The Breakdown - Is Circling Preparing for an IPO?

Episode Date: November 8, 2023

NLW looks at a number of stories that suggest the crypto industry is finally facing forward and looking to the future, almost exactly a year after FTX collapsed. Today's Sponsor: Kraken Kraken: See what crypto can be - https://kraken.com/TheBreakdown Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Wednesday, November 8th, and today we are talking about the industry moving on. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Hello friends. Well, as you know, we have been sort of locked in the past thanks to this SBF trial, but now that is over. We're finally moving forward. And you can start to feel a difference in the tone of the industry and the feeling of the people in it in the announcements coming out.

And so today we're going to look at a couple of examples of that, with the past clearly at our backs and facing towards the future. So kicking off, According to Bloomberg, Stablecoin issuer Circle is considering an IPO for early next year. Now, Circle, of course, attempted to go public via SPAC in 2022, but their efforts fizzled out after the SEC refused to approve the deal. Bloomberg sources said that Circle is in discussions with advisors in preparation for a potential IPO. Now, while there's no certainty that the company will move forward with the process, the firm has reached a high valuation as a private company making it a prime candidate to go public.

Circle last raised money at a $7 billion valuation in April 2022, and the failed SPAC later that year was priced at a $9 billion valuation. What's more, big-name financial institutions, including Goldman Sachs, BlackRock, and Fidelity are all current investors. Now, Circle for their part are tight-lipped, stating, quote, becoming a U.S. listed public company has long been part of Circle's strategic aspirations. We don't comment on rumors. Cryptotrater Tolks wrote, circle considering a 2024 coming after hours is kind of interesting. Maybe reading too much into it, but feels like increasingly friendly regulation plus stablecoin bill developments happening behind closed doors. Now on that front, speaking at DC FinTech Week, Federal Reserve Vice Chairman

for Supervision Michael Barr stood firm on his position that the Fed needs regulatory authority over stablecoins. Throughout the negotiations on stablecoin legislation, the major sticking point has been whether the Fed is truly the correct regulator for stable coin issuers, or whether smaller issuers can be adequately monitored by state regulators. Barr said, quote, there is interest in strong federal regulation of stablecoins that make sure the Federal Reserve can approve, regulate, and enforce against stable coin issuers, including wallets. He added, We need a strong federal framework. They're creating a form of private money and private money needs to be well regulated. It borrows the trust of the Federal Reserve in its issuance.

Circle CEO Jeremy Aller tweeted, Congress agrees, Treasury agrees, the Fed agrees, let's get this done. Now, next up in our stories of actual progress, Custodia Bank has finally launched its long-awaited Bitcoin custody service. The platform will use segregated customer accounts rather than an omnibus wallet to ensure client funds are safe and held bankruptcy remote from Custodia's corporate funds. This launch comes after years of battling regulators, culminating in Custodia's fight to obtain a Federal Reserve master account. The new platform is targeted at businesses like fiduciaries, investment advisors, fund managers, and corporate treasurers. In other words, range of clients that may need segregated accounts to satisfy risk managers to take on Bitcoin holdings.

Jeff Ross at Vailshire Cap said, great news and a long time coming. Congrats Caitlin Long. Caitlin responded, yes, long time coming, partly because it takes time to custom build a Bitcoin custody platform to bank level standards without relying on third parties whose integrations have sometimes proven insecure in certain custodian failures to date. Custodia Bank plays the long game. Johnny Deaton said, huge supporter of Custodia Bank. What a revolutionary concept of a bank maintaining over 100% reserves. Now, even in the world of FTX, despite Sam, things are still moving forward. The liquidation of crypto assets appears to be well underway, with all eyes on the firm Solana holdings. On Monday, 30 million of Solana was moved to Binance and Cracken, with over 100 million in Solana and

120 million in other crypto assets moved on to exchanges so far during the liquidation process. Solana is, of course, by far the biggest holding that FTX needs to liquidate. According to its most recent court filing, the firm had over $1.1 billion in Solana, and that has appreciated substantially in value since then. Now, Salana's price is already 15% down from recent local highs, indicating liquidity concerns as the market digest the large volume of forced selling. There are no reports that the estate has actually sold any Salana so far. All we have are on-chain transactions showing the assets being transferred to exchanges. Meanwhile, the FDX estate has requested the court's approval to move forward with the next stage

of the liquidation process. The firm has asked permission to liquidate shares in trust assets issued by Grayscale and Bitwise worth an estimated $744 million. Their proposal would see the assets sold through an investment advisor. FTX's filing noted the potential that pre-approval of sales in bulk could assist in organizing block sales to large buyers and that the liquidation would help, quote, prepare for forthcoming dollarized distributions to creditors. Around 80% of the trust units are shares of the Grayscale Bitcoin Trust, which has been performing strongly ahead of its anticipated conversion into an ETF. The estate said that this pre-approval would allow them to, quote, act quickly to sell the trust assets at the opportune time. If the shares are liquidated

through an over-the-counter deal, the investment advisors will be required to obtain a minimum of two bids from different counterparties before proceeding. Now, efforts to sell the intellectual property to allow a relaunch of the exchange are also progressing. According to sources familiar with the process, bids for a potential FTX restart have been submitted by crypto-native investment firm Proof Group, as well as the Fahrenheit Consortium. Ferenheit is the same. Fahrenheit is the same group which won the bid to restructure business assets of bankrupt crypto lender Celsius. Investment Bank, Porella Weinberg Partners, which is overseeing the process, confirmed

that the bidding has been narrowed down to a short list of three. Other firms reported to have shown interest include digital assets firm figure, which made an unsuccessful bid in the Celsius bankruptcy. Kevin Kofsky, a partner at Porella Weinberg, said last month that a decision should be expected by mid-December. Now, even if a bid is successful to relaunch FTX, that process will likely have further roadblocks to navigate. Outstanding claims, token lockups, and compliance issues could all complicate the process.

Bankruptcy claims buyer at 117 partners Thomas Brazil said, Looks like I'll be eating my hat here, but I'm hearing from multiple reliable sources that FTX 2.0 is definitely happening with two firms emerging as leading bidders. Fingers crossed. Yesterday on November 7th, investor Travis Kling memorialized the one-year anniversary of the FTCS collapse with a post that looked backwards and forwards at the same time. He wrote, today marks the one-year anniversary of the worst day of my career and one of the worst days of my life,

the day FTX froze withdrawals. The first weeks were incredibly brutal. I didn't sleep much at all, feelings of terror, guilt, and shame. The next couple months were really rough, too. We laid off most of the team. When FTX froze withdrawals, we were in immediate constant contact with all of our investors. Lots of emails and Zoom calls. There was a fair amount of media coverage as Aikai became one of the main funds publicly caught in the FTX collapse. I had literally hundreds of people reach out with encouraging words. Many strangers, many people I had known years, and many friends. I had never experienced anything like that. I had never failed so catastrophically and so publicly. The overwhelming message from all those people was, don't quit. You will bounce back from this.

The space needs good actors now more than ever. The space needs your voice. Our investors were understandably upset. We had just lost an enormous amount of their money, and our own. My business partner and I were the largest investors in the fund. But overall, our investors were much more supportive than I would have expected under the circumstances. Between the support from our investors and the support from hundreds of strangers and friends, we felt invigorated to try and figure out a way to continue operating Aikai. A year later to the day, we have taken some major lumps, but we are still standing, still breathing. The FTC's bankruptcy process is going much better than expected. The first bid I saw for our claim almost a year ago was for six cents. Claims are now trading in the high 50s. We have a path to

continue, Ikegae. We have support from our investors. We've made changes to our business to prevent getting caught in another FTX. And I have those words of encouragement in my head from so many people telling me not to quit and use my voice. Good and evil are heavily wrapped up in crypto, and the good guys are getting their ass kicked by the bad guys. The fate of this technology's potential to make the world a better place hangs in the balance. Above all, I believe that this is a fight worth fighting. In the wake of FTX, you might have noticed my tone has shifted some on here. Specifically, I have been much louder and much more pointed in calling out bad actors that put the entire space at risk. This is of the utmost importance to me. I was doing some of that before FTAX,

but I obviously wasn't doing enough because the ecosystem is failing, failing to deliver on its potential to make the world a better place. So that is not going to stop. As long as I'm in crypto and anyone at all is listening to me, I'm going to be louder in calling out scams, scammers, and bad actors. For anyone going through a tough time, reach out. Just know that things do get better. A year ago was incredibly dark, but the storm clouds pass. Embrace the pain of mistakes. Look at square in the eye, sit with it, use it. Pain is the hammer that moves the mortal's heart. Here here, Travis, here, here. Today's episode is brought to you by Cracken. For far too long, the whole financial system has been standing still, too slow, only on for

certain hours, overly designed for some types of people, but not for others. Crypto, at its best, represents progress. It asks the question, what if? It invites people in instead of leaving them out. It's on 24-7-365 and moves at the speed of real life. Not everyone believes it. we've got our fair share of detractors, but that's the way it always is when you're building something new. Cracken is a crypto company that has been through the highs and lows of the industry,

facing forwards towards progress throughout. And now they're inviting us to see what crypto can be. Learn more at crackin.com slash the breakdown. Disclaimer, not investment advice. Crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc. PVI, DBA, Crakin. Now, this week was also FinTech Week in D.C., which has been an interesting context to see where the state of crypto regulation is. Freshman Democrat Congressman Wiley Nicol has said that work is continuing on crypto legislation during a recent appearance. Now, of course, the House Financial Services Committee approved two bills over the summer, one dealing with stablecoin regulation

and another more broadly dealing with crypto market structure. The bills still needed to be voted on in the full House before moving on to be scrutinized in the Senate. Nickel confirmed that work on the bills has been halted while Congress was frozen by the month-long House Speaker drama, chaos, and confusion. Now, numerous Democrats, led by financial services raking member Maxine Waters, have major concerns with both bills. Still, Nichols said that lawmakers are not that far apart in negotiations around the two bills. He noted that changes would be made to garner support within the Democratic caucus, including from Waters. For the Stablecoin bill, the current compromise position is that state regulators should be allowed to oversee issues, but that there should be a strong federal

floor on regulatory standards. Nicol said that there will be, quote, some finessing of what a strong federal floor means. The market structure bill is a far more difficult piece of legislation to negotiate, but Nicholl said there was a willingness to work across the aisle. He said that, you will see changes in the House, and then if we can get it through the Senate, you will see changes there. Nicol suggested the obvious trade. House Republicans support Senate Democrat legislation to allow financial institutions to service the marijuana industry in exchange for support for the crypto bills. He said, Those are places where I see some deals being made.

Nicol also touched on the recent controversy surrounding crypto's role in terrorism financing and Elizabeth Warren's bill to extend Bank Secrecy Act requirements to crypto infrastructure firms. He said that everyone can agree that crypto shouldn't be used by terrorist groups, but went on to say that, quote, so much of this is colored by FTX. And I think that just has been a real challenge because anytime you see crypto, that's kind of where a lot of my colleagues' minds go. Indeed, Nichols said this was part of the reason he is supportive of efforts to pass a crypto market structure bill because he believes it could help prevent another FTA.

Staying on the DC theme for a moment, Coinbase announced on Tuesday that it has added four national security experts to its Global Advisory Council. The new additions are headlined by former U.S. Secretary of Defense, Dr. Mark T. Esper, who served during the Trump administration. The new personnel also includes Mark Urban, a lobbyist who also spent two years as head of North American Corporate Affairs for TikTok developer Bight Dance, Francis Townsend, the former counterterrorism and Homeland Security Advisor to the George W. Bush White House, and Stephanie Murphy, a former Congresswoman and Defense Department national security expert. A blog post from Coinbase said that, quote, with deep national security expertise, Esper, Murphy, Townsend, and

Urban will help the council examine what consequences will result from regulatory uncertainty for crypto in the United States, including the long-term economic and national security impacts. They added that, each of these new members brings impressive national security insights, as crypto and blockchain are increasingly essential to the security of all nations. The post highlighted that, quote, the U.S. is at unique risk of losing its leadership position across a wide variety of sectors that the crypto and blockchain are influencing. Coinbase identified those key areas as international payments infrastructure, the next generation of the internet, the ability to implement sanctions, and even the status of the U.S. dollar itself. Now, the council,

which was formed in May 2023, is already stacked with political heavyweights, including former lawmakers Patrick Toomey, Tim Ryan, and Patrick Maloney. The addition of national security experts reflects a change in priorities across Washington when it comes to crypto. Regulatory oversight is now competing with national security to be the primary frame through which policymakers consider the industry. Now for all of this progress, there are clearly still some battles. At another DC Fintech week event on Tuesday, acting head of the Office of the Comptroller of the Currency, Michael Sue, gave some commentary on how he would like to see the crypto industry evolve. Over the past year, the OCC has played a major role in stifling the broader crypto industry, as one of the banking

regulators putting pressure on financial institutions that attempt to service crypto firms. Now, it appears from his comments that the OCC is very interested in real-world asset tokenization. Sue said, tokenization is focused on solving an actual problem, and that problem is settlement. This is boring back office stuff, but it's super, super important. Sue noted that the current financial system requires transactions to pass through multiple counterparties, each of which adds expense, complexity, and risks to the process. Sue said, tokenization promises to collapse that and to simplify it if it's done right. Now, the OCC appears to be actively pushing tokenization of real-world financial assets and the digitization of existing financial rails. So much so that the

agency will host an all-day discussion forum on the topic in February. However, the regulator is much less enthused about crypto assets themselves and the industry that has sprung up around them. Sue said, there seems to be more and more of a divide between crypto on the one hand and tokenization. Crypto, he said, tends to be driven by the hope for speculative gain. It still remains replete with frauds, scams, and hacks. He added that, when I talk to folks, there is increasing interest in tokenization because it solves a problem and less and less interest in crypto. He added that, importantly, tokenization does not require decentralization and trustlessness. Caitlin Long clapped back on Twitter saying,

OCC acting chair, Sue unfortunately displayed a fundamental misunderstanding of crypto at DC FinTech Week. He supports private blockchains for tokenization to solve settlement problems, but then said crypto is only for speculation and criminals. Not true. I've complimented Sue multiple times in the past but must call this out. remarks ring hollow when federal bank regulators greenlight the big banks like BNY Mellon to provide Bitcoin in ETH custody, but block startups like Custodia Bank. And they ring hollow when a giant incumbent BlackRock is in the poll position for spot Bitcoin ETF approval over the upstarts whose applications have been pending for years. Columbia Business School adjunct professor Oman Malikon

said, I want to echo what Caitlin said. Sue's comments are more evidence that U.S. regulators care more about protecting incumbents than embracing innovation or inclusion. Private blockchains are exclusionary by design, not to mention useless. Caitlin Long continued, when UK and Japanese banks issue US dollar stablecoins on public blockchains that trade offshore in size, will US regulators finally wake up, or is it all about Senator Warren's deal with Biden to keep the innovation offshore? Hashtag Operation Chokepoint 2.0. Still, even with that, I think you can tell from the rest of the stories today that there is a sense of progress, of momentum, of movement, of forward-lookingness that has been so sorely lacking for much of this year.

for one, I'm very excited to see more of that, but also know that we still have many, many battles to come. In either case, I'm glad to be here with you to fight those battles, and so until next time, be safe and take care of each other. Peace.