The Truth About Tether, Stablecoins & JPMorgan’s Quiet Bitcoin Bet

It all comes down to computers communicating. >> The information superighway can be a confusing mix of on-ramps and off-ramps. Bitcoin is worthless artificial gold. >> Is it still rat poison? >> Probably rat poison squared. >> We need to get into the world of okay, this is actually foundational technology. What the internet of money does is it creates a single network which can do a microtransaction to a giga transaction. The internet is going to be one of the major forces for reducing the roll of gun. The one thing that's missing but that will soon be developed is a reliable ecash. Hey guys, welcome back to another episode of Final Settlement. This was uh an exciting and action-packed episode. No shortage of M&A deals and um new products and releases in the ecosystem. Quick word from On-Ramp, an on-ramp business specifically. I'm not sure we've had a chance to share it here. We launched this a few weeks ago. Incredibly excited about the product. Um, we announced a case study with a large firm, but also really foundational infrastructure needed for businesses across the landscape that are adopting Bitcoin as a treasury reserve asset. Not only is multi-institution a superior way to custody the underlying than trusting a single custodian, but then naturally what's existed or what hasn't existed in the digital asset Bitcoin um world is governance accessbased controls and everything that generally exists in the traditional financial system has not been ported over when it comes to just treasury management of the underlying Bitcoin. And so with on business institutions, enterprises get access to multiple users. They get access to uh creating quorum of quorum. So they can decide on who has access to uh check off or approve a transaction before the withdrawal takes place. And then you get complete audit controls as well as multiple uh wallets, different quorums, everything that a large scale institution would need. Really excited about this announcement. and we're starting to onboard publicly traded companies as well as other large institutions. If you want to learn more, I'd encourage you to book a consultation or reach out. All right, on to the episode. I hope you guys enjoy. >> All right, gentlemen. Welcome back to another episode of Final Settlement. Today is December 1st, 10:20 a.m. Eastern Standard Time. Gentlemen, how was your holiday weekend? Good Thanksgiving, I I hope. I take it. Spend some time with family. >> Great Thanksgiving. uh seems like there's more people than I would have expected that really own Bitcoin, at least in in my broader family, but there's a real lack of understanding about it. Um so, you know, the the sentiment is is solid, but they're coming out there saying, uh should I sell all my Bitcoin for Ethereum and and everything else like that? So, clearly not listening to the pod, um or or doing quite as much research as as we do dayto-day. It's just uh it's good to always have the sentiment checked that there's a lot of people out there that that are interested but um not not quite as deep as we are. >> Yeah, it's been a quiet year. I don't think there was I think this year we being dayto-day doing the pods, being in the weeds in this industry, you think a lot's happening and there is, but outside from a market perspective, it's like the Bitcoin thing is just kind of hanging out there. You're still into that. >> Yeah, the Trump Bitcoin thing. Trump Bitcoin thing, but good uh Thanksgiving. Interesting that it's like I don't know what it means to be this late. It came up yesterday, but the fact that we're in December already is pretty wild. The end of the year is upon us. We only have like three about three business weeks left before things start to to wind down. Um I feel like it's going to be a volatile end of the year. I don't know which direction, but it isn't I don't think we're going to be sitting here in January still at $85,000. >> Yeah. Yeah. Yeah, I mean it's been a very from a from a sort of historical volatility perspective, it's been a very muted year for Bitcoin. We've kind of been in this large range from, you know, call it 75 to 125. We just oscillated back and forth. Um, but uh Liam, that's that's good to hear, I guess, in in in some ways that uh some family members are are adopting Bitcoin, but maybe they're listening to uh they're listening to the Tom Lees of the world on MSNBC instead of uh Final Settlement or The Last Trade. So, we just switch up their um their signal. Uh >> yeah, a lot of spike coiners, too, who just hate Bitcoin, but they don't want to be wrong about it, too. So, they just want to have at least a little bit. >> Many Bitcoiners begin as as spy coiners, and then uh then you learn more, you find more signal, and you you graduate from being a Spitecoiner. Um but uh we're going to start today with some news from last week around Tether and some broader discussion that you know of course this is not new. There's been uh questions or concerns around Tether's uh you know quote unquote stability or their reserves in general um as backing for uh for many years. Um and so this is sort of the latest round of that. Um, so the S&P downgraded uh Tether to a rating of weak um citing their Bitcoin holdings um as a concern. And so just as some context for what this is, this is not a typical sort of S&P credit rating. Uh a couple years back they created what uh they call the stable coin stability assessment. Um and so this is a stablecoin specific um sort of rating and it goes from 1 to five with five being uh the weakest. And so they gave Tether a five effectively um citing effectively um this this buffer uh in their reserves of assets uh namely gold and Bitcoin that right now um is a positive buffer um but effectively the the concern would be you know if Bitcoin and gold were to decline materially um then that positive buffer would potentially become a negative buffer and they wouldn't have uh full backing with um US treasuries and so um there was some discussion from Arthur Hayes on this um pulling up their you know Tether's most recent assetation and maybe Liam I'll hand it to you to give a little bit more color on what Arthur is arguing and then we can go to uh what Paulo uh from Tether responded to this as well. >> Yeah, essentially they audited one of Tether's subsidiary business units and right now uh Tether is significantly over collateralized. So, if you pull up the chart, it looks like outstanding. I think there's about $180 billion in USDT. Um, and then right now there is, you know, about 60 plus% of that is in US Treasury bills. And then, um, a lot of other similar units, um, overnight repo, reverse repo, money market funds, cash and, um, you know, bank accounts, etc. Uh, and then there's also a little bit that's a little bit more risky than that. Um, secured loans. I would imagine a lot of that is Bitcoin collateralized lending. Um, as well as corporate bonds. And then there's about 3 billion in other investments. That's probably some of their VC related things. And then they have about combined 24ish billion in uh gold and bitcoin with the most of that being in gold. Um, so as of right now, what S&P and and some others are arguing is that if there was a 30% drop in the price of gold and Bitcoin and at the same time there was going to be a run on all of the stable coins, um, essentially trying to redeem at par, there would be a shortfall based on this audit. Um, however, Paulo kind of argued that at the same time that's that's not how they should be looking at this because the Tether Group just passes back dividends to um the rest of their other subsidiaries and outside of that they have uh fully collateralized their outstanding stable coins in the form of short-term treasury bills and they have other assets that can meet any um redemptions. So a a lot to say that this is going to probably spook some people who are you know definitely less sophisticated who like thought that everything was onetoone and are looking for auditors to confirm that especially if you have fiduciary duty to shareholders and want to make sure that you know any stable coins that you hold like your counterparty is definitely going to be 100% solvent. So, um I would imagine that this is their first well this is their first audit. So maybe they just have things in different subsidiaries that they didn't necessarily know um need to be in certain places but um probably a little bit of concern for institutional investors who want to make sure that they have everything squared away as well as um will be big because I know was looking to raise at a half a trillion dollar valuation. So, um, this may shake away a few people, but, um, I'm sure that at some point in the future, they're going to have this 100% squared away. Um, and yeah, that's that's kind of where where this audit landed. >> This is a fun one to talk about because um, I didn't do a deep dive. I saw I think there's a a thread we should pull on after this is just the the crazy FUD in general and what's happening. Um, you know, where there's smoke, there's fire. I think there's a lot of discussion to be had around the JPM uh sailor and whatever's happening there. But I think when you just see this like domino of continued kind of like you know uh just smoke around the industry I think there's there's something happening. Um but independent of that on this I would I have a few interesting takes. I'm curious your guys thoughts. I'm not fully formed but one is I don't think that they mistake their or was their first time auditing like they've been asked to audit for basically a decade now. They've always had this FUD around backing that they're very sophisticated. We can't give them the credit on everything they do and then be like, "Well, you didn't know how to audit." I think this is as best as they could put their book to look. Now, where I don't think anybody's right or wrong here. They're just stating the facts is there's no safe play. We've talked about this before. I forget if it was last trader here, but there's no safety net. Like, if you're all in BTC, you have to stomach the volatility. And if you're all in dollars, you have to stomach the volatility of losing your purchasing power. If you're all in treasury bonds, you have to summit the volatility of also losing your purchasing power. And to Arthur's point with Tether is that they are concerned because their business model relies solely on interest rates and um generating income from the issued tether in the reserves. And if they expect that the market, whether it's because purchasing power or also interest rates are going to be lowering, well, they theoretically do not want to wipe that out. um they want those reserves and that capital to be secured in hard assets like gold, Bitcoin and they're basically playing a game of and we talked about this uh last week I was recording a podcast with um founder CEO of Ario uh Gustavo and uh Lynn and she was asking a common question about like startups and Bitcoin and how much Bitcoin do you hold on the balance sheet and it's like well it's more of an art than a science because you have to be willing to step into equity and other positions maybe personal balance sheet if the price retraces if you don't have that option ity. Well, then you probably want Bor in dollars. And so, point being is I think um Tether's doing what they have to do. I think that Arthur's also doing what he has to do because he has his own, I believe, stable coin. He's backed. And um I do think it's really fascinating to look at, well, they're claiming to have equity um that they can tap and others other things to make the hole if there was a a gap. But like when the price retraces, the market kind of goes no bid for like whether it's your equity to tap it out and your equity is not worth what it once was. Um, so there's that. The last thing on all of that is um I think the Tether Tether in general is in an interesting position because they're becoming um almost systemic in the sense of they are relied on so much in the crypto and digital asset space and they've historically had different ways to make gaps whole. I think most people forget or didn't even know back in I want to say it was 2018 2019 when I think $750 million was seized out of I think it was the DelTech bank where they secured assets because of just all the kind of shadiness that Tether and their banking partners were um involved with. they had to make that uh hole and so they issued the LEO stable coin and there was rumors that they had unpegged. I think it's pretty widely known within the industry that they've unpegged from their dollar stable coin multiple times over but the reality is because it's the dominant trading pair in crypto. Most people gloss over it believing that they will be able to make it whole. And so I think that's where we're kind of heading to where if there's ever a world where this happens, somebody's going to step in. Yeah, I'll pause there. I know there's a lot. There's some other thoughts, but curious Brian, what you got? >> Yeah, I I kind of see two big disconnects in in terms of like how this is being perceived and what's the reality on the ground. The first that you sort of alluded to is the the systemic nature of what Tether has become and particularly with, you know, in with the context of this administration and their push around stable coins and, you know, the the Bohines of the world sort of um, you know, crossing the chasm between the the actual administration and then now working for Tether and then you have the, you know, the Caner the Caner relationship which has existed for years. Um, and then you have them launching, you know, USA, like they wouldn't be doing these things and having these, you know, tightening the fidelity of these existing relationships, um, if they weren't going to ultimately get to a compliant place. And that was the big story from the summer was that, uh, with the passage of the Genius Act, like Tether was not compliant, but they had this three-year window to get compliant. And so, I think part of me just says like we're in the early stages of that. And the other sort of dis big disconnect and it relates back to a few weeks ago when um S&P issued a a an actual credit rating for MSTR. Um and you know the Treasury company people were excited because they were just at least recognized by the S&P but it was a junk bond rating and and the rationale around that was effectively they were looking at Bitcoinbased reserves as a demerit um not as a positive but actually as um you know a negative. And so it's a very similar uh stance here in that, you know, what Paulo and Tether perceive as an advantage in their reserves in holding gold and Bitcoin um is is perceived by S&P as a negative. And so that's just where we are in terms of people's perception of this. And and so the just the last thing I'll say is like I think Tether and Paulo are are building a reserve of the future, not a reserve of today or yesterday, the past 40 years where they don't actually want to be 100% in US treasuries in terms of you know their reserves. Go ahead. Well, so but that was where I was going to there's no safe place because now understanding what we're talking about here is the S&P ratings not paying attention to MSR but like to this they are correct because also independent of what Genius Act requires or doesn't and I think that's the right point of like over time whether it's the entity or the full entity US and international gets fully reserved that their job is to back it one to one because somebody does not look at the dollars are speculative. They look at it as the reserve currency and they look at treasuries as the risk-free rate. And so if you're going to back it with something independent of gold because you can make a case against gold, but something that is still only 15 years old is highly volatile and something like quantum nation safe dropping FUD, whatever it is, and the price cuts in half by 50% and they're insolvent, well then that matters to the counterparties that they're uh purchasing. And I think that's really now where the S&P uh whatever rating obviously like I think those agencies all don't make sense. But um and they don't have much credibility. But if that's the take they're they're coming at it from it makes sense. And that's also where um uh Arthur's coming at it from that also makes sense. And then if the markets, you know, because it is a dance like it's not risk-free to your point. They're building a treasury reserve of the future. But this being too early is the same as being wrong. I'm not saying this is going to happen, but it's just the reality. you get wiped out on BTC and now you have a real problem with Tether and then we saw this with Circle when there's a run uh and that can get real hairy real fast. So I think it's worthy of the discussion. Now you know are we going to retrace 30% is a different story especially with gold >> 100%. and they have the opportunity to be the only fully reserved essentially uh they're not a bank but they can be equivalent to a bank or a money warehouse where you can just essentially make sure um where you can't with other banks and that's you know we can go into why custodia you know wasn't approved for a federally chartered bank license if we want but um there essentially is no bank that's not fractionally reserved and so if you had an ability for a stable coin to come out and say okay here are all of our reserves and um the stable coins or sorry the short-term treasuries right next to it that have the same amount like that would be a massive draw especially based on all of the growth that they already have and that would probably even accelerate their ability to buy more uh gold and bitcoin at a later date just because they would uh get more people into their stable coin. So there's there's a lot there, but I I would argue that that's like really what people want and can be a big differentiator um and rather than a fractionally reserved bank today. And one thing to call out um is this is an interesting like dynamic because I don't think anybody's right or wrong. It just is the current state of the market. I think um this is where you start to see uh diversification come in. We talked about it last week with them getting into the lending. So that's where I was going to go with this is like um what is looked at as a bug today will be a feature in in the future because I think majority of we talk about free banking and majority of uh quasi banks banks and stable coin issuers and even ecash mints and however that plays out their assets that they're securing that they're holding their equity value will help and give the credibility and trust into who's using them. I think we're just still so early in Bitcoin's monetization and we're still sitting here at like 85k and there's all this like global macro stuff going on that it turns into uh a bug, not a feature. But in the future as Bitcoin is hundreds of thousands of dollars and also as Tether's diversified their revenue streams because I think that's a big part of this, right? It's like their revenue is literally coming from holding these treasuries um and then they're putting that in these other assets with the uh hypothesis or thesis that they're it's going to grow. But if they're in Bitcoin back lending and they're generating some kind of nominal yield above the Fed funds rate and these other uh different exposure nets, I think the longer term play starts to make more sense where they can hedge against some of the like uh stuff that we're talking. >> Yeah. All good points. I mean, Liam, I'm curious what you think just on the notion that um you know, I because I think what Paulo is saying here is like yeah, even if there was um cuz the the numbers that Arthur is hypothesizing is like a 30% decline from here in gold and Bitcoin, which would basically be gold at a little under 3K an ounce and Bitcoin around 60K, which like yeah, probably not likely, but not impossible. Certainly not impossible on the Bitcoin side. And is is it reasonable or rational to assess the you know the stability of one's reserves by looping in basically the equity of the business? Like is it like what do you make of that in terms of his rationale here? >> It makes complete sense because this is what well it makes complete sense that's a variable. Does it make complete sense that that's your last thing to >> hang on because this is effectively like block five. I mean, this is where we talk about rehypothecation and counterparty risk because back in 21 when we would compete against BlockFi for loans and BlockFi's interest rates were nominally cheaper, a risk adjust adjusted much greater. You said that you understood it, but you could never fathom BlockFi just going to zero because you think about like Peter Teal and whoever else was backing it and the equity value as a multiund million if not billion dollar firm. But the reality is math is math and when you get off sides it gets ugly really quick with not only the liabilities you have but then also as investors pull back because there's no actual u way to make people whole. And so it's funny that like just saying that talking through it's like the one thing we haven't even discussed is like what happened what would happen if uh Tether and their counterparties and however they secured the Bitcoin somehow were hacked or lost a component of it or what happens if the gold counterparties I was thinking about this over the weekend or whenever I was like where does Tether secure the gold because you always have counterparty risk with gold like um you're not secure unless they have their own bunkers. I'm pretty sure pretty sure they don't. But point being is like what happens when this will happen in the future as gold monetizes to 8 12 20,000 $40,000 a toy ounce the ROI on violence becomes greater in these different regions. I think we saw this um we talked about it with Michael Pin on one of the pods where it was like somewhere in in central Africa where they like like jettisoned a helicopter and dropped down and stole like I don't even remember the number of ounces. Anyway, like it just brings up other things that it makes sense if you're going to rate it if something happens to those underlying assets that are supposed to be securing these uh stable coins. >> Agreed. I uh if there it is a decline in the gold and bitcoin price and everybody starts to try to redeem their stable coins or go to an alternative because there are more alternatives growing at the moment. The equity declines significantly over time which is when they need it the most. But at the same time, I think it's also valuable to kind of take a step back and say people have been flooding Tether for like 10 plus years and there's never been a catalyst in order to make money off of that, right? And so I think that the prudent thing to do is kind of just watch it and um you know if if you're not invested in Tether, which many people aren't, like there's nothing to kind of do or or actionable step from the Bitcoin side of the market other than kind of follow what they're doing. Yeah. And maybe the last thing is I think Brian Ked or started off on this is an interesting paradox because they are effectively getting um damaged or um like slapped for what the banking sector is at fault of is like there's nobody to bail out Tether quote unquote. There will be that's where I think that their stages that like if they did somehow have a a mistake like somebody would step in from a like sovereign level. But if something like this happens to the banks like SDV, the Fed steps in. You have all these things that happen. They close down over the weekend and then everybody's good on Monday. And I think that's what uh Tether knows that they haven't historically had that. So they backed their business with hard assets and now they're getting uh vilified for that. Um it's it's just a harder place to be in as we transition to this new monetization phase which maybe is the last transition to JPM if you guys want to go there because I think this is fundamentally where we talked about smoke on on this area of the the pod of if you start to build fintech neo banks whatever you want to call that are actually backed with real assets you know like these people are smart they can kind of like understand that this is where a market is heading if in at the end of the day you know it goes goes back to the the thought about like you know the common fallacy is what gives the dollar value and people will say well it's the United States uh government and you know um you know stealth bombers whatever it's like it's actually not true because if the military doesn't recognize your money as valuable and they can't feed their family they won't accept it and it's very similar to u this circumstance was on a long enough time horizon if your financial institution is insolvent and is uh handing out you know funny money then maybe you go to the place that actually holds uh real money and it has the credibility of a long-standing firm with backing of gold and and Bitcoin. And I think that's part of what's happening here with JPM and some of these other uh legacy institutions seeing that there's a real like fight happen. >> Yeah, I was going to go towards uh this one and then there was another um announcement from CLA CLA launching CLAUSD. Um uh so the you know Liam you sort of alluded to this like the whole Tether thing is is very much in the context of this broader competition around stable coins generally and so I think CLA is is going to build this on the Tempo blockchain and so um you're starting to see a lot of these uh what look look and feel more like you know enterprise style uh stable coins um and then you also have the the JPM news. So, I don't know which which direction you guys wanted to take it, but either of those cases, >> I think the JPM one before this one because it's a little different in the sense of in the Genius Act, um it's part of the mandate. So, you can have like a fintech neo bank, somebody building in or around because I think there's even narrow banking positions that are starting to come out where you can get access to the Fed window simply for or just for holding treasuries if you want to build like a fintech um for holding stable coins. Well, point being is they're treating deposit tokens as something fundamentally different, which are basically deposits uh that the bank has on behalf of its clients, which JPM trumps. Uh I think in this article they point out like so-called Tether has two 200 billion or whatever. JPM has like 6.6 trillion in deposits and they can effectively lend those out quote unquote unsecured because that's just what fractional banking is. And so they're not uh hamstrung to the existing regulations from the existing stable coin issuers and then they can also participate in passing through yield generation. Um, so it's a fascinating dynamic that's going to come about on how does that look and I think this is stuff we've been talking about and and just a caveat and I'd be curious your guys thoughts on on the second part is we we got a comment the other day on um about talking about crypto and I do think it's fair like we don't want to go too far down the crypto landscape but I've I think Brian and I have always shared the sentiment that crypto is like sits as a test net for like what's ultimately going to happen on Bitcoin because you just have this like design surface that is free from the constraints of legacy banking and point being is that when you look at like stable coins, net settlement, money flow, you got to look here because eventually they're going to see Bitcoin and how it where it looks and so you want to understand what's happening and how you're going to graft and layer on Bitcoin because the Bitcoin camp's not doing it like they're focused on whatever on this other side and the crypto camp's not focused I mean they're closer to it to be honest because they actually come from these um traditional firms and they understand that space but that's why I think we take a particular interest in this is because money is really changing in real time and there's a huge opportunity once you start to see what's working, what's not and then you layer in the best asset we've ever seen%. It's important to to try to bridge the chasm between a lot of these camps and and while we talk about the crypto stuff, we talk about the fintech stuff, it's it's ultimately in an effort to tie it back to, you know, what is the actual signal and what is important to understand from a fundamental perspective about this monetary reordering. And while a lot of the incumbents, FinTechs, Tradfi folks are still missing it and still building things um without sound fundamentals, they've eventually will see the light on on a lot of these things. And so it's it's it's helpful and important to have the context around how these things are shifting and moving in real time. Um Liam, any other thoughts on either the JPM deal or the Clarina deal before we uh move on? >> No, I think you guys summed it up well. Well, like let's do CLA re really quick just because um the CLA I think is interesting because this is going to change like the one thing that we know and this is where like u we don't have to talk deeply about it but I think Kaly lost like 50% of their trading volume because they were uh integrated in Robin Hood and Robin Hood's like screw it I'm just going to make my own market. Um that we learn whether it's business books or seeing here it's all about distribution and so CLA does have an insane number. I think it's like hundreds of million 114 million customers. Um, and then they're sitting on I think 14 billion in cash deposits. And so again, I think this is a huge dynamic to pay attention to is that if you're sitting in or around the customer or capital, you will be able to participate in creating your own stable coin. you will be able to take that float and generate some kind of nominal uh revenue for your bottom line or also pass back and have a um uh competitive advantage to legacy firms and then if you take it a step further will you just start to look more and more like an actual NEO bank because I think that's what Claro wants to do now it'll be TBD if they can do it but they do have the client base and they do have the merchant side that ties into crossborder um and then the other part that that's really fascinating is um basically partnering with Tempo because this ties back to like everything's decentralization theater. We know that, but they're still going to play with um the fact that it's crypto, it's digital assets, it's stable coins, it's a better rail than the existing cobalt, whatever else exists, right? And so my understanding now is tempo because in Stripe have all of these um it reminds me a lot like Microsoft. So Microsoft could just like launch a Slack competitor that was like, you know, 50% of the the actual product and like the the client experience or consumer experience, but they can go and get like a 100x the amount of distribution because of their scale. And it's very similar with Strike that they're now starting to win deals because they can layer in like persona and all these other interesting things. And then they're even offering like engineering resources to these groups which I thought a lot about with like what we're doing at on multi institution when you start thinking about legacy firms you can go offer integration services to help them get up to speed because these companies don't have the like tribal knowledge and understanding of what's being built here. So, I do think like this is just very interesting to pay attention to because the more you can start to look at stable coins and then how they'll sit next to Bitcoin and people will slowly migrate over to them because their users will either take them as rewards, accept them as payments, uh, and we didn't even touch on this, but like last week, Square and they're announcing stable coins I think launch in 2026. um that is a huge like just thing that went under the radar because I think that's something we've been talking about is Bitcoin and stable coins sitting right next to each other really I I believe will be like the killer applications in the future and we're just so early that those camps are on like polar opposites but the closer you start to integrate them together the client experience is going to be fundamentally better and that's what flash is also doing >> when it comes to holding Bitcoin securely peace of mind starts with architecture on-ramp's multi-institution custody distributes control across three independent regulated key holders in a two of three quarum. No single point of failure, no pulled or omnibus exposure, segregated client titled vaults. You retain full legal ownership while on-ramp coordinates security, compliance, and operational workflows behind the scenes. It strength of many delivered through the simplicity of one. Multi-institution custody is the foundation for everything we build. Sound infrastructure that distributes counterparty risk and provides fault tolerant resilience with clear audits and institutional controls. And now on-ramp is piloting flat, predictable pricing, making best-in-class Bitcoin custody and financial services more accessible now than ever. On-ramp, strength of many, simplicity and one. To learn more, check out on-ramp bitcoin.com. >> Yep, very well said. I think there was um Michael, you might have brought this. There was just another stable coin uh announcement. Stable cocoin issuer Paxos acquires fortify bolstering its crypto custody and wallet offering. Was this related specifically to stable coins or or something else? >> Uh, different. So, this kind of ties a little bit into um there was also a hack um the way I was going to tie it in. I'm sure you guys have other angles, but um Pax was bought Fortify, Stripebot Privy, which is a similar uh orchestration layer for like MPC multi-party computation wallets. Uh there was the zero hash I think it's still pending acquisition which is another orchestration layer and custody technology and the point being is that we're seeing already at $85 $90,000 BTC that FinTech and Tradfire are having to pay King's ransom for these assets because they can't hire the people. They don't have the technical or architectural chops to build this stuff out. But they're buying inferior technology. They're buying technology that nobody stores real wealth in like Bitcoin. And so we look at the market and like what we're doing around multi-institution and as a market proliferates that large fintexs, large trify firms are going to start to look at real robust technology when they recognize they want to secure the underlying asset because X happens. If you can pull up X uh it was the hack with um I forgot the Yeah. So, Up Bit uh Up Bit says an emergency $30 million hack uncovered internal wallet uh flaw that could let attackers drive private keys. My understanding there was something with their um uh cryptographic signatures that once assets were spent from various crypto wallets. Um you could back in with like I think the AI tooling now to be able to reverse engineer the private key. Um I'm pretty sure it was probably built on multi-party computation. is the only design surface to support you know the number of crypto assets up bit secures. Um and this just ties back to that main point like that at the end of the day as these assets monetize and they become hundreds of thousands of dollars and become cornerstones of businesses uh balance sheets, users um balance sheets and then personal balance sheets. This can't happen. This can't even potentially happen. and everyone's building their own proprietary kind of quoteunquote janky implementations that are all proprietary because that's the thing that doesn't get discussed is multi-party computation requires uh uh proprietary implementation. So Fireblocks implementation is different than Coppers and because they're not battle tested and then they have to continue to update them because they have to support the longt crypto assets. They always find these vulnerabilities and you can like Google NPC in zero days. And so I just think this is such a huge um like boon for like what we're doing because people do not recognize that custody is broken. And as this continues to grow and the asset class grows, they're going to recognize you need robust custody solutions. And those robust custody solutions do not put anybody at a at a single point of failure of risk which historically exists or has historically existed in this market. >> Yeah, you you said a lot of important things in there. Maybe it could be worth putting a finer point on, you know, you mentioned MPC architecture that is supporting a longtail crypto assets. It's typically proprietary. Maybe just for the audience, if you could characterize what that looks like versus Bitcoin native multisig and why it is just fundamentally different from a security perspective and then on top of that in terms of, you know, at these uh different exchanges like the bulk of assets is Bitcoin based anyway. And so, you know, even if they uh are are aiming to support all these long longtail crypto assets with something like MPC or their own implementation, the reality on the ground is like there's they still need to support uh you know the vast majority of their volume and holdings that is Bitcoin based. And so, uh maybe just put a finer point on the audience of like MPC versus Bitcoin native multisig and what you mean by that when you say um you know these things are not actually supporting like real long-term wealth. Yeah, there's a lot. I'll try to make it tight and concise because it really uh has ramifications all the way to the existing market structure. So, at the end of the day, you know, cryptocurrencies by nature man or leverage cryptography and they leverage um digital signatures. So, you're producing a private key that maps generally to a public key. That's what you know, a single signature is historically um how it's been done. Most people listening here are familiar with like generating a private key on a hardware device or a phone. Um so multi-party computation is effectively taking that private key that's been generated by whatever um algorithm or however it's set up call it like Fireblocks and it's one single private key and then they're layering their own proprietary cryptography that's basically taking apart that private key and securing it and generally what's known as hot wallets. They're on phones. are tied to some internet connected device. And so whenever you go to make that digital signature, that private public key pair, you're coming together with multiple M ofN shards for that single private key. And between that and the digital signature, you find all sorts of different implementation bugs, zero days, uh social engineering where assets are lost because you have one private key to that public key at the end of the day that have to uh match to move assets. Multisig does something completely different which is an M ofN of multiple private public key pairs. So the most common is a two of three where you have three private keys that are each individually in a like multi-institution format or even um in a like a Coinbase or Bitco Fidelity is that private key doesn't exist by itself. it's usually sharted and so you have multiple ms all sharded and each of those has to come together via offline um uh coordination ceremony and so the point in all of that is you need multiple private keys to be signed for each independent transaction. So it changes the whole uh logic layer of even if like the address or the wallet withdrawal is uh manipulated, you need multiple keys that sign that uh offline before that asset is ever moved and before the digital signatures are ever produced. And the last part is that multic is native to the Bitcoin protocol, which is the the biggest point is multisig is a scripting language built into the asset versus if you ever see these and we did a great write up um uh Brian did on the uh bybit hack that I think it was the largest hack um $1.2 billion because they were leveraging quote unquote multisig but it was a proprietary setup of multisig because Ethereum doesn't have it. Um and so where this turns into market structure importance is that traditionally the best institutions in the world like the bitos of the world will segregate multi-party computation from multi-IG and they'll use multi-party computation for digital assets and then bit or multi-IG or Bitcoin because of its robust nature and its best-in-class understanding it's battle tested but there aren't many sophisticated people in this market. We talk to them all day long when people that are managing thousands of BTC and and Bitcoin treasury companies have never set up a mobile wallet. They've never sent a Bitcoin transaction. That's just one example. Now you start to go to Trady that stepped into this space. uh think of it as like the Bitwisees of the world and those individuals step in and they believe that crypto and everything under the sun has value and they throw the baby out with the bathwater and they just think about multi-party computation because they're trying to support the longtail of crypto assets and so they put everything at risk even though as Brian called out Bitcoin is um from a you know total market cap like anywhere between 55 to 60 75% of the market it takes most of the trading volume most of the custody but people don't recognize that and again this is just a product of how early we are that when you educate somebody on this like oh that's interesting didn't know that is actually how it works >> yes thank you for walking through that I think it's it's just important to expose some of those details around the differences in these architectures because the biggest thing in addition to the the interoperal nature and and open source nature and Bitcoin native nature of multisig the biggest difference to me is like the actual uh attack surface of when you need to reconstitute an NPC wallet, you're you're bringing shards back together into a single point of failure. Whereas with multisig, the keys are actually distinct and so it's a more resilient fault tolerant uh basically design surface. Um in addition to being native to the protocol. So glad we walked through that. Uh we can move on from that stuff. Uh I did want to >> I would just say like one other thing on that too is like this is why um regardless of which custodian or or uh financial service you use there is also an not just ideological reason but behind being Bitcoin only but also an operational reason right as you described by uh supporting more and more of the left tail risk of crypto and uh being focused on other digital assets that uh makes you necessarily upgrade or not upgrade but change your MPC processes and protocol which involves risk um into you know how those keys are sharded and then come back together. So there is also significantly outside of just operational reasons of Bitcoin being like the true battle tested and you know uh one digital asset with the you know greatest total adjustable market there are operational reasons for being Bitcoin only as well and using those services. >> Yeah. And and just to add to that like we can't expect users consumers to go and validate individuals cryptographic setups how they manage whether it's multiig or NPC. So when you look at a long enough time horizon if this asset class is going to mature and be ubiquitous it's very simple for people to understand well no single institution can move or lose my assets full stop. Once you get any further than that, then you're like, well, I don't know where the risk lies. Because what Liam was saying is even if you're on Upbit, I'm always shocked because every day, almost, it feels like every day, but it's definitely every week, there's vulnerabilities across digital assets and assets get lost. And I'm always like, well, how do they make people whole? Like, they can't be generating that much revenue. And so even if uh you're holding Bitcoin, if your counterparty is not securing it in in the right way or all the other assets and they're playing in that game, if they have a hole, you potentially are susceptible to losses. Um and and the last thing that ties in this, we don't have to go deep here, but it' be worthy of a different discussion for a different pod is, you know, another validation on like we've been in this bare market is that there's no net new Bitcoin companies. Like think about it like there's no I mean there are and on the margins but like when you think about the deal flow and the opportunities they're few and far between for worldclass like ideas built in like Bitcoin and then monetization and commercialization today or very close to today and I just believe that's a product of the best talent is still sitting at the companies are maybe going into AI maybe they're going a little bit into crypto um but the reality is we just haven't seen like think about you would imagine there'd be a net new like Bitcoin uh like stacking sats business and you like exchange right it's the easiest today to build something like that when you think about the existing uh incumbents where they have B2B solutions everyone I feel like has one today zero hash bit go kraken um you can pick a segment of the market different value added service and nobody's launched anything it feels like in a while and I think that's just a product of the market's just kind of gone out we haven't had a lot of net new talent come in with interest and I think as the price runs we'll see more of But that's when you know we're also in a in a bull market. >> Hey guys, hope you're enjoying the podcast. Wanted to give a quick word from Early Writers. Uh we've had no shortage of exciting announcements the past few weeks. Last week we announced um an investment in Audio, a Latin Americanbased on-ramp in um based in Mexico City and El Salvador. Wonderful founders, multiple exits, had uh formerly exited verified Bitcoin and and launched Swapido, which ran into audio um last week. And then also Argo, a Sprat family company. Incredibly excited about the uh intersection of gold and Bitcoin and what does that look like for managing and protecting wealth uh over the next coming, you know, call it decade and beyond. Um we've included no shortage of research, investment uh memos around those c company fundraising um processes just so folks understand how we think about companies, what we're looking at. If you're looking to build and are trying to get, you know, early writers involved, we'd encourage you to reach out. We'd love to speak with you. As well as if you're looking to get involved with early writers, we'd love to talk with you. Um, we have no shortage of other opportunities. We're actively looking at a very exciting 2026 is upon us. And as we talked about during this episode, there's no shortage of M&A. A lot of these companies, the reality is they can't really build. They're going to have to eventually buy companies to really insert best practices, best teams, best infrastructure. So, we're incredibly excited what we're building. We're looking for best-in-class talent and folks to get involved. And so, if that's you, please reach out michaelarlywriters.com or you can reach out via the contact form. All right, guys. We'll talk to you uh later this week on the last trade. And I hope you enjoy the rest of the episode. >> Yeah, I think a lot of that is also just price. Um, but all good points. I I did want to go to I I found this pretty interesting. Um, this is a headline from last week that Coin Shares is withdrawing uh certain US spot ETF filings, namely uh basically like single token ETFs for XRP, Salana, and Litecoin. And why I found this interesting is because I think it speaks to something that we've discussed on the show prior in that, you know, for the in if you're thinking sort of about the digital asset ETF complex, um, it becomes very difficult to differentiate yourself and compete. And so I think what Coin Shares is recognizing here is that the Black Rocks of the world, the larger issuers are probably going to dominate these sort of single token um ETF products. And so what they are basically uh hinting at or suggesting that they are going to do instead is um you know basically more quote unquote sophisticated type strategies probably more act you know things that look like more active strategies um as opposed to just you know single name ETFs and so I think this is something that I've sort of expected for a while because if you just think about you know the Bitcoin ETF specifically it's like you know IBIT has amassed the the largest amount of assets. Um, and there's sort of this long tale of of ETF issuers that have much smaller uh, AUM. And so I think it's it's very difficult to compete because on the fee side, it's sort of a race to zero. You know, IBIT's going to be able to to cut lower than you most likely. And so, well, what do you do? Uh, so there's a few different avenues here. I think, you know, if I'm thinking about it, I think the way to differentiate would be on the custody side. That's where there's the biggest gap in terms of these the inferiority of these products in terms of having single counterparties and having that custodial risk underlying. We haven't gotten to that stage yet. But what we are starting to see is uh different elements of quote unquote differentiation in terms of uh more sophisticated active strategies uh to generate additional returns on top of whatever the the spot asset would do. Uh what do you guys make of this? Do do you think I'm I'm on to something there or is this uh is this notable? >> I mean I think the competition to your point is interesting. Like uh last week I feel like either was approved or close to the uh Dogecoin ETF. It's just like come on like how far are we going to go on the risk curve with those assets? And then to your point like how much volume is it and do you want to compete? I think like Hashex as an example. They kind of stumbled into the ETF and they have like no trading volume. just there and they have to manage that um from an annual like audit and everything. It's just a cost center. Um I do think there is interesting aspects to der or interesting products. I think they're going to look closer to integrating like Bitcoin to your point of less on like just I mean people will do all of this but I think the ones that will win will be the people that build structured products and we're probably going to talk about the JPM style where you can integrate like gold BTC and other like sound assets that can kind of maybe t uh lower the volatility but still provide some of the return profile. Uh the point I'll make though ahead of custody that I've been the most fascinated with um but it's probably harder than custody because it really takes a lens and um conviction is just one of these asset managers rippling down and only focusing on Bitcoin because if you think about it they all support Bitcoin but they treat it as this like passive thing. they focus on the other assets they can monetize to a greater extent because there's greater margins and rather than say okay we're either going to do similar custody as everyone else with Coinbase or differentiated but we're going to go harder in advisory education and really explain that Bitcoin is not a 2 to 3% position but a X or Y position I think fundamentally changes not only from the short order from the long term when different advisers because I think about Bitwise again they're fun to pick on is they played in this game And then they were to told or they told the market they're the crypton native firm. They're the most sophisticated and they spent years getting distribution with advisor or working on distribution and then Fidelity and Black Rockck step in and they just like mob the floor because they have better distribution when it comes to FAS asset managers across the board. And so but the thing that Black Rockck and Fidelity can't compete at as much as they try is around going 360 on Bitcoin the asset, how to think about it, how to legacy plan for it, the things we do here at on-ramp. And so I think that's a fascinating angle that none of these people take because a they can't raise money on it. B like their shareholders and the people they hired would just, you know, leave. And then C, but that's the thing that I think a lot of these firms are hungry for because nobody wants to be told that every crypto asset on the universe is valuable and you just need a like basket of them and then to rebalance it makes zero sense. >> Well, the problem the problem with that is that over a you know a few years time horizon you you lose credibility taking that stance, right? And so I think that's the big thing that a lot of these firms are missing is that you know in order to build trust in financial services and and think long term like you should be focused on the asset that can actually allow you to do that. And so these these other crypto tokens these um you know sort of flash in the pan things that come along every cycle um by focusing on them and putting them in in the same uh you know breath as Bitcoin you actually are hurting your own credibility over over longer time periods. And so I think um this this will happen slowly, but it it won't happen right now because right now the flavor of the day is stable coins and tokenization and doing all these other things. Um and so to your point, Michael, it'd be very difficult to raise on saying, "Hey, no, we're just pivoting to Bitcoin only." And uh we're going to maybe make some structured products like uh JPM announced last week as well. Sorry, I cut you off, Liam. No, I was just going to say that would that's sorely needed in the market, but it can't be our only product because everybody knows that the ETFs are kind of an inferior product. And so it would need to kind of be somebody who's in the Bitcoin space and doing a full stack product where they can offer Bitcoin ETFs and be Bitcoin only, but also offer like best-in-class custody and structured products outside of just ETFs in particular. Um and then on a slightly different note like the we haven't touched on the IBIT um in or the NASDAQ filing on IBIT's behalf to raise the limit of contracts by 4x too by the end of the year. Um and just because I think that is naturally just where they've seen most of the product market fit thus far for IBIT. Um it's primarily just people who have IBIT in their uh retirement accounts as well as just highfrequency um hedge funds that want to make money on arbit uh like the arbitrage or or uh use options on it. And so if you don't have the options volume um and you're not IVIT, it's going to be extremely difficult to make money if you don't have a view on Bitcoin itself just as the asset. >> Yep, it's a good point. Glad you raised that. Um all right, guys. I know we're we are coming up on time. Anything else you guys wanted to cover? There was uh an open AI data breach we didn't we didn't touch on, but I think that's to be expected. We've talked about it in the past. Uh data will be leaked into the future and that that spans across your AI provider as well as um you know your crypto exchange or potentially your hardware device manufacturer. Um data will be leaked into the future on an increasing scale. Um anything else you guys wanted to cover though? Um should we maybe pick one last segment? Do we want to um touch on like China and just kind of some of the the stuff happening around? I think we're going to see >> well lesser on the robots. Uh I was thinking about like their antagonistic nature and this is interesting but antagonistic nature towards stable coin specifically. Um but the other angle could be on the IBIT structure product. Um because I think that's also interesting with the I don't think we've talked about it yet. Yeah, the you mean the structured Bitcoin note that JPM announced. Um, yep. >> It's it kind of aligns with what I was saying before around like, well, how do you differentiate? Um, and I think it is it is a positive signal that they're at least focusing this uh product, this launch around Bitcoin specifically. And I think it's it also tells you something that, you know, Black Rockck's IBIT ETF is their um, you know, top revenue generating source in the entire business. And so I think JP Morgan is looking at that and say, well, you know, we should probably focus something on Bitcoin. And what hasn't really been done is these uh sort of structured notes where um you're limiting some of the upside, but you're giving basically a floor to the investor in terms of the potential downside. So, uh, Liam, do you have any thoughts on this one in terms of, um, you know, I think we're going to see a lot more of this type of stuff and and it's honestly surprised me that this it's taken this long to see some of this, but, um, when people think about Bitcoin, typically, uh, they are, you know, perceive it as highly volatile and and, you know, there's a large cohort of investors out there who probably would like some form of exposure to it, but without, you know, the potential downside. So, uh, any thoughts on this this one, guys? Yeah, it's interesting that they've done this for a four-year note. So, it's aligned somewhat with the Bitcoin cycles, if those are still a thing. There is we're just so early into this market that people don't even know what they necessarily want because sophisticated investors can pretty much go out and create these types of products and services themselves. But they need somebody in order to package it and give them a product that they maybe don't know that they want or don't know how to make money on if they are going to go out and do it themselves. And so this is going to be extremely uh profitable just because they can go out and offer a package solution to those types of folks who want um real like Bitcoin exposure and um think about it over a relatively long period of time and know that they need to have some sort of view on it just as a macro asset. They don't need to even um necessarily have a strong conviction on where Bitcoin itself is going or um that as an asset class of itself. they just necessarily know that this how this is has performed in the past and have some sort of view on it in the future. Um so we're going to see no shortage of structured products. Um like you've seen with the IBIT and this a lot of the volatility people are uh hedge funds are going to try to make money on. Um and so maybe that's why things have been a little bit slow this year. I'm not going to um say that you know Bitcoin is never going to be volatile again but it probably will have some more volatility continue to be stripped out of it. Um and then lastly, it's just going to increase the distribution of Bitcoin over the near term as people realize that um they can make money on this somehow and then understand that this is actually a great way either in your personal account or for your clients to make money over the long term too to have just a view on the underlying asset itself. >> Yeah, I think um I think this is most fascinating to me because to your point, we're going to see a lot more across different customer segments. We've talked a lot about like um permanent capital and if you have this understanding because it is asymmetric that Bitcoin goes up and to the right over time because it's just a proxy for dollar liquidity that you can build products that meet the market where they need to be whether and and I think there's a lot of discussions that happen today. They're just too early and they're too uh they're not uh scaled appropriately. So when you think about like bet bonds, credit, uh real estate, like the individuals that have talked about these um products are at too large of a scale and there's a lot that's baked into why you can't start at hundreds and millions if not billions of dollars, but you can start at smaller financing. Um, and another example of something like this is in Latin America, we've talked with firms building uh products that traditionally in like uh Argentina, Brazil, it's like 25% on average to take a business loan, but we know that the Bitcoin market's closer to 10 to 12%. What happens when you can start to create structured uh ability for individual sake loans in Latin America baked on whether it's balance sheet Bitcoin um the business holding Bitcoin or dual participation and buying that Bitcoin lending against it and then owing some interest uh and then offering the uh capital providers. We've seen this in the real estate market with what's going on with being able to take a conservative leverage against your real estate uh equity and buy some BTC. But again, it's still so early that uh it's really the other side of the market which is the individuals providing the dollars where they have to get educated. You have to start on smaller scales before you can go into large capital markets. Um similar to like what Micro Strategy did before it got to um fixed income. And so I think this is really a fascinating area where we'll start to ideally see more crypto folks. Uh two prime is a great example where they pivoted directly to Bitcoin only. They do interesting things around structured products on Bitcoin back loans. Led in went that direction. And so we'll see this migration from crypto into more sophisticated Bitcoin products to meet the rest of the market where they're at. And the the beauty of that is then once somebody gets their slight exposure into BTC because they were just trying to hedge risk or get some nominal um return, they can start to learn more about what the hell they're holding, especially if the this uh asset appreciates and they're like, "Well, what the hell was that? Why did it just do and then they start to go down their own version of the rabbit hole. >> Yeah. And it's also worth noting too that uh Jamie Diamond isn't going to create this in a vacuum. He's definitely having clients that are knocking down his doors that are asking for either this or something like this. And it's um likely had some sort of test group before they're announcing it more broadly, too. Um so this is definitely something that like all of the best financial services are going to be demanded at the margins by clients that want these products. And uh if the JP Morgans of the world don't offer them, they're they're going to go somewhere else. >> Yeah. And the only other thing I would say is like you don't create a structured product like this um where you know the upside is capped and you would benefit as the issuer uh if you don't believe in the asset medium to long term. And so I think that's the the biggest signal of this to me is like you know not only have they seen the writing on the wall with what IBIT and BlackRock have done uh but they at least internally have people who are bullish Bitcoin medium to long term or they wouldn't be creating this product. Um all right gents I think that's a good place to wrap. Little bullish ending. >> Good stuff guys. >> All right see you guys later. >> Here's what keeps Bitcoiners awake. You're still securing millions of dollars. The same way you secured thousands, that hardware wallet in your drawer, your family's entire future depends on you not losing it, forgetting the PIN, or something happening to you. On-ramp's multi-institution custody removes that burden. Three independent institutions hold your keys. No single point of failure, no seed phrases to protect, no explaining complex recovery processes to your spouse. 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