On The Brink with Castle Island - Weekly Roundup 01/17/25 (Lummis FDIC letter, the Tether tower, American made coins) (EP.590)

Episode Date: January 17, 2025

Matt and Nic are back for more news and deals. In this episode: Lummis instructs FDIC staff to not destroy evidence of Chokepoint Did the FDIC call Nic poor? Coinbase wins a partial victory against the SEC Canary Capital files for a Litecoin ETF Tether is moving to El Salvador and building an HQ there Atlanta Fed gets stablecoins The case for non-USD stablecoins Is there a case for other assets in a Strategic Reserve? 

Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guests and host may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees will be liquidated.

The federal government loans American International Group, AI, IG $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars, and all of a sudden people start to worry. So out of this worry, we have something called a Bitcoin. Welcome to On the Brinkum. Matt Walsh.

And I'm Nick Carter. And what a week, huh? we are really like buzz sawing on Bitcoin here. It's up, it's down.

It's, we're all macro experts. We're days away from the Nog. It's four days from now. There's a lot happening. I think there's going to be some movement

pretty early in this administration on the crypto front from the sounds of it. Sounds like there's going to be day one EO, the New York Times had an article on the stockpile

slash reserve today. Just came out. Here's the thing about selling Bitcoin right now, why would you sell Bitcoin when Trump is four days away from being inaugurated? Because you're worried about the CPI print or something. People are really losing their minds. Yeah, forget about the macro, forget about the 10 year. Trump told Axios that he wanted Bitcoin to trade at 150K. He said that allegedly, according to Axios. Is that right? I didn't see.

Yeah. People, that was like wildly overlooked. That is what's known as Alpha. Come on, he wants Bitcoin to go up. for some reason. So what do you think Bitcoin's going to not do that? People are very, very underprepared for what's about to happen when Sab 121 goes away. So, I mean, I guess we can get right into the news before we do the deals here. But Paul Munter, the agency, the SEC's chief accountant. So he's been at the agency for a while. He's the architect of Sab 121.

He's the guy that put it into place for Gensler. And so my guess is that one of these EOs could be to just direct the SEC to repeal Sab 121. I think that would be pretty easy. I'd be shocked if Atkins doesn't do it himself once he gets nominated and approved. All right. So then you live in a world where Sab 121 goes away. Worst kept secret in the industry is that Bank of New York Mellon has built out a custody offering. And they'll be in market.

Then you're in a situation where what are the other custody banks? going to do. You can't be a custodian and not have a full service offering. So then you're just scrambling to market here. I don't think people understand how fast this is going to move. A lot of architects are getting kicked out right now. I mean, the FDIC, there's a lot going on over there with the, I mean, we can do the deals first. Let's do the deals and then we'll get into the political stuff because there's a lot of people that are getting bounced out of their seats. but there's also a lot of enforcement actions this week. So it's a busy week.

Why don't we start it out with the deals, though? So first one up, chain analysis. They have acquired Altyra. This is a fraud detection platform. It was acquired for $150 million. Congrats to the chain aliasis team. Another acquisition. Next up, Moon Pay acquired Helio,

crypto e-commerce platform for $175 million. Wow. Two big deals there. Two big private deals. Moon Pay and Chanilis, both, you know, billion plus dollar businesses. In Chalice's case, I think, $8 billion. So expect to see more of this.

Next one up is DFNS. This is a wallet as a service provider. There is $16 million from further ventures, Wintermute, motive partners, and a number of others. Then you have Cignam, digital asset banking group. There is $58 million from Fulger Ventures and others. Then it's reown.

This is the company that was formerly known as Wallet Connect. It's an on-chain user experience platform. They raised $13 million from Union Square Ventures, 1KX, Shopify, crackin, crypto.com, BitGo, kiln, figment, and others. Then you have one money network, a stablecoin focused all one. They raised 20 million from Hack, VC, Galaxy Ventures, F Prime, and others. Then it's Hive Labs. It's a Web3 gaming company that raised 2.75 million from Framework, Volt, and Builder Capital.

then you have never mind a decentralized AI payments protocol they raise four million from general adventurers polymorphic capital and halo capital here's another big one camaynu the digital asset custodian there is 75 million dollars it says in bitcoin from blockstream capital partners that's an interesting one i didn't double click into that one but didn't know that blockstream had a had a VC arm and what does it mean to would they just give them 75 million in Bitcoin in lieu of cash? Yeah, so the press release says the funding transaction is innovative

in that it's funded in Bitcoin with appropriate hedging and risk management and commino establishing its own Bitcoin treasury to manage the Bitcoin provided by a box stream. Well, if you're hedging it, then it's just dollars. That's right. Wouldn't it be just a dollar?

You sent them Bitcoin, but you effectively sent dollars? I mean, Yeah, so like if it's a Bitcoin reserve or treasury, I don't think you're allowed to hedge it. That's against the rules of Bitcoin treasury. All right, so we'll track that one up to being confusing. Next one up is Merit Systems. It's an economic layer for open source software.

There is $10 million from A16Z and blockchain capital. Those are the deals of the week. Those are the deals. I don't even know where to start. I was very animated by this Lummus letter I dropped which one before there are two

there are two Loamis letters you know the Democrats don't have a monopoly on writing a lot of letters so I mean if you want to learn how to be a good writer of letters you work in Elizabeth Warren's office because you are just pumping out letters do you see she wrote like a 32 page letter to percent about how much she hates crypto

yeah what was up with that that was so long. There were so many questions. They're like doing a denial of service attack on this poor guy. I think that's probably just you get a new staffer or two and they need to prove their worth by writing these long letters. Do you think they put them into chat GPT? I think it's AI.

I mean, how does she have the time to write all these letters? But she doesn't. But to work for Warren is to write letters and then get jobs in the administration after you're done writing the letters. I think they're Donenberg did. I think they're prompting chat GBT

and they're saying write a letter as if I'm Elizabeth Warren. Write a letter harassing Scott Bessent over crypto. So two letters from Senator Lummis this week. First one to the U.S.

Marshall Service questioning their plan to sell the 70K Bitcoin that's worth $6 billion dollars that was seized from the Silk Road arguing that the stockpile should be set aside for the strategic reserve. Interesting letter. Second letter, absolutely excoriating the FDIC.

This is addressed to Marty Gruenberg, the outgoing chair of the FDIC, who's been in that position for the better part of 20 years. I mean, this thing made me want to run through a wall. She said she's been contacted by FDIC whistleblowers who allege the destruction of materials is occurring with respect to the digital asset activities. She says she's been informed that the staff access to these materials is being monitored, that there's retaliation. So basically the FDIC is aware that inquiries are coming and allegedly they're destroying the material. She says this is illegal and unacceptable. She asked them to preserve materials, really anything

they've done that relates to crypto, and she specifically singles out any materials relating the signature in Silvergate. It's very interesting. And then she says, if she says, quote, if it's uncovered that you, your staff have knowingly destroyed materials are sought to obstruct the oversight function of the Senate, it will result in swift criminal referrals to the DOJ. Going to jail if you hide those documents. That is a tough. letter to receive. That was a very good letter. I thought the first one to the U.S. Marshals was quite good, too, just on outlining what the disposal process looks like. But this FDIC one was incredible. And it reminded me that we didn't talk last week around one of these whistleblowers

is saying that there are people on the inside of the FDIC that have been tasked with following your social media presence. And one of them said something very not nice about you. Yeah, they're rude to me allegedly. I mean, preface this with the fact that we have no evidence yet of these leaks, but there's this account FDIC exposed. It seems like they don't like the FDIC. And they said that they have audio recordings. I don't know how they got them of FDIC leadership talking about. Among other things, some kind of like misinformation campaign they wanted to wage against people critical of the FDIC, including myself. And there's a line in there about them calling me poor.

Yeah. The guy said that he at the FDIC makes more than you will make. So he makes more in salary than you'll make in a decade. Yeah, and I looked it up in the top levels of FDIC pay grade. It's like 300K per year. That's a ricochet shot. So they're implying to make 30,000. thousand dollars a year. Oh, have fun staying poor. That's, that would be tough to live on. Let me tell

you. I mean, you know, I live a pretty frugal life, but I don't think 30K would be enough. It's odd thing to say about someone. Not very nice. Very strange. You'd think they could sort of just look me up and look at the details in my occupation, things like that. But maybe they just thought I was some sort of like anonymous troll critic. Yeah, I think they just thought you were a little, uh, you know, Twitter bot type of guy or something, but you're not. So, yeah, I'm not poor, FDIC. Okay, how dare you, first of all. Second of all, you may be going to jail.

So hand over the documents. So Lummis, she had a really good week. Let's talk about some other stuff that happened this week. So Coinbase just keeps on winning cases here as part of their ongoing campaign against the SEC. And I guess the SEC's campaign against Coinbase. So we talked about the one last week where part of their, part of their case that hinges on Howie got kicked to appeals court last week. This week, the third U.S. Circuit Court of Appeals has granted Coinbase a partial victory

in a ruling against the SEC. This was around the SEC being, quote, arbitrary and capricious in denying Coinbase's petition for clearer rulemaking in the digital asset industry. So totally separate case from where SEC is suing. Coinbase for being an unregistered securities platform. This was in Coinbase just said, hey, we want rules. So we want to compel the SEC to put out rules for the digital asset industry. And the SEC basically just said, no, we don't have to do that. And, you know, the court here is just saying this is arbitrary and capricious to just completely not give rules of the road and to be

suing people without giving clear rules. Yeah, another huge victory for Coinbase. Also, Coinbase news, they announced a product to facilitate Bitcoin-back loans. I saw that. Yeah, a partnership with the Morpho on the base network. Really interesting that they would do that in a defi-native way, huh? Yeah, super cool. So just racking up the dubs over there at Coinbase. So much stuff is going on.

Can we talk about the Tether Tower in El Salvador? So I did not know that there was a tower. I see that Tether has announced that they are relocating the company to El Salvador, which is a beautiful place from what I hear. I've never been. Yeah, I mean, that's pretty remarkable on its own. Buckele did a whole press release. I mean, Tether is a big company.

You know, I would guess they'd be worth, you know, around $20 billion. And they're moving their entire HQ to El Salvador. Did they have an HQ anywhere? Like, did they have one in Switzerland or something? I mean, I thought they just all kind of worked. remote. I actually don't know. Where is Bitfinex domiciled? Hong Kong, I think, unless it's changed, possibly BVI. But so they, not only are they relocating to El Salvador, apparently they're building a skyscraper in El Salvador. And my question is,

like, what are they going to put in there? Because Tether doesn't have that many employees. It doesn't take that many people to make the thing run. That's very true. I think revenue per employee is world class over there. So they have, let's say max 100 employees. So that's one floor. What about the other 60 floors? Well, remember, they copied us with the tether fud dice. And those are bigger than ours.

So I think that could take up two floors. So they can have a museum of Bitcoin artifacts. Yep. On one of the floors. Bitcoin mining floor. Bitcoin mining floor. Yeah. Pool.

I guess they could put in a pool. They could have a studio. for Lutnik when he comes down to do CNBC hits and things like that. They could do a little television studio. I'm really, really curious. This is kind of, remember the FTX HQ and their weird specifications? Like they wanted to look like Sam Bankman's Frid's hair. Yeah.

And they want to put the 14-inch chunks in cube as the centerpiece. Yeah, moving to a, you know, smaller country in that part of the world, nothing's ever gone wrong with doing something like that before. So yeah, I eagerly await the architectural blueprints of the Tether Tower. That would be pretty cool. It will be pretty cool. All right, so here's kind of a deep cut. The Federal Reserve Bank of Atlanta, they have a guy over there who's a payments expert.

His name is Chris Colson. He had a blog post this week on stable coins. I'm just going to read you an excerpt here. While it's hard to predict whether or not stable coins will become a universal payment method, the foundation is forming. Once seen as a hedge against crypto volatility, stable coins are establishing themselves as a new innovative payment type. These digital currencies are influencing the future of payments, such as purchasing a coffee with a gift card purchased with stable coins, or buying a ticket for a movie at a discount. One thing is certain. The future of payments looks a lot more stable.

They get it over there. Pretty incredible to hear this from one of the regional Fed banks. I mean, it's just, I don't know, I'm not tired of winning yet. You know, on the Fed stable coin front, actually, I think Chris Waller is, what did I see about Chris Waller today? Is he like trying to put together a campaign to be the next Fed governor? I didn't see that, but I did see he came out with some comments that he's more comfortable with the inflationary picture or something like that. He had some kind of pro-growth comments.

So he, I wrote an article about his comments while back called Five Perspective on Stable Coins. He has actually spoken very positively of Stable Coins in the past. So I think the Fed is a pretty technocratic organization and they do understand this stuff. But it is remarkable to see the narrative change. I was talking to someone who works at a big foundation, like a token foundation this week and who manages some of their money. and he brought up the point around U.S. dollar stable coins being the dominant, you know, version of stable coins. And we have that data. What is it? Like 99% of all stable coins. It's 99 and increasing, believe it or not.

It's increasing. And I think we've long said that, you know, look, global demand for dollars is just so strong. And so it's probably going to stay high for longer. But his point was more on the off ramping side. and there being a lot of friction there. And so that being a good reason why you'd have these other stable coins pop up, to be able to go from U.S. dollar stable coins quickly into call it some sort of a peso stable coin in some countries, and then take that peso stable coin and go back into Fiat if you need to. And that is a good reason for why there should be more non-U.S. dollar stable coins,

just the interoperability in the quick conversion. Yeah, I agree. And it's weird that crypto firms or any, anyone that has a crypto balance sheet, they're kind of forced to use stable coins, the US dollar stable coins as their reserve asset, even if they're overseas. Right. That's kind of strange. It is strange.

It's inefficient. I think. And also if you've, let's say you're borrowing from a defy protocol and you have liabilities that are in your local FX, you would want. to have local FX denominated stable coins. Yeah. You'd want those loans to be made in a different denomination. So there are good reasons to have other FX stables.

Back to my earlier point around Sab 121 and a lot is going to change here once the banks can touch Bitcoin and other cryptocurrencies, which I think is going to be in the next quarter here. The FX market is going to be turned on its head here. So if Sab 121 means that banks can hold stable coins, all of a sudden, And if you're a huge FX player, then you can actually run your business a lot more efficiently. I think that this is going to have a profound implication, particularly on the early adopters, where you're just going to see market share gobbled up by the folks that can do it faster and cheaper. And I think stable coins is that conduit.

There was a huge piece of news this week, actually, which is not in our newsletter, which probably should be New Bank, partnered with USDC to offer yield on stablecoins. to, I think, all of their clients at NewBank. That's one of the largest non-U.S. NeoBanks in the world, maybe the largest. Yeah, NewBank is a great example of how venture capital finance businesses can actually compete in the banking sector. They became a bank as a VC back company. And you really don't see that in the United States. Hopefully you will at some point.

Yeah. Also in Stablecoin news, maybe more perturbing. It's not all Rosie. The Tron is relaunching USDD, which will have a 20% APY. Some of us have PTSD around that specific number. Justin's son noted that the yield will be fully subsidized by the Tron Dow, saying it's simply because we have plenty of money. Okay, good.

I'm sure nothing terrible is going to happen there. Oh, man. Justin's son, he really made it through the other end, huh? It's like he's tempting fate with this stuff. He's a really, his level of risk is off the charts. Elsewhere in news, the law from Burwick, is pursuing legal action, I guess, pumped-off fun, claiming that the platform has made a lot of money and fees

as a result of scams on the platform. I mean, fair enough, I guess, you know. But it's kind of like biore. buyer but where like you know you're buying a meme coin yeah what do you what do you think was going to happen yeah that's kind of how i feel about that one interestingly nasdaq this week they filed a 19 before form for canary capitals light coin etf kind of i guess the light coin will get an etf here huh so this starts the clock on the process the cc has to approve or deny it um you know we've had s ones filed for xrp and soul uh i don't see any reason why

you wouldn't be able to have a light coin ATF. I think that'll probably happen this year. Can we talk about XRP doing astoundingly well? Yes. So it's trading at $3.30, which is actually very close to its previous all-time high, which was set in 2018. It's up huge over the last month. Everyone I know that's not in crypto that owns crypto owns XRP.

How did that happen? It's the same thing where I talk to people that aren't in this industry and they say, okay, what do you think about Bitcoin? And then it's immediately, what do you think about XRP? Yeah, I actually canvassed the guys in my boxing gym and XRP was the most owned crypto asset in that group. And if you ask people why, they'll be like, well, the banks are going to use it.

And it's going to use for bridge payments. and something to do with Swift, which I've never understood it. So credit to them, honestly, they've like installed this mine virus in tens of millions of Americans, and it's working. And I guess you have to, I guess you can't divorce XRP from Ripple the company, but Ripple the company is making some super interesting moves

in the financial services space, you know, buying up majority and minority stakes in critical infrastructure companies like exchanges and custodians. I mean, they're doing some smart stuff. I really don't understand how it translates to the value of XRP, but, you know. Yeah, there was a New York Post article today that said that actually Saul and XRP were being considered for inclusion in the Strategic Reserve. Because those are more American-made assets than Bitcoin, apparently.

Well, we don't know where Bitcoin. I still think the U.S. government made Bitcoin, so it's the most American. coin but certainly xrp is american so i don't think i think soul was launched in switzerland where did jed mccaleb and um chris larsson discover xrp it was like in the oil fields of oklahoma and they just it was yeah i mean fidget spinners started to pop out and it was just the xrp yeah like the wild catters of yore ethereum is not american and with my condolences to the bankless boys. It's Canadian or Ukrainian or something. Well, Vitalik is Russian-Canadian,

right? Yeah. So, or isn't it Ukrainian? Either way. Ethereum, not American. Can't be in the reserve. Bitcoin, we don't know. XRP, profoundly American. So... Very American. Salana is, I think it was issued out of Switzerland. So, sorry. Solano. Anatoly was in California when he came up with it, so that counts. Cardano American. Carthano's American. Avax American.

Yep. Although Goon is Turkish, I think. So, yeah. I mean, I don't know if that's the rubric. I don't think it should be. But, you know, it's worth pondering. So I guess we'll note, and this was an unsourced. commentary that there's going to be a strategic reserve for anything other than bitcoin i find this

the likelihood of this is sub one percent it's very far-fetched it's like an insane idea to me i mean i continue to think there will be no strategic reserve for bitcoin but we're going to find out in four days and uh then people are going to yell at me if i was wrong do you think that ross albrecht will be pardoned uh or have a sentence commuted uh rather yeah i mean i think tuesday like when does that i think trump would be insane to not do that i mean he made a very specific civic commitment to do that. I wonder how that works. Do you get out of jail immediately? I guess. Yeah, probably the next day.

I wonder what his next chapter is going to look like. What would you do after? I mean, he's been in prison for over 10 years now, right? Yes. You know what I would do? I would go to Shake Shack. Maybe the very first thing that I did. Well, he probably's never been to Shake Shack. Yeah. Maybe yes, because it used to just be like one location in the year.

York, right? Or maybe Chick-fil-A. It would be either Shake-Shack or Chick-fil-A. I'd probably go to the beach. Just decompress a little bit. Look at the sun. I'd probably stay away from a computer for a little bit. Ross is probably going to be on the conference circuit, don't you think? I do think so. Yeah. I do think so. Maybe we should just give them some time, you know? Just give some time to relax. I think it would be a little bit cringe-worthy if people start to

inundate them and ask them to speak at conferences. But you know that's going to happen. We do live in a cringe-worthy industry. Yeah. Elsewhere, last piece of news that I have here, the largest bank in Italy, in Tela San Paola, I've actually never heard

of them. They acquired a million dollars worth of Bitcoin in what the CEO referred to as a test. Interesting. Okay. Well, I think we're about to see a lot more tests. Good for them. Maybe they can increase the size there. That kind of reminds me of the letters, the FDIC letters that got foyered.

And in one of them, it said that a FDIC member was on like a team's call, and someone at the bank showed a test of buying Bitcoin, and it's showing on the bank's website, and the FDIC person kind of freaked out. Just breaking Hunter horse leave bitwise says we have provided some information for a nation state asking about Bitcoin ETFs. Bitcoin is entering a new chapter. Okay. This is heating up. So far we have Bhutan and El Salvador.

Do you think it's a smaller or a large nation? There's a lot of small nations out there if you count them up. There's a lot that are already owned Bitcoin. All right. Well, with a couple of minutes we have left here, commanders. How are you feeling? Yeah, so I'm a fan of the Washington commanders, formerly known as the Washington football team, formerly known as the Redskins.

We're not allowed to say that anymore, I guess. We had a great season, Jaden Daniels, Rookie of the Year, without a doubt. Amazing QB. We are playing the Lions in Detroit. We will almost certainly lose. But I don't know. It's been an amazing season, so I'm not upset no matter what happens. Hey, you got the quarterback, right?

I mean, we can build around that for the next 15 years. I mean, and remember, we were a four-win team last year. We went to a 12-win team the next year. That's crazy. That is crazy. I mean, from a personnel standpoint, we're not good. We've just somehow wheeled our way to victory. We had a Hail Mary against the Bears, like a 65-yard Hail Mary,

all of these last second game-winning drives from JD-5. So honestly, he's so special that if it's close and he gets the ball in his hands, two minute drill, last drive of the game, I am confident he can pull out the dub. It's just that the lions are an exceptional team. Lions are definitely the heavy favorites. But yeah, I'll be rooting for you this weekend. Thank you. We appreciate the support. All right, everyone.

Well, that is it for the week. We'll be back on Monday. Everybody have a safe and healthy weekend.