On The Brink with Castle Island - Weekly Roundup 05/30/25 (Bitcoin Access Vehicles, GME buys BTC, Pangea Fund) (EP.630)

Episode Date: May 30, 2025

Matt and Nic are back with another week of news and deals. In this episode:  Warning signs for the Bitcoin access vehicles? Has Bitcoin lost the MoE battle? Is OCP 2.0 over? The Dept of Labor rescinds their anti-crypto 401k guidance Cantor Fitzgerald is launching a bitcoin/gold fund Is it mathematically possible to give Bitcoin upside and gold downside? Content mentioned:  Stablecoin.fyi 

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

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

And I'm Nick Carter. And we are back with the stable coin research reports. Yeah, so this is our third one, third major report. It's in collaboration with Artemis and Dragonfly. So thank you for working with us. It's called Stablecoin Payments from the Ground Up. You can find it on stablecoin.fyi. It's a really fancy domain that we bought.

And it was the first, as we've kind of been talking about in the last couple weeks, it's the first study of its kind to go bottom up to look at all the stable coin payment processors, is get the data from them of what their clients are doing and aggregate it. So it's not top down, it's bottom up. It's first of its kind. And we're able to characterize $94 billion worth of payments, which is, and the run rate right now is in the $70 billion range, annual run rate, which is very conservative.

Our sample is not exhaustive. It's probably 50 to 75% of the overall sample market. And, you know, there's a lot of transactions that are not happening through intermediaries, so those wouldn't be captured as well. But, yeah, that's what we have so far. And so we're very excited about it. So in terms of categories here, it looks like B2B is just a breakout category within the stablecoin market. Yeah, P2P was the first hot category.

And then B2B really took over in recent years. I mean, that's kind of what bridge is doing. And yeah, my understanding is that it's a lot of sort of small and medium-sized businesses in emerging markets that are doing cross-border vendor payments and payroll and trade settlement, you know, things like that. Pretty incredible. This is really good data. And then it looks like card payments are actually on the rise as well. Yeah, these are stablecoin-linked cards. These are prepaid or debit cards. Some of them settle on-credit rails, but these are not credit cards. in the way that you typically understand them. But yeah, it's very popular to have, you know, a balance of stable coins in a wallet or on an exchange and then have a card link to that.

And so this is an increasing use case for sure. The other interesting thing was around the blockchains that were actually being used. And I guess no surprise, Tron still very dominant. Yeah, Tron's the number one. You know, Ethereum and Tron generally Vi. for supremacy when it comes to stablecoin settlement. But in this case, Tron was the number one when we're looking at the payment specifically. And then as far as stablecoins are concerned, Tether has about 90% market share throughout

the whole sample of payment volume, which is obviously much higher than their general market share. Be interesting to run this analysis a year from now post-stablecoin bill, hopefully passing in seeing if that has any impact whatsoever on that. Yeah, so our plan is to keep doing it, maybe quarterly or semesterly. So if you are a stablecoin PSP, you know, get in touch with us and we'll include you in sort of the next batch of data. So good stuff there. Also this week in Castle Island content, Wyatt sat down with Marcus and Denny from Mento Labs to talk about stablecoin usage in FX transactions. At stablecon right now in New York, I just came from StableCon.

It's a whole conference dedicated to stable coins. Incredible how far we've come as an industry. What's the vibe like down there? People are pretty fired up. People are fired up, I would say. You know, it's one of the most vibrant, if not the most vibrant sector of the industry right now. Yeah, I got a question today from someone that said, why are people so excited about stable coins?

I mean, do you just buy them for a dollar and you sell them for a dollar? I'm like, yeah, it's kind of missing the point here. That is the essence of what they are. Yeah, there are some Bitcoiners who are complaining that folks at the Bitcoin conference in Vegas were talking about stablecoins. And you're just going to have to deal with that, you know? Like, Bitcoiners are going to have to make their peace with the fact that stable coins are a thing. There's that funny clip someone posted on X around just all the time stable coins were

mentioned at that conference quite a bit. Yeah. And some smart Bitcoiners have realized that they're pretty synergistic. And this is about Bitcoin and stable coins, not one or the other. And then, of course, there are the less smart Bitcoiners that think Bitcoin is still going to win as the medium of exchange and the unit of account. And they're just wrong. So they're going to have to deal. Yeah, we've tried that experiment with Bitcoin remittances and Bitcoin payments and didn't really work.

Yeah, I mean, the data is just so utterly clear at this point. Bitcoin as a medium of exchange has failed. Nothing wrong with that. we just, you know, dust ourselves off and move on, but stablecoins have completely seized that from them. Stable coins settle far more transactions than Bitcoin does. And yeah, so there's no really debating that point anymore. I guess we will see stable coins on Bitcoin layer twos, though. That seems quite inevitable to me. Yeah, so stablecoins could still be accretive to Bitcoin as like a monetary good. So there's no reason to fear them.

All right, why don't we hop into some deals of the week? First one up in the Castle Island portfolio, Beam, which is a stable coin payment service provider. They raised $7 million from Castle Island, archetype, bankless ventures, and others. Then we have Conduit. They're a stablecoin payments company. They raised $36 million from Dragonfly, Altus Ventures, and Commerce Ventures. Then it's Mirage Protocol, a stablecoin Defy Protocol. They raised 1.6 million from Robot Ventures, Salini Capital, Native Crypto, and others. Then you have Asinia, a Bitcoin custody platform. There is 3 million from Hivemind, TK Ventures and Portal Ventures. And lastly, it's Rumi Labs, a decentralized data collection platform.

They raised 4.7 million from Andrescent Crypto and Escape Velocity. Not a crazy deal week. No. And not really that hot on the news front, either. I think the news of the week is, I don't know, there's a consortium of banks that are wanting to launch a stable coin maybe. Yeah, we mentioned that last week. You know, we'll see what happens there. These consortium of banks doing things, that's a recipe for we're going to go really slow. So when was the last time a consortium of banks moved quickly?

Yeah, I mean, the last one I can remember is USDF, which was meant to be a whole bunch of banks. issuing this permission stable coin USDF. Yeah, that was choked off, right? That was an operation. Yeah. Well, banks moved quickly with Visa, I guess. That took, what, five years? I don't know.

Well, it did still take years, actually, to manifest into its final form. Yeah. So we'll see what happens there. I think the big news of the week here could be this House Financial Services Committee has released the new version of the market structure bill. It is not called Fit 21 anymore. called the Digital Asset Market Clarity Act. I think we're just going to call it the Clarity Act.

So I haven't read it yet. It's about 250 pages. Seems to be based on what passed through the House last Congress, which was the Fit 21 bill. Yeah. It's going to be interesting to see what happens with this one, especially given that the Stable Coin Act, which still hasn't been passed, has hit so many roadblocks procedurally. So many of the folks that I've talked to think that.

that a market structure bill is in serious jeopardy, given how the stable coin bill struggled, has been struggling. Well, we'll see. I mean, it seems to be moving through the House. So I guess the question is, can it get 60 votes in the Senate? Elsewhere, you know, there's an interesting thing that's happening with the Bitcoin access vehicles.

We have to agree on what we're gonna call them. What are we gonna call these things? I think Bitcoin Access vehicles is a good way to class for them. But then does that, that doesn't count the Solana ones. So crypto access vehicles. Yeah. So I'm just talking about the Bitcoin ones. So what's worrisome for me, and we're definitely worried about these. We've talked about that before. What's worrisome for me is that there have been some that have made announcements that have actually caused selloffs in the stock. So normally causes a pop, but now we have two examples of immediate day one selloffs.

And what was that GameStop? And what was the other one? And Truth Social or whatever the parent company of Truth Social is. Trump's thing. Truth Social, that was what a $2.5 billion announcement? And that seems to be closing either today or tomorrow. So yeah, both the stock of GameStop and whatever Truth Social stock is sold off the days that they announced their Bitcoin purchase. Which there's two ways to think about it.

One is that investors are sick of it and that theme is losing steam, which is sort of like maybe not that consistent with the data because you have like Metaplanet in Japan is going crazy. Micro Strategy is still trading it a decent premium. So maybe that's the case. Or maybe it's just that the investors in those companies were already, they were expecting maybe something more creative than just buying Bitcoin. They were already along for the ride in terms of investing.

to meme stock and they wanted the companies to do maybe something even more extravagant. And so they were disappointed. Yeah. And GameStop, you know, you could see that certainly being the case where the investor basic GameStop probably wanted something even further out the risk curve. Yeah. Like they wanted GameStop to like blow up the moon or something or. And so maybe like buying Bitcoin is like an admission of defeat that they couldn't think

of anything more interesting. Some of the, most of these things are still trading at insane premium. though. It's really it's perplexing to me. Yeah, even micro strategies at the lower end of its range for the last kind of six months, but still generally above its historical range. I think you're still going to see more and more of these. I mean, the ability to just feed the market what it wanted and maybe it doesn't want anymore. That's what we're seeing here. The point of exhaustion will come. Entrepreneurs will create these until the market's exhaust. and I think it'll come in the next three months, actually. And then you get the case of activist investors coming in. Is that the next step?

I think it'll be a slower bleed out. Like, if you remember GBDC, like, it actually took a while for that premium to flip and get deeply negative. So I think it'll be a slower bleed over a period of quite a few months. And then I don't know if it'll be activists because, like, the companies themselves can fix the premium. All they have to do is sell it. buyback their own stock. Yeah. Sailor got asked the question on what he would do, and he gave an eight-minute response,

getting people fired up, and it wasn't entirely clear to me what he would actually do. Did you watch any of the talks at the Bitcoin conference? No, I just watched that clip from Sailor. Did you watch any? The JD Vance talk. So he said Operation Shookpoint 2.0 is definitively over, and it's not coming back. back. So that was nice. It's not quite over until the Fed rescinds their anti-crypto guidance.

I think that's still an issue. That's right. J.D. is actually wrong. It's not over. There's still some vestiges outstanding, and the Fed actually does have to change, and they haven't. That seems to be the dynamic in the market right now is that a lot of the Fed regulated banks are still thinking they might not be on safe turf to do their crypto project. Yeah, I would suspect that the Genius Act if it passes is effectively, you know, carte blanche to the banks to do crypto and stablecoin stuff. But there are pieces of guidance outstanding that are actually pretty hostile still.

Well, here's something actually. So the Department of Labor has rescinded their 2022 guidance where they discouraged fiduciaries from including cryptocurrency options in 401K plans. this was actually a pretty pernicious thing that Marty Walsh did when he was the secretary of the DOL. And it certainly put a clamp down on all of these efforts to put Bitcoin in 401Ks. I think Fidelity actually still did it with some select participants, but they didn't go broad with it. So obviously there's just a ton of assets in that 401k channel. And if you could have a 401k plan that had a sleeve of Bitcoin exposure, other cryptocurrency exposure,

it would no doubt be very popular. So maybe that's going to spur some activity in that channel. Yeah, this is really, really interesting. Because I was under the impression that Fidelity had gone ahead with this product. They did. I think they announced something with Micro Strategy, where if you worked at Micro Strategy, you could have some exposure vehicle.

But I think they're the only ones that did it. And I don't think it went broad. I don't think it's like every Fidelity 401K customer can have this right now. Yeah, and this is one of those little plumbing things. that makes a huge, huge difference, is owning Bitcoin in a tax advantage way. Oh, it makes an unbelievable difference. I think this would be really, really popular.

We barely talked about this when it happened, but what is the DOL doing there saying you can't put crypto in a 401K? This was something that Elizabeth Warren was very passionate about at the time. No surprise. If you recall. So Canada Fitzgerald's been in the news this week. They're launching a Bitcoin lending business. with Falcon X and Maple Finance. Wow, shout out to Maple Finance.

Canter expects the first phase of its lending business to dole out up to $2 billion in financing. Yes, they have a $2 billion facility there to make loans. Really interesting and very logical. I feel like there's just a lot of money to be made in that category right now. They're also in the news because they have announced they're planning to launch a fund that combines Bitcoin and gold. So this is called the gold protected Bitcoin fund. I need to understand how this works. So if you read their press release, it basically says that you get the upside of Bitcoin,

but your downside protected based on the price of gold. I wonder how they actually mechanically make that work. I mean, it would be literal alchemy if they could keep all of the upside from Bitcoin and have none of the downside of Bitcoin. So I'm skeptical. I mean, like, the protection has, if you're buying insurance, you have to pay for it. So like that has to come from somewhere. Yeah, the press release says it's a five-year duration fund.

It aims to deliver uncapped upside participation in Bitcoin while providing one-to-one downside protection based on the price of gold. I would love to understand how that works. Yeah, unless I'm missing something, there's literally no way that's possible. It's, you know, this industry. has not let things that don't appear possible pop up as barriers in the past though. I mean, it's because you want to sterilize the left tail volatility of Bitcoin, you have to pay for that.

And it's actually not cheap. So what you should, you should logically be maybe selling some of the upside to pay for the downside protection. So I don't get it. I guess it depends on what percentage of the fund goes into Bitcoin versus gold, right? I don't know.

Here's like two non-structured product guys talking about how you do this. I guarantee you with people listening to this podcast that understand exactly what this product is. Tell us how we're wrong. I am certain this involves trading off some of the right-tail volatility. I'm certain you're not capturing all the upside. Well, I would say you put a dollar in. They put half into Bitcoin, so you get the upside on the half. So, yeah, I don't know.

It's got to be something like that. Yeah, and look, we're not haters of canner at all, but I'm just saying there's a catch here. So in other news, we already mentioned this, but GameStop, they finally came out and announced that they had bought Bitcoin. So they had done a, I think it was a $1.5 billion convertible note to fund their Bitcoin treasury strategy. That was announced months ago. They came out this week at the Bitcoin conference and said they bought $4,700 Bitcoin for approximately $500,000. $113 million. So they're off to the races.

I guess they have another billion dollars to go. And sole strategies there, the Canada-based Salana Treasury Company, they felt a prospectus to raise up to a billion dollars to finance more purchases of Solana. Just, I'm amazed. I'm absolutely amazed at the market's appetite for these crypto access vehicles. It's just, you know, I thought maybe, okay, Microsoft. strategy, you know, but like I'm shocked that there have been so many successful additional ones

that have been able to raise money. Yeah, it just seems like a never-ending spigot right now. FT put out a couple good op-eds this week. So Christian Carlo, and we'll put this in our newsletter, Christian Carlo wrote one, digital dollars must reflect American values. Enjoyed that one. And then Joe Lubin put one out that said, finance is ready for a blockchain reset. Joe Lubin's actually behind, I guess we didn't cover this, but there's a Ethereum version of micro strategy that Joe Lubin and Consensus are getting behind. Yeah, because you'd have thought that he could have just taken consensus public and have a ton of Eath on the balance sheet, and then consensus could have been that the Ethereum access vehicle. But this is a different thing altogether that he's doing, right? Yeah, I guess they're capitalizing a new entity.

Yeah, I wonder what those discussions look like, because, you know, I'm sure there are arguments on both sides around taking something at scale that exists that has a real business and lumping the strategy onto it versus just doing it independently. Kind of have to have the cash flows to service the debt, right? You're going to be doing these converts that are some of these are 0% interest rates, but some of them aren't. Yeah, I mean, I think it would pay it really well to have the fees from Metamask feeding into interest payments on the debt or something like that. Yeah, it seems like it could work. I certainly wouldn't be surprised if consensus does go public. Maybe that's still in the cars.

You're monitoring this New York crypto kidnapping torture situation? Oh, yeah. So this is bleak, man, really bad. So these guys, Pangea, I forgot their names. They were actually known to quite a few people in the crypto industry. So they were investors in, you know, both I think tokens and the, venture side. And there are folks that had dealt with them that I know that had terrible opinions of them. But what a horrible and grisly story. I wonder if they have other victims that we haven't

heard from yet. So what is it? The people that were running Pangea, is this all of them? Is it the two that were arrested were GPs at a crypto hedge fund? And then the other, the guy who they were torturing was also a partner at the fund or something? Yeah. He was. involved or related in some capacity but uh just absolutely insane like there are some of the worst people in the world have found their way to this industry seriously i'd never heard of these guys but i looked on they're in some deals that i've heard of for sure yeah totally the crazy thing is they had a very bad reputation even before this but i mean i guess i guess it makes sense like you're a, you know, a torturer.

You're probably not caring, you know, you're not going about life in a particularly ethical wave and before the torture. I guess one of these guys was a developer on the Grin blockchain project. Remember that one? Yeah, developer, like, did a security audit or something. Yeah, that's really strange.

Really weird story. So stay safe out there. Yeah, you never know when, you know, the partner or your venture fund that's investing your projects, also like a sadistic torturing guy. Yeah, that's why we're careful with our screening process. All right, short one this week, because we got to hop into a meeting.

So hopefully next week we can run it a little bit longer. Yeah, thank you for coming to our event that we hosted with Monad. And we'll see you next week.