Chad. So, you know what's funny is, you're a Chad and you have the Chad. Chad was a Chad before the term Chad was a thing.
There was no Chad when I was a Chad.
Yes, exactly. He has a Chad jaw. Chad, you're CEO of Paxos. You also should, you want to tell them about how you got into Bitcoin and how we met, like, you know, in New York and so on and so forth, like in the early financial crisis origin story.
Yeah. These aren't like, our origin story isn't well known. Yeah.
I was an investor and we did a good job at understanding the financial crisis. We were short subprime going into the financial crisis because we modeled every mortgage in the United States down to the zip code. And so we knew exactly what was happening and we just couldn't figure out how to express it and we realized CDS was the way you could do it very cheaply. And coming out of the financial crisis, I kind of realized they were just going to keep printing money, which is what they've done. And I really thought that was, you know, ultimately going to be enormously counterproductive to the stability of society. And I came across Bitcoin and it was at 3 cents and I started buying it and mining it and I remember connecting with you and we were like, well, you know what this thing needs, it needs some governance to be able to help it form like a cohesiveness which led to Coin Center.
And I remember having like meetings in our office sitting here talking about how can we set this up and found Jerry Brito and that was like 13 years ago. So, I mean, that was way before all the regulatory, like that was the advanced scouts or the advanced scouts.
Yeah. I mean that tells you how early we were, right? It's like nothing else existed. It was just Bitcoin and nobody else talked about anything else.
That's right. And so, you know, another person, Alex Morcos, was also, you know, Wall Street, you know him? He's also in Coin Center.
Yeah. He's a good friend. Yeah.
Yeah. And so it's funny, the guys who understood Wall Street the best often understood Bitcoin, the need for Bitcoin when guys who were only, it's weird, the very best within a space are open to disruption. Like Goldman was actually more open to Bitcoin than other of the major banks and so on and so forth, right? Yeah. Maybe you have a thought on that. Like a lot of Wall Street guys got very cynical after 2008 and saw the bailouts and so on because even though The Big Short romanticizes the process of making those wagers, it was very hard for a lot of people to get paid out even if they knew the mortgage crisis was going to come. Right.
Well, and I mean I remember there would be days where you were like turn to my partner and I'd be like, I don't know if we made any money today because no one's going to pay us the collateral, right? You know what I, it was like, you know, very harrowing times and, you know, I kind of understand some of the decisions that were made. I think they, I would have done it differently but that's neither here nor there. Now when we came across Bitcoin what I saw was one, the blockchain as a mechanism to re-platform the financial system and two, a store of value and that was essentially a way to be long the solution to the problem. And the problem was the over-financialization of the economy that was leading to money printing. And it was the over-financialization that was creating instability through enormous amounts of debt. Which by the way, we still have the same amount of debt as a percentage of GDP that we did during the financial crisis. It's just that everybody knows you're going to print your way out of it. Nobody knew if we would print our way out of it in 2008.
Well, so, you know, it's funny now. I think, you know, rates are just going to the moon. You know, 10-year, 20-year, 30-year. You're seeing this stuff, crazy, crazy movements in yields. How long, I mean, on the other hand, the one counterbalance to that is stablecoins with Paxos and, you know, Tether and USDC all providing demand for dollars. Where do you think things are going to go in terms of, you know, treasuries and other Western bonds, you know, having these catastrophic, or maybe it's catastrophic. Let's take, let's call it, you know, I shouldn't even say unprecedented, let's call it very, very rapid rise in rates. What do you think is going to happen?
Yeah. I mean, there's a, you can spend a lot of time talking about rates and I don't want to bore anybody.
But normally you have like a 10-year or 30-year trade at what nominal GDP is. Nominal GDP is growing 7.5%.
I don't really think rates are that high.
Oh, interesting. I think it's, you think it's, it'll be okay. Well, I don't think that the economy can handle higher rates, but for a fast-growing economy, these aren't high rates. And I think it was Paul Kedrosky who wrote about this and said there's four types of bubbles. There's government bubbles, there's debt bubbles, there's technology bubbles, and there's real estate bubbles. We have all four right now.
And the last time he probably had all four was like the railroad boom and maybe like the South Sea bubble. Right? So like this is going to be the mother of all bubbles because everybody knows the government's going to print money. So the size that this bubble can get is so huge and the only thing that will stop it is so much capital getting sucked in that the 10-year and the 30-year reprice. And so that's where you start to get into like blinking warning signs around what's going on in the economy because there's only so much capital and the amount that's being poured in is unprecedented as a percentage of GDP into AI. It doesn't mean it's not true. Bubbles are based on truth. Like people aren't stupid. You know what I mean? Like the South Sea bubble was about the New World. I mean, that's the greatest opportunity ever. But that's what allows you to have the biggest bubble of all time.
So, it's interesting because, you know, here's how I'm seeing things. I like your, you know, I want to talk about Paxos also, but on the one hand you have Western fiat where even if you don't think the rates are un-, you have to, maybe you'd agree the movement in the rates is very unusual.
Yeah. I mean, it's pretty fast. The economy can't really digest these kind of moves. Normally when you have a 10-year move this fast, something breaks.
That's exactly, okay, fine. So that's, I was surprised he, okay, so I do think something's breaking.
The level is not a problem. The movement is.
Is the movement. Exactly. So the movement is very fast. And this, this is, you know, Trump is now talking about every American gets 5,000 bucks in the fall or something like that, right? Which is like whatever trillion dollars. And so on the other hand, you have this math singularity that's just happened which we were just talking about where encryption is being called, or let's call, I should say it's being called into question, but some, you know, algorithms could have issues. So crypto, you've got a devil and deep blue sea issue between Western fiat and possibly crypto where there's uncertainties on both sides, right? And so then, and then gold is, you know, has risen and then fell. And so one view is you just diversify and you have a piece of everything so that you may not have the most upside but you are bounded on your downside. I'd love to know your view on this because I have some thoughts.
Well, it's tricky. You know, money is really a representation of energy or the ability to buy work. And there's different ways to do that. I think of fiat money as proof of future work. I think of gold as geological proof of work, and I think of Bitcoin as mathematical proof of work. And so, there's different ways to prove work and the cost of doing that work on an incremental kilowatt hour. Basically, I think mathematical proof of work is very interesting. I really believe in it, but it's not proven over cycles.
Math changes. You have to upgrade math.
Gold, you know, you're going to have booms and busts by how much you can find in the ground or asteroids, whatever it is. And then fiat proof of work makes a lot of sense. The problem is you just can't help yourself. It's a bet on the future with debt, right? And then you just have more and more debt.
So then, you know, another lens I have on this is sort of very roughly Western fiat versus Eastern fiat. And insofar, like, this is a very rough diagnostic. And there's countries that are confusing to me and maybe you have some thoughts on them, like Turkey, for example, right? Where the currency has been destroyed but if you've been in the country it's actually fine, you know, or at least I should say all of it, but like it's surprisingly functional and even nice despite the fact that the currency, you know, went crazy. And so, you know, if there's sort of cooperation between people, and you can kind of walk down the street and so on, that's fine. Maybe the currency doesn't matter. But if there isn't, and then the currency has issues, then you're layering a bad thing on top of an existing bad thing. I don't know if you have any thoughts on that. Like, or go ahead.
Yeah. Well, I think, you know, when you're dying, you can still feel okay, right? [laughter] And so like, and then you're dead, right? Sorry. So I don't really know if that's like a great way to go about building a society, which is let's destroy our currency. I know it'll feel good, right? It's, I mean, it's one of these things where, you know, the problem is you said something interesting earlier, which is they're going to print and we know they're going to print. And the interesting thing about this is I think many people, you know, from Dalio to [name] all think that's got to be endgame, but there's been more twists and turns en route to that than were expected.
Yeah. For example, like the rate hikes of, you know, late 2021, right, and early 2022 after they said inflation is transitory, doesn't exist, and so on and so forth. That was like this ridiculously high, you know, everybody who bought treasuries in 2021 was just totally destroyed. They bought them at like 1% rates or something like that. They were being told, all these banks were binging on bonds. They're being told that rates are going to stay low for a long time. And they had just been through whatever 10 years of ZERP and, you know, COVID policies. So they bought these bonds at low rates and then they all got destroyed as those, you know, rates rose. And then treasuries, which were supposed to be the liquid asset, right? Everybody's like, oh, hold them to maturity and don't sell them and you'll be okay, which meant that they're illiquid and you couldn't sell them. So the most liquid asset in the world isn't tradable without, you know, taking some huge hit on them. So like lots of it's really bizarre that the thing has gone on as long as it has with like shell game after shell game after shell game.
And I think that's why you have this bubble that's going to form.
That can be the mother of all bubbles. I mean, just huge. I mean, you know, just wait for like the, so I mean, obviously there's more, I mean, the property bubble in San Francisco when all these guys go and buy with this Anthropic or, you know, open a lot of debt, they're borrowing against the shares.
And, you know, somebody made another point, which is that these high rates are also in a sense inflationary because you've got these coupons, they're injecting huge amounts of money into the system as well. And you can argue that that's also bidding up prices because ultimately, you know, but so, okay, in this, what do you think of as stable? You know, so for example, I mean, obviously, well, Paxos, very stable coin, but for example, there's a kind of conservative mentality, which I disagree with, that says, oh, what you want is guns, gold, and land, right? And the thing is that where the land is really matters because if it's in the Pacific Palisades, if it's in a blue state, or if it's in a badly managed state, then your real estate is only as good as your state. And if the state is bad, you don't actually own the real estate. It could be seized. It could be taxed. It could be all this stuff. You can't take it with you. Gold.
Location, location, location.
Location, location, location. And then, you know, that's jurisdiction, jurisdiction, jurisdiction. And then number two, gold, you can't take it through a metal detector and so on and so forth. So, you know, at the time that...
Actually, it won't set a metal detector off.
Okay. Well, let's say, I mean, more precise. Let's say you can't take it through whatever airport screening stuff there is. Yeah.
