Crypto Finally Goes Mainstream | Roundup

Transcript

This episode is sponsored by Canton, the only public permissionless blockchain built for institutional finance. We'll hear more from Canton later in the episode, but for now, let's get started. Hey everyone, quick disclaimer before we get into today's episode. Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only, and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds, or projects discussed. Hello everyone and welcome back to another episode of Bell Curve. Uh keep getting schedules mixed up here. So this is another solo recording so you guys are stuck with just me this week. Uh but hopefully it'll be okay. Uh before we get into our weekly stories, um I just

wanted to address uh something which was pretty uh Jason posted about this and this kind of made its way around Twitter um which is that we had some changes in Blockworks strategy um especially when it came to kind of our media mix uh in general which led us to say goodbye to um some folks who have been of block works at a long time uh especially in our editorial department. Um and I just want to say you know first and foremost whenever this has to happen because a company is adopting their strategy. Um this is always a people first thing and this was particularly tough uh because sometimes when we've had to make this in the past there's financial necessity. Uh this was a difference in strategy. Um and the people who uh are on the market

right now who used to work at Blockworks are so excellent. Um, I highly recommend anyone out there that has a content role or a marketing role or is looking to hire for a journalist, like any single one of them would be would be really excellent. Uh, and it was really sad to uh to say goodbye to them. So, just want to start by acknowledging that and saying that was a a tough thing that happened on on the blockwork side of things this week. Um, this was a a way to focus uh on the data and the software uh part of our business. Um, and it was necessary, but that doesn't make it any um, more difficult. And so, heart goes out to uh to uh the Block Works Blockwork Works fan this week. Um, okay guys. Um, with that um, I want to

uh, pivot into our first story of the week here. Uh, and to do that, I actually have a um, a slightly more light-hearted clip uh, which is coming uh, which is going to introduce the story which is actually coming from uh, Mr. Jamie Diamond. >> Skeptical of crypto at one point. He was still skeptical way with no damage. So far crypto is real. If you mean blockchain, stable coins, you have a JP Morgan deposit coin. You can move stuff, smart contracts are real, all that stuff is real. It will be used by all of us to facilitate, you know, better transactions and customer service. >> Uh that was the man, the myth, the legend, Mr. Jamie Diamond himself. uh the CEO of JP Morgan admitting that many of the things that us crypton natives for the last uh 10 years have been

extremely excited about that's everything from Bitcoin to smart contracts to tokenization to stable coins and digital payments happening globally that all of that stuff is very real and um that's just in time as well because he has announced a a pivot for the bank this week although he would believe have you believe that it is not uh that JP Morgan and will let institutional clients post Bitcoin and ETH as loan collateral. Uh, initially this is to select clients expanding over time. [snorts] Uh, but this is awesome. I mean, it it just it it does bear uh going into a little bit of a history lesson here, which is I think the first time that JP or that Jamie Diamond addressed Bitcoin, he did in 2017, he

called it a fraud. Uh, and he actually said that he would fire any JP Morgan traders uh for touching it. uh in a 2023 Senate hearing, he said, "If I were the government, I would close it down." Um, meanwhile, at the same time though, JP Morgan was actually building rail. So, I don't know how many folks remember this, but back in 2019, they actually announced JPM Coin. Uh, and they've long had an internal unit. Uh, it was actually called something even before Onyx. Onyx was the rebrand. Um, Amber Balde, for the OGs that remember her, uh, who went on to found a a dev platform called Clover. She was originally the head of um JP Morgan's internal program. Then I believe it was Christine Moy who's now at Apollo and

now uh Kexus uh is the name of the program which was launched in 2020. Um and actually by uh 2023 there was a billion dollars per day being settled. Um and they continued these sorts of pilots and actually quietly grew the team to I believe at last count somewhere around 200 uh people. Uh but now it feels like allowing um allowing institutional clients to post Bitcoin and Eene is collateral uh is is really indicative of where they see the market going. And this is me just speculating here, but I think they are reading the tea leaves. They're looking at this new SEC administration. A lot of the rhetoric coming out of Paul Atkins uh in the in the the memorandum that came out a couple of months ago, Project Crypto.

I would also guess that stable coins have really woken up JP Morgan here. Um, so you know there was a there was a really excellent blog post uh which was written by Simon Taylor this week. I can actually share it on my screen here. Uh so Simon Taylor for those of you who don't know um OG fintech guy um and he actually writes really excellent blog posts. So shout out uh Simon if you're listening to this. I I really appreciate the way that he articulates his points. Um, but he actually starts this piece off uh which is called stablecoin linked cards uh why they're better than secured credit cards. He starts off with a little anecdote. This week I gave a talk to the board of a bank about stable

coins and while they took a lot from the session, the showstopper was buying them a coffee with a stablecoin linked card. Everyone leaned in. What do you need a bank for if you can store balances of stable coins, spend them anywhere, get credit, and earn yield? The vast majority of domestic bank customers won't adopt this tomorrow. But the genie is out of the bottle. That 350 lb coffee just showed them a future where banks are optional. So there's a whole uh I'll drop this as a link in the show notes, but if I if I had to guess um what's making banks wake up to this in real time, it is genius.

And I I mentioned yesterday or sorry on the podcast last week uh the quote from uh from an investor friend of mine that the that genius is going to go down as the second most important thing after um Satoshi's Bitcoin white paper. And I completely agree and um I I think some of the uh what you can maybe divine in the tea leaves here is that not necessar I wouldn't make the mistake of thinking that just because banks are taking this seriously necessarily means that they will be successful. I I think that people haven't really articulated it like this so far, but the way that I see stable coins is it's actually it's just it's the innovator's dilemma. Um because what stable coins do especially uh if

they're allowed to pass yield back to consumers is it's it's kind of two things which is one you know it's just uh eroding net interest margins from a from a bank's perspective but it's it's kind of a different model of banking which is somewhat similar to the idea of narrow banking. Um although a lot of people will talk about this it's not exactly the same thing. Uh so narrow banking was originally this idea where you know the way that I guess quick refresher of how commercial banking uh inter interfaces with central banking in the United States is you have a certain number of um you know dealer banks which have an account directly at the Fed. Um and they have a certain number of reserves which is kind of the purest form of real you know money in

the US financial system today. It's money is recognized the federal by the Federal Reserve. um it replaced gold as base money and the the people have been asking to do narrow banking I think as far back as 2018 or 2019 and the idea was just hey we if we would like to have a the the idea that the Federal Reserve should open up banking activities to uh either depending on who the proposal was coming from either a greater number of participants or just anyone that wants to bank with the Federal Reserve. Uh Federal Reserve has never allowed for this to happen. um they haven't given a direct reason why the the thought was that it would probably undermine the commercial banking system uh in the United States, right? Why would you bank with even even a bank like JP Morgan or

Bank of America where there's virtually no risk when you could bank directly with the Fed where there's actually no risk? Um the risk of course being that you know there's credit or liquidity risk ends up happening and there's some kind of run on the bank. Um, stable coins are kind of a a mixture of that banking model where as opposed to a loan book in a bank being made up of, you know, different credit risks, so not just the US government, but different real estate portfolios, whatever, and different duration, so not just bills, but going out in the 10 year or the 30-year. Um, most genius regulated stable coins would just have the safest collateral, so basically T bills. Um, so you're actually you're not quite zero risk like you would be in the true

narrow banking uh sense of the word the original uh proposal, but you are very very close. And the advantage of uh this this more narrow banking is that one you don't actually get the the yields that you would get in an asset portfolio of a bank because you can't take as much risk, but you have much less overhead um and if you're regulated and you're also uh global from day one. And so my sense is just that these banks are now trying to grock the idea that this is actually relatively disruptive to their business model and they can't wave their hands at Bitcoin and Ethereum and say this stuff is airy fairy and there's no cash flows backing it and it's pure tulip bubble mania speculation. I think that genius

is really what is turning the screws here on the banks and um I think that obviously some it's never just as simple as an entire industry is completely disrupted or or not. Um I I would I would guess that just like any other sense of disruption, there will be some winners and losers here. It's probably a little bit too early to figure out um figure out who that's going to be. And frankly, it's it's anyone's game, right? I don't think it's too late for the banks to react at this point. Uh Jamie Diamond actually did mention in that in that speech that he hasn't lost anything by being this late. And maybe that's true. Uh that actually might be true. So um I do think it's definitely something that's that's very interesting to watch here though. Uh and should be really good for both Bitcoin and ETH. I also

will say although we think of the majors in cryptos being Bitcoin, ETH and Salana, um I I think it's interesting here that JP Morgan is just going for Bitcoin and ETH. I do think for the time being Bitcoin and ETH are kind of in in a category of their own here in terms of institutional adoption and acceptance. Before we get back into the episode, here's a quick word from our sponsor, Canton. The only public permissionless blockchain built for institutional finance. Tradfi wasn't built for 247 markets. Defi wasn't built for regulated institutions. But Canton [music] is where the power of finance meets the promise of blockchain. The only public blockchain [music] with

institutional-grade privacy, true composability, real assets, real markets. Why reinvent [music] finance when Canton makes it work the way it should? Canton, where finance flows. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research. Second story of the week is that we had spot ETFs for Soul, uh, Litecoin, and HAR launch. So, this happened on October 28th. Uh, this was a big win, at least in my eyes, for Bitwise. So, Bitwise is B Soul launched. Then, uh, Canary Capital, um, who've launched a number of quite interesting ETFs recently, uh,

including, uh, Pangu, there's a Pangu ETF, um, and, uh, they also launched the spot Litecoin, uh, ETF, uh, as well as Spot Hideera. So, uh, if you go back to, uh, after Ethereum, the Ethereum ETH ETFs got approved faster than people thought, uh, there was a lot of speculation on what the next assets were going to be. I think if you had to, you could go back and probably see the Bloomberg guys, Eric Bunis, um, and James Seafford uh, taking bets about this. I I think the consensus was actually Litecoin was a pretty consensus asset. Um, Salana was a consensus asset.

Then there was a lot of speculation around XRP and Doge. I think if you had pulled people, Hideera was probably not on people's people's uh top five list. So my my assumption is that there must be some very strategic lobbying uh that went on there. Um I don't know anything. I'm sorry. This is, you know, uh that's me just me just taking guesses here. Um but yeah, I think uh uh that's that's just very interesting. Uh so the early uh inflows here there's about 69 million uh that got withdrawn um or that got drawn in into day one trading uh for B soul. So you know big congratulations to the folks over at Bitwise for making that happen. Um I would simultaneously

expect from here the launch of additional ETFs um on different asset types but I would also expect diminishing returns. I think ultimately having an ETF will be um will be will be very necessary. I I would guess that you know when you're posting collateral at JP Morgan it's probably something like IBIT uh versus actual spot Bitcoin. Um and you know we we've also seen that for many of these DATs uh they've actually acquired the ETF as opposed to the spot.

It just makes the whole infrastructure setup much easier. Uh so I think it'll be long-term necessary but also probably diminishing you know marginal utility here. Um I am recording this so this is uh Thursday October the 30th. Uh it is uh yeah about 4:45 um east coast time and markets are uh markets are uh degrossing here. Uh so there was another uh there were inday liquidations here of um between 600 and 800 million. Um a a lot of what has spooked markets I think was the FOMC that came out this week.

Now I'm not going to pretend to divine the tea leaves here from the FOMC perspective. But it seems uh it seems like the market is really honing in on a phrase from Jay Powell where he said that uh another cut in December is quote not a foregone conclusion. So, we got the 25 basis point cut that the markets had been expecting. Although, it seems like that more forward-looking um that more forward-looking guidance uh did not come in where where the market was was actually hoping. So, that's probably what's uh driving markets here a little bit for the time being. Um one one part of the market which is doing quite well is uh prediction markets which continue to just be uh yeah the the break neck race here in between kshi and poly

market is just doing nothing but heating up. Uh so weekly prediction market notional broke uh volume broke $2 billion for the first time. This is the week ending October the 19th. Um it seems like a huge amount of what's driving this is is uh sports betting actually and I think a a large percentage uh Khi you know if you're listening to this um I I don't think this data is available so don't entirely quote me but I think a large portion of the volume being driven at least from the KHI and therefore the what's driving this kind of sports betting narrative is from Robin Hood sports betting which is powered by Khi so But Poly Market is um their launch is

a couple weeks out from the US. So they recently got CFTC clearance. They're not live yet. Uh but the idea is for them to move in. Um and there's an expectation, you know, we've covered in past episodes that they're going to eat into the uh into the sports betting market. And there is to me I mean I'm going to out myself for the hundth time as not a sports guy uh at all. So there probably people who are, you know, parlay wizards and, you know, big sports betterers being like, "Oh my god, dude. This is the most cringe thing you're about to say." But look, I'm not a sports guy. So I log on to one of these things, you know, once a year when it's time to bet on the Super Bowl, and I actually find the form factor relatively confusing. Uh I wonder if you know there are all these

different odds and spreads and all of this stuff and I actually wonder if the very simplified UX of something like Poly Market or Koshi which feels a little bit more binary and easy to understand what you're betting on um especially as gambling I hate I hate that this is the case but gambling is really taking off in the United States um and is probably looking into markets beyond just you know sports dgens um it actually might be a superior form factor in terms of simplicity I guess the analogy would be crypto found initial product market fit from onchain dgens, but that was always a limited market, probably in the same way that really intense sports gambling uh is. And yeah, it seems like this actually might widen widen the aperture a little bit. I will

say as well that my understanding um is that there's a tax angle here as well. Um, so the one big beautiful bill which got signed into law on July 4th caps gambling loss deductions at 90% of winnings. Uh, this would be effective 2026. The the impact here is that or the negative impact for gamblers would be that this could create phantom income if you're a break even better. So let's say you know you bet $100 or you you take $100, split it, you uh, you know, win some and you lo you your winnings out at net out at zero. If you can only write off 90% of the loss, it will actually look like you made money on a P&L basis.

Um it looks it seems like it's actually still there's a now I will say as well that uh there's push back um on this uh because as you can imagine some folks view that as being unfair. So the active push back is something called the fair bet act but the reversals have stalled out. Whereas in a prediction market P&L uh this can be treated uh two ways depending on the platform accounting. So some tax uh tax guides frame poly markets as capital gains or losses which would be property or the same way that you could offset uh losses of stock you know trading or something like that. Um although there is a push like many people would say that this really is gambling in the letter the spirit of the law not the letter and it should be treated um with the same tax treatment

as gambling income. Unclear. I feel like this is going to be have to something that's going to have to be fought out in in Washington actually. Um and as in the case of so many other things uh today uh the regulation and access to policy makers is really really critical. Speaking of access to big policy makers uh Trump announced this week that he is pardoning CZ. So this was confirmed on October 23rd. So about 8 days ago as of the time of this recording. Uh the for context here uh for those of you who uh forgot what happened back in 2023, CZ plead guilty uh in 2023 related to AML failures. He served four months in prison. Uh the pardon was framed by the

White House as ending the war on crypto. Uh BNB has done pretty well um in terms pretty well there. And I guess again this is me going off on my own and thinking here but I roughly heard and what my expectation would be based on this action is that Binance is going to be allowed to expand into the United States and I would guess that there are big pushes that are happening from many Asian exchanges as or offshore exchanges um as well. Again, not acting on any direct information here, but why would you not, right? Like the the posturing from this administration has been extremely clear that that type of activity is going to be permitted, which by the way, I think is a massively good

thing. It was never good for the majority of trading volumes to be happening in this unregulated way. So, I just see this as nothing but positive. Um, and it will definitely be safer for people that are operating on these platforms. But yeah, I think that that's the um that is the big game that and the the competition that's going to take place in 2026 is what have historically been pretty distinct markets in between Binance's core market and maybe OKX's or Hobies and Coinbases and Robin Hoods. Those are going to converge. It's also very interesting to see how I know people are very excited about Hyperlid as well. And um I think that's going to be directly competing with all of these different uh with all these different exchanges. It

is a little unclear to me whether or not Poly Market and Kalshi directly compete here. For K she's a little bit more complicated because they're a backend for prediction markets. And so they power they're they white label uh and you know have a partnership with Robin Hood and it seems like their strategy is not to have a lot of people come directly to call sheet to trade but instead to provide the infrastructure for other exchanges whereas poly market is directly trying to own the relationship with the consumer. Um, you know, we've talked on previous episodes about this idea of the everything exchange. And this is kind of a lot of the mental model that I hang a lot of investors and exchange operators have in their head right now are these everything apps that exist over in China, the WeChats and the Alipes of the

world. It is to be determined whether or not that is going to work for crypto. Um, and one question that at least I have in my head, and you've I've actually seen this behavior anecdotally pop up quite a few times in crypto is that perhaps because there's a legacy distrust with exchange and hacks have been so prevalent is that you actually have multiple different segregated accounts here. So, you wouldn't keep all of your assets on one exchange or something like that. And but further than that, people seem to divide it psychologically where maybe because of the volatility of crypto assets, you kind of have your safe majors over here.

So maybe you hold your Bitcoin and your ETH and your Salana in in Coinbase, but you're going to you want to take punts on, you know, whatever new coin or narrative is ripping or something like that in um in uh in in a different exchange. And that's not actually segregating necessarily because of safety reasons, but it's segregating for psychological concerns, which is okay, even if this all goes to zero, I still have my major portfolio safely uh in a segregated account over here. So, um it's I think it's going to be super super interesting to watch how this competition plays out in between exchanges. And I want to double down on that prediction. Uh I want to double

down on the prediction again from that I made last week which is I think in certain mature sectors you're going to see consolidation and compounding. That's going to be the name of the game. And I don't know from an investment standpoint it feels difficult unless you're a real expert in these areas to predict who's going to win. I think there are really strong you know I could make very strong bull cases for you know coin or hood or B&B separately here. Um and yeah it'll just be interesting to see how it plays out. But I do think once the winner emerges there, there's just going to be an enormous amount of value that occurs because on top of the exchange, there's this kind of call option in the form of a financial platform, which frankly a lot of the L1's have always gotten. Um, but yeah,

it'll be very interesting to see how that to see how that plays out. Everyone in crypto loves to talk about transparency, but would any serious business publish its [music] payroll for the world to see or hand competitors its contracts? That's not a feature. That's a bug. And it's why most financial institutions can't operate on today's public rails. Canton network is different. It's the only public permissionless layer 1 blockchain built with privacy at its core, sharing data only on a need to- know basis. That's why Goldman Sachs, NASDAQ, and Broadidge are already building on the network. Only Canton delivers the network effects of a public chain with the privacy and control real finance demands. Learn more about Canton by following the link in today's show notes.

As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research. I also want to double down on the same thing that I said especially for L1's. And I want to make the the observation that for L1's actually I'll just general smart contract platforms in here. I think it's going to be relatively uh tough sledding here for uh generalized smart contract platforms from here on out, right? Unless you have a very distinguished kind of brand and use case, just getting a foothold in that market is more difficult, I think, than it used to be. And by the way, this is not commentary. I'm aware that there's a man, you know, airdrop going and

presumably, you know, that's launching very soon. And the same thing with Mega ETH. Um, this is not a prediction on uh both of those teams seem great. I actually, disclosure, I have a small bag of Monad. Um, but I I have no idea, you know, what's going to happen with those two platforms. But I I do just think, you know, hearing anecdotally, it's it's it seems just much harder to differentiate um yourself in those kind of uh in in like a general platform market. I think folks are going to be able to do it on the back of building a very strong ecosystem. But this is just the point that I made before that I think that the barriers to entry are much higher and it is a crowded market.

And I remain I know people are really mixed on the sentiment here around the core assets like ETH and Soul. I just I think they're both going to continue to do well. Um and I know that a lot of people probably myself included were very focused on the DATs recently. I think DATs have really stopped being a driving force in the market. First of all, as far as I'm concerned, there are two DATs. Um one is run by Michael Sailor, the other is run by Tom Lee. Um there's a chance that I guess if Forward Industries by Kyle Sony does really well, but it just seems like for the time being it's operating at a much smaller scale. And so yeah, I I think I think DATs as a force in the market are much less than they used to be. But it

seems like the macro is going to pick off where the DATs pick up where the DATs left off. But yeah, I think that the the themes for these mature sectors, just to to tie it all together, are consolidation and compounding. And from an investment standpoint, I guess you could you could try to play it either being really good and guessing who the winners are going to be or you could just wait for them to emerge. You could be comfortable with getting a little less upside but a little bit more shy on your bet. In the case of the L1's, it feels like feels like have a general sense of who that's going to be. Uh maybe with some new upstarts. Same thing with the L2 the L2 landscape. So, um I don't know. I continue to think it's extremely interesting times ahead.

And in terms of the morality here, by the way, of Trump pardoning CZ, I I don't really have much commentary on that, mostly because I wasn't super in the weeds with what, you know, CZ may or may not have done uh in his time at Binance. I think the way that the market generally perceives this is that crypto was the wild west. Um, I'm not sure anyone would accuse Binance of having always operated 100%, you know, 100% of the time coloring inside the lines. Um, I would I could also make a pretty compelling argument that regulators, especially in the US, didn't give them much honest opportunity uh to do that either. So, in terms of the feels for CZ here, I don't really have any hot takes.

Um, I don't think it's crazy that Trump pardoned him. Um and I guess the you know on the last uh story of the week uh Western Union announced that there's a dollar pegged token on Salana uh with Anchorage. Um so there's a public rollout uh which is targeted for H1 2026. Uh the framing is that there's actual real remittance rails um which is uh Western Union's distribution and there's cheap L1 throughput. again. Um I think we'll see. Um if if you put a gun to my head and made me guess, I would say that this is going to be somewhere on this feels more PayPal Venmoish to me than Tether or Circle.

And the reason why is again this is the innovator's dilemma. Generally, when people talk about stable coins and global payments, they're excited about disrupting Western Union because their fees are so high. And so, it would be great. It would be really uh it would be very forward thinking if Western Union were to disrupt themselves first. Generally, it's really organizationally difficult to do that. So, I feel like what you mostly see and what I could see happening at an organization like a Western Union is someone says, "Guys, stable coins are real. Genius just got approved. What is our play here? What are we going to do?"

And someone says, "We could launch our own stable coin." And someone says, "True, but I just I'm going to show you this pie chart of where our revenues and our our profit is coming from. And if we were to move, it would look much much much worse." And so I feel like sometimes what you get from these organizations and I may be being totally uncharitable here is a kind of middle ground which is let's have our cake and eat it too and let's kind of launch something that we can say we're doing something and we'll have this option as stable coins actually take off. But um I think with a lot of these new issuers especially where the distribution is a little bit more questionable and where the disruption to their core business would be extremely great. I am in the wait and see camp for those. So, uh,

anyway guys, yeah, I know this was another solo episode. Um, we'll be back with, uh, Michael and Vance very soon. And, uh, yeah, hope everyone has a great, great weekend, a very spooky weekend, very spooky Halloween weekend. Uh, cheers everyone.