Is crypto cleaning up its act?

24:06Although actually like in the FT, we had one of the first, we had a leaked balance sheet quite early on. And so we were looking at this like spreadsheet and being like, whoa, this is not what this is supposed to look like. There's no real assets in this company. Like the dollars, like, you know, very minimal, Bitcoin, very minimal, Ethereum, very minimal. Like those should be the three things that they have the most of, because they owe those to the clients. And then what's making this company quote unquote solvent is FTT and, you know, to lesser extent, Sierra Maslana. And, like, in trial, it was interesting to see, like, the prosecutors trying to point out to the jury that, like, this makes no freaking sense.

24:41Like, this, you know, Sam is smart enough to know that he can't be counting these things as if they make him solvent because he knows, like, the nature of those assets. And you can't sell them because if you start to sell them in any significant size, you're going to tank the market. So, you know, the analogy I give in the book is, like, if you have a notebook, like my notebook, book, 100 pages, and you write$1 on each page, and you sell the first page for$1, and then you put the rest of these as an asset on your books of worth$99. That is not a valid accounting practice. That's a ridiculous thing to do, because if you start trying to sell the rest of your pieces of paper that have$1 written on them, no one's going to buy them.

25:14They're not really worth what they were being counted as being worth. That was... I guess to some extent, maybe it doesn't matter. They could have just stolen the money and not pretended that they weren't bankrupt, But that was like a kind of a crypto twist on the classic fraud of you could present this fiction of we're a solvent company because they were using this token that they themselves invented. Fake like purchases of stocks. He was just like manipulating the paperwork to make it look like he traded. And they could have done that. They could have just written, you know, we have more dollars than we actually have on their balance sheet.

25:47So in a weird way, they were like kind of trying to like somewhat report. I don't want to say accurately, but like, I don't know. It's a funny like none of this stuff. is new, right? As you pointed out, burning me off, like, you know, crypto just continues trends from traditional finance. And I think that's totally important to recognize. 20s, 30s, 40s, it's all that playbook. That's why people are like, oh, it's such a, I mean, they literally just copied in the finance playbook before it was regulated. Yeah. And I think that that cuts both ways in the sort of like, you know, I think it's, I don't want to be so simplistic as saying that the pro and anti-crypto argument, but it does cut both ways.

26:17It's like, on the one hand, you know, you have the whataboutism of like, look at traditional finance, it's a total mess. Like, so why are you coming after crypto and so down on crypto on the other hand like crypto is not escaping from some of those same problems it's just replicating them yeah and actually kind of going back in time and doing the same stuff again that we did before in traditional finance and then that got cleaned up so there's a little bit of a back to the future element to some of these scams what you're pointing out right how do you separate them bad actors versus bad tech because like what you're pointing out here is like people that have just preyed on an unregulated industry yeah which is you know if i mean i don't know is there such a thing as bad tech like i don't know yeah uh what i mean is like is it a crypto problem or is it or is it a dickhead problem i'm not sure they could be so easily separated i mean one crypto thing that is contributes to the dickhead problem or is creates opportunities for the dickheads is this ability to kind of very easily create create very portable assets.

27:18So the analogy that I use in the book is like, if you went back, you know, before the kind of internet revolution, then the people who were able to publish information was a very small set of institutions. People like me who work at big newspapers, you know, book publishers, TV stations, movies, but it was like big companies kind of controlled the mechanism of publishing. And then you went through the internet and now everybody can publish. Like you guys can have a podcast in a kitchen. You can like literally just go on Twitter or whatever. So you had like the democratization of publishing. And I think part of what you're seeing in crypto is the technology has facilitated very easy asset creation that like with relatively straightforward technical skills and the watch a few YouTube videos, you know, not going to take you very long to be able to like get a quick, you know, ERC token out there and brand it however you want and sell it to people.

28:06So you have like this ability to have asset creation that's not controlled through big banks and like, you know, try and get something listed on the stock market, right? You know, it just, you gotta get a bank to sponsor you. You gotta like hire millions of lawyers. You gotta get thousands and thousands of pages of stuff together. You gotta spark. Yeah, you can do SPAC. But even a SPAC is like, by comparison to a crypto, like a SPAC is like really hard work, you know? To be honest, when I worked at crypto exchanges, you can make a token in a couple of hours. Yeah, totally. So I can make T and Demo coin and then - You keep pushing this T and Demo coin.

28:37It's subliminal meshing. Eventually you're going to say T and get a crypto coin. You're nominated in pasties. This is your retirement plan. Yeah, leverage Damo, get his face on a coin, meet him. But people would just pay, we could pay an exchange to put our coin, our token on the exchange, but you can't pay the FTSE to, oh, can you put our stock on the FTSE? But you can pay today to get your token on the exchange, and then everyone can buy it. 100%. And so I think that is like a feature of the tech, is a result of, or usage of the tech, you know, that emerges from the tech, that does make it easier to do this kind of dodgy stuff, because you can do pump and dumps, like just spin up these random tokens and hire celebrities to shill them and then dump on people.

29:16You can do more sophisticated Sam Bankman freestyle stuff where you borrow, you print assets, endow them with some sort of speculative value that people will briefly accept in the market and then borrow against them. And so you're levering yourself up based on fake collateral. So there's different ways that basically if you just scrap all the guardrails around what institutions and what controls are placed around creating assets, it does, I think, create an opportunity for the dickheads to have a field day, frankly. And how much of it do you think is like people going into it with the intention of scamming?

29:53And how much of it do you think is like egos where the situation gets bigger than them very quickly? Yeah, such an interesting question. I mean, I've been thinking about this for like, you know, a very long time now. And it's really tough because like, this is the hardest part. The only honest answer is like, if you're talking about Sam Banger for in particular. Or SafeMoon as an example, as a massive scam where they look like kids. They don't look like very sophisticated guys. At the end of the day, you know, the only honest answer is we don't know because you can't go inside someone's head. But you can look at how they behave.

30:25I think it's rare to see a situation where people start out at the beginning and write fraud at the top of the whiteboard and are like, okay, so should we do telemarketing or shall we do - This is how we're going to do it, guys. We're going to do, we got the options, crypto, telemarketing, whatever. And then they pick, okay, crypto. So it's not like they were sitting around at the Alameda house in Berkeley, California in 2017 being like, yeah, it's definitely going to be crypto. Those annoying text scam messages are really from the 90s. or I guess there weren't texts in the 90s. Anyway, I'll leave that.

30:58There's always a little bit of both, I think. These things do overtake people, and they find themselves trapped, and they double down, and they double down, and it gets worse and worse and worse, and eventually it falls apart. I think you see that in almost all these big fraud cases, some element of that. But there was really pretty deep dishonesty now. If you look at the evidence, there's pretty deep dishonesty from the FTX Alameda crew for quite a long time. I think it started out maybe, I just think it started out in an area where if they were being dishonest, it kind of didn't matter. It does matter to an extent, but it matters a lot less.

31:34By the point where they're a relatively obscure company with relatively little money in the kind of really wild west of crypto, yes, they may be being dishonest. They may even have a breaking the law, but it's just like you're never going to get caught. You're not even in the top 300 of the dodgiest people in crypto at that point because you're just like you're low on the priority list and when you become the biggest name in crypto not the biggest company but the biggest name for sure and then it all goes wrong like you're absolutely going to get hammered because you know the the justice system does to some extent respond to the kind of public attention and the politics of it and like especially the us poppy in the field yeah you know they cut the head off that one totally and it's like like they were definitely the victims of their own success to the extent of their fame where because it was so famous.

32:18He positioned himself like that, don't you? Yeah. That is all effective altruism. I'm a legend of a billionaire. It was like so sickly to look at now in the context of what he was doing. And you set it up. And then, you know, when, because you put yourself up on a pedestal, when you do fall, like you're just going to get totally destroyed, which is what you've seen happen. And you know, fair enough. Last time we recorded, Tomei, and you were having some real dramas with your accountant. So how's that been going, mate? They're sacked. So drama sorted. They're a big corporate firm. They didn't really reply to my emails very quickly, like took a week or two at times.

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35:03That's Vanta.com forward slash making money. There's a link in the description though, so you can just click that. I think a lot of, like Damon said, a lot of these crypto tokens or companies or the dodgy players, sometimes they grow so quickly overnight. They might go to bed and they've got, oh, we're trading at like$1 or like 0.002. And then they wake up and it's worth$1. And they're like, holy crap. And then everyone else jumps in there, oh, this just did like a thousand X overnight. So then everyone else jumps in and it just gets snowballs into a bigger, more and more money. Then eventually they're like, let's just run with the money or let's do a rug pull.

35:40Or maybe that might not have been their intention initially, but then I think it grows so quickly in crypto overnight. People are made millionaires. and people lose money overnight, like their life savings. So I think the snowball effect also sometimes they're like, well, we've got five million in the account. Let's just go. We never thought we'd see this much money in our lives. And the temptation is huge. The greed takes over. The greed takes over. But also it's like, oh, we've promised people this product that we have no idea how to make. Suddenly they've given us all this money. We're pretty sure we don't know how to make the product.

36:09So if we keep going, we're probably gonna lose all this money again. Everyone's gonna hate us or we could just bail with the money and everyone's still gonna hate us, but at least we get to keep the money. I've seen that happen a lot. Yeah. But the other thing you get also is like the other side of the same exact same dynamic is like these things escalate in value really, really quickly and then become huge targets for hacking. And that, you know, you see that the tech and the security and the level of resources they're devoted to is just not kept up with the amount of money that's like. Big weaknesses in the tech.

36:34Yeah. And you can just take the money. Relying on, you know, so I think, you know, in looking at FTX, one of the things that's interesting is like, you know, if you just hypothetically as like a thought experiment, if you just bracket the fraud, like which we now know. it's convicted that it was fraud. But if you just take that out of your mind for a second and just think about the company otherwise, all the stuff that we've learned about it, in many ways, it just wasn't set up properly to run as a company that had that much money in it. It was not set up as a grown up financial institution. And there was like people were too inexperienced, there weren't the proper controls, wasn't the proper staff, it was too small in terms of number of staff, the amount of money they had.

37:08And I think there's this whole other set of issues that like, the fraud is more important, which is why people are focused on it. But it's interesting to just Just think about you had this company that was totally overwhelmed by the amount of money that was suddenly... I think the weight of all this money is suddenly in this really rickety kind of structure of a startup that just can't cope, and so the whole thing blows apart. Say what you want about the big banks. There is a structure in place where you can't just literally when I deposit five bucks at HSBC, that the teller just spends it. They've gotten pretty good at those systems where they're like, okay, they do other things wrong and bad.

37:41There's lots of scandals. But it's like, normally, you're not just like spending the customer's money at the back door, because there's systems that no one person can do that, right? Whereas at FTX, it was like, if Sam and, you know, a few other people around him got together and were like, we're going to take the money, it wasn't stopped. There was no system to catch that or flag it or stop it, prevent it in any way. There wasn't like the safeguards around it. So why did it convince everyone? If it was such a bad business, there was so much fraud. Why did VC like love it? Why did retail love it?

38:09Why? Yeah, I don't think it's, you know, I think it's, it wouldn't be fair on retail to expect them to like, you know, penetrate that. You know, people are judging from the information that they see publicly. If it's been advertised at the Super Bowl, it must be legit. Yeah, or even like, even, I mean, honestly, give people credit. Like, you know, if Sequoia and BlackRock and everybody else are investing in it, it must be legit. I've always felt like that was probably the key thing. You know, there's lots of different elements because it's like this, it really does teach you a lot about how trust and validation works in society, that the more people associate their identity and their brand with an institution or person, it just gives them this veneer or this aura of trustworthiness.

38:49And you're like, when you start to look at this person, all these celebrities are associated with them, all these big name investors, they're being taken seriously by politicians. You're like, okay, well, somebody somewhere must have checked. Yeah. Right? But they hadn't. That's the problem. I think of all the people who were in that position, the people you would have expected to do the best checking would be the VCs and the other investors. They weren't all strictly speaking VCs, but it was a VC style investment. Those are the people who you would have expected to do it properly and really dig into the details.

39:18It is a hard thing to catch. I don't think that fully excuses them. But I think the VC market at that time was also suffering from a lot of the overhyped characteristics that you saw in other parts of the market. You got like WeWork and places. Yeah, and they never learn their lessons, right? They keep on doing this. Theranos. Theranos. And this cult of personality around founders and like this obsession that like, you know, you'd always have to find the next Bill Gates, next Mark Zuckerberg, next Elon Musk and like looking for that particular template such as the literal opposite of diversity because it's like one particular stereotype that they're looking for.

39:53And, but then also like at that time, you have all kinds of different market conditions like you're in the COVID market. So interest rates are very low. So it's very hard to get that return. So this does affect professional investors' behavior. There's just a massive amount of money going into VC at that period of time. Some of the best fundraising years ever. I think maybe it was the best, but I can't remember off the top of my head. And so then you have that downward pressure of money that wants to be spent. And VCs have the same idea about schmuck insurance that you have from your portfolio, where they're like, you know, if I don't have a crypto company somewhere in my mix, and then it turns out the crypto is the next big thing, all my investors are going to come to me as the VC and be like, you're a schmuck.

40:37You know, you missed it. Your job is to catch these trends before they leave, you know, before they go. And so the mindset of VC is very much, you know, you can fiddle the numbers. Back 20 companies, two will succeed. Back 100 companies, five will succeed, whatever, you know. But that's kind of the idea. And they just generally don't worry about the ones that don't succeed because that's part of the model. I think what FTX and some of the other examples like Theranos have shown is there are the ones that don't succeed, and then there are the ones that blow up into spectacular, massive fraud cases.

41:08And that is a bad look for the VCs. And I just think that their system, it's obvious that the system is not set up to really take a deep dive and look for fraud. The one thing I would say is there are probably, but there definitely are some investors and some that I spoke to who did look at it and say no, right? And people who had the opportunity to maybe try and get into FTX and said no. In that environment, the company, the startup has a lot of power because there's so many VCs chasing after them. They're like the hottest company in the hottest space. Everyone wants to write them a check. And so they can kind of run the table and dictate the terms.

41:44And so what did FTX do? None of the investors had a significant ownership stake. They all had little percents, which meant that they had less control as individuals. It also allowed FTX to justify there being no proper board. So then they're not giving board seats to the VCs so that someone's really there on top of it, looking into the details. And also they could dictate what transparency they were going to give through the investment process where if people asked questions that they didn't want to answer they could just be like well nuts to you i've got these other like hundred people lined up around the block who also have the same size of checkbook and are going to write me a check no questions asked so why would i deal with chamath said that yeah you asking that i know he's a bit scammy himself but he said he called up and said i want to see the numbers they go the way they literally said go yourself he said he hung up the phone for huh maybe they have got a money printing machine over there because the level of like we don't give a crap yeah it's so high that it kind of convinced people like they must have something because no one would act like that normally and i don't know about your mouth but like there are other other people that you know we i spoke to for the book who had sort of similar stories so they've definitely seemed like this is a thing that happened um where if you know you weren't willing to do the deal on their terms they did not have to deal with you there's so much money they could get and i think you know it is a bit of more than a bit like is it you know it's a seriously bad look for vc as a sector where you're like there's just so much fomoing going on and like you know it's kind of like um 10 year olds on a football pitch like they're all chasing one ball they're all following the ball and not playing their positions.

43:10You're like, it just seems as though the level of rigor was definitely not there. The thing that's interesting is people say on the internet, the tweet is they didn't do their due diligence. I think it's obvious they didn't do enough due diligence. That's self-explanatory, but they actually did do some. And that's kind of the weird thing about it. It's like there was some degree of looking into it, just not asking remotely the right questions in enough detail to actually find the thing that they needed to find. What kind of estimate or would you say is the amount of businesses that are kind of on the rotten side of the distribution?

43:42I mean, in the period that I was writing about, if you look at not by number of companies, but kind of by their market share, I would say like a large number of the biggest ones who control a lot of the market share had some of those like serious underlying problems around being offshore, not being properly regulated, not being transparent about ownership or structure or, you know, basically being, relatively speaking, unaccountable, kind of freewheeling. Even at Binance, for example, describing themselves as the pirate ship and they're taking advantage of that, floating around different islands, not being under the control of particular jurisdiction.

44:21So a lot of the market was operating through those types of exchanges for a period of time. You know, relatively speaking, now the trend has been those more, you know, offshore companies are losing out compared to some of the more, you know, regulated onshore types of players because of, first of all, you've got demise. Like, you know, companies like FTX just going away because they've gone bankrupt. And then also like regulation and enforcement catching up with some of the stuff that was going on during the kind of bubble period. And I think also just people sitting around looking at the example of what happened during that time and thinking I'd rather be doing my business with a more reputable type of player in the crypto industry.

45:02So we've talked about bad actors there a bit as well. I want to move on to some of the changes recently and how that informs your opinion on the space since the book in a way. So there's two that stand out. There's obviously Coinbase, who I think everyone focuses on the bad exchanges. Coinbase, they're not perfect, but show me a finance institution there is. But they've been a constant in the space that hasn't gone down, that hasn't betrayed trust. So the reason I pick up on Coinbase in particular is they're US based. They've become the major custodian for a lot of the ETFs. So a lot of the, which what I mean by that is they're the ones that are literally holding the Bitcoin, right?

45:38So I think BlackRock, et cetera, these massive institutions have said Coinbase are the people that we're going to hold the Bitcoin with. So they just seem to me to be very different to the rest. Even Binance, which was like the biggest, wasn't it? Shady in terms of based in the Cayman Islands or wherever. And they seem to be an example of a smooth operator in that sense. And then there's the recent SEC filing to approve the spot ETFs and the impact that that has on the space. Do you think there is legitimate players and do you think there is a legitimate space for crypto as a result? I mean, I think, you know, there's definitely a possibility of a legitimate space for crypto.

46:22You know, I would, I think that there are still, you know, even with the ETF and like, you know, the exchanges that have done fine, you know, there are still kind of issues, I guess, you know, broader issues about, you know, what is the basis for this as an asset? Do we really understand why it trades the way that it trades? And is the market manipulated? And the issues in Bitcoin about very large holders who have a lot of sway over the market. I think some of the things that still make me uncomfortable about it. I think there are some intermediary institutions that are more credible and more better supervised.

47:06But there's also a lot that aren't stills and we need to be careful about that. There are still tons of different options that are available to people to participate in crypto through intermediaries and middlemen and institutions that are no good and people should be really careful about. Just the fact of having an ETF box to put around crypto is somewhat to me neither here or there. It definitely helps in terms of a route to access that is probably a little bit more reliable than some of the others if it's being done by more credible institutions with better supervision. Just so for anyone listening, can you just explain what are the differences between this ETF with Bitcoin, the spot ETF purchases, say the futures one that came out a couple of years ago?

47:50It's a very high level. A futures ETF is a derivative contract. Basically, you know, what you own is a contract that is based on the price of the asset. So, you know, there's more complexity there. And the thing that people have been hammering on the door of the SEC for is like, what they want is an ETF where like the ETF owns Bitcoin and you own a share of the ETF. So you own a share of the Bitcoin that underlies that and it's direct. So it's not intermediated through a futures market. You're not betting on the price, you're owning the asset. Yeah, you're owning the thing. And so people have been trying their best to make the derivatives-based ETF do the job, but I think people just wanted the more direct, more straightforward product, and that finally arrived.

48:35But at the same time, it doesn't answer the question of, should I access crypto? You still have to make that decision based on all the information that's available to people. They can make up their own mind. But just having the box, like the ETF, you have his only row box for the thing that it, you know, he kind of is used to access. So it's, it's like saying, should you buy Tesla? Like, you know, I, I don't, do you, I mean, I watched the SEC announcement and I kind of got the vibe that they did it reluctantly. They didn't really seem like, oh, we love this thing. It's more like, everyone definitely seems to think that.

49:09The cat's out of the box. There's so many goddamn Americans that have got this thing. We need to, we need to regulate it because we can't just wipe 50 million people out basically. Yeah. But, but they still, they still, they still approved it. Yeah. I mean, I think there is definitely a feeling that it was reluctant. I mean, you know, sometimes regulators do have their hands for us and you have this kind of like back and forth of like once something achieves a certain amount of popularity, you can't put it back in the box, you know, or you can't get rid of it. So you've got to try and get on top of it.

49:38But I think there's further to go before I would say like I totally feel as though, you know, it's been completely legitimized. And, you know, Bitcoin is one area, but then if you look at kind of the rest of the world of, you know, the tokenverse and like all the millions of different options that you have, you know, are the standards the same in terms of like transparency, in terms of disclosure and like people getting good information the way, you know, obviously it's not perfect, but you get much more information, much more reliable information about a stock than you do about a token because of the, you know, the nature of the regulations around the market and people can make better decisions.

50:15just also about the kind of the offshore companies issue, because this comes up definitely with FTX and lots of other players. Binance, for example. Yeah. So, you know, like the UK does have rules in place about investments, financial promotions, you know, crypto derivatives, not allowed in the UK for retail investors most of the time. And, you know, you could disagree with that rule, but it is the rules been made by the legitimate process in the UK. And I do think big picture, it's problematic when you have companies that are based in random islands offshore and are using the nature of crypto and the nature of the internet to offer services into a jurisdiction like the UK without being subject to or overseen by the legitimate authorities in this country or whatever country you are, we wouldn't normally be comfortable with an offshore for-profit company that is basically just ignoring the consumer protection rules in our own jurisdiction because they can get away with it for a period of time using crypto and the internet.

51:19I think that is a problematic phenomenon. If there's rules, it should be fair. What about ADRs or whatever they're called for Chinese share ownership? Because that's an offshore structure based out of a shady island. What's an ADR? Well, I don't know if they're - I'm going to press the button. Yeah. What are they even called? I don't know why it slipped my mind, but you don't own Chinese companies, you own a derivative that's based off an island off America. And then they list on the US stock market, right? So you're owning a derivative there that's not actual ownership. And China could turn around and say, we don't recognize any of those at the minute.

51:50We basically work on a relationship of, they're not going to say that because they don't want to piss America off. Yeah. People need to be aware of that risk. But I think that the phenomenon there is different. Using an offshore jurisdiction for a kind of workaround, like you're describing, is one thing. What I'm talking about is like a company as was, you know, in the history of, for example, Binance or, you know, other companies in space. American Depository Receipt. There you go. FTX, right? You know, down in the Bahamas offering their, you know, services in many jurisdictions around the world.

52:21Not including, well, ostensibly not including the U.S. because the derivatives rules in the U.S. really kind of stick. People are afraid of pissing off the U.S. government. But basically, you know, depending, there are people who would argue they're trying to follow the rules in different countries. But basically, these companies are like, you know, a lot of the time not. They're just, you know, they're allowing people to navigate. You know, you go on the internet in the UK and you can access this website and trade in something in a way that is not under, you know, the rules that would normally be in place in the UK if you were dealing with a UK institution.

52:55The other problem with that is you have no recourse, right? So again, another thing to think about if you're making the investment is like, what do I do if this goes wrong? What do I do if these people make off with my money? There are ways to complain about financial institutions in the UK. They're independent government agencies that can look into your complaint, can help you out, can make a decision, can force on the company, can require it to give you your money back. And all that kind of stuff is like positive consumer protection that generally is much more lacking in crypto. In the past, it was almost completely absent.

53:24I think it's getting there, but that's a development that I think you would want to see. And I think people should think about what intermediaries they're using. It's good to use one where you have someone, you can appeal to somebody and say, hey, they haven't treated me fairly and get some actual justice there. Yeah. So do you think then that these regulators entering the space will ultimately provide that? Well, never perfectly because none of these systems are perfect and never have been. And I think it is part of this conversation where you're like, there's a million examples you can point to in the history of banks or traditional finance writ large of incredibly scandalous behavior that isn't properly looked into, that isn't properly enforced.

54:142008. There's no recourse on all of that. Yeah, totally. And so it's like, the system is you know is you know it's worse than not perfect like it's often you know there are really really bad examples and um but i think that that you know doesn't necessarily there's a bit of a what about ism in crypto where people are like oh what about this and try to find what about that and try to fly you know my challenge would be show that crypto is better you know and look at the evidence of how crypto has worked in the real world and consider whether it's better i would argue it hasn't been so far and like if people want to try and convince me personally about crypto you need to see that track record of things improving because so far, like, you know, the record has been pretty disastrous in terms of the scale and density of really, really bad behavior in this industry.

54:58Like as a percentage, it's just like, you know, way off the charts compared to DraftFi. So people talk about the crypto bubble. Is that something we should be talking about? I mean, I'm obliged to say yes, because I've written a whole book about it. But it's like, I mean, there is obviously a definitional question of like, what, how do you know you're in a bubble, right? And crypto makes that question harder because it's like, well, how do you know what it's supposed to be worth? So it's just like, I feel like, you know, a common sense definition of the bubble would be when the market price, like what people are willing to pay for it is just like way out of whack with what you would think the real price should be, you know, and the things have just gone, you know, sky high in a short period of time for no apparent reason.

55:36And it's all based on just emotion, sentiment, good vibes, you know, FOMO, et cetera, et cetera. And so there are probably economics professors who would give you a very technical definition of a bubble. I think with the recent crypto one, you kind of pretty much know when you see it. I think especially in terms of how quickly it came down, it's like, well, what was it being supported by if it could crash that fast? I think most people would say, even if they're relatively pro-crypto, that things had gotten overheated and out of control for a period of time and it all went a bit crazy and the prices had risen too fast for not for the right reasons.

56:12And so then it all had to come back and check. And that happens in all markets. It's not a crypto phenomenon. It's a markets phenomenon since there were markets. It should be on the list of banned crypto cliches, but people will start talking about tulips, right? People talk about tulips in the comments or the South Sea bubble or all these big historical canonical bubbles. You can't blame crypto for the phenomenon of bubbles, but it does seem to be like most people accept this market is very cyclical to the point of, it depends on how you want to phrase it. Either it's very cyclical or it goes through bubble and bust cycles.

56:52Mostly a decision of rhetoric, right? And I think in terms of, you know, it seems more likely than not that that characteristic is going to continue, that crypto will continue to be a kind of boom and bust, you know. So to use more neutral words, you would say boom and bust rather than, you know, bubble and crash. But, you know, take your pick. Cyclical, because it's kind of, it follows that pattern up, down, up, down. Or maybe it follows the halving, which is done by design, right? You know, you limit supply every four years and there's a steady increase in demand you're going to see. And then what happens is there's FOMO around those points.

57:26Do you even think that the halving sounds like it should be like something in a dystopian horror movie? It's like every second person gets chopped off. Welcome to the purge. The halving is like, oh my God, the halving is coming. It's just a spooky characteristic. I think everyone in crypto, like not in crypto, everyone who's been in crypto for a while or who knows the market understands it, the people that work in crypto, let's say, they expect the market to go crazy and to crash. But then the people who are kind of retail investors who are looking from the outside and reading all these JP Morgan articles and BlackRock articles and FUD and all this new stuff, they're like, I can't believe it's gone down 80%.

58:01But everyone who's in crypto is like, we expected it to go down 80%. We expected it to go up. So like for me, I think it's cyclical and I expect it to go down and go up. But a lot of people, I feel they get emotional and they're like, oh, it's gone up loads. Let me buy some. And then the next thing that's happened, it's about to crash. So you got in at the wrong time. You're right because you're right to extend like, almost take your paper, walk up to any sort of person who's involved in crypto at random and be like, you know, is crypto going to like be boom and bust? Does it go through cycles?

58:28I would be like, yeah, totally. And I think at the period when it was sky high, you would have been like, is there going to be a crash or a correction? People have been like, yeah. But then you did also see like supposedly a lot of the like most sophisticated, smartest people at the top of the crypto industry acting as if the price would never go down. And that's kind of the crazy thing. It's like Sandbagman Free, it's supposed to be like galaxy brain genius of all time. And like, what was Alameda doing? To quote Caroline Ellison, they were like, balls long crypto. And it was like a leveraged long bet on number go up with no hedges that ended exactly the way you would expect it to end.

59:00So it's like, there's this weird disjuncture, right? Where you're like, yes, everybody would tell you. And if you'd asked, like, I probably did. I don't even know. I probably did at some point ask Sam to his face during like the hype period, like, isn't there going to be a correction? And he'd be like, yeah. But somehow that didn't translate to the behavior. I did the same Loads of me And loads of my friends Did exactly the same thing We're like yeah yeah It's definitely going to crash But we're not going to sell But we're going to buy more We're not going to hedge So it's tough It's really tough to like Actually He needed the price to go up though Didn't he Because he'd spent all the money right Yeah yeah no totally But he didn't He didn't have to put himself In a position where He needed the price to go up That was the I mean But that's like The crazy thing That's like The idiocy The dick-addishness Of his actions right But I think you know To a lesser or greater extent People are prone To make that mistake And it's like It highlights it because of the craziness of the FTX story itself.

59:48But it's like when you're in that super bullish period is the time to have a voice. It can be my voice in the back of your head being like, it's going to come down. And don't just think that. Actually take steps. And it's like somehow adjust yourself and think about it. What would it really think about? What would it be like for me if this went down? If the answer is like all of this profit is just come from, I only ever put a thousand dollars in the beginning or whatever I could afford, a hundred pounds at the beginning. And all of the theoretical net worth that I have has just been generated by that hundred pounds.

1:00:21And if it went away, I'd be no worse off than when I started. Then that could be okay. You could just sit there. But it's like, make sure that's true and not, you know, it's really seductive and easy for you to slip into a position where it actually would affect your life if there was a crash. and you really don't want to be in that position because everybody knows it's like an up and down type of market. I mean, all markets seem to be a bit more like that now. But it's obviously an exaggerated scale. But even the stock market has its wild swings. Yeah, totally. And so, you know, again, you know, people go back to all the like regular markets advice where you're like, you know, you've got to have your - It's the cognitive biases everyone has.

1:00:53Yeah, you've got to have your like, you know, reserve. You don't want to have everything in the market. Like, you know, you just got to acknowledge that it's, you know, it's that line that the FCA makes them put on all the adverts, right? Like markets can go, investments can go up as well as down. It's like, yes, that's really true. There's a reason why they have to say it in every single advert. Yeah. Yeah. Like if you look at the inflows on like famous funds like Peter Lynch or even like ARK, which is like, you know, the innovation ETF by Kathy Wood. It had this amazing run of like 184 % in a year.

1:01:21All of the money that went into that fund went in at the end of that year because no one bought, not many people bought the fund prior to that. And then the fund tanked. So the average investor in that fund lost money. Peter Lynch, I think, is the same. It's like it compounded on average 20 % or 30 % a year, but the average investor lost money because they were selling when the fund was going down and buying when it was going up. And that's just human nature. And that's not a crypto problem. That's a human problem. It's just more exacerbated. And I think if someone's looking at going, should I buy crypto?

1:01:51Ask yourself, are you buying it because your mates are all going, bloody hell, crypto is going crazy? Or are you buying it because you've got a sensible, like wider portfolio diversification in mind? And the other thing I would say and like questions to ask yourself when you're buying crypto is just this soundbite that you, I mean, it used to be the thing everybody said that maybe I hear a little bit less now is like people would be like, oh, do your own research. And it's kind of this get it out of jail free card for the crypto industry to be like, buy this thing, buy this thing. You know, it's going to pump, it's going to pump, it's going to pump.

1:02:16Not financial advice, do your own research. And you're like, okay. After doing a video on YouTube for 20 minutes saying how it's going to go sky high. You can't just disclaimer your way out of it. And I think also like when people are being told to do their own research, like ask yourself really honestly, can I get the information that I need to make the decision? Not because I'm saying that the person is stupid and they can't figure it out, but like is the information available or is it secret and not being disclosed? And if you can't get the information to satisfy yourself, I think there is always that danger that you kind of, you do your best to get the information.

1:02:46You get what you can get. You think, okay, now I've done my research and so I can invest. But actually, you just have not got the actual information that you need to make a good decision. And at that point, you have to make the hard decision and walk away. Like if in doubt, and if you feel like you're just not getting the transparency, then you should just walk away. That's not the moment to invest. Because that do your own research thing has just been this constant cheat in the crypto industry that I think leads people to have a false sense of confidence that you can somehow check this out and it's all on the individual.

1:03:18information is just not available or it's not being disclosed or you don't actually, if you need to, I'm not someone who could go in and read the code and assess whether this smart contract is designed the way it's supposed to be because I don't have the technical skills to do that. If that's what's required to do your own research on that particular investment, I should always walk away, I think, unless you have a really trusted independent third party with no economic incentive who can give you good advice. In terms of an investment, if you're come up with an investment thesis for your crypto, it's like, make sure that the thing that you're investing in is actually connected to what you believe in.

1:03:53Because people will be like, you know, yeah, if for example, they see, oh, UK is going to embrace CBDCs and someone goes out and buys Bitcoin, like that is not getting, you know, maybe there's temporarily, there's going to be a little bump in it. Other people are making the same connection in their mind, but it's not like a good investment thesis to have. It just doesn't make any sense. My thesis is diversification. I buy a global index because I'm unsure what will perform. So if I buy that, then I should broadly diversify into what is an emerging asset class. And it's scarce. It is scarce, like mathematically and there's limited supply and the supply reduces over time.

1:04:33So I'm like - You're making this hard for me, man, because you seem to have come up with the most reasonable possible. You're like the perfect crypto investor, the most reasonable possible philosophy. And I think it can be fine. Like I said at the top, like, you know, I, you know, it's a free country, you know, people should make up their own mind. It's not my position to judge them or tell them what to do. But it's just, you know, it's, I, you know, what I'm trying to throw in is just like, be really careful because the history of it so far, a lot of stuff has gone wrong and, you know, watch for just a lot.

1:05:04There's a lot of like basic risks that people should continue to watch for. Do you think you write a follow-up book in 10 years? We'll see. I'll be like, That's why I'm all in on Bitcoin. How I was wrong about crypto by Josh Oliver. Yeah, definitely. With quotes from Damo and Tea. Yeah, being like, man, yeah. Sponsored by Damo and Tea coin. No, no, stop with this pasty coin. No, my whole point is like around investing is I don't know what's going to happen. I don't buy individual companies in great quantities because I don't know. And like, I think it's hard to beat the market. And, you know, if I'm broadly diversified, that should capture, that will capture a lot of stuff that won't work, but it will capture the few things that will.

1:05:41And that's, you know, like you said before about if you're pinning all your hopes on crypto, that's probably a bad thing. I think the same thing about investing. I think a lot of people discover investing, discover compound interest and think, oh God, like this is the thing that will make me happy in 30 years. And then my miserable day-to-day existence will be better because I'll have a million quid and I'll just hammer everything into this. That's the wrong way to look at it. It's like, like you said before, what I'm doing is compounding the wealth that I generate in my day-to-day life. Yeah.

1:06:08So, you know, from those kind of, that's the viewpoint I view this all from. And a little bit of exposure to crypto, 5 % that might go parabolic or it might die. That's okay. 80 % like this guy. It was 100 % when we started this podcast. I don't back 80%. You don't co-sign the 80 %? No, I can't get a little snippet for Instagram. We think 80%. We're going to clip you up. So it's like all in crypto. 85%. Yeah. 100. Yeah. There you go now. You've got the same. Oh, we've got the 100. Yeah, we've got the 100. We'll do the work from there. Yeah. If you want a bullet point summary of this episode, you can sign up to our newsletter using the link in the description.

1:06:51And don't forget to subscribe to the podcast and leave us a review. It really makes a difference and lets us know that we're doing a good job. And remember, this is not financial advice. Like we say a lot on the podcast, investments can fall and rise. In fact, it's almost a guarantee. remember past performance is no guarantee of future results so your money is at risk with investing also remember other fees may apply i'm damo i'm t this episode was recorded by jack obbs music is by felix taylor it was produced and edited by ruth edwards johnny hunter is in charge of marketing and it's all brought together by will stolerman