E104: FTX collapse with Coinbase CEO Brian Armstrong + election results, macro update & more

Jason Calacanis 0:00 Sacks, the United States is maybe not gonna send weapons to Ukraine indefinitely, and they're asking them to sit down and negotiate something that people on the left started to do and got, uh, got smashed for, something you've been pushing for. So, I guess mini victory lap for you, Sacks. What, what's the end game here?

David Sacks 0:18 Well, yeah. I mean, I've been talking common sense about this for months, just saying that we need to be open to diplomacy because total defeat for Russia also means a, a maximum risk of nuclear war. I mean, these things go hand in hand. That's the paradox of this war is that if Russia faces the prospect of a total defeat, that's when they're most likely to escalate this conflict into something much, much worse. So, therefore, we need to be open to diplomacy. But it was good to hear administration officials over the past week say things that I've been saying for months, and that I've been accused of being like a Putin sympathizer for. So, apparently there's a bunch of Putin sympathizers in the administration. And just to read you some of these remarks, actually I wanna play like a fun game with you guys instead of just-

Jason Calacanis 0:59 Oh, really?

David Sacks 1:00 Yeah. Instead of just mentioning these quotes, I wanna play-

Jason Calacanis 1:03 Guess.

David Sacks 1:03 ... a game called Milley or Sacks.

Jason Calacanis 1:06 (laughs)

David Sacks 1:06 So, I want you guys to guess-

Jason Calacanis 1:08 Okay.

Chamath Palihapitiya 1:08 Hmm.

David Sacks 1:08 ... whether it was General Milley who said the quote or whether I said the quote.

Jason Calacanis 1:12 Hmm. Okay.

David Sacks 1:13 Does that sound like a fair, fair game?

Chamath Palihapitiya 1:14 Yes. Fair game.

Jason Calacanis 1:15 Yeah. Let's put-

David Sacks 1:15 Fair. Okay.

Jason Calacanis 1:15 Let's put some game show music here. (instrumental music plays) Milley or Sacks?

David Sacks 1:20 I'm gonna read you like four or five quotes and you guys are gonna say whether it was Milley-

Jason Calacanis 1:23 Yeah.

David Sacks 1:24 ... or Sacks who said it.

Jason Calacanis 1:25 First quote, who said it, General Milley or Sacks?

David Sacks 1:28 "One of the lessons that should have been learned from World War I is that European powers' refusal to negotiate compounded the human suffering and led to millions more dead." Milley or Sacks?

Jason Calacanis 1:38 Sacks. I'm going Sacks. I'm going Sacks. It's a very historic-

David Sacks 1:42 Milley said that.

Jason Calacanis 1:42 God.

Chamath Palihapitiya 1:43 No. Come on.

Jason Calacanis 1:44 Next one. Next one. Go, go, go.

David Sacks 1:45 Okay. "A regional war turned into the First World War because all parties made maximalist demands and assumed others were bluffing. It can happen again."

Chamath Palihapitiya 1:54 Sacks.

David Sacks 1:54 Milley or Sacks?

Jason Calacanis 1:55 I'm going Sacks-

Chamath Palihapitiya 1:55 Sacks.

Jason Calacanis 1:55 ... because of bluffing.

Chamath Palihapitiya 1:56 Sacks.

Jason Calacanis 1:56 You said bluffing.

Chamath Palihapitiya 1:57 Sacks.

Jason Calacanis 1:57 That bluffing is a word that you would use.

Chamath Palihapitiya 1:58 Sacks.

David Sacks 1:58 All right, that was Sacks.

Jason Calacanis 1:59 That was Sacks.

David Sacks 2:00 (laughs)

Jason Calacanis 2:00 Maximalist, yes. Okay.

Chamath Palihapitiya 2:01 The general would never say maximalist.

Jason Calacanis 2:03 Yes. He would never say bluffing. Yeah, go ahead.

David Sacks 2:05 "Where there's an opportunity to negotiate, when peace can to be achieved, seize it."

Jason Calacanis 2:09 Milley.

David Sacks 2:09 Milley or Sacks?

Jason Calacanis 2:10 Milley. Milley. It's very pithy. It's pithy like Milley.

David Sacks 2:12 All right, that was Milley.

Jason Calacanis 2:13 All right.

Chamath Palihapitiya 2:13 Yes.

Jason Calacanis 2:14 Good. All right. I'm, I'm two and one. Two and one. Me and you

Narrator 2:15 I'm two for one.

Jason Calacanis 2:16 Two for one.

David Sacks 2:17 "It's deeply irresponsible not to try for diplomacy when the stakes are so high."

Jason Calacanis 2:21 Sacks. Sacks. That's an emotional statement.

Chamath Palihapitiya 2:24 Sacks.

Jason Calacanis 2:24 I go Milley.

David Sacks 2:25 It was Sacks.

Jason Calacanis 2:26 It was Sacks.

Chamath Palihapitiya 2:26 (laughs)

Jason Calacanis 2:27 Damn it. Two and two. Three and one for Chamath.

David Sacks 2:29 All right, we're almost done. "There has to be a mutual recognition that military victory is probably, in the true sense of the word, may not be achievable through military means and therefore you need to turn to other means."

Jason Calacanis 2:39 Oh, that's Milley. It's a word salad. I go Milley word salad.

David Sacks 2:41 (laughs)

Chamath Palihapitiya 2:41 Hold on. Hold on.

Jason Calacanis 2:43 It's a Milley word salad. It's too, too convoluted for Sacks.

Chamath Palihapitiya 2:47 Sacks.

Jason Calacanis 2:48 I'll go Milley. I'll go Milley.

Chamath Palihapitiya 2:49 I think it's Milley.

David Sacks 2:49 That's Milley.

Jason Calacanis 2:50 Yeah.

Chamath Palihapitiya 2:51 Yes.

Jason Calacanis 2:51 Word salad Milley. Ah, that's it. I caught up. Now I'm three and two, tied with Chamath.

David Sacks 2:55 Last one.

Jason Calacanis 2:56 Last one. Okay.

David Sacks 2:57 "It must be our objective now to help achieve a ceasefire and negotiate a peace rather than protract the conflict."

Jason Calacanis 3:03 Mm. Wow. It's so formal.

Chamath Palihapitiya 3:05 Milley.

Jason Calacanis 3:06 It's so formal. It feels like somebody said that on the steps of like a building outside. It's very formal. It's well spoken. It's crisp. Can we hear it one more time? May we hear it one more time?

David Sacks 3:18 "It must be our objective now to help achieve a ceasefire and negotiate a peace rather than protract the conflict."

Chamath Palihapitiya 3:25 Milley.

Jason Calacanis 3:26 It's a little too formal for a podcast, but in a tweet it wouldn't be, so it could be a Sacks tweet, but I'm thinking so podcast, I gotta go Milley. I gotta go Milley.

David Sacks 3:36 Sacks. (buzzer blares)

Jason Calacanis 3:38 Oh, God damn it.

Chamath Palihapitiya 3:39 (laughs)

David Sacks 3:39 (laughs)

Jason Calacanis 3:39 You can't tell Milley from Sacks is what we've learned.

David Sacks 3:42 (laughs) That's it.

Jason Calacanis 3:43 What a great game.

David Sacks 3:44 (laughs)

Jason Calacanis 3:44 All right. Now we're gonna play the next game. This is called Bernie Madoff or SBF.

David Sacks 3:51 (laughs)

Jason Calacanis 3:52 Bernie Madoff or SBF.

Chamath Palihapitiya 3:54 (laughs)

Narrator 3:55 (upbeat music plays) I'm going all in.

David Sacks 3:58 Don't let your winner slide.

Narrator 4:01 Rain Man, David Sacks. I'm going all in.

David Sacks 4:06 And I said we open source it to the fans and they've just gone crazy with it.

Chamath Palihapitiya 4:09 Love you,

Narrator 4:10 Queen of quinoa. I'm going all in.

Jason Calacanis 4:14 All right, everybody. Welcome to the All In pod. With us again, the dictator in a beautiful purple sweater. Sweater Karen. Man, it's the fall season, so the triggering will begin.

Chamath Palihapitiya 4:23 I want you to notice the inside, the inside of this is suede.

David Sacks 4:27 (laughs)

Jason Calacanis 4:27 Oh, very nice. Very nice. So, um, multiple animals killed-

Chamath Palihapitiya 4:31 Cashmere.

Jason Calacanis 4:31 ... for your pleasure. Got it.

Chamath Palihapitiya 4:32 Suede. Yeah.

Jason Calacanis 4:34 Got it. All right.

David Sacks 4:35 What animal do they kill to make suede? Is that like a type of leather or what is that?

Chamath Palihapitiya 4:40 I hope it's an endangered one. (laughs)

Jason Calacanis 4:42 (laughs) Well, actually that version of suede that he's wearing is from a white rhino. So they just take the hide and they throw everything else away. Oh my God, it's so horrible.

Chamath Palihapitiya 4:52 (laughs)

Jason Calacanis 4:53 So horrible.

Chamath Palihapitiya 4:54 (laughs)

Jason Calacanis 4:55 God. Can, can we take this out of the show? Uh-

Chamath Palihapitiya 4:58 These are ivory buttons.

David Sacks 4:59 Ivory buttons.

Chamath Palihapitiya 5:00 (laughs)

Jason Calacanis 5:00 No. No, Chamath. It's not ivory buttons.

David Sacks 5:03 I think, I think it's baby seal fur around the collar.

Jason Calacanis 5:06 Baby seal. No.

David Sacks 5:07 How many baby seals were killed to make your outfit?

Jason Calacanis 5:10 All right, also with us is, uh, the sultan of science, uh, David Friedberg, racing from the airport. How was, uh, JetBlue Mint? Uh, I heard you upgraded to Mint.

Chamath Palihapitiya 5:18 No comment.

Jason Calacanis 5:19 What, you don't wanna talk about the $1,200 upgrade you did to your JetBlue ticket?

Chamath Palihapitiya 5:22 Wait, you don't wanna talk about JetBlue Mint? Why?

Jason Calacanis 5:25 Are you embarrassed to fly commercial?

Chamath Palihapitiya 5:28 What did you eat?

David Sacks 5:28 (laughs) Are you embarrassed to fly J-Cal?

Jason Calacanis 5:32 Yeah. I totally... When I'm in Mint, I walk around like I'm the president.

David Sacks 5:36 (laughs)

Jason Calacanis 5:36 I'm like, "Hold on. Mint coming through." And then I start spreading out.

David Sacks 5:41 I think J-Cal class is like the seat by the bathroom.

Jason Calacanis 5:44 (laughs)

David Sacks 5:45 In the back.

Jason Calacanis 5:45 Hey, do you know you save 150 bucks each way.

Chamath Palihapitiya 5:48 What is... Is JetBlue Mint the name of like the, uh-

Jason Calacanis 5:50 JetBlue Mint is their first class.

Chamath Palihapitiya 5:51 (laughs) JetBlue Mint.

Jason Calacanis 5:52 Uh, coast to coast. It is so delightful. They-

Chamath Palihapitiya 5:56 What is JetBlue Mint? What is at JetBlue Mint?

David Sacks 5:57 (laughs)

Jason Calacanis 5:57 They just have figured out a way to make like sleeper seats, you know, that are very nice and, uh-

Chamath Palihapitiya 6:01 Oh, that's great.

Jason Calacanis 6:02 It's upgraded service where they, they put like a little wall between you and everybody else. It's kind of like having a private plane if you didn't. And, um, Sacks is here. The whole crew is here basically. Uh, we'll have a surprise, uh, bestie-guestie jumping in in the middle of this. I'm not gonna tell you who.

Chamath Palihapitiya 6:17 Because nothing's going on this week.

Jason Calacanis 6:18 Nothing is going on this week. I mean, there's so much

Jason Calacanis 6:20 to talk about. Let's just start with the elections.

David Sacks 6:23 I think we have to start with my mea culpa.

Jason Calacanis 6:25 Usually, this is like throwing red meat to sacks. But I mean, at this point... All right. So DeSantis won by double digits in Florida. He got a huge, uh, amount of the vote, but all the Trump, high profile Trump-backed candidates seemed to have lost. Dr. Oz, Dan Cox, just it was a shellacking, I guess, or the red wave became like a puddle or like an eyedropper or something. But some of the Trump backed candidates did win some of the, um, uh, Peter Thiel collection. J.D. Vance won. So I guess that's a big win for sacks.

Chamath Palihapitiya 6:56 That wasn't a Trump candidate though, because if you remember when, uh, Trump went to stump for J.D. Vance, he forgot his name. (laughs) Got his name wrong.

Jason Calacanis 7:03 (laughs)

David Friedberg 7:03 Got Trump-

Chamath Palihapitiya 7:04 So-

Jason Calacanis 7:04 When you've got Trump on your side, you don't need friends.

Chamath Palihapitiya 7:07 ... anybody that Trump actually cared about turned out to be just a complete dud and lost.

Jason Calacanis 7:12 Hmm.

Chamath Palihapitiya 7:12 And everybody that kind of, you know, had to keep him somewhat around just so that he didn't throw bombs, actually did decently. But I mean, Trump is a just, a, a weight on the neck of the Republican Party, and it's time to just get rid of him.

Jason Calacanis 7:28 Sacks, what happened-

David Sacks 7:30 Yeah.

Jason Calacanis 7:30 ... to your red wave?

David Sacks 7:32 Yeah. Listen, I got this wrong. Um, I think there's a few reasons for it. So I think when you get an election wrong, you have to admit it and figure out what you've, what you, what your mistake was. Otherwise, you're not going to improve. I mean, number one, I was looking at, you know, the RCP polling, this RealClearPolitics, where they take an average of all the different polls. They were adding a factor to it. They were showing, by the way, plus three or plus four in the Senate for Republicans, but they were adding a factor to it based on the underweighting, uh, that the pollsters did in the last election cycle. And it turns out that the pollsters, I think, did a pretty decent job correcting their polls. And so the RCP overweight turned out to be just basically completely wrong. The other thing that I got wrong was I was just looking at the fundamentals. I mean, three quarters of Americans think we're on the wrong track and we're in a recession. So based on that, you would think that this would be a great year for Republicans. And in fact, the out of power party usually wins in a midterm and Biden's popularity is at historic lows, at like 41, 42%. So everything seen- was teed up for the Republicans. So what went wrong? I think a couple of things. Number one, two days before the election, Trump basically comes out and pre announces that he's running.

Jason Calacanis 8:42 Oh, yes.

David Sacks 8:43 And you know, this basically plays into the narrative-

Chamath Palihapitiya 8:46 Ah, yes.

David Sacks 8:46 ... that Biden has already created, that this is a... this is not a referendum on Biden. It's a referendum on democracy. And basically, Trump made it into a choice election. Who do you like better, Biden or Trump? And the fact of the matter is, if you look at the exit polling, as unpopular as Biden is, Trump is even more unpopular. So that did absolutely nothing to help the Republicans. And I think it really hurt them at the margins. The other thing that turned out, I think the other big thing that helped Democrats was Dobbs. And I never thought that it wouldn't be a factor. But if you looked at the polling before the election, 15% of likely voters said that it was their number one issue. If you looked at exit polling after the election, it was 28%. So Dobbs turned out to be twice as significant as what the early polling was showing. And if you remember, Jason, go back to the episode we did on abortion. I said the shrewd play for Republicans here was the Roberts compromise. What did Roberts want to do? He basically was going to allow the 15-week restriction on abortion, but not have the headline of Roe v. Wade overturned.

Jason Calacanis 9:47 Mm-hmm.

David Sacks 9:48 And that basically is what DeSantis implemented in Florida. He basically restricted abortion after 15 weeks. It's the purple state compromise. It's where I think-

Jason Calacanis 9:56 Mm-hmm.

David Sacks 9:56 ... the purple states and where most of the country is going to end up, and the sooner Republicans get their heads wrapped around that fact, the better they're going to be long term.

Jason Calacanis 10:05 To ask you one question there, Sacks.

David Sacks 10:06 Yeah.

Jason Calacanis 10:07 Who stacked the Supreme Court deliberately to turn over Roe v. Wade?

David Sacks 10:11 Listen, I mean, there, this was a long term priority of Republicans, obviously.

David Friedberg 10:16 That's not a question. That's, that's not a question, J Cal.

David Sacks 10:17 Yes. Look, but, but, but-

Jason Calacanis 10:18 Well, no, I mean, we do have to recognize that Trump said he would do that. He did it. So this is doubly Trump's fault.

David Friedberg 10:22 Every party nominates justices that align with their values, and, and it cycles. And he's, he's never run.

Jason Calacanis 10:27 Yeah, but Trump said he's going... Trump said he would specifically do it in order to turn over Roe v. Wade.

Chamath Palihapitiya 10:31 I know, but the president doesn't choose who dies in the Supreme Court and when.

David Friedberg 10:35 Yeah.

Chamath Palihapitiya 10:36 Right? There was an entire-

David Friedberg 10:36 And they also ... There was-

David Sacks 10:37 Yeah, it's also more complicated than that, because what this Dobbs decision did is throw the issue back to the states. And the fact of the matter is that now it's up to each of these states to determine where they're going to come out on this issue. So if you look at, there were ballot initiatives in red states like Kansas and like Kentucky-

David Friedberg 10:54 Kentucky rejected a ban.

David Sacks 10:56 That's right. That's what I'm saying is there are pro-life-

Chamath Palihapitiya 10:58 Yeah.

David Sacks 10:58 ... ballot initiatives in red states that lost.

Jason Calacanis 11:01 Mm-hmm.

David Sacks 11:02 And so you can see all over the country that the Republicans try to go too far or they do try to go too far when they try to impose a total ban.

Jason Calacanis 11:10 Yeah.

David Sacks 11:10 What seems to be popular is this, what I'm saying is the purple state compromise. It's what-

Jason Calacanis 11:15 Yes.

David Sacks 11:15 ... DeSantis did in Florida. It seems like most of the country, we talked about this on that episode.

Jason Calacanis 11:20 Yeah.

David Sacks 11:20 Most of the countries in the messy middle, they want abortion to be safe, legal, rare, and early. They're willing to support it in, say, the first 15 weeks, but then after that, there needs to be some restrictions. I'm saying most of the country supports that. Now, it's also the case that Democrats, though, are staking out a pretty extreme position too, because most of the Democrats were taking the position that abortion should be legal up until the ninth month, which is not even, that's more radical than even Roe. Roe said that you can restrict it after 23 weeks. So, you know, what we said on that podcast, Jason, was the party that gets to the middle first on this issue-

Jason Calacanis 11:57 Yeah.

David Sacks 11:57 ... is the one that's going to do well.

Chamath Palihapitiya 11:58 Not just this issue.

David Sacks 12:00 Yeah.

Jason Calacanis 12:00 Yeah.

David Sacks 12:00 And I, and I think, yes, I think it's true on this, and I think it's true on other things. So look, I think the Republicans can correct here pretty easily if they listen to folks like DeSantis and Youngkin and Kemp, uh, people who understand that they have, there's a compromise here. And the ones who basically insist on pushing a total ban are going to go down in flames.

Chamath Palihapitiya 12:21 There's a couple of things I think that are worth looking at now that we have all the exit polling and the results.

David Sacks 12:28 The Democrat strategy of helping to promote these extremist MAGA candidates in the primaries turned out to be a huge winning strategy because every single one that they helped put up against a Democrat, the Democrats won.

Jason Calacanis 12:43 Hmm.

David Sacks 12:44 But number two, so what that shows is the extreme right cannot field a winning candidate. But on the other side, all of these extreme left-leaning Democrats also did not do very well either. And so you're back to, David, what you said, which is, we have been saying for a while the winning strategy is that messy middle, it's the moderate person that kind of, like, tacks to the center, and this is what you see. Everywhere around the country, all of the batt- ballot initiatives, every time you had an extremist ballot initiative, whether it was, uh, a complete ban on abortion in a red state or whether it was a tax the rich policy in a blue state, they failed. And so I think the message that you have to take away is the extreme left doesn't work, the extreme right doesn't work. Right? If you look at, for example, like, Kathy Hochul almost lost in new- in New York State because of who? Because of, like, AOC and all of that extremist progressive rank and file of that party. So people need to really understand and look at the data on the ground. If you want to win in '24, you got to be in the middle and you've got to clean up-

Jason Calacanis 13:51 100%.

David Sacks 13:51 ... all of this extremist rhetoric.

Jason Calacanis 13:52 Freeburg, any thoughts?

David Friedberg 13:54 I think the Georgia Senate runoff race that we had in the 2020 election cost the US $10 trillion. And I think it, uh, 'cause if you'll remember, that was the race that when the Democrats won, tipped the power in Senate, uh, to the Democrats and all this legislation for the last two years was passed, including a lot of the- the fiscal stimulus and spending that very likely may have faced significantly more opposition than could have been faced where the Democrats had the White House and the Senate and the House. And so that single seat and- and the loss of that seat in the runoff to the Democrat Party, I think ended up allowing a lot of loose behavior over the last two years that's going to cost this country for a very long time. And in part, perhaps we could argue a lot of the inflationary pressure, uh, and now the debt load, the US debt load increasing by $10 trillion in the last two years since that election, by the way. And so I think one of the most important things that perhaps people don't cognizantly recognize but feel in some way is that having a balance of power is really important in this country. And so to some degree, while there may be issues that folks can argue about and disagree about, there may be candidates that are vile to us, I think ultimately, folks are recognizing the benefit and the value in having a good, uh, legislative debate and a good check and balance in this country. And so I- I think that there's a lot of what Sachs is saying that- that ties into- into that kind of emotional conditioning that's probably underway.

Jason Calacanis 15:29 Okay. Sachs, Trump said he was going to announce, he went after DeSantis, called him De-Sanctimonious. Obviously, the- the Trump endorsements here didn't help. Uh, Roe v. Wade didn't help the situation. What is gonna happen here? Is the Republican Party finally going to cut ties because they want to start winning or, uh, is Trump gonna just announce next week and cause massive chaos? What's gonna happen in the Republican Party in the coming weeks? 'Cause we're 14 months away from Iowa, right? I mean, this is now-

David Sacks 16:00 So-

Jason Calacanis 16:00 ... the next issue.

David Sacks 16:00 ... the question comes down to, do Republicans want to start winning elections? Yes or no? And Freeburg brought up the- the- the right point. In the last election cycle, he's right that the reason why we got $10 trillion of unnecessary spending is because of that Georgia runoff seat, we're about to have another one, where Purdue won that seat on election night and then Warnock won in the runoff. Why did things go against Purdue? 'Cause Trump had a six-week hissy fit after the election, the Georgia runoff happened on January 5th, and then it all culminated in the riot on January 6th. So, the fact of the matter is, Trump has been having this extended hissy fit and living in denial since the loss in 2020 and as a result of that, we lost the Georgia runoff, I think we did worse than we had to in this midterm, I think we're gonna lose the Georgia runoff again if Trump continues with these antics. And so it really comes down to Republicans, do you want to win?

Jason Calacanis 16:55 Mm-hmm.

David Sacks 16:56 And look, I know that there's, call it 40% of the country passionately loves Trump, but here's the problem, he's capped at 40%. Independents and moderates, centrists will not give the guy another look. And so you cannot win a major national election in this country with 40% of the vote, no matter how passionate that 40% is. You know what 40% is? 40% is Charlie Crist, the guy who DeSantis beat, who wiped out in Florida, that was a 60/40 election. That is what a 40% of the electorate looks like.

Jason Calacanis 17:29 Landslide.

David Sacks 17:30 Exa- It's a landslide, exactly. So, the bottom line is that who your messenger is in politics is incredibly important.

Jason Calacanis 17:38 Mm-hmm.

David Sacks 17:38 And Trump just gives his enemies way too much to work with. Now, if he weren't a Republican, it might be different. Take Fetterman, for example. Okay, this guy Fetterman, okay, he's being portrayed as this man of the people, he's got the goatee and the- the tattoos and the hoodie or whatever. Who is he really? He's a trust fund kid who never had a job until his mid-40s. But the press completely gives him a pass on that. They would never do that for a Republican. If Fetterman were a Republican, the press would expose him in two seconds. Now, that's a complaint, but the fact of the matter is Republicans just have to accept it. These are the rules of the game. If you're a Republican candidate for office, you have to be perfect, you have to be focused, you have to be disciplined, you have to be DeSantis. You cannot give your opponents something unnecessary to work with. Every fight DeSantis picks has been a smart fight that he's won. And same thing with Glenn Youngkin as well. He doesn't give his opponents things to work with. And unless Republicans realize these are the kinds of candidates we need to nominate in this media environment, we're gonna keep losing elections.

Jason Calacanis 18:37 Yeah.Chamath, any final thoughts here as we wrap up election?

Chamath Palihapitiya 18:40 I'm going to DC next week, doing the rounds, high-fiving-

Jason Calacanis 18:44 (laughs)

Chamath Palihapitiya 18:44 ... back-slapping.

Jason Calacanis 18:45 Yeah.

David Sacks 18:45 Just to, uh, finish the thought, one other quote from, uh, New Hampshire Governor Chris Sununu, who's kind of a... he's a Republican who's been in spats with Trump. He said, "Listen, the message of this election is first fix crazy, then fix policy." If you're coming-

Jason Calacanis 19:01 Hmm.

David Sacks 19:01 ... across like you're crazy, their voters will reject you.

Jason Calacanis 19:04 Hmm.

David Sacks 19:05 Now, that doesn't mean you can't stand for principle. Ron DeSantis says that Florida is where woke goes to die. He says, "We will fight woke in the boardrooms, we'll fight it in the classrooms." This is certainly not a liberal position. These are pretty conservative positions he's taking, but he does it in a calculated, disciplined way.

Chamath Palihapitiya 19:21 I'll, I'll say this right now. He is a winning candidate and the scale of Reagan if the Democrats also don't figure out how to clean up their act. Because the other message that's so interesting that I took away is the legislative agenda that works is actually what Biden has always believed. The problem is that Biden seems to get distracted or confused or hijacked by the left wing of his party, and they introduce all these unbelievably crazy iterations of progressive policy that just are not popular, even in blue states. Just look at the number of bills that failed. So-

David Sacks 20:00 Right.

Chamath Palihapitiya 20:00 ... he also has to fix h- what he's doing, by the way, because-

Jason Calacanis 20:04 Well, and speaking-

Chamath Palihapitiya 20:04 ... he doesn't clean up-

Jason Calacanis 20:04 ... of things that could fail, uh, the... a US judge in Texas, I'm not sure, you can, you can tell me if this is legit or, uh, or not.

Chamath Palihapitiya 20:11 No-

Jason Calacanis 20:11 But ah-

Chamath Palihapitiya 20:12 ... they stayed that they... Well, we should talk about that in the context of the economy, actually.

David Sacks 20:15 Well, that was predictable-

Jason Calacanis 20:16 Yeah.

Chamath Palihapitiya 20:16 That was predictable.

David Sacks 20:16 ... that was predictable that the college loans-

Chamath Palihapitiya 20:18 That was predictable.

David Sacks 20:18 ... uh, are now. It's completely-

Chamath Palihapitiya 20:19 Yeah.

David Sacks 20:19 ... unconstitutional for a president-

Chamath Palihapitiya 20:20 It's not constitutional.

David Sacks 20:20 ... to spend half a trillion dollars without Congress's approval. Can I build on Chamath's point here? DeSantis won Miami-Dade County, which went for Hillary by 30 points, okay?

Jason Calacanis 20:29 Hmm.

David Sacks 20:30 He showed that a competent executive, a, a, an energetic, youthful operator who actually runs the state well, okay? Can win over moderates and independents and Democrats.

Chamath Palihapitiya 20:43 Now, he's a winner.

David Sacks 20:43 That... These are the types of candidates Republicans are after.

Jason Calacanis 20:45 Yeah.

David Sacks 20:45 He's a winner.

Chamath Palihapitiya 20:46 He's a winner.

Jason Calacanis 20:46 We got a,

Jason Calacanis 20:47 we got-

David Sacks 20:47 Yeah.

Jason Calacanis 20:47 ... call breaking in here. Uh, we have a special bestie guest. You know, it's been a big news week. It's not just the elections. FTX crypto exchange went belly up and, uh, we thought, well, let's bring somebody in who's super credible in crypto, and that's friend of the pod.

Brian Armstrong 21:00 He's credible 'cause he's wearing a tie.

Jason Calacanis 21:02 Yeah. Hey, Brian Armstrong. How are you doing, brother?

Chamath Palihapitiya 21:03 Brian Armstrong, you look fantastic.

Jason Calacanis 21:05 Yeah. What are you, testifying today?

Brian Armstrong 21:06 I'm doing great. It's not, it's not Moncler-

David Sacks 21:09 (laughs)

Jason Calacanis 21:09 (laughs)

Brian Armstrong 21:09 ... and it's not, uh, Loro Piana, but um...

Narrator 21:12 (laughs)

Brian Armstrong 21:13 You know, normally I just, I just wear the black T-shirt and the hoodie, but you know, when... At times like this, I gotta go talk to media and policymakers-

Narrator 21:20 (laughs)

Brian Armstrong 21:20 ... regulators, and it's a, it's a good time to, you know, spruce up the image.

Chamath Palihapitiya 21:24 This is a week to break out the tie?

Brian Armstrong 21:26 Yeah.

Jason Calacanis 21:27 Hey, listen, Men's Warehouse, it never looked better.

Brian Armstrong 21:29 (laughs) You look great.

Chamath Palihapitiya 21:30 Thank you.

David Sacks 21:30 I see a red tie and I think fiscally responsible.

Narrator 21:33 (laughing)

Jason Calacanis 21:34 All right. Um, I guess, Brian, just to kick it off-

David Sacks 21:37 (laughs)

Jason Calacanis 21:38 ... FTX, in, in spectacular fashion, blew up this week, and, uh, it's pretty gnarly. You run an exchange as well. What's your take on what happened with FTX, and then what is your position in terms of making sure your customers understand that Coinbase is not gonna have a similar fate to all the other exchanges that seem to be blowing up every couple of months?

Brian Armstrong 21:57 Yeah. Well, first of all, I mean, I think we were all shocked that somebody like Sam, who seemingly is so smart and s- and capable, ended up in this really... the situation where he appears to have done something quite unethical and illegal. So, you know, my job right now this week has been to go out there and just help people understand that Coinbase is not like that. We've been pursuing a different strategy for the last 10 years. We're a public company. We're, we're regulated. Our, our financial statements are audited. They can show that, you know, customer funds are segregated. They're backed one-to-one. We're not investing customer assets without their explicit direction. And so that's been the first step, is just to make sure people understand that. But then a- after that, we need to kind of think about how we go forward as an industry here, and both take a long-term perspective, make sure the good companies in the space aren't allowing one or two bad actors to kind of mess it up for everybody else. And then it, it feeds into the whole regulatory story too, because companies like Coinbase are already regulated, but we're regulated like a traditional financial service business, but we don't have clarity about the crypto-specific regulations, like what's a commodity, what's a security? And that lack of regulatory clarity, I believe, has pushed a lot of this business offshore to these less regulated exchanges. That's part of what caused the blowup today. Uh, they, they were based in the Bahamas, you know, and they just... there's not sophisticated financial regulators overseeing what they were doing.

Chamath Palihapitiya 23:19 Brian, there's a lot to unpack, but maybe we can just take a step back, and for the uninitiated, or for the person who's only been just following this very superficially, can you just, in a nutshell, explain what happened?

Brian Armstrong 23:34 Yeah. So, uh, my understanding is, and again, this is from people I've talked to, and I spoke with Sam and CZ briefly during this, but I didn't get details from them. I got it from other people.

Jason Calacanis 23:43 You spoke to them this week?

Brian Armstrong 23:44 Yeah. I mean, this was all going down. I mean, I, I spoke to Sam about, you know, he was trying to raise emergency fu- uh, financing and things like that. And I spoke to CZ about why he was considering buying the asset. I thought it was a bad idea. But my understanding of what happened at this point, and again, I don't have all the facts, this is just my, my understanding, is that, you know, FTX was in a position where they had this market maker, Alameda, that was investing in risky things. And that's fine. Like, market makers, hedge funds, they're designed to take more risk. It appears, at this point, that back during the last, uh, shakeup in the crypto industry where, you know, Th- Terra Luna and Voyager and Celsius and Three Arrows went under, it appears that, uh, Alameda took a big loss at that time as well. They may have even been underwater. And instead of just saying, "Hey, you know, this hedge fund's gonna blow up too," which would have been unfortunate, people would have lo-... you know, Sam would have lost money, it's embarrassing, but it's not illegal for a hedge fund to blow up.It happens with some regularity. Instead of just letting it blow up, it seems like at this point he took customer funds-

Chamath Palihapitiya 24:47 But you have to explain, he als- he owns both. That's for the people that may not understand that.

Brian Armstrong 24:52 Right.

Chamath Palihapitiya 24:53 Yeah. So it's a related party.

David Sacks 24:54 Right. So he owns, he owns his own exchange called FTX and he owns his own hedge fund called Alameda.

Chamath Palihapitiya 24:58 Which operates inside of FTX as well as in other places, right. But again, Alameda seems to have blown up. Sorry, Brian, back to you.

Brian Armstrong 25:07 Yeah. So it seems they- they had this solvency issue and instead of just letting it blow up, Sam basically said, um, "Hey we have a bunch of customer assets over here at FTX," or he somehow basically made a loan from FTX into Alameda to try to prop it up. I don't- I don't know why he did that. I mean, that- that's the moment in my mind where he crossed the line into probably committing fraud. And I- I think he probably lied to users, lied to investors, and he went around and tried to bail out these different companies like- like Voyager and BlockFi and to sort of prop up this thing and- and maybe he thought he could trade his way out of it or something. I- I'm not sure, but that seems to be where the mistake was made.

David Friedberg 25:46 Brian, can I ask one question? Which I- which I think will help frame the contagion risk set of questions that everyone's having. When people have an asset, we- we all talk about customer deposits and customer assets held at these exchanges, but those assets and those deposits are very often some form of coin. I have some amount of Bitcoin, some amount of Ether, some amount of something else. Is it the case that there is an assumption of total asset value that's held in its- in a portfolio of coins that doesn't necessarily match the individual user's accounts? And then when one coin goes down in value nominally to dollars, that the whole value of the portfolio goes down and now you can't actually make the customers whole. So in the statements that have been made by these guys and other exchanges, that we have enough liquidity to cover customer's accounts, that the p- assumption might be we have enough liquidity if you assume the current market price for a whole bunch of different coins. But then if one coin tanks, the total liquidity tanks and they don't actually have it matched up correctly because now the customer account value didn't go down as much as the exchange's, uh, total, uh, asset value. Does that make sense?

Brian Armstrong 26:56 It does, and-

David Friedberg 26:58 Is that part of the contagion risk that's going on here is that they're not matched truly between customer accounts and the exchange's, you know, holding of- of coins?

Brian Armstrong 27:06 So not exactly. Okay, so if you're a regulated financial service business, um, that's- but you're not a bank, you know, w- we're regulated as a trust company, a money transmitter, et cetera, you're required to hold customer assets one for one-

David Friedberg 27:19 One for one.

Brian Armstrong 27:19 ... in- denominated in the- the asset. So in other words if you say y- the customer has one bitcoin, you have to hold one bitcoin. If they say they have $100, you have to hold $100. And so that's the case with Coinbase. You don't have to take our word for it, by the way, you can look at our audited public financial statements as a public company with a independent, you know, big four accounting firm who went to go verify all of that. And that's what various custodians and exchanges, that's what they all should be doing. If- by the way, if you're regulated as a bank, you can actually, uh, go invest some of those, but there's very strict regulation around that and capital requirements and whatnot, and we're- we're not a bank. So we- we hold one to one. Now if you're, um, an investment fund or a hedge fund or- or something like that, then you can try to take positions in different coins and different assets and they could go up and they could go down. You know, you may- you may lose your investors' money, but there's no such thing as the customer assets being involved in that. There needs to be clear segregation of those customer funds and from- from what an investment fund would be or corporate funds, and that's where they got in trouble. They- they basically commingled customer funds with their hedge fund.

David Friedberg 28:24 Can you-

David Sacks 28:24 Classic run. Yeah.

David Friedberg 28:25 Yeah, can you explain the contagion, by the way? Just so we can... 'cause everyone's been talking about the contagion and understanding what's next. So that's- that's what I just want to-

Brian Armstrong 28:31 Yeah.

David Friedberg 28:32 Yeah. 'Cause I think people are going to be asking that a lot this weekend.

Brian Armstrong 28:34 Yeah. So I- I do think there's- there is some contagion risk here. I think there's other firms that had, um... first of all, there's firms that had money just sitting in FTX and that's now going through bankruptcy court. So that's been bad. I mean, Multicoin came out publicly and said that they had 10% of their portfolio sorted on FTX. Um, there's other firms that Alameda may have had loans with and those firms are probably struggling. I- I- you know, I don't want to say who, but we have s- rece- received a couple of inbound calls from other people trying to get emergency financing. There's people who may have just totally different from FTX and Alameda, they may have just had their own portfolio that they took margin or leverage on to buy crypto and now as the prices have come down a little bit, they're getting stopped out. So, um, that's all been very challenging and I ju- I- again, just for the sake of clarity, I- I should say that Coinbase did not have any material exposure to, um, F- Alameda, FTX, or FTT token.

David Sacks 29:27 Can we just talk about this issue of customer deposits?

Brian Armstrong 29:29 Sure.

David Sacks 29:29 Because this is really the crux of the issue from a legal standpoint, right? I mean, I remember when I was doing PayPal like 22 years ago and the company was like six months away from running out of money. I remember the lawyers told us really clearly, "You cannot use customer deposits to fund the operating expenses of your business." In other words, if this business ends up going bankrupt, you'll still have all the customer money there and they'll be able to get it back. And, you know, it was really clear, like hey, if you use customer funds to pay for the burn of the business to operate the business, that is a do not pass go, go directly to jail type offense. And so like that's really the heart of this. Now, I read in some articles covering this that the way it worked is that Alameda had a bunch of these FTT or F- these FTX tokens called-

Chamath Palihapitiya 30:16 FTT tokens.

David Sacks 30:17 ... FT- F- called FTT. And they basically used that as like a marker, as collateral. So they- they basically borrowed, what is it, like 6 billion of customer funds from FTX and then they used their own token to then as collateral. So-

Brian Armstrong 30:32 To back stop it.

David Sacks 30:33 Yeah, exactly. And then what happened is apparently like CZ got wind of this and he owned a whole bunch of these tokens.... and he signaled that he was gonna dump it, and the price basically went down. And so now, all of a sudden, the collateral for the customer loans was insufficient, and then there was a run on the bank and basically all the-

Chamath Palihapitiya 30:50 By the way, this has happened, this happens in the public markets a lot as well. So like, when you see heavily shorted names or when you know that certain hedge funds are on the brink, other hedge funds will go in and essentially force a margin call and a stop out, because then it's what causes all these runs. And if you look actually inside a GameStop, the reason why you got all this gamification in the GameStop equity and a bunch of these other names was in part because of this dynamic. Folks that are highly levered, folks that don't have the right matching of risk. And what happens is they're solvent but illiquid and then if you run the instrument into the ground, they both become insolvent and illiquid all at the same time and the whole thing explodes.

David Sacks 31:36 (laughs)

Chamath Palihapitiya 31:36 And you get to profit from it. So Brian, the question is, now that we know what happened, which is all of these crazy inter-party related transactions and, you know, all of this stuff seems very illegal, there was a bankruptcy filing today. And up until today, it seemed like this issue was really about FTX International and Alameda, and it didn't touch FTX US, which for a lot- a long time tried to position itself as, you know, well-run and regulated as Coinbase to be. You know, they tried to say that. But now if you look inside the Wall Street Journal, all the articles say that this is actually FTX Group, so the whole thing seems to be imperiled. Can you just help us explain that? Because there, now that's a lot of US people that were following the rules thinking that this thing was matched one-to-one that may be also affected.

Brian Armstrong 32:26 Yeah. So look, I, I don't know who inside FTX's and its orbit of companies actually knew that the, the fraud had been taking place. I, I, it would not surprise me, I- I have no idea, to be honest, but I, it would not surprise me if FTX US people and employees had no idea that this was happening. I- I'm imagining if Sam was doing, when he, when he started doing this, he probably wanted to keep it to a very small group. Otherwise, this is the kind of thing that leaks and the whole thing blows up. Now that being said, I don't necessarily think FTX US is worth anything as a business right now because of the brand being so tainted and there probably was not great separation of these entities in the sense of, you know, like, did they have truly separate boards and beneficial owners and governance. And it, Sam seems to have a, you know, it appears that they didn't, FTX didn't really have a CFO or maybe even like a real board or anything like that, and so it's hard for me to imagine-

Chamath Palihapitiya 33:23 Well, on Reddit, we found on Red-

Brian Armstrong 33:24 Yeah.

Chamath Palihapitiya 33:24 The- there was an article that appeared that said that the head of compliance at FTX was also the head of compliance at a poker site called Ultimate Bet, which in the 2010s did this exact thing apparently, some version of this where they went in and they looked at hole cards of poker players and then a few employees inside the business would basically play against these folks knowing what the hole cards were, ran this cheat, stole millions of dollars. Somehow that person found a way (laughs) to be head of compliance at FTX.

Brian Armstrong 33:56 Yeah.

Chamath Palihapitiya 33:56 Ten, ten years later, which is incredible. But back to this question. So, so now what happens now is you have the international business and the US business and Alameda research all rolled up into this one frozen entity, right? With now regulators having to... So do you know what happens in a process like this? Like is it that the, the DOJ and the SEC get priority or is there some international monetary... Like who, who s- who unwinds all of this? How, how do people get their money back if at all?

Brian Armstrong 34:28 Yeah, so I'm not an expert at this, but my high-level understanding is that the bankruptcy courts will essentially... And I believe they filed bankruptcy in the US, which I, is an interesting thing. I didn't know why they did that versus Bahamas. But anyway, the, the bankruptcy court will basically go through and try to find any assets of value. So I mean, they must, they still have some tokens and value. They have a venture portfolio, they, you know, I think Sam owns 9% of R- Robin Hood. There's various things that they may own and then they'll kind of auction those off to various bidders o- on distressed assets and then try to distribute those funds to the customers. I- I don't know the exact process beyond that though.

David Friedberg 35:02 I mean, if you remember the Madoff, um, wind-down took many years, and for years he was, uh, trying to find assets and then he found a market, sold them, there's this, the trustee, I think he's still active, uh, and then, you know, tried to redistribute the funds. Obviously so many more customers here than there was with Madoff, but it can be a very long and winding process to identify all the assets, then run the market sale process on them, then figure out who gets what first and then distribute.

Chamath Palihapitiya 35:27 There was an interesting thing that Larry Summers did, I think for Bloomberg, where he was asked whether this was Lehman or Enron and he said, "It seems more like an Enron than it is a Lehman." And Brian, I'm just curious how you think about it. Like, is this sort of a fraud perpetuated by a group of executives to essentially take advantage of a situation or do you think that this is more like a Lehman situation, which is a well-run business, I guess, that just, you know, got caught in a liquidity trap?

Brian Armstrong 35:58 I think it's, my guess is it's a little more like Enron in the sense that, I mean, yes, they were over levered and that kind of thing, but the minute that they moved customer funds in some way, shape, or form to backstop the hedge fund, that, that was, in my mind, fraud and, you know, that's more like Enron.

Chamath Palihapitiya 36:15 Do you think now that we have to open the gates on regulation? Like the whole point of crypto in some ways was, you know, trust nobody, and you know, decentralization is the key. But here what we see is a lot of people were tricked into trusting FTX and having their deposits there and it was a centralized exchange, which caused all these problems. So it's like, it almost violates the principles of what the whole product market fit was supposed to be.So w- what, what should sort of the observer expect and what do you expect as a business in terms of how governments now react to all of this?

Brian Armstrong 36:51 Yeah. Well, I think it's really important to distinguish between the centralized players in crypto, which are custodians, exchanges, et cetera, Coinbase has a big business there, and the decentralized players, which are, you know, self-custodial wallets, DeFi protocols, Web3.0, that whole world. So the centralized players, um, should be regulated l- and today they're regulated already like s- like kind of traditional financial service businesses, but they don't have the c- the regulation clear when it comes to the crypto aspects. So for instance, h- in the US, we, we actually don't still have clarity about what is a commodity, what's a security, should... which one should CFTC regulate v. SEC, that kind of thing. And that lack of regulatory clarity and frankly the, the climate of regulation by enforcement, the negative rhetoric from, you know, Chair Gensler in particular, has created this sort of chilling effect in the US that has pushed a lot of that centralized actors' activity offshore. In fact, 95% of the trading volume in crypto is now outside the United States, and it's come down a lot since the beginning of this year even. Now, the decentralized players, self-custodial wallets, DeFi, Web3.0, this is where crypto really has an opportunity to make a more fair and free and transparent system because you can go look at any smart contract to see exactly what it's doing, anybody can audit the code. If you have a self-custodial wallet, you, you can just trust yourself, you don't have to trust any other inter- intermediary out there, and, um, that's where you get true decentralization. And I think that's actually, uh... now, tho- those areas still have a couple of their own challenges, you know, sometimes people will fl- lose their password or their phone and they'll lose their own money. So you s- if you're gonna, if you're trusting yourself, you still have the, you have t- trust, you know, that you're gonna do that piece correctly, but there's a lot of good things we can do there around making social recovery mechanisms and MPC wallets and things like that.

Jason Calacanis 38:37 We, uh, remember just a couple of months ago, Gary Gensler started saying, "Hey, these things are all securities." And you went and visited the SEC a couple years ago, or you tried to, they wouldn't meet with you. You were very public, you did a, a tweet storm, we talked about this on my other pod, that, "Hey, like, we wanna meet, we wanna talk about that." Now, we're still in a position where the SEC's position is these are all securities which means the... anything that's trading, it would have to be limited to accredited investors, et cetera. What should the United States do here and how close are we to getting clarity 'cause I know you're trying to talk to the SEC directly about, "Can we just get some clarity here? Can people buy these tokens or not?" What is the status of are they tokens, are, are they securities or are they not here in the United States?

Brian Armstrong 39:20 Yeah. So luckily since then, we have had a lot of productive dialogue with both the SEC and the CFTC and Treasury and all kinds of people in Congress, and I do think the US is making some steps in the right direction. There was actually... there was a bill going through Congress recently called the DC CPA, or the Stabenow Boozman bill, although it's having some challenges now, frankly, due to this FTX blowup because s- uh, SBF was one of the people sort of pushing that bill forward. But regardless of that, the, the sort of system that we should have is... there should be a clear designation between what is a crypto commodity, and that can be regulated by the CFTC, and what is a crypto security. Now, this is one of those legal... and by the way, what is also a, a c- stablecoin and artwork and other things that are not any of those things. The challenge lies in that there's kind of, um, a fuzzy line between what is a commodity and what is a security, and a lot of this law is based around the Howey Test which says a security is an investment in a common enterprise with an expectation of, of profit. And so it's basically a point-based system, and in the absence of really getting a clear list between... the CFTC and the SEC are in this turf battle, I would love it if, you know, they could basically put out a list, uh, get their heads together and put out a list, "Hey, CFTC is gonna do these, SEC is gonna do these, a bunch maybe are in the middle, let's let the courts figure that out or whatever." But that just hasn't happened and it's a, it's a missed opportunity in the US.

Jason Calacanis 40:43 So if the Howey Test is not perfect given the dyn- the dynamic nature of cryptocurrencies and all the innovation, if Bryan Armstrong was going to say, "Hey, this is in the best interest of Americans, balancing, you know, some amount of security and safety for people making bets on this currency, a- and allowing innovation," what would you say is the best definition, the best way for us to regulate crypto coins? Putting NFTs aside, putting DAOs aside, just specifically these coins.

Chamath Palihapitiya 41:12 Yeah, actually Jason, hold on, hold on, let me just tweak your question, because-

Jason Calacanis 41:15 Sure, build on it, yeah.

Chamath Palihapitiya 41:15 ... 'cause we, 'cause we should switch to SBF as well and just talk about the person. But to me, it seems the whole issue if you come back, like, what is the first string that you pulled that unraveled the sweater, was the fact that these tokens were created out of thin air, they had no meaningful value, somebody prescribed a value and all of a sudden everybody else in the economy all of a sudden said, "Yeah, I'll take that as collateral." Look, you cannot do that in the regular world. I can't call JP Morgan and say, "I've invented this thing, it's called a share in XYZ, and I'd like you to margin loan, you know, give me a loan against it." So Bryan, explain, like, there's a ton of these tokens that have been engineered, right? And there's been a ton of these tokens that have been sold. So what should people do that own these things thinking that there was going to be some safety or value or... you know, like, how do you think about all of these tokens that are... that, that could be as basically as, as fragile and shitty and worthless as FTT?

Brian Armstrong 42:13 Hmm. Yeah, well, there, there is this concept of, like, an exchange token and, and there's a couple other firms out there that have them, and that's something we haven't done, and I, I do... I think, I think you're right, like, the, the actual utility of those things is a little questionable and so if someone's going to sort of mark those up on a, on a low supply and then a low float and then somehow leverage that, that, that, that's gonna get yourself into trouble. But look, I don't want to throw out the entire concept of people creating tokens, I think there's actually a lot of good stuff there, and it, it comes down to this idea of if, if you're trying to raise money for your company...... and a to- eh, through a token, that's fine. That should be a security and there should be a, a regulated way to do that in the US. Like, go register it with the SEC, you know, let it trade on broker-dealers. That's, that's what we've been wanting to do for a long time and the SEC is taking their time getting there. They don't, uh, you know... Gensler, to be honest, he doesn't seem that, um, excited about the idea of this whole industry existing. And so anyway, but it should, it should exist and it should be happening in a regulated way. So if people wanna issue a token that's raising money for a company, let's regulate it as a security. If they wanna issue a token that's truly on a decentralized protocol or it has some other purpose like voting in a DAO or, or rewards or something like that, then that's probably not a security and let's be honest about that and allow those things to trade in a different environment, a different regulator under the CFTC.

Chamath Palihapitiya 43:32 We're probably running outta time with you 'cause you said you had a hard stop, so let's ask the million dollar question. Tell us about SBF. Like, what's... Who is this character?

Jason Calacanis 43:41 When did you first suspect-

David Friedberg 43:42 Yeah, what's your read on the psychology-

Jason Calacanis 43:44 ... that this wasn't legit?

David Friedberg 43:45 Do you think that it was his altruistic intent that allowed himself to convince himself to do this or do you think this was, like, malicious the whole way or what, what's your sense of the guy?

Brian Armstrong 43:54 Hmm. So again, I'm speculating here. I mean, I, I've spent time with him. I've, I've met him a bunch of times and I have to say, I di- I did not see this coming. Like he, he appeared to me to be, um, a very bright, credible, competent person. Perhaps a bit young, perhaps, you know, a bit reckless at times, but not unethical and not, not committing fraud. I di- I definitely did not see that. You know, if I look back to see were there any warning signs that I should have thought twice about it? You know, one of the things I noticed was that, uh, in 2021, you know, Coinbase had a good year. We, we did seven billion in revenue, four billion of positive EBITDA. We went, we became public as a company. At that time, FTX did about 1 billion in revenue. And I knew how much money we had for our venture budget and just, like, different investments we wanted to make and I, and I knew their revenue and I had to scratch my head a bunch of times and I was like, "Where is this guy getting all this liquidity?" Because he was like buying 9% of Robinhood. He was putting like a billion dollars into this, he was donating to all these politicians and I was like, I, I... It did not make sense to me where he was getting all this cash. People would, just kept telling me, "Oh, his market maker, Alameda, is just printing cash." And I guess like, okay, I guess, you know, it seems like a conflict of interest to own an exchange and a market maker, that's why we haven't done it, but more power to him, I guess. And so I was surprised, I didn't speak up. I cannot, I can't explain the psychology of it at this point, whether he's a pathological liar or if he's started off good and somehow under the pressure of this whole thing went bad, but the minute... You can, you can go watch the interviews. He's, he's, he's lying to people about why he's, he's ba- uh, you know, uh, bailing out Voyager and, and BlockFi and these, and he, he knew at that time that, most likely he knew at that, at that time that they were not solvent, Alameda was not solvent. And so that's where he crossed a major line i- in my book.

David Friedberg 45:44 And we see it time and time again. Elizabeth Holmes, Bernie Madoff. I mean, once the lie gets too big, you can't get out of it anymore, uh, if that's the case. Really incredible.

Jason Calacanis 45:54 A- and the most-

Chamath Palihapitiya 45:55 Wow.

Jason Calacanis 45:55 ... important thing at this point, Brian, is that the United States makes a decision on do we wanna be in crypto, do we wanna have a say in this and create a regulatory framework that entrepreneurs like yourself can deal with? That is the most important thing to happen in the next year. But you're saying the SEC is not motivated. I guess why are they not motivated? They're just CYA, wanna slow-

Chamath Palihapitiya 46:15 Oh, they're motivated now. This is a political issue now, so they-

Jason Calacanis 46:18 Yeah, but let's hear Brian-

Chamath Palihapitiya 46:19 ... they'll be very motivated.

Jason Calacanis 46:19 ... a- answer here. What do you, what do you think, Brian?

David Sacks 46:20 Well, let's find out who, who did SBF give all this money to because he was touted as one of the future biggest donors to the Democratic Party.

Chamath Palihapitiya 46:27 Democratic Party. Yeah.

David Sacks 46:27 If you want signals, so if you want signals, I would say-

Chamath Palihapitiya 46:31 Oh boy, here we go.

David Sacks 46:31 ... there were some pretty big signals here. Number one, he said he's gonna donate a, a billion dollars to the Democratic Party. And he kept touting this like effective altruism, whatever, the saving the world stuff. Now-

Chamath Palihapitiya 46:41 (laughs)

David Sacks 46:41 ... why do you need to do that unless you're reputation laundering and trying to buy political protection? Come on.

Jason Calacanis 46:48 Okay.

David Sacks 46:48 You don't think that was a little bit of a signal? Brian?

Chamath Palihapitiya 46:52 Well, here, I'll tell, I'll tell you an e-

Jason Calacanis 46:53 (laughs)

Chamath Palihapitiya 46:53 I'll tell you an even more explicit signal. We, he pitched us-

Jason Calacanis 46:56 (laughs)

Chamath Palihapitiya 46:56 ... in that $17 billion round and I did a Zoom with him and after the Zoom I'm like, "This doesn't make much sense but I'll have my team do some work." We did some work and we sent him a two-page deck and we said, "Here are our recommendations for taking the next step." One was the formation of a board, the second was the creation of dual class stock, the third was some reps and warranties around affiliated transactions and related party transactions. And the person that worked there called us back and literal, I'm, I'm not, I'm not kidding you, said, "Go fuck yourself."

Jason Calacanis 47:29 (laughs)

Chamath Palihapitiya 47:30 Was quote unquote the response to us. We were like, "Okay." So that-

Jason Calacanis 47:34 Yeah.

Chamath Palihapitiya 47:34 ... was the easy decision, but it's-

Brian Armstrong 47:36 Message received.

Chamath Palihapitiya 47:37 Message received, but I still thought, okay, I'll just put that in the bucket of these guys are unbelievably arrogant and smug. But Brian, I thought what you thought, which is maybe it's because they've print- they've created some money-making machine in the Bahamas and so they, they have that level of i- of con- confidence. You know, I, it... But then to see this thing to the extent of which is now w- we're only scratching the surface, guys. You know, the... We're gonna find out stuff-

Jason Calacanis 48:03 Yeah.

Chamath Palihapitiya 48:03 ... every day. It's unbelievable.

Jason Calacanis 48:05 The, the, the post-mortem's gonna be crazy. But Brian, to that question I asked before about-

Chamath Palihapitiya 48:08 Yeah.

Jason Calacanis 48:08 ... the SEC and what should happen. You said, I wanna pick up on what you said, which is the SEC doesn't seem motivated. Why is the SEC, in your mind, not motivated?

Brian Armstrong 48:17 Well, I think you're right that th- they... I hope that they use this as a moment to come together and help, you know, local companies in the US being built here to end up in a better place. And I, I do believe... You know, David, I think said it's, it's right. It, it is a political issue at this point. There's gonna be a major impetus to get the clarity here in the US and hopefully to help build the companies here in the US that are gonna serve the rest of the world and in ev- and every major financial hub. So we're committed to building that together with all the regulators around the world. And crypto's here to stay, this is a temporary setback. Um, but I'm, I'm here to keep building and make this thing happen.

Jason Calacanis 48:54 All right. We really appreciate-

David Sacks 48:55 I mean, can I-

Jason Calacanis 48:55 ... you taking the time, Brian.

David Sacks 48:56 Yeah. Thank you for, thanks for-

Jason Calacanis 48:56 David, you wanna get the last... Yeah, be, being so honest. Yeah.

David Sacks 48:59 Well, I was gonna say, listen, I mean, story after story here about, you know, SBF was gonna create this billion dollar philanthropy to, you know-

Jason Calacanis 49:07 Long term.

David Sacks 49:07 ... save the world, improve humanity's long-term prospects, number two donor to the entire Democratic Party, and on and on and on. And, like, quite frankly, what this shows is, you wanna know what effective altruism means? It means that you steal other people's money-

Jason Calacanis 49:23 (laughs)

David Sacks 49:23 ... while bragging about saving the world-

Jason Calacanis 49:24 (laughs)

David Sacks 49:25 ... while taking a big chunk for yourself. That's what it means.

David Friedberg 49:28 There was a research paper in 2011 and, uh, this research team looked at drug addicts and drug abusers, 4,000 people, and they found that the biggest addicts had the highest intelligence. That you were twice as likely to become an abuser and addict, uh, the, if you were any kind of intelligent, uh, uh, quintile, quantile that they were measuring. And I, someone explained this to me at the time that the smarter you are, the more you can convince yourself that when you're doing bad things, you're actually doing good things. Uh, even if you're doing bad things to yourself or bad things to other people that you really may actually care about, you can convince yourself that there's some reason to keep doing it. He seems like a brilliant guy. Uh, I think that to some extent, he may actually, I don't know the guy, but he may actually believe that the, um, you know, the, the ends did justify the means and he thought that he was doing good for the world and this was something that had to be done in some way and, "Oh, it just got a little bit away from me but it's, it's still worth doing."

Chamath Palihapitiya 50:29 I think the, I think the problem is bigger than FTX. Uh, and I'll say the uncomfortable part out loud and nobody needs to necessarily comment if you don't want to. But there were an enormous number of venture firms that talked their, their way into just completely doing zero work here. I mean, and the, the tip of the spear is this thing, uh, who- who's the guy that works at Founders Fund? Bulgar, Buljar, Zebuljar? Zebuljar?

David Friedberg 50:59 DeLeon.

Chamath Palihapitiya 51:00 Delian.

David Friedberg 51:00 He's called DeLeon.

Chamath Palihapitiya 51:00 Thank you. Yeah, yeah, yeah. That tweet that he had where he basically took the snapshot of the Sequoia transcript was one of the funniest things that I've ever seen. I mean, this was a $215 million decision and Sequoia documented it and put it on their own website. And I think that's an example of something that was happening, which is people just looked the other way and didn't even wanna do the layer of work.

David Friedberg 51:24 Chemath, let me just string together a couple of things we've talked about over the past few episodes, and I think you'll agree with this point, but generally speaking, there seems to be a very heavy lack of governance in investing given the amount of capital and the velocity of capital in Silicon Valley, particularly in private markets of late. And a lot of the stuff that's been talked about, where last week we talked about super voting shares and the founder does whatever they want and there's no governance and there's no board and there's no oversight. And particularly with this FTX situation, where clearly there wasn't a board, uh, that, that was, you know, getting the necessary information, that had the necessary influence, that had the necessary controls, the meta conversation. But all of these threads tie together the concept that maybe there's not a lot of governance and not a lot of diligence going on and the amount of money that's flowed into Silicon Valley has allowed a lot of this loosey-goosey behavior. I'll say- And I think there's a consequence of it.

Jason Calacanis 52:15 ... I agree with you. Let's thank Brian Armstrong for joining us. I know it's a very busy day and, uh, what a great, uh, candid, insightful, uh-

David Friedberg 52:20 Thanks, Brian. Great to be with you.

David Sacks 52:21 Thank you, Brian.

Jason Calacanis 52:21 ... yeah, Brian. Thanks, Brian.

Chamath Palihapitiya 52:23 Thank you.

Jason Calacanis 52:23 Candid and insightful. Finish it out, Chemath.

Chamath Palihapitiya 52:26 I just want to say the second uncomfortable thing out loud, which is there was a lot of venture firms in Silicon Valley in this period of both not doing any work or diligence who also took the extra step and actually created classes and would teach teams how to create these tokens. Okay? And those artifacts, those video links and artifacts are sometimes on their website, they're still on YouTube, they're inside of Twitter. And what these folks would do, and we talked about this, the game that they played was they would get a team, they would create a token, they would also buy equity at some crazy valuation. The equity was locked up but the tokens were not. And then they would put them on an exchange and sell them to unsuspecting people and they would be able to dump these tokens. And if you look inside of that trend, what you're gonna see, and Brian just mentioned this, those were the sale of securities, except it was done in a completely unregulated way. So if the SEC is really and the DOJ is really gonna take this FTT token issue seriously, and what happened to FTX, they're gonna start to look at a bunch of other tokens and token sales and you're gonna end up looking at some very well known venture firms inside of Silicon Valley.

Jason Calacanis 53:43 This is gonna be super gnarly, and we talked about it before on this pod. There are people who knew better. So you get a bunch of kids who are living in the Bahamas in a house and, and they're, you know, winging this thing. That's one level of responsibility and they'll go to jail. But when we talk about venture capitalists, capital allocators who've been at it for decades, to Chemath's point, and they're teaching people how to do this and they're hiring attorneys and creating offshore Pa- Panama, you know, BVI, whatever, uh, places to put these coins and then teaching people how to do it and then flipping them potentially. Th- This is, we're just peeling back the onion on this. I have a feeling that this is gonna be the turning point in all this. We will-

Chamath Palihapitiya 54:21 That token, guys, let's be honest, is not the only token that has been engineered by Silicon Valley venture firms and it is also not the only token that's gone to zero that was engineered by Silicon Valley venture firms.

Jason Calacanis 54:34 Well, I mean, who knows engineered by, but yeah, uh, adjacent to at the very least.

Chamath Palihapitiya 54:39 No, Jason, Jason, there's videos today on some of the most well-known venture firm sites on how to do this.

Jason Calacanis 54:47 Oh, wow. I'm gonna have to see those. Um, yeah. So they're basically-

Chamath Palihapitiya 54:51 Can I, can I, can I-

Jason Calacanis 54:51 Your, your point, Chemath, is they're instructing people on how to do this and that is a level of culpability, uh, yeah.

David Friedberg 54:56 It was part of the deal close.

Chamath Palihapitiya 54:57 It's what, it's what, it's what they, it's what they did.

David Friedberg 55:00 Can I ask you guys, uh, a point of view on just one big macro philosophical question? I'm obviously not big in the crypto world and haven't been, but so much of the positioning has been that these networks get decentralized through the cryptographic verification systems that obviously enable, uh, you know, them to operate, uh, effectively and truthfully and correctly and without centralized control or manipulation. But ultimately, while these networks themselves may be decentralized, the user's point of access often ends up being centralized as a point on the network. And it is that point on the network that accrues the same level of influence, power, control, and value as what we saw in the prior centralized n- network model. You know, we had Balaji on last, uh, year, and, you know, I tried to get to this point with him. We had to cut the thing co- the sh- the conversation short, but I've still not heard from anyone, and I've spoken with Brian separately about this point, and, and the, the, the, the concept I use is, like, look, media, if you put all the YouTube videos on, on a decentralized network and anyone can access them and they're distributed everywhere, you still need to have a really good application. And whoever makes the best application is gonna get all the usage, and then all the users will use that application, and that becomes, effectively, the point of control and influence and value once again. And so it seems to me like in this case, the exchange was being used as a centralized wallet. Certainly you can do n- you know, exchange through the exchange, but, but mechanistically, these guys were storing their coins, their, their cryptocurrency inside of FTX's wallets. And so-

Jason Calacanis 56:35 I wonder... Yeah.

David Friedberg 56:36 ... FTX had control over their assets. And so the network centralized. And so does the decentralized model... It's a, it's a question I'd love to just ask you guys and your point of view on. Does this decentralized model actually ever manifest where everyone has their own wallet? And I know there's all these new protocols and these distributed wallets and DeFi things, but ultimately-

Chamath Palihapitiya 56:55 I don't know enough.

David Friedberg 56:55 Yeah.

Chamath Palihapitiya 56:55 I don't know enough. My-

Jason Calacanis 56:55 That would be certainly better than centralized... Yeah.

David Friedberg 56:58 But this, this points out, this points out to me, just you basically recreated an exchange without a regulator, and of course-

Chamath Palihapitiya 57:02 Yes.

David Friedberg 57:02 ... someone ripped you off and it blew up. Like, I mean, how is it any different than what we had in version 1.0.? And is there really a model where decentralized works? Or ultimately, because of the network effect and the e- and the economy of scale-

Jason Calacanis 57:13 Okay, Chamath, answer.

David Friedberg 57:14 ... someone wins. Yeah.

Jason Calacanis 57:14 Yes, Chamath, answer. All right. We, we got the question. Yeah. Go, Chamath.

Chamath Palihapitiya 57:17 No, I mean, I ha- I have n- I have... I don't know the answer to Pribar's question 'cause I don't, I don't know this space well enough. I mean, you know, I... My, my biggest purchase ever was Bitcoin in 2011. You know, I've bought a bunch of these tokens that have massively depreciated in value. I think lots of investors have. You know, I kind of f- fell into it as well. Like, I thought, "Wow, this is incredible. I get to buy these tokens. They do all of this cool stuff. They represent all this value." And my experience has been the opposite of that. I've lost a lot of money in these things. Um, and so, you know, I really hope that regulators, not just obviously, I hope that regulators do their... do the best they can to get investors' money back in FTX, but I really also hope they figure out all these other tokens as well, because you can just rank them in terms of market cap, start at the top and work your way down, and you will see that these were unregulated securities, Jason, that were manufactured and sold by our brethren.

Jason Calacanis 58:22 People who understand the law around accredited investors and this stuff very well.

Chamath Palihapitiya 58:28 Yeah. Let me ask you a different question.

Jason Calacanis 58:28 They understand it implicitly.

Chamath Palihapitiya 58:30 Do you guys... Yeah. Do you guys think crypto investing, uh, is dead? Or what do you think... How do you think people think about that risk profile now inside of both venture but also-

Jason Calacanis 58:39 I think that investing in the tokens is gonna end, investing in the corporation is gonna begin. And any of the tokens are gonna be super regulated. Building on what you said, Chamath, about the ultimate bet, i- is it possible that Alameda, the trading hedge fund, was looking at the FTX data, which they had insights into, and essentially that's the same as seeing the whole cards in the ultimate bet? And so they're making their trades based on what they see the consumers are making their trades, front running their trades or otherwise-

Chamath Palihapitiya 59:05 But that's, that's not il- that's not illegal. You know, Citadel does this in the regulated market. That's what payment for order flow is. It's-

Jason Calacanis 59:10 Right. Okay.

Chamath Palihapitiya 59:11 It's the ability to front run retail volume. And so, you know, in dark pools, that is legal-

Jason Calacanis 59:19 Mm-hmm.

Chamath Palihapitiya 59:19 ... by the law in the United States and that's what allows Citadel, and, you know, I think Jane Street and Susquehanna. You know, all these folks basically run these dark pool exchanges for regulated securities, like options and bonds and, and-

Jason Calacanis 59:33 Mm-hmm.

Chamath Palihapitiya 59:33 ... stocks. And they get this order flow and they front run it by a millisecond and they, they just-

Jason Calacanis 59:38 Yeah.

Chamath Palihapitiya 59:38 ... take small (...) okay?

Jason Calacanis 59:39 But they can't print the FTT tokens and, and otherwise manipulate the market to the level that I think SBF could.

Chamath Palihapitiya 59:45 But also, I, I just think that there is, there's, there's these really, uh, strict walls and segregation-

Jason Calacanis 59:51 Hmm.

Chamath Palihapitiya 59:51 ... as you heard Brian talk about-

Jason Calacanis 59:53 Yeah.

Chamath Palihapitiya 59:53 ... when you have those businesses in these regulated markets. The problem here is that this is totally-

Jason Calacanis 59:58 Wild West.

Chamath Palihapitiya 59:58 ... unregulated wild, wild west. So who knows what's going on really?

Jason Calacanis 1:00:03 And we're pushing the business sacks off of the shores of the United States. As you said, 95% of this is happening offshore. What do you think should happen regulatory wise, Sachs, in terms of America and competitiveness? Or do we not to be... need to be competitive in this (...) ?

David Sacks 1:00:17 No, I think we should be. I mean, what if, what if crypto and DeFi is the future of finance? I mean, it's an important technology that I think-

Jason Calacanis 1:00:24 Right.

David Sacks 1:00:24 ... we should enable through some sort of constructive regulatory framework. I think the regulator should list-

Jason Calacanis 1:00:29 Where would that start?

David Sacks 1:00:30 I think the regulator should listen to Brian and help come up with a appropriate framework. But to be clear, look, what Sam did is way worse than people going on an exchange and speculating. I mean, look, I, I think that people who speculated in the buying and selling of these tokens, th- they're... They were using it like a casino, okay? Like, that's different than a customer putting their money on FTX-

Jason Calacanis 1:00:52 Mm-hmm.

David Sacks 1:00:52 ... and having their money get stolen. That's the big difference. So I think there's levels here. Now, Chamath, to your point about who's minting these tokens, you're right. Maybe that's like another category. But I do think that th- the reason why this is on a different level-It's because it wasn't Sam's money to give away.

Jason Calacanis 1:01:12 There is such an easy solution to this regulatory environment-

Chamath Palihapitiya 1:01:14 Well, hold on, David. I'm just, I'm just try- I'm, I agree with you on that point, but I think don't underplay when there's an organized process to create an illegal security with special rules for them that allows the liquidity for one class of asset and not liquidity for others.

David Sacks 1:01:31 Yeah, you're right. So that's a separate bucket. I don't think it's the same as what Sam did, and I don't think it's the same as-

Chamath Palihapitiya 1:01:36 No, no, I agree. I agree. No, I'm saying-

David Sacks 1:01:37 But you're right, that's something-

Chamath Palihapitiya 1:01:38 I think that's a grift.

David Sacks 1:01:39 That's something that needs to be looked at, and we need a constructive regulatory framework for that.

Jason Calacanis 1:01:43 There is such a simple silver bullet for all of this, which is these things need to be... There needs to be proper governance, people have to have skin in the game, insurance, people signing off on the taxes, boards, n- onshore here in the United States. And then we need to have, and I'll s- keep saying this, a way for Americans to become sophisticated investors. Only 6% of this country fall into the qualified purchaser and accredited. If you want to trade in these things, or you want to trade in NFTs or private companies, we should have a driver's license-like test, a firearm-like test-

Chamath Palihapitiya 1:02:17 Jason, you and I are on the same side of this.

Jason Calacanis 1:02:18 ... and make a sophisticated test and let people opt into it with an education.

Chamath Palihapitiya 1:02:23 The pro- The problem is when you have guys like this, it sets that desire back by a decade, if not more.

Jason Calacanis 1:02:28 (sighs) That really sucks. I agree.

Chamath Palihapitiya 1:02:30 Because every single-

Jason Calacanis 1:02:31 So frustrating.

Chamath Palihapitiya 1:02:32 Every single person inside of Washington right now who's anywhere near this from a regulatory perspective or a policy perspective is meeting on Monday morning.

Jason Calacanis 1:02:42 Yep.

Chamath Palihapitiya 1:02:42 And the meeting topic is, how do we defend the mom and pop folks that lost money here?

Jason Calacanis 1:02:48 Yes.

Chamath Palihapitiya 1:02:48 That's the only thing.

Jason Calacanis 1:02:49 Right.

Chamath Palihapitiya 1:02:49 So we took this out of, you know... 'Cause I, I remember, I remember I texted into the group chat, "Hey, guys, what, what, what do we think the l- the legal ramifications are that drive prosecution?" And one of our friends said, "Legal ramifications? These are political ramifications."

Jason Calacanis 1:03:04 Yeah.

Chamath Palihapitiya 1:03:04 Which means that this is going to go to the utmost level and it's going to have the most scrutiny, and they're gonna act really quickly. It is, it is-

Jason Calacanis 1:03:11 They're gonna drop the hammer instead of having a path to accreditation. I agree with you. They're gonna drop the hammer because their constituents, some grandma and grandpa or some people put their college education to this and lost everything. We just need a test. Let people prove they're sophisticated and let them participate, if and only if they get a license.

David Friedberg 1:03:27 Well, first... But, but JCal, JCal, haven't you been a proponent for letting people invest in startups that are just mom and pops-

Jason Calacanis 1:03:33 Yes.

David Friedberg 1:03:33 ... and, and democratizing access?

Jason Calacanis 1:03:35 Well, I'm only allowed to do that with accredited investors. I would like there to be a test, and I actually teach a course, Angel University, six times a year, for charity. I do it for charity. It's a four-hour course where you learn about diversification, you learn about the asset class, you learn about 70, 80% go to 0. We teach you about the power law. I try to teach people about this stuff so that they can participate intelligently. It would, it would be the equivalent of free break and thank you for asking the question. The, it would be the equivalent if we had a poker test, and to play in the World Series of Poker, you had to go to a five-hour seminar and you had to take a practical test and you had to say, you know, a flush beats a straight, and you had to just prove that you had some level of knowledge of how to play the game. It's such an obvious path to removing these problems while staying competitive as a country. And instead, we're letting people do this offshore like CZ with no rules or whatever rules he chooses. It's just infuriating. It's so stupid. Our politicians in Washington are so dumb.

David Friedberg 1:04:29 Can, can, can I just say something? I think the challenge is there's always a spectrum of understanding, and you'll always end up seeing the people on the wrong end of the spectrum getting taken advantage of. There's this notion of adverse selection. Distributions are not equal. People will end up, um, you know, kind of opting in to spend money on things, or making investments that they think are good investments, but they're actually getting taken advantage of because they're not savvy enough, or they miss an important angle or important perspective about the person or the thing that they're giving their money to.

Jason Calacanis 1:05:00 Yeah.

David Friedberg 1:05:00 And there will always be some number of those. And the way that regulation has worked historically is not by first saying, "Hey, let's figure out the right way to create a framework for operating." It's that some sort of people got advantaged. That story then becomes the regulatory framework, and that story has repeated itself for 500 years across capital markets.

Jason Calacanis 1:05:16 We're talking about a multilayered thing here. We want to see crypto have a framework. We want it to blossom here in the United States. And then there's multiple level of people who are, um, causing chaos in this ecosystem, in this very promising technology, with their goddamn grifts, whether it's VCs grifting or SBF or incompetence. Uh, we just need to clean this framework up. If people... Uh, sometimes people, I understand, in DC listen to this podcast. If they're listening, it's essential that America be competitive here. It's essential that everybody participate in risk capital and get educated. Let's clean it up and make a framework that allows all Americans to participate and educates them and then stops these grifters from doing stupid things. If people were educated, that's the first step,

Jason Calacanis 1:06:00 and it's the best step.

Chamath Palihapitiya 1:06:00 Should we talk about the economy?

Jason Calacanis 1:06:02 Sure. You want to talk about Facebook with the 11,000, you want to talk about the, uh, market popping?

Chamath Palihapitiya 1:06:07 So at the beginning of October-

Jason Calacanis 1:06:08 Yeah.

Chamath Palihapitiya 1:06:09 I think what we basically said, kind of generally speaking, is market's up, right?

Jason Calacanis 1:06:13 Market's up. Yeah.

Chamath Palihapitiya 1:06:14 It went from nibbling to being constructively positive and basically being-

Jason Calacanis 1:06:17 Yep.

Chamath Palihapitiya 1:06:18 ... positioned long. Here's this really interesting setup. We have a bunch of very positive news that I think we all have to process. First positive news was that inflation ticked down. Now, here's what I'll tell you. There's a caveat here. I talked to a bunch of pretty smart sharps on Wall Street, and oh, two things. Number one is they all gave credit to David Sacks and they said, "Sacks was totally right. Double dip recession is coming." But then they said, "Tell Sacks that we think..." That these are the sharps. "We think that there's a double hump in inflation coming," which means it's coming down to come back up. And there's a bunch of reporting vagaries that may cause that. So keep that in the back of your mind. But positive news number one is inflation ticking down. Um, number two, Jason, we talked about this. Uh, a federal judge basically stayed...... Biden's attempt at giving student loan relief. Now, that would have been a $500 billion transfer payment from the government into the hands of individuals. It is deflationary to not put, give that money to people. It's effectively taking stimulus away from folks. Number three, it looks like we're headed towards a split government, which means that, um, we are not probably gonna see any more stimulus over the next two years. Number four, uh, Ukraine wins in Kherson. I hope I'm pronouncing that right. Number five, the United States, uh, announced yesterday through the Wall Street Journal that they had essentially said no to Ukraine's request for advanced drones. And they said to Ukraine essentially, "You need to go and negotiate an endgame here." And number six, China has started to relax its COVID policies and Xi is pivoting to economy first. So if you took all of those things-

Jason Calacanis 1:08:08 Wait, take seven. Don't forget seven.

Chamath Palihapitiya 1:08:10 Seven.

Jason Calacanis 1:08:10 Facebook, which would not take the medicine, they refused Brad Gersten's letter, cut 11,000 people 48 hours ago.

Chamath Palihapitiya 1:08:17 I don't-

Jason Calacanis 1:08:17 One of the big-

Chamath Palihapitiya 1:08:18 ... think Facebook matters that much, to be honest with you.

Jason Calacanis 1:08:19 Well, but it, it matters that big tech is... And they're taking-

Chamath Palihapitiya 1:08:23 No, it matters to us-

Jason Calacanis 1:08:23 ... the medicine. Yeah.

Chamath Palihapitiya 1:08:23 ... but it doesn't matter to the economy, to be completely honest.

Jason Calacanis 1:08:25 Oh, I, I think it does if people are gonna start cutting jobs. But okay, keep going.

Chamath Palihapitiya 1:08:29 My m- my point is these seven things are macro level things that affect everybody.

Jason Calacanis 1:08:32 Yep.

Chamath Palihapitiya 1:08:33 And I think if you take them together, what it says is that, wow, there's, there's the potential for a lot of great positive developments over the next six or nine months.

Jason Calacanis 1:08:41 Mm-hmm.

Chamath Palihapitiya 1:08:41 And I don't think that that was adequately priced in the market. But here's the problem, and this is what's, why we've been rallying. The problem is that most of this rallying has been because of a bunch of short covering by folks that who were pretty pessimistic and negative after the last few inflation prints. So this is not really net new buying that we saw over the last couple days. So you take it all together, I'm like, it's still gonna probably trend up a little bit, but then again, you know, we talked about this, Jason, when the VIX gets into the low 20s or the high teens, that's probably the short-term top, and then it turns around and unfortunately we're near (laughs) -

Jason Calacanis 1:09:21 Yeah.

Chamath Palihapitiya 1:09:21 ... the, the low 20s, high 18s. So that's kind of my thought on things right now.

Jason Calacanis 1:09:26 Okay. Friedberg, you got any thoughts on the inflation print?

David Friedberg 1:09:28 Yeah, so I think there's two things. One of which I'll, I'll give credit to a guy named Carl, uh, Chou. Uh, I hope I pronounced Carl's name right. He's from William Blair. He puts out these excellent research reports and we used one of his graphics a few weeks ago so I've put it up here, and basically he showed that with the, uh, the NASDAQ move that we saw this week... So you can see this here, he basically tracked the move in the 10-year Treasury against the, the one-day move in the NASDAQ. And, uh, he said that it, it really indicates a unique sentiment shift. Whereas in other times you've seen big moves in the NASDAQ but weren't really seeing significant moves in, in the Treasury rate at the same, on the same trading day and that this is such an outlier what happened, uh, this week. The only other time that we've seen anything like it was when the Bank of England issue happened back at the end of September, uh, in the last, you know, 20 times that we've seen this big of a move in the NASDAQ in a single day. And so we saw a 31, um, basis point move in 10-year Treasuries in, in a single day, at the same time that we saw, what, a seven point move in the NASDAQ. So he said because y- you don't normally see the bond market and the equity market trade in this way together, it really speaks to a big shift in sentiment. Now, at the same time-

Jason Calacanis 1:10:38 And what is that, what is that shift in sentiment?

David Friedberg 1:10:41 That there is gonna be less of a driver for the Fed to raise interest rates at this point because it seems like the inflation print indicates that inflation is coming under control faster than what folks had otherwise anticipated. Uh, and so there may not be as many rate hikes as quickly as folks were anticipating, which will, you know, benefit, uh, benefit equities. And, and the bond market traded that, that, with that perspective as well. Now, the counter narrative, which I just put a tweet by a guy who I've never heard of before, but someone shared this with me, his name is Gordon Johnson, and he said, um, the CPI surprise may actually be due to a technical print that within the CPI one of the biggest indicators is health insurance cost and, um, you know, it, it, the health insurance cost plunged by 4% October to September, but-

Jason Calacanis 1:11:30 How do you know that happens? (laughs)

David Friedberg 1:11:31 ... he says healthcare costs didn't actually magically collapse, there was just an accounting difference in how they're shifting, how they're accounting for healthcare costs that took place during the month. And if you did not, um, if you assumed that that was flat, uh, month over month, you would end up actually with a 6.7% year over year print, which was higher than expected. So there is a counter narrative going on in the market. Uh, I don't know how significant this guy is or how much of a voice he has, but I don't know if we're out of the woods yet, but some folks are saying, the market is saying we're feeling a lot better, but there are still analysts that are indicating that maybe there is still risk, uh, uh, to be had, uh, ahead of us.

Chamath Palihapitiya 1:12:07 I think the sharps tend to be on that second, second perspective.

David Friedberg 1:12:11 Yeah. And by the way, I'll say this week I heard five and a half points, even after that print. So... is where we're gonna get to.

Jason Calacanis 1:12:17 I think consensus we have here is, is that we're in the end game now, maybe what,