On The Brink with Castle Island - Weekly Roundup 03/17/23 feat. Alex Thorn (Bank crisis, Fed makes $2T available, Signature mysteries) (EP.406)

Episode Date: March 17, 2023

Matt and Nic are back to cover a dramatic week in crypto. Galaxy Digital's Alex Thorn also joins to provide market color. In this episode:  Bitcoin's price action in response to the bank runs USDC recovers its peg FTX crime family news Signature bank is shut down somewhat arbitrarily What happened with Silvergate? Is Operation Choke Point 2.0 real? Blockchain Association FOIA's federal banking regulators Are macro funds dipping their toes back into Bitcoin? Crypto Banks are gutted Was Signature solvent when it was shut down? Will Signet be sold off in the Signature auction? What was the importance of SEN and Signet? First Republic secures $30b in deposits What happened with Silvergate and the FHLB? Galaxy Digital's head of research Alex Thorn joins the show Arbitrum announces their airdrop

Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $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 Concentuteeasing. 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. Bitcoin.

Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. Can you see the gray hairs? No. I got gray hairs. Zoom is doing a filter that makes it look like your hair is still dark. That's good.

Jet black hair. Yeah. But I can thank that's a Silicon Valley bank gray hair right there. Well, they made it. They survived. It's the safest bank in the United States right now. Thanks to the Fed and the Treasury and the FDIC. Thank you.

Just a crazy weekend. I mean, just startup world was on its heels there. I mean, a lot of venture funds with tons of exposure, certainly a lot of startups. Actually, less startups and fewer startups in the crypto ecosystem than I would have thought, actually. So we had a busy weekend. There was a few companies in our portfolio

that were working through scenarios there. But luckily, probably it sounded less so in the, crypto space than in the web 2.0 space. Well, I think there's two reasons for that. Firstly, crypto startups have now learned from all the bank crises in the crypto space the moment there's even the slightest notion of panic to withdraw. And second of all, SVB actually off-boarded a lot of crypto startups over the years. I mean, they were not considered the place to go for crypto firms. So that's, you know, for what it's worth. You know, we were getting the emails from our portfolio companies on Thursday, Friday, Saturday, just around what their aggregate exposure was to SVB, if any.

And quite a few of them had said we had bank accounts with SVB, but we got deplatformed. And we were not with it. So we were with a diversity of banking partners because of this deplatforming, which that was really interesting data point. And yeah, to your point, I think a lot of people that have seen these crypto exchange runs just start to get a whiff of this. And so like, I'm not doing that. Just pull the rip cord. Weirdly, SVB's crypto version was the saving grace for a lot of these companies. Although, I can't say enough good things about SVB as a platform and as a team.

We've banked with them for years, and it's just an awesome product. So I do hope there can be something that comes out of the ashes here that looks and feels like SVB. I mean, part of the reason they were so popular and part of the reason this is such a big issue is because, just an unbelievable level of service over there. You pick up the phone, you get someone right on the phone. They're just a pleasure to work with. Yeah, the product was exceptional. It was tailored for startups.

I mean, what was it, 44% of startups in the U.S. used S3B. It's some insane number. And that's what is lost when there's this type of a bank crisis and deposits leave smaller banks and flow to the large systemic ones or flow to treasuries. What is lost,

is this differentiated level of service competition among banks. And that's unfortunately where we're going now. I think there's really no incentive to keep funds at a smaller bank or community bank or one that serves a bespoke industry. The incentive now is just to go to the largest banks possible. But the service will suffer there. So to your point there, you're not getting white glove service from JP Morgan Chase or Wells if they'll even take you on as a customer.

I think what you'd ideally want is the service of a local bank with the balance sheet of a bigger bank or the backstop of a bigger bank. And that'll be the Venn diagram that people are trying to find here over the next few weeks. So much more to say on this, the bank crisis rumbles on. It appears that it's not over. Far from it. It appears to be somewhat impaired, as far as I can tell. First Republic has a deal coming together. I don't know.

But they're in that category of SVB competitor that people are saying, oh, you know, hop a lot. over First Republic. That looks like an ugly balance sheet. One of the customer service there is just not as good as SVB. It's weird to play this merry-go-round of leaving SUV for another bank and then that bank itself has troubles. I don't know where it stops. The Fed has said they have $2 trillion available, which is the size of the CARES Act and various COVID stimulus. So that's another COVID amount of stimulus at the ready. So how do you do the math on the $2 trillion?

Is that $2 trillion in a credit facility that you can take to the window at the Fed and you can park these assets that are long-dated and you can get liquid on them? Is that how you quantify the $2 billion? Yeah, it's a good question because the aggregate amount of loss on these hauled to maturity securities among the banks in the U.S. was only, $680 billion, I believe. and so that's a lot less than $2 trillion. And also if rates fall, which markets are now pricing and eventually declining rates, the size of that loss decreases. This is a pretty mathematical relationship between the prices of bonds and interest rates. So I'm wondering what that extra $1.3 trillion is for.

I think it's just for Bitcoin. It's the only way out now. I don't know how they're going to keep on raising rates here. I don't know what game we're playing. Legarde hiked rates today. We've got a decision coming from the Fed next week. But you're just going to exacerbate this issue, this duration mismatch. And yeah, you can throw targeted money at it, I guess, with this $2 trillion.

But it seems like outside the United States, you'll also have this issue. So you had negative rates in Japan for the longest time and they're starting to hike. You'd think that that banking system would be pretty frail. It doesn't feel like a very stable equilibrium for the banks right now. I think you end up probably in this regime where rate hikes just have to stop here. Yeah, it's like the fight is pushing and pulling at the same time. So tightening via rates and then loosening via this new facility that they're creating, they love to do things that have opposite effects simultaneously.

I don't know why they do that. What did you make of the Bitcoin spike over the weekend? Yeah, I mean, Bitcoin is up 15%. I think it's validating. I think it's very validating. I think a lot of people have fired up about Bitcoin right now. And I think it's a direct reaction to the loosening of financial conditions. I mean, markets change their posture immediately on the next few quarters worth of interest rate developments.

Now pricing and cuts. I think Bitcoin is reacting sharply to that specifically. I think also there's a bit of a release. in the crypto space that USDC was going to be okay. The negative, of course, is that banking relationships for crypto firms are impaired now and that there's this loss of liquidity from the loss of Sen and CigNet. So that's the negative, but I think ultimately the signal that the Fed is really caught between a rock and a hard place and the market's recognition of that is the direct catalyst for the Bitcoin price action.

Yeah, it seems to me like you have a couple things. Just on a tactical level, I think over the weekend, when it was unclear if USDC was going to be tied up in this SVB issue, I think you had a lot of people dumping USDC into Bitcoin and just thinking that that was a safer alternative. I mean, we were talking to venture managers over the weekend that had some USDC that were buying things like Bitcoin and ETH, just out of their funds, just to be safe. That turns out to have been a really interesting move. You kind of put it there and you hold your breath, but then ETH. and Bitcoin ripped and ended up being an interesting short-term opportunity for some folks, it sounds like. But yeah, the longer term, I mean, if you think the Fed is shifting here, I would think that that's when you start to get these macro funds a little bit more activated here. And I don't think they press by immediately. There's investment committees at these places, but the conversations that these global macro firms needs to be around, okay, well, if they're pivoting

here, are we going risk on? And is Bitcoin a way to express that thesis? And we're bringing a mystery guest onto this episode who will be covering that dialogue precisely. What are these macro funds talking about? Have their attitudes change towards Bitcoin? These are a lot of funds that maybe used to have some Bitcoin exposure, maybe got rid of that exposure. Are they putting it back on? Is the trade back on? We'll be covering that later in the episode.

Very, very excited about that. All right. So why don't we talk about deals? Not a lot of deals got announced this week, and I think that was a function of a lot of entrepreneurs being tied up with other things in the banking space. But there were two here. The first one is a company called Alex.

This is a company that's building a decentralized exchange on Bitcoin. They raised $2.5 million from trust machines and Gossamer Capital. And next up, and lastly, we have sole wallet. They're a social recovery tool for wallets. They raised $3.1 million from struck crypto. I think that's the fewest amount of deals we've had on this podcast, in quite some time, but I guess it makes sense because the banking crisis was just all the news this week, and no one wanted to dump their story into that crisis.

So I received some feedback from a listener that as much as they like the Godfather music, they also like the bad boys music. And so the request was to have two musical interludes. However, I don't know if we actually have a bad boys section on the show today. I'm sure there'll be opportunities to have bad boys in the future, but I don't know. Take your pick right here. Today, bad boys or bad boys? Today it's FTCS crime family and they have their own theme song and that is what we'll be sticking with.

Cue it up. So the first story is that Sam is asking for FTX's D&O insurance to cover his legal bills. Are you kidding me? Is that covered? Is crime covered? by D&O insurance. I think they're going to have a hard time with that. I think they're going to have a hard time getting comfortable with just saying,

oh, yeah, we're going to take what little money is left for the creditors here and just give it to Sam to spend on his expensive lawyers. Sam's got enough money on treasers and ledgers that he can afford to pay his lawyers. Isn't it great that we have until October to talk about this? It just won't end. And I'm sure every week there'll be some weird new tidbit about it too. He just needs to go away. The other report that came out this week is the FTX administrator released a bunch of information around the fraudulent transfers between Sam and his rogue group of supervillains here.

In addition to the $2.2 billion that SBF directly got, his crime family members made out to the tune of $587 million to Nishad Singh, $246 million to Gary Wang. 87 million to Ryan Salem, 25 million to Sam Trucoucou, 6 million to Caroline Ellison. This doesn't even account for the LP capital into all of these friends and family, you know, fake funds like Toy Ventures with Romnik Aurora, you know, the LP stakes into the light speed JV gaming fund.

There's just countless ways that he has stolen money, but it seems like the inner circle was well taken care of. So I am a little surprised that Caroline Ellison only got six million of these expropriations. I mean, why was she, did she offend someone that she got such a small pay? That is kind of BS, right? There were co-CEO's, Caroline and Sam were co-CEO's. Tribuco got 25 million. Probably bought some really nice property with that.

Meanwhile, Caroline's over there just getting six. What is that? Yeah, I mean, Nishad Singh got $1. hundred times more. I don't quite, I don't quite get that. And maybe that's why she turned, maybe she turned first. So I guess the balances are now being released too, so people can see what their actual balances are.

So there's these PDFs that are flying around that people are trying to triangulate their exact balances. So I don't know. FTX stuff unwinds. This will probably be a good five years to untangle this bankruptcy. All right. So moving on, much more interesting and more. equally as dramatic.

The bank crisis here. So started last week, Thursday. It was pretty intense. Friday, big day. And then, of course, over the weekend, we were just waiting to see what an earth was going to happen. And then Sunday night,

signature gets taking down or sent it to receivership. So now, as of now, Silvergate is voluntarily closing down. SVB is insolvent but backstopped. Questions remain regarding whether signature was actually insolvent at the time he was sent to receivership.

But either way, the three most crypto-focused banks, especially Silvery and signature are now offline, basically a full decapitation of the banks that actually cared about crypto in the U.S. over the last week. I mean, there's so much to say about this. I mean, we spent all weekend dealing with portfolio companies and war gaming this. out what would happen. And I'm sitting there on Sunday evening in front of my computer and it pops up that SVB has gotten backstopped and that the depositors are being made whole. And I was happy about that. And then two seconds later, it pops up that signature is being backstopped and shut down. And my jaw kind of

hit the floor there. I mean, it felt like a drive-by shooting of a crypto bank. Yeah. So on Saturday, after SVB had failed, the sell side came out and said, yeah, we think signature's fine. They looked at their asset portfolio. They didn't have the same issue of the help to maturity securities that SVB had. There wasn't really an indication that signature itself was the next one to fail. And yet, on Sunday night, with no warning, apparently, DFS takes it and delivers into the hands of the FDIC, who were reportedly surprised. And now, you know, we'll see how it resolves.

Reports are that Cigna would not be part of an acquisition if it gets sold, which lends some credence to the theory that there's foul play here. There's something suspicious about it. Did Signature really need to be taken down? So Barney Frank is on the board of signature, or was on the board of signature, I guess. He came out pretty quickly in a great, piece by Jen Viechner at New York Magazine. He said that it was politically motivated. He said they were

taken down because they were a crypto bank. He said they could have been a going concern on Monday. They could have operated. I'm not a bank analyst. I don't know. I mean, they could have had a ton of outflows on Friday that we don't know about. So I'm leaving open the possibility that they were actually going out of business, but this looks and smells really fishy. I mean, First Republic looks like they were in way, way worse shape than signature bag was. And they were allowed to run operational. Yeah, so definitely recommend the NYMAG article. Jen Weechner, I think making her name for herself is the premier investigative journalist that covers crypto. Some of Barney Frank's quotes in this are insane. I was losing my mind reading this article. And remember, he is a Democrat. He was

the Frank and Dodd Frank. He was on the House Financial Services Committee. He's not pro-crypto. In fact, he's been pretty skeptical of crypto. And you might question, motives and say, well, you know, who's part of signature. But that also means that he has access to better information than anyone. So if he's making allegations here, he deeply understands how all this stuff works. I'm inclined to believe it, or at least it's indicative of the truth. So in this article, he says, if the FDIC and the Fed had done on Friday what they did on Sunday, we would have not been in any trouble. And secondly, if they'd allowed us to open on Monday, we would have been in good shape. We would have been operational. He also says DFS, which is the entity that did the closing, did not say

that signature is insolvent. So is it the first time bank is sent into receivership that wasn't insolvent? I mean, this is very, very remarkable. Now, if you're on the side of, hey, they were going insolvent and there's no file play here, you'd have a hard time explaining what has been reported by Reuters that the FDIC has begun the auction for this bank, and they've explicitly said that you cannot buy CigNet, which is the post-trade settlement piece, their crypto business, basically. So you can buy this bank, but the thing that was the most valuable about it, the thing that they were the real leader in, you can't buy. That's not for sale, and that'll be shut down. And we're hearing rumors that European banks are not able to come to the table on this either.

So how do you explain that? And so more context. SELVERGETS SEN product was the other B2B inner bank real-time clearing and settlement tool for Fiat. So if you're an exchange, you're a stable coin, your clients are moving crypto back and forth, your market maker, arbitrage, you need to be able to settle up the Fiat leg of the trade. They need to settle it on weekends, on holidays, not during banking hours, because crypto moves 24-7. And when the Fiat settlement is not moving the same speed as the crypto settlement, bad things happen. Like stable coins break their peg.

We saw this recently if the Fiat settlement rails are not operating synchronously with blockchain rails. Sen and Cigna were the two products that did this because those were the banks that had all the crypto clients. So they were the ones that create this interbank settlement network. send was down CigNet now is the outstanding real-time fiat clearing tool for crypto firms

you'd think it would be immensely valuable with Silvergate down so this is worth something so you're maximizing value to the creditors let's say you're trying to maximize the value of the entity why would you exempt that product

from the ultimate sale there is value there I get the sense here that the FDIC in the New York Department of Financial Services are going to be embroiled in shareholder lawsuits on this deal for years to come. This just feels way too fishy. I mean, you have FOIA requests are going to be really interesting to see here. Yeah. And so the blockchain association said they're sending out those foias to the Fed, to FDIC, to OCC. And it's a valid question.

What were the political machinations that preceded? the abrupt closure of signature. Remember, the shareholder value here is material. Signature was $100 billion in deposits. That would make them the third largest bank failure of all time in the U.S. The equity, when they were shut down, was worth $7 billion, and a few months prior was $22 billion. That shareholder's equity was vaporized thanks the decision of the DFS.

If they hadn't been shut down, could they have struggled gone and survived. Maybe we won't know now. Now we won't know. So this isn't how the U.S. operates. You don't expropriate and nationalize solvent businesses because you don't like their clientele. That's not how it works in the United States. So there's huge questions that need to be answered here. So as we're recording this, it's just come out that First Republic has secured $30 billion in deposits from 11 banks. And I got a, email from someone and they said, not crypto, must be saved at all cost. Rich New Yorkers rely on this bank, shore it up now.

It's got to be the feeling of a lot of people right now. First Republic that's not doing any crypto stuff. They get the lifeline. They get saved. And meanwhile, just shut down the crypto bank. Yeah. And so Silvergety also have questions about, to be honest with you. We still don't have good answers on the federal home loan bank.

Now they've come out and said that they didn't. force Silvergate to repay their loan on short notice, which was the immediate trigger of Silvergate's insolvency. They're saying that wasn't politically motivated. They didn't force them to repay the loan. However, what they didn't say was whether they had informed them that they would not be rolling the facility. Semantics.

Right. And actually, they specifically didn't answer that question when CoinDest, Quindesk asked them. So I think they're playing word games, and they made it clear, based on the political pressure that they were getting from the likes of Elizabeth Warren and the concerted press campaign that we saw, I believe that they had informed Silvergate that they weren't rolling that facility, and so Silvergate realized they'd look elsewhere, and that plunged them into insolvency. There's questions there, but signature, much larger bank, five times bigger than Silvergate,

in New York bank, they lent to property, landlords, high not worth individuals in New York, they weren't strictly a crypto bank. They had a crypto element, but they weren't just a crypto bank. You know, pretty large institution being shuttered, Barney Frank's allegations, the Cigna piece, that is intensely suspicious. And the shareholders and declines of the bank and the general public deserve answers. So what do you think happens here? Will we see some investigations coming out of the house? What's the logical way to get to the bottom of this?

We have to. But unfortunately, the Republicans are pretty distracted by this chatter around being opposed to bailouts and the quote-unquote moral hazard, which is not at play here in my mind. I don't see a moral hazard. It's not like the banks invested in some crazy nonsense. They invested in high-quality liquid assets. They invested in government bonds. They invested in mortgage-backed securities, which were,

highly rated and liquid. So a lot of the Republicans are wrongly fixated on complaining about bailouts, even though, of course, if there's no bailout here, the entire bank sector gets plunged into crisis. They're not focused on the fact that these closures happened apparently arbitrarily and that it's very convenient for the bank regulators, which we know have an anti-cryptoanamus. that's established, that's a fact. It's very convenient that it was the three most pro-crypto banks that ended up being shuttered, even though there's dozens of other banks that are distressed and that are in similarly precarious financial positions. This is not going to go away.

You're going to see banks emerge to bank crypto startups. And we're already seeing that. There's a flurry of activity here. This will come back. probably some of the teams from Silvergate and signature will go to other banks and they'll build out those practices. And at some point, the larger banks will start to get into it. Obviously, right now is not a great time to be doing it because you have the FDIC is incredibly hostile to it and you have the SEC incredibly hostile as it relates to this balance sheet issue, this

SAB 121 issue. But at some point the tides will turn here and I think there's just going to be a lot of regulators that are on the wrong side of this and that we'll find out probably years from now that there was a lot of bad behavior here. There were a lot of laws that were broken in discriminating against some of these businesses. I agree. And I was concerned about it when it was just a soft pressure campaign being imposed on the banks, OCC basically nudging them, FDIC saying, yeah, look, we're not prohibiting you banking crypto firms, but we think that there's a safety and soundness issue if you do that. That rings very hollow now because the systemic risks did not come from crypto. They came from interest rates being hiked very quickly. The systemic risk were coming from

inside the house. So that was all well and good and we knew there was an issue when they were imposing this pressure campaign. Now it's much more explicit. It's, you know, the crypto banks being shuttered. So, you know, that is something that's truly remarkable. I don't even know if we've seen anything like that before in the US. Most people are distracted. They're not focused on it. the crypto industry needs to make it clear that what happened is wrong and we need to get to the bottom of it. So I really hope Congress takes up the mental here and actually ask the questions that need to be asked. All right. Breaking in our Bitcoin Atache, actually Bitcoin and all things crypto, had a firm-wide research galaxy digital, former colleague of ours, none other than

Alex Thorne. The premier Bitcoin podcast intro rapper, some high quality raps. I don't know how you do it. A new rap for every episode. Welcome. Yeah, I listened this week. Hey, Nick, thank you so much for having me. You know, I'm a huge fan of On the Brink.

I mean, I listen to this podcast every week. So I always love it when I can talk with you. You've been on our podcast, Galaxy Brains. Thank you. That's right. Twice. Those were two of our most downloaded episodes. Yeah, look, I mean, I know you guys are talking about the Bitcoin and the banking,

the banking crisis, right? And of course, like, you know, Just as to add to the conversation, you know, Galaxy has strong banking relationships with U.S. banks, including a SIFI. We're open, operational, like, gaining share. We're hearing from investors, you know, institutional investors that they are super interested in Bitcoin right now. And, you know, I'm just, I'm mega bullish on Bitcoin in this environment, right? I think there's been two really, this is the second one. But the other one was when Money Printer went Burr, right, as the Bitcoin having was occurring, right? And that was a big narrative for Bitcoin.

And that's sort of the monetary policy like stark contrast, standing in stark relief against the traditional world. This is the opt out of the banking system moment for Bitcoin, right? Because the last time we had something like this was when Satoshi launched Bitcoin in 2009. And so I just think that a combination of the fact that it is uncensurable, unseasable, can't be debased in this environment where people are really questioning the magic. of the banking system, the fractional reserve banking system, Bitcoin really stands out here, and you can see it in the market. I mean, Bitcoin's leading the rally here in crypto. And even though, you know, some important banking infrastructure that helps bank the Bitcoin and crypto world went offline, why did it go up?

So this is what we were asking. So, you know, there's a few variables. There's the one thing, which is, okay, maybe the Fed will be changing their positioning here. There's this massive two trillion dollar facility, maybe that's going to inject some new liquidity. On the other hand, a number of critical banks have been shut down, including the Fiat B2B settlement networks. On the other hand, on the other hand, USDC is not collapsing, which is great. How do you see those all fitting together? What is the most dominant variable there? It's a great question. I mean, it's both the potential pivot on monetary policy would be broadly bullish for risk assets, right? So, If you think of Bitcoin as a risk asset, which as you know, and I think I've said, I don't think of it that way.

I look at Bitcoin's fundamental properties and it looks extremely predictable and transparent and safe to me. I think both of these narratives are strong for Bitcoin though right now, right? Because a broad-based risk rally is going to help Bitcoin and crypto. But a flight to safety from the banking system, and you know, I don't mean that everyone's pulling their money out of banks and putting it in Bitcoin. But a lot of people are asking that question. more than I've ever seen. I've been in Bitcoin a long time. Like this is that moment for Bitcoin. We're going to look back at it and see that Bitcoin was such an interesting option given the circumstances we're in. And even Stables like don't really offer in the same way those fundamental

properties. Right. I mean, it was funny because I saw a few people complaining that they hold USDAC for dry powder. But of course, when they needed it most, USC itself was in dire strait. So They need dry powder for their dry powder. So as useful as typical coins are, they're not entirely immune to these bank system issues. Yeah. And if you look at other Bitcoin things, volatility continues historically to go down, like over a long time frame, Bitcoin volatility is reducing. We even saw I pulled it from your guys, your guys tool coin metrics. The correlation to SMP is finally receding.

So which basically went, you know, to one, three. throughout like 2021 and 22. It's now now receding again. Now will it come all the way back and look like totally uncorrelated? We don't know, right? But across a range of even market sort of metrics for Bitcoin, it looks very supportive. So what do you make of the ETH BTC ratio? It's been selling off against Bitcoin. What's going on? I mean, if risk assets rally presumably ETH consider risk asset considered sort of more innovative, things like that, what's going on there in your mind? Yeah, I think for a variety of reasons, but the simple one is in a bear market, it's typically been lower. I think it should go lower.

I think one of the main reasons, though, is if you look at the sort of regulatory actions and announcements and whatnot, particularly in the U.S. against crypto, most of it hits Ethereum and the altcoin ecosystems and not Bitcoin, right? So the unregistered securities questions, not a Bitcoin question, right? The staking as a service question, not a Bitcoin question. even stable coin regulation or defy or defy exploits right none of it really impacts bitcoin and i think in some cases during the bull market that the fact that bitcoin doesn't have those other narratives might have reduced or cap some of its upside but when those narratives are all looking kind of negative right now and bitcoin simultaneously finds itself in this other positive lane right i think that that makes an argument that ebTC should be lower so you're sitting inside of galaxy you

have a ton of large institutional clients. Has the level of interest changed among those clients in recent weeks? What is what's the chatter on the desk? If I may. Yeah. I mean, we're hearing people that were interested in the past, maybe got in or got out during the very, you know, pretty volatile two years we've had in, and crypto price action. And a lot of them picked up the phone this week and started at maybe they're not in again yet,

but they started asking questions. And some of them are getting back in, right? I mean, that's some of this rally that you're seeing in Bitcoin. I mean, it literally just went from like 20,000 to 25,000 in like a matter of hours on Sunday and Monday, right? Like, and it did that because Chancellor wasn't on the brink of bailout for banks. They did it, right? And it's the exact, it's literally the Bitcoin story. And that's resonating.

I mean, we're seeing a lot more interest. I think even just this week on this other. And it's also, you know what? It's a really good. why I was so eager to talk with you, Nick, is like, it is a really good educational moment, right? Because, you know, the Bitcoiners didn't do a great job explaining the Bitcoin inflation hedge thing, right? Because it's not a hedge on the cost of... It didn't work. It didn't work. The inflation hedge, right? It's not a hedge on the cost of consumer goods.

Clearly, we know that. Right now. We know it now. Certain. It's been established. Right. But there, this, the story really is more complex and nuanced than that. And this is a, when this type of thing happens in the banking system, which again is literally like from the ashes of the last banking crisis is from when Bitcoin was born, right? Like a Phoenix. People want to explain to them. Yeah, they want to explain to them. So even if they're not like, like, you know, going full tilt into the corn right now, they're asking why. Why is it up? Why is it up? Right. Why do we why does Alex think it's going to go up more? Right. And so I'm telling that story a lot this week. It's interesting that Bitcoin price action creates this narrative, too, the juxtaposition between banks collapsing, bank stocks cratering, Bitcoin pumping a ludicrous amount. That actually creates the story. Yeah. I mean, that's why I'm out here trying to tell it because I personally believe Bitcoin should be higher.

Like, I think there's a very nice, perfect storm here that Bitcoin has a truly unique role to play in story to tell. So you put out a fantastic report, dare I say, not just because I'm a fan of you, Alex, but it was a genuinely very good report on ordinals and inscriptions in Bitcoin. Yeah. Wow, that was good. How much does that matter to the Bitcoin narrative, if at all? Yeah, that's a great question. I mean, I think it will matter.

I think it will matter. I think it definitely, I don't think people are loading up on Bitcoin in order to buy inscriptions yet. Although they should be. There's some good collections coming out. I think if you, yeah, I think if you, if you think about how NFTs have been supportive to the Ethereum ecosystem in the past, it's pretty easy to see how that could be very impactful for Bitcoin. But like I said, right now, this feels like a Bitcoin to its roots macro story. And any support that Bitcoin gets from, you know, inscriptions and ordinals, like is just a little like sugar on top.

But like, but I mean, just like you, I hear about a lot of building happening in that space. I'm hearing about fundraising in that space. Like there's a lot of people moving really quickly. There's some really cool open source stuff that's been built already. People are learning how to do partially sign Bitcoin transactions because they're NFT DGens. Like it's pretty interesting. And there's a lot being built. Last question, Alex.

Then we'll let you go get back to the desk. Last question. I'm just a humble researcher, to be clear. But yes, I do sit on the trading floor. Humble researcher and artist, dare I say. How did you become a rapper? How did this even happen? Oh, yeah.

I mean, Nick, Nick's referring on our podcast, Galaxy Brains. I wrap the introduction every time. Actually, there's a shout out to Matt Walsh in last week's episode. And I think, and there's a shout out to Nick, I think, in this one. So if you finish listening to On the Brink Friday morning, flip on over to Galaxy Brains. Make it a two-fold. You do your laundry on Friday. So, I mean, dude, I got interested in rap and, like, freshman year in high school, like, in rapping.

And I've been, I mean, I'm not going to say how old I am, but that was a long time ago. So I've been doing that for a long time ago. So I've been doing that for a long time for fun. And then I started making beats. I've been making beats for years. I kind of fell off in the last four or five since I've been deeper and busier in the crypto industry. I'm just too busy. I have kids now.

You know, it's like it takes a lot of time. But I probably made like three or 400 beats between 2012 and 2018. And those are all the beats we use on the podcast. So. And then we were just like, you know what? Like, why shouldn't we rap? I don't know. We like it.

We think it's funny. I mean, people seem to like it. It's, you know, it is what it is. Do you ad lib your wrapped intros or do you write them down? No, no, those are written. It's not freestyle. No, no, no, I write them. Who writes the uploads?

No, I write them. I often write them like the morning before or the night before. And who knows? I mean, we've been, we started doing it. I think the first one I did was when I talked to you the last time that you were here. And it was, we're talking with the weekly podcast from Galaxy Research. We're talking with Nick Carter about proof of reserves, right? Oh, and then, you know, we never, we always think twice.

We never need jerk. I'm done with FTX. Yo, I'm sick of these jerks because I think what I said. I'm jerk with jerk, Alex. That's not allowed. That's not allowed. Well, everybody listened to following Alex's work, of course, listen to Galaxy Brand. It's one of my favorite podcasts.

And Alex, thank you for joining us. This has been tremendous market caller. Thank you. Thank you, Nick. Great to see you, man. So since this is the regulatory podcast, I guess we'll speak about some other stuff here. So you mentioned the blockchain association. They sent FOIA requests. I want to talk a little bit about the SEC. There was some news on this Voyager to Binance deal. But maybe before we do, Brian Quintends, who's one of the former CFTC commissioners. He's now with Andreessen Horowitz. He was down at FIA Boka, which is this big financial services conference every year. I think Sam was there last year, actually.

And he spoke about the SEC's current stance on crypto, and he had a great quote. He said, the SEC is totally out of control. They're going rogue. It's pretty succinct. And Hester Purst was on bankless this morning, which was an awesome episode. I recommend everyone listen to it. And she is really starting to build some momentum, it sounds like, with some of these dissents. She got another commissioner on board with a Bitcoin exchange-traded product dissent last week.

and she just outright came out and said, look, the SEC, there's a power grab. Like, we're trying to get more things to regulate. We haven't been clear with the guidance. And it's hard to argue. I'm very glad that we have Hester and at least one other commissioner now who's starting to see things for what they are on the SEC front. It's interesting that actually in the court of law, the SEC seems to be taking some losses as well.

In particular, this wrangle over selling the, the Voyager assets to Binance US. That case has been ongoing. The judge is not very sympathetic to the SEC's points here. Paul Grasal had a good thread on it. He covered some of the best sections from the judge. The judge said, quote, I do not know how any party could possibly be expected to address the SEC's comments

with the limited guidance that the SEC has provided. also said there are firms that operate as cryptocurrency brokers and have done so for several years without being subject to clear and well-defined regulatory requirements. So I thought the judge had ruled against the SEC already. Have they appealed this case? Is that where we stand? The SEC came in and tried to block it, but it looks like it's going forward. And this judge was basically just like, look, we live in a, this is a court. You have to abide by laws.

you can't have the SEC just out here asserting things that this thing's a security, this person's running an unlicensed exchange, bring the facts. Like, where are your facts? Where's your guidance? And this judge, I think you're going to just see more of this, right? It'll be really interesting to see what happens in the Ripple case, which for the longest time, I just kind of threw Ripple in the bucket of unregistered securities. But now I'm just really rooting for these guys because the SEC just has not brought the goods in terms of guidance. And I think they're going to end up fighting two, three hundred of these cases if they continue down the path they're on right now. And you just need the clear guidance. The taxpayer money should not be spent on fighting multiple

year wars with startups from the SEC. That's not what we should be doing. The policy of the United States cannot possibly be, let's go sue 200 startups and bring them to justice in a world where an act of Congress to just give oversight of the spot market to one of the agencies and to have them work on clear guidance would be much better from a taxpayer perspective. So you hope we get there. Yeah, it's all well and good to make promotional videos when you're announcing your enforcements, but when you're in a court of law, there's rules of the road you have to abide by. A couple other just odds and ends this week. So there's a huge zero day vulnerability that was responsibly disclosed this week by the folks at Halborn, which disclosure were investors in

Halborn. And they do a great job. So they found this massive vulnerability that affected something like 200 chains, including Dogecoin, light coin, and Zcash. Got in touch with those teams over the past few weeks and patched up a bunch of them, but scary stuff. Good job, Palibor. Also in the world of hacks,

Euler Finance, the decentralized lending protocol was hacked to the tune of $197 million. So all is not well in defile and it's not perfect over there either. They're negotiating with the hacker now with the

on-chain messages. I mean, you got to figure it's a state actor at that level of those numbers. Sounds like Lazarus. Yep. See the work of Lazarus. These guys, man, these Lazarus guys. Just rigging it in. Stay away from me, Lazarus.

And Arbitrim has announced their air drop. It's funny to see this stuff happening against the backdrop of total chaos in the banking system, regulatory attacks on crypto. Meanwhile, things just seem to proceed. like normal with these airdrobs. I don't know. It's a funny juxtaposition. I got such a kick out of this.

It's like you're at a pool party and everyone's just being like really quiet and timid. And then all of a sudden some drunk guy runs in with his shirt off and just does a cannonball in the deep end. That's like what I feel like doing anirdrop token is right now in this environment. I agree. You don't expect to see it. It seems very discordant with the general attitude.

But people are excited. That's a, it's always. the start of these bull cycles, it feels like it's always some new token distribution thing happens. And not that this is a new way to get tokens in people's hands, but, you know, sometimes that, that's indicative of a regime change in terms of the market. Well, that's it for our news items this week. Incredibly dramatic last couple days, not just in crypto, but in the broader financial sector. God only knows what's going to happen with the various global banks next week.

we will bring that news to you as it comes in. And we're going to keep looking for answers on, especially the Silvergate and signature questions, because I maintain that there is foul play there or at the very least, anti-crypto sentiment informed those outcomes. And we need to know what happened there. So we'll keep looking.

Need to get to the bottom of it. All right, everyone. Check your FDIC limits. and have a safe and healthy weekend.