On The Brink with Castle Island - Weekly Roundup 02/21/25 (Milei's Libra scandal, physical gold chaos, are memecoins dead?) (EP.598)

Episode Date: February 21, 2025

Matt and Nic are back with another week of news and deals. In this episode:  Milei launches and immediately abandons the Libra memecoin Is the memecoin sector dead? What is the future of Solana post memecoin fallout? Hagerty's GENIUS act gains bipartisan support Why securities laws exist What laws apply to memecoins? What's going on with physical gold?

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 to Britain's ailing economy with a new round of quantitative easing and 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 Brink. I'm Matt Walsh. And I'm Nick Carter. And Crazy Week. I guess we're going to have to talk about meme coins this week. Yeah, we don't really. talk about meme coins very much on this show. It's like a parallel universe, right? Like I,

there's stuff going on there and people that I've just never heard of that are becoming not only national news, but international scandals news. Yeah, I don't know any of these people that are like the meme coin facilitators. What are they? Intermediaries, issuers. There's like a whole world of these people out there and I just have never heard of any of them. This Hayden Davis guy is all of a sudden the main character. And you should never be the main character and very much not in his case. No, you definitely don't want to be doing that. So I guess we'll talk about that.

Let's start off with some deals though, a bunch of deals this week. Yeah, so first up, Altius, a blockchain execution protocol. There is 11 million from Founders Fund, Pantara, Arctotype, and others. Then we have Blockade, a crypto cybersecurity firm. There is $50 million from Ribbit Variant, and Google Ventures. Then we have Maestro, a Bitcoin DFI protocol. They raise 3 million from Draper Associates, Wave Digital, and others.

Universal Protocol is a cross-chain trading protocol. They raised $9 million from Andreessen, crypto, Coinbase, and others. Then we have Fluent Labs and Ethereum Layer 2. They raise 9 million from polychain, primitive ventures, symbolic capital, and others. Then it's Monsa, a stablecoin liquidity provider. There is $3 million from Tether and polymorphic capital. Tether's doing deals these days. Yeah, very interesting.

Then we have Cygnus Finance, a restaking protocol that raised 20 million from manifold trading, Oakex Ventures and Marana Ventures. Aker, which is a Bitcoin staking protocol, they raised $4 million from Draper, Dragon, Big Brain Holdings, and the Orange Dow. Then lastly, we have a public offering fold, a Bitcoin financial services company. They IPOed on the NASDAQ this week. Wow. Pretty impressive.

Yeah, that was like a SPAC reverse merger type of deal, I think. I remember looking at Fold back in the day. I guess they've really made great strides since then. I did not ever expect them to be a public company, but here we are. Well, now you can do this publicly traded Bitcoin strategy. They're popping up in all sorts of different jurisdictions. You know, you go public and you just buy Bitcoin. Yeah, so actually the.

PR Newswire release says that they have a thousand Bitcoin in the corporate treasury. So maybe that's part of it actually. It's not just the business, but also as kind of a Bitcoin holding company. All right. So let's hop into some of the news this week. We're not going to start with the meme coins, although I guess that probably was the biggest news of the week is just the industry trying to shoot itself in the foot once again on meme coins. But why don't we start with some, you know, I guess better news? The blockchain association has announced that the SEC has dismissed its appeal regarding the regulation of DFI platforms as broker dealers. So this is known as the broker rule, the broker-dealer rule.

This was a Gensler or SEC special. Basically, you know, they tried to pass this SEC rule that would say that node operators and anything operating in the defy space fell under the purview of the SEC and would hit the designation of a broker-dealer. So imagine an open-source protocol having to effectively just do everything a broker-dealer does in terms of complying with the law. Same thing for anyone running a node. So it was total overreach

and good for the blockchain association for coming out and suing the SEC over it. And it looks like the new SEC has said, yeah, we're like not going to die on this hill, basically. And they just dismissed it. So was this the case of the judge basically ruling in favor of the BA or the SEC itself saying we don't want to just,

we want to discontinue the case? So the judge had ruled that the blockchain association was in the right, and then the SEC had said that they were going to appeal under Gensler, and the current SEC is saying, yeah, we're just not going to appeal this. So you win, basically. It's a total win for the BA. Wow. Okay. Very, very positive development there. Also, some more SEC news this week. They announced the creation of the cyber and emerging technologies unit, focus on protecting consumers against fraud in the crypto and AI industries.

I guess they had a cyber unit in the past, right? Yeah, they did. They had a cyber unit. So I'm not sure. I guess this is different people, potentially, but you do need this, right? You need someone out there protecting consumers because, yeah, there's a lot of fraud, not just in the crypto industry, but it's on full display in the crypto industry sometimes. Yeah.

this week especially the need for this unit is very clear hopefully they can actually catch the frauds before they happen as opposed to after this time so i guess um you know well should we just hop into this malay thing and this is just the strangest thing i've ever seen in my life yeah so what was the timeline it was last friday at around 5 p.m is when it came out is that right right yes so So Havier Malay makes a tweet saying, I don't know if he calls it a meme coin or not, but it's, you know, he posts a contract address. Apparently is the thing meant to funnel investment funds towards Argentine startups. That's the premise at least.

It's called Libra. This thing comes out of the gate at a billion dollars, as in the first WIC. It's an obvious sign that something is kind of amiss or that, you know, there is some information leakage there. within 45 minutes it surpasses $4 billion. So like enormously quick capital allocation into this coin, way faster than other launches we've seen. Then we learn that there was basically rampant insider trading, for lack of better word, sniping is what it's called in MemeCoinland.

Is that like a fair summary of what happened? I think that's a fair summary of what happened. I mean, there's various cast of characters involved in this. So Dave Portnoy, the founder of Barstool, was involved in this, and he was putting out posts around, you know, he had gotten insider coins from this guy Hayden Davis, I guess his name is, who apparently was working with Malay. And then he got refunded. So that was a whole storyline. This Hayden Davis guy, I had never heard of, Kelsior Ventures, I guess. So is this just a group that sets up mean coins for celebrities and then pumps them as far as I can tell?

Yeah, very odd. I never heard of Kelsey, but it kind of makes sense that once meme coins became a big business that you would have these like professional shops that just launched meme coins and apparently traded on insider knowledge early. So Hayden Davis goes on the Coffee Zilla podcast show and admits that he sniped the launch, which just means bought it before anybody else had a chance to. his justification was that if he didn't do it someone else would which is quite something

so he seemed to be thinking it was a protective move protective of the chart obviously the meme coin crashed immediately and went to almost zero I mean it's worth something now then it turned out from some of these internet sleuth that this team are the team behind Malay shared wallets with the

Melania coin Hayden Davis admits to this on the show. Melania coin was also a bit of a fiasco. And then Hayden Davis admits that he's got over $100 million in proceeds from the launch of this coin sitting in his wallet and he doesn't know what to do with it. So he's in quite a pickle, dare I say. I mean, this reminds me a lot of Sam Bankman-Fried going around and giving interviews after the collapse of FTCS and everything that he said was just digging a deeper and deeper hole. This guy's going to be facing some serious jail time. yeah i mean i i think like maybe there's a lot of naivete in the meme coin space like people thought

oh well securities laws don't apply to us because you know we're uh we're meme coins we're not securities but that doesn't mean that no laws apply to you like fraud is a thing issuing a token and selling it based on false pretenses is a thing insider trading applies across various asset classes not just securities i mean there was the open c insider trading case, there's the Coinbase insider trading case, there is plenty of legal precedent that crypto can be a substrate for insider trading, even if it's not considered a security. So undoubtedly, there is a notion of trading on privileged information here, which we'll see what happens. But I think certainly there's like various like criminal and like civil cases that

could be bought. There's a lot of different angles to this. I mean, one angle is. One angle is, is people are just saying, look, all meme coins are stupid. These need to go away. And you can have that view, but they're not going away. I mean, this is basically just a use case, and you can't prevent it from happening on a public blockchain. So there's a lot of things that happen on the internet that people might not like. And there's going to be a lot of things that happen on blockchains that people don't like either. Now, the other side of it is if you had some sort of a, just a market structure to figure out where these things fell, I think you'd probably have a lot less fraud. So if it was clear, okay, these things aren't securities, but they're commodities, and here's how the spot commodity

markets need to operate, and you can't do fraud and front running. That would be a net positive for a market structure bill here, I would think. Yeah, all of this underscores the fact that regulation, some amount is good and necessary. Like, you can't play soccer if there's no referee. You can't play football if there's no rules, right? It's the same thing with markets. No rules. Like there's an optimal amount of rules that is more than zero. So no rules is clearly the wrong amount of rules. Maybe the number of rules against or wanted is also the wrong number. But there is some optimal number.

And if you look at how securities laws are written, the whole thing is about correcting for information asymmetries between the directors of these companies that have privileged access to information and then the owners of the companies, aka retail investors. That is the whole notion underpinning how securities laws work. That's why we have disclosure. That's why there's blackout periods. That's why you have to be truthful about what you put in a prospectus and an S1.

There needs to be, I mean, maybe like we'll just get there through case law in terms of insider trading, but I think there's probably some structure that could be proposed to bring a degree of sanity to these markets and make people believe in them and believe that they're fair. Yeah. Yeah. And as you point out, even in the absence of a market structure bill, fraud is fraud. And so there's going to, my guess is this is going to be a pretty big fraud case here. I mean, the other angle is just the impact on Solana in some of the projects that are in the Salana ecosystem. So we also saw the resignation of the co-founder of Meteora. Seems to me like some of these infrastructure providers in the Salana ecosystem are going to be under heavy scrutiny for their involvement in this and whether or not there was privileged information.

And then just broader, you know, picture here, look, Salana's just an open network. You could be doing this on base. You could be doing this on really anything. Solana just happens to be the fastest horse at the moment in terms of throughput. But it's probably not great for just the price of Solana in the short term here. It reminds me a bit of the ICO craze, you know, back in the day when the core use case ended up being gambling in 2017. And everyone had to buy some ETH in order to participate. There's shades of that here.

Yeah, I agree. Like, Sol was the basic base asset that you would use to trade a meme coin. And if people lose appetite to trade meme coins because the game is rigged, then they're going to own less soul, just factually speaking. And then from the market infrastructure standpoint, there are these intermediaries. Pump fun, radium, Jupiter, Meteora. Meteora seems to be implicated. The co-founder resigned already. We don't know why or what he allegedly did. Could it be the case that everyone at these, basically, interfaces, these defy protocols were behaving honestly with respect to meme coin launches, maybe? But it seems like there is rampant dishonesty in the meme coin space, and this may have trickled into the infrastructure side. So I agree with you. I think there will be a lot of scrutiny on these intermediaries as the facilitators of these meme coin launches, some of which are basically fraudulent. So I think this one will invite a ton of regulatory attention. Bad look for Malay, too, getting in a partnership with this guy, Hidden Davis. This guy, Hidden Davis, I think there's a technical term for him.

It's a total meat skull is what you'd call him, I think. It's just... I mean, what I want to know is, like, how are these numb skulls getting access to the heads of state? Like, how did they persuade Melania to launch a thing? This is mind-boggling. How did they persuade Malay to launch this? Like, these are not very credible people. like their CVs are not good.

Not to sound elitist, but how are they getting in the room with heads of state? How is that happening? It is really troubling. I mean, Malay was off to a pretty hot start here, and then he does this deal with this guy. I mean, bad look. I don't know what to say.

I mean, it's very unfortunate because Malay has brought down inflation. He's brought up growth. I think he might have balanced the budget in Argentina. I mean, he delivered on what he said he was going to do, and he convinced this huge, forced error the first really of his his time in office and it has the potential to end his career right if if we find out that he was the beneficiary of some of the the funds here um as opposed to just um an innocent kind of facilitator or victim almost of this scheme if it turns out that he was

paid by these meme coin issuers you know or that he in some way benefited that is very bad for him. Like that could be the end. All right. So that's all I have on meme coins. I think let's just purge the bad guys. I don't know. Can we do that?

Can we just try to not run the last cycle back? This is why I think regulators that are now more intent on catching broads before they happen. They're probably more sophisticated about crypto because they are more positively disposed. I think this is why they're going to look at the interfaces, places where these launches have. happen as the, for lack of better word, choke point. So like you can't go after all the thousands of people that are launching meritless meme coins, but you can go after the venues that they're launched with the tools. You can't go after Salana, but you can go after a pump fun. Yeah, and I think that's going to happen. I'm not saying I wanted to happen. I think it's going to happen. I think that's right.

All right. So moving on, did you see this Genius Act, which is Senator Haggardi's stablecoin bill? this has gained some additional bipartisan traction this week with Maryland Senator Angela also Brooks, Democratic member of the Senate Banking Committee. She has signed on to co-sponsor the deal. This is a big deal here. So it looks like this is going to pass the Senate pretty easily. Wow. This is actually the first I'm seeing of that. But this is as written, I think, a very strong bill. It still has the $10 billion threshold in it, right? I believe it does have the $10 billion threshold. The House version does not. not. So it'll be interesting to see how that gets reconciled. Yeah. What's the status of the Maxine

Waters bill in the House? I mean, is that just not going to be incorporated or is it going to have to be a compromise here? Well, that's definitely not going to go forward. I guess the question is, is there a compromise necessary in the House or is there just enough support on the Republican side to just push through the original version? Yeah, I mean, they have a slim majority in both houses, but if there is Democrat support on the bill as written from Haggerty, then that augurs very well. I would think this is a pretty big deal here. You, of course, have Jill Brand already on board, so that's at least two pretty high-profile

members of the Democratic Party coming out in favor of this Haggerty bill. So pretty, that's significant, I would say. Elizabeth Warren doesn't like the bill. She says it doesn't have enough consumer protection or AML provisions. not really shock that Elizabeth Warren doesn't support a stable coin bill. I'm really surprised. Yeah, I would have thought that she would have been on board with that. So here's something I want to dig into a little bit.

So the SEC acknowledged the filing from 21 shares to add staking to their Ethereum ETF. They're soliciting public comments on the proposal. You know, this would potentially kick off a next stage approval process here. I guess my question on this is more on the mechanical side. So let's say that Ethereum staking ETFs are approved. How do you see this actually working behind the scenes? So let's say there's a rush to withdraw. I would think you would need someone with a pretty big balance sheet to step in and facilitate those withdrawals,

given that if you stake your Ethereum, you're tied up for, what is it, 14 days at this point? Yeah, that's a great point, actually. It's not instantaneous redemption from a staking pool, right? Right. So I think you could model this and you could say like worst case scenario, what is the, what is the exposure here if all of the retail customers just want to convert out of the Ethereum MTF at one point? So I guess the question is, how do you actually do that? Could you imagine a world where LSTs are used behind the scenes or does that introduce an additional level of complexity that the regulators would need to get involved in? Is this something that you could just do by borrowing a.

And if so, what is the cost to borrow ETH? So this is my question is more tactical on how the sponsors and the APs are actually thinking about making this possible. Okay, I don't know the answer to that one. So if you are involved in an asset manager that wants to add staking to Eath, let us know. Let us know how you're thinking. I like to just put out questions to the audience. I did get some answers on the gold side, by the way. Oh, really?

Okay. So what's the deal? Yeah, I had some people hop into my DMs and point me, some people actually point to me to some people that are writing about this on LinkedIn. So I guess there's a trade going on right now. So currently gold futures prices in the U.S., specifically on the Comax Exchange in New York, are trading at a significant premium compared to spot gold prices in London. And it looks like this premium has widened to over like $40 per ounce,

where historically the difference was only a couple of dollars. So you basically have this trade, which I'm sure there's various permutations on it, but at its simplest form, you can purchase gold in London. So you can buy physical gold in London at a lower price. You could transport that to New York. So you basically ship it to New York. And then upon arrival, you can sell it at the higher price in the U.S. market. Well, it's not simple in the sense that you have to carry-in costs.

It shows you why Bitcoin is better than gold. Not only do you have to transport the bars, I guess, bullion, is that the word? Gold bullion. And you have to melt it down. You have to melt it down and recast it because the bars in England are not interoperable. They're a different standard. Bar. I didn't even realize that's crazy.

So you have to send them to a refinery? I don't know what the, I don't know the gold jargon. You have to send it to be melted down in Switzerland and then send it to New York. It has to be recast. So a lot of serious logistical challenges. Also, but have we addressed why the New York gold's trading a premium to the London gold? Everyone is just saying it's tariff-related. People are reacting to tariffs.

And I think that's about as deep as I go on that. Okay. I'm just going to accept that answer. I don't know at all. But it is interesting that the different gold vaults don't have the same standards. for gold bar. They've different sheets and weighted bars. I guess we have inches and, you know, centimeters, right?

There's, the world is not on one standard. Bitcoin fixes this. Bitcoin fixes this. I mean, this really, have you ever met anyone younger than the age of, I don't know, 45 that is obsessed with gold? Do those people exist? It seems like Bitcoin is just replaced, you know, replace that use case from a cultural perspective, but albeit in a much more speculative way.

I like gold. I have a lot of gold. Physical. But I don't hold it as an investment asset at all. Although it has done well this year, right? It's outperform Bitcoin. So you hold it in case of the apocalypse so you'd have something to barter. Is that basically it? Well, I just like gold jewelry and I have some bars, I guess, ingots. What are they called? I don't know. I have no idea. I don't have any. I think gold's great, man.

Look, is Lindy? 5,000 years of history, probably more. I don't know. I feel very strongly that the total market value of Bitcoin at some point in the next 10 years will surpass the total market value of gold. And it might be shorter than that. I just think it's much easier. So we've had gold coinage since like Mesopotamia or something,

certainly since the Romans and probably before them. The Lydians? The Lydians, right? Is that I'll take your word for that. We've had gold coins for thousands of years, literally thousands of years. So your contention is the Bitcoin can in 15 to 20 years catch up to that thousands of years head start. Yeah, because I don't think Bitcoin is competing just for gold. So you basically have this venture bet on the emergence of something better than gold,

but it's also a technology platform. And we're also living in a world with the internet. And you also have the dynamic of we are a space-going species at this point, and we're going to find more gold out there. So I'm going back to the Winklevoss. That's true. No one's talking about the asteroid. I mean, there's an asteroid with a 3% chance of hitting the Earth in the next 10 years. You saw this, right?

Yeah, I saw that. And that thing might be full of gold. It could be loaded. Bruce Willis and Ben Affleck up there with Elon just to bring back the gold and set it on a different path. Few are talking about this bear case for gold. The Winklebust Twin sound like crazy people when they're talking about it, and I know I do too, but there's gold out there on those rocks. I'm telling you that. The question is, can you bring the rock in for a soft landing?

Or does it impact, and the gold's just scattered to the all four corners, and now we can't retrieve the gold. Oh, you think it's just going to start raining gold? I just think it might be too widely dispersed in the case. case of an impact that it's like a fine mist and it's impossible to really get it. Oh, okay. But can you arrange for a soft, like a splashdown for an asteroid or is that not how it works? I think you could sift it. You could just put up some netting. But don't you think that just the fact that there is gold out there becoming more in the popular dialogue, people would actually just factor that into their future value of the asset? Yeah, the EMH stipulates that. It's look. It's look. It's

that we should price in to the price of gold all possible shocks, including an asteroid, physical shock, literally. How big is the universe? How big is the universe? Probably almost infinite amounts of gold. I mean, you know, we've only ever mined 200,000 tons of gold total. It's like an Olympic swimming pool. One asteroid could triple that.

Yeah, so I don't know. look, I love gold. I think the gold people are allies to us on this whole crypto movement here, but I think you just got to look at the facts. And I think objectively speaking, if Bitcoin can continue to pump out a block every 10 minutes, it's going to be a much better proxy for just a store of value. All right. What else do we have? Micro Strategy, now known as Strategy, is offering $2 billion worth of convertible senior notes. they will be buying Bitcoin with that, unsurprisingly.

Yeah, these guys keep on stepping up their game in terms of the underwriters. It seems like every bank on Wall Street now is competing for this business. So pretty interesting. In other asset management related news, Grayscale has launched the Grayscale Pith Trust, which is a single asset vehicle giving access to Pith, the Oracle network. I think you're going to see more and more of these single asset trusts listed. and potentially a world where you get a bunch of ETFs approved later this year, maybe early 2026 on some of these names. I'm going to refer you to an article by Lex Silicon.

Is it like Silicon, the Fintech blueprint? Yeah. It's a good deep dive into the Kelsior Libra scandal. I thought it was very excellent. And we're going to put that in the show notes. Okay. Do you think we'll have to be talking about this calcure situation for a while? Is this going to be one of these, I guess he's already a bad boy of crypto?

I guess we'll see, you know, we'll see what charges are brought, if any. I mean, it doesn't look good, but innocent and proven guilty, you know? I just want to know what he's going to do with $100 million that he's sending on, that he sniped. So how exactly does that work? So he was, that $100 million, that's just fees on the single-sided liquidity pool? what happened? I think it's more like he told his bots to just buy this thing immediately, even maybe before Millay endorsed. Just like put size on the coin right away, gobble up the supply. And then I guess in his mind is this was a benevolent thing to do.

But it didn't work out that way. So Matt Levine's going to have a field day with this. Just another example of someone coming from the crypto angle. and discovering financial fraud and crime for the first time. It's just discovering how market structure has evolved in regular way markets and just doing something that's completely illegal and was figured out like 150 years ago in the equity markets. Yeah, talk about speed running the history of finance. This is another great example, information asymmetries.

I do think it's kind of interesting, though, that it hasn't transcended into the, obviously everyone in crypto is talking about this, but outside of crypto, I don't think there's a ton of appreciation for this meme coin stuff, which maybe we can keep it that way. But once you start to potentially take down presidents of foreign countries with these things, that's where it starts to get to be a bigger story. I talked to some Argentine friends, and they told me that absolutely everyone in Argentina is talking about the story right now, even the grandmas and uncles.

So at least the Argentines are very, very clued in. Well, hopefully not too many people in Argentina lost money on this thing. do get the sense that it was probably a lot of U.S. people lost a bunch of money on it. It was very funny that Malay was totally defiant in his comments and he said, I didn't endorse it. I just tweeted it. And he also said not a lot of Argentines lost money, probably Americans and Chinese, which is probably true. Probably is true. But it's still bad. Okay. So what is it worse if Argentines lose money as opposed to Americans? I mean, maybe if you're in Argentine. But that's, what about us?

What about the Americans? Hello? Just the past week is just everyone involved in the story should just talk to a lawyer. Just go, don't do interviews. Stop giving interviews. Just go talk to a lawyer. Do not give the interview with the YouTube personality.

Man, the video of that guy Hayden talking, he just looked like he knew he was going to be in a world of hurt. I just don't know why he fessed up to everything. It's remarkable. Well, it's all on shade. I mean, that's the beautiful thing about this meme coin stuff, is that all of these crimes are just sitting there on the blockchain for everyone to see. It's the easiest case in the world for a prosecutor to dig into.

All right, so we're going to cut this one a little bit short. We will be back next week with a longer episode, but we recorded this one in a little bursts. This was a tough recording for us. Just 10 minute burst here, 10 minute burst there. Yeah, yet again, I'm under duress recording this one. I'm in the mountains of Salt Lake, I guess, somewhere in Utah. Lord only knows where, but we're bringing the podcast to you weekly without fail. All right, everyone.

That's it for the week. Everybody have a safe and healthy weekend, and we will see you on.