How the Dimon vs. Armstrong Clash Reveals Crypto at Peak Political Power

Transcript

Hey everyone, welcome to Bits and Bips, where we explore [music] how crypto and macro collide one basis point at a time. We're here today to discuss the latest stories in the worlds of crypto and macro, but before we begin, a quick commercial break. >> If you've been loving Bits and Bips, [music] don't forget that the show is transitioning to its own feeds on X, YouTube, and your favorite podcast [music] player. If you're not already subscribed to Bits and Bips on its own channels, go there now and hit that subscribe [music] button so you can keep up with our twice weekly live streams and macro news crypto breakdowns. Bits and Bips will only be on the Unchained feed for a few more weeks, so subscribe [music] today to be ready for launch.

You can get all the links at unchainedcrypto.com/bitsandbips. [music] >> All right, welcome back and as always, I'm your host, Austin Campbell, high scholar of zero knowledge group, here with my co-hosts, Rom Ahluwalia, maester of wealth, the leader of Lumida, and Chris Perkins, the golden hand of CoinFund. Before we begin today, a quick note for everybody. We're going to be transitioning to new dedicated Bits and Bips channels. We've begun releasing shorter segments from the episodes there, but next week, we're officially moving the full Bits and Bips interviews to their new home on the dedicated channels. So, if you're not subscribed on X, on YouTube, on Spotify, on Apple

Podcasts, or wherever you get your podcasts, please go there and sign up for now so you can keep up with us. Now, let's talk about something that's relatively big news here, which is Anthropic has filed for an IPO. So, I would say this is the first real test of AI valuations hitting public markets. Um, the news is that Anthropic has confidentially submitted a draft S-1 registration statement to the SEC. They've said this gives us the option to pursue an initial public offering. Uh, the Wall Street Journal reported the same, saying it's setting it on a path to go public as early as this fall.

This sets up a race with OpenAI, which is reported to be preparing its own confidential filing in the coming weeks, also targeting fall, according to both Fortune and Bloomberg. And it's part of a white-hot IPO season because we also have SpaceX coming, targeting a $2 trillion valuation for their fundraise. So, there are a lot of numbers flying around about this. Some of them somehow are already outdated. Uh Zero X reflection made the point that the $20 billion revenue number is outdated. So, the real last valuation that we've heard is $965 billion post-money from the Series H. Uh that is from Anthropic and TechCrunch.

And that real revenue is allegedly $47 billion annualized as of early May, uh from Simon Willison. But, of course, we haven't seen all of the details on those things. The S1 is confidential. So, take that with a grain of salt in all different directions. Um OpenAI, for comparison, is allegedly $852 billion with a $24 to $25 billion run rate. So, let's quickly lay out bull and bear, and then, Rom, I want your view on this. But, the bull case is Anthropic's revenue appears to be real and growing.

It's nearly 10x year-over-year. It's nearing an operating profit. Both Pimco and BlackRock were saying the CapEx cycle there is still accelerating. On the bear side, you have Apollo's Torsten Slok, you have BofA's Michael Hartnett, you have Michael Burry with varying critiques. Burry specifically that this feels like the last months of the '99 and 2000 bubble, questioning some of the circular accounting at places like Nvidia that are warehousing revenue here. Apollo and BofA are pointing out that a huge amount of concentration in the S&P 500 and Torsten Slok in particular saying they're more overvalued than they were in the '90s. But, Brom, this is clearly a mega IPO. I know this isn't

Sam Altman. Um what is our feeling on where we're going here? Like how do we feel about valuations? And Chris, open to your opinions as well. Brom, I was just saying with the Anthropic IPO coming, they've had both 10x revenue growth, but also a valuation already nearing a trillion dollars. Like how would you even think about this as an IPO investor right now? >> It's amazing. It's amazing. You know, in January of this past year, Anthropic added to its revenue all the revenue it had generated in the prior year cumulatively.

It's extraordinary. Extraordinary numbers. Uh it's um amazing. You know, on private exchanges, this is trading at even a higher valuation than 965 billion. I've seen numbers like 1.3 trillion, 1.8 trillion. By the way, that's a really bad idea. You should not buy that at those numbers. Uh so uh yeah, I think uh Anthropic changed the news cycle on AI. They had a dramatic impact on public markets in February and March when they caused the SaaS apocalypse, all of which is now rebounding very sharply now.

Uh and they took pole position from Open AI. They've got the zeitgeist. So, it's it's been impressive to watch. You know, it's it's an exciting time uh for AI because, you know, we're still early in the adoption of this technology in so many different areas. It hasn't really touched medical diagnostics, for example. We're still early on uh biotechnology and pharmaceuticals. We're still mostly focused on coding use cases and there's still much more work to be done there.

Uh so it's a it's extraordinary. Looking forward to the numbers. You know, the big question will be what does this mean when you have so much issuance hitting the market at the same time? The last time we saw uh a a spate of IPOs was summer of last year. And then you had a cool off for several months with all the debt hitting the market. Now you've got Anthropic and you've got a two trillion-dollar IPO coming also in SpaceX at a something like a 90 times price to sales ratio. So it's going to have an impact on the market for sure. Like that's that's going to happen.

The SpaceX IPO is June 10th, I believe. So we'll keep our eyes out for that. >> Yeah, uh Chairman Atkins said he's going to make public markets great again. Uh it seems like things are starting to work. Uh of course you'd you'd hope that in the future companies go public sooner. Uh that would be helpful uh because again you want people in, but the thing that I'm looking at is again the magnitude and size. Uh if you look at the size of the IPO markets back in uh '25, I think there's about 44 billion that was raised. Um then you have SPACs that raised another like 30 or so. And then direct listings have been very tiny. Um but the one thing that I'm starting to see is this this really sharp move to 24/7 markets. FTX just just uh launched

24/7 markets today. They announced that. Only for crypto. But then you have like Trade XYZ, the hyper-liquid guys pumping away at these pre-IPO derivatives markets. And so now for the first time you have this potential for real price discovery um that I think I think people are still sussing it out right now and figuring out, wait a second, is this a good thing? Is it a bad thing? Um but I think it's going to be a very important tool. Uh because IPOs tend to be mispriced. Uh in many cases. You're kind of walking blindly into the syndicate. And now, with some of these tools that we're seeing, if they nail it, then issuers can better time their launch, they can better price

their IPO, uh whether it's through direct or even an IPO listing, uh and they'll leave less money on the table. So, I think this could be really interesting as you bring together crypto and in this case IPO, because those are the issuers. Um you can get to a much more efficient and frankly, uh inclusive capital markets because retail has been boxed out of IPOs. Now, I think the good news here is that um for some of these coming IPOs coming up, there's a lot more allocation uh to retail, uh which is I think you know, when ROM comes back, you know, maybe a departure uh from from former syndicates. But, what I like is that it sounds like as of course, this is banned in the US. Don't know, we'll have to get through that. But, the fact

that we're getting like pre-IPO price dis- uh is pretty amazing. So, hats off to the Trade XYZ guys, the Hyperliquid guys. Really, really interesting capabilities that they're now bringing to the overall It's a feels like like the missing link in a way uh for inclusivity, for retail, and also for maybe more efficient IPO markets. >> Price discovery though, Chris, man. I think anything trading on a secondary for hard-to-access asset with a tightly controlled cap table, and the asset's in high demand, it'll always trade at a premium and then inevitably compress down once the uh issue starts trading. So, I don't I don't see it as price discovery. I think it's like a

bad idea if you try to buy on the secondary markets at an inflated valuation. >> I think we're talking about two different things, right? So, secondary markets, I get it, but if you have really, really deep liquid derivatives markets, um I think that could be much more interesting, uh and we're starting to see that for the first time. We just haven't had deep liquid pre-IPO markets in the past. And like I'm kind of watching space the SpaceX IPO. I mean let's see if if the Trade XYZ guys nail it. You know, last IPO was I forget the name Sir Curtis or something. Seems like it did all right.

But but that's what I'm watching. >> I think part of this comes back to a comment that you were making earlier which is we're in this regime now where IPOs happen much later in company cycles in the United States of America, right? Like imagine traveling back in time to the 90s and talking about a series H. People would have been incredibly confused. And all of these to me are pointing to greater demand in public markets for companies to be going public earlier. I think in some way one of the things that we need to start considering in capital markets and maybe some unsolicited advice to the people in Silicon Valley based on what I

hear from my students is if people don't feel like they're participants in these stocks and they instead feel like big company IPOs at extreme valuations are just dumping on retail and the price will just fall fall fall, you're going to have a pretty negative reaction to capital markets because like if you look back at the last batch of call it mega IPOs, the price performance is pretty ugly across those blocks and notably like they're changing index inclusion rules for SpaceX to get it in there. So one of the questions this is raising for me is on one hand we have pre-IPO price discovery. Interesting. Information is good for markets. I'm a big proponent of that. But on the other hand we have much

later IPO valuations, right? Like put simply I have a hard time seeing how somebody is getting a 10 bagger out of Anthropic or SpaceX if they're IPOing at a trillion dollar valuation right out of the gate. I mean, Chris, do you disagree with me on that? What do you What do you think based on >> over what time frame? >> Yeah, okay. >> This is This is the law of big numbers. So, when you start putting putting the money printer going >> in real terms, let's ignore inflation as well. >> No, fair enough. Like, you're talking about the the law of big numbers. And, you know, if you if if you IPO in in the trillions, a 10-bagger is a lot of trillions. Um numbers don't add up, right? So, I think you're right. Like, IPOs shouldn't necessarily be exit

liquidity for for the rich private equity investors only, right? Like, how do you make a more inclusive market? Uh look, I I think Chairman Atkins is very focused on this. And, um I've said it over and over again, 80% of companies in this country with over a hundred million dollars of revenue are private. That doesn't seem right. How do you fix it? Uh well, you need to make it more accessible. You need to lower the cost for issuers. Like, it it seems to be better off if you stay private uh today. Hopefully, that's going to change. Uh but, it's really Sarbanes-Oxley. It It really crushed issuers. The overhead, the compliance. By the way, this is true with any market.

When you introduce regulation, you increase fixed costs, and then you need to drive scale to be able to be successful. And, those fixed costs are generally set the same for everyone. So, the big get bigger. Um you know, you're going to see that even with the Clarity Act, the Genius Act, you know, people are like, "Oh, Genius Act's going to be amazing. All these companies are going to start building." Well, they may start, but they're you're going to be only be left with a handful uh because that fixed cost is going to force consolidation. We see that over and over and over again. So, how do we lower the regulatory uh cost burden? And, you know, people say, "Oh, you know, you're going to get rid of quarterly reporting.

That's going to be terrible for investor protections." I I know, is it? Um you know, investors have amazing tools. >> You're right on the mark. I mean, the reason they created Sarbanes-Oxley was in the wake of Enron and WorldCom. They had the fraudulent reporting, and then uh Arthur Andersen, you know, went away as a result. Uh and see the brutal bear market, back-to-back bear market with the dot-com crash. You can solve a lot of that with technology and transparency that you couldn't have solved before. Um you know, but I agree with all the points, you know, when Amazon, Microsoft soft and Net- What?

was when public, they were sub- These things went public in the billion-dollar market caps, not two trillion-dollar market caps. And people are extrapolating in a way they should not. You make your money on the buy. So, these entry valuations are are way way too high. >> I mean, one other thing though that I'm keeping an eye on, Chris, on the side of regulatory reform, is I agree Sarbanes-Oxley has significantly raised like the fixed costs. But the other thing that's been a creeping problem that people have paid less attention to, I think, is shareholder lawsuits. Like the amount of nuisance lawsuits and claims and annoyance and just people extracting value out of public companies from the legal community has gotten surprisingly

high. So, if you're a small-to-medium company and you're constantly going to be harassed about this, you know, somebody will be like, "I bought 12 shares, and you did this thing wrong, so now pay my lawyers 50 million dollars, and I'll collect 12 dollars of that." Right? It It just somehow doesn't compute. So, an interesting sort of fix there is what Texas has done. Right? I don't know if anybody has paid attention to this, but they essentially took the Delaware sort of structure, copied and pasted it, and then put in some structural reforms, one of which is you need a minimum percentage of the shares in order to sue as a shareholder. So, no more like, Chris, I buy eight shares of your company and then I go sue you over

something because I'm just mad and my lawyers want a nuisance payout or like maybe a medium-size payout. It becomes you need to be a percentage-points shareholder of this company to actually sue. And I believe, and correct me if I'm wrong on this, we just saw a lawsuit dismissed against Tesla in Texas for this exact reason where you can't just sue on a nuisance basis. It's got to be the actual real deal in Texas. >> What a great idea. Sounds amazing. >> Yeah, and so I think there are like many areas where being a public company is annoying. And what I would say is as we look at this from both the state and federal law standpoint, this is one of those where your opinion

doesn't matter. The facts are what the facts are. If public companies are choosing not to be public until they are gigantic, something is blocking them earlier in the funnel. And if you want the American people to feel like they get to participate in the economy and reap those gains, we need to find a way to unblock that. All right. >> Well, one other quick quick quick point on this. I mean, there's another reason they're staying private for longer. The management fees are higher in private markets. You're charging 2% management fee in private markets on a big pool of capital.

That's one. Second thing you can do in private markets is you can engineer your exit and control your exit price. How many VCs have unloaded their Stripe shares in a very controlled manner at much higher prices than I can assure you of the multiples of payments companies in trading in public markets. So, that helps them, too. And then they get incentive fees on all of that. So, the VCs are in on it, too. You know, they're they're smart. They know what they're doing. Uh they can keep growing and plowing capital in these names for longer and also capturing more fees.

>> But that also becomes a question ultimately of like who's buying it from the VCs, right? And And here >> [ __ ] >> Yeah. I I was going to say here ultimately it becomes like retirement funds and pensions and things like that. So, we we do need a better market structure there. All right, so speaking of things that might need a better market structure, let's talk about MicroStrategy. Um people have been describing this jokingly as Saylor's three-body problem. And what's going on is that it for the first time since 2022, and yes, that is correct for all of you who said strategy sold Bitcoin for the first time ever, you were wrong. They did this before.

But for the first time since 2022, strategy started selling some Bitcoin. They sold 32 BTC largely as what looks like mostly a test transaction cuz that's $2.5 million per per their 8K to fund distributions on preferred stock. Now, that is less than 0.01% of their holdings, but they chose to sell some BTC rather than drawing the cash reserve. And they sold as Bitcoin fell under 72K on the news.

Why is this happening? So, their capital stack, I will remind everybody, has equity. It then has preferreds, which are the STRCS of the world, that right now, round numbers, seems like they need about $1.5 billion a year in dividends. They have $900 million of cash. And the MNAV is basically at parity, so that's not really a good vehicle for issuing more to make the gains work. Um Saylor is saying that our goal is to make STR C the best credit instrument in the world. He called the sale, quote, Ram, a big nothingburger.

>> Ah. However, you should come to the show. Michael, you should come on and join us. >> There you go. Now, let's talk about the bears on the other side of this, though, who are saying maybe it is a problem. So, Jeff Dorman was saying 15 billion in preps have a 1.5 billion a year dividend. He raised 2 billion via stock, then used a bunch of it to buy back 2029 maturity bonds. Someone is going to lose badly here, and it will happen in the next 4 months. Uh Rich Galvin said that Saylor faces a three-body problem. He can't indefinitely support all of equity, Bitcoin, and the preferred debt stack. Eventually, they fly too close to the sun.

So, I'm curious. Let's start with the capital stack component of this. Do you agree with Dorman's point that now we're in a world where Bitcoin prices are not shooting upward, we have differential interests between equity holders, Bitcoin holders, and the preferred holders? Like, is that conflict real? >> I'll launch in there. I'd say you have a three-body problem. I think he's right. Unless Bitcoin is coded to go up in perpetuity, which a lot of investors in that believe, and so they dismiss this issue.

If, however, that does not happen, then you have issues like this. And you know, one of the challenges is that a lot of investors are in Bitcoin because of the velocity. It is an attention asset. I coined that term a few years ago. Seen more of that being used. But here's the issue. There's a lot of assets competing for attention now. Many, many assets are competing for attention. You know, AI is an example of that. Um a lot of things are going up into the right now, too. Biotech is going up into the right. So, um that makes it harder. That makes it harder for digital assets. When When you're in a momentum market, and this is a momentum market, we're two standard deviations into a momentum market, and

you You an asset that's supposed to have momentum and velocity and it's not running fast then it cuts against you. That's what we're seeing now. So uh I I I I this is not good. When you sell on even if the small number, it doesn't matter. Perception's reality. It's an attention asset. It's not about the 0.1%. >> Yeah, it's a social consensus asset and one of the largest um evangelist of that of that thesis um just sold his assets for the first time.

Now, a couple things. Uh first off, he's a dad and he's acting like a dad because a dad has to act in the interest of its shareholders. And you know, by selling you know, most dads will tell you that they don't like it. They'll grind their teeth, but the right thing for them to do is to sell their underlying tokens when certain conditions are met. And I wouldn't say this was necessarily a sale. It was symbolic um to say, "Look, I'm a dad. I need to do certain things to optimize my capital stack. This is a source of a funding when I need it."

Um maybe it's a quest for him to lowest lower his cost basis um because he's provided a degree of centralization into an asset that should be totally decentralized. And so by by impacting the narrative, by impacting, you know, the this this this theme of social consensus, you would expect for the price to go lower. Um so maybe he's you know, maybe that's fine. Maybe he has some ideas about when he's going to go long again and and um you know, obviously he would never be manipulating markets, but but maybe he this is going to be an opportunity for him to lower his his cost basis in time.

Um the other thing that's challenging with Bitcoin and and you know, Ethereum is a little bit different. Other assets, Solana, other assets are different little different. Bitcoin is an inert asset. It is not a yielding asset. And so when you start offering to investors um um a yield on an underlying asset that does not yield, it's hard. Um and and so that's another conundrum that people need to think about. Now, is selling that asset a way to generate that yield that you're promising? It's one of many. Can you hit the ATM if you have a positive MNAV?

Yeah, that's another way. So it's it's but that under underlying conundrum um does result in some challenges when you have >> Yeah, percent. >> Right? And yeah, yeah, yeah. >> asset liability mismatch, right? >> Yeah. >> Yeah. >> Like a coupon coupon mismatch. >> 100%. Look, whereas like for some of the yielding products, at least you had that that that organic yield where maybe it's easier to structure um cash flows or payments. And and maybe you have that dollar uh crypto mismatch, but you're getting a three, you know, 2.8, 2.7% yield on ETH as an example.

Like, you know, Solana, Avalanche, hyper liquid, you name it. Um I'm good I don't want to get anyone mad at me if I forget the name their their ecosystem, but it's it's just a a fundamental mismatch in Bitcoin that you don't have in other places. Now, those who can successfully drive sustainable yield on Bitcoin, that's very powerful. Like and and how many strategies I've seen where people have been trying to to generate yield on gold, not easy to do. Um it's very it's very similar type strategy, but it it but you know, the extent somebody can deliver and and this is what he's trying to do, deliver a scalable yielding Bitcoin exposure, I think there's going to be demand for something like that for a long time.

>> I think the hard part is the mechanics of the yield though, right? Cuz if you look at STRC, you have an asset that needs to be paying an 11.5% dividend by buying Bitcoin. So like the math on that is actually very simple and to the point Ram was making earlier, it's that if I raise $15 billion of it and I just hold the Bitcoin, if that doesn't go up by 11.5% per year, if I start selling it back, I'm just reducing the amount of Bitcoin that I have. Period, full stop. And so, fundamentally, what you're ultimately asking there is is the price of Bitcoin going to go up more than 11.5% per year?

And part of what's interesting about this as well is as Bitcoin has gotten larger and larger over time as a market cap asset, just as one would expect, you're seeing a reduction in the rate of gains, right? Back to the law of large numbers problem. It's a lot easier to get a 100-bagger with a $10 million asset than with a $1 trillion asset. >> Mhm. >> And so, I think a lot of the people who've been parameterizing this based on historical Bitcoin performance have not normalized that for the current size of Bitcoin.

I just wonder like if we're not staring down the barrel of very significant inflation, like what is the game plan to continue playing paying that dividend and not sort of stripping Bitcoin off the balance sheet over time. >> Yeah. Go ahead. >> Both are selling below par now, STRC and STRF, and they sold off today. That's not good to see. Cuz now, if you're selling Bitcoin to generate cash, then you would be to create confidence for the providers of your debt financing.

So, one would expect that these would close closer to par, but they did not. So, if those assets sold off, that means the cost of financing actually went higher. And Chris also knows what that means. That's not good. >> Yes. >> Yeah, that's not good. >> So, you know, if you're at right? What's a good analogy here, Austin? You know what I mean? You're going to be >> I I would I would say a good analogy for a bank is that you have a bunch of loans on the balance sheet that are paying you 6% and you've watched short-term rates doing this inexorably while you're still getting paid six. There comes a point where if rates go up enough, you just die.

Um and if you don't believe me, the name of that bank was Silicon Valley Bank. Like this has happened in the not-too-distant past. You have an asset-liability mismatch. >> Yeah. The other issue we have time and time again in our industry is this uh the arbitrage between equity and token, where it's hard to buy a token. It's hard for people to buy a token. Uh and so they they go in through an asset class that they that's that's easy. Um a trust, uh an equity. And that works sometimes when there's more demand, but when there's less demand, um maybe it can be sold faster as well. So it works in both directions.

Uh it's been uh it's it's that basis, you know, the last cycle was one of the the core challenges with uh with the bear market that we entered with that that basis between equity and token. Um a lot of people died on that hill. Um you can you can go through some of the names but yeah, interesting times. Interesting times. >> I >> It adds procyclicality to Bitcoin. >> Yeah. >> Too. Right? Like MicroStrategy was a bid for Bitcoin, now they got to sell Bitcoin to fund the obligations on Bitcoin. >> So >> So this is the first time we've seen in a really long time where people are saying, "Uh-oh, strategy is you know, sold some Bitcoin."

And then you're seeing some like a some incredible momentum amongst a handful of names in the alt space. >> Yeah. >> And so I don't think it's time for for me to say, "Hey guys, it's alt season again. Giddy up, let's go." But it's what we've been talking about. It's those those alts are getting looked at now through new more sophisticated eyes, I think. Where the alts with fundamentals are outperforming those that are not. It feels like it like a fundamental season, if you will, an alt fundamental season.

But, you know, I'm we're starting to see like excitement. We're starting to see um you know, maybe a little bit less focus on on this bit like Bitcoin has been very very dominant in our last cycle, massively dominant. It is the largest asset class of the largest of the tokens across the asset. You can't ignore it. But, for the first time it feels like, you know, you're seeing some very very strong momentum uh within a handful of projects that are out of clipping like they're they're they're they're clipping um Bitcoin for the first time I've seen in a while.

>> It seems a little bit like we're talking about hyperliquid. >> Well, yeah, it's going >> Let's talk about hyperliquid in particular there, cuz there was a headline on that, right? The CEO of ICE, again, the exchange, not the ones deported people, uh said at Bernstein's May 27th conference, "Hyperliquid is bigger than Nasdaq by volume. And ICE has met its founders multiple times." From uh Sprecher, "This hyperliquid, it's bigger than Nasdaq, okay? It's 11 people. You look at it and you're like, wow, that's pretty something. The team is extremely smart. I salute these guys for doing it. I don't think you can ignore it." And he said, "On institutions, they're all watching it, whether they admit it or not, it is

being part of the zeitgeist." And unsurprisingly, like hype has done pretty well price-wise following this. It's run to a fresh all-time high. I just checked it as we're recording this, it's in the 72 range right now, becoming a top 10 crypto asset, Chris, exactly to your point. And if we look at this, it's a perps market that continues to add things like prediction markets, pre-IPO synthetics, etc., etc. But, importantly on connecting the platform to the token, 99% of the fees go to buybacks of the token. That's 800 million of annualized revenue. The team is tiny. Most of that is going back to the token holders, like

Jeff Dorman, who was earlier talking about like MicroStrategy has said this is one of the few things that's like purchasable as a liquid token investor in crypto earlier this year. So, there seems to be something interesting going on here, and that's all of that in front of the main point that's getting into the zeitgeist, which is 24/7 real markets trading. We've seen hype cited as the price for oil over the weekend during the Iran conflict. So, like Chris, what do you make of this whole thing? Is this validating for Hyperliquid? Is this basically lobbying for Perp to come here so people can compete against them?

Like, what's going on? >> Well, Perps are here. Uh I don't know if you saw the announcement. They're They're in effect right now. Um so, congratulations to the team. I think another another other projects are launching as well. Um So, so congrats to Terrick and Andy Ross over there. They've really moved the moved some mountains. But, I think you're seeing Perps now having a foothold uh in the United States, and I think that's going to grow. So, um when you look at Jeff Sprecher's statement, and I've known Jeff for a for a long time. I know the team very well. You know, he was the head of he founded ICE.

Um the difference between him and many of the traditional uh CEOs that you'll see is that he's founder-led, right? He founded that company. And founder-led companies are wired differently. And if you're a founder, and you've been a disruptor your entire career, you're also a lot more paranoid than other people because you know what a disruptor can do. Jeff is sitting on top of a $90 billion company. Oh, and by the way, he bought NYZE. Like, who would have thought this startup coming out of nowhere in derivatives bought buys NYZE, one of the most stored why it's a tale as old as time derivatives are more important than spot sorry guys that's the reason why I spot a nice e now he's 90 billion dollar market cap founder and he's like uh-oh uh there's 11 guys over there they're

killing it um they've done a couple things that I can't do because my regulators probably won't let me uh he's doing a couple things that I wish I could do um that they just move faster and they're really smart and so you know how many times have we seen startups that have like you know push the edges of regulation and in this case regulation that is it really like you know are we really hurting people by launching 24/7 perps that are giving you price discovery for IPO markets that are showing you um what the price of oil is on a war so you can kind of help think you can theoretically manage your book you know not maybe not because you can't access markets so you know these companies these um these

protocols in crypto are delivering real utility real utility um the real-world assets I still can't say RWA guys it just kills me as a banker but these real-world assets that are coming on chain this convergence is providing real real utility it's scaring traditional markets CME what did they do today they're like oh shoot I got to be 24/7 too but they still have to catch up with the rest of their markets in the whole system that comes behind it so that's the the good news the bad news is that how many institutions do you know that can access hyper liquid today like real institutions probably none maybe there's some market makers whatever >> or or trade on it when you say access >> I say trade on it right people will look

at the data they're all looking at the data you go on any Wall Street firm there they got hyper liquid up to see what's happening I think um I don't know I haven't been on the floor for a while >> just the multinational hedge funds who can trade it cuz you're going to need a non-US entity with access to the ability to trade crypto, right? >> Yeah. Yeah, so you got a couple issues right now. Number one, you've got a regulatory issue because uh it doesn't have all the licenses on shore and therefore it keeps a lot of institutional market out. But, you solve that. How do you solve that? Uh you can buy the the licenses, you can build the licenses, you can put people in DC. All that that's happening.

Uh second issue you have is security. Right? When you have these open-source um open protocols, bad guys want a piece of them. And so, like we've seen a lot of challenges. Um I don't, you know, so so that's the additional risk that's keeping institutions out that has to get solved. The way you solve that is twofold. You know, obviously there's a number of different techniques coming on side. There's policy things we can do. I've been talking about Yeah, I love my privateers. Got to get that in in this episode. Um I think AI's could actually help with that as well. But I also think that um you know, we talk about the DeFi mullet, right? Where you have the business in the front and then the protocol in the back.

The extent you have that business in the front, who is a throat to choke for those institutions and can deliver that back-end liquidity and take the risk in certain cases and get insurance for that risk. That's one way to do it. Um so anyway, that's all coming together. The last thing that needs to be solved for like you know, these per uh protocols like like Hyperliquid you described is risk management. Okay? So, we cannot in traditional markets take counterparty risk on derivatives. Your hedge has to be there when the world blows up. Um we saw many of the crypto markets uh sexes and dexes literally like kill people with this thing called we call the ADL. We've had long conversations on the show about it.

Well, guess what? That's something that you can fix if if you're if you're a hyperliquid or or lighter or somebody else. You could definitely fix it. Uh and you can build decentralized pools. And frankly, based on what I'm seeing, they're doing it. And so now, if you're Jeff Sprecher, you're stepping back, you're like, "Wow, they can really they can probably create waterfalls as good as I can do, like, meet those principles." By the way, you want to It doesn't take a lot of capital to to outpace the traditional exchanges in the amount that they put in the waterfall. They put tiny amount in. They send it to everybody else. So, like, you can easily, like, go, "Hey, here's my waterfall, here's your waterfall. I'm actually better." And I think they're thinking about that right now because that that's a big issue. Licenses,

you can buy them, front ends can buy them. So, if if you're in traditional markets, it's a massive wake-up call. You have a very You don't have a regulator who's trying to attack you. You have one who's trying to keep the game, um, level and and and, uh, letting innovators build. It's just sad for me, like, when I go to these websites and it's like, "Hey, you're American, you can't access it." It kills me. Because I'm like, all I was there when we put these rules in place, and it's like, "Oh, these are designed to protect the world, protect everybody." Um, but I I don't know. I don't I want to I wonder who's being protected now, and and that that's my challenge with this. But hey, super super interesting stuff.

>> I would say, I think if we're looking at hype in particular and trying to figure out what do they need to fix the most to get to the United States, I'm going to ignore, call it the paperwork aspects of regulation for a moment, and say the big one is figuring out something better than ADL. Right, we can see what that did to crypto trading activity post 1010. It's been ugly out there. But more to the point, if we have this like direct-to-retail model, going straight to ADL is never a thing that I think regulators are going to be comfortable with. And I don't just think the United States, Europe will have a negative reaction to that as well. Because if, like, let's say ROM, rather than running a firm, you're just one guy. That means

occasionally you need to, oh, I don't know, sleep. And so, if things go dramatically down overnight while you're out, and you've got institutions managing 24/7, but you get liquidated, and then ADL'd, nobody's going to find that situation to be fair. So, as Chris said, we're going to need capital, we're going to need better methods of doing this. We may need to, I don't know, use less than 100% X leverage at all times in crypto, so. I think there's structural questions. >> Before you go on to Claude or open AI and try to figure out ADL is, it's auto deleveraging. So, essentially, you have a position on >> the American Defamation League, that's correct.

>> That's right. You have a position on you're hedging your book. You need that derivative to be afloat. You're meeting your margin calls, whatever. When the exchange is just like, "Sorry, guy. Uh, I'm ripping it up. There's too much risk in the system." And you've lost your hedge. Um, that actually exists in traditional markets. Uh, we call it recovery resolution, but it's it's at the very bottom. bottom. It's like right before the tanks are on the street and the world blows up, and there's massive pools of capital in front of it. Risk-based pools of capital that that really insulate you from that. So, it almost never happens. When I was in trad markets, I would see in certain cases you get into a couple of those tranches, like there's an issue in Nasdaq many years back, but you don't get you I've never seen us

get to that point, particularly post-financial crisis. You need to be able to to know that your hedge is going to be there for you to have those robust derivatives markets. I think it's coming together. I think it's coming together across DeFi. I think even in lending markets, as you're seeing what, you know, went on right now, um, with with with an Aave and and those markets, you're going to start seeing like they didn't send, to my knowledge, uh, risk back to, you know, the underlying holders. They're they're figuring it out. They're creating those pools that'll help provide more confidence across DeFi. So, I think that's happening, Austin.

>> Well, I think part of the reason we should believe this is happening is that some of the people, shall we say, who are the most uh privileged in the current system are now starting to get angry about the rate of change. So, let's talk about Jamie Dimon. So, he was on live TV, uh Mornings with Maria on Fox Business, talking about the Clarity Act, and he said he's unhappy with the bill, and he torched Coinbase's Brian Armstrong, uh verbatim. He's spending hundreds of millions of dollars in Washington on this thing. He said he's representing the whole Dimon, he's full of [ __ ] Um we'll fight it. If we lose, we lose, and we'll live. No one's going to bow down to this guy. Um

Armstrong replied with a hilarious heated rivalry hockey meme, not an argument. And I will also personally note that one of the best-funded lobbies in Washington, D.C., for a long time has been the banking lobby. So, it's kind of interesting to see them throwing stones at crypto now that it's an equal fight. But, fundamentally, I think this is about paying interest on deposits, competing against the banks. And you've seen research coming out from the bankers saying up to 6 trillion of deposits could shift. The ABA estimated 6.6.

Obviously, crypto says the exact opposite, doesn't believe that's going to happen. I think, quite frankly, they have the better argument on the crypto side for mechanical and financial reasons but Rob, Chris, I'm curious what you guys make of this fight spilling out into the public at this level. >> to where yours went first, which is that the banking lobby is extraordinarily powerful. It's a massive industry with thousands of banks, millions of employees, there's a whole ecosystem beyond the banks, infrastructure providers, many people in Congress grew up in banks, they've contributions from banks, and this still very small industry called digital assets

that most people don't really care about in the kitchen table, okay? They don't have a daily interaction with it. is toe-to-toe with the banking industry. This is a This is extraordinary. The only time the banking industry really had a a loss in their in their public policy efforts was immediately in the aftermath of the 2008 crisis when Dodd-Frank was passed. It was like the stars were aligned against the banking industry. And And here we are. I mean, it's a However the Clarity Act unfolds, you This is a This is a win for digital assets to be able to compete at that level.

>> Yeah, so I was on the receiving side of that with Gary Gensler when I was at you know, when when I was at the bank after the we tried to reform the derivatives markets after the crisis as a Lehman. And then I was on the wrong side of him with with crypto for a couple of years. So, I played experience there. Austin, like you're the stablecoin guy. And what makes me so mental about this I don't think the the banking lobby I think they kind of dismissed the crypto people in the early days. And because of that, they were asleep at the wheel when the genius bill was passed.

And when when now with the genius act the they don't like stablecoins because though issuers cannot issue rewards it says nothing about third parties distribution, blah blah blah blah blah. So, So, in their minds, there is this interest loophole. Right? What's frustrating for me is that their focus Where's their angst right now? Their angst is on the Clarity Act. The Clarity Act is about market structure. We already did stablecoins, guys. It You know, the war's over. We did it.

But they're so angry because they missed it in genius, they're coming back and trying to suppress clarity, which in my mind is something that we we need because we need a taxonomy. Like, yes, do we need other things and like, you know, now they're going and and and the Trump card is always national security. Like, this is what makes me mental, too, is a as a national security guy. You know, I got I'm not getting my way, I'm not getting my way. Um there's only one way to really stop innovation and that's by saying it's bad for national security. And so now they're starting to take that tact, if you notice.

That's what makes me mental. The truth of the matter is that the Clarity Act is good for innovation because it's going to give us that clarity that we need, no pun intended. I think it's helpful for national security. Because look like we just seized we seized 300 million like like this asset is very good for our national security. Look at what we're doing in Iran right now. So, anyway, it's just frustrating to me that we're litigating stable coins in a totally different bill. Like, I don't know, maybe we should start going after stable coins in the farm bill or something. Like, why not? It's the CFTC, right? I I don't know. It's it's just a defensive it makes me crazy.

>> I think one of the things that I'm noticing here is the bank lobby has gotten incredibly old and out of touch because they don't understand the impact that they're having on the debate right now. Like, one, if you were to large bank or most community banks in the United States, I want to be very clear, young Americans hate you. And I say that because if you look at this, SoFi has opened more accounts over the last few years than all of the big four combined. Right? They don't like you guys. They view you as a bunch of paternalistic [ __ ] who crashed the system in 2008. I'm quoting one of my students when I say that, right? Just to be clear. Two, you're in a position where you're arguing things that are factually wrong

and the people who are informed on finance understand this. Anybody saying that US dollar stable coins cause deposits to leave the banking system in aggregate does not understand how bank deposits work. It is not mechanically possible for that to happen. Bank deposits are destroyed when you take money out of an ATM, when you repay a loan, when a bank sells an asset off the balance sheet, or a couple of things the Treasury and the Fed can do. None of those involve a stable coin. Unless you think buying a sandwich destroys a bank deposit, you don't think buying a stable coin or creating one destroys a bank deposit. And then finally, and Chris, you'll laugh at this in terms

of the boomerang coming back around on banks. Over the last few weeks, I had a couple of Senate offices ask me very seriously, should we be going back and re-looking at Gramm-Leach-Bliley? Like if the banks are actually this week that they need this level of trade protection, did we screw up by deregulating them in the first place, and do we maybe need to go back to the way things worked before? I don't know that that's the answer, but I am going to warn the banks you can't have your cake and eat it, too. If you say you're too fragile to face market competition, but also don't regulate us in any way, that's not going to work cuz you're going to get one of those

>> I think that's straw manning the bank point of view. So, a couple of quick reactions. Like number one, this is peak political power for the digital asset ecosystem. It will not be this high again after the midterms, and perhaps also after the next election. So, they got to get focused and get stuff done now. That's one. Second thing is like, the concerns of the banks um are around offering bank-like products. That's what the concern is. Okay? Now, can have a legitimate debate that's playing out out there.

Third is, most small businesses and consumers like loans, mortgages, borrowing, having a deposit that's safe and secure. They just don't like that customer experience. They like their relationship manager, they like the like the private banker, they like the service they get. So, um you know, the power of the banks are significant. We're just at this very unique window of time where crypto is punching way above its weight in terms of political impact, and that time will pass.

>> I think that's right. I think in time it'll it'll, you know, there'll be stasis. Um and the banking market is blobby is much bigger, I think, right now, if, you know, apples to apples. Um The prob- There's There's a bunch of problems going on here. Number one, um savings rates, checking rates are too low. Like, why should you get yield like zero on your checking account? Um that's a problem. And look at the bank earnings. Bank earnings are doing just fine. >> In fact, they're killing it. >> And so, as rates went up, they didn't raise They didn't raise rates that And that's what's angering your students.

Like, um they're keeping it all. Um or a heck of a lot >> they low, though? Why The reason why they're low, if you go to small community bank, that's to compete with demand deposit interest rates, they offer higher rates. JPMorgan on the longer end of the deposit curve, and say the CD market, they offer competitive rates with other banks okay? It's because large corporates that are well above the FDIC threshold to and individuals that have deposits well above the $250,000 threshold, because they're not protected by the US government, they're trusting fortress balance sheets, like JPMorgan.

And JPMorgan has a too-big-to-fail G-SIB status, and therefore the deposit rate is low. Part of that is because they have G-SIB status. That's the issue. So, the US is conferring um this status. They're in the window of protection as opposed to having a competitive private market insurance offering like where Berkshire Hathaway say underwriting depository insurance at a higher level. So, government's creating its own issue. Government is creating the reason why it's close to zero.

Yeah. >> Is that you're getting those lower rates because you have a fortress balance sheet because your money is safe. Because you're depending on that because you're G-SIB you're depending. But, the fact of the matter is is it's a receipt on a fractionally reserved entity, but you think there's a guarantee implicit or explicit. You think there's a guarantee right? But, then you look at it next to a stablecoin or money market fund for that matter that's fully backed and paying a much higher rate. Choose your efficient frontier, right? And that's that's the disconnect. And so, uh-oh.

You know, I I hate when they also say apples to apples. Well, we have more regulation. We have more cost. Well, that's because you're a completely different business, right? You're not fully backed. If you're fully backed like you know, so it's um I found those arguments disingenuous. Um but, the biggest challenge is dude what what if you kill clarity and you're so happy cuz cuz stablecoin's not fixed, guess what? Genius is still the law of the land. It's going to take an act of Congress to unwind that loophole. So, and is that the solution?

>> Well, a second point on that front as we talk about these things is that the banks are kind of here by an accident of history, right? If we rewind 50 years, nobody was using their bank for the majority of like purchases, right? You involve them when you were buying like a car or a house. You didn't buy a sandwich with a debit card attached to your bank account. So, they've been given a monopoly on electronic payments that was never intended. And what's interesting to me is these comments come also in the wake of like the skinny master account discussion. I think a lot of the place where this problem will be solved and will force even the big banks to start competing is if you can have a narrowly reserved fully backed company. So,

Chris, exactly what you just talked about and how let's say we're not even using a stable coin here to take the blockchain part out of it. You just have an entity that holds T-bills for all the cash and then can you mean money market fund? Right. And then can access the system and push ACH or wires, why would you use a bank instead of that? Like I don't have a single student who says, you know, the reason that I've got a bank account is cuz I want to lend money to a real estate billionaire at zero. No, they just want to buy coffee and get their paycheck.

So, I think there is something to be said for this perception of fundamental unfairness on the part of all the banks just pocketing the money. I mean, equally, like by the way, free advice to all the crypto policy people here, you all should go argue that if you want to have FDIC insurance, you should have to pay risk-free on your checking account. >> It's a great point. I like it. >> Right? Cuz if you can park that money at the Fed and earn that, you pass zero through and get a guarantee. >> And it stops the advantage that large money center banks have over other more innovative banks and smaller banks that are more decentralized serving local needs in different communities.

>> But they won't be able to lend, guys. They just won't be able to lend. >> They can lend. They can lend. >> Well, but that's what they're going to say. >> You know what? Here's what I have to say to anybody who says credit is going to get way too expensive. Did you know you can lower interest rates? I'm just going to leave that there. >> There you go. >> what he wants. All right. Speaking of things that mean the Clarity Act probably should happen. Um we also got some news that DTCC is going to be deploying on a public blockchain. Uh news hit that Stellar has been selected by DTCC and we will have tokenized versions of US equities on a public blockchain. So, I know there's

been a lot of debate around this, who they're going to use, what's going to happen. Well, now we have at least some of that news. It's allegedly the first half of 2027. Um it's targeting Russell 1000 names, ETFs, and US Treasuries. And Stellar traces all the way back to DTCC's Securrency acquisition. And I will remind everybody, so Chris you don't have to say it, Franklin Templeton originally picked Stellar as their issuance chain when they were doing Benjis. So, there's a lot of work here that's been done with the SEC.

But what I'm curious about, Chris, I want to throw it to you on this front, we've literally got US equities moving on chain now. Does this not make the case for clarity a lot stronger? >> Uh I mean, clarity's a no-brainer. Um the question So, by the way, uh Dan O'Neill, CTO over at DTCC, you you got to tip your hat to him, smart guy, Naval Academy graduate, I'll tell you. Um look, I I don't think that's that Stellar's going to be the only chain they're going to be focusing on. I think you're going to see many of these guys to be multi- by chain. Um but congrats to the Stellar team. They've they've been around forever. Um they've really improved their smart uh contract capabilities. And um they've always been very low cost. So, you know, you love to

see victories for people that have been around in the space for a long time. So, so hats off to them. I think you're going to see a number of other integrations that are going to be equally exciting. Um so it's great. But like, what does this mean? This means that like, guys, you know, I think Citi put out a uh a paper today. If you check it out, I think they said there's going to be 5 trillion in in uh in tokenized equities by 2030 or something. I don't know. I think they're like way too light. I think that we've talked about this. Like this is a mar- this is the next phase of markets beyond electronification. So, we went from voice manual paper to electronification.

Now, we're going to go to blockchain-based finance, 24/7, 24/7 price discovery, real-time settlement. This is the obvious next iteration. And as a fiduciary, which I am, if I'm going to trade a tokenized product or a non-tokenized product and there's sufficient liquidity, I got to trade the tokenized product, guys. Equity's a $127 trillion market. Uh I think DTCC has trillions trillions uh you know, that it that it safeguards and and and tracks. So, I think it's going to be like kind of like steady steady steady then all at once, everything's going to go tokenized because we won't have a choice. So, much much more to follow. We're like in the first chapter of this thing. Uh and uh I

can't wait to watch it happen. >> Ron, what do you make of the fact that US Treasuries was in that announcement? Cuz as we think about backtracking to the global macro implications of this, certainly I have been surprised I haven't heard news out of the US Treasury about tokenizing Treasuries given the distribution possibility in stable coins, but I saw DTCC talking about it here, and I assure you they can talk to Treasury if they want to. I was curious what you made of that.

>> Well, yeah, Scott Burton rightly views stable coins as uh creating demand for uh Treasuries. So, if he can create more plumbing infrastructure that helps the US government finance its debt. So, it's a it's a smart move and makes sense that that'll go on chain. >> Can I jump into this one because one of the challenges right now is stable coins is that they're I don't want to say it in a bad way, but in a way they're like they're like kind of a dead asset because they're not yielding. Um, you know, they're not money market funds. You have to deploy them into DeFi to get a yield.

And in many cases they lack utility. Now, the real unlock for stable coins is when you have utility, when you can buy stuff with them. I don't know how many times you've been speaking to your like your normie friends and you're like, you know, we'll meet you down at you know, if you could pay in stable coins for that coffee then then you got something, but we're not there yet. We're missing it. Uh, one thing I would love to see the Treasury do is to allow purchases of US Treasuries. Doesn't have to be tokenized with stable coins. That'll be a really nice fundamental unlock um, where the US government's sh- showing, hey, you know, these things do have utility. We will accept them for the payment of either traditional or tokenized Treasuries.

Uh, amongst primary dealers, I think that is the next foundational unlock that I'm looking for. What do you think, Austin? We get it? >> I think the US government is slow to do anything, but I think it's inevitable. Like if we're going to continue spending at this level and running a deficit, you need financing and you're going to need to go where the money is. So, I do think it will eventually happen. The only other option is to dramatically cut the budget and I just don't see much appetite for that. So, all right, on that note, uh, since we are at time here, let me say thank you as always for joining us for this episode of Bits and Bips. We'll be back in 1 week to discuss more about how the worlds of crypto and macro are colliding. Don't forget what we told you

at the start of this episode about looking into our new channels and subscribing. So, until then everyone, take care. Thank you for watching and hope you enjoyed this episode of Bits and Bips. Just remember, nothing we say here is investment advice and please check unchainedcrypto.com/bitsandbips for more disclosures.