The Breakdown - Tether Steps Beyond Stablecoins

Episode Date: December 24, 2024

Tether is spending $775M investing in alternative video platform Rumble. How much is it trying to curry favor with the incoming administration vs. a genuine attempt to diversify? 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 Monday, December 23rd, and today we are talking about tether flexing. 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. All right, friends, how's it going? Welcome to your very last regular episode of the breakdown of the year. Of course, Wednesday is Christmas and then a week after that, it's New Year's. And so in between,

we'll be doing a few different things. First of all, the way that I'm doing a big end of year recap is to take a step back and look at key trends that have and will define Bitcoin and Crypto more broadly. We've set it up as three shows, the ghosts of Bitcoin's past, present, and future. We, of course, can't miss the chance for a Dickens reference here, and those will start rolling out this week. We also have our end-of-year LRS, which ranks the five most important essays of the year. That'll, of course, come out on Sunday. For now, though, we start this last episode of the normal year, with tether showing some serious dynamism heading into next year. The stable coin giant has announced a $775 million strategic investment in alternative video

platform rumble. That's a huge investment relative to the size of the company, which had a market cap of around 2 billion on Friday. 250 million of the proceeds will go on the balance sheet, which Rumble said will be used to support growth initiatives. The remaining 525 million will be used to fund a tender offer to buy out existing shareholders at 750 per share. Around 70% of the tender offer has already been filled by pre-commitments. The deal is expected to close sometime in the first quarter. Rumble stock took off in aftermarket trading. It was up around 50% to reach $11, which is a two-year high. The announcement comes a few weeks after Rumble committed to adopting a Bitcoin treasury strategy. The company said that

they would be purchasing $20 million worth of Bitcoin from existing cash reserves. No word on whether they've actually purchased any Bitcoin as of yet, but we'll find out when the company reports Q4 earnings in March. Rumble didn't mention Bitcoin in Friday's announcement. It was much more focused on larger strategic goals. CEO Chris Pavlovsky said, I could not be more excited about this collaboration with Tether for a number of reasons. First, many people may not realize the incredibly strong connection between the cryptocurrency and free speech communities, which is rooted in passion for freedom, transparency, and decentralization. Pavlovsky will retain his supermajority voting control of the company.

Rumble said he would not be selling more than $75 million worth of his stake, which is currently worth over $1 billion. Tether will take a minority shareholding position and will not have the right to appoint members to the board of directors. A statement from Tether's CEO, Pallo, Arduino, spoke to a shared vision, commenting, Tether's investment in Rumble reflects our shared values of decentralization, independence, transparency, and the fundamental right to free expression. In today's world, legacy media has increasingly eroded trust, creating an opportunity for platforms like Rumble to offer a credible,

uncensored alternative. He also hinted at some much grander plans, adding, this collaboration aligns with our longstanding commitment to empowering technologies that promote freedom and challenge centralized systems, as demonstrated through our recent collaborations and initiatives. Beyond our initial shareholder stake, Tether intends to drive towards a meaningful advertising, cloud, and crypto payment solution relationship with Rumble. Notably, alongside the video platform, Rumble also operates a fledgling cloud services business. The move comes at the end of a year in which Tether has invested heavily in projects that would increase the scope of the company. A few months ago, Tether said that they were partnering

with large commodity traders to settle deals using their stable coin. The company has also made a wide range of venture bets covering cryptocurrency, biotech, AI, and other emerging industries. Also on Friday, Arduino said that he had, quote, just got the draft of the site for Tether's AI platform, coming soon, targeting NQ1, 2025. We don't have any real details about what that will entail, but Tether is clearly going wide to transform the company beyond stable coins. This is one of the largest investments made by Tether to date, but it comes at the end of an insanely profitable year. According to Tether's attestations, the company made more than $10 billion in profit, making them likely the most

profitable company ever on a per-employee basis. Broadly speaking, then, there are two ways to understand this investment. And basically, this deal is very much a bet on the Trump era. For Rumble, there's never been a better time to try to take market share from YouTube. The freedom of speech narrative hasn't been this popular since the Reagan years. Pevlovsky hinted at this idea, tweeting, having Tether as a partner is like putting a rocket pack on the back of Rumble in free speech. Just wait. We'll likely see Rumble continue to increase creator payouts and begin to offer Tether and or Bitcoin as payment options. For Tether, this gives the company a huge increase in control of the media narrative on an emerging platform. This could help

boosts the perception that their stablecoin is being used in the real world by introducing it as the payment rails for the platform. Tether also spun off a decentralized video messaging platform called Keat a few years ago. The tech might make it possible to transform Rumble into a decentralized platform. Echo Lange of QSTAR Labs wrote, Tether casually dropping 775 million into Rumble while teasing 2025 AI plans. USDT isn't just playing Stablecoin anymore. They're sitting on 10 billion in profits and building an AI-powered media empire. The real question, what does Paolo know that we don't? The other explanation is related to persistent tether conspiracies. However, this one doesn't take a lot of red string to figure out. Nick Carter tweeted, Tether invests in Rumble. Looks at Rumble's VC backers,

looks at who ran the SPAC. Oh, there's going to be a lot of conspiracies about this one. Naria Capital, the venture firm run by Vice President-elect J.D. Vance and Vivek Ramoswamy led Rumble's last private funding round in 2021, with participation from Peter Thiel. Incoming Commerce Secretary Howard Lutnik's firm, Cantor Fitzgerald, ran the SPAC that took the company public in 2022. After closing the SPAC, Cantor ended up with an 8% stake in the company worth around 67 million. It doesn't take all that much imagination to think that that's where the bulk of the more than half a billion in exit liquidity is going. To add some further intrigue, around 700 million in Tether was redeemed on Thursday night ahead of the announcement. This is the largest Tether

redemption since 2022, and could imply that Tether are using their own stable coin to manage corporate funds, boosting the circulating supply. Marco Manopo of primitive ventures thinks this is a pretty clear play, tweeting, Tether making a $775 million investment in Rumble is just buying political goodwill from the Trump administration. It's less than 10% of their annual net profit, which is an extremely cheap way to buy favor. Now, so far, no one is accusing there are being anything illegal or really even improper about this deal. But there's no doubt the stakes of Tether's relationship with the U.S. government are high. According to the Wall Street Journal, Tether is currently under investigation by the DOJ. The question is if and how Tether fits into a potential future

U.S. regulatory regime. Still, I think while all of the palace intrigue sort of stuff is fun, it seems pretty clear to me that Tether is taking advantage of being extraordinarily profitable and leveraging that money to head into new orthogonal directions. I, for one, have certainly been baited by that AI platform teaser announcement, and I will be watching closely to see what that actually is. Now, a few smaller stories to close out this episode. The Trump administration has made two new appointments to fill out their pro-crypto economic team. The first was Stephen Miron to chair the Council of Economic Advisors. Mirren was a senior advisor of economic policy for the Treasury Department from 2020 to 2021, while the previous Trump administration rolled out pandemic policy.

Following that, he helped found Amber Wave Partners, an investment manager focused on what they called JSG investing as a counterpoint to ESG investments. JSG stands for job, security, and growth. In July, he co-wrote a paper with Noreal Robini, which criticized the Yellen Treasury for favoring the issuance of short-term debt as a stealthy way to stimulate the economy. In the truth, social, post announcing the pick, Trump said that Miran and the rest of the economic team will work to, quote, deliver a great economic boom that lifts up all Americans. During an appearance on the Bitcoin layer earlier this month, Mirren said, I think financial regulation is excessively burdensome and prevents banks from lending into the economy as much as they would. And I think sometimes that can

really inhibit innovation in areas like the crypto economy. Even more directly related to crypto policy, the Trump team has announced that Bo Hines will be the executive director of the Crypto Council. Formerly called the Presidential Council of Advisors for Digital Assets, the group will allow crypto firms to put forward policy suggestions. Crypto-NIsar, David Sacks, will be the chairman of the council. Trump wrote, In his new role, Bo will work with David to foster innovation and growth in the digital asset space, while ensuring industry leaders have the resources they need to succeed. Together, they will create an environment where this industry can flourish and remain a cornerstone of our nation's technological advancement. Hines doesn't have a ton of experience that makes him

qualified for this position. He was an All-American College football player a decade ago, and immediately after earning his law degree from Wake Forest, he made an unsuccessful congressional bid in 2022. His North Carolina contest was partially funded by former FTX executive Ryan Salem, with the seat won by pro-Crypto Democrat Wiley Nickel. Heinz contested the 2024 Republican primary for the same seat, but came in fourth place. There's a lot of skepticism due to Heinz being relatively unknown to the industry, but the Blockchain Association has given him their stamp of approval. Dan Spuller, the organization's head of industry affairs tweeted, Bo is a steadfast ally of the crypto industry. During his visit to the blockchain

Association H.Q. earlier this year, we were impressed by his deep understanding of crypto, Bitcoin, and his commitment to fostering innovation. The major quote that Spuller is pointing to was posted in January. Heinz tweeted, Cryptocurrency is the epitome of individual empowerment and finance. We don't need the government stepping in and slapping burdensome regulations on financial innovation. This new sector needs the freedom to grow organically. Decentralized finance is the way of the future if regulators don't crush it. Much like David Sachs, it's not clear how much actual crypto knowledge will be required to do the job well. Hines will largely need to be able to understand and translate industry policy

suggestions for the rest of D.C. And to a large extent, it seems like the brief will be to clear out harmful regulatory actions rather than suggesting new policy. Alexander Greve, the VP of Government Affairs at Paradigm highlighted this point, tweeting, last admin, crypto couldn't get a White House meeting. This admin, crypto has office space there. There is so much to do in the next four years so that America can lead the world in crypto development. I've never had more confidence we'll be able to do it. Congrats, Bo Hines. I think that's the perfect way to close out these regular episodes. Obviously, the story of 2024 has been this incredible transformation of Bitcoin and crypto

from still coming off the sting and stink of FTX and Luna to being enshrined in the American financial system through BlackRock and the spot Bitcoin ETFs, to becoming a major political issue and now finding its way into the White House via the new Trump administration. It seems pretty clear that a lot of 2025 story will be about how that all shakes out, how the combined forces of a pro-crypto administration, plus Wall Street with some reps under its belt, changes the possibility set for this industry. One thing's for sure, it is going to be an extraordinarily dynamic year, and I cannot wait to get back here with you to share it along the way.

For now, though, truly appreciate you guys hanging out all throughout the year. Hope you are headed into a wonderful end-of-year cool-down. Merry Christmas to those of you who celebrate, and until next time, be safe and take care of each other. Peace.