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- [00:01]
A
Hello everybody. Welcome to Bits and Bibs, where we explore how crypto and macro collide one basis point at a time. Today we're here to discuss the latest stories in the worlds of both crypto and macro. But before we begin, a quick commercial break.
- [00:17]
B
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- [00:46]
A
all right everybody. As always, I am your host Austin Campbell, High Scholar of Zero Knowledge Group, here with my co hosts Rahma Alia Maester of Wealth, leader of Lumina, and Chris Perkins, the golden hand of 250 digital asset management. So today, given where the market has gone, we're going to start with the Iran ceasefire. Wobbling, but not yet completely falling down. Where do things stand? On Sunday, President Trump said Iran's response to the US Peace proposal is, quote, totally unacceptable and says the ceasefire is, quote, on massive life support. This is day 73 of sparring between these two nations. Israel hit Lebanon overnight. Iran's IRGC warned the US against further ship attacks and Tehran's counter via Pakistan was ending the war on all fronts, Lebanon included, recognize Iran's sovereignty over Hormuz, release frozen assets, lift sanctions and provide compensation for damages. As a backdrop, Operation Project Freedom was paused May 6 after great progress quotes. Six small Iranian boats were blown up in earlier exchanges. Overall, there have been a number of voices on this. Some of the folks in the Atlantic, a left aligned publication in the US say Trump is losing the war. The longer Hormuz stays contested, the more Iran wins by simply not collapsing. With the idea being, as per Luke Grumman, Iran doesn't have to beat the U.S. militarily, they just have to beat the U.S. treasury market. A counterpoint to that is the current framing of Iran is running out of storage for oil and that while oil spike scenarios still aren't priced in, the Iranians are now apparently dumping oil or burning oil to free up storage capacity. Essentially we are in a place where the bid for hard assets is the tell, but we're also in a contested War of, call it market forces between the two groups. So Rahm, I want to start with you because if we're talking the economic impacts on the market, I want to ask you one, what are we seeing right now? And two, what signals are you watching to make sense of what's going on?
- [03:09]
C
Sure. Well, first off, just reacting to Luke's comment around, around trying to outlast the treasury market. That's a nothing burger. Well, here's two opposing concepts. One is the bubble is in sovereign debt. Globally there's way too much sovereign debt. Governments are spending beyond their means. At the same time, there's no better sovereign debt market than the United States, which is backed by military. The treasury and the Federal Reserve can choose to print money if they want. There's no better place with earnings growth and productivity growth and AI. And the demographic issues we face are far less than what you see in Europe, Japan, Asia, China. So that's not it. The debt markets are fine. That's one. Number two, is this conflict in straight up Hormuz doesn't matter. You could even say there is no ceasefire. The US Navy just took out six boats. It's just messaging and positioning. The position is we're not going to escalate any further. But like Marco Rubio said, if you shoot at us, we'd be stupid as a country not to shoot you back. And we're not a stupid country, which is a sensible policy consistent with not escalating. So I think this remains much ado about nothing. It's a rare view mirror kind of issue. Markets have recalibrated around the situation. Oil will be higher for longer. It's not great if you're an emerging market economy, but even emerging market countries are rallying. Like South Korea is at all time highs due to the memory bid. China has a bid now also and I expect you'll see a resolution to these issues soon.
- [04:50]
A
Chris, what do you make of all of this? I know you keep your eye on the rates market and US Markets as well.
- [04:56]
D
Look, I think markets are very, very, very resilient. And yes, they were shocked anytime there's a geopolitical event. You know, markets respond violently sometimes and they bounce back and then ultimately you find the stasis. I feel like the, the near right now. The impact, the day to day impact of what's going on in the straight of Horus is kind of moving back, back in the queue a little bit as other market forces take over and are driving our markets higher. What are some of those forces? Like I'm I came, I was at Milken last week and, and I can't understate the amount of optimism there is around the stimulus that's going to go into building data centers across, you know, blue chip work, blue collar workers, et cetera, like across the board, there is a race. The capex that we're seeing, what, 800, 900 billion this year, it's not going to zero next year. This is going to result in more and more stimulus that's kind of offsetting whatever noise effectively it is around Hormuz. And markets are shrugging off oil markets right now, despite the fact that energy is going to be at an all time premium. So very resilient markets, very resilient crypto markets. What I'm looking at right now is the upcoming summit in China with Trump and all this stuff is going to come together. I think Rahm and I, we disagree. I think you believe that China is actually coming out on top with everything going on in Hormuz. I think that China is realizing that they're materially exposed in the energy markets and the US Kind of has, I don't want to say a trump card, no pun intended, but they've identified a very critical vulnerability for the Chinese economy with the oil. And yes, ultimately energy markets will rewire, but I don't think China's in a good spot right now because the US Is sitting on all that oil coming out of Hormuz. And I think Trump is going in there, I think, feeling like he has some leverage. And he's also bringing a whole bunch of American businessmen and women to try to do deals. And so the good news there is that all focus is back on stimulating the economy, getting deals done. The economy, the economy. Even trying to appeal to the onshore economy by bringing American business folks into that region, which is traditionally brutal to operate in. I don't know if you guys have ever done business in China, but as an American businessman, when I used to go into China, like, it's very, very hard to make money. It's very hard to open up those markets, you know, after everything you have to do to establish an onshore presence. So that'll be interesting to see, see what comes out of there. But markets remain resilient, crypto remains resilient. And the institutionalization that we're seeing across the board, I mean, all of us are all dressed up today like it's institutional error. Right?
- [07:43]
C
Yeah, I'll tweak. Also, CENTCOM turned the corner when they initiated the blockade like we talked about.
- [07:49]
D
Yep.
- [07:50]
C
Up until now it was incoherent and China was trying to broker peace deals. Putin was trying to broker peace deals. Chinese tankers were leaking through that. Since that moment by Senon, which we talked about, which I also said was like, that was, that move made a lot of sense. Now China is on its back heels and now, like, things are looking pretty good for the United States now. I mean, IRGC took over a tanker this weekend, except it was a Chinese tanker. I mean, you can't make it up. They got the wrong tanker. Like, what's going on here? Theatrics. Like, what's, what is this?
- [08:25]
D
Yeah, so I think she's gonna probably put some pressure on Trump and be like, dude, like, we gotta, we gotta solve this thing. Trump's gonna say, we gotta get the, the enriched uranium out. Like, we can't have a nuclear armed Iran. It ain't gonna happen. And if I learned anything through all this is that I agree, if the Iranians had nuclear weapons right now, it would be a completely different show and a much danger. It would, it would be much more dangerous. So, like, I appreciate that. As you know, the mission that needs to be accomplished, we're not there yet. And I'm hopeful that maybe coming out of, out of the summit with China, we can thread the needle and find a way to mitigate that threat.
- [09:02]
C
I wonder what the ask is of China. Like, at the very least, I'd say China's ambitions to retake Taiwan in the next three to five years are moot. Between looking at what's happening in the Strait of Hormuz and the ineffectuality of the IRGC, and that Russia has now reportedly lost at least 350,000 soldiers and US sanctions power is still effective. So, you know, what's the ask is going to be? Hey, stop the industrial espionage, stop cyber attacks. They'll keep doing that anyway. Maybe there's some negotiation around tariffs, I suppose, but Trump is in conciliation mode. He's talking about buying stocks today and he's looking at a bicentennial coming up. So he announced the conflicts to bed. He wants to project order also going into midterms. I don't think he's trying to make a new fight with China.
- [10:04]
D
No, I, I think midterms are in Focus. The 250 anniversaries in Focus. Those, those coincide nicely for him. I just got invited for my, to my first party in D.C. this week. I mean, it's going to be quite a lot of fanfare as this comes to pass, but you're right, China is, they're in a tough spot. Xi Jinping has gutted his military leadership. The one guy who had combat experience is no longer there. And prior to that they thought they would be capable, the PLA would be capable. Invading Taiwan in 27. Now with some of the challenges around energy, not to mention our U. S Submarine forces, showing that it's, it's still in business, it's, it's tough. So he's probably going to want, if I'm him, I do the calculus and say, you know what, maybe I can get this guy to do a deal and we can accomplish many of our objectives without violence and force. And what does he want in return? That's probably what they're thinking about.
- [11:05]
A
I would also say as we're looking at the geopolitical landscape. Rahm, to your point about the blockade, it's not just the physical blockade that's happening but you know, Treasury Secretary Besant has been talking about this, but the efforts of the US treasury to run a financial blockade have been increasing. I think it has escaped the notice of the news so far, but FinCEN just issued updated guidance today on all the things they're doing to detect like front companies and sanction evasion by the Iranians that they've been learning in real time throughout this conflict. And if you look through there, it's a litany of two different things. One is front companies being used to disguise shipping activities as people are trying to run a shadow fleet to get oil out of Iran, part of why we now have a physical blockade. And the other one is front companies being used disguise digital asset activity and the Iranians using digital assets to try to evade sanctions so that they can get money into the country and out of the country. And it is very clear that the US in conjunction with the physical blockade is now attempting to run a monetary blockade on Iran as they're choking down on all these financing sources. So I think one of the leverage points, because this comes into play with China as well. China wants to buy oil, including from Iran and they want to do so at non elevated prices. If the United States is willing to just keep their boot on the neck of the Iranians, that is now something that Trump has created as leverage that he can trade with the Chinese in addition to Chris, exactly as you said, we need the uranium out of Iran. We need the ability to ensure security in the region. The other thing that really caught my eye about the Iranian demands, back to why I'm looking at the market implications of this and thinking we're going to remain and call it moderately higher for longer with oil. Is the idea that we can recognize sovereignty for the Iranians over the Strait of Hormuz is not something that their neighbors are cool with anymore. Like that is not just the United States and Iran bilaterally negotiating. Right? Like the Saudis, the uae, the Iraqis, the Omanis. Everybody is going to have views here after what just happened. By the way, shooting missiles at your cartel members is not a great way to preserve a cartel. So I think one of the other things I'm looking at with markets and Rahm, you're leading to something I wanted to ask you is I think the median view is that this conflict will not be fully resolved for a while and yet the market is ripping anyways. So I want to ask you what is it about the animal spirits and sentiment change that's leading things to run this hard?
- [13:47]
C
It's just AI. The entire market is explained by AI, AI picks and shovels, AI infrastructure names like Micron and SanDisk and CN and Lumentum and industrials linked to it. That's it. It's been extraordinary. The movement you've seen like Micron, which is doing a 10x in public markets as a large cap security is unprecedented. It's extraordinary. And you can make the argument that Micron is still cheap at a Ford P of eight times on South Korea also has been running. That's it. It's like, you know, you've seen those movies where the tsunamis come in, all the water drains from the beach and you can walk deeper into the, into the ocean. That's what's happening. It is, it is really extraordinary. The last time I saw this was when Nvidia rerated in May through July of 2024. The capital is just flowing from everywhere else, doesn't matter what else into this theme. And you've got record call option activity, record 3x levered ETF activity. And yeah, it's a truly extraordinary market phenomena that we're seeing overall. I mean, look, it's a bull market. That's the main takeaway. What matters, It's a bull market. That's the main takeaway. And it's creating opportunities elsewhere in the market too. The main risk you have is whipsaw risk, right? And everyone has anxiety, right? If you own semiconductors, you say, am I supposed to sell now because I went up 80 in three months? Or if I don't own it, do I buy now because nothing's working except AI? It's max anxiety, max frustration, max fomo, Max fear. You know, the, the market's an extraordinary animal here and it is just put everyone in a vice with this, with this semiconductor rally. Semis are now 18 of the S P. It's never been higher as a market cap. The last time we had this record was 11 in 2014.
- [16:02]
A
Well, all right, so this leads me to two schools of thought that I've been watching. One, I'll phrase it this way, because this goes around on Twitter as a quote, sometimes is not enough. People are emotionally prepared for this not to be a bubble. Right. We'll put that on one side. On the other side. The last time we saw price action like this concentrated in a single sector in the United states was probably 2000. And we all know how that ended. So Chris Rom was talking. I'm going to throw this one to you. If you had to pick between one of those two archetypes, which one are you?
- [16:38]
D
It's not the same. Back in the crisis we were making bubbles were being made about things without utility. It was engineering on top of engineering and I was there and there was just a lot of just. I guess I see more fundamentals here and I see more fundamental innovation here. AI is changing our civilization as we know it. It's unlocking democratization of knowledge. It's going to facilitate new innovations across every single discipline. So there's real fundamental value here and there is an absolute arms race. And again, we're seeing the United States take the lead again, which is another reason why we're outperforming. Not only with AI, we're outperforming with energy and everything else. And it's all correlated. But like all things in markets, you end up going to extremes at a certain point. I don't know where we are in that cycle just yet. We will go to an extreme. There will be. It will pop. Like we had the same thing with the dot com bubble where man, this is amazing technology. It's going to change the world. And it did. Like look at us now, look at us now. But near term it did hit a bubble. Look, I still personally think we're on the trajectory up because the amount of investment that's going into infrastructure and we're still coming up with new innovation after new innovation in real time. So I don't think we're through it yet.
- [18:06]
C
This is not a bubble. See a lot of people talking about this. It's also very clearly not a bubble. Just the anxiety. We're not going to live through the dot com era because people have lived through the era that are still managing money today. Also markets learn like the valuations in the dot com era were truly nutty. Like the globe.com went public and on the IPO day went up 600% in a day. There are companies like Geocities that went public the bankers didn't know they were taking public. There's stories around that. And J.P. morgan. Yeah, these are real businesses and you don't have the dark fiber issues of the dot com era. So you could say GPUs are the dark fiber. That's like the analogy. The difference is back then the dark fiber was being overinvestment by telecom and venture backed startups. Here the primary spender are the most profitable companies in the world, number one. Two, increasingly governments and those profitable companies are showing a return on that through their cloud business. Like Google's cloud business grew 60%, Microsoft's cloud business grew 40%. So they're making money on that. There are counterparty questions around OpenAI but meta just assumed a contract. They stepped in. They'll say hey we'll take that data center lease. So the demand for compute is so high that it's hard to see how you see the capex cycle breaking down anytime soon.
- [19:38]
D
Yeah, the other thing, I think we're in an interesting era now because of the lack of regulation. It allows for innovators and startups to jump in but you're starting to hear more and more about regulation. I think that those scared a bunch of people. And to the extent that we start seeing regulation in the future, maybe not this administration, but the next who knows, it's going to be a huge consolidation force. Where in my experience, once you have a regulation, the bigger already really big, the big are going to get even bigger and there's going to be even more consolidation. So I'm hopeful now that we see a couple of these startups bust through before they're absolutely put out of business through that fixed cost of Sorry guys, you have a new model, you have to get it approved. Oh, but mine's already approved because I've been doing it for five years.
- [20:25]
C
I know Chris, you were on the venture side part of your current role, maybe doing venture now here too. But this is a fun fact for you. There are 63 unicorn AI labs, billion dollar valuations like thinking machines founded by the former CTO of OpenAI. Ilya's got one. None of them make a penny of revenue. So there is a bubble. It's just in private markets, public market investors have exercised far more discipline and yes, in public markets there are issues too. Like Caterpillar is not worth 35 times earnings. Right. It's private markets. That's what the bubble is. The other fun fact for you is that the number of these LLMs that are in Europe is zero. It's zero. I'm trying to ask which is a scarier fact that we have 63 unicorns that don't make any money, not a penny revenue, or that Europe has none? I'd rather live in the former. I'd rather have the, the innovation borne by venture capital investors that are subsidizing the public good for everybody else. Hopefully they'll make money on that. I doubt it.
- [21:33]
D
Amazon didn't make money till it did either.
- [21:36]
A
Well, Another theme from 2000 though, and actually one we've talked about with blockchains before too, is that the value may be large, but are we attributing value accrual to the right people? Because Ram, to your point, OpenAI may be stepping away from contracts. We may have a number of model companies that are currently unicorns that don't have clear pathways to revenue. But that doesn't mean they're not creating value. It may just be that they're not creating value for their shareholders. They're clearly creating value for Nvidia, for Intel, for Micron, for SanDisk, and they may also be creating value for the people who are going to distribute those things. Like the apples of the world, they're creating value for Google and Microsoft in their cloud businesses. So to me, I think you've got to ask two separate questions investing in this marketplace. Question one is, where is the value creation overall? Is AI writ large a bubble? Do we have the right number in aggregate? But number two is then have we allocated this correctly? Like, is it in the right companies? And I will tell you, I am much more skeptical of number two than I am of number one, if that makes sense.
- [22:44]
C
Yeah, yo, the couple is going to capex receivers, that's capex payers and their capex, that's the dividing line. The capex payers, these cash flush companies and governments and the capex receivers, they're the semiconductor complex, so they're the winners. But that'll shift too. It's 18% of the S and P. Now, usually when you start to see headlines like that, it's time to look in other pastures. When technology's share of the S and P hit its level in 2021 in Q4, that was at the same time, that was the exact same time to rotate and there are significant bargains elsewhere. And you haven't seen the AI enablement layer really activate or get rewarded yet. You're going to need companies like the Accenturers and these consulting companies to deploy their professional services arms to just integrate and retransform workflows, do the process mapping. That AI can't do that. You have to have highly regulated governance on these AIs, the AI's policy controls. And now you just saw recently Microsoft rolled out their AI agentic solution. So they're coming after Claude, right? Claude is in the pole position. They leaped OpenAI. Microsoft has all the IP from OpenAI and they just rolled out an AgentIC AI framework that has what enterprises need. They can lock down an agent, they can permission it, they can wrap a policy around it. The AI agent might or might not have a certain data. They can revoke it at the enterprise level. That's actually how enterprises operate. If you look back to the late 90s, first was Netscape Navigator. We had that moment with the launch of ChatGPT a few years ago. Then Microsoft showed up at the browser a few years later. The big guys always show up later, but they don't stop. And it doesn't matter if their form factor is late or it's not as effective. They know their customer well and they're integrated well. So they have a, you know, that's an example. Those opportunities that are still out there where I think they're still attractively priced.
- [24:52]
A
All right, so on that note, before we get on to other things that may be attractively priced, we have to take our break here. So we're going to take a quick commercial break and we'll be right back.
- [25:03]
B
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- [27:04]
A
So speaking of things that may have value, let's talk about stablecoins and let's specifically talk about Circle and Ark. So today news came out about a $222 million token pre sale at a $3 billion fully diluted valuation. A16Z was leading at 75 million and the investor list is a roll call of tradfi people, blackrock, Apollo, ice, not the ones deporting people. The parent of New York Stock Exchange SBI, Janice StanChart Ventures, General Catalyst, so on and so forth. Circle is the first publicly listed company to run a token pre sale. Stock is unsurprisingly up on the news. And as a reminder for people, what's Ark? Ark is an EVM compatible L1, USDC is the native gas token and the testnet has been running since October 2025 with hundreds of millions of transactions and BlackRock, Visa, Goldman, AWS, even Anthropic have been testing out there. So ARK is Circle's way of owning the stack as opposed to using Ethereum and Solana for settlement and Coinbase for distribution. So there have been a number of voices around this Circle is saying Ark is the economic operating system for institutional finance. Maxwell Albright from A16Z says the Internet Infrastructure USDC runs on today wasn't built with big institutions in mind. That's where ARC comes in. And so what I want to throw to the crowd and Chris, I'll start with you with all those names on the cap table, is this going to be the institutional rail that finally works and brings people in. Or is this another, call it private chain dead end, but with better PR if nothing else.
- [28:58]
D
Yeah, super fascinating announcement today. And if you're playing bits and bits bingo, we had Rahm already bash Sam Altman, say nothing Burger Austin. Talk about stablecoins. I guess I gotta be bullish now, but I think that this was super interesting because all these trad firms are investing in a token, not in private equity. That's how I read it. And what this does is it normalizes token investments and it legitimizes them as, as an as investment activity for the, for the, for the trad folks. And to do that they have to have a lot of infrastructure. And, and so that, that, that's one thing to think about, but perhaps the most interesting thing is how to think about value accrual going forward. This is a public company and it's now issuing a token. We haven't seen the base token yet come out of Coinbase. But you have investors, right? And typically you're out there selling your equity to investors. Now we have a public company that's selling a token to investors. And so how does the value accrual work going forward? If you are an investor token versus equity and yes, is venture capitalists. We do this, we've done this for years and years. And typically we're not. You know, sometimes you're like, hey, I don't know if it's going to accrue to the equity. I don't know if it's going to accrue to the token. Maybe we're going to have warrants in one. You know, we'll figure it out because it could go in either direction. It's such an early startup, but gosh, now you see a public company company where you have to really think about that. Now, where do we go from here? Like, super interesting there. I want to get Rob's take. I want to get your take, Austin. But then like, you're also seeing a part of a company monetizing itself. And if you step back for a second, you're like, okay, so it has a public company, it's got this chain. I can buy the Coke and I can buy the equity. Where do we go from here? Are different business segments going to start issuing tokens? Are there going to be prediction markets on individual segments underneath the corporation? Absolutely, they're going to be. I don't know when and how, but I mean, I think ultimately super bullish for crypto because you're seeing big investors coming in and buying tokens. I mean I've known venture capitalists for years and years. They're like, can't do it, only do equities. Haven't really figured out that token thing, but really want to get your guys take on value accrual and how you think about this through a public equity lens.
- [31:26]
C
Nodding my head there. Yeah. And I agree. I think that's the number one question. What's the flow of the economics through the equity and the token? It's also interesting that Circle stock went up 15%. It went up something like four and a half to $5 billion. So as of today, it's got a free lunch on this. They created $3 billion of value out of issuing this thing and then their market cap also went up. So it reminds me like in the dot com era, if you guys remember 3Com, it had like a subsidiary that was worth more than the hold. We're not there yet. But what used to happen is we'd have a tracking stock and a tracking stock would represent a subsidiary of the organization. And then the public markets could measure the value of subsidiary by looking at the tracking stock and then eventually they do a spin out. So that's the closest analogy to what we see here. It's a big win for Circle overall. They were able to craze something from nothing, get investors to back it, you know, so if anytime you can pull that off, it's a win. I don't know what the flow of the economics looks like yet. Is there any attachment to the stablecoin revenue on this at all or just a wholly separate blockchain? Because as you know, Coinbase has a perpetual exclusive right on the stablecoin revenue attached this, I wonder, I assume that's still intact. There's no, there's no change there.
- [32:58]
D
Coinbase reiterated that this week. Or like, oh yeah, we've got this contract in perpetuity in case anyone forgot. But like why is this equity going up? I mean like I think if you were to step back, like wait a second, they're launching a token that's, that's completely going to be dilutive to the equity. But no, the market's not saying that. Why is the market not saying that?
- [33:18]
A
All right, so when I was looking at this, I have two potential theories around this theory. One, because we used to see this in the dot com bubble is just people are wrong. You kind of have people preferring the stock who are betting the value accrual is there and people preferring the token who are betting the value accrual is there and one of those two groups is wrong and there's some sort of spread trade between these two things to pull them back to par. I think the other theory that you could have around this and Rahm, you kind of alluded to this is an expectation that ARC will not remain within Circle. That the idea is if this thing is going to work and become payments Rails on a standalone basis, it probably can't be controlled by the issuer of the payments instrument. If we look at Visa as a good example, I will remind everybody that original issuers of cards were spun out of other entities and then became the card networks. They did not become the card networks housed within the original entity. Discover similar story of being spun out of something and now reacquired, ironically, by somebody else. But the idea here is if both of these valuations are correct, that has to be the market pricing future growth into ark, that is beyond what Circle is currently doing, which seems to rely on an expectation of it being spun out and created into its own thing. Rom, to your point of. Is this a tracking stock where they would intend to like, move this thing out into the world as its own business unit? To me, that's the only way these valuations are coherent to both be going up like that.
- [35:00]
C
So there's no dilution to Circle because there's no economic claim on Circle through this kind of ARC spinoff. But there's still so much more to see. Like our blockchain is back again. The interesting thing is people are more focused on this transaction, the mechanics of it and who got involved, rather than what the heck the thing does. Right. Like, what is the value? We're focused on the financial engineering.
- [35:27]
D
Yep.
- [35:27]
C
Right.
- [35:28]
A
And. And we know they're gonna. This will be.
- [35:29]
C
You'll see more of these. You know, Chris alluded to base spin out. So this becomes the next magic trick. Saylor.
- [35:37]
D
Yeah.
- [35:38]
C
Introduce us to financial engineering. People got the bug. How can they create value out of thin air? This is what's happening now.
- [35:44]
D
Well, I don't think it's value out of thin air. I think there is a narrative here. And that narrative is distribution. Right. If you look at Circle, they've been heavily reliant on Coinbase for its distribution since its inception. And maybe the market's saying, well, wait a second, via Ark, there's going to be an entire new class of distribution away from Coinbase. This is how they solve and to generate that additional distribution of their core asset, which is usdc. And that value accrual back to the equity that's what the market's saying today is that this is the, this is the first step in a grander distribution strategy that we know Circle needs.
- [36:25]
C
So it's a stablecoin settlement layer. Has anyone dug into exactly the target customers value prop how this comes together? Obviously they have their own stable coin. So are they going to be Switzerland and neutral here, which is what you should be if you're a settlement layer or are they going to have a preference?
- [36:44]
A
This is back to my point on why I think there may eventually be a spinoff here. Right now obviously it preferences USDC because you can use USDC as the gas token I have not seen and by the way Ark folks, correct me if I'm wrong, but I have not seen the ability to use any other token as the gas layer on Ark. So that is preferencing USDC there. But Rom, you are correct that in the long run if you want these other big institutions to use it or it to have a share shot of replacing MasterCard or Visa or even just ach zelle et cetera, you're going to need to let people use their own stuff like the value prop of hey Chase, hey Bank of America, hey Citi, why don't you give up your entire nim to use our fast payments chain is just not there. The answer from those people will be thanks but no thanks, we'll keep the nimble. So again back to why these things have been spun out. If you said well yeah, but what we've really got is a 247 past like fast payments infrastructure and JPM. You can put your deposit token on here. Citi, you can put a deposit token on here. B of A, you launched a stablecoin, you can put that on here and everybody can trade those against each other and clear them in some way. Now we're talking but that starts to look like the blockchain version of the card network works.
- [38:07]
C
Yeah, it's more competition for all the blockchains.
- [38:10]
A
Yes.
- [38:10]
C
Where do you want to position here? It's more competition for Ethereum, it's more competition for Canton. Canton's looking at that and say hey look, we already locked up this market, we're going to use our own chain. Notably, there were no strategic investors from Wall street in this deal. It was West Coast VCs. So they're probably going to take a more disruptive attack angle as opposed to kind of co opt the intermediaries. But on the distribution I think it's a great point. How will they Coinbase is the distribution layer For Circle right now, the people have to log in, they have to onboard convert. So what does that look like? They have a B2B capability, of course. My old firm, Crossover, I built the crypto business there. We helped Circle move money and they have a B2B sales team. I suppose they'll build that out further. So there's, you know, a lot more questions here. But, you know, it's, it's intriguing. You know, it's like as if Andreessen Horowitz woke up and kind of willed the crypto bull market back to life. They're like, how do we, how do we just make something happen here? It's called Up Circle. We got a new blockchain. It's a proprietary deal. They just manufactured.
- [39:24]
D
Well, they just raised a $2 billion fund. So there's definitely LP interest out there. If you're a 16Z.
- [39:31]
C
No community participation though. Right. So if you're a retail investor, you got left out in the cold on this. Now the move would have been own Circle stock, I suppose.
- [39:40]
A
Yeah.
- [39:41]
C
Is that it?
- [39:43]
D
Yeah, that's right. If you own Circle stock, you benefited today. So.
- [39:49]
C
Right. So the decentralized investing via the metamasks on the wall still doesn't matter. The game's just in public markets now.
- [39:59]
A
There's going to be, I mean, this is back to the point of clarity and the SEC writing the rules. There's going to be increasing convergence between securities markets and token markets as we move forward. Because a lot of the existence of token markets was because they couldn't get into securities markets because of Gensler. So I mean, on that note, let's talk about something in securities markets. So Coinbase had a pretty rough week on Monday. They announced a 14% headcount cut about 700 people. Brian Armstrong was talking about restructuring the firm to player coaches and AI native pods, five layers max below the CEO allegedly non technical teams pushing code. But on May 7, the Q1 print was a big miss. 394 million. Net loss revenue of 1.41 billion versus 1.52 estimated earnings per share of minus a buck 49 versus 27 cents positive spot trading volume was down 37% quarter over quarter. And then just to add insult to injury, there was five plus hours of offline for trading on Friday thanks to an AWS US east failure, which Armstrong called completely unacceptable. So that was the AI pitch and then there's skepticism around it. Derek Thompson is saying, is Coinbase the test case? Is this a productivity revolution or just earnings pressure? Layoffs dressed up in AI, people are saying Coinbase seems to have a hard dependency on aws, regardless of what their CEO is saying. And Greg Eisenberg says every public company will run this playbook in the next 12 months. Coinbase just got there. First, I want to ask you guys as we start here and Chris, I'll start with you on this one. So institutional people watch Coinbase. A lot of people use them. They do have a real business. But the cyclicality is intense, just like for investment banks. So as somebody who's seen cyclicality and seen layoffs before, do you think this is really AI or is that window dressing on just the cyclicality of the business model?
- [42:17]
D
Yeah, I guess this means that the bull market for alt is about to kick off. Because what we've seen is every time there's major Coinbase layoffs, that's really the kickoff of the next cycle. Look, I think we're seeing this narrative hit all of tech and they're saying AI, AI, I'm going to chop my workforce. But the data is telling us that AI is actually leading to a lot of new jobs. And so maybe you're seeing cuts here for various reasons, but you're also going to see a rewiring and I think a lot more hiring of different skill sets as we restructure companies with this new technology in mind. I'll also note that we've said this in the past and I don't like to talk about individual stocks or tokens on this show, but what are we seeing out there? Spot businesses are, are very brutal businesses. ESAT and TradFi equities fees go to, commissions go to zero over time. It's very, very similar for tokens. Spot, spot trading goes to zero. Really hard to have a business there. Derivatives however, are much more interesting business. I'll note that, you know, Coinbase did acquired Derbit, so that's something to watch. But when I'm going to step back and I look at the entirety of the macro picture, there are are a lot of things going in favor of some of these incumbents and it really comes down to clarity. Now Clarity act is coming into effect. We think about 60 something percent chance. If it gets done, you're going to see a lot of regulation follow. We're getting some regulation to follow either way. And my point that I made earlier today, regulation forces consolidation. Generally the big become bigger. That head start that they have becomes a moat once the regulation is entrenched. And so as we see clarity come into effect, I think incumbents, many of the incumbents including Coinbase, stand a benefit from it because you see consolidation and look how many other folks can do what they can do across all their different business lines. I mean, years and years ago they were a spot business and like. So credit to Brian and team for diversifying, you know, across the board, derivatives, custody and everything else. So interesting things going on. It's not the last you're going to see of it. You'll see more of it as, as we move forward. But again, I still think it's a really constructive setup, particularly as we're looking at the crypto space as a whole.
- [44:53]
C
Yeah, I agree it's constructive. We're in the break and I brought up like, hey, look, I think all season might be here, guys. So, I mean, a lot of opportunities that are very constructive. I mean, digital assets have held up even with memory stocks rallying. I'm not sure that Coinbase really had that brutal of a week. The stock was up 7% today. When companies cut headcount, it boosts earnings. That's the key thing. So it's actually bullish if you're a shareholder. Also, they've got recurring revenue from the Circle relationship and they reiterated that it's forever. They inked a good deal there. That's good. The main competition for Coinbase is the rise of all these ETFs and the DATs, which create an alternative method to trade with security. And they make a lot of money on transaction fees. So that. That's the, the bear case.
- [45:50]
D
I don't know, Rob, because they're making custody on the back end, too.
- [45:54]
C
The fees on transaction fees are so much higher than on custody, which is more. They were commoditized.
- [46:01]
D
Yeah, they were.
- [46:03]
C
I'm just trying to present both sides of it.
- [46:05]
A
But this, this is the problem that Chris is alluding to, which we've seen over and over in markets, which is Morgan Stanley is coming in now with lower fees on things. Others are going to follow behind that. Spot fees trend to zero on average over time in markets, and that leads to spot being profitable for two groups of people. Group number one, and a good example of this business model is somebody like Schwab, which is people who could actually monetize the funding, like the interest rate of assets on the platform. So Coinbase Ram, to your point around the Circle deal could move to something that looks more like a funding business and probably be fine. Number two is derivatives, as Chris said. Right. Like it's. You move away from the spot market and keep the spot market to facilitate derivatives trading and Then you make money on those.
- [46:54]
D
Right?
- [46:54]
A
Like I will remind everybody, it's ice, the derivatives exchange that bought the New York Stock Exchange, not the other way around as we've mentioned before. And so I think either Coinbase really needs to up their game in derivatives markets or funding markets or both, or the beatings will continue until stock price improves.
- [47:14]
C
The right positioning for Coinbase is to position against Robinhood and position as the successor to Charles Schwab and own the customer in a cross asset class holistic experience where you have your banking and your investing and payments. That is really the only correct answer. There are a lot of ways to make money. Talked about several of them. But the positioning in the public markets is what's going to drive the valuation. And they already have the reach. They're securing a banking license, they're investing in the app. So that's the right move. But people see it, People see it. I'm running after that opportunity at Lumita. I've got an app. It's already better than the Coinbase app and the Robinhood app. I don't have trading enabled. Coinbase will realize they should buy the business for under a billion while they can. But that's the move that Coinbase should focus on is how do you occupy that position position? How do you have a lock on the customer with an integrated product offering not only for the buy or sell securities.
- [48:22]
A
So Chris, I know you have a hard stop at 4:30 and I'm going to lob the ball up on the last one for you that I know you wanted to talk about which is at the end of consensus. The official consensus Miami afterparty was held at 11. Miami's Bitcoin Bitcoin accepting strip club with lines around the block hours long waits at a Bloomberg headline of Crypto industry throws lap dance party in middle of bear market. By the way, the North American Bitcoin Conference had an event there in 2018 which Bloomberg's original the industry has a problem piece came from. Same venue, same article, eight years apart. Somebody put a having joke in there somehow. So there have been several critics here. Haley Lennon, Bitcoin Barb, Amanda Wick, Kelly Kirk. Boss has said it's a venue that accepts bitcoin and defended it. But Chris, I want to throw this to you. How does this look for the industry? Why are people doing this and what is going on?
- [49:26]
D
Yeah, like I feel like in crypto we, we keep like learning these lessons from the past and it's like we ignore the lessons of, of history. Like we Talk about derivatives markets. And yeah, I'll get to strippers in a second. But like, derivatives markets, you know, people like think because you have prediction markets, like the, the laws of market manipulation and abuse don't apply. Well, they do. I remember my first day of Lehman brothers back in 2006, associate class. They like marshaled all the associates into this like, pristine room and out comes Joe Gregory drinking a tab. He used to drink tab. You remember that? It's weird. And, and he's just like, the first thing he said was no strippers. Like, and I was like, what the heck did I get into here? Like, I hear I haven't like Lehman Brothers. And that's the first thing that they said. And, and like that era was back in the 80s or whatever. And like in my entire career in Wall Street, I don't remember once ever like, you know, going, going to do that kind of stuff because the market's matured and I feel like now we are in, like this is not how you get to institutionalization and we're in an institutional era. So look, I, I think there's going to be a lot more due diligence amongst some of the brands whose names were featured. And my sense is, is that they didn't even know in many cases that of the affiliations. And they're like, okay, f. Rebranding for the after hour, of course. And so I think, you know, brands, brands are real. Brands are very important. And I think you're going to see a lot more due diligence. This is not the first time we saw it. Remember we had like people eating sushi off, off of models or something like in, in ECC a couple years ago.
- [51:06]
A
Wasn't that, wasn't that.
- [51:07]
D
Come on. I don't remember. But it's time, it's, it's time for the industry to grow up. And yeah, I, I feel, I feel like some of those marketers probably had a really bad day because they didn't realize what they.
- [51:21]
C
Data consensus just got a lot more visibility there.
- [51:24]
D
That's true.
- [51:25]
C
They're quietly saying, hey, bad news is good news, but we won't do it again. I agree on Chris's points around the maturity of the industry. You know, it's one thing for a side shoot event with a protocol that wants to make that decision, but it, it's kind of odd for consensus to make that decision.
- [51:48]
D
Right. It shouldn't have beneficial. I don't, I don't think that, I don't think it's good business, frankly. Like, that's that's the point is like if you're trying to appeal to institutions, you're trying to appeal to mass market. Probably not the best business decision. People can do what they want to do, but maybe not a great business decision here.
- [52:07]
C
All right.
- [52:07]
A
Well, on that note, Chris, I know we got to stop. It's 4:30 for you. So for everybody, as always, thanks for joining us for this episode of Bits and Bits. We'll be back in one week to discuss more about how the worlds of crypto and macro are colliding. Till then, everyone, thank you for watching and hope you enjoyed this episode of Bits and bips. Just remember, nothing we say here is investment advice. And please check unchained crypto.com bitsandbips for more disclosures.
- [52:39]
D
SA.