BTC078: Bitcoin Mastermind Discussion w/ Joe Carlasare, Jay Gould, & Jeff Ross (Bitcoin Podcast)

Key takeaway from the Q2 mastermind discussion on The Bitcoin Fundamentals podcast is the recognition that we are living through unprecedented economic times, and the actions of central banks, particularly the Federal Reserve, are causing significant volatility in financial markets. During the discussion, the panelists, including attorney and adjunct professor Joe Carlessari, entrepreneur and venture capitalist Jay Gold, medical doctor turned fund manager Jeff Ross, and others, touched on various topics, including the Luna stablecoin meltdown, the global bond market selloff, the equity selloff, and commodities blowing out. One intriguing observation made during the discussion was that historically, when the fed funds rate has hit a high, it has never gotten back up to that level, indicating that something may have broken in the system. The panelists also noted that the Fed's communication has become increasingly important as they navigate these uncharted waters, and the use of the term "softish landing" by both Powell and the Federal Reserve Bank of New York's president suggests that they are aware of the potential for market disruption. Overall, the discussion underscored the importance of staying informed and remaining nimble in the face of rapidly changing economic conditions.

The panelists believe that inflation is a significant concern and it's currently impacting various markets, including fixed income and mortgage rates. They also discussed the potential for a disruption in supply chains due to monetary tightening. Trey Lockerbie and Preston Pysh expressed their concerns about the imminence of a financial crisis, with Lockerbie suggesting that it's already happening and Pysh arguing that tightening could worsen the situation. Joe Carlasare, who previously held a bullish view on yields, acknowledged his mistake and agreed that the current state of the bond market is a disaster. The panelists also touched upon the topic of Bitcoin and the potential impact of its volatility on the markets, with Do Kwon's Luna project being mentioned as an example of the risks involved in the crypto space. Overall, the consensus among the panelists is that inflation and monetary policy are major factors driving market instability, and the potential for a financial crisis is a real concern.

The recent collapse of the Terra stablecoin, Luna, and its associated ecosystem has exposed the risks and interconnectedness of decentralized finance (DeFi) and stablecoins, which are currently a major focus of regulatory scrutiny. The Luna stablecoin, which was supposedly pegged to the dollar but not fully backed by Bitcoin or other reserves, saw its value plummet from $100 to a dollar, leading to a sell-off of Bitcoin and other assets in the space. The DeFi ecosystem, which includes many stablecoins and other projects, is heavily interconnected, and when one project fails, it can cause a chain reaction of losses for other projects and investors. Additionally, some stablecoins, like Luna, promised substantial yields and had venture capital backing, which could lead to regulatory action and potential legal consequences for those involved. The broader macroeconomic environment and the Federal Reserve's concerns about stablecoins as a threat to the dollar are also factors to consider. Overall, the Luna collapse serves as a reminder of the risks and potential consequences of investing in decentralized finance and stablecoins, and highlights the need for regulation and oversight in the space.

The current market instability, particularly in the crypto and DeFi space, is interconnected with broader issues in the bond market and legacy markets. The lack of liquidity in these markets could lead to a continuation of the sell-off, and any potential intervention by authorities could have varying effects depending on the asset class. The famous Luna tattoo incident serves as a reminder of the risks and potential consequences of being associated with high-profile projects in the crypto space. The ongoing crisis has all the hallmarks of a classic liquidity crisis, and until stability is achieved, markets are likely to continue selling off. It's important for investors to keep a holistic view of the markets and not focus solely on crypto and ignore what's happening in other markets.

The speakers on this podcast discussed the current market conditions and the lack of liquidity, with some predicting that the amount of liquidity that will be required to stabilize the markets could surpass what was injected during the March 2020 liquidity crisis. They also mentioned how the liquidity is being absorbed by the equity market, leading to a consolidation of wealth in the hands of a few equity holders. Yahoo Finance was highlighted as a valuable tool for staying informed about market news and trends. Additionally, Raine Wilson's story of creating a successful business with AT&T's support was shared. Overall, the speakers emphasized the importance of staying informed and prepared in the current economic climate.

The recent CPI data coming in lower than expected, along with signs of peaking inflation and potential economic data surprises in the third quarter, could lead to a relief rally for risk-on assets, including Bitcoin. This is due to the Fed potentially having more wiggle room to ease up on their hawkish stance, as inflation may no longer be accelerating. However, this is not a guarantee of a full market recovery, as some experts believe we could still be in for a double-dip recession, with a potential pivot from the Fed and large-scale quantitative easing on the horizon for late 2023. It's important to note that this is a complex economic situation, and investors should stay informed and cautious as the market continues to evolve.

The current market conditions are being described as one of the most volatile in history, particularly in the bond market. Trey Lockerbie emphasizes that the upcoming bear market rally, while it may fool some investors into thinking the bear market is over, will likely be a strong one that will ultimately lead to significant losses. Jack Neureuter mentions the possibility of Bitcoin reaching new all-time highs before collapsing again. Preston Pysh shares historical context, noting that the NASDAQ in 2008 experienced a similar pattern of a deep sell-off, a strong bounce, and then a deeper sell-off. The panelists disagree on the Federal Reserve's actions and their potential impact on the market. While some believe the Fed will continue to raise interest rates, others think the economy is already in a downturn and earnings reports in the coming months will reveal weak guidance and potential layoffs. Overall, the consensus is that the market is volatile and uncertain, and investors should be prepared for further declines.

The panelists believe the Fed's recent rate hikes are not a change in policy, and stocks are not cheap, leading to concerns about a potential market sell-off. The S&P 500 and Nasdaq are expected to continue declining, with potential downgrades in earnings expectations leading to significant price drops. The Fed's language in their press conference suggests concern about the sell-off, but the question is whether they will keep hiking rates or ease up. Some believe the market will experience bear market rallies amid bad economic news, as investors hope for a potential pause in rate hikes. The NASDAQ is currently 23% higher than its pre-COVID top, but adjusting for inflation, it's actually down 13% from the previous high in 2020. The panelists' opinions vary, but they all agree that the end game is uncertain and that investors should be prepared for a range of outcomes.

The economic downturn and rising interest rates are causing significant financial strain for many individuals, particularly those with dollar-denominated debt and heavy reliance on home equity. At the same time, the uncertainty surrounding the Federal Reserve and potential midterm elections could add political pressure on the chair, Jay Powell. As for Bitcoin, its value could continue to drop, potentially reaching the 21,500 mark, but some experts believe it could present a massive buying opportunity. Ultimately, the economic landscape is complex and filled with various pressures, making it essential for individuals to stay informed and adapt accordingly.

Bitcoin is currently considered cheap by some market analysts, despite recent market trends. Jurrien Timmer from Fidelity believes that the cryptocurrency is trading along its adoption line and would require significant market forces to push it lower. He also noted that Bitcoin has a history of quickly recovering from major dips, such as during the COVID-19 pandemic. Meanwhile, the Senate is expected to vote on a confirmation for a shared round either tonight or tomorrow. In terms of the broader market, some experts believe that the Biden administration's focus on inflation could lead to a delay in market recovery. Elliott Bisnow suggested that the Democrats may sacrifice market gains in order to bring down inflation and appeal to voters. However, others, such as Joe Carlasare, still believe that the market will eventually reach lower lows, but there may be a brief delay in the process. Additionally, there were several sponsor messages throughout the discussion, promoting various financial products and services, including a high yield cash account from public.com and a franchise opportunity from Iflex stretch studio. Overall, the conversation highlighted the ongoing debate around the current state of the market and the potential impact of various economic and political factors. While some remain bullish on Bitcoin and the market, others are more cautious and believe that there may be challenges ahead.

The current bearish sentiment in the market, fueled by widespread pessimism and liquidity concerns, could lead to a potential market reversal. According to Jack Mallers, when everyone is bearish, there's nobody left to sell, and the price may start creeping up despite skepticism. Jason Brett adds that the Fed's own financial stability report identifies liquidity issues in various markets as a systemic risk. Preston Pysh also points out that when liquidity starts drying up, it becomes mathematical, and the market becomes focused on covering counterparty risk, leading to a potential large correction in risky assets. Additionally, the ongoing situation in China and the mutated nature of COVID-19 add layers of uncertainty to the market. Overall, the consensus among the speakers is that the market may be due for a surprise turnaround, despite the current bearish sentiment.

The ongoing situation in China, with strict lockdowns and unusual policies, can be attributed to a combination of factors including poor healthcare policies, centralized government control, and potential political tensions. However, some experts argue that there might be hidden agendas behind these actions, given China's history of controlling various aspects of society. Ross Gerber believes that China's strict lockdowns and policies are a result of misguided attempts to eradicate COVID-19, while others suggest that it could be related to resource constraints or geopolitical tensions. Ultimately, the situation in China is complex and multifaceted, with various theories circulating, but it's clear that something significant is happening.

The recent events surrounding the Luna stablecoin and the potential regulatory response highlight the risks and uncertainties associated with decentralized finance (DeFi) and cryptocurrencies. Jack Neureuter expressed concerns about the ignorance and poor policies from leadership regarding COVID-19, but the panelists agreed that the regulatory response to the Luna situation provides a powerful talking point for those advocating for stricter regulations in the crypto space. The potential for consumers to lose significant amounts of money, as seen in the Luna situation, can make it easier for regulators to justify intervention. Jack Mallers warned against building platforms based on staking tokens and yield farming, as these practices can leave investors vulnerable when the "run in the bank" occurs and there's no central authority to intervene. Preston Pysh questioned the sustainability of high yields in decentralized systems, and Jason Brett warned against giving up control of Bitcoin by staking it on exchanges. Overall, the panelists emphasized the importance of understanding the risks and limitations of decentralized finance and cryptocurrencies, and the potential for significant regulatory action in response to high-profile events.

The Ethereum staking process, with over a trillion dollars staked and the inability to withdraw, presents a complex and confusing situation. The speaker expresses concerns about the lack of transparency and potential similarities to a Ponzi scheme. The SEC's slow and inefficient regulation and the potential for class action lawsuits against exchanges were discussed as possible solutions or consequences. The speaker also differentiated Bitcoin from Ethereum and other "clown coins," emphasizing the importance of understanding the engineering behind these new technologies. Ultimately, the uncertainty surrounding Ethereum's staking process and the potential regulatory response highlight the risks and challenges associated with investing in new technologies.

The SEC's regulation of cryptocurrencies and altcoins as securities could lead to selective enforcement and litigation against individual actors and entities, particularly exchanges. This could create legal liability for exchanges that aid and abet the sale of unregistered securities. The ongoing Ripple case, which is currently being reviewed in the 2nd circuit, could set a precedent for how the SEC approaches these cases and the potential use of the fair notice defense by crypto projects. The outcome of the Ripple case could also impact how the SEC approaches the regulation of decentralized protocols and the definition of decentralization. The SEC's approach to crypto regulation is expected to increase, but the capacity and resources of the SEC may limit their ability to regulate the entire market.

The SEC's ruling on the spot Bitcoin ETF is not the final word, and a settlement is more likely than a definitive approval or denial. The SEC's primary concerns are ensuring a market of sufficient size and liquidity in the United States with access for US regulators, and a universal shared surveillance agreement. However, the majority of Bitcoin trading volume and leverage is overseas, making it a regulatory black box. A settlement would likely include disgorgement, fines, and penalties, but would not result in anyone going to jail. The SEC's role is not to take liberty away or bankrupt entities, but to recover their lost funds. The settlement paid by BlockFi, which was $100 million, is an example of this. The SEC's stance may not change unless there is political pressure, a rule change, or a law mandating approval. The CME, which has a surveillance sharing agreement, is the primary source of Bitcoin liquidity in the domestic markets, and the SEC trusts this market.

The approval of Bitcoin futures ETFs was not an attempt to manipulate Bitcoin's price, but rather a recognition of the CME's reputable status and the lack of internal manipulation in their market. Education is key in convincing others about the value of Bitcoin, and having meaningful conversations about its unique characteristics, such as decentralization, immutability, scarcity, and censorship resistance, can help build a strong case for its potential as a superior form of money. However, the complexities of understanding Bitcoin may require significant research and education for some, making it a challenging conversation to have. Ultimately, the belief is that Bitcoin's unique characteristics make it the best alternative to the current broken financial markets and an inevitable winner in the future.

Bitcoin, despite its volatility in the short term, is a valuable asset due to its unbreakable nature and the potential for long-term appreciation. The panelists compared it to digital gold, which is more convenient to store and transfer in large quantities than physical gold. They also emphasized the historical depreciation of the US dollar and the importance of not getting too caught up in short-term price movements. Jay Gould and Joe Carlasare encouraged listeners to follow them on Twitter for more information, and Jeff Vail mentioned Vailshire for those interested in investment opportunities. The panelists agreed that while the dollar may strengthen in the short term, it is historically guaranteed to depreciate over the long run, making Bitcoin an attractive alternative. They also emphasized the importance of looking at long-term price movements rather than getting distracted by short-term fluctuations.

The panelists expressed uncertainty about the direction of equities in the next few months due to the impact of earnings reports and potential changes in monetary policy. Jay Gould predicted a potential decline in the S&P 500 by July or August due to weak earnings guidance and the possibility of layoffs. Jason Brett shared his skepticism about hitting all-time highs, while Preston Pysh expressed his belief that the market is in a rally and that he doesn't sell Bitcoin due to the uncertainty and potential tax implications. Joe Carlasare added that the Federal Reserve's dual mandate of full employment and inflation could lead to a change in monetary policy if there are signs of significant employment declines or a market crash. Overall, the panelists agreed that the coming months could bring significant volatility and uncertainty to the markets.

Despite the uncertainty and volatility in the market, particularly in the NASDAQ, long-term investors are advised to recognize value and start buying when prices are at an extreme valuation, rather than trying to time the bottom. The speakers emphasized that Bitcoin, currently priced sub-$30,000, is a good value for long-term investors, and even those with a shorter-term horizon of 2 years or more can benefit from buying at these prices. They also discussed how credit conditions and employment are leading indicators, and how the pain in the market may not be over yet, but the value of Bitcoin remains. It's important to remember that this is not individual investment advice, but a reminder to consider the long-term value of Bitcoin and to start buying rather than waiting for the perfect bottom.

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