist you'd say well we just liked

it when it was just 100 million

individuals and they had their own money

in their head or their own money in the

hardware wall yeah well uh that's the

blessing the curse is if you actually

want New York City and Chicago and San

Francisco and the United States and uh

ten thousand publicly traded

institutions do all buy Bitcoin and

embrace Bitcoin then you're going to

have to deal with the control structures

of of those companies

they're going to deal with uh you know

big Banks Goldman Sachs JP Morgan Morgan

Stanley Fidelity the the massive

institutions

and um

I I don't think it's a problem I think

that um

everybody will have the ability to take

custody of their own Bitcoin so if you

bought Bitcoin through Fidelity and then

you want to put it on your own Hardware

wallet between ages 40 and 75 you can do

it and if you get a terminal diagnosis

of cancer and you feel like you'll be

dead in the next six months you're

probably going to take it from your

Hardware wallet you're going to put it

with your escrow agent or your lawyer or

your estate manager or someone and

you're going to leave instructions to

your loved ones

because that's the right thing to do

or if I get Parkinson's or if I get

Alzheimer's you know if you diagnose me

with Alzheimer's and I my hands Shook

and I didn't think or I was you know not

going to be able to work on a typewriter

or a keyboard I would probably actually

put it with a custodian right for

obvious reasons so so

the ability to move the Bitcoin between

uh personal custody multi-cig

to move it to uh to a small custodian a

large custodian I think that's what

keeps the entire network uh honest and

that's what keeps that's what makes the

abuse the asset with integrity

the reason that some asset is corrupted

is because they have Monopoly

so at the point that you buy something

but there's only one custodian like

there's only one custodian of gold in

New York and you have to put it with

them and you can't take it out

it's not practical or it's not legal or

or the like at that point they get fat

dumb and happy just an arrogant just

like um

if I bought a building in New York City

and there's one neighborhood uh

one neighborhood watch organization or

zoning board and then one mayor and one

governor of New York well they all start

to get arrogant they think it's their

building right the governor thinks they

can pass a New York state tax on the

building and the mayor thinks they can

pass a New York City tax on the building

and then the neighborhood zoning board

thinks that they can pass a law saying

you're not allowed to have a yoga studio

in your building and you can't have you

know you can't have pets in the building

or or you can't you have to rent control

the building you can't raise the rents

of the building so it's not your asset

it's their asset and then if you wanted

to take custody personal custody of your

building put it in your pocket and

travel to Singapore that's not happening

right you can't wire the building to

Singapore that's not happening you can't

take it with you to Wyoming and put it

on your Ranch that's not happening and

so because the asset that I guess my

point is the real source of the

corruption isn't the fact that you

voluntarily enter into a relationship

with a counterparty that might provide

custody Services that's not the

corruption the corruption comes from the

involuntary requirement that you give a

monopoly on the custody to the

counterparty forever you know add infant

item and if and if there's only one

counterparty or there's an oligarchy

like

if you own a a million dollars of Apple

stock

you know you can move it between Morgan

Stanley and JP Morgan

but you have to do it with a DTC Network

which is Monopoly and there's only like

eight large wire houses where you can

move it from and you can't put it on an

Android phone and take it to South

Africa with you so there's not really

competition with regard to custody of

analog assets or analog Securities and

so you end up with NASDAQ and New York

Stock Exchange and DTC and the big bulge

bracket Banks getting very comfortable

in their oligarchy and for 30 years

they're not going to lower their fees

and they're and they have a monopoly on

your ability to borrow or lend

borrow against the asset or or to

generate yield on the asset

and so for example you know a million

dollars of Bitcoin you could in theory

lend it to a counterparty and get yield

maybe the counterparty will rip you off

right maybe they'll fail

I get it right that's caveat mtor you

have the flexibility to do it should you

wish but they may then they may treat

you well and they may actually rob you

but if you had a million dollars of

Apple stock you couldn't lend it

to anybody

JP Morgan might be able to lend it but

you can

so um

so I think with regard to keys I we will

see layered approaches I could imagine

you know the hardcore maximalist

approaches multi-sig you handle your own

multi-sig with some combination of you

know Hardware wallets and Seed phrases

and the like

a middle tier is you trust

um block or you trust some other

custodian uh to handle it for you

another possibility is eventually

multi-sig rolling out of encrypted you

know if Apple were to do multi-signature

with one key in the cloud one key on on

one of your devices one key on another

Apple device

and you trust that Apple you know you

might trust Apple for up to some amount

of money right but then maybe you don't

maybe you go to you know to Google or

maybe you don't maybe you go to you know

a local you know Bank in some other

country that's all possible and then

then you've got some variety and then

you've got greater you know greater

degrees of trust where you go to um you

know a custodian and a bank and then a

trust company and ultimately right the

extreme right there's like

there's the multi-generational insurance

company or trust company that might be

holding certain assets for 100 years or

longer and then you have some degree of

Rights or not degree of Rights I think

all of those are not only likely they're

really necessary

because you know what I'd like I would

love to see a government agency buy 20

billion dollars worth of bitcoin I would

not like to see two bureaucrats that

work for the government agency hold the

keys

right

it's like the one is okay the other is

not okay so

so that that will evolve and uh and it's

kind of inevitable as as the scale of

the institutional interest and the asset

grows then the sophistication with which

people decide to custody the stuff will

also evolve

yeah I definitely think that seems you

know very reasonable probably reasonable

to a lot of uh even traditional Bitcoin

maximalists you touched on this a little

bit what are your thoughts on like

Bitcoin yield products I mean we've seen

stuff like Celsius and block fight blow

up um you mentioned like you could lend

Bitcoin to anyone it's your decision if

you do that

um do you think products like that are

are sustainable and like how do you

envision them maybe transitioning from

now that they're blowing all up all

blowing up how do you see them maybe in

10 to 20 years

I think

a lot of the crypto Services have been

poorly engineered like they had

defective economics defective ethics and

effective engineering for example like

if if I took a million dollars of

Bitcoin I loaned it to you and you took

it and put it into some D5 protocol

backed by Terra Luna you bought UST okay

that's a defective yield approach right

and it's defective because you know

you're you're generating some air token

that you're printing uh and you're

paying the 20 yield with air token

printing okay that's economically not

sound

that's ethically not sound because

probably it wasn't disclosed they never

disclosed the full extent of the assets

right and it's technically it's

engineering not sound

because the natural frequency of the

network was so high that uh in the event

that the price moves down for a couple

of days the entire network goes unstable

shakes itself apart and collapses

right so we could talk about any of

those for hours and hours but the point

is that's a bad idea

on the other hand um

you could probably come up with a

responsible way to generate yield I'll

give you

you know I'll give you another way

um if um

if I uh if I took a million dollars of

Bitcoin and I had an account with the

Chicago Mercantile Exchange

and the Chicago Mercantile Exchange uh

lets me trade futures

if the Futures are are actually in

backwardation where there's a time just

in the past few weeks there's a time

where you could sell a million dollars

of Bitcoin

and you could buy it back at a four

percent discount

because the Futures price was four

percent lower than the current price

you have to wait six weeks to buy it

back okay does that happen yeah

sometimes it works the other direction

right where where

um

you could uh

buy the Bitcoin or you could sell the

Bitcoin in the future and buy it in the

present right and then there's a a

different direction in that case you

could generate a yield you wouldn't be

taking a directional position on the

Bitcoin you would be taking counterparty

risk

against the Chicago Mercantile Exchange

okay so there's always a risk

right but what is the risk right that

would be actually uh that would generate

yield off the volatility of the Bitcoin

that and and how much yield would you

get well the truth is you don't know

right if you're honest you would say

if you want to trust the Chicago

Mercantile Exchange which is not

unreasonable it's got trillions of

dollars trading on it it's like all the

derivatives of the western world or in

the United States are trading on the CME

or the lse

it's not unreasonable but you might not

trust it but let's say you did if you

want to take that risk you might

generate one or two percent yield

you might generate zero percent yield in

a year you might generate four percent

yield in a year but you put your uh you

put your Bitcoin with me and then when I

see an opportunity you know to go long

or short to capture that inefficiency in

the Futures Market I will do that and

then I will charge you 20 you know I

will charge you ten percent of what I

generate and the other 90 will come back

to you and you have to trust two parties

you have to trust the CME the The

Exchange you're trading on and then you

have to trust maybe the um you know the

prime broker or the uh the person

executing that strategy

okay and and

um the SEC would say well

you have to then publish you know who's

the company what's your balance sheet

what's your background do you have any

criminal convictions you know have you

ever been found guilty of of cheating

people and and that way the people that

would invest with you would see that

you're licensed and that you're and they

would decide whether they trust you and

if they trust you maybe they can

generate a sporadic one two percent

yield or three percent yield and still

hold their Bitcoin

you see the two extremes like one is

doing some batshit crazy thing with an

offshore random entrepreneur that may or

may not be trustworthy that's probably

going to blow up the other is taking an

informed risk

in order to generate a yield

I do think that there are ways that you

can generate yield using the capital

over time I think that uh the the state

of the crypto banking Market or or the

industry today is such that

all of the players in the business block

five Voyager three arrows Genesis you

know FTX

um

they were all taking Celsius they were

taking ridiculous insane risks

you know putting your money in you know

an air token putting your money in a D5

protocol just outright gambling it right

these any kind of all the crypto

stakings are just ridiculous insane risk

because you're betting on an error token

that has uh that has no theoretical

substance so most people have uh you

know have suffered or lost money chasing

that yield it's the the reason that

microstrategy never uh loaned out our

Bitcoin to anybody uh for any yield even

though we were people propositioned us

right and left all of The Usual Suspects

that you can imagine propositioned us

but you know the the view is well I

can't trust you you're not a publicly

traded company with a with a transparent

balance sheet

look if JP Morgan had come to me and

said

we will give you four percent yield on

your Bitcoin and we will back it with

the balance sheet of J.P Morgan and

we're FDIC insured

would I have taken the yield on my free

Bitcoin Maybe

right it depends on how the strings

attach but

you know why not right I mean so so

there is a circumstance under which if

the bank that's propositioning you is is

um well capitalized enough and if the

contract looks to be

to be uh

solid maybe you would

maybe you wouldn't maybe JP Morgan would

say Logan gamble your Bitcoin on on a

Dera but offshore exchange or something

and if we lose it then we lose it but if

but we get you know 20 of the gains

while we're gambling I wouldn't have

done that deal even with them right if

it was uh it was a a no recourse

engagement so

right now the industry is not quite

mature enough but theoretically right it

is possible to construct a responsible

yield generating strategy if you know if

you have um a responsible well-run

company institution that you know people

get wrapped around the axle and

regulated like Regulators a bad word in

the crypto world or the Bitcoin world

but replace regulated with transparent

like if the person that approaches you

says I'm going to publish my balance

sheets and they'll be audited by

pricewaterhousecoopers and you can read

them every month

and I'm going to sign the sarbanes-oxley

statement and agree to be held

criminally liable if I lie to you and

right I've got you know I've got a track

record of 30 years and I've got a board

of directors and here's who they are and

this is their background if they were

transparent with you you would be more

likely to do business with them it

doesn't mean there's no risk you can get

ripped off by a publicly traded company

you can lose money on a publicly traded

company but

if you consider all the counterparties

in the world

the most credit worthy counterparty

right the the ones that are most

transparent that have that offer the

least counterparty risk are United

States based publicly traded companies

because they have the the US has the

highest degree of of similar civil and

criminal liability for any malfeasance

and they also have the highest degree of

disclosure requirements

if if I got off the phone with you and

my CFO called me and said hey guess what

we some bat something bad just happened

you know or something good just happened

if something bad happened and we lost

you know 10 000 Bitcoin or if something

could happen and all of a sudden someone

gave us 10 000 Bitcoin and it was deemed

like material to our shareholders

there's a clock ticking and we have a

certain number of hours

four business days sometimes is the max

before we have to put in an 8K and we

have to tell everybody in the world

and what's drummed into your head if you

run a publicly traded company

is is at 9 30 a.m on Monday morning

people are going to sell your stock

and if it turns out your company's worth

more because of something that happened

over the weekend

and they're selling it they're going to

feel like they got ripped off

you see because they sold too cheap

and on the other end if something bad

happened

that makes the company worth less over

the weekend and they're buying your

stock

right then those people are going to

feel like they got ripped off

right so when you think about it like

that like and that's the way a public

company thinks and that's the way of

regulated entity also thinks it's like

every time someone deposits money in my

bank

right they're trusting me so if I have

material information about this about

the the status of the bank or I'm just

monkeying around with the back end

Control Systems I'm putting my

depositors funds at risk

right that's that's a problem so you

need those kind of rules in order to get

comfortable doing business with the

counterparty

and you can see what happens when people

don't have a clear set of norms like at

FTX they didn't have a problem misusing

their customers money trading against

their customers manipulating the price

of of their own assets issuing their own

assets you know it's conflict of

interest six different ways

but you know if you're making up the

rules you would say well there's no rule

against having a six-way conflict of

interest

now that ultimately that they will have

been shown to have have broken local

laws and local regulations it's just

going to take a while for the lawyers to

sort through it all

but but the thing that the thing that

keeps a company safe and the thing that

keeps you safe like if I was giving

advice to you why should I trust a

publicly traded uh company a publicly

traded Bank in America

the reason that it's more trustworthy is

not because

just just because there's a lot of rules

I mean there is an army of lawyers and

accountants that are watching all those

roles and filing all those forms there

is a CEO and a CFO that understand the

rules and they have to sign the sarban's

Oxley statement they know their civil

and criminally liable if they lie right

but that's not the only reason

the other reason is because everybody

involved in the institution from the top

to the bottom knows the norms and knows

what's expected

so if the CFO walks in and says hey um

we just lost a few billion dollars but

let's not tell anybody

well the junior accountant or the

treasurer that works for them is going

to say no no this is wrong this is going

to end my career

I'm not going to lie for you so you so

so you have a culture of virtue where

even if the leaders wanted to lie cheat

or steal the people that work for them

won't lie cheat still because their

loyalty to the culture and to the law

and or their fear of the law is greater

than their loyalty to their boss so it's

like yeah I like you but I'm not going

to jail for you

and so the problem offshore and in these

uh hazy regimes is there's not clear

Norms so it's not clear for example Sam

bankman free was like breaking who knows

how many different laws bright lines in

the U.S but if you kind of obscure and

say well I'm not it's not obvious that

you're not allowed to self-deal in the

Bahamas then maybe maybe an honest

person working for him would have said

well I guess it's not yeah we all knew

it was illegal to do in the U.S that's

why they're in Nassau right they all

knew right

but yet in order to run an institution

or a bank you have to hire

college-educated lawyers and accountants

and programmers so you have to have

smart people

you can't convince them to break the law

right and in a institution where it's

clear

when it's not clear

right then you need to say well you know

that's a U.S rule but that just kind of

slows us down and that's why we're

located here in the Bahamas because you

know we need to be more flexible we need

to move faster

and someone's like you know you wouldn't

get someone

with 30 years experience that I had good

judgment to buy that notion

but you would get like 20 somethings

you might get some 20 somethings and 30

somethings that are that they they're

not Partners at Goldman Sachs

right they're they're like well this is

my chance to be richer than a partner at

Goldman Sachs and skip the next 15 years

of work and in like 22 months I got to

the top of my industry by cutting

Corners well they don't know they're

cutting Corners right

like they don't know what they don't

know right they just they they took the

plane they flew it too fast they ripped

the Wings off and as they're plunging to

Earth on fire it occurs to them that

there's a reason why more experienced

test pilots don't fly the plane that

fast or the engineers totally modified

to point that fast but then it's too

late

yeah I mean in hindsight it seems very

obvious how FTX you know blew up you

know located in the Bahamas why do you

think

um you know firms like sequoia or

BlackRock were you know fighting to

invest money into FTX

I mean I think the problem in the crypto

industry right it comes down to

greed

arrogance

foolishness

and speed

right people are either going too fast

right they're throwing caution in the

wind they're getting too greedy or they

just make foolish decisions with uh with

all the the VC that invested in uh nftx

they just saw something growing insanely

fast you know 10x over the course of a

year and they just got greedy and I

thought well this is growing real fast

we got to get in on this and then

they're in a hurry

so

so uh they didn't do their diligence and

when Sam said well we got to move fast

instead of saying well you need a board

of directors you need a more seasoned

management team Etc they just kind of

enabled that kind of bad behavior I

think that

that uh throwing money at everybody

encourages people to

look the other way too for example

I think it's like five and a half

billion dollars on the um

FTX Ventures balance sheet and so FDX

Venture was investing hundreds of

millions of dollars in the same VC that

they were taking money from in fact more

money went to Sequoia from FTX Ventures

then came to FTX from Sequoia think

about that for a second

so so in a sense

what Sam did was he created a a

recycling fraud

Okay so

I print a token I create a billion

dollars of the token then I borrow a

billion dollars against the token then I

invest a billion dollars in other

companies and financial players and and

other cryptos with my barred billion

then I get them to buy my tokens and you

know and if um if the Leverage is a

hundred to one right if I had five

billion dollars of ftt and there and it

only took 10 million dollars of trading

activity per day to move the price

then uh I could take the 5 billion and

give it to celebrities politicians

journalists

I could give it to venture capitalist I

could give it to money managers I could

you know I can give an also to wife I'm

investing in you right and so I I just

shower money on everybody

and then I say well come back and put

your and put your trades with me open an

account with my exchange I'm gonna

invest 150 million dollars in your fund

so you can do crypto token trading but

come back and open an account with me

you put that that money goes to you it

comes right back to me now uh you know