TRANSCRIPT

David Hoffman:

[0:04] Bankless nation it is the third week of down tober we are, we are not getting up tober it looks like october is not on the menu kind of was the same exact thing that happened last year uh happy one year anniversary ryan this week of 10 10,

David Hoffman:

[0:19] that happened one year and five days ago uh wow it's it's been a while.

Ryan Sean Adams:

[0:23] You said you said this was like last year but like last year was a lot worse in this, I'd just like to say. I mean, we're not down that much. Like, last year was like the end of crypto's fourth cycle. October last year

David Hoffman:

[0:34] Started with a hint of bullishness and then quickly.

Ryan Sean Adams:

[0:37] Rose versus course to

David Hoffman:

[0:39] Be very, very red. And so that is a repeat of last year.

Ryan Sean Adams:

[0:43] We're turning red, aren't we?

David Hoffman:

[0:44] Last year, Bitcoin started at like $120,000 and then ended at like, 80,000 or 90,000 or something.

Ryan Sean Adams:

[0:51] Yeah.

David Hoffman:

[0:52] And we started this month or even last month in 60,000s and we're ending 80,000s, last month. And so the direction of travel is quite different.

Ryan Sean Adams:

[1:01] Every month we start out with the roll-ups saying the words Uptober curses the

Ryan Sean Adams:

[1:07] month, okay? And it's bound to be a downtober instead or like a blood red tober.

David Hoffman:

[1:13] Everyone in crypto does that. In addition to downtober in the crypto markets, We also got a flush coming out of the AI sector of the traditional stock markets, both in the United States equities markets, but also the Korean stock market. The Korean stock market down 23%, blowing back into the NASDAQ and the S&P. The AI credit part of the AI infrastructure build-out starting to show some cracks and maybe is blowing back into Bitcoin, into crypto, or maybe not. Ryan has a take.

Ryan Sean Adams:

[1:43] I do have a take on that. I don't know if it's the best informed take, but I do have a take, David. Also, I have a take on the attack on the Ledger wallet supply chain. Somebody was implementing a spy sort of device inside of Ledger wallets, the hardware wallets you guys know, that would read your seed phrase during setup and beam it to some hackers that would then steal your funds. Over $100 million in funds stolen this way. How deep does this attack go? We're also going to talk about the Bank of America. Apparently, they had been ignoring some suspicious activity, a little bit of terrorism, a little bit of drug cartels,

David Hoffman:

[2:23] Money laundering, a little bit of crime.

Ryan Sean Adams:

[2:25] Yeah, $5 billion worth, and they were fined by FinCEN this week. CZ has some thoughts on that fine, actually, having been there before. What else we got? Yeah.

David Hoffman:

[2:36] Richard Hart, we have not talked about that name in a very, very, very long time. Good riddance as well. Was arrested in Istanbul on an Interpol red notice. The law finally caught up to him. We're going to talk about the saga and how it all concludes. And I have a take about the hexagons that I want to share, with you as well. That's great. When we get there.

Ryan Sean Adams:

[2:56] Can't wait.

David Hoffman:

[2:56] And then we're also, I'm going to talk to Ryan about paper trade.

Ryan Sean Adams:

[2:59] Yeah, what is this thing? What the heck is this thing?

David Hoffman:

[3:01] I know Ryan has been just dying to get his hands on a way to go 1,000x long

David Hoffman:

[3:05] in any particular direction. So we're going to talk about what it's been like in paper trade 10 days in or so. But let's start in the crypto markets. Bitcoin is down 2.5% on the week to $82,500. I think we actually are recovering a little bit at the time of recording, at least some of the down market coins, but overall down 2% on the week. I think there was a lot of bullishness as the Bitcoin price broke through the previous May highs of this year into... $85,000, $87,000. We are now below the May highs, and so people are now worried about... I don't think we're worried about setting a lower low, but I think people are worried about setting a higher low, but going down nonetheless. The whole Ben Cowan bearish until the midterms take seems to be coming back into focus, back into view.

Ryan Sean Adams:

[3:58] I thought he reversed on that, though. He did reverse on that, right?

David Hoffman:

[4:02] He didn't quite reverse on it. He said that he was wrong about getting new highs above the May highs. But he still held out room for, the midterms could still be rough. I was just wrong about having a new high set in this year.

Ryan Sean Adams:

[4:19] Yeah, well, maybe this is part of a midterm sell-off, of course. So on poly markets, 64% chance the Democrats take the Senate right now, and 91% chance the Democrats take the House. So this could be a blue sweep coming in. early November.

David Hoffman:

[4:34] And you can't imagine that the crypto assets want that. Over the last month or so, we have to have seen Bitcoin and other crypto assets just price in a Democrat win, right?

Ryan Sean Adams:

[4:45] Yeah, I wonder. But I mean, why would that be so negative for crypto at this point? I could understand why a crypto disparaging president would be incredibly negative for crypto. But it's not like we have any laws in Congress, right? Clarity's dead. What does crypto have? Yeah, I don't know that this would be so bearish for crypto.

David Hoffman:

[5:10] Yeah, I mean, traders could just be trading it, right? Like, I agree with you, the fundamental analysis. I don't think the Democrats are going to come in and be like, all right, let's rip everything about crypto out. I don't think they care that much. They're mostly indifferent to crypto at this point.

Ryan Sean Adams:

[5:24] They're focused on AI right now.

David Hoffman:

[5:25] Yeah, their focus on AI is taking all of the flack.

Ryan Sean Adams:

[5:29] Yeah, it really has. I was going to say, I think because part of the reason the vibe seems so down this week is not just because of Bitcoin. That's only actually off 2.5%. It's because the rest of the alt market has continued to sell off. We started seeing that in the beginning of October, and that has persisted. ETH down 7.5% on the week. But if you look at Sol, Zek, Hype, Near, another 10% down, and that's stacking on, what, the 10%, 15% down from last week? What's happening in the altcoin market right now?

David Hoffman:

[5:59] Yeah, I guess using Bitcoin as a barometer for the market isn't really that useful these days because Bitcoin has just been really slow. A lot of the activity has been down market in some of those coins that you've mentioned. In the last like two hours, so we are recording right now at 11.30 a.m. Eastern time on Thursday. In the last two hours, some tokens have had a rebound in strength. So VVV is up 10% on the day. NIR is actually back up above $5. So there's definitely been some strengths in the market. Not everywhere. Pump and Lit are both down 20%. Hype is down 10%. Zcash down 10%. And so, yeah, it continues to be a flush from some of the strongest assets in the market, but you're still seeing some strength.

Ryan Sean Adams:

[6:44] Do you remember what 2023 felt like? That was the early bull of last cycle. I want you to teleport your mind back there.

David Hoffman:

[6:51] It was early bull, but we still felt like shit.

Ryan Sean Adams:

[6:53] That's right. That's right. That was sort of the point Michael Nato made this week in the DeFi report. And he looked at this number, which is so in blue, you see the 50-week moving average for Bitcoin and the Bitcoin price in purple. And at the time of inflection, the same point at which we saw this time where things started to flip early bullish, we did stay above the 50-week moving average, which is about 78K Bitcoin. So if we stay above the 50-week moving average and the average will go down a little bit over time, that would still mean a Bitcoin over 75K. That said, though, there was about seven months of oscillation, of sideways action, of like we might call it BARTs on the charts, right? Where it held this very narrow range. We had two times 17% corrections on Bitcoin and just seven months of absolute chop, even though it was the early bull market in 2023. So that's kind of the way early bull markets feel. They feel sideways.

David Hoffman:

[8:01] It's like Schrodinger's market. Like, is it a bull market? Is it a bear market? You just don't know until hindsight.

Ryan Sean Adams:

[8:07] Yeah. So still my base case is that we have broken the back of the bear market, that we're not going back.

David Hoffman:

[8:13] We are not setting a lower low. We are not going down the low that we set a couple months ago.

Ryan Sean Adams:

[8:18] Exactly. But that doesn't mean like the good times are here and like it's all, you know, going to be sunshine and rainbows and easy from here on out. That's not what the early bull market actually has has been in the past. That's not what it feels like. So we're probably continuing to just maintain that trend.

David Hoffman:

[8:36] Yeah. Yeah. There are some just idiosyncrasies. Like this is a new cycle. We are in a new era of crypto. Everyone feels it. We're in like the product era. It is interesting to me that like.

David Hoffman:

[8:48] One big story of this last flush or so of the last two weeks is like, what are the tokens that have really spawned this boost in crypto morale that are up anywhere between 4 and 10x from the bottom? Like VVV at $24 right now was $1.5 nine months ago. You know, Zcash was $50 12, 14 months ago. So some of these tokens are up bigly. Like Lit, for example, was $1. Now it's at $3, touched $5.5. Revenue generating assets, other than Zcash, revenue generating assets are all up very, very big hype. The big one is up very, has been up very, very big. It's all revenue generating. And that, that, those assets really changed the whole tide, the whole morale of the rest of the market. And two weeks ago, what, even last week, it really kind of did the euthanasia roller coaster where people are like, oh, the bull market's on. Let me go take a leverage long position on a super illiquid dog shit coin. Like, I don't want to name examples because I just made it mean. But there were people buying the bottom of calling them quality alts. And let me tell you, they were not quality alts. So we just we just skipped into like the bull market froth way too soon. And that was like last week. And now I think we're just paying our debts from like people going from fundamentals to like rampant speculation just way too fast in crypto. So, and that's getting fleshed out right now. I agree.

Ryan Sean Adams:

[10:18] And I also agree with the idea that our tokens seem much stronger this cycle than in previous cycles. And I think that could persist into this early bull phase and then into kind of wealth creation phases a little bit later. So that might be where the majority

Ryan Sean Adams:

[10:34] of crypto alpha has actually generated less Bitcoin dominance this time around. But let's talk about some of the other things in the waters in macro and financial markets. I think the big thing we should start with is inflation. It came in pretty hot this week, David. So September inflation came in at 3.7%. That is almost 4%. This is versus an expected 3.6%. It was 3.4% in August. And I mean, this, like when you start to get to 4% inflation, I mean, that does not feel normal at all. I think this is going to bite Republicans in the midterms as well. And where was the bulk of this inflation coming from?

David Hoffman:

[11:21] Energy, gas, air travel, which is gas, fuel. I don't know why fuel and gas are in different categories, but they are. It's all energy. It's all downstream of the Iran war and increased gas prices coming out of the Strait of Hormuz.

Ryan Sean Adams:

[11:35] Okay, so when you have hot inflation prints, then what happens is the probability that the Fed has to raise rates increases. And that's what we saw in prediction markets and probabilities go up that the Fed was going to continue to increase. We also saw the 10-year and the 30-year long-duration U.S. bonds, they spiked back up. So they were starting to settle down a little bit. Now they spiked back up on the back of this because, of course, investors and bonds want higher yields in exchange for these very hot inflation numbers. It's just, I mean, GDP has been pretty high lately. We're tracking between 5% and maybe 6%. And inflation has been hot, too. So three to 4%, just the nominal number here, like nominal growth here is like pretty large, right? So I guess real growth, we might be like one to 2% in real terms, but when we got 4% inflation, five, 6% GDP growth, everything is running pretty hot on the money side of things. Also, the AI financing concerns popped up.

Ryan Sean Adams:

[12:43] There was CoreWeave, which I don't know if you saw this, David, but CoreWeave, which is kind of the NeoCloud story, it's data centers for AI, it fell 17% on Wednesday, okay? And the big scare was CoreWeave bonds, which now the 2032 bonds bought at par four months ago, so bought at 100, trade at 78 cents. Okay, so this implies that Corweave might have a greater than 50% chance of default in the next five years. That's what bond investors are pricing this as. And so

Ryan Sean Adams:

[13:21] It's become a narrative again of like, okay, like how is the AI build out going? Are the revenues justifying the amount of CapEx spend? Where is that CapEx spend coming from? Because in 2025, it was all retained earnings from hyperscalers. It's just basically profits on their balance sheet, cash on their balance sheet. Now it's bonds. Here's a chart from the No Opinion Post I read this morning. Look at 2026. This is the amount of bonds issued by the hyperscalers that are flooding the market. So we're starting to see more and more debt, more and more leverage to fund the AI buildout, which means everyone is focused on kind of the revenue side. What is Anthropic? Is OpenAI? Are these NeoClouds, are they generating enough revenue to justify the loans and the debt that these companies are taking on? And when there's little blips, like there was a blip this week on OpenAI revenue projections. This was in the last week or two. And also Anthropic.

David Hoffman:

[14:25] Anthropic, benythropic.

Ryan Sean Adams:

[14:26] Both, right? Both, really? Yeah. OpenAI, it looks like it's coming in closer to 50 billion ARR rather than the 68, 70 billion that investors thought. Anthropic is looking a little softer as well. And again, still growing insanely quarter to quarter, but just not as fast as it had been previously. So people are wondering if revenue is starting to approach that S-curve. And when that happens, then the entire AI trade starts to become suspect. I should say like NASDAQ is down one to 2% on this. So it hasn't hit. You know, the stock indices in large measure is just hitting some specific sectors, but you're starting to hear this narrative once again that, okay, like debt funded. Is this like railroads again? Is this 1873 when just after a railroad boom, we ran out of debt, loans started going bad, and it caused like, you know, a multi-year depression in the U.S.?

David Hoffman:

[15:26] Did it cause a multi-year depression?

Ryan Sean Adams:

[15:28] Yeah. Oh, nice. So it caused a multi-year depression. It looks like this. Noah actually has another chart in his story. It looks something like this. Let me see if I can find that. Here you go. This is the number of miles of railroads built in the U.S. And I think these bars are kind of like, you know, depression, recession type bars.

David Hoffman:

[15:48] Depression in the number of miles built, but not a broad economic contraction.

Ryan Sean Adams:

[15:51] Oh, no, it definitely did that, too. It definitely did that, too. See, this gray part, that is all kind of recession, negative growth arrows of the chart. But here's the interesting thing about the railroads. There were multiple cycles of this, too. So you see this.

David Hoffman:

[16:07] So after there was a flush, they just started happening again.

Ryan Sean Adams:

[16:10] There was a boom in the 1870s and then a bust. And then there was another bigger boom in the 1880s, followed by another bust. And then there was another bigger boom in like the late 1880s, followed by another bust. So you had multiple cycles of this with railroad infrastructure.

David Hoffman:

[16:29] All of this in the AI sector feels very expected. The efficient frontier of AI investment requires some amount of leverage, right? It's just like who of all the companies that have burned through their cash, before AI really turned into like an investment project, all the big companies, all the hyperscalers like Facebook, Amazon, all had, were sitting on piles of cash like Microsoft. Burned through all that cash, but the race isn't over and so you have to go into debt. And there is a correct amount of debt, a correct amount of risk.

Ryan Sean Adams:

[17:05] That's right.

David Hoffman:

[17:06] You can't have no debt because the race is still on. You can't have too much debt because you'll get wiped out. But there is a correct amount of debt. And whichever company plays this game correctly is going to be one of the winners. And so when we see people like CoreWeave kind of getting punished by the market or, other companies getting punished by the market, This is what you would expect to happen when the market is so sensitive to Anthropic and OpenAI's revenue numbers. So we got Anthropic's revenue numbers this week, $16.8 billion of Q3 revenue, which is up 50, 5-0 percent quarter over quarter, which how can you be upset about that?

Ryan Sean Adams:

[17:47] You can if you're expecting like 100 percent or 120 percent.

David Hoffman:

[17:51] So there was 140% revenue growth quarter over quarter between Q1 and Q2, and then only 45% revenue growth in Q3, the 50% number I just quoted. And so it's actually slowing down. And so when people are on margin and the acceleration slows, the acceleration is decelerating, then all of a sudden the people on the, further end of the risk spectrum get in trouble the most. This is totally normal and expected, and markets climb a wall of worry, and I feel like this is just what this looks like.

Ryan Sean Adams:

[18:27] Yeah, and it is the case that like you need 100%, 140%, some more numbers like that in order to justify the amount of capex that's being spent here. Of course, Korea was starting to price this in. So didn't you say that the COPSE was down almost like 20% or something like this?

David Hoffman:

[18:44] Yeah, 23%. And the COPSE is our NASDAQ or SPY. So imagine if the SPY was down 20%. The reason why it's like that is because memory stocks, just like chip productors for the AI buildout, are such a large part of the Korean stock market. And so the Korean stock market is down a very big amount. When the Korean stock market is down that much, it blows back into the American stock markets. So there's a little bit of contagion happening here. You know, if the AI trade hadn't kind of unwound in the last week, would crypto prices be higher? Probably also true. They probably would be higher. It maybe is a little bit of that. Did crypto need to cool off? Yes. And the reason why we know this is true is because, as we said, Bitcoin was down like one or two percent on the week. But the big ones that have gone up multiples are up down 20 to 30 percent.

Ryan Sean Adams:

[19:37] It's like our equivalent of memory stocks.

David Hoffman:

[19:39] Yeah. And so like overall, I think there's a lot of reasons to talk about. We talked about inflation, the AI climbing a wall of worry. People worry about leverage, revenue growth stalling out, but also timing with just like,

David Hoffman:

[19:52] yo, crypto was running hot for a hot bit.

Ryan Sean Adams:

[19:55] Well, can I give you the backdrop on this and maybe a projection beyond where we are in 2026 into 2027? I think this was kind of the required reading of the week. My favorite piece of the week was from Ray Dalio. He wrote an article called Numbers Behind the Bond and Bear Market and Outlook to Equities, all of these things. And here was this major point, and I want to see if this resonates for you, David, because due to all of your crypto experience living through these cycles, okay, he said the big problem that he sees in the 2027 horizon, he, of course, talked about debt to GDP

Ryan Sean Adams:

[20:32] And interest payments, how that was going to hit in kind of like the fiscal dominance era that we're in. And he also talked about rollovers. So we're moving a lot of the long-term bonds in the US, the long-term debt, we're converting those to bills. We're converting them to three-month, one-year, shorter-term treasuries, of course, we're trying to sell it. In 2027, there is going to be a lot more debt that needs to be sold to investors. You have much more supply and then you have whatever demand is available to sop that up. So he says this, the way I would think about the 2027 challenge is that the supply of debt will likely rise from about 3.5 trillion in 2025 to about 4.4 trillion in 2027. And that doesn't include the debt rollovers where we have to take the long-term debt, roll that over into short-term debt. Okay, so think of this as like,

Ryan Sean Adams:

[21:31] Token issuance, token oversupply, and you have to have an extra $1 trillion in dollar token demand to sop that up. And if you don't have that, well, yields will have to continue to increase to compensate. So you have that happening in 2027, and that's just government debt. Then you have all of the AI debt looking for buyers. Again, token issuance, token debt, looking for demand of buyers, investors who want the exposure to that type of debt, competing against this too. So a lot of issuance, and not only issuance in debt at all-time highs and growing at pretty exponential rates, we also have a lot more equity token issuance. You get a SpaceX IPO. You get the Anthropocene IPO. Even Google, for the first time, I don't know, in decades, issued shares this year. Wow. Issued net new shares in order to fund some of their expenditures. So a lot of you equity issuance...

David Hoffman:

[22:37] Yeah, makes me want to buy some hard assets.

Ryan Sean Adams:

[22:39] Okay, things that don't inflate in supply. And that was actually Dalio's conclusion here. He's like, 2027, I see long-term yields continuing to ramp up. I see equities being kind of flat. It doesn't matter what price to earnings do and profits do. If we have all of this new issuance, there's not going to be enough demand to sop it up. So he again is back to, yeah, you better have gold, maybe a slice of Bitcoin and prepare for the debasement trade. I'm not sure if he's entirely right. I feel like directionally he's going to be right. I don't know if this all hits in 2027 or we get to extend this a little bit longer. But this piece is kind of required reading, in my opinion, for understanding the debasement trade and why hard assets and why crypto monies.

David Hoffman:

[23:30] I don't think anything Ray Dalio says will be able to be confirmed right in a short time frame. He's just such a long-term guy. It also kind of makes him just seem a little bit infalsifiable, but that's a topic for a different day.

Ryan Sean Adams:

[23:43] Exactly, exactly. That would be the main criticism of Dahlia, I think.

David Hoffman:

[23:48] He's like, over 80 years, I'll be right. I'm like, all right, dude, I need to make some trades this decade.

Ryan Sean Adams:

[23:53] Please. Yeah.

David Hoffman:

[23:54] All right, coming up next, we're going to talk about the Ledger, the Ledger exploit attack, a physical supply chain attack on real Ledger bought from a real resaler, but with a spy chip in the ledger. Over $100 million have been gone. And also Bank of America just ignores $5 billion, of money laundering going through their bank. I thought banks weren't supposed to do that. Terrorists and drug cartels? We're going to talk about all the bankers that went to jail as a result of all this. But first, we're going to talk to some of these fantastic sponsors that make this show possible. So on October 9th, which was Friday of last week, ledger began investigating wallet thefts that had been linked to ledgers sold by a Southeast Asian reseller, Crypto Billis, and ordered crypto billists to halt sales and shipments. Ledger later confirmed that a hardware implant had been found in at least one affected device. So some poor soul bought a ledger from an authorized resaler and then put their money in the ledger after setting up their ledger, and then their money was gone.

Ryan Sean Adams:

[24:57] Many poor souls, we should specify.

David Hoffman:

[25:00] Starts with one, starts with one. The investigation starts with one. And then so Ledger opens up this Ledger and be like, hey, there's this extra chip in here. We need to figure out what this chip does. And so what the chip did was it intercepted, you've set up a few Ledgers in your lifetime, Ryan. I'm sure many of the listeners have. You go and you set up your Ledger and your Ledger securely gives you 24 words. And that's securely produced on the device. And you plug it into the Ledger software on your computer and the Ledger software says, this is a verified Ledger device. You can trust it. None of that was tampered with. The new chip intercepted when the Ledger device gives you the 24 words it just watches that go onto the screen and then using a radio transmitter it transmits that over data using an electronic SIM to the attackers and so the Ledger device, is tampered but the software is not tampered with as this investigation continued as of Ledger's October 13th update hundreds of reported exploited devices were found across different reports. Over an estimated $102 million stole from 324 wallets. Wallets, not individual victims, but you could imagine individual victims are in, Maybe the 100 range. Yeah, so physical supply chain attack. We've seen these before, but not at this scale. This is by far the biggest physical supply chain attack in crypto.

Ryan Sean Adams:

[26:27] I mean, it was relatively sophisticated as well. This company, Crypto Billis, was not a recent reseller. They'd been a longtime reseller of Ledger products for Ledger somewhere in Asia, right? And they were purchased by a Chinese national company of some kind. Now, this company seemed to be sort of shady. I believe they were purchased six months ago. The previous owners were under NDA, so they felt like they couldn't disclose that they were purchased. And this new purchaser, quite clearly, was some sort of op that was installing a spy device in the ledgers in order to harvest those seed phrases and those private keys, gather up enough of them, and at the point right before they were discovered, actually launch the attack. So all of this hit because somebody cracked open a ledger and was like, huh, there's a spy device here. Post that on Twitter. And then it seemed like whoever's operating Crypto Billis then was like, oh, shit, our cover's blown. We better get out with the private keys we had and then just started draining the wallets with all the private keys they had. And that's where you get the hundred million number from all of that.

David Hoffman:

[27:42] Do you see who posted that picture?

Ryan Sean Adams:

[27:44] Yeah, this is Mark Karpelis, right? The Mt. Gotts guy.

David Hoffman:

[27:49] Yeah.

Ryan Sean Adams:

[27:49] He's on his redemption arc.

David Hoffman:

[27:50] The Mt. Gotts guy, yeah.

Ryan Sean Adams:

[27:54] Scary attack though, right? And this begs the question of how many other parts of the supply chain might be infiltrated and Ledger is still trying to, like I saw reports that possibly there were some resellers in Europe that had some tampered devices. I mean, you just don't know. There's quite an incentive to tamper if you're a reseller of these devices.

David Hoffman:

[28:17] Yeah. Buying from a reseller, even though it's an authorized reseller, doesn't seem like a good idea. Definitely don't do an unauthorized one. Like people were talking about reports that people bought like used ledgers. Like give me a break.

Ryan Sean Adams:

[28:31] Yeah, just like go on eBay and just be like, oh, yeah.

David Hoffman:

[28:33] Yeah, don't do that. But also, like, buying from Ledger has also resulted in, like, data exploits, which has also made self-custody hard. Self-custody has just taken L after L after L in the last, like, two years.

Ryan Sean Adams:

[28:48] Oh, yeah, a bunch of punches to the gut. And not only that, I mean, this attack aside, we should just say the way to purchase a hardware wallet or the best way to purchase a hardware wallet is definitely from the company itself, not from a third-party reseller in any case. Yeah. Even from the company. Like they, the company is dependent on the supply chain as well.

David Hoffman:

[29:10] Yeah, they're not producing the chips. They are servicing that out to a third-party producer.

Ryan Sean Adams:

[29:16] And there's never been an issue there so far. But again, these attacks keep getting more and more sophisticated and they just find the points of vulnerability. So that's definitely a hit to self-custodial wallets. You could use multi-sigs. You can have multiple devices. There are ways around

Ryan Sean Adams:

[29:33] this, but it is a hit to self-custody usability. Speaking of which, David, not only are we taking hits from hackers and like pirates taking these funds, also governments coming after self-custody. And I think this is going to happen more and more in countries that are having a problem servicing their debts. Okay, France is one of those countries, relatively high debt to GDP,

Ryan Sean Adams:

[30:00] Yields on French bonds going up. And if you've seen the high school protests in France, government looking for new ways to get money, new ways to get capital. And one of the things they want to prevent is any sort of backdoors, maybe with crypto. There was a amendment in France put together by some MPs that was reported out that would require all self-custody wallets to be declared. So you have to declare whether you have a self-custody wallet. If it's over, at first it was 100K in euros, and now there's a revision to make it 5K in euros. So any self-custody wallet you have that has over 5K euros in it, you have to declare and report to the French government. And of course, we've seen hacks on the French infrastructure, tax infrastructure has actually revealed the holders and the locations and the addressers of these holders. So it's a massive physical security risk to all French citizens. Not only that, it's an inventory of digital property that the state maintains. And, you know, this is like,

David Hoffman:

[31:11] That's in other contexts, it's called a hit list.

Ryan Sean Adams:

[31:14] Right. I mean, it's like, just like not a good direction of travel, certainly, But you could see this is a French government trying to seal off all of the doors for any form of capital flight. And, you know, suspicious that some of that capital flight could come in the form of crypto. So, another hit on self-custody.

David Hoffman:

[31:34] One of the quotes that resonated with me at Token2499, and I saw this was, I can't remember who was giving this presentation, but it was about Zcash. Assets that can be seen can be seized. Yeah. And so if it is advocating for putting your Zcash in the shielded pool, but like even if it's Bitcoin, for example, like you would think Bitcoin is like very seizure resistant and mathematically that's true until quantum. But if the government knows and can link physical digital property to your identity, then they have means to go after you and your $5,000 of digital assets that you keep in your back pocket.

Ryan Sean Adams:

[32:17] Well, so if you're the French government, you're trying to do that, how soon until you just ban any form of privacy? So you can't have a private self-custodial wallet or that's illegal, subject to fines, subject to jail time. I mean, that would be the logical direction of travel here, right?

David Hoffman:

[32:34] Sure. Yeah. I don't know if that would be bullish or bearish.

Ryan Sean Adams:

[32:40] It seems to be just a thing that is happening that yes markets and the world will have to contend with um speaking of something else that's happening speaking

David Hoffman:

[32:49] Of things that are happening i saw that transition coming from so far away.

Ryan Sean Adams:

[32:54] Bank of america david the biggest fine in u.s history from the occ to a bank 1.2 to an american bank i should say 1.2 billion dollars hitting Bank of America with a fine for $1.2 billion. The charge is that the bank failed to flag over $5 billion in suspicious transactions. Money laundering. Chinese money laundering networks, illicit finance, drug cartels, terrorism, the gamut, $5 billion worth. And so this was a penalty that FinCEN and OCC issued to the Bank of America for these crimes. CZ had an interesting take on this. No one went to prison, no home confinement, no DPAs, no one was charged. Water under the bridge. Onwards. Very interesting that no bank manager, no banker was harmed, was sent to jail, was threatened by this. This was just a fine at the corporate level. Unlike when FinCEN has taken actions in crypto where people like CZ have actually gone to jail. So there's a little bit of hypocrisy there.

David Hoffman:

[34:13] Yeah, this reminds me of Bill Gurley's talk a couple of years ago at the All In Summit where he was just talking about like, yeah, the reason why stuff this happens is because certain sectors have a very close approximation to DC. Like the banks are in DC. You know who wasn't in DC when CZ got arrested and put in jail? Crypto. Crypto is not paying its protection money to the DC racket, but the banks have been paying protection money to the DC racket for years. And so that's why they are allowed to get away with this.

Ryan Sean Adams:

[34:44] And that's also why in a counter move, crypto has decided to move into DC.

David Hoffman:

[34:48] Pay protection money to the DC racket.

Ryan Sean Adams:

[34:51] Honestly, it makes one jaded. Just like looking at the whole process. That's what crypto had to do. And also it corrupts crypto in the process. Totally. The way it has corrupted banking.

David Hoffman:

[35:02] It's mutual corruption.

Ryan Sean Adams:

[35:03] Yeah. It's just like in-shittification of ER industries. And yeah, it's unfortunate. But AML KYC, I guess it doesn't work, David.

David Hoffman:

[35:16] Yeah, I'm sure it works when the state wants it to work.

Ryan Sean Adams:

[35:21] There was also simultaneously this week a report from the OCC on debanking, and Nick Carter was quick to claim this. We weren't imagining it. Operation Chokepoint 2.0, the thing he had talked about so much, was real. This report, he says, confirms it. So it confirms that banks between 2020 and 2025, banks in the U.S., based on all the complaints they saw in the investigation that the OCC did, debanked individuals and businesses based on three things, political risk, industry risk, religious risk, some combination of those. And that was enough criteria for a bank to debank someone. Nothing illegal, just if you're in kind of a risky pool of actors as digital assets, as crypto was, you could be debanked. This was actual policy coming out of the OCC. And this report kind of delineates it

David Hoffman:

[36:24] And puts a.

Ryan Sean Adams:

[36:25] Stop to it and also reiterates that they're putting a stop to it now. So that's no longer continuing.

David Hoffman:

[36:32] Yeah, it feels like we're tracing over what we already knew to be true. I mean, certainly we knew it to be true, but I guess this kind of just makes it common knowledge for everyone else. But also, everyone else doesn't care. The only people who still care about this are crypto people, right?

Ryan Sean Adams:

[36:47] I think anyone who's been debanked cares about it. I guess people who have never been on the other side of that don't care about it.

David Hoffman:

[36:55] Yeah.

David Hoffman:

[36:57] All right, coming up next, we're going to talk about Richard Hart, the creator of Hex. Just injustice, complete injustice to his arrest and seizure in Istanbul. We're going to talk about how we can free Richard Hart. And we're also going to talk about paper trade where you can get 100, excuse me, 1,000x leverage. But when you get liquidated, you get to be part of the house. We're going to talk about this and all of the shenanigans going on on paper trade. But first, we can talk to some of these fantastic sponsors that make the show possible. Ryan, how do you label Richard Hart? Who was he in crypto? He was the founder of Hex. He was a persona.

Ryan Sean Adams:

[37:35] Yeah, Ponzi scheme demagogue,

David Hoffman:

[37:38] Maybe. Yeah. Like, cult leader, I think, actually, is one of the better descriptors of Richard Hart.

Ryan Sean Adams:

[37:46] Sure.

David Hoffman:

[37:47] Richard, he had been in crypto since I was in crypto. You know, the.

Ryan Sean Adams:

[37:52] Amount of people he got into Bitcoin is actually pretty notable. The amount of people I heard, oh, I'm embarrassed to say this, but I actually got into Bitcoin because of Richard Hart.

David Hoffman:

[38:00] Because of Richard Hart?

Ryan Sean Adams:

[38:00] Yeah.

David Hoffman:

[38:01] Yeah, he's one of these characters that, you know, In a different era, he would have started a literal religion if he was in the 1800s or something. Yeah, yeah, yeah. He was one of the first streamers before we have the modern streamers that we have today. He was like one of the first streamers. He created Hex and Pulsecoin, Pulsechain, PulseX, all that kind of stuff. A U.S. citizen that was living in Finland for quite a long time was arrested in Istanbul on an Interpol red notice. We might remember going back to when the SEC was going after Richard Hart because of the assets that he had issued.

David Hoffman:

[38:45] The Pulse X, all the things I just mentioned. Richard Hart actually won that case. This was the Interpol red notice was not because of the SEC because that case was basically dismissed. That was dismissed on 20 in February of 2025 on jurisdictional grounds. This is what I learned this week. The way that Richard Hart got away with the SEC case was that and this is something that when the Pulse chain and Pulse X and all that kind of stuff was being spun up by Richard Hart, the efforts of Richard Hart. You would send him ETH to a contract and then you would get Hex back in return. And it was like a one-to-one, you know, you put in one ETH, you get the same amount of Hex back. And Richard Hart would say, like, you are not, this is not a sale. You are sacrificing. This is a sacrifice that you are making in order to get Hex. This is a, the Hex is a gift. The ETH to me is a gift. And the Hex back to you is also a gift. It's not a token sale.

David Hoffman:

[39:48] And also I'm in Finland. So you can't come after me, SEC. And so he raised something like hundreds of millions of dollars on this, on the idea that the hex, the ETH being given to him was a gift because he loudly told everyone that this is a sacrifice. Well, the Finnish IRS was like, gifts, you say? Gifts are actually a taxable thing. That's not just like a miscellaneous category. A gift is that you can't just give people money, large amounts of money that must pay through taxes. So the Finnish IRS says, oh, in this court case in the United States, you're saying that these are all gifts because now you owe us 30% of your, hundreds of millions of dollars, which if you've ever watched Richard Hart for two seconds and all of his Rolexes and Gucci that he's bought, he's not paying taxes. He's not paying taxes. I didn't know that he was in Istanbul. I'm sure he knew that Interpol was after him. So he was in Turkey when he was arrested and he is now in jail, I guess, going to court for Finnish tax fraud. Is actually the final conclusion of the Retro Heart story.

Ryan Sean Adams:

[40:58] Okay, well, what to make of Hex? What to make of Pulse Chain? What are the Hexakins actually doing about this? And by the way, I was never actually super sure. What exactly was Hex? Was it like an ERC-20 on Ethereum?

David Hoffman:

[41:13] It was an Ethereum copycat, but I have no idea.

Ryan Sean Adams:

[41:16] This is sort of like a Tron type of copy-paste thing. I know it was from that era, the era that that started, but it never picked up actual use cases beyond pumping and shilling the hex coin itself You clearly have not followed the Hex ecosystem stuff.

David Hoffman:

[41:34] Because the fact that it's like an EVM chain that was a clone of Ethereum is just not relevant to this story. The Hexakins are cult leaders of their deity, Richard Hart. Now, like, I have a take here. It's actually like Richard, you know what the difference between a cult and a religion is?

Ryan Sean Adams:

[41:51] What's the difference? Scale?

David Hoffman:

[41:53] The leader is dead.

Ryan Sean Adams:

[41:55] Oh, God.

David Hoffman:

[41:56] And so Richard Hart is like he's going to jail he's like being removed from the equation I think the hexagons are going to get stronger as a result of this not weaker like this is not like them they're crisis they're not having a crisis of faith here they're just going to double down because that's what cults do what am I looking.

Ryan Sean Adams:

[42:16] For on like CoinGecko like is it hex hexagon or what is this

David Hoffman:

[42:20] Hex hex was down it dropped it dropped like a, 50% on the news. All the Richard Hart tokens dropped like 50% on the news. Okay. I think it goes up from here.

Ryan Sean Adams:

[42:35] That's crazy. I guess maybe you're a future hexagon then, David? No. I know it's bothering you in the past.

David Hoffman:

[42:42] I haven't seen the hexagons since the SEC case against Richard Hart. Like, I forgot that they exist. But now they're all up in my replies. They're in everyone's replies because people are remembering that they exist. They still exist, dude. And it was all the same ones. It's the same accounts.

Ryan Sean Adams:

[42:57] And these are real people. These aren't just like kind of Richard Hart's bot network.

David Hoffman:

[43:02] Yeah, because the Hexican cult army got started before LLMs were a thing. Like the Hexicans have been around for a long time.

Ryan Sean Adams:

[43:09] Well, I thought it was very big of you to post your David crying photo, the thing that has been memefied across crypto Twitter and like beyond. Because this actually has a tie into the Hex story, doesn't it?

David Hoffman:

[43:22] It ought not to. uh the david crying moment on the weekly roll-up was just a fatigue and sadness about the demise of ftx and poor sleep right, i had like terrible sleep i was running on like three hours of sleep a night for like four nights in a row because ftx was like in this slow motion implosion this is, we were covered we were live streaming every single day i was exhausted um, And, uh, and so I was like, I was just sad about the state of the industry and the hole that we had dug ourselves. We were like, we were doing the weekly rollup and we had Richard Hart's tweet up on this screen completely coincidentally. And we just happened to be talking about that. And so like Richard Hart was like, this is, this is perfect for me. And so I actually still, oh, I still have this painting, actually. This is a hexagon. Oh, my God.

Ryan Sean Adams:

[44:16] A hexagon made that for you?

David Hoffman:

[44:18] Yeah, a hexagon painted this and shipped it to me. It's so beautiful. A hundred USDC or something.

Ryan Sean Adams:

[44:22] That is so 2022. So are you cool now with the hexagons? Is this like full circle that you post to me?

David Hoffman:

[44:31] I mean, they're not causing me any problems. I mean, like, I'm not going to go hang out with them because, like, I'm not. Like, why would I hang out with somebody who's compelled to become a Richard Hart, like, cuck?

Ryan Sean Adams:

[44:41] Okay, look, though, Richard Hart is arrested, but he still has his day in court, right? So, you know, he's, you know, who knows how the story could unfold. There might be still a layout for him.

David Hoffman:

[44:52] Yeah, right. All right, let's get into paper trade. Ryan, have you ever been bullish on an asset and been like, man, I wish I could have a thousand times the exposure to that?

Ryan Sean Adams:

[45:03] Yes, like I'll take the upside on that, but I don't want the downside on that, if that makes sense.

David Hoffman:

[45:08] It's a thousand X up and not a thousand X down. Is that what paper gives me? I don't know if people have created that one. Okay. Paper Trade is a platform on top of hyperliquid that lets you go a thousand X long or short. No real spot orders are ever made. It's all synthetic, completely derivative only, which is why it's paper trade or trading paper. The beauty of this fantastic Ponzi game, and I say Ponzi game endearingly, like it's a great Ponzi. It's a really well designed. Wait, what's the Ponzi part?

Ryan Sean Adams:

[45:39] Have you described that?

David Hoffman:

[45:39] So when you get liquidated, because you went 1,000x, which you will, if you're going 1,000x, you are compensated with the paper token. And the only way to get the paper token is by getting liquidated. It doesn't trade on secondaries. If you want paper tokens, you have to go long or short and get liquidated. Wait, if you get liquidated.

Ryan Sean Adams:

[46:02] They give you paper as compensation? So you could dry your tears with paper?

David Hoffman:

[46:07] Exactly, exactly. But then you can go and stake your paper, and then you can get the fees, the liquidation fees from other people as well. And so you become the house. By staking paper, you become the house. And so far, traders have lost $50 million, but $42 million has been paid out to paper stakers. So some of those degens who got liquidated just took their paper compensation and staked it and got the fees of other people getting liquidated.

Ryan Sean Adams:

[46:40] What an exceptional holder base you're creating. You're creating a bunch of holders of your token, of your asset that are like degenerate traders that have lost big money.

David Hoffman:

[46:51] Totally, totally. Yeah, well, some people went onto the platform and like tried to get liquidated on purpose because they want the paper tokens. That's how you get the paper tokens.

Ryan Sean Adams:

[47:02] What a sick game.

David Hoffman:

[47:03] In the first week, the paper trade is beating the NASDAQ in volume.

Ryan Sean Adams:

[47:08] What?

David Hoffman:

[47:09] Yes, that is a true statement. A trillion dollars of volume in the first week, a trillion dollars of open interest.

Ryan Sean Adams:

[47:14] What assets are we trading here, by the way? Is it crypto assets or is it everything?

David Hoffman:

[47:18] All the blue chips. I'm sure you can kind of go down market and get some of the more crazy ones, but I don't think you can go too far down the market because of the Oracle manipulation exploit that also happened this week. And so when you are on 1000x leverage, Oracle attacks become pretty trivial because a trade on paper trade doesn't ever hit the order book. It doesn't ever hit the spot market. It's all synthetic. So a hyperliquid whale went to hyperliquid and started buying tens of millions of dollars in ETH while also having what I could only assume is a 1,000x long ETH position on paper trade.

Ryan Sean Adams:

[47:53] You can move the market.

David Hoffman:

[47:55] You can move the market because it's all synthetic. And so as a result, the paper trade team had to just like kind of increase the constraints. They had to lower the caps on the open interest on some of these markets. So like this one trade had made out with a few millions of dollars. I think it's recovered pretty well and people are kind of going back at it. But this is definitely one of the most interesting things, interesting projects, to have started in crypto for sure.

Ryan Sean Adams:

[48:18] Why you say interesting? Because like it's never been done before or?

David Hoffman:

[48:21] Yeah, it's a thousand X. Like where else can you get? I think this is probably the most liquid place to get 1000 X exposure.

Ryan Sean Adams:

[48:29] Why do you need 1000 X exposure? It's like a...

David Hoffman:

[48:34] To gamble.

Ryan Sean Adams:

[48:35] It's like the Tsar, like super megaton, you know, nuclear bomb. It's like, that's like way more than anyone has ever needed.

David Hoffman:

[48:43] Yeah, but what if it works out? You don't have to go 1000x. You can go like to something more modest, like 200x.

Ryan Sean Adams:

[48:51] The novel thing that's really interesting to me is kind of the paper token distribution itself. That is fascinating.

David Hoffman:

[48:57] Yeah, that mechanism is pretty genius.

Ryan Sean Adams:

[48:58] Is this like a VC funded thing or...