On The Brink with Castle Island - Weekly Roundup 02/14/25 (OCC and CFTC nominations, nation-state memecoins, Tigran retrospective) (EP.597)

Episode Date: February 14, 2025

Matt and Nic are back for another week of news and deals. In this episode: Our episode with SEC Commissioner Hester Peirce The SEC and Binance are pausing their litigation Brian Quintenz nominated for CFTC Jonathan Gould nominated for OCC Central African Republic launches a memecoin Is Vitalik crashing out? CBOE wants to add staking to their ETH ETF We reflect on the Tigran Gambaryan story Rep Waters rolls out a draft stablecoin bill Is there a run on gold vaults underway? Tungsten is rallying

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 is 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 to 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 the Bitcoin. Welcome to On the Brink. I'm Matt Walsh.

And I'm Nate Carter. Somehow we are back in one mic zone. How did this happen? Well, I started my day at 4 a.m. and commuted to Boston from New York, and I forgot the mic. So I'm holding a mic and just interviewing you on our own podcast. These are, I thought we were past this. But talk about a busy week for the podcast. Yeah, so I mean, wow. You know, is this one of our best runs in On the Brink history here? Best three episode runs?

So we start with Mike Lempress last week, just explosive episode. We have to talk about that. then we have Nathan McCauley, co-founder of Vangorage, talking about the debanking, talking about all these important developments that are happening on the regulatory front. And then today, this morning, early, sat down with Hester Purse, who I've wanted to have on this podcast since we started it.

Yeah, and we're big fans of Hester, obviously, and we're so excited when our team reached out. And to your credit, you got up early and did the interview at 7.30 in the A.m., you know, not a lot of people will do that. but yeah, we just pushed it out today. It was a really encouraging episode. And I've heard Commissioner Peres on a number of other podcasts

and tried to take a little bit of a different angle to it. You know, tried to ask a little bit about just what it was like to work at the SEC. When you really think about it, we're very lucky as an industry that she hung in there. There's another world where we would have gotten completely steamrolled. Yeah, she's been obviously a voice of reason for a long time and now is actually a position to craft policy. So we dug into that in the episode. I'm just so excited to see what the SEC comes up with here in the next couple months.

I mean, it's really, it's incredible. You can already see the dynamic shifting, where you have funds that are talking about going in and registering with the SEC, becoming RIAs. You're just seeing a lot more startup activity in categories that had been kind of dead since FTC. So from a capital formation point of view, just the signaling that the Gensler regime is over. there's a new sheriff in town, new sheriffs, I guess, plural in town, and some concrete things that they're about to do, which were put out in Hester Purr's journey ahead post. You are actually

already seeing capital start to move towards that thesis. And things are already happening, right? The SEC's litigation against Binance has been, I think, paused, right, for 60 days pending new guidance. That's right. So the SEC and Binance have jointly agreed to press the pause button. on that, you wonder if that means something's in the works? Is there a settlement in the works? Is there some policymaking that's coming down? And I think there's a, is there a decision coming tomorrow, which would be when you're hearing this Friday on Coinbase, I think. Yeah, I mean, so who knows what's going to happen with finance, but obviously that case is kind of a bit obsolete now with the SEC just updating everything as it pertains to crypto. So we'll see if you, if you survey the whole

regulatory landscape. There are new appointments this week as well. The entire leadership of every financial regulator turned over. There were even changes of the Fed. The entire landscape is completely different now in Washington. Yeah, so let's highlight some of the main ones here. So Brian Quintenz, who was previously at the CFTC, currently as of, I guess a couple days ago, head of crypto policy at Andreessen Horwitz. He was nominated by President Trump to chair the CFTC, just a really good pick, I would say. Yeah, and you know, it's not like we need all these people to be explicitly pro-crypto or affiliated in some way with crypto firms. That's not necessarily the ask. The ask is just for fair rules of the road and fit for purpose regulation. But I guess it's a bonus that a lot

of these people have expressed, you know, reasonable or favorable sentiments on crypto. Quintent strikes me as someone that will get along with the SEC. I guess that's always the risk with the CFTC, that there ends up being this turf war between SEC and CFTC. It strikes me that Quintens will work collaboratively with Perce and Ueda and eventually Atkins. Yeah, it might actually reduce the significance of this turf war between the two if they're kind of seeing eye to eye. And then the other big nomination was Jonathan Gold to be the controller. Now, a lot of people say comptroller.

That's just a total rookie mistake. and betrays real ignorance of how Washington works, so it's controller. And I just called it comptroller about 45 minutes ago. Yeah, we actually looked that one up 15 seconds before we started recording. So Jonathan Gold was at the OCC before. I believe he authored the legal opinion supporting Anchorage's charter, which I think is the only current outstanding fintech charter or maybe crypto charter that was issued by the OCC before.

Michael Sue came in in power at that agency. So that was a huge development. So we'll keep on seeing more of these. I haven't seen any news on when Paul Atkins is up for his nomination. So I guess that sometimes trickles into March. I don't think Gensler was confirmed until March or April. And what I'm hearing is from Washington is that interim FDIC chair, Travis Hill, is going to stay in that seat for a while.

We haven't seen another nomination there yet. So I don't know if we'll see turnover there. But yeah, I mean, if you look at all of these agencies, it's just positive developments across the board. All right. Speaking of positive developments, let's get into the deals of the week. Do you know we have three Castle Island deals to announce today? They didn't all happen like last week or anything, but three new deals. I did know that.

So first up, we have Coala Pay. They are a stable coin payments platform for the humanitarian aid market. So there is three and a half million from us. We led the round alongside Lattie. and factor capital. This is a fascinating use case. So the way that money gets dispersed from NGOs into a lot of these countries

ends up being physical cash. And to have this auditable on a blockchain in the form of a stable coin, number one, it just means that more money gets to who needs the money. And number two is that it's auditable, so pretty relevant, given everything that's going on in the world.

Yeah, and I know some people might grumble about an aid related, an aid tech deal, but Qualapay is basically solving the problem that people might have had with USAID, which is a lack of transparency. And frankly, you know, they'll just allow more aid dollars to reach their destination. And some of these hard to bank countries, like South Sudan or places like that, something like 20, 25 percent of aid dollars don't reach a destination because of inefficiencies in the financial system. And we're talking like, literal pallets of cash in some cases. So they're vastly improving that as well as you say increasing the auditability which I think should really resonate. So next one up is station 70.

So this is a company I'm really excited about joining the board of. It's a cybersecurity company focused initially on private key backup. So we led a $7 million around there. We're joined by semantic notation capital and others. So really excited to be working with Adam, Ace and the team over at Station 70. And lastly, last Castle Island deal here, Searous, led by Patrick Merck, they announced

an $8 million seed round led by us. They're also announcing that they got regulatory approval from North Carolina to open a trust company in that state. So actually, keep your eyes peeled on North Carolina as a domicaw for somebody's trust charters.

And I'm joining the board. there. So two boards this week. Pretty incredible. To be backing Patrick is pretty cool. We've known Patrick for forever. I mean, he was an original Bitcoin Foundation guy. Yeah, I mean, he's been in the industry absolutely forever. He practically invented the notion of being a crypto lawyer. Been a great friend for a long time. And it's been so cool, you know, finally actually working with him formally. So super, super excited for Souris. All right. So those are the Castle Island deals. Yeah, we should just end there. But let's do the rest of the industry here. We have Sardine. This is a fraud detection platform. They raised $70 million from Activant Capital, 7-0. Big round for Sardine.

Yeah, and this one I think is a sign of things to come. Plasma. They're a purpose-built blockchain for stable coins. There is $24 million from Framework, Bitfinex, and Peter Thiel. Then we have Legend. This is a Defi mobile app. They raised $15 million from Andresin, crypto and Coinbase Ventures. Then you have Fragg metric. They're restaking protocol on Solana. There is $7 million from finality capital, hashed, and halo capital.

Drosera is a blockchain cybersecurity platform that raised $3.25 million from Greenfield, Anagram, and Paper Ventures. Then we have Mariah Labs, a crypto AI development studio. There is $4 million from Mechanism Capital, Oak Grove Ventures, and Manifold. Infinify, which is an on-chain fractional reserve protocol,

they raised 3 million from electric, new form capital, and baboon VC. Is it baboon? Baboon VC. That's a cool VC. I think that might be their first mention ever on the pod. Next up, we have Cabal, a D5 protocol on the Inition Network. They raised 3 million from HackVC, Delphi Ventures, and Nason. Then it's Blum.

This is a crypto trading app. They raised 5 million from Gumi Crypto, YZI Labs. I believe that's the Binance affiliate, Spartan Group, and others. Is it Blum or Bloom? B-L-U-M. I'm going to go Blum, like Plum. Absolutely no idea. Then we have Taneo Protocol, a decentralized data monetization platform. There is 3 million from RockawayX, Borderless, and Generative Ventures. Wetstone Research is a defy infrastructure development company that raised 1.3 million from variant, nascent, and figment capital. And lastly, we have an acquisition. Li-Fi cross-chain swapping platform, they acquired Catalyst, a bridging protocol. All right. So we talked about some of the bigger news of the week with these nominations. Let's talk about something that was just the craziest thing I saw come across the news this week.

So the Central African Republic has launched a Salina meme coin. It was announced by the president of the Central African Republic. And if you came to this podcast to figure out why that was a good idea or why that made sense, you came to the wrong podcast, I'd say. Yeah, so this is real, apparently. Now, the Central African Republic has made noises about crypto in the past. I think they wanted to start a blockchain city. I don't remember the name of the city, but I think we've talked about it in the past. I think they actually ratified Bitcoin as legal tender.

I don't know if they ever bought any. The car token peaked at $800 million. It's down to $50 million. It doesn't appear to have any real purpose or anything. But yeah, I guess this is the world we live in. Countries are launching meme coins. What about the... Do you remember the Venezuela one?

Didn't Maduro launch a coin back in the day? Yeah, the Petro. Yeah, that was kind of a meme coin. That didn't really go anywhere. Yeah, I mean, the line between meme coin and real token is blurred. But yeah, I mean, I guess with a meme coin, like it doesn't promise to do anything at all. And maybe that's the point. All right.

So in other news, we really... talked about Ethereum in a negative context last week, and we got some hate DMs. But let's talk about what the Ethereum Foundation is doing. They have announced the deployment of 45,000 ETH, which is about $120,000 across three DFI protocols, AVE, Spark, and Compound. Is there anything to read into this? I mean, I think this is positive because previously when the Ethereum Foundation was trying to talk about how they were using ETH, this was a big criticism people had.

It's like they're not actually using Ethereum. they would make the example like, oh, no, yeah, we use ETH, we sell ETH for dollars to make payroll, which is a usage, but not maybe the one you want. So I think it's positive to see them doing this. I don't think it's positive for Vitalik to, you know, make light of communism as he's been doing on Twitter recently. So I'm going to put the thumbs down on that one. Is that what he, I didn't even see that.

What's he saying on Twitter? Yeah, I don't know if I would say he's crashing out, but he's not having the best month or week, that's for sure. He may be jokingly endorsed communism. Anyway, there seems to be a narrative problem over at Ethereum Foundation. I think maybe he should just set back from the keyboard for a bit. Isn't the radical markets guy, Glenn Weil, somehow affiliated with that whole orbit? It seems kind of unbrand to me. Yeah, totally.

Vitalik wrote a April Fool's Day blog post, I think last year. I don't like the April Fool's Day blog post because it's like, okay, you're being serious or not. Like, I think you're just trying to like use the veil of a joke to advance a concept you maybe believe in, but you want to keep plausible deniability. I don't like that. To talk about communism,

the radical market stuff definitely re-considers the notion of property rights. There's some interesting ideas there, like harbors or taxes. But, yeah, these are not in line with, let's say, like, the Western tradition of, like, very, strong property rights. So, you know, the point remains from last week around what does it take to lead one of these open source communities. And do you do it more from the perspective of a like benevolent dictator, Linux, Linus Torvald type

of a guy? Or do you do it from the perspective of a hard charging entrepreneur? And I guess we'll see which model wins. Yeah, I would say maybe say as little as possible about hot button political issues if you're protocol founder would be my advice. Does not apply if you're a VC podcaster though. So let the record show. All right.

Next up, the CBO, they have filed a request with the SEC to add staking to the 21 shares, ETH, ETF. So as far as I can tell, this is the first application that is filed a 19B4 with staking included. I think we're going to get staking in these products this year, as my prediction. Yeah, I don't see why we wouldn't under this SEC regime. I think that would make those products substantially more attractive. Elsewhere in asset management news, Grayscale has filed with the SEC for a Cardano ETF. Cardano, man, you know, you can be in crypto for a long time and just

there's stuff that happens that you just have to say, I don't understand. Lastly, in asset management, Robin Hood came out with their Q4 earnings this week. They reported 400% year-over-year increase. in crypto trading volume, which reached 70 billion and made up 14% of total trading volume on the platform. Share has popped on the news. They just had a great quarter. Congrats Robin Hood. I think we'll look back on the BitStamp acquisition by Robin Hood as just one of these transformational acquisitions. So they buy the cryptocurrency exchange, kind of push further into Europe. And I think they're just going to use that as a platform to build out their core product set. So it's a really good buy. It kind of a bare market.

purchase too when people are sort of out on crypto. So did you read this long wired piece on Tigran Gambarian and his ordeal in a Nigerian prison? Yeah, this was a first of all, it was a very well-written piece. And it's a type of piece that you read and just makes you really upset as an American citizen that we would allow something like this to happen to someone, to one of our own, to actually get put through that ordeal. Yeah, I was almost shaking with anger when I read this. I mean, we've talked about Tigran many, many times on this podcast. I think even long before it was kind of an issue in the press. Just as a recap, he was this decorated agent, I think, at the IRS. Certainly he was involved in investigations for busts that in some way utilize crypto. I think he traced the hackers.

I think he traced the Silk Road hackers. I think he was able to identify. the corrupt federal agents that pulled money out of Silk Road. I think he trades the gox hackers. Then he moved over to Binance. He busted thousands of criminals that had used finance in some way, helping them to justice. So I mean, by all accounts, this guy was one of the most effective and creative and persistent agents in terms of unpacking and finding these criminal rings that might have used crypto in some respect. And then he was basically Shanghai, he was brought to Nigeria under false pretenses and imprisoned. The Nigerian government tried to shake down Binance. He was detained. The other guy who was detained with escaped.

Then Tigran went to prison, he was in solitary for a while, and his health deteriorated. He almost died, actually. And he was detained for something like eight months, and the Biden administration just did nothing about it for the longest time. Absolutely nothing. And I grab this. And I think this is a real violation of the social contract. I mean, this guy was a decorated federal agent. He secured billions of dollars in Bitcoin for the U.S. government with these investigations. Then he went over to Binance and did a lot of good over there, in my opinion, too, in assessing out criminality. And then you just get left to rot in a Nigerian prison on trumped-up charges that really had nothing to do with him.

The Biden administration was aware of this. They chose to do nothing about it. Like, it really, really angers me that Biden and Jake Sullivan left him. And knowingly let this guy almost die in prison. I think if you're an American, you'd expect that America would have your back, if you're unjustly detained, especially by an ally, you know, a friendly nation. That's just not what happened. In the end, it took French Hill and I think another congressman,

physically going to Nigeria to visit him in prison, a contingent of members of Congress lobbying the Biden admin to finally do something about it. After I think eight months, you know, they finally secured a release for this guy. But honestly, I think the reason the Biden admin didn't care about his plight was just simply that it worked for Binance, you know, and there was this DOJ settlement of Binance ongoing. But it just boils the blood. Like, this guy did nothing wrong. Nigeria was trying to effectively extort

Binance for a very large payout because of their own currency crisis, which I don't think is really Binance's fault, frankly. Tigran was caught up in this and just left abandoned to his fate. I'm glad he's out, but what an ordeal for the guy,

and I just feel like he was totally let down by his country. Yeah, I mean, I think that's well said, and I don't have a ton to add, and totally agree that if this guy was in any other industry or even just another financial services player. If this guy worked for J.P. Morgan, he would have been out in about 12 hours. So it's a scandal, and I'm really happy that Wired covered it, because that's not how you make it right with a guy like that,

but that is a lot of lost time that he had in solitary confinement in Nigeria because he worked in the crypto industry. So there was a good opinion piece in the All-Shoot Journal today. Mike Lumpuris, of course, just appeared on our podcast, titled The End of Crypto's Choke Point. repeats the claims he made in our podcast. He, you know, cites the reporting around the 15% thresholds imposed on crypto banks, really encouraging to see him finally speaking out and telling his side of the story. Yeah, he was great. He actually went on Laura Shins as well, so I'm glad that

he's getting out there with the story. Got a couple of late-breaking news stories. So Coinbase just announced earnings. Their Q4 revenue was $2.3 billion. The street was expecting $1.87 billion. So Quite a quarter. Trading revenue is up 1.6 billion. Sorry, trading revenue was 1.6 billion. That was up 172% quarter over quarter. Seems like the street is waking up to Coinbase here. Also, late breaking GameStop is adding crypto in some capacity.

I don't know how, what or when, but apparently that's happening too. Do you think we could ever get that guy, Gil, on our podcast, the roaring kitty guy? I don't really like what he did in the end. He like came back to Twitter and just him being on Twitter and posting Jeffs, ended up pumping the price a lot and then he disappeared again. Like as a second act, that was pretty disappointing. So I used to run indoor track against him. He was a ridiculously fast runner.

So he ran for Brockton High. And that guy was running like a 408 mile. Like I'm not exaggerating. He was like low fours on the mile. Wow, that's a piece of map. lore I never knew. Yeah, I mean, he's fast. And I think that's in the Netflix thing, too. He runs fast. Runs fast, and he was really good at pumping the price of one specific stock and then was never heard from again. No, that's all you need. It's all you need is one. All right, so let's talk about the stable coin

bill. So we've got a Senate version, the Haggerty bill. We have a House version, which is called the Genius Act. they both look pretty good. Maxine Waters introduced another one. I guess would you call this the minority representation on the House Financial Services Committee? It's like the Democrat version of the House bill. It's not surprising, but it is not good. Yeah, so there was a really helpful breakdown done by Scott Johnson, who's an awesome follow on Twitter comparing the various bills.

The Waters bill is, he says it could have been written by the American Bankers Association. I mean, it looks like it would be solely to the benefit of really big banks that basically hate stable coins and not to the benefit of anyone else. I mean, there's all kinds of nonsense in here. I think there's an interpretation whereby there's criminality for anyone issuing a stable coin even outside the U.S. that doesn't comply with this bill, which is. insane I think there's provisions in here for the stable coin has to provide a benefit to underserved communities so like completely ancillary unrelated stuff it's just not looking good at all frankly yeah I we don't want the Fed overseeing this so the

OCC needs to be in charge of this it just I don't fundamentally understand why Waters is still pushing on this it is a the tide has moved in the other direction And you would think that some of the impact of this election on some of the down-ballot races would have at least made her a little bit more aware of what she's doing. Yeah, Scott says in his Twitter thread, this bill repeats all the same mistakes around centralizing supervision and certain regulators with little transparency. We saw how well that went with the choke point stuff. He also says, it's designed to prevent a level playing field that fosters innovation in the space,

giving priority to large financial institutions. It's just not what we need right now. And obviously, this version of the bill would not pass. You know, the Republicans have the majorities, but they need, they only have slim majorities in both houses. This will need to be a bipartisan effort. And as currently written, this bill cannot be reconciled with the other Republican proposed drafts. So hopefully you get some movement there. Wonder who actually wrote this?

I think the assertion that it might be the Bank Policy Institute is probably a pretty good guess. Someone that hates stable coins wrote this bill. All right. So the price of Bitcoin went down a little bit this week. price of generally most crypto assets went down this week. What are we thinking here? CPI print, tariffs. Everything's macro right now. We're macro experts again. Yeah, I mean, look, I think the market was expecting more dovishness on the tariffs and that's just not what we're getting. It was definitely a hot CPI print. I think Trump's policies are structural inflationary price of eggs. I can't actually

buy eggs. Have you been able to buy eggs in weeks? Eggs are definitely in short supply. If people are bind that like egg white in a carton thing. I don't like those. I can't get eggs anywhere and eggs are like 60% of my diet. So it's just not going well for me. But that's because they killed all the chickens because of the bird flu, right? It's that's why. Yeah, but you know, maybe there's a way to blame Trump. Anyway, you know, tariffs, onshoreing domestic industry, de-globalization, growth. These are all inflationary things. And the market It's pricing in later cuts. They're pushing back the cuts.

So, yeah, it's bad for risk assets. You know what we need to do is someone who's an expert on the gold market needs to come on this podcast. Because there's a lot of dislocations happening in gold. Gold is very volatile right now. I don't know if there's a big trade going on or someone's moving a lot of gold back to the U.S. What's going on with gold? Yeah, people are like flying ingots of gold back to the U.S. There's some sort of like run on the vaults.

I like, I don't know what the hell is going on. interesting though it definitely shows the benefit of Bitcoin you know you need to put it on a plane like you can count how many Bitcoins are in the vault proof reserves can't do that for gold yeah someone needs to get I guess get on our X pages and just start telling us what's going on the gold market because that's interesting and it doesn't seem to have any correlation to the Bitcoin market right now you know what other commodities going up is tungsten tungsten is so up and I am very long tungsten yeah so a lot of people got long tungsten because we started this me and others started this campaign to advocate for the acquisition of the tungsten commodity directly

in hands of retail. I don't know if there's a resale market for the cubes, but as far as I can tell, it's not that easy to get a price on tungsten. The price of tungsten has gone up. I think it's because China produces like 80% of all the world's tungsten and, you know, the trade links between the two countries being severed. So after years, I think the tungsten thing was in 2020, we're finally vindicated on the tungsten trade. I think you just have to hoddle that. I don't even look at the prices. I just buy a little bit more tungsten every paycheck.

You just huddle that deep cold storage. That's what you have to do with tungsten. There's some price of tungsten where eventually when there's those adulterated gold bars that have tungsten plugs in them because they have the same density, there's some price at which you're now indifferent that your gold bars have illegitimate tungsten plugs in them because tungsten just rallied so much. Oh, I never thought about it that way. That's an interesting perspective on it.

But there's a lot of people in the crypto industry that are very long tungsten. So there might come a time when there's an industrial need for tungsten and the crypto people come to the rescue. And just the plot has completely shifted. That's actually a great point. So like a patriotic duty to turn in your cubes so that we can make like armor piercing rounds or something. Yeah. And all we're going to ask for that is no capital gains on cryptocurrencies. I think that's a fair trade.

all right so we're going to leave it there it's been a busy podcast week we will be back next week everybody have a safe and healthy weekend and we will see you on monday