On The Brink with Castle Island - Weekly Roundup 04/09/21 (Coinbase Q1 Earnings, TB12 gets into NFTs, GBTC ETF update) (EP.204)

Episode Date: April 9, 2021

Matt and Nic are back for deals and news of the week. In this episode:  Nic 'debates' Steve Hanke Update on the FUD Dice Nic attempts to send a wire to Poland NYDIG raises more capital and adds more insurance companies to their roster Coinbase Q1 earnings are out Grayscale wants to roll GBTC into an ETF Tom Brady is launching an NFT platform Peter Thiel's comments on Bitcoin The DC/EP may come with expiration dates Content mentioned in the episode: Nic vs Steve Hanke debate This episode is brought to you by Sovryn, DeFi on Bitcoin.

This episode is brought to you by Sovereign. That's Sovereign with a Y as in Yankee. Sovereign is D5 built on Bitcoin and secured by the Bitcoin network. Sovereign. Dot app lets you earn borrow and trade without giving up control of your coins. Connect your wallet and start earning interest on your Bitcoin today with Sovereign's lending facility. Pledge funds to the liquidity pool to earn a portion of the trading fees or trade with up to 5x leverage on the decentralized exchange. Visit sovereign.

and put your coins to work. Stay sovereign. That's sovereign with the Y. 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 quantitative easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called a Bitcoin. Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter.

It was busy Newsweek, but not as busy as weeks past. So it's not like one of these episodes where we do 20 minutes of just deals at the outside. Honestly, that's for the best because there were just too many deals last week. It was a busy podcast week. We had two great episodes. Yes, we certainly did. You sat down with Jeff. So Toyo founder of Pinto, Indonesian crypto brokerage.

Pretty interesting to hear about the crypto opportunity in Indonesia. Yeah, definitely. Jeff is a great entrepreneur. Was in Boston for a while, or Cambridge, I guess, at Harvard Business School. His background at Consensus has been on the leading edge of some of the DFI stuff for a long time. So really enjoyed catching up with Jeff. And then you sat down with Matthew from Crypto Voices. that was a fun episode.

Yeah, there was a twist in that episode. I don't think that people notice the twist. Well, it was sort of an episode within an episode almost. You made it record twice. There was the story of the episode. Like, I lost the audio. I thought I'd lost the audio. Then I made him record again.

Then I found the audio. The Dead Sea Scrolls of podcasting, I found it. And so then I played the original. It was this whole thing. It was great. It was good. I had some feedback that he sounds, Matthew sounds a little bit like Ryan Rusillo from ESPN. That was some listener feedback.

Okay. Matthew, if you're listening, I think he has probably the best podcast voice of any podcaster in the crypto space that I've come across, frankly. He has a very trustworthy voice. It's very deep. Yeah, I mean, I believe everything he's saying about how to measure Fiat money supplies. I don't know if it's true or not, but I believe it. I definitely believe it too.

And then you did a podcast on Decoder, which is by The Verge. And this was about the future of Bitcoin. And it was a debate, but it was not a debate at the same time. So it was just a series of thoughts from you and Steve Hankey. Yeah, an asynchronous debate. Yeah, I mean, I didn't know what Steve's positions were. I mean, I sort of knew. But it wasn't exactly a debate because I didn't get to face off against Steve at all.

We just independently made our cases on the same episode. Well, he did say that he's not really a huge fan of Bitcoin. He thinks it's going the way of the dodo bird, his exact words, and that he can design a superior system. So, I mean, well, that's quite a, quite a take. I mean, yeah, give you your best shot, Steve. Like, what do you got?

Yeah, put your money where your mouth is. It's a humble, humble take. Yeah. Our debate opponents are not lacking in humility. With Steve, the interesting thing is I actually am a huge, huge fan of his work. He has done really great work on dollarization, currency boards, measuring hyperinflations. As far as like the economists that I actually have learned a lot from, he's in that uprochelon. But then tragically, he just really doesn't like Bitcoin, which is actually the case for all of my heroes.

they all dislike Bitcoin. We might need to have a Bitcoin Dodo Bird t-shirt up on the Brink. Shop. Yeah, for FYI, PSA, we took off the mug. The mug is gone. There's actually a lot of people complained that we took the mug down. Well, they're trading on the secondary markets at like three times the value that we're selling them for. I got a DM today asking how people could find the second edition Fudd Dice on eBay. and I mean maybe there's listings of these things I would be surprised if there were

are they on eBay wow our merchandise has just taken on a life of its own we are going to create a V4 fud dice so fourth edition just got word from my suppliers in Poland they've resolved the in the issues with the ink as far as I understand I had to send a wire I'd send them a wire. I don't really understand this whole Polish situation. So they can't do orange ink, but now they can. They can do a burnt umber orange. They can't do the Bitcoin orange.

That failed. Their batch failed. I don't know how a batch of batch of dice fails, but it did. I'd like to get to the bottom of this. We need a, our supply chain for dice is very fragile right now. We need like a Massachusetts dice manufacturer. Yes. And so I had a lot of issues,

with sending them the funds. I honestly don't know if they made it there, but I was really reflecting on stable coins when I did this because my interface for sending international wires does not accept foreign characters. So it only accepts the sort of default generic characters, Latin characters. And I was sending this wire to Poland,

a country where they love weird accents and, you know, accruedement on their characters, right? So I couldn't actually enter in the address, the name of the company, any of the stuff. I had to create an anglicized version of all that stuff. So God only knows if this wire is going to reach its destination. Stable coins, man. Although, you know, using a long, alphanumeric string is not like a great user experience,

but eventually there's going to just become an easier way to do that on stable coin platform. It's better than wires. It's better than bankwires, buy a lot. It is. It really is. So if everything goes according to plan, we will have a new batch of dice for you. We might even make them available for pre-order. What do you think about that?

I don't know. That might be. We don't want to be selling a security. That's true. Yeah. There's potential securities considerations there. But we will have a new batch of dice for you, hopefully buy Bitcoin 2021. Maybe before that.

We'll see. We'll see. I mean, let's hope that. that the orange comes out well and let's knock on wood. Barring any failures, that's right. So just a handful of deals this week. Well, a big one to start out. So Nidig, the crypto asset financial services company,

they raised another $100 million from strategic partners, including Star Insurance and Liberty Mutual Insurance. So Star Insurance is Hank Gridenberg's company. And Nidig also announced the buildout of a formal kind of business unit catered towards these insurance companies. If you're not paying attention to what's going on here with these massive insurance companies onboarding to NIDIG, I think you probably should be. So now we have Star Insurance, Liberty Mutual Insurance, Mass Mutual, New York Life. There's a lot going on here. Yeah, NIDIG had Robbie Gutman on the podcast. That's our number one

most popular episode, by the way. Critically acclaimed episode, that one was, they are the MVP's in terms of onboarding insurance companies. into Bitcoin with four. I think the runner up is zero. So they're doing a pretty good job so far. I think the go-to-market motion right now for NIDIG is pretty exceptional in terms of going into these places, having everything from here's the thesis all the way through, here's how you do it. Here's how you execute. Here's how you hold either spot or you put it into a wrapper. It's just it's meeting these insurance companies kind of where they are as opposed to coming in with something, you know, a little bit fringier and crypto-native. They're packaging it up really

elegantly for their customers. Yeah, their traction and execution has been unbelievable, frankly. Next up we have Atani, which is a non-custodial trading platform. There is $6.25 million from Jamie Ventures, Kinexo Ventures, and others. Next one up. Fortress is investing $15 million into mining equipment through the Great American Mining Company. GAM to launch an ESG green mining venture. That's Marty Bent is affiliated with Great American Mining. So big congrats to them and our fellow podcaster, Marty. I think we're going to be hearing a lot more of this over the next couple of years.

Onshore mining, green mining. It's happening. It definitely is. There's a lot going on in this category. It probably will be a lot of deals announced in the coming months here. And then the last one is Cryptio. which is another one you have to have one that's just kind of hard to say crypto it's with an i.o at the end it's a crypto accounting platform they raised one point two million dollars from draper

associates consensus outlier and stani from abbe so that's it for the deals actually believe it or not if you like the deals you can be disappointed i can't tell if our listeners are not positive on the deals or if they skip the deals and get to the commentary i don't know Well, people are people ping me about the deals and ask about the companies because generally people that are looking for gigs in the industry like to know who has the money. Well, that's it for us. Big news of the week. Coinbase quarterly Q1 results came out ahead of their IPO, which is scheduled for April 14th, I believe.

So it's a direct listing. I don't know if you'd call that an IPO, but their public markets debut. So they are going public via direct listing next week. And so they released their quarterly earnings. And they were really impressive, I thought. So 56 million users, $223 billion in assets on the platform, of which $122 billion of those are from institutions, quarterly revenue of $1.8 billion, which I believe is much more than even last year calendar year. And then quarterly net income looks like it's going to come in between. 730 million to 800 million.

This is a monster franchise. Yeah, I mean, just in terms of users, they stacked 14 million users between Q4 and end of Q1, 2021. I mean, that's unbelievable. And in terms of neobanks, banks, banks, brokerages, they're basically in the top echelon now in terms of user base. I mean, if you're a retail brokerage that is not in crypto, if you're one of these wirehouse banks that is completely ignoring this, these numbers are just really difficult to ignore.

The whole kind of narrative around they're not being viable business models in this industry, which was kind of dumb to begin with, is really just farcical when you look at these numbers. This is a more impressive quarterly earnings report than almost any of the quote-unquote traditional financial services firms out there. I mean, and they'll be profitable when they go public, which is a bit of a change. Compare that to a lot of the other listings and IPOs we've seen in the last 12 months. They're a very profitable company.

Yeah, it's a very strong, very strong company. It's going to be fascinating to have these public earnings calls now that are talking about things like defy and staking and, you know, having cycles. I think there's a lot of sell side, you know, researchers that are just going to have to get up to speed on a lot of things now that, this company's public. Well, I'm seeing roles out there for dedicated crypto analysts on the sell side now, which is almost the first time

that's been the case now. They just didn't exist on Wall Street before. Well, Giluria and Spencer Bogart were like two of the first ones. They were very early. That's right. So also in Coinbase News, they launched the Crypto Council

for Innovation alongside Fidelity and Square, which is a new group to lobby policymakers take up research projects and be an industry voice in championing crypto. So I'm not really sure what this is all about, but if it is focused on fighting back against things like what Manukin was trying to push through at the 11th hour, I think we can only assume that it's probably a good thing. So we'll have to wait and see what type of stuff they start working on. Also in news, Arthur Hayes apparently surrendered to law enforcement in Hawaii and then was released on a $10 million bond pending court proceedings in New York. Of course, all of this

relating back to the DOJ's accusation of their Bank Secrecy Act violations with Bitmex. So I guess more to come on that one. We'll see that court case. My guess is what later this year, maybe early next year. In other news, the IRS has issued a John Doe summons, basically which is just a blanket request for information for all of Circle and Polonex's customers who transacted $20,000 or more of crypto from 2016 to 2020,

which is really just a blanket request here. And this looks very similar to the IRS John Doe summons that Coinbase fought and actually was able to push back against and win to summon a comment. extent, kind of a small victory that they were able to reduce the scope of it a few years ago, but it looks like now Circle is going to have to comply with this, a Massachusetts court upheld it. So I'm not sure if there are additional appeals that they can do, but this isn't great. Yeah, the surveillance dragnet is getting increasingly owners here.

So here's an interesting set of developments. for Grayscale. Exactly what we forecasted, actually. We were 100% right on this. So Grayscale wants their GBDC product to not trade a discount anymore. That's clear. What have we set on prior editions of the show? Well, it's possible that there's an activist campaign

and to effectively convince them to engage in redemption or some other procedure which would allow the discount to close. Or we also think, generally speaking, their objective is to roll GBDC into an ETF. In the last week, both of these things happened or were revealed to be true. So, Grayscale wrote a blog post saying, we intend to transform GBDC into an ETF. So absolute final confirmation that yes, they intend to roll the GBDC product into an ETF no more uncertainty as to what would happen when an ETF emerges. It's not going to kill GBDC. GBDC will become an ETF. The exact mechanics of that, we don't know. So that prediction is true. GBDC, they intend it to become an ETF, which means that eventually

the discount will close when an if an ETF is approved. Great news, I think, for GPDC holders. The other thing is there is now apparently an activist campaign being run by Marlton investors urging Grayscale to conduct a Dutch auction tender to bring the fund in line with Nav. So that was another thing that we'd mentioned. There could be activists that come in and try and arm this way. So good week for OTB as it pertains to GBDC, frankly. So yeah, this Marlton activist letter, I'm not sure if this has any legs or not. It has been perplexing to see GBTC, like that it had been trading at such a steep discount. It didn't make a ton of sense to me. It's back back a little bit now. And again, not investment advice, but I think a lot of this discount was driven by the fact that

ARC was a big holder or is a big holder. They've had big outflows out of those funds. It's also tax season, so there's some forced selling there. But structurally, it shouldn't be trading at like a 15% discount. That's just craziness. And so my guess is that you're going to start to see this come more in line with NAV. Most close-end funds do trade at a slight discount, though. So, you know, we'll see over time. But I thought this was a really positive development.

Yeah, as of the time of writing, the discount is actually still about 10%, which is pretty material. So Grayscale has pulled out all the stops. Well, not quite, but they have declared their intention to transform GBC into an ETF, which was, to me, one of the huge sources of uncertainty. They set $250 million aside to apparently buy GPDC on the open market and bring it back in a line. I don't expect this discount will persist much longer, but it is kind of on the shoulders of the SEC. to eliminate this inefficiency and approve an ETF, which is long, long overdue.

Yeah, my expectation is that that will not happen within the next quarter or two. So we'll keep an eye on this. Did you see Justin Schmidt, the former head of digital asset markets at Goldman, has joined Talos, one of our portfolio companies. He's joining as the head of strategy. So congratulations to Justin.

Huge win for Talos. Congrats to them and Justin. Really exciting to see. Tom Brady, TB12, is launching an NFT platform called Autograph. I don't know anything about it. I don't know about the business plan. I would say based on the headline, this is probably going to be a generationally important company,

probably the greatest company of our generation. This is relevant to our interests. This is a crypto and football podcast. That's what we talk about. So they have finally intersected. It's about time. And I don't know if you saw this, but Peyton Manning and Eli are releasing a line of digital art as NFTs. Unlike the Brady announcement, this one sounds pretty overhyped and probably worth staying away from.

I'm more of a Peyton fan, I think, than Brady. I can't say anything good about Eli, but Peyton is a classy guy. Well, you know, I don't really have a lot of good things to say there. All right, so Peter Thiel had some interesting comments on Bitcoin lately. Shall we discuss them? Yeah, why don't we talk about Teal? So Teal made some comments at the Nixon seminar, which is the Richard Nixon Foundation. And he talked about, do you want to pull up the exact quote?

All right. So there's some additional context here. But so he basically starts out by saying, quote, from China's point of view, they don't like the U.S. having this reserve currency because it gives us a lot of leverage over Iranian oil supply chains and things like that. I'm going to skip a few sentences. Then he says, and even though I'm sort of a pro-crypto, pro-Bitcoin maximalist person, I do wonder whether at this point Bitcoin should also be thought of, in part as a Chinese financial weapon against the U.S. where it threatens Fiat money, but it especially threatens the U.S. dollar and China wants to do things to weaken it. If China is long, Bitcoin, perhaps from a geopolitical perspective, the U.S. should be asking some tougher questions about exactly how that works. All right. So what's your take here? I mean, I think Teal is someone who, you know, he even said it in this comment.

He's been kind of a Bitcoin crypto guy for a while. So he's definitely not. someone that hates this technology. So what was your take? Well, he prefaces it by saying he's a pro-Bitcoin maximalist person, which is pretty great to hear, I guess. I mean, that has got to be turning some heads, just that admission alone. It's a curious thing for him to say as a fan of Bitcoin and we know an investor for a long time and it was just, I think in January that he was saying, look, the way to play this current macro environment is just to get along Bitcoin. So he clearly has a long-term positive view. There are a lot of interpretations and a lot of theories as to what he meant.

There's the surface level theory where you just look at the exact words that he says. And I think I would have a critique of that. Frankly, I don't think, I think Bitcoin is worse for China than it is the U.S. I think it's very pro-U.S. interests. It's just the Beltway elite that stand to lose from the decline of the dollar as this policy tool. But the U.S. is going to lose that power anyway. So they're just clinging to an obsolete vision of the world. If they're obsessed with retaining the ability to conduct sanctions, they're not going to have that ability anyway.

And I think Bitcoin is worse for China because China has a managed currency. As we know, they have capital controls, and Bitcoin is an end around those capital controls. We know that's a big reason for the popularity of Bitcoin in China. So the other thing is that the dollar's strength is not really good for regular Americans. The dollar being the global reserve, you know, Lynn Alden, Luke Groman talked about this all the time, means that our manufacturing and export system is uncompetitive because the dollar trades at a structural premium due to that. So arguably, there's a class element here.

So on the one hand, you have the Cantillon Insider class, the benefit from globalization, they benefit from the free flow of capital, and they benefit from the dollar having this dominance causing the U.S. financial sector to be engorged. people like Peter Thiel. And then on the other hand, you have people like steelworkers in Ohio that don't have jobs because we're not competitive from an export perspective because the dollar is so structurally overvalued.

So if the dollar stops being the global reserve, then in theory our export businesses would be more competitive and there would be an onshoreing of jobs back into this country and our capital account would improve dramatically. So I think Peter Thiel is missing this part of the debate. I think Americans aren't benefiting from the U.S. being the global reserve. Most Americans are not benefiting. And yes, we will lose some strategic power if we lose our grip on the financial system. But everyone is sick of it anyway.

Our European allies are sick of it. They tried to do an end around. sanctions on Iran, they created this Instex vehicle to get around that, we're not going to have that sole discretion over the world's banking and finance system in 10 years' time. So I think it's a little delusional to cling to that notion that we're still in the year 1990 and we're the sole superpower in the world. That's just not the way it is anymore. Yeah, and I saw some analysis that some people are saying, the teal is a big you know mematic value type of guy he wants the u.s to lean into bitcoin more

aggressively and so he's posturing that china is really promoting this i don't know if i actually buy that i mean maybe that's where he's coming out of from i'd say bitcoin is completely incompatible with the CCP's kind of uh regime um and so to the extent that there's an argument here that china is leaning into bitcoin i just don't see it i mean uh this is a free speech money type of technology that is you could really think of no jurisdiction besides North Korea in the world. You know, China, North Korea that would really be imperiled by free speech money here. So but, you know, could China be leaning into this from the perspective of the same way that they, according to Teal, advocated for the euro, like maybe.

It's certainly a paradigm shift and it's not in China's interest to have the USB the total, like number one currency without a rival. So I kind of see it from that perspective. But I don't think that he was like bashing Bitcoin by any stretch here. Yeah. And there's a charitable interpretation where, you know, Teal is kind of goading the U.S. policy establishment that he knows. I don't think he's tight with them.

He's not part of that inner circle anymore with the new administration. But you could suggest that he is goading them into taking Bitcoin seriously. as a national security objective, as a critical infrastructure. So that could well be the charitable interpretation. Regardless, I do think it's preposterous that Bitcoin is represented as a Chinese weapon. We know that having a lot of hash rate domiciled in your country does not give you control over Bitcoin. If you're aware of Bitcoin's history, you know that. That's not something that can be debated.

China is actively eliminating hash rate from their borders. That is not the action that you take if you plan to somehow control and co-opt Bitcoin via mining. You do not ban mining in Inter-Mongolia, which is a Chinese province, if you intend to take over the Bitcoin network and weaponize it somehow. You would encourage as much mining. You would subsidize mining and try and get it all within your borders if you wanted to do that. that's the opposite of what is happening. Yeah, that's absolutely right.

So I think that this is one that's going to be kind of analyzed on crypto Twitter, but we'll kind of pass. But it's always interesting to hear Teal's perspective. It does just show you that when he speaks, a lot of people listen, he's quite an original thinker. It's interesting because this talking point reminds me the one I ran into with that Mike Green debate.

And of course, Mike is a former employee of Teals. So no prizes for guessing where he got that talking point from. Yeah, that's exactly right. So moving on, did you read that Forbes piece this week on the Winklevoss Twins? It was about their foray into NFTs. Kind of interesting. I remember when they acquired Nifty Gateway and I sort of raised an eyebrow and here we are a couple of years later, I guess. And it's incredibly successful.

I've bought NFTs on Nifty Gateway. it was actually, I think, really stellar move by them. Yeah. They also appeared on the What Bitcoin did podcast this week and threw a little bit more moon juice out there. I think they were talking about, you know, 500K Bitcoin again. They have to do that like every quarter or so. They come out, give a little rah-rah, get the troops inspired.

They have a good relationship with Peter. That's the second time they've done a show. Whereas they've been quite secretive historically, at least on the podcast circuit. I wonder what happens if Bitcoin hits 500K, what do they do at that point? Well, I think, but as it approaches 500K,

you just got to be calling higher and higher tops. It's like, it's like this Bloomberg thing that came out this week. I don't know if you saw that. They called for 400K Bitcoin. And I'd love to be in that room when there's like a discussion on,

okay, so what are we going to call for here? All right, 255K. No, that's not going to get a good headline. Let's go 400K. 400K Why not? Why not? Any number is as good

as any other number at this point. It's like Henry Blodgett when he was a equity research guy back in the 90s when Amazon came out. He just picked some like absurd number that actually ended up coming true. This is a new paradigm. It's a new paradigm.

You notice that nobody talks about unicorns anymore with startups. I think Joe Wisenthal said this today. So because of the the immense amount of money that's sloshing around the economy, a unicorn is not the goal anymore because it means less. It's been devalued. You've got to be a decicorn, right? Yeah, deck of corn. Yeah, decadcorn. Deccorne or bust at this point. Well, did you see this Chinese digital currency

initiative that they came out? So the Wall Street Journal was talking a little bit more about China's plans for their digital, you know, RIMBY. And it looks like it has this element where it's going to be programmable with an expiration date. So if you don't spend the money by a certain time, it's gone. Yikes. Yeah, you know, I've always wanted my money to be more like milk, such that it expires. It's really amazing.

It's completely antithetical to everything, you know, we're building towards. I mean, the whole point of Bitcoin is non-state money with transactional discretion, a measure of privacy, which is increasing, and eternal. property rights, property that you can take to the grave with you, if you want. Whereas the DCEP is the complete opposite of all those things, the literal complete diametrical

opposite. So when people tell me that these central bank digital currencies compete with Bitcoin, it just, it couldn't be more wrong. I mean, they demonstrate why Bitcoin is so important. Yeah, but here's the thing. This will happen in the United States. we will have some sort of a stimulus plan. It could be five years from now, it could be 20 years from now,

where they want direct cash injections, and there will be expiration days. This is like mailing someone a debit card. I think governments will find this too irresistible. I hope that the constitutional protections that we have in this country will prevent a CBDC, at least in the form that is being discussed from being created. because none of the CBDC designs that I've encountered mesh with our bull of rights effectively.

We simply cannot give the government that much surveillance capacity. Yeah, it'll be interesting to see how it gets rolled out. We're definitely going to, you know, we're going to be able to see this rolled out in China first. It's live. I believe it's piloted in a few cities already in China. All right. So I think that's it for the week. Next week's a big week with the Coinbase Direct listing.

So it's going to be a lot of chatter about that. We're looking forward to it. Yeah, we've got a few great podcasts coming up for you. We're continuing our cadence of 3X per week. See how long we keep that up for. It is a crazy cadence, but there's a lot of interesting conversations to be had. Yeah, we've done a good job there. And yeah, we hit new highs with our podcast listenership every month.

So thank you for listening. Thank you. Just hammer that subscribe, unsubscribe, resubscribe button. We appreciate you all. We'll talk to you on Monday.