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- [00:00]
Jeff Alphaleak
Well, Bitwise's price target is 200k by the end of the year and I still think we have a good shot.
- [00:05]
Haseeb
At it, even in stagflation.
- [00:06]
Jeff Alphaleak
Yeah, I think there is a version of it where bitcoin still can be the fastest horse in that world, where people do need to seek returns.
- [00:12]
Haseeb
Okay, so you think bitcoin. Bitcoin wins in stagflation. Okay, let's say that instead of stagflation, Fed just starts really, you know, cutting, stimulating qe and that brings the economy back up and running. Inflation is still high. How do you think bitcoin does then?
- [00:25]
Jeff Alphaleak
I would say it does even better. Not a dividend.
- [00:28]
Tom
It's a tale of two kwan.
- [00:29]
Haseeb
Now your losses are on someone else's balance sheet.
- [00:32]
Tom
Generally speaking, airdrops are kind of pointless anyways.
- [00:34]
Haseeb
Unnamed trading firms who are very involved.
- [00:37]
Robert
Alec Eth is the ultimate defi Protocols are the antidote to this problem.
- [00:43]
Haseeb
Hello, everybody. Welcome to the chopping block. Every couple weeks the four of us get together and give the industry insider's perspective on the crypto topics of the day. So quick intros. First you got Tom the defi maven and master of memes.
- [00:53]
Tom
Hello, everyone.
- [00:55]
Haseeb
Next we've got Robert the crypto connoisseur and czar of Superstate.
- [00:58]
Jeff Alphaleak
Good evening.
- [01:01]
Haseeb
Joining us today we've got special guest Jeff Alphaleak, liaison at Bitwise.
- [01:07]
Jeff Alphaleak
Well, hello. Happy to be here.
- [01:10]
Haseeb
And I am Haseeb, the head hype man at Dragonfly. We're early stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see chopping block XYZ for more disclosures. So, guys, it has been once again another historic week. And this time it's not just historic week for crypto. It's been a historic week for markets generally. We've had one of the most volatile periods in markets in basically the last few decades. The only time that we've had this sharp of a sustained drawdown was during COVID And in terms of like running tally, some people are comparing this to even periods of time we haven't seen since the 80s. It's been incredibly volatile in the stock market and a lot of that has been driven by Trump's quote unquote Liberation day, which was his unveiling of quote unquote reciprocal. I'm going to keep doing these quotes, quote unquote reciprocal tariffs against basically almost every single country in the world with the exception of Russia and Belarus. What we've Seen now is what's effectively the largest increase in tariffs in US history in a very short period of time. Bring us back to tariff rates that we have not seen since the Smoot Hawley tariffs, which were, you know, a century ago. And we've also implicitly the largest tax increase in a very short amount of time that we've seen in a long time. It's caused absolute pandemonium in international markets. And of course crypto has been no exception to that. So we want to bring in Jeff. Jeff, you're at Bitwise Asset Manager and you also have a lot of knowledge that you're bringing to Macro help contextualize this for us. We'll talk a little bit about kind of the overall geopolitical story, but obviously a lot of people have been telling us please don't be the thousandth show talking about tariffs and what you think about tariff policy. Let's talk about how this impacts crypto. What happened in crypto markets and why should we expect this to be so impactful in crypto when crypto obviously is not getting tariffed, we're not getting imported, exported. So why, why does crypto markets care about what's happening with respect to tariffs?
- [03:05]
Jeff Alphaleak
Yeah, absolutely. And Haseeb, if it takes a $10 trillion wipeout for me to be a part of my favorite podcast show ever on crypto, I will say that is a price I am happy to pay for. So thank you for.
- [03:17]
Haseeb
I hope that's not the pretense that we have to bring you back on the show again, but great to have you.
- [03:22]
Jeff Alphaleak
The upside will be that I hope I'm able to at least mark the bottom in ways that we can relive this episode for years to come. All to say, no doubt crypto and Bitcoin has been at the center of all investors mindsets and the role of bitcoin and crypto in particular continues to change as it fits into the investment portfolio's mandate. The reality is, ever since the ETF launched the ability to have mainstream investors leverage bitcoin as a global asset in the ways that it consum of a function in a portfolio build out has become, I think more stronger than historically it ever has. Which is why you're seeing more correlation to the risk on and risk off sentiment in general in particular. My view is that in many ways, because the store of value construct is so powerful for Bitcoin as it is for gold, the number one feature in which how investors express some risk preference between those two narratives on the store of value is the defining feature of volatility. And so in general you will have seen older people prefer gold and you would have seen younger prefer Bitcoin. But part of the reason why young people prefer Bitcoin, make no mistake, is the volatility. And so if you believe that is one of the foundational inputs of how people drive value in Bitcoin, the other side of that argument is that if other non bitcoin related macro assets become more volatile, then the opportunity cost to actually hold Bitcoin goes up as well. Because now you're competing for the attention of volatility with non traditional assets, sorry, traditional assets in ways that has intercepted the bitcoin mania through the ETF wrapper for institutional investors. And so my view has been that Bitcoin is generally the best horse for a risk on trade, but the timing does matter in the path dependency of how other assets behave. And no doubt with what you've seen the MOVE index and the VIX index, frankly, there's a lot of people who are thinking about the discount to equity. They think they might catch on Tesla being half off or Nvidia half off, where they're going to sell Bitcoin potentially to make that pairwise trade. And I think some of that noise is essentially what you're experiencing over the past few months.
- [05:32]
Haseeb
I mean, so what we've seen is that obviously markets have sold off over the last several days. I mean, if you counted Thursday and Friday, which was the market trading period after Liberation Day tariffs were announced, you saw each of those days markets were down 4 to 5%. And then on Monday, as of, or sorry, as of Tuesday close, they're down another 2%. So roughly speaking, we're down almost 16, 17% from the market high for the year. And depending on what index you watch, it's even worse for others. And so far bitcoin has not really been operating as a safe haven. It's really trading pretty closely in line with what we're seeing from other major indexes. The story for the stock market has been that actually retail has been stepping in to buy while institutions have been dumping. Right? So if you look at institutions and hedge funds, they've been mostly driving a lot of the outflows. And I think JP Morgan reported that Thursday and Friday were the largest days of retail buying in basically like the last decade or a couple decades or something like that. Crazy record amounts of retail buying. So retail's buying the dip, whether that's MAGA retail or whether that's just retail retail saying, oh, finally I get A chance to this market only goes up and so finally I get a chance to buy. It's unclear what that story is. Is that also the story for crypto? Is it that, well, crypto is this retail market? Yeah, there are institutions in crypto, but still retail is the kind of predominant holder. Even of the ETF complex, retail is the predominant holder. So given that crypto is retail heavy, is that why Bitcoin is holding up as well as it is? Would it be doing worse if it was more of an institutional asset?
- [07:08]
Jeff Alphaleak
I think Bitcoin has always shown an ability to be leading indicator for the channel of global liquidity as a proxy for its expansion. And for the most part, I would say that's still generically true, that the thing that tends to drive energy to Bitcoin is the anticipation of the global liquidity factors that people have expectations for. I will say at some level, the calibration of that lead lag relationship has changed a little bit. Where the twitch speed might be a little bit faster with institutional capital now than it would have been with retail capital two years ago, but I think that is still today the most important thing. The unique challenge with Bitcoin is that it's actually a complex story as to what that asset represents to the end investor and the outcomes they're trying to achieve. And one of the ways I frame this discussion with institutional investors is there's two versions of Bitcoin. There's what I call the positive row Bitcoin, and then there's the negative roe, bitcoin, roe is a Greek used as a sensitivity to the price of an option relative to interest rates. And what I'm conveying here is that there are some people who believe that depending on interest rates, whether it's inflationary or deflationary, that Bitcoin might behave in a certain way. Right. So the negative row bitcoin is the one that I would describe where interest rate going down is generally good for Bitcoin because financial repression will continue forever and there's going to be inflationary dynamics to it, which Bitcoin will emerge as a store of value and hence negative Bitcoin, sorry, positive row, negative row Bitcoin wins. Right. But the other side of this is the positive row Bitcoin, which is actually the world is falling apart and it's actually becoming incredibly deflationary and things are really horrible. And now we're kind of in this short humanity situation. And again, Bitcoin emerges as the savior. And it is the thing that people want when the world is Falling apart and hence that positive role. Bitcoin is actually the thing that drives market sentiment. And I think yesterday actually what we saw with China was like the perfect moment in which you saw that tension, right? Because in response to what Trump is doing, China actually came out and widened its currency ban to let the yuan depreciate in ways that it hasn't historically been wanting to permit that outcome. And today what we saw is that it actually allowed the yuan to depreciate so much that it's going back to 2008 levels in a day. It's a pretty crazy move. And if you really think about what that impact is, the actual weakening of the yuan is a deflationary outcome that's actually in general going to reduce global prices around the world, in which it's more likely we're going to import deflation as a result. That's a positive row bitcoin world, right? That's actually kind of like not the world in which the US wants. And it's not actually the one that China wants either. They're kind of just doubling down on the sprinkmanship. The other version of what China could have done is they actually could have gone through a massive stimulus program internally with fiscal stimulus that just drives consumption. And that is actually the inflationary version. That's actually the negative row China QE that releases the bitcoin valve. And yesterday you basically saw bitcoin couldn't make up its mind. It was kind of excited. And then today it realized, wait, actually we're not excited about a deflationary world. So now it's back going down. So all to say, the fundamental tension is this dynamic of Bitcoin's sensitivity to interest rate in itself being very unstable relative to where we are in the moment of time of Bitcoin's broader global adoption today. I personally believe we live in a negative row bitcoin world where generally people want inflation, they want easing. Those are the things that drive Bitcoin. But make no mistake, the long term end that I think perhaps we all believe where bitcoin will emerge as the most strategic asset is in fact the positive role Bitcoin, when it does become so chaotic and unmanageable that it is the ultimate store of value.
- [11:13]
Haseeb
So, okay, inside Bitcoin there are two wolves. One of those wolves maybe is a baby wolf that will emerge someday when it's a more mature asset. What we've seen, okay, so bitcoin has been a little schizophrenic. It's kind of of hard to read exactly how Bitcoin is supposed to respond and how it is even responding to like some days it's like there were a couple days where Bitcoin was not responding at all to this incredible historic macro onslaught. And then over the weekend it suddenly weakened, weakened a lot. And you know, we've seen today it's trading just alongside the Nasdaq. Alts, on the other hand, have been much more battered by what's going on in the, you know, broader market. What's, what's the story that you're, that you're internalizing about how you expect alts to fare in this environment? Because as you mentioned, there's a lot of expectation now about easing. Obviously, tariffs aside, there will be a big set of tax cuts and it's very likely now the market is pricing in that the Fed is going to be cutting much more than was previously anticipated. So we're now up to I believe, five rate cuts for the year that the CME is currently pricing up from basically just a couple. And at one point it was even just one rate cut for the year. So how are you thinking about that and how that's going to reflect in the alt market?
- [12:25]
Jeff Alphaleak
Yeah, great question and something I deal with our institutional and RI investors all the time as they flurry questions to us. You know, the altcoin complex, I think, has two broad challenges, if you will. The first challenge is that almost with the exception of just bitcoin, the rest of the altcoin complex is fundamentally different, as you guys already all know, in the way that it seeks its consensus mechanism that requires a little bit more servicing than Bitcoin. Right? Bitcoin, you can kind of put it under your mattress, equivalently putting in cold custody and call it a day, and you're generally going to be okay. The problem with these altcoins, if they are generally a proof of stake token, is that the entire point of the value accrual mechanism is that you kind of have to participate in the ecosystem to be able to earn yield that ultimately lowers one investor's cost basis versus the one that wasn't generating that yield on top. And so if you're like an institutional investor and you're being pitched a variety of these altcoins and you realize that there is a value accrual mechanism for which you can't participate. Like, hey, here's a special dividend on a stock, but you don't get one because you actually held your stock on Boney instead of at this other custodian that lets you do on chain stuff. So you're not going to get that special dividend. You're going to find some natural resistance to that because they don't want an unfair playing field. And with altcoins, sometimes there is that unfair playing field that could exist. The second dynamic is a lot of investors, in my opinion, looked at altcoins as a way to play leverage. So they were really excited by bitcoin volatility and they thought altcoins would give you more bang for your buck in a capital efficient way to trade more leverage, trade more volatility. But the thing that fundamentally changed is that last year in December, we now have Bitcoin ETF options. We actually can trade extremely interesting leverage through bitcoin options in a regulated market. That gives you pretty much, in my opinion, the same thrill of speculation and exhaustion and insurance that you could leverage more thoughtfully without that, like, weird, dirty basis risk of like, you know, the narrative or like, who's doing what inside and like inside.
- [14:37]
Haseeb
So let me, let me, let me, let me, let me, let me interject here. So it sounds like what you're saying is that altcoins were interesting to institutions because institutions found bitcoin a little boring, not volatile enough, and they wanted to gamble. And that's what altcoins are. They're sort of a gamblier, splashier version of bitcoin. Now you can trade bitcoin options, ETF options on the cme. And so the institutions are like, oh, I don't want to gamble on these altcoins now. I'd rather gamble on bitcoin options.
- [15:02]
Jeff Alphaleak
I think that's why you see the rise of microstrategy, for example, because microstrategy to me represents kind of the altcoin of tradfi, which is essentially that it's kind of like crypto and bitcoin. Okay.
- [15:14]
Haseeb
But it's got a lot not heard this theory before.
- [15:17]
Jeff Alphaleak
Okay, well, here you go. My theory on this is that microstrategy is kind of that extra hot sauce, right? It's actually more volatile than bitcoin. Right. So today bitcoin implied volume is sitting around 45, 50, 55 maybe on the high end. And MicroStrategy is trading at the low end right now of 100, where on the high end it goes as high as 200. So actually, MicroStrategy is the most exciting altcoin like exposure for tradfi investors to experience the thrill rather than having to trade altcoins that they don'. Understand the basis risk on the bitcoin spread. And then on top of that, MicroStrategy is involved in a variety of financial engineering where they're able to create leverage in the capital structure. As you know, they issued convertible bonds, they issued different structures of preferred equity, both profoundly interesting and equity. And this is essentially a variety of risk preference that investors can now choose. It's kind of like which altcoin exposure of risk preference do you want of the Bitcoin buffet? And I do think MicroStrategy, there is a reason why it is the most traded stock, the most traded options contracts, why the 2x levered MSTR ETF is one of the most successful, why the negative 2x is popular, why there are these covered call strategies. The whole financialization of Bitcoin morphed with traditional investors into crypto equities via the lens of MicroStrategy. And that for sure, for sure takes the juice away from altcoins, in my opinion.
- [16:47]
Haseeb
I have a little, I have trouble buying the story. I think maybe for the microstrategy derivative weird structures. Yeah, possibly. But if you look at the, the ETF complex, if you think, okay, that's how institutional investors were getting exposure to altcoins, like there's only Ethereum and the Ethereum Altcoin complex or sorry, the Ethereum ETF complex has only ever been like, what is it like less than 10 billion. So it's not big. It's not. And that's, and that's all the altcoin exposure that there is in ETFs, period. And so altcoins, my mental model of alcoins that overwhelmingly they're owned by retail, they're not really an institutional asset class. And so any story that you, that you'd have to use to explain what's going on in the altcoin world has to start with retail. So it's kind of like the tail cannot be wagging the dog of like, okay, well, institutional investors don't get yield and they're you know, busy, busy trading Bitcoin ETF options or they're, you know, know, levering up on 2x reverse microstrategy stuff like that. That maybe they're doing that, but that's not why alts are bleeding.
- [17:46]
Jeff Alphaleak
Yeah, well, I mean I think if you talk to most crypto native traders and investors, they would say that with most of their tokens they're trying to make productive use of it. Right. So even last year with like the price action of Ethereum looking a little bit abysmal relative to Bitcoin, some of that price spread can be muted if you put back some of the other return streams you could have achieved using Ethereum for some productive purposes. Right. So what I mean is like if you used ETH to do some restaking and you got some ability to leverage Eigenlayer or etherfi or Renzo, any of these restaking themes where you participated in airdrops, there is a way in which the total return of the ETH complex doesn't necessarily reflect just the price of ETH alone is the point that I'm trying to make. And so if you're an institutional investor and you can't touch Renzo and Etherfi and all that stuff, you almost start like a race with a little bit of a handicap. And that in itself can be a source of friction for entry.
- [18:45]
Robert
Totally. That makes sense. I consider Ether a major, you know, not an alt. And you know, I think when I hear alt, I think the stuff that's like 30 and below on Coingecko. Let me ask you a couple other questions real quick. Do you think that bitcoin has decoupled from traditional financial markets or do you think to your points before it is still coupled and correlated and do you think alts have increasingly decoupled from Bitcoin?
- [19:15]
Jeff Alphaleak
Great question. I think alts have decoupled from bitcoin, yes. That is easier for me to say because you saw bitcoin dominance continually rising in ways that I think as a trend has been pretty solid for now. And it's also unfair to call altcoins as one singular thing. Obviously A, it's a. It's a population with a wide dispersion of outcomes and the momentary capture around the trading possibilities of those altcoins I think is meant to be the proper index than like, you know, a top 10 market cap weighted exposure to altcoins where the institution like the, the Constitution is changing quite a lot dynamically. You know, that being said with Bitcoin in particular, has it decoupled with like traditional assets. I really hope that in the end when we do get to experience relief in the ways we expect there to be some fiscal dominance to continue with some programs by the treasury, that Bitcoin will emerge as an asset that will look a little bit different in the terminal path that it is on. Because one of the things I feel like I deal with at times with investors is they'll pick a correlation window and show look at the correlation to the dollar and look at the correlation to rates and see how correlated it is. But the correlation is only like a moving average of a particular relationship that is like a moving window. And the moving window doesn't naturally capture the terminal difference in states. So it's entirely possible for Bitcoin to end up a lot higher and actually have those correlations still kind of intact or varied throughout it, where actually that kind of becomes irrelevant. And that's kind of my hope. And the fact of the matter is, at this point today, I do think it is very correlated to risk sentiment. And the risk sentiment most closely being aligned to their needing to be more stimulus. And I mean like real stimulus, not just kind of like, you know, having interest rate managed lower and finding like a normal path of growth. We need like real injection of creative printing. I call it the Fed Scrabble, where you put together a bunch of random letters together and come up with a new acronym. So BTFP was cool last year, but now that magic is known and people now almost expect those things to happen. So you need a new one, right? The problem with markets in general is this incredible moral hazard. Once you introduce them to the construct of there being something that's going to be a put for you, it's going to be abused. And so every time you need something newly invented to create the illusion of printing beyond the scopes that people are used to, that, I think, to be honest with you, is the catalyst we need to truly get Bitcoin unhinged from this correlation with risk assets day to day.
- [22:13]
Haseeb
Okay, so previously on the show. Arthur Hayes was articulating his thesis that he thought basically all of crypto is from a macro perspective, it's basically an index of liquidity. And when liquidity gets injected into the system, everything's going to rip and we're going to have a new golden age or blah blah, blah, this kind of thing. And his view sounds pretty concordant with yours in that he thinks the Fed is going to be forced to inject liquidity, that they're going to have to find some contorted way to explain why they're doing this, despite the fact that inflation is ticking up. And obviously tariffs are very deeply inflationary, given that they're literally constricting the supply of goods crossing borders. And so his view is that by the end of the year, there's going to be some kind of oil gushing bonanza of liquidity coming our way. Do you take the same view? It sounds like you're taking a similar stance that, okay, the Fed is going to find some new Byzantine way to, to justify injecting a ton of liquidity, is that your view.
- [23:14]
Jeff Alphaleak
Yeah, that is definitely kind of the base case that I'm underwriting. But I also have this kind of worst case, best case scenario in my head where there's another path for Bitcoin to succeed. Right. Which is ultimately, this whole tariff war is one part of the bigger imbalance that exists in the US As a global hegemony. And ultimately, what we're talking about here is the trade deficit being subsidized by the capital account surplus as the social contract of the times that is being unwound. Right. So tariffs is one part of navigating the unwinding of that social contract. What I mean is, by definitionally, the US to run a trade deficit, it must have capital inflows in which they are serving the role of providing dollar liquidity for the rest of the world. That is part of the same equation. It's a zero sum kind output. And so if you want to reduce your trade deficit, definitionally, you also have to then reduce your capital account surplus versus your current account. And that has really, really, really big implications. One of those implications, if Trump really follows through with this thing that nobody is actually hoping he would, means that there must be dollars leaving this country. Right? That is the goal. And that's actually how you reduce the trade deficit if dollars leave this country. And American assets. We're talking about a world in which US Stocks no longer play the role in the ways that it used to serve as a store of value for a lot of investors across the world. So that really is a kind of underwriting that even the Benjamin Grahams of the world did not write their books for. Because this whole idea of this kind of cash flow based on growth and the ability to have a perpetual discount rate to bring present value to stocks implies a certain interest rate that is meant to permit that outcome. But if you actually think interest rate is going to be high and you think there's actually going to be outflow, you have to imagine that it's possible the US Stock market peaks, right, just like it actually peaked in Japan. You have to imagine there's a possibility that Tesla being off 50% today is not actually a sale. This is the renormalization of what it means to unwind the social contract of the dollar hegemony and valuations compress in that world. I also agree with Arthur Hayes, which is that there will always still be liquidity in need of chasing an asset. And in that world, I can also imagine where people say, hey, let's actually just go into Bitcoin and crypto, because US equities is no longer going to be delivering the things that we were used to for now over 30 years in the ways that it exerted dominance. So there is this weird, like, like very bearish version of this world as well, where it is actually totally deflationary and bitcoin can still emerge on top because there is global liquidity chasing an asset for which they must store value for growth. And you would also all hear no generation and secularly right. Young people really like crypto. Like, that is an unstoppable trend in the ways that people want to store their wealth in bitcoin versus almost anything else.
- [26:28]
Haseeb
So if I can reframe the story you just told right now, global wealth chases the US Stock market and everywhere in the world, despite the fact that it's kind of weird ex ante that a country that is relatively low growth is getting all of the world's savings. In a world where we're trying to fix that trade imbalance and we're trying to. Instead of having dollars come in, we're instead reversing that direction, then there still needs to be somewhere where people are going to YOLO and send all their money and try to chase gains. And instead of that global thing being the US Stock market, that global thing might be crypto.
- [27:02]
Jeff Alphaleak
Yeah. And in that world, I actually think is that positive row Bitcoin, where we can at least at that point, start even contemplating the idea of a strategic bitcoin reserve. Right. Because all of the evolution of bitcoin on the path in which it could serve that role requires a reset of that social contract of the dollar hegemony. I think.
- [27:22]
Haseeb
Let me, Let me, Let me ask more point of questions. Okay. Because right now, we're obviously a lot of fog of war. Nobody knows how this tariff situation is going to play out. And markets are whip song because. Wait, Haseeb, you don't know is it? Yeah. Okay, got it.
- [27:37]
Tom
Well, Jeff, you had A post about two months ago, Plaza Cord 2.0, talking about this exact phenomenon. Basically, like using tariffs to reset the dollar, lower rates. We're getting kind of like flavors of that. But then obviously, like the 10 years back above 4. Like, is this kind of playing out how you thought it would play out? Like. Like what. What has been surprising to you so far? Like, how do you think we kind of deviate from this path?
- [28:01]
Haseeb
Yeah, you're in the group chat.
- [28:03]
Tom
Yeah, I. Yeah, you're not in the group chat. All right. Why'd you. Later, maybe.
- [28:07]
Haseeb
Well, no, Jeff is clearly running the group chat. That's what it sounds like.
- [28:11]
Jeff Alphaleak
I need to be in the other fest you guys are on with with Arthur Hayes here. No, the thing that has concerned me a little bit since I was sharing my views on the long term effects of tariffs on the price of Bitcoin, is that it's definitely gotten less certain as to what the objective ultimately is that Trump wants to accomplish. I think in a totally rational world, the ability to have a Plaza Accord 2.0 is the sensible objective, which is that the dollar generally does need to depreciate for U.S. competitiveness. But you do want to want foreign creditors to continue to buy your Treasuries, and you do need to strike some kind of discretionary accord to achieve that outcome. That has to be manipulated. It's not going to happen without some consensus for different trade offs being made. And that is the ideal scenario. The moment for me that I lost a little faith in, potentially that being the most important priority at this moment was when Trump started to actually blindly go after almost everybody, including, in my opinion, the most untouchable ally in this whole ecosystem, which is Japan. If there was one country that you kind of had to be a little bit softer or make the exclusion for to be mindful of what Japan represents to America as an ally, who is now at this point, the largest creditor to U.S. treasuries, you require some sensitivity on it. And what you saw actually was that Trump not only did not give sensitivity, he literally bucketed Japan with China and said, you are also a currency manipulator. Right. And that is like an incredibly shocking thing for me to witness because Japan, if they ever manipulate their currency, does it on the benefit for the Americans. And so this lack of ability to nuance an ally in this conversation gave me a little bit of a wake up call that perhaps the end goal is maybe a little different. And the end goal maybe is a little bit of a protectionism at a escalated level that I thought even was not likely.
- [30:21]
Robert
I've come around to the theory that it's not even about protectionism so much as it is creating the tailwinds for an opinion shift about protectionism. I think there's a lot of chatter instantly of companies saying, oh, maybe we should be on shoring things again, simply because there's an unpredictability here and we want to be closer to the market. There's a lot of people that are actually pulling forward demand.
- [30:49]
Jeff Alphaleak
Right.
- [30:49]
Robert
I know a lot of people trying consumers get in front of tariffs by buying cars and, and furniture and durables. And all of these things.
- [30:58]
Jeff Alphaleak
And I think, like, you know, yes.
- [31:01]
Robert
The administration wants to see manufacturing jobs return and there's a lot of memes about that and there's a lot of jokes about that as well because, you know, we're not probably going to be manufacturing sweaters and socks and Nike shoes here that much.
- [31:15]
Haseeb
Speak for yourself. I'm getting to work after the show.
- [31:17]
Jeff Alphaleak
All right.
- [31:18]
Haseeb
I see it hit the factory. I did get a head start on my hand.
- [31:20]
Tom
You look pretty good in that AI video, Robert. I think you should consider, you know.
- [31:23]
Haseeb
That'S true, that's true. Putting toys, the tiny little nails, the little screws.
- [31:27]
Jeff Alphaleak
Yeah, yeah.
- [31:28]
Robert
And I don't think realistically there's the expectation that we're going to be bringing, you know, low end manufacturing back to America. I think if anything, it's for a couple extremely targeted industries like semiconductors and chips and things that are strategically.
- [31:43]
Haseeb
But we didn't put tariffs on semiconductors.
- [31:46]
Robert
I know, because, I mean, that's a sensitive.
- [31:50]
Haseeb
The one part of this policy that would potentially make a lot of sense geostrategically was excluded from tariffs totally.
- [31:58]
Robert
But like, you know, we can't shock the system that hard. Can you imagine if we put tariffs.
- [32:03]
Haseeb
On that tail to accomplish strategic goals of bringing. Yeah, okay, yeah, we can't do that.
- [32:08]
Robert
But I do think there is a piece that's being not talked about enough, which is, I think the geopolitical, you know, strategic element to this beyond trade itself, it's, in my opinion, you know, attempting to shift the balance of manufacturing out of China and into countries that we're more closely allied with.
- [32:28]
Haseeb
That is absolutely not true. We've been trying to do that to get people to go build in Vietnam and to go get people to build in Malaysia and Mexico, and then we slapped them with higher tariffs than we did on China.
- [32:41]
Robert
But we're going to, we're going to find deals with them and we're going to find amicable resolutions with those countries. We're probably not going to find it with China. The rhetoric and the escalation with China, it's a very different situation. And so I think an end state is going to be. We might have significant tariffs with China and not our allied countries. And if you're a business located in China, your first thought is like, I need to like uproot and go to Vietnam or go to Japan or go to one of these other countries that are more closely aligned with the US.
- [33:15]
Jeff Alphaleak
Yeah, I agree with you, Rob, that this is the path we have to imagine at some level as Americans too, because that is kind of the most efficient and optimal outcome. At the same time, it would be wrong for us to all assume there is no path dependency in how you achieve that outcome. That could be net negative too. Right. So, for example, I think yesterday the White House communicated Japan will have priority track as a way to engage tariff negotiations. Part of that, I'm sure, was to go back to Japan to give them a little something on what was probably a little bit of a big offense to give them a strategic advantage as an ally. So they're playing these games. But guess what happened actually in the last week and a half in that period while Japan was annoyed and the US did not give that priority pass, China actually came out and said that they are now exploring a tri party relationship on trade with Korea and Japan. And for that announcement to have been made public to me already implies that some backhand conversation happened in a way that China will get something out of it. Right. Because China wouldn't have put itself out there to make a statement like that of the three most unlikely countries, by the way, in Asia, that that kind of all hate each other to come forward and say we're going to set up a new trade alliance. So you don't know in the path dependency of what the US Is doing where side deals are being made. That is ultimately like a net negative to the power vacuum that's being created by the US that's kind of my biggest worry, that there is collateral damage to these things in ways that comes back later because it is a multilateral world we live in and we should be thoughtful about that.
- [34:53]
Haseeb
I mean, I think I wanted to avoid getting into the actual kind of political tit for tat stuff around tariff.
- [34:59]
Robert
Well, let's bring it to crypto.
- [35:01]
Haseeb
Yeah, yeah. Look, given that we're here, I guess it's pretty obvious from what everyone's heard from me so far is that I think these tariffs are obviously incredibly misguided and that there is no coherent strategy, which you can see from the fact that, yeah, we exempted semiconductors, which are the most militarily and geopolitically important thing that you could consider reshoring. We put our allies, many of them have higher tariffs than our stated enemies. Russia and Belarus are the only countries excluded from the list, such that we presumably have the door to have free trade with Russia and Belarus. And China itself is taking advantage of all this by being an incredibly stable partner that is now increasingly committing themselves to free trade and being a more stable trading partner. To more and more countries around the world. So I think Trump's instincts around negotiating and politics clearly are oriented around power and not around alliances and diplomacy. And there are times when that is tactical. I think peacetime, where everything's going great, where you have historically low unemployment, where you're making money hand over fist, you're on the cusp of a technological revolution with AI and crypto is not the time to suddenly start picking fights and making everyone your enemy.
- [36:15]
Jeff Alphaleak
This is true. And the thing that I'm concerned with a little bit is that if we have the world reassessing the role of the dollar and global financial system that is created, it is true that they're all alternative models that are out there. And one of the ways I like to have this conversation is reminding about the impossible trinity, which a lot of Econ 101 students may be familiar with. But it's this idea that in the way that we have floating currency post Bretton woods, there's actually impossible trinity where you can only have two of the three things to run the monetary system that you want, right? The three things are you must have open capital border to flow. You have to have an independent central bank that can set your own monetary policies. And the third thing is the FX has to be floating. And in other words, if you take away one of these things, the other thing has to give. So, for example, the US chose that they want open capital borders, they want the Fed, but because to do that, they need to let the dollar float, whereas China has done something different, which is that they're actually not going to have open borders and they are going to have PBoC. So they can fix the FX and it is therefore closed and they can manipulate. That euro has actually done the other version where they do have open capital borders. The euro obviously floats, but there is no real sovereign central bank that is dictating policies in the ways that it rolls up to the greater entity of a euro trade area. It's not like each of these countries are represented to set their own domestic agendas. So there are different models out there of how to design a global currency. And the challenges that are now happening is that people are going to start asking the questions about what other systems might work better than the one that the US has pushed for, which is.
- [38:09]
Robert
A free float peg, or it's Bitcoin.
- [38:16]
Jeff Alphaleak
All three plagues eventually lead to Bitcoin.
- [38:20]
Haseeb
Okay, all right, so real quickly, I want to end this segment with just one sort of playing out different ways that this whole year might end up going one path. Obviously there's high likelihood of a recession. And let's say that we end up in a stagflationary environment where there's both a recession and inflation remains high because of these tariffs. How do you think base case Bitcoin is going to do in that world?
- [38:43]
Jeff Alphaleak
Well, Bitwise's price target is 200k by the end of the year and I still think we have a good shot at it.
- [38:48]
Haseeb
Even in stagflation. In stagflation?
- [38:51]
Jeff Alphaleak
Yeah. I think there is a version of it where Bitcoin still can be the fastest force in that world where people do need.
- [38:56]
Haseeb
Okay, so you think Bitcoin wins in stagflation? Okay, let's say that instead of stagflation, Fed just starts really cutting, stimulating QE and that brings the economy back up and running. Inflation is still high. How do you think Bitcoin does then?
- [39:10]
Jeff Alphaleak
I say it does even better.
- [39:12]
Haseeb
Okay, so higher than 200k, that's the case. And let's say, let's say walk back.
- [39:18]
Jeff Alphaleak
Oh man. Man, you never, you don't know. I mean these things can go in ways that it is actually just a moment of time as a reflection, as a flow asset. I honestly think nobody knows where these things can go. It's a commodity. Right?
- [39:30]
Haseeb
Like, well, we brought you on because we want. So we thought you knew.
- [39:33]
Robert
Yeah, you're the alpha leak liaison.
- [39:36]
Haseeb
That's right.
- [39:37]
Jeff Alphaleak
Well, I, I am a very path dependent options pricer. And so I assume I assess the entire local volatility surface which requires us to recalibrate.
- [39:47]
Haseeb
Okay, last question, last question. Let's say, let's say that tariffs get walked back. Let's say, let's say that what happens, they get challenged in courts. Courts overturn them. Congress doesn't have the stomach to like re. Put the tariffs back on. And so the whole tariff strategy just ends up kind of fizzling out. Do you think Bitcoin is higher in that universe or lower in that universe than the world where tariffs stay on and we get stagflation and Fed inflates?
- [40:11]
Jeff Alphaleak
I think that's still a decent outcome.
- [40:14]
Haseeb
But is it better or worse for bitcoin?
- [40:17]
Jeff Alphaleak
I think that it depends on how other assets ultimately behave in that situation too.
- [40:21]
Haseeb
Okay, you got to give me binary answer. No, if, maybe this, maybe that. Binary answer. No hedging. There's a spicy options pricing. Options pricing, yeah.
- [40:28]
Jeff Alphaleak
Still good for bitcoin. Maybe that's 175k outcome.
- [40:33]
Haseeb
Okay, so worse if we walk back the tariffs, Better if Tariffs stay on and Fed stimulates.
- [40:40]
Jeff Alphaleak
Yeah.
- [40:40]
Haseeb
Is that right? Okay.
- [40:41]
Jeff Alphaleak
Yeah.
- [40:42]
Haseeb
All right. Interesting.
- [40:43]
Jeff Alphaleak
Yeah, interesting. What do you guys think?
- [40:44]
Haseeb
But either way, we're going to 175.
- [40:47]
Robert
I mean, it's impossible to say, but I think if we walk back tariffs and it's like nothing actually comes of this and it's like, oh, we like, literally rewinded two weeks ago. The only real net change is that there has been a change in confidence between all of our different trading partners in the US And I do think that that might continue to be a festering issue for the US But I also think that it could be good for alternate economic structures. It could be great for bitcoin. Right. I think people might say they're losing faith in US treasury assets. They could lose faith in the US Dollar.
- [41:30]
Haseeb
But do you think it's better for Bitcoin if tariffs stay on and Fed stimulates, or do you think it's better.
- [41:35]
Robert
If tariff stay on? Tariffs stay on is way better, in my opinion.
- [41:38]
Haseeb
You think it's better for Bitcoin? For tariffs stay on?
- [41:39]
Robert
Yes.
- [41:42]
Haseeb
Do you think the market is incorrectly pricing bitcoin lower? It should be pricing it higher, yes.
- [41:47]
Robert
Because the market sees one step ahead. It doesn't see two steps ahead. Everyone markets are looking at like, what's happening right this second.
- [41:55]
Jeff Alphaleak
Sure.
- [41:55]
Tom
I mean, I more or less agree with Robert that, like, you can't unsee what you, what you've seen. And so even if tariffs are totally gone and we're back to two weeks ago, like, dollar is still lower. And I think that's probably better for bitcoin, all else equal. I, I always struggle a little bit with the kind of, of global liquidity sync bitcoin story. Like, I feel like we've had a lot of tips for that and it's kind of struggled. It's looking to trade like a risk asset. Like, I'd love it to be another sort of gold rip, but it just, we haven't seen that yet. And maybe now is the time. I mean, there's always a first time for something, but it's hard to kind of look at price action from past three, four years and be like, this is finally going to be the sort of flight to quality.
- [42:34]
Haseeb
Okay. Do you agree with Robert that tariff stay on is better for bitcoin at the end of the year?
- [42:39]
Tom
No, probably not. I think it's gonna take a while to kind of digest everything.
- [42:43]
Haseeb
Okay, so you think it's better if tariffs can walk back?
- [42:46]
Tom
Yes.
- [42:48]
Haseeb
Yeah. Okay. Interesting. I. I am not sure What I think, I think it's probably true that tariff staying on and like just kind of holding the pain and causing a lot more instability will likely result in higher bitcoin price at the end of the year. I think that's one of those like crypto decoupling from real economy type things that I think is actually quite likely because the Fed and central banks around the world putting on real stimulus to try to save their economies from the shock is going to be distortive of asset prices. And so I think that's likely. I think it's possible that that happens to bitcoin and not to alts. So there may be like again, a sort of decoupling between bitcoin and alts in that world, but I don't know. I'm genuinely very, very uncertain about what happens in either world. I think it's like very, it's, it's really counterintuitive because on any given day, bitcoin's not doing what it's supposed to. Alts are not doing what they're supposed to. Correlations are breaking. Sometimes bitcoin is trading with gold, sometimes trading with the nasdaq, sometimes it's like just leaving the both, both of them behind and doing its own thing. So it's clear that like this asset is changing, like right now. And we're learning something new about how crypto is going to behave. Seeing the, you know, we've only ever really seen crypto as mostly a retail asset and bitcoin in particular now is increasingly institutional and as a result it's behaving very differently than it's ever behaved before. And so we're learning something really new. I think like by 25, 26, we're going to be talking about Bitcoin very differently than the way that we're talking about it right now. It's 25 right now, sorry, 26, 27. We're going to be talking about bitcoin very differently and we'll have a different mental model would be my guess. By call it the end of this year of how crypto really behaves in a huge macro dislocation.
- [44:30]
Jeff Alphaleak
Yeah, agreed. And global liquidity too. I think people will start to be a little bit more nuanced about the levers of those conversations. Right. Because Tom, as you mentioned, one of the issues with global liquidity too is dollar weakening is actually a good event for global liquidity, generally speaking. But I'm not sure if the dollar weakening version of global liquidity increasing is the thing that drives bitcoin valuation. And there's other ways to imagine people will be smarter and thoughtful about what this all means from a stimulus perspective.
- [44:56]
Robert
Yeah, I just remember very vividly Bitcoin and the rest of crypto doing quite poorly during COVID until the effects of liquidity usurped the effects of fear.
- [45:10]
Haseeb
That's right, that's right. So, okay, two other stories I want to get to on the capital market side that are somewhat connected to this overall story. The first, of course, was the announcement of Circle filing for their IPO. Circle was planning to go out at 4 to 5 billion. Obviously Circle has been one of these companies that's been trying to make their way into the public markets for years now. They've been stymied previously by Gensler and just the bullheadedness of the previous SEC toward allowing crypto companies to go public. They finally got the green light, ostensibly until of course, the. The tariff tantrums began and they announced that they were going to be delaying their ipo. So Circle pulled. But there was a lot of back and forth about the viability of this company, how it was going to be treated by capital markets, and whether or not they were able to get the valuation that they were looking for, given the nature of the business. Jeff, I don't know how deep you are in the Circle balance sheet or Robert, I'm sure you probably spent some time taking a look at that business. How do you guys size up how Circle looks? How do you think it's going to be treated? Obviously right now there's a pause. All of these IPOs have been pulled. Everybody that was planning to go out is now sitting on the sidelines until market stabilize. But taking all that aside, how do you think about Circle as a business hitting the public markets?
- [46:24]
Robert
Yeah, my takes were that I actually think their numbers are not reflective of the growth in USDC over the past couple months and quarters. USDC has been growing and when you look at year over year numbers, there's a lot of lag that's there because they're a business that earns interest off of the float of the reserve backing their stablecoin. And if something is growing throughout a year, it's not going to be increasing revenue all of that much.
- [46:54]
Haseeb
Right.
- [46:54]
Robert
There's an averaging out effect to it. And so I actually think their numbers are a little bit stronger than initially perceived simply because their snapshot of what are they earning on a daily basis today is so much higher than it was a year ago. And they also have a lot of heavy cost structures in there. And so if the USDC supply is growing, it will disproportionately benefit them. And so I don't. I think that's been underappreciated. The thing that I've appreciated about everyone's takes on crypto Twitter, was just how large of an organization Circle is relative to tether. You know, people are saying Circle's a fraction of the size and it has, you know, 40 times the headcount or whatever. There's also some efficiencies there and like, maybe they can be more efficient with how they staff the firm, you know, on a going forward basis. You know, the executives are extremely well compensated. All of that came out right. It might not be the tightest run ship right now. And that might be a product of the fact that they're into good times. They have 4% plus that they're earning on tens of billions of dollars without too much effort. And so there might be good times syndrome. But if the good times get even better, their business is going to take off. And if it gets worse, they'll have to make some difficult decisions.
- [48:12]
Haseeb
So one of the central questions looking at Circle is trying to figure out how are public markets going to treat this business? Like, how are they going to categorize this business? Is this an asset management business or is this a tech business? And depending on which you think it is, you're going to sign a very different multiple. Robert, what's your take of how you think public markets will perceive Circle when it goes live?
- [48:33]
Robert
Yeah, I think it's an asset management business simply because they're earning a whopping, we'll call it 4% and a little bit of change on every dollar. I mean, they have to split some with Coinbase, blah, blah, blah.
- [48:46]
Haseeb
But they're earning 4%, 4% a lot with Coinbase.
- [48:50]
Jeff Alphaleak
Yeah, yeah, a lot.
- [48:54]
Tom
Most, some might say that might be a better.
- [48:59]
Jeff Alphaleak
Management.
- [48:59]
Robert
They earn a massive fee on AUM behind the stablecoin. And so it doesn't matter what bells and whistles they roll out for developers. None of that's really going to change revenue, the driver of their revenue and of their margin. And all of that is just going to be how many USDC are issued and what is the Fed target rate. That's it. That's the whole business?
- [49:23]
Jeff Alphaleak
Yeah, yeah. To that point, Robert, I would almost argue, likewise, that it is an asset management construct, but it might be an inverse asset management multiple. What I mean by that is actually this could be the scenario in which as an asset management business, it is wildly Profitable where rates are high as an alternatives asset manager. Right. To your point, it's long rates and actually most of the Blackstone types of the world that are publicly traded benefit with lower rates. And so it's actually got a different relationship to the duration component of the asset management business that I think has some profound implications. One might even say that a Bitcoin portfolio paired with Circle as like a rates hedge could be a useful utility.
- [50:10]
Haseeb
In that purpose could sell.
- [50:13]
Jeff Alphaleak
But you know, just double clicking too on like the revenue split with Coinbase, I feel like for me that was the most like alerted thing I was surprised and shocked to kind of focus on. Right. Because at the end of the day, you know, the multiples come down to the ability to have a strategic moat that is defensible. And it does make you wonder like how defensible the moat of the business can be if the take rate on being a distributor partner can be so high in the way that Coinbase is obviously taking half of it. And that kind of, I think for me at least made you think a little bit about the defensibility of the moat or whether it's really not a tech play at all and it's actually a distribution play. And if it's a distribution play, then that's very different than the underwriting that you would put put towards that multiple. We'll see.
- [51:04]
Haseeb
Tom, how do you think about Circle?
- [51:06]
Tom
I'm going to bite my tongue a little bit because I don't want to be known even more known as a Circle hater because I think they're very nice people and I really appreciate what they do for the industry. I just had a half joke tweet about a year ago that Tethers should just buy Circle or they could buy them several easily with one quarter of profits. And frankly I think it's kind of a less of a joke as time goes on. I think think Tether is much better structured in terms of like overall company operating costs. They could easily buy this thing. They don't have anyone who's trying to in Washington who's trying to kill them anymore. And they could easily like, you know, tear up these agreements with Coinbase or frankly just wind down the product and after the conversion into USDT and like end up with a much better sort of company structure than what Circle has right now. And so I think when I look at how they've been changing it throughout the years, like if you think we sort of top ticked rates, their margin continues to shrink and actual overall profitability continues to shrink. And so, so I just don't really know what the bull case is. I think the tech story is cool, but not really kind of played out. It just really just looks like an asset manager.
- [52:05]
Haseeb
Okay, I should confess I haven't studied the Circle S1 at all, but I've seen some of the takes. There is a countervailing force that we saw when rates started ticking up, that total stablecoin supply went down. Which makes sense because now there's a, when rates are zero, then, okay, there's no opportunity cost to go and put your money on chain and like have the yield be captured by, you know, some of these companies as, as rates decrease, that should bring more dollars into the stablecoin complex. So there's some countervailing force. Is it one for one? I don't, you know, probably not. Maybe not. Maybe, maybe it is in a time when stablecoins are more regulated and they're perceived as being less risky than they were in 2021, 2022. So one, that's not totally clear to me. Second, clearly it's also true that Circle can charge large fees on creation and redemption. And ultimately if you own the specie that people are using to pay each other and if Circle ends up having an advantage in a post stable act, genius act world because of the fact that it's easier for them to get licensed, it's easier for them to get in the good graces of regulators, they may end up being a large lead over tether in terms of the regulatory stuff. And if so, can they monetize that? Probably. Especially if there's going to be a race for other people to try to partner up and integrate stablecoins into their businesses domestically. So there's, there's a lot of storytelling one can do beyond just okay, well, you're, you're, you're a bank, you have, you have assets, you have liabilities, you collect the float. I agree with you. That's currently the way the business looks because rates are high. As rates come down, they're going to find other ways to monetize this business because of course they will. I mean these things are, it's basically a duopoly right now between Circle and Tether. And increasingly, I think what you probably will see is that the market will get cut up into like you already see in DeFi DeFi. USDC rules the roost. And when it comes to emerging markets, overwhelmingly it's tether that's used. You may see that if it works this way, that there's basically separate domains that each of these stablecoin issuers own. That kind of means that each of them can monetize really aggressively in their own domains. And they're not going to be as afraid of price competition. Because if you're in Defi, there's just no other option. If you're in emerging markets, there's no other option. You kind of have to use their token and therefore they can charge a lot more on, on ramp and off ramp. Look for example, at Tron. So Tron has historically high fees. Right now if you go look at Tron, like right now, if you go look at blockchain fees, most blockchains, the fees are very low right now because it's kind of a lull. Right? Everyone's focused on macro activity is pretty low. There's not a lot of trading volume and yet Tron fees are really high. Why are Tron fees so high? Tron fees are not really high because of congestion. Tron fees are high because the validators voted to raise fees. Which is basically, you can sort of think of that as, you know, Justin sun, you know, roundup to say Justin sun decided, you know what, I'm going to monetize the fact that people have to use Tron. And so basically Tron is just taking a huge cut of all the payments activity that's happening on Tron and they're making sure shitloads of money. This to me is a glimpse of. That's what it looks like when you have a monopoly on a payment substrate. So could it be that Tether and USCC figure out a way to make that kind of fee for themselves? I don't see why they couldn't in a world where the core business model of Treasuries no longer is as attractive.
- [55:27]
Tom
Yeah, I think that is, I mean the story, and certainly the reg capture story is part of that. But I'm like, I think the balance sheet almost tells a different story, which is like that is the percentage of USDC that's on Coinbase effectively. And so therefore it's not being used as a payment substrate. And so I think it's, it's great and I really want that to be true and I would love to see this, this market form into more of a duopoly and have more competitors. But like practically speaking, again, short of their efforts to basically make Tether illegal, I, I don't really see how that kind of becomes true. That's why I think Tether should buy, get a nice discount.
- [56:04]
Robert
That would be such a crazy outcome. That would be Such a crazy outcome. I mean, that would be so monopolistic and sad as well. I mean, I just can't ignore.
- [56:14]
Haseeb
I mean, I also think, well, antitrust is over, so it would work.
- [56:18]
Jeff Alphaleak
Yeah. Well, I also think that it is almost so unlikely for it to happen because the strategic vested interest the US Would even have is to actually keep it as separate entities. Right. Because the great exorbitant privilege that you're describing of Tron Haseeb is essentially the value for which you can actually earn a fee off of foreigners that are willing to park their money in dollars and they're happy to do it at whatever cost. Right. So you can actually discriminate a bit against foreign holders versus the way you have to treat your American citizens. And that exorbitant privilege itself is the premium that you can extract. So you almost kind of want that entity to be different than the entity that is servicing the needs of the domestic Americans as like a payment solution. So for those reasons, even at a philosophical level, even as an American version of supremacy, you want those two things to be separate. And so, actually, I think it'd be a very bad outcome if that were to happen because you probably still then will find another patriarch confiding American company, emerge and try to compete with Tether, and it's going to be that much harder for the U.S. sure.
- [57:32]
Haseeb
Okay, so, last story again, on the capital market side, we just had today an announcement of the largest M and A transaction in the history of the crypto industry, which was the acquisition by Ripple Labs of hidden road for $1.25 billion. So hidden road is a. If you're not familiar with Hidden Road, they're kind of an institutional product that I think most retail investors will not have come across. Hidden Road is basically a prime broker. They're the second largest prime broker in crypto behind Falcon X. And they facilitate, I believe it was $3 trillion annually. They have over 300 institutional customers. So it was really. You know, a lot of times when you see these M and A transactions, they are. The headline number is kind of a mishmash of a bunch of different things, or it's like earnouts and all this other stuff that's kind of convoluted structure that gets rounded up to a big headline number. But this was unequivocally biggest M and a very, very large transaction that I think for Ripple is very strategic for them, trying to, one, use their balance sheet more effectively because obviously they have a huge amount of cash that they're sitting on. And second, Also to increase the expansion of rlusd, which is Ripple's new stablecoin that they're trying to internationalize. So very interesting. M and A. So we're actually investors in this company. So now we're investors in Ripple Labs.
- [58:54]
Robert
Congratulation.
- [58:54]
Haseeb
The Hidden Road team pretty well. Thank you. But I think for the industry it's kind of an interesting moment, especially given the backdrop of what's going on macro wise and all the instability that's been happening in markets. Markets are down across the board. It's a bad look for most things in the crypto industry being down so much this year. And yet there's this countervailing force of stablecoins, growing institutions coming into the space. The ETF complex looking really strong. So just want to get quick reflections from everybody around the horn here. Robert, what did you think when you saw the story about this huge transaction?
- [59:31]
Jeff Alphaleak
Yep.
- [59:32]
Robert
Well, small disclosure, super state that I'm the CEO of we are a client of Hidden Road and we use them for trade execution. Things are a great team and a great product. You know when I saw it it was kind of like a little bit of aha. There were some rumors going around that Falcon X was looking to acquire that them. I could have also seen them going to a coinbase or some other exchange. So to see that Ripple was the acquirer was a little bit eyebrow raising when I first read it. I think it makes sense for Ripple. It's not that expensive for how much market share Hidden Road has and if it even vaguely increases use of the XRP ledger. You know, I think that, that they can sell that narrative to the public and sell enough XRP to finance the whole thing. So it seems like it's accretive to Ripple and it seems like a savvy move. I just didn't really see it coming.
- [60:27]
Jeff Alphaleak
Yeah, I think I share the same sentiment. I was a little surprised. Maybe also not surprised in the sense that there has been this overwhelming trend of consolidation of crypto services. Merging with traditional financial services and offering that kind of multi asset solution may be the worthwhile end. I think the thing that surprised me a little bit was for me, I've always associated Hidden Road as a little bit of a down payment. Citadel made into the chance to think about crypto as a foray. I would have thought two outcomes of this means either Citadel would have found it to be a worthwhile thing to take upon themselves in this regulatory clarity, or two, they would continue to fund it as an outsourced business. They actually still want to Have a strategic state for it, but not touch yet. For me then it confirms what I think I always knew, which was that it's almost much easier for traditional companies to go into crypto to offer some of the auxiliary services than vice versa. Right. Because I think for me, as an outside observer, what I've noticed with Hidden Road is they've tried to branch into more things that are not crypto at all. They have crypto, sure. But they're also trying to offer a full suite of multi asset solutions where they want to become a fixed income clearing partner or dealer. All the things actually Citadel can do. And so it reminded me at this moment where you have the Goldmans of the world trying to offer prime brokerages now to compete with Falcon X. It's actually kind of challenging for crypto to go to tradfi as it's much easier for tradfi to come to crypto and maybe this deal reflects that kind of trend as a moment in time was kind of my developing thoughts of it.
- [62:10]
Haseeb
Tom, what's your take?
- [62:12]
Tom
I don't know if I was really surprised given a portfolio company, but that's great.
- [62:16]
Haseeb
Can't believe that.
- [62:17]
Tom
Yeah, incredible. Love to be a Ripple Labs investor.
- [62:20]
Haseeb
So yeah, I'd say, you know, from my perspective, I think the. So you know, for most people who are listening to this, it probably, the average person probably doesn't even know what a prime broker is. So I think for many people they hear like, wow, biggest M and A in crypto and it's like this Byzantine thing that 300 customers use. So there is a little bit of, I think this is, this is kind of the financial plumbing of crypto growing up.
- [62:41]
Jeff Alphaleak
Up.
- [62:41]
Haseeb
And in a way, Hidden Road was kind of a response to FTX as well. A big part of why this thing exists and why it's so important is because more and more institutional traders, especially in a post FTX world, they don't want to deal with counterparty risk. They want some kind of neutral player sitting between them and the exchange. And that's what prime brokers and Hidden Road fundamentally does. So a lot of other stuff that it does in terms of making increasing capital efficiency, but that's kind of one of the main stories. As you mentioned, they were spun out from Citadel, which is a big hedge fund asset manager. And so it really is this kind of intersection marriage of traditional finance and crypto market structure. So to me, the big story here, all the strategic synergies aside of okay, yeah, Ripple, clearly you can understand why they see the advantage of Distribution with having something like Hidden Road in their wheelhouse. That being said, Hidden Road has to be be still a neutral party and it's going to be operating separately in order for it to still be a useful prime broker. And that's one of the reasons why Coinbase can't really have a prime broker, because Coinbase is the exchange. Right. So it's not perceived as being neutral. So I think the big thing is that this is vindication that crypto's growing up like this kind of real M and A, like M and A of this size, but also this company being this successful. They're both vindications of cryptos growing up. Up. The industry is maturing and I think for everything in this space, it's a good signal of what's to come. For markets right now, it's really hard to be positive given everything that's going on in the world and given how much markets have given up this year. But things like this, I think are these bright spots that there are forward looking reasons to be optimistic about what's going on in the space. And I think for long term capital, there's a lot of people who see that and are willing to make big bets on it. For me, that's the takeaway, if nothing else, of like, hey, there's still, you know, there's still money out there in M and A that's happening, which is also a good sign. So I think, you know, we saw last year bridge this year with Rebel Labs doing this M and A. So open challenge. Whoever wants to best this one.
- [64:47]
Tom
Circle.
- [64:49]
Jeff Alphaleak
Circle. Watch out.
- [64:50]
Haseeb
Tether, Tether.
- [64:51]
Tom
Largest so far.
- [64:53]
Haseeb
That's right. You can top them. You can top them. You just have to credit tomorrow to be. Just put, put. As long as Tom's in between the tweet, we're okay with it. Yeah. Okay. Excellent. All right, well, we're up on time. We gotta wrap. Thank you everybody. And we'll be back next week.
- [65:08]
Jeff Alphaleak
Awesome.