Epstein's Crypto Ties Revealed + Why Everyone Hates CZ - Chopping Block

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Hello everybody. Welcome to the chopping block. Every couple weeks, the four of us get together and give the industry insider perspective on the crypto topics of the day.

So, a quick intro got Tom, the DeFi maven and master of memes. Hello everyone. Next, we got Robert, the cryptoconnoisseur and Zar of Superstate. Good morning. And then we've got Terrun, the gig of brain and grand puba at Gauntlet. Yo yo yo. And I'm a Steve, the head hype man at Dragonfly. We're early stage investors in crypto.

But I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see chopping block atxyz for more disclosures.

So, it has been a rocky week in cryptoland. We now have Bitcoin below 75K or it dipped below 75K. It's now right back at that level. There's been a lot of volatility in the market and we've seen everything in crypto bleeding. ETH is at 2200 something. Metals have pulled back quite a bit. There was a blowoff top in metals where gold went up to like 56 57 I don't know what it went really high pulled all the way down below.

Yeah, it was absolute craziness. Basically metals are trading like meme stocks and there's just a lot of uncertainty in the market about where this is going. I was looking at poly market odds and it according to poly market it is equally likely for Bitcoin to hit 45K this year as it is to hit 130K this year. basically meaning we're right now on a razor's edge of whether this year is going to be a good year or an absolutely horrendous year.

How are you guys feeling about the current moment? It looks like we're a little bit on a precipice right now. What's the feeling?

I'll just talk about the things that my friends are talking about when it comes to the feelings surrounding the crypto market right now. The conversation that a lot of people are having at least in my group chats is that you know we're basically at the point where micro strategy is break even as an investor in Bitcoin period in the aggregate across multiple cycles and I think psychologically that's seen as a pretty important threshold and that there's a lot of concern and constrnation that if we continue to decline it could become a negative feedback loop just as confidence is lost in Micro Strategy's ability to be a continued buyer andor a potential seller.

And so the threshold that a lot of people are watching right now is like are they in the money and what is the health of that business from a profit perspective. The other major debts I mean people are also saying laughing at how much money Bitmine has lost purchasing ether. They're now I think it's the fifth largest trading loss in human history is one of the measurements I saw in terms of total dollars lost on a trade.

So there's general consternation. I mean there's not that much bid right now for any of these crypto assets. And there's not many narratives that people are looking forward to as reasons to be investing. I think a lot of the major mania and drivers we've seen over the last couple months and years has been adoption of Bitcoin that doesn't seem to be happening.

And it just seems like right now it's a question of like who is the next buyer? Where does it come from and why? And I think it's being compounded by the fact that we're seeing like a hash rate decline in Bitcoin. We're seeing like these underlying fundamentals start to erode a little bit and there's just like a solemnness to the market. Clarity is stalled, which is bad for all of the alts and I think people are just a little bit sad.

How you feeling?

Bit sad.

Not really. I mean, I think this is this is the karmic consequence of debts, you know? This is like karma. It just like you you not related. There's no dad.

I'm saying the universe is looking at the set of actions the crypto community did over the last punishing us punishing us preemptively.

Okay. If the punishment is coming, it's going to be a lot worse than this for dads. Cuz like if dads are actually net sellers, it's going to be a lot worse than this. I'm just saying I feel like this feels like a little bit of like karmic justice over the last couple years.

Okay. All right. I would say that the one interesting thing I didn't know you were such a religious you had such a religious fervor about this kind of stuff. I don't but I love when I can pretend I like astrology when I really don't believe in it. You know, it's like Okay.

But I more seriously I thought the most interesting thing I saw today was Novagrats and the Galaxy earnings which were like bad because of the you know overall market decline. that like AI couldn't save them. Were was this idea that there was one client who sold $9 billion of Bitcoin partially because they're worried about the quantum cryptography or quantum computing type of stuff. I know we've been meaning to talk about that on the show, but I I kind of actually seeing that size sold for that reason and then also talking to a lot of people who are work at ETFs or kind of do sales for a lot of stuff. I think there on the Tradfi side that's actually like a real risk people care about.

Like it's it's it's it's funny because like you talk to crypto native people there's like whatever everyone will move to a postquantum and like sorry Satoshi your coins are But but then everyone on the trades is like oh my god like and so I thought that was kind of interesting because like you know maybe it's like someone doing post hawk rationalization after already losing money but like it could also be causal like a lot of people enough people in the market believe that and that's why it kind of like lost the gold debasement stuff right like that's why all the gold bugs were making fun of Bitcoin and maybe the quantum side is actually you know I I I I kind of always thought it was like a little too far a field. But the galaxy thing made me suddenly start to be like actually maybe this is a real macro view in Travi.

Yeah. I So it's it's an interesting point. I I do think it's like whenever someone is selling Bitcoin, especially in OG, they need a smart thing to say about why they're selling Bitcoin and like this is the smart thing to say is that oh Quantum Risk and like I don't know if they're going to get their act together. I think if somebody were to actually you even that whoever that we don't know who that guy is but whoever that guy is who sold does he think there's no way that Bitcoin can solve this problem like I don't think he would say that. Does he think there's like a 5050 chance that a quantum computer is invented before Bitcoin gets its together. I don't even know that he'd say that either.

I think it's more that like look there's some percentage of people that this will be the thing they say. this will be their objection and the objection might be even like a sort of low context objection that it's like I've heard about this quantum thing and like there's no good rebuttal to it right now within Bitcoin land other than what you mentioned to room which is like oh people will get around to it when it's more real or when it's closer or whatever.

I think Ethereum had the exact right answer which is look quantum is a ways away and it maybe is too early to do this in a wise way because there's going to be a lot of churn in the cryptography itself about how to do postquantum in the most efficient way but just create a pile of money create a committee like do the thing that every government does about a risk is that like look we b we check the box we've got a group of people doing something and we put money on it and that feels really good that's like great great great answer to the objection, we now have stuff that we're doing.

It's like, don't just stand there, do something, here's something. Uh, Bitcoin doesn't have that right now. There is really no congealed something that people are doing. And it's such an easy win to just do what Ethereum did and say, "Here's something. Here's uh $5 million and a council." That is the postquantum council. And they they're not doing anything yet, but like you can just point at this and say, "Here's something that's being done." And now that's your answered objection.

And even if again 90% of people are like, "Yeah, obviously they'll do something when quantum is getting closer." But here is the box checking exercise that that 10% of people who are so low context that they're like, "I heard quantum is happening. Quantum stocks are ripping. I heard Google is building a quantum computer." That is the great that's the perfect answer is that well here's a committee and something is happening.

Yeah. I I think part of the issue too is I think there seems to be like non- consensus in Bitcoin land that like this is a you nearishterm issue issue worth addressing. So it's like, yeah, I don't think any other chain or system has like a solution, but at least acknowledge that that's like a real risk. Whereas like I think I get a lot of my info on this. I think Nick Carter had this essay or this post about kind of quantum risk visv bit Bitcoin. And it seems like there's still even split within kind of Bitcoin core as to like how how real is this risk and therefore how we're going to allocate resources to it.

But I agree with your bigger point which is um you know every time there's um you know something bad happens people want sort of like a monocausal proof as to like why this is happening and I just don't think it's that kind of simple like you know for like oh it's association with Trump and it's Trumpcoin or you know it's it's um uh like oh you know the FBI is going to sell a bunch of Bitcoin or it's the DATs or it's always going to be something and I think you know it's it's frustrating maybe where we don't even really have something we can sort of strongly attribute it to.

And so people kind of, you know, it's like there's an eclipse in the sky and it's like, oh, because you have anchored the gods and, you know, we got to go find the thing that we have to do to like please them again. And I think there's probably like many many variables that are going into why why Bitcoin's having this selloff.

Yeah. I mean, at the end of the day, Bitcoin is a consensus game. I just thought this the first time I ever saw a public company state this, you know, that was sort of more my that was what was elevated to me.

Yeah. I think there's something Jeff like two weeks ago was also talking about quantum. So it's definitely to your point AB it's a reason you can get not good good segue into our next segment. No it's it's just reason you think it's going to be smart right versus like um oh what is it like oh well I'm concerned about Bitcoin's security budget or um oh you know I don't know if Bitcoin's going to add uh you know opportunity like you know there's always some something you can say and people like oh yeah it's a it's a it's a thing you can say and not just like it's over 100k and I have $9 billion so I'm out.

Yeah, I I think this is a better explanation, which is that like I was I was holding through all the ups and downs so that we could get to the promised land of 100k and prophecies fulfilled. I don't know what's going to happen now. I don't really know what the next catalyst is. So, yo, I'm out. I feel pretty good or I I caught 90. You know, I 100k I felt a little greedy. I caught 90.

No, I'm I'm saying as though I'm this bit. Unfortunately, I don't have that kind of money. If I did, I would probably be selling at 100K, too. I'd probably be selling 100K, too, to be to be fair. And the good answer is uh you know someone someone's buying $9 million of Bitcoin. So the seed has paper hands here first. You heard it here first.

Yeah. All right. So Okay. So speaking of monocausal explanations, uh one of the other big stories that took place this last week is a battle of the titans between CZ and Star. So CZ of course founder of Binance. I don't think I need to recapitulate too much of a story. Star is the founder of OKX which is one of the other large crypto exchanges in the space and uh of course CZ uh he's been in the news a lot lately uh with respect to his connection to World Liberty Financial as well as uh you know the presidential pardon that he received recently uh and everybody in crypto is now suddenly mad at CZ but not for those reasons. I mean maybe some people in America are mad at him for those reasons but overall people are very very mad at CZ because they think increasingly that CZ caused 1010.

So 1010 of course was the biggest day of liquidations in crypto history and it's also the point if you go back and you know play the chart of Bitcoin prices versus the NASDAQ versus risk assets generally 1010 is the point where all of a sudden the correlation between the NASDAQ and crypto broke and you can see all these time series which show very high correlation before 1010 after 1010 Bitcoin does this risk assets do this and so people claim that CZ caused this in some way.

And this got amplified by Star. So Star made a post that went super viral, got like 5 million views, claiming that the core cause of 1010, he's sort of like, look, I can't keep my silence anymore. The core cause of 1010 was that Binance ran an Athena APY promotion and they were incentivizing people to basically loop Athena on Binance through a Binance earn program. And that's what caused 1010. That's what caused the enormous liquidation cascade that spread through all of crypto and collapsed the market and broke things in some kind of semi-permanent way and that CZ has not taken responsibility for this and he's now speaking out. This is four months later after 1010.

CZ then punched back and said basically this is full of This makes no sense. Uh you know the Athena unwind that took place on Binance happened after cryptobottomed on that day. He ended up retweeting me. He ended up retweeting guy. Yeah, it well 30 minutes later, 30 minutes later. So there was quite a bit of latency between the the market actually tanking and causing a huge liquidation spiral and when Athena started pulling back on on Binance and so I sort of got enlisted into this fight because CZ kept retweeting me in response to Star. Star then clapped back at both me and CZ. Anyway, there's a big fight.

What's interesting about all this is that one there seems to be now a lot of reinterpretation of what happened on 1010 and a lot of argument about what really caused 1010 especially now the cryptos in the doldrums. It's a very important question that people don't have a satisfying answer to still of like what happened and why did it break the market so deeply and second whose fault is it? And it seems like now everyone is very ready to say that it's CZ's fault.

thoughts on Star versus CZ and you know the the uh understanding of 1010 I think Hib purposely didn't inject the fact that he got in the middle of this fight and they both were retweeting Hib's point here. They were not Star. Yeah. No, no. Then Star later took a screenshot and dunked on you like there was there was you you showed up a bunch of times. So you are actually in the middle of this. So, so I want the audience Steve is the proxy state. Yeah. Yeah. Yeah. Him is here. He's like used to hit star. That's basically my role.

But I I mean I obviously I very much agree with the point around the timing, but also just I mean the other facts are that like Athena is pretty small in the grand scheme of the overall you know OI for futures, right? It was like I think USD was like 14 bill um which obviously was also not you know all in futures compared to like like 80 bill in open interest and like the timing for the Binance promotion was only like four weeks before 1010. So it's just like just on those alone even if you didn't know anything about it's like yeah obviously like I think what they had like an extra two bill in ED bill on Binance among all the USD supply. So it was yeah and like that took down 40 billion in open interest and the entire market like obviously that's not true and if anything that makes me more worried that like star you know what the CEO of one of the largest exchanges doesn't have a deeper understanding or explanation for what happened and so like that's kind of the the scarier part I think.

I mean what was striking to me is that that's that's the thing to me nobody knows nobody really knows what happened objectively yes but like we I I thought there was wide industry consensus after 1010 that there's no simple explanation for it. Like if there was a simple explanation, we would have had one months ago when people are pouring over all this data and trying to understand what do we do in order to not have this happen again. And the answer was like, well, there's like some stuff about ADLs, there's some stuff about liquidation engines, there's some stuff about downtime of APIs, some stuff about broken hedges, but like there's no there's no simple like, oh well, you know, Athena did it or Binance or you know, CZ intentionally liquidated everyone so that he could make a bunch of trading profits, which seems to be what particularly Chinese people seem to believe now.

So, because CZ was retweeting me, like I this is not my audience. My audience is not crypto traders. My audience is like, you know, all these I don't know, you know, like founders and edge lords are mostly who reply to me when I tweet stuff. But when CZ was retweeting me, I got thousands of replies of people who are talking to CZ. They're not talking to me. They're talking to CZ. And they're all like, "Fuck you, CZ. You destroyed the market. You're a scammer. You're" And I'm like, "What? How did this happen?" That CZ went from like the most beloved figure in crypto to being public enemy number one. and basically like an SPF level villain seemingly because crypto is down and I think also because of uh Binance Alpha, a lot of Binance Alpha assets have done very poorly and so I think that has caused this total reversal particularly within the Asian community of just crypto traders hate CZ now. They think CZ is like a criminal mastermind and now he's I guess the scapegoat for like 1010 which is also bizarre to me because I feel like that wasn't happening after 1010. Like after 1010 there was no yeah CZ did it, Binance did it. Obviously this is their fault and they should do something about it. Maybe people who lost money in 1010 feel differently but I did not have a sense that this was how people internalized what happened.

There there is also very much this like knives out kind of mentality I think across projects where I see people sending screenshots of a token price to you know a founder and they're like oh you know you're down so bad. It's like dude look at the market like everyone is down so bad. So you have people whose like you know tokens are like not doing well sending screenshots and it's like like the entire market is not doing well. So it's like picking out these like isolated pockets of oh your your project is down bad. It's like how do you not look at the market more broadly and have some context. It's just like very bizarre.

Yeah. I mean I think there's also like the increase in the vesting cliff reached meme everywhere is like correlated with the post 10 like I feel like I that meme was only used like spare. You want to explain that meme, Trude?

Whenever someone posts on Twitter that's like, "Hey, I'm, you know, my last X years at this project have been great, but I'm leaving today." Whatever. There's just like this group of self assembling anons generally who will just retweet and post this picture of this guy running off a cliff and it just says vesting cliff unlocked, you know, which sort of just means, hey, they're quitting because they just got their tokens and they're dumping them. And I I kind of thought that was always like save cheekily for like founder who did something bad or like did an OTC deal and everyone found out. And now it's like anyone like anyone who leads like it's like I'm a junior social media analyst at this project vesting cliff unlock you know like it's kind of a weird and I think post1010 I've just like observed the increase in the the the mimemetic meanness which sort of is like similar to this.

I mean, I want to be sympathetic that like look, people are hurting and they, you know, hurt people hurt people and there's this like, you know, like, look, you you guys did this to me. There's a lot of people, look, most people who are in crypto are not actually in the industry. They're not working at a company. And so, they have no empathy for anybody who actually works in crypto. And if you work in crypto, like, it sucks. It's not fun right now. And the feeling that like, oh well these people, you know, all of us who are trading are getting screwed, but the people who work there are making all this money and they're dumping tokens and they must be having a party and like look at this guy quitting his job. He's obviously just, you know, doing cartwheels now that he can dump his tokens on us. It's, you know, that's not that's not the vibe unfortunately.

Well, I I I just think I think it's like, okay, if it's like the founder or something bad happened, that's one version of this, but it's like the social media intern. Come on. Like that's a little Yeah. No, it's reflexive now. It's reflective now and it's like the times right the social media intern didn't have like absolutely life-changing money and is like not going to work again and is like quitting because of that.

This actually is also emblematic of there was the viral post by this guy Miraza uh from Injective about um about Farcaster uh Dan Romero for Fargo where basically he wrote this big long post that was like how to pull off the craziest scam of you know stealing or scamming 180 million which was the total amount that that Dan Romero raised and uh he ju like just like just absolute just jealous slop. just like seething anger of like how dare this guy be successful, raise money and not create a a token that people make money from and return money to shareholders. What a disgusting human being. And it's just again it's like a sign of the times is that you you're just look everybody's looking for villains. Everyone's looking for somebody else to blame this on. And if it's not CZ then it's founders, every founder. And okay, the founders are not that's not enough people to be mad at. Let's get mad at every employee who ever leaves a project and doesn't like go down with the ship of a flailing startup.

I know that's the craziest one, which is like you've raised all this money, you didn't find product market fit, and you didn't launch a token. Like shame, right? Like that one is like the least logical thing. I I mean I mean I I think most of the criticism, if I remember correctly, was like about some secondary thing, not that like wasn't there like But sorry, I wasn't really paying that much. Yeah, cuz there was some secondary soul. I think it it was like it was like in the time period where I took a Twitter break and I was like I'm not reading this. That's wise. That's wise. Maybe might maybe take like a six month Twitter break right now. Yeah.

So, but like was that what people were angry about? It was like not just that was that was one of the pits. But then it's like like why why does that concern you? Like you're not part of this transaction. The VCs who bought shares from the founder maybe could have some reason to be slightly grumpy but like not a buy. Nobody who was an actual participant in that transaction was complaining. Everybody was like, "Dan's great, awesome dude to work with. Nothing but respect for him. Would do it again. 10 out of 10 experience." And then this guy's like, "This scammer, can you believe what he did?" And it's like, but I I will say similar to your to your view that in Asia people are blaming CZ more than maybe in the West. I kind of think this view on the Farcaster thing was also kind of split between where like I I did, you know, group chats that had more people in Asia were like, "Oh, they scammed investors." Whereas like I think people in the west are like, "Well, I guess that VCs were dumb for funding that much, right?" Like like it was like a totally different So to be clear to be clear to be clear, Dan clarified that he returned 100% of the capital. Yeah. Yeah. Yeah.

I I know I know. I'm just trying to give you the most were negative. Those were negative. That is extremely rare. Did he return 100% of the capital raised or 100% of what was remaining of the capital? Is there is a 100% of capital raised? 100% of capital raised. So the VCs who invested in primary got 100% of their money back. I guess the question is then did the company spend zero dollars? I mean what because I don't think the company made money. They did I don't know what they did but they made money. They you pay money to like you know activate your account. There was like a $5 fee and there there were some other things but they made like a few mill um and they're also very thrifty. It spent like no money but again I'm like this is a private transaction between investor not requirement. That's not a requirement. It's a startup. It's supposed to spend money. That's why they gave them money. Yes. It's supposed to lose money because they gave the money to try something.

I wasn't trying to cause the fight to happening. I was just pointing out that those were Look at us. We're succumbing guys. This is supposed to be peace and we're those were the two types of views I saw in different group chats where like in the west everyone was like haha those VCs are so dumb like why didn't they do that like that was like the okay I want to talk about this though because I think this is interesting I mean this story is a few weeks old so it's a little you know pass a at this point but people have a very strong moral intuition about secondaries and I think it's worth us talking about given that we're all VCs so the primary stuff I think everybody kind of gets that if you raise money primary and you don't get there, okay, whatever. You know, it's fine. You you didn't end up building the thing. You return whatever money you have left. Okay, that's an honorable discharge. You know, you did your duty. You know, whatever.

But if you sell a dime of secondary, people have extremely different intuitions about the morality of what you've done. And that basically like if you sell secondaries most people think that one sec selling secondary if you have are pre-product market fit is immoral. People very strongly believe this and like people will just outright say that even if they're like is that what you really mean? People say yes that's what I really mean. Investor's fault for giving it to you if if like so I I I tend to agree that's between you and your investor. But then second people think that like basically if you sell secondary you had better succeed. If you sell secondary and you don't succeed, then it's like straight to jail. This is the absolute worst sin, you know, committable by any human being.

So, I want to get I want to get your guys reactions to this. I'm waiting for this to happen in AI cuz I already see people in AI like completely divorced from crypto and they're nicer right now because their market is still bubbly. They're still complaining about this and being like, "Oh, this founder." Like their company didn't work and they they like took the exit, you know, like the kind of wind surf style exit and they sold secondary. But M& is okay. M&A is okay. I've never seen anyone complain about this with M&A. No, no, no. People complain about the wind the windsurf style M&A, right? Where they just acquire the founders. That's kind of different though over a bunch of other people some different thing. No, no, no. But, but the place in AI this happens because like people aren't expecting a token or liquidity quickly, right? The way it happens that I've seen have been companies where founders sold secondary and then the founder also on top of that does this M&A and then the employees are kind of left with whatever is remaining. Right? That's the equivalent of the crypto thing.

I I think there's reasonable arguments to make that the problem with secondaries is not that founders are doing them but that they're not uniform among everybody who holds common. Right? So usually when there's a secondary it's only the founders selling and employees do not. founders maybe sell 3% 5 percent of their ownership in the company but employees do not get to sell anything generally and I think that's a more principled argument against secondaries I still don't agree with it but I understand where I I think I'm more sympathetic to that here's my view as an investor and as a founder I think a small amount of secondary is actually positive sum for the founder and for the venture funds that back them I think a large amount of secondary might be add first to the interests of the investors and benefit the founder over the investors. And here's why.

I think if the founder has $6,000 in their bank account and they live in New York or San Francisco and they are like skating by on fumes and they're finally raising money and like all of these things and it's like a series B and it's like just starting to work and you don't know if the outcome is positive but there's more demand for your company stock than supply. I think a founder selling a small amount like half a million, a million dollars and they don't have to worry about like how much groceries cost I think that is a positive. I think it actually takes like brain cells away from the cost of living and like the stress and the complexities of a startup and it actually enables a founder to swing harder at the thing they're supposed to be building. And I actually think it's extremely good for the founder to be like comfortable where like 100% of their brain wave is focused on trying to find product market fit. I think secondary done a small amount to add like a little bit of cushion and the founder doesn't feel like they have to like pull a rip cord or do something bad for the business to create liquidity for themselves. Positive.

I think if the founder cashes out $25 million and the company's deeply risky and nothing has been proven yet and it's $25 million that could have gone to the company's bank account and the company doesn't work out. I actually think it's partially caused by the founder and people have a right to be mad.

Okay. So Drew, what's your take?

Yeah, I I basically think the same thing. I just might adjust the numbers Robert has from up a little bit.

What would you adjust to? probably like less than five. I kind of agree with the Bill Gurly thing of like less than five is kind of 5% or $5 million. Five million like a hard cap of 5 million. Um hard cap. Okay. So very few secondaries get capped at 5 million. I No, not not sorry. That's what he says. That's what he I'm just saying like you agree with that. You agree with that. I just think I don't know if you need to have such a hard cap. I'm just saying that seems like a good median number or something. Right. Whereas Yeah. I think when it's like a hundred I mean in in some of these AI secondaries I think you're starting to see the adverse selection which is like because like in crypto this was like 2021 but in AI you're seeing like the crazy much crazier secondaries right now right like 11 labs sold like 300 mil of employee secondaries I mean it wasn't just founders but it was like I was like that's crazy to me that's like that's like what's their valuation five bill you know may maybe yeah maybe it was I think it was the earlier round. Okay. So, they sold like 3%. But but it was still like a lot in in a way that I thought was like kind of crazy because it was like only a secondary round. There was like this common only no preferred. I think that's why it was five because it was like discount to the the preferred round.

But I I so like there is clearly some boundary. I just don't know where it is. Like you know it probably varies from sector to sector. probably more in this, you know, bucket of, hey, like letting founders de-risk a little bit and um have a not not have to have brain damage about paying rent or getting groceries. Like obviously that is good. I think also there is sort of this like sort of officer's privilege kind of kind of thing where it's like yeah, if you're captain of the ship, you get the nicer quarters cuz you