On The Brink with Castle Island - Weekly Roundup 04/25/25 (Decoupling, Fed Rescinds guidance, 21 Capital) (EP.616)

Episode Date: April 25, 2025

Matt and Nic are back for another week of news and deals. In this episode:  Is Bitcoin decoupling? The Fed rescinds anti-crypto letters from 2022 and 2023 Upexi raises $100m PIPE to invest in Solana Cantor, Tether, Softbank and Bitfinex inject $3.6b into 21 Capital, a Bitcoin acquisition vehicle Bitcoin ETFs versus bitcoin acquisition companies Trump is hosting a dinner for $TRUMP holders Charles Schwab wants to launch crypto trading Citi thinks stablecoins could reach $3.7T in supply by 2030  

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

The federal government loans American International Group, AI, IG $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more 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 the Bitcoin. Welcome to On the Brinkum, Matt Walsh.

And I'm Nick Carter. Recording this one a little bit late, apologies. Turns out we're busy. Yeah, sorry about that. I know, you know, many of you have baked on the brink into your Friday routines. And we just didn't come through in time for you today. So that's our bad. I guess we're not full-time podcasters, although sometimes it feels like we might be.

So kind of a light week, I want to say this week, Bitcoin is decoupling, I guess. Can we say that? Is it decoupling? I think Bitcoin has decoupling. couple to some degree. We'll see how much of that is because there are large buyers, these balance sheet corporates, which that is the story of the week, I suppose. We're going to get into that, but a lot of new marginal buyers of the coin. Yeah, I mean, I'm amazed that there are more of these popping up by the day, but there are. I mean, it's remarkable. I mean, as we speak, Bitcoin's

trading at 94,000. It's ticked 95,000. this morning. I don't know. Is this like the first time really where Bitcoin is actually behaving like a digital gold? Might be. Still just so small compared to gold. I don't think you can expect it to act like digital gold. It's a, as I've always said, it's a venture bet on digital gold.

But it is acting more like gold over the past week. That's for sure. So, lots to talk about. Let's dive into the deals first of all. So this one is from the Castle Island portfolio, Talley, an on-chain governance platform. There is $8 million from AppWorks, Blackchain Capital, and Bicco. Big congrats of Denison and the team over there at Talley. Yeah, really excited about Talley.

Next one up, this is one of these publicly listed deals. So UPECC, which is a NASDAQ listed e-commerce company. They've raised a $100 million pipe. So a public deal here, private investment in a public company. It's from GSR, Big Brain Holdings, Anagram, Delphi, a number of others. The purpose of this $100 million investment into this essentially shell company is to buy a bunch of salana. So what do you make of this? Yeah, so this is the second one of these we've seen after, I think it was called Janover.

I guess it makes sense. I mean, we'll see what the public market appetite is for these types of vehicles. I don't think there's that many L-1s you could do it for. Salonah probably is one of those. I don't think there's a dozen. I think it's maybe two or three, L-1s, where this actually works. So we'll be tracking these and seeing how they do. Next one up is symbiotic.

This is a restaking protocol. They raised $29 million from Pantera, Coinbase Ventures, P2 Ventures, and a number of others. Then you've Theo. They're an institutional crypto trading platform. There is 15 million from HackVC, Anthos Capital, and Metaer Ventures. Arch Network is a Bitcoin Layer 2. They raised $13 million from Pantera and Multicoin. Then you have Inflow, Stablecoin payments platform.

There is 1.1 million from Rockstar, Gnosis, and Alliance Dow. Inco is a privacy-focused layer one network. They raised $5 million from Andrescent Crypto, Coinbase, and 1KX. Then you have securitized the digital asset infrastructure company. They've acquired the fund admin business of M.G. Stover. That's a pretty smart move by Securitize there. M.G. Stover has a deep history in the crypto industry. So smart move.

Next one up is Rockaway X. This is a crypto venture fund. They raised $125 million for their second fund. Congrats to the Rockaway team. So those are the deals. I think the news on everyone's lips this week was this 21 capital. They're a $3.6 billion venture established in partnership between Canter, SoftBank, Tether, and Bitfinex.

They're an alternative to strategy, and it will be led by the one and only Jack Mallors. What do you make of this? Yeah, so it's basically a micro-strategy playbook here. There's clearly appetite for these things. I mean, they're going to, it sounds like they'll do this spec process. They'll merge it. Right now it trades under Cantor Equity Partners. I guess it will trade under XXI for 21.

These investors are contributing Bitcoin directly into the business on day one such that it looks like 21 Capital would have the third largest Bitcoin Treasury of any publicly traded company behind strategy and marathon. You know, the obvious question is why is this better than buying Bitcoin? And I guess it's because you can lever it up, right? There's a playbook out there with micro strategy. And you issue converts and you do all sorts of prefers off of this. and it's a juiced version of Bitcoin.

Yeah, so Mallor has said that his objective is to increase, comparing this with just owning Bitcoin through an ETF. His objective is to increase the Bitcoin per share. I guess there's two ways to do that, right? You can have the premium grow. That's one way. And you can issue debt and in theory have Bitcoin appreciate fast than the interest payment.

I suppose is that those are the only levers I can think of. Yeah, it's basically just you have this thing trading at a premium and you're issuing equity and issuing debt to buy more Bitcoin. And so this Bitcoin per share is not a, uh, trust me, this is not a gap accounting standard. Yeah, that's a new one. That's a new one. I mean, I kind of struggle with the premium thing, to be honest with you. I struggle with a premium met because that only benefits people that bought when the premium is low and sold when the premium is high. It doesn't benefit every shareholder in the company equally. Do I have that right? Yeah, that's right. I mean, the premium's all about when you get in on it, right? Remember,

the GBTC premium was pretty extraordinary for some time and then it compressed. Yeah, so I don't know, I don't know. MSTR is trading at a 2X premium roughly to Nav. so there's clearly some structural demand. I am puzzled. I am puzzled, Matt. You have the ability to buy Bitcoin, pure, efficient Bitcoin, either spot or through an ETF, or you can buy Bitcoin for roughly the equivalent of $200,000 a coin if you buy MSTR.

Who is doing that? That's what I want to know. Who's doing that? Yeah, I guess the theory is that there's Bitcoin exposure to. to be had in the convertible bond market, which I guess we've seen. You know, you have these convert buyers that have to buy converts, and this maybe is a very attractive convert to buy. You have the upside here that is a little bit asymmetric.

But someone's buying the equity at the same time. Yeah, someone's buying the equity. I guess it's probably a lot of retail, right? Yeah. So it's one of those ones I don't fully understand, but a huge swing. Congrats to Jack. He said that he's going to, continue to run strike. He also shared some details on strike. He says they processed six billion

dollars last year. Oh, so I missed that part. I was wondering what was going to happen with strike if that was going to get folded in. So he's going to be the CEO of two companies. Yeah. Hey, look, if Elon can do it, you know, Elon runs seven. What's a mere two companies to run simultaneously? Jack Dorsey ran two at one point. Yeah. I mean, it can be done. All right. Let's hop to the next one. So, President Trump has announced that he will host the top 220 holders of his Trump meme coin for a dinner at his golf club in D.C. on May 22nd. It seems like the coin liked that news because it went up like 50%. Yeah, I mean, that's one of the only times Trump has acknowledged the coin.

It kind of stands to reason. It would jump. Interesting dinner to be at. Those dinners historically, you know, news has dropped at those dinners, right? I mean, but yeah, I don't hold any of this meme coin, so I won't be at that dinner either. Do you think Justin's son will be there? I wonder if, can you still buy your win to the dinner by buying it, or is it a snapshot thing? I don't know.

I wonder if that's why it went up because you had a bunch of people that wanted to go to that dinner. Yeah, the next one. I really wanted to get along that meme coin. So not the best, let's be honest. This is not the best thing. No, it's not. It's not. Bankfront Wall Street Journal reported this week that Circle and Bickgo are planning to apply for

bank charters in the U.S. Coinbase and Pax is potentially following suit. I would be very surprised if Coinbase decided to transform themselves into a bank holding company. But I mean, we have more to share on the banking regulator landscape. It does seem like it is for the first time plausible for crypto companies to get these bank charters. Yeah, I think it makes a lot of sense to pursue this path opens up what you can do from these businesses in a dramatic way. Why do you think Coinbase wouldn't try to get a bank charter? I just don't know if they want that level of regulation. I mean, it's been very light touch for them so far. Yeah, I guess this sort of depends on what their ambitions are in the stable coin space because you could see a stable coin issuer really

wanting to have one of these makes running one of those businesses a lot easier to have direct access to the Fedwire system. Yeah. So on that front actually on the topic of the Fed. So we've talked about how the OCC and the FDIC have rolled back their prior crypto-critical guidance regarding regulated financial institutions. The Fed has now followed up. They have rescinded two letters, one in 22, one in 23. So the 22 letter, the Fed asked supervised member institutions to let the Fed know if they're going to do crypto stuff. The 23. The 23. letter was a non-objection letter regarding banks dealing with stable coins specifically

basically saying you needed to get a permission slip from the Fed to do stable coin stuff, which is another way of saying you can't do it. That was the infamous August 23 letter. Those have both been rescinded. What was not rescinded was the letter that the Fed wrote about regarding custody on the 27th of Jan 23, which was another infamous letter, which said that I believe the thrust of that one was

that the Fed would supersede state banking regulators when it comes to crypto policy so that one's still outstanding the Fed's currently four, three controlled by Democrats so they are a bit of a boogeyman here as far as reversing all of the worst choke point stuff is concerned but either way

glad these two letters have been rescinded. That's good news. And I'll just chime in there. I have talked to a bank since these got rescinded. And I actually think this is a much bigger deal than people think. This is not just two little recisions here. I think this actually opens up the doors for a number of banks to come into this space and actually makes them quite a bit more comfortable.

Yeah, definitely. you know the atmosphere banks for the last two three years has been fear many banks tried to do crypto stuff they were stymied the few banks that did crypto stuff perceived enforcement actions or consent orders or they were completely destroyed as we've discussed so it is overall a new dawn for banks as far as crypto is concerned i think in the next year you're going to see major major u.s banks getting into crypto meaningfully, especially stable coins. Yeah, so really good news there. All right. So let's hop into other regulatory stuff. So the CFTC, they issued a request for comment on the use of perpetual contracts in derivatives markets. Perpetual futures were initially pioneered by Bitmex.

And so this is pretty interesting. I mean, where do you see this going? Obviously, the CFTC would have oversight of these things. But I could see this being a very popular. instrument for more than just crypto. You know, perps on equities, for instance. Yeah, I think perps became popular in crypto because these exchanges were kind of captive islands of liquidity and there was no clearing behind the scenes. And so you needed to devise an instrument such that futures trading could be done internally, which is why I think they never caught on in Tradfly.

There was just really a crypto thing. But now so many traders are used to perps. So, you know, why not have them become a mainstream legitimate financial instrument in the U.S.? Yeah. Yeah, I agree. Now, I don't know if this request for comments is going to be a good thing or a bad thing if you're a startup or a crypto exchange looking to do this because the CFTC very well could get comments from the likes of CME and other.

that are incumbent saying, well, you should be able to do this, but only under X, Y, and Z provisions, which maybe they only CME and CBO could satisfy. So it doesn't mean this is like open season for perps. Yeah, definitely not. On the CME front, they've announced their plan to launch XRP futures next month, pending CFTC approval. That would make the XRP token the fourth digital asset listed by a CME,

which is, of course, historically a step towards spot ETI. approval. Yeah, so you have Bitcoin, Ethereum, and Solana right now. XRP looks like it'll be the fourth. I don't see any reason why that wouldn't go through. So probably end up getting a ripple ETF, I would imagine here pretty soon. Elsewhere in Tradfide, Charles Swab, the CEO of Swab has said that the company wants to launch spot crypto trading within the next 12 months. 12 months too late.

I don't know. Like Schwab has historically been very far behind on product innovation in the crypto space. So what's to prevent them from going faster here? Yeah, I mean, how many years behind Fidelity at this point? I mean, you can buy and sell BTC on Fidelity right now. Yeah, not to mention wrong. Yeah, go faster, Schwab. Better late than never.

I think Schwab at some point in the future is going to have to be doing all in on crypto and probably all in on sports gambling. Have I talked about this on the podcast where I see the retail broker is going? Yeah, you've mentioned it. I mean, personally, I don't think we should have any more sports gambling at all. I don't know if it should be a retail instrument, but it is a huge market. I'm not a big sports gambler, but I just think there's a huge market there. And you're competing for eyeballs and trades.

And it just seems like there's a lot of trades and those lot of eyeballs. balls and sports gambling. So why wouldn't it all go in that direction? Why wouldn't you try to compete with draft kings if you're Schwab? What do you make of Vitalik's post on replacing the EVM with RiskV? I will admit, I've never heard of Risk V before. It seems to be like an esoteric chip semiconductor thing. What is Risk V? So my understanding is Risk V is like the, it's the, virtual machine language that a number of smart contracts were written in. And I guess there's other blockchains that have also adopted this. So, you know, the proposal is pretty crazy.

It touches on the need for greater privacy and scalability. I guess it's just a trial balloon. So the post is on eth magicians, you know, message board. I think it's my take is it highlights the fact that Ethereum is really struggling to scale. and this could be one vector for scaling, it posits that you could run the EVM and the risk V in parallel. So you could have some period of time where you have both of them running. Immediately I just think about how ambitious this is

and it's like changing out the engine on the plane while the plane's already in the air. But I guess they already did that with the merge, right? But this seems like a lot to tackle. Yeah, this is above my pay grade. sentiment around Ethereum is as bad as I've ever seen it. Maybe it started to turn this week. Actually, it might have started to turn this week.

I thought Joe Wisenthal's appearance on the chopping block podcast was interesting. I don't know if you got a chance to listen to that. I haven't listened to it yet. What did he say? Well, they were very sanguine about, you know, if eth is going to be valued on its cash flows. you know it's it's hard to justify the valuation also the fragmentation of eath has now become a real issue and the fact that eith is not extracting rent from these other layers someone on that podcast compared it to you know the the l2 the scaling roadmap for eath moving

from like amazon doing all the fulfillment themselves to fulfilled by Amazon, so outsourcing the fulfillment, but not taking any fees at all. And I think that is a central problem. And there was a sense of hubris and Eath that if they were just able to get as much volume as possible on the system, even on L2s, the L1 would ultimately benefit. And I think there was no consideration for the economics there, as they were just growing so fast. I think there was hubris.

So it's interesting that even, you know, obviously Joe is not like full-time crypto guy, there's this recognition that ETH might have made some inferior design decisions along the way. I guess there's always been a tension between the users and then the holders of ETH, right? And it's just never been very clear how the governance of the

overall platform evolves. That's it. And they made some moves towards trying to reward token holders at the expense of the users. And then they went back the other way. and they went more in favor of the users, the expense of the token holders. So that is the tension.

I think they need to put tariffs on the L2s. Put some tariffs on the L2s. Tariff the L2s. You've got to tax those L2s. By the way, Bitcoin will have this problem too. As L2s emerge on Bitcoin, it will happen this year. But Bitcoin is just more mature in its life cycle, already has the digital gold aspect, the monetary elements, corporate treasury asset, et cetera.

So I think Bitcoin can afford to offload the usage of the base chain to these all-toos without risking too much. Yeah, Bitcoin will have this issue. Bitcoin also, I'm just ready for that arc of people realizing that M-EV is a big thing on Bitcoin. And that's going to end up being a big story here. Yeah, it will. Yeah, it will. M-Av is an inescapable feature of blockchains. Did you read the Citigroup report on Stablecoins called Digital Dole?

Yeah, I saw that. So they're saying that stable coin supply could reach 3.7 trillion by the year 2030. It's currently at 240 billion. Yeah. I believe that. I think that's probably spot on. That's the bulk case. The base case is $1.6 trillion in the next five years.

That's a 46% cagger, which is completely doable, I think. I mean, I think that's actually in line with the historical growth of stable coins. I thought they had an interesting bottom-up analysis of the sources of demand for stable coins. They've got currency substitution from abroad is a big part of it. Reallocation of U.S. liquidity at banks. Actually, I think $450 billion of stable coin supply will come from just swapping out bank dollars to stable coins, which is pretty interesting. Obviously, the trading use case is big. So their analysis is quite interesting in terms of the demand drivers.

I think you could look at this on the demand side. You could also just look at the supply. And so you could look at money market mutual funds. And you could say, look, if some percentage of these money market mutual funds convert over or just put their assets on chain, that's essentially a stable coin. Never been more bullish on stable coins. And that's saying a lot because we've been bullish on stable coins for, well, at least five years at this point, maybe a bit longer.

But the quality of entrepreneurs that are building the stable coin space is very good. I mean, you're basically just re-architecting FinTech to a large degree, but you're re-architecting FinTech in a way that actually is a seismic shift. The underlying infrastructure is changing materially. So we have this slide that we always show around FinTech 2.0, I guess so would call, you know what we've just been through i guess one point out would be more of like the e-trade and the paypal's but 2.0 is basically just putting a a sticker on top of a cahs and bank wire systems and really this is just a a more ambitious form of fintech yeah i've begun this exercise to try and

categorize and taxonomize every payment system that exists and uh try and situate stable coins in that taxonomy and just digging into it. It's so apparent to me that so many of these networks are either going to be disrupted by stablecoins or they're going to have to incorporate them somehow. I'm reading the book that DeHock wrote, the founder of Visa. And really he wrote a few. It's a rise of the chaotic organization. Yeah, I have that one too.

I don't like how philosophical it is You know all this musings about farming and Like what the conversations he has with some like what is it like a monkey or something? Yeah, the old monkey I mean a lot of that is written in italics and I think I think you just skip the italics part Okay, I think you can get through that book a lot faster Wouldn't you I don't really care about his philosophies on monkeys Yeah, it reminds me of like that book's done in the art of motorcycle maintenance

It's like dude I don't know man get to the visa part. Tell me about how visa was built. I don't need the philosophy part, actually. That's the heart of it, right? I want to know what that conversation was like at the banks when you were all railing against Bank of America and thinking that they would not be able to invent visa. And then you just went out and did it. Tell me about that. So we have a new paper coming out forthcoming next month. Ideally, it's a new study on stable coins. We're doing it with Artemis. They worked with us on our staff. study last year. This one's different. We're actually getting bottom up data from stablecoin

PSPs. So for the very first time, we're going to have interesting, I'm not going to say comprehensive, but good and indicative data on who's using stablecoins, what channels, what types of transactions. The data is trickling in now. We have a bunch of PSPs participating. We're very excited. No one's ever done this before. I'm excited. That's going to be. It's going to be a groundbreaking analysis, I think. Groundbreaking is right. All right. So I'd be remiss if I didn't ask you how, how do you think the draft went for your Washington

football team, the commanders last night? I wasn't even aware that it occurred, to be honest with you. Oh, yeah. All right. So you guys picked up an offensive tackle out of Oregon. His name is Josh Connerly, Jr. Oh, well, we need, our offensive line needs work for sure. ours too so the Patriots picked up will campbell offensive tackle left tackle out of lSU very excited

I'm very excited about it I kind of like the just rebuilding the offensive line it's a fundamentals based approach left tackle is the most important position on the field besides quarterback I think I'm feeling good about the commanders feeling very good a deep run last year young team great QB I'm optimistic well the story's coming out of Patriot land is that the head coach Mike Vrable actually put on the pads and worked out with this guy Will Campbell himself. Wow. Which that's pretty awesome.

Yeah, so I'm excited about it. But Dion's kid didn't get drafted in the first round, Shador. Really? Well Kuyper has him like the number one quarterback, but he didn't go. Oh, because the draft is like multiple days, right? Yes. Yeah, just the first round was yesterday. The next round starts today, I believe.

You're clearly more in the weeds than me? Well, I think we're going to have to cut it short. I mean, sorry to the listeners. This is maybe not our best week, but it is busy out there. There's a lot of deals happening in the crypto space. It'll be one of these things where you see a lot of flurry of deal-related things come out like three months from now. And you're going to be like, what were those Castle Island guys busy with? Yeah.

Tons of M&A right now. Exciting time. All right, everyone. Well, we'll leave it there. That is it for the week. Everybody have a safe and healthy weekend. and we will see you on Monday.