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- [00:00]
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- [00:42]
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- [01:06]
Bob Diamond
Visit quattrodog.com is it known broadly that the largest money center banks in the U.S. the big four, are investing significantly in blockchain? They're not talking about it. They're, they're, you know, they're getting their organizations ready. But I do believe that within the next decade, that will be the underlying technology and infrastructure for the financial services industry.
- [01:36]
Jennifer Senasi
An $888 million business combination centered around hyperliquid. That's the latest move from Atlas Merchant Capital, which just announced a major deal to launch a new digital asset treasury company called Hyperliquid Strategies. I'm Jen Senasi and this is your market outlook on Quantum Coindesk. Joining me today is Atlas Merchant Capital CEO and former Barclays CEO Bob diamond and Atlas Merchant Capital CIO David Seamus. Hello to you both.
- [02:03]
Bob Diamond
It's good to be here, Jennifer.
- [02:05]
David Seamus
Thank you very much.
- [02:06]
Jennifer Senasi
Let's take a look at what's going on in the markets. Bitcoin and ether are down this morning. We saw some major profit taking over the weekend. Bob, I'm going to start with you. Talk to me a little bit about your interpretation of the current market sentiment and what key indicators you're watching.
- [02:21]
Bob Diamond
I think overall the macro environment, Jennifer, the sentiment is very, very positive for crypto. I think the fortunate demise of Gary Gensler as chair of the sec, who was unwilling to listen to anything in the space and really kind of stonewalled the approval of anything, and you compare and contrast that to the current administration. The view of Secretary of the treasury of Besant and it just feels like a much stronger macro environment. We then look at, you know, the geopolitical situation around the world and if you think about the importance of having a store of value which is outside of the impact of inflation and outside the impact of monetary policy, with all the debates going on, that gives it a tailwind as well. So I think in terms of the macro, it's very, very strong across course. You had to ask me that question on a morning where everything is down. But you did say macro, not micro. But that's my view.
- [03:21]
Jennifer Senasi
I did say that and I think many of the guests who've come on the show would agree with you.
- [03:24]
David Seamus
Bob.
- [03:25]
Jennifer Senasi
David, I'm going to kick it over to you. What are you watching in terms of market trends?
- [03:30]
David Seamus
You know, I have to say I won't surprise anybody. I'm watching hype more than I'm watching anything else these days. I can't help myself. And look, there's no doubt crazy crypto in general is a volatile asset and we watch this stuff all the time. And I think volatility has been going down. If you look at bitcoin volatility for instance, it's going down quite a bit over the last number of years. And you know, generally speaking, we think crypto in general, bitcoin specifically has a lot of room to run. Still, this is far from over. I think we've hit we're nowhere near the top where this is going to get. But every day and every hour there's going to be volatility. And that's true in the equity markets, that's true and it's going to be true in the crypto markets for a long time.
- [04:13]
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- [04:48]
Jennifer Senasi
David, you said there is still a lot of room to run and some guests hate when I ask this, so it's okay if you do. But what's your outlook for the for the rest of the year? Where do you think we're going to end the year?
- [04:59]
David Seamus
I have a hard time putting a number on where we're going to be on December 31st. I just think it's, it's fun to talk about it because how can we not. But look, we're generally bullish on crypto in general. As I said a minute ago, I think the bitcoin market cap right now is something like two and a half trillion dollars, give or take. Gold's market cap is like 25 trillion or something. And I think over time that differential will continue, continue to narrow. I cannot tell you where it's going to be on December 31st.
- [05:28]
Jennifer Senasi
That's okay.
- [05:29]
David Seamus
No one can tell you. I can't even take a reasonable guess. Yes, probably higher.
- [05:33]
Jennifer Senasi
I think that, that, that is a reasonable guess. Bob, I'm going to kick it back to you. David just mentioned that, you know, hype is something that he's watching very closely. We're talking about hyper liquid strategies. Just talk to me a little bit first about the interest in hype and the hyper liquid blockchain when it comes to creating this digital asset treasury. You know, so many folks are focused on bitcoin and ether right now. I was surprised to see that the two of you are really focused on hype for this.
- [06:03]
Bob Diamond
Yeah, listen, Jennifer, we spent a lot of time in 2021 and 2022 learning a lot about blockchain, learning a lot about stablecoins, investing in that time in circle over the last two years, we've spent a lot of time looking at the exchanges and coins. We've had many opportunities and the first one that we've really responded to was hyper liquid and hype. We think it's an extraordinary opportunity. If you, it's not surprising to me at all that David and I need to get on podcasts like this and talk about it. Because if you look at the top 10 coins, the only one that has not been around for about a decade is hype. And so unsurprisingly, it's, it's less known, but both David and I spent a lot of time looking into not just the coin, but the exchange, the advantages it has. And it is like we came away absolutely gobsmacked that there was so little attention paid to this space. We really did. We went from a neutral observer to very, very excited. Quickly.
- [07:12]
Jennifer Senasi
What made you very, very excited? What was that key finding or that moment that you thought this, this is the one that, that we want to go in on?
- [07:21]
Bob Diamond
You know, David has talked about this in other things that we've done publicly, but I think the lesson learned in FTX was, was very, very clear and having a decentralized protocol was critical. And I think the money lost in FTX wasn't because of volatility, it wasn't because of, of poor protocol. It was really, you know, the, the, the lack of an opportunity for investors as they have that opportunity with hyperliquid to transact in a completely decentralized protocol.
- [08:00]
David Seamus
Yeah, I would say, David, if you.
- [08:02]
Bob Diamond
Want to pick up on that. But you, you really taught, you taught me a lot about this.
- [08:06]
David Seamus
Yeah, look, I would say hyperliquid has been around for, you know, a little over two and a half years. It's had incredible revenue growth. The token, which is only about nine months or so old, when you look at where that is valued in the market relative to the free cash flow they're generating, it's like one of the few things you'll find in crypto or anywhere else, forget about, even outside of crypto that has this kind of growth with a, what I consider to be a pretty reasonable valuation. And Bob's exactly right. So few people, you know, you can, you can literally grab anybody in the street in New York City or most other streets for that matter. And they, they know, they know about bitcoin. They might not be experts in bitcoin, but they certainly know of it. When we were raising this Capital, we raised $900 million or close to $900 million in a pretty short period of time. I'm not going to mention the names of these two people. There were two people I spoke to who are well known bitcoin owners and these are well known people that everyone here would have heard of and they never heard of hyperliquid. And it's not saying these people don't know what they're doing. What it's saying is that it has moved to the front of the front of people's minds of many crypto native people, but not even all crypto native people. And it's certainly not on the minds of sort of the non crypto native yet it's got tremendous growth. It's running probably at a run rate of about a billion and a half dollars a year of free cash flow. Different days to change, but it's quite a bit and it's been around for two and a half years and that's really, really interesting and exciting.
- [09:37]
Bob Diamond
And Jennifer, because the CFTC is not yet approved the usage of perpetual futures, we're giving an opportunity for us equity investors for the first time to really get involved in hype. And that piece at the end was very critical to David and I. I.
- [09:55]
Jennifer Senasi
Want to Touch on that in just a second. But I want to hear a little bit more about the narrative between hype for the two of you. Because we have Bitcoin that, that institutions are now understanding as digital gold. Right? We have Ethereum that institutions are looking at as maybe the foundational layer of the next iteration of the Internet, the foundational layer of stablecoins which, you know, now have that stamp of approval from regulators in the United States. Tell me a little bit more about that hype narrative for folks who are trying to understand, you know, should I look at hyper liquid strategies over maybe digital asset treasuries that are including Bitcoin or eth?
- [10:35]
David Seamus
Yeah, look, I would say a couple things. One, hyperliquid is my. I think their plan, the goal is to be more than just an exchange, just to be a real community where people are using it to build other things on top of it, which we're really excited about. And in order to do those things, you need a certain amount of hype. So in a way there's going to be a certain amount of hype for people building on it. But it's also not all that different from tokenized equity of the platform where they're using a high percentage of their free cash flow every day to buy back the coin and it becomes somewhat of a proxy for equity. So I think it's a little of both. You know, Ethereum Eth is very much part of the protocol and part of the community there and lots of people use it for lots of things like this. I think Hype is even better in that it is both a big part of the, of the ecosystem, but it's also pretty close to looking and feeling like tokenized equity.
- [11:31]
Jennifer Senasi
Bob, I want to come back to you now. You were just starting to, I think, pull on this. The press release on this announcement said that Hype is difficult to access in the United States and this vehicle effectively creates a regulated, publicly traded wrapper for hype exposure. Just tell me a little bit more about that.
- [11:48]
Bob Diamond
Listen, this is an opportunity for us equity investors for the first time to really take part in this explosive growth. If there were no other advantage to the structure that we have in place, that would probably be enough. But there's so much more. I mean, I really go back to how we've put this team together. We have a partner in Paradigm who is second to none in terms of brand and reputation as an investor in this whole crypto space with D1 and so many others. We have a incredible group of investors. We have real Scale, as David said, having raised $900 million and there are so many dat is out there looking at, you know, four or five million dollars, which just don't have the credibility or the scale to be able to operate. We just feel that the opportunity here is so much better when we have this group of investors who are this committed to Hype, before this, this transaction and before the structure and even more afterwards. And the structure we put together with an incredible board with the former president of the Boston Fed, Eric Rosengren, Tom King, who is a, you know, one of the best known advisory bankers for critical decades. Larry Leibowitz will be joining our board, who was the number two at the New York Stock Exchange during the ICE transaction and has been involved as an investor in so many tech ventures, bringing the best of the deep crypto knowledge and the best of those people who have been at the leading edge of financial services leading into this, this period. And you know, to be perfectly frank, the financial crisis in 2008 was probably the genesis of a lot of the success of bitcoin and crypto.
- [13:43]
Jennifer Senasi
I want to take a step back for the audience for just a second. Can you walk us through the structure of hyper liquid strategies?
- [13:49]
David Seamus
Sure. So we are using what a lot of the dats do, which is you find a relatively small public company, you make a large investment relative to the size of the public company into that. We're using a company called Sonnet Biotherapeutics based in Princeton, New Jersey. But before we got here, before sort of our involvement, it had about a four or five million dollars market cap. We're raising $888 million of new capital, mostly to buy Hype. The one thing we did different here versus most of these other deals you've seen is that about two thirds, a little less than 2/3 of our investors are contributing hype, not cash. And the reason that's important and the reason we had to make an adjustment on the structure here is that those people, when they contribute their hype and they receive back shares, want to do it as a tax free exchange. So effectively their tax basis carries over in the new shares. I'm getting dorky here, but that's my style. Taxes are important to a lot of people. So we use a structure that allows for that. Unfortunately, that also requires shareholder approval, which takes a little bit longer. So we announced our deal. We have not closed it yet. We expect to close it sort of October, November, subject to a shareholder vote. And there's nothing controversial there other than it just takes some time, goes in place. But we needed to do that structure for the tax reasons I talked about. And that was really important to a lot of the investors, as you'd expect.
- [15:17]
Jennifer Senasi
Bob, I want to come back to you now. You know, DEFI for so long was touted as, you know, aiming to replicate many services of institutions like Barclays. Where you come from. Talk to me about how you view DeFi. Is it going to be a direct incumbent, a direct threat, sorry, to incumbent banks? Or do you see a future where we have almost like a CEFI DEFI blend where you can access DEFI services from your centralized financial institutions?
- [15:44]
Bob Diamond
Listen, I could give a very, very long answer, but I can also cut to the chase. As I said, David and I have spent the last four years really starting with an understanding of blockchain, the infrastructure before we moved on to stablecoins and tokens. I think the future of financial services will have blockchain is the underlying technology. I think it will be complete over the next decade. I think any large financial services organization, whether It's Barclays or J.P. morgan or Citi, or regional and community banks that doesn't understand this and adopt the technology of the future will be left behind. I think when you think about transactions between large institutions, you know, today a very large US institution sending a very large billion dollar payment to someone in China or someone in Japan or an institution in Singapore basically goes to one of the large money center banks. It will take two or three days to arrange that transaction. It'll include a lot of KYC and it will include a very, very large fee. So over a number of days that transaction occurs with a somewhat in the middle, a large money center bank. And with blockchain, that middle person is removed. The trust is there. The transaction isn't in three days, it's in seconds, 24, 7 and very, very low cost with great trust and accountability. So do I believe that the larger banks, the biggest and the best, are already investing significantly and understanding the technology around blockchain? Absolutely. And unequivocally was that firm.
- [17:31]
Jennifer Senasi
That was very firm. And I was just thinking as you were speaking, what a drastic difference from only a year ago. You know, I would ask folks like you, you know, what do your peers on Wall street think about what you're doing? But it sounds like everyone is on board. Now that there is finally clear regulation in the United States. Is that a correct assumption to make?
- [17:53]
Bob Diamond
Yeah, I think everyone who matters is on board. The question is, are they talking about it yet? No. Is it known broadly that the largest money center banks in the US the big Four are investing significantly in blockchain. They're not talking about it. They're getting their organizations ready. But I do believe that within the next decade, that will be the underlying technology and infrastructure for the financial services industry.
- [18:20]
Jennifer Senasi
All right, and David, just before we wrap up here, talk to me about the milestones ahead for Hyper Liquid Strategies.
- [18:27]
David Seamus
It's pretty clear the SEC is going to approve our S4, which is a large disclosure statement. That is it will be public, but it's designed specifically for the Sonnet shareholders to vote on the deal. That shareholder vote will come shortly thereafter, 30 or 45 days after the SEC approves the S4. And once the vote's completed, we will close shortly thereafter. So as I say, it's sort of October, November, maybe even December, but that's the time period that we expect to close. Once we close, we will now have a company with, you know, $888 million of new money going in. As I said before, two thirds of that will be hype, but about 1/3 of that will be cash. And that cash will mostly be used to buy more hype. And then going forward, we will be thinking about thoughtful capital strategies to raise more capital and to put it to work to buy more hype, which is not terribly different than the other dats that everyone's been talking about over the last number of months.
- [19:27]
Jennifer Senasi
David Bob, thanks so much for joining me today.
- [19:29]
Bob Diamond
Thanks Jennifer.
- [19:34]
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