Anchorage and the Charter Wars with Nathan McCauley

0:00Alex Thorn:Welcome to Galaxy Brains. An infinite amount of cash. I'm your host, Alex Thorn. The U.S. banking system is sound and resilient. Bitcoin made a new all-time high. If you're not long, you're short. Satoshi's going to come on there, laugh hysterically, go quiet, and all Bitcoin's going to be erased. Bitcoin. Bitcoin's the best crypto asset. Bitcoin is going to zero. Welcome back to Galaxy Brains. As always, I'm your host, Alex Thorne, head of firm-wide research at Galaxy. Bitcoin, not zero. We have a great episode for you this week. Nathan McCauley, CEO, founder of Anchorage, is our guest. We sat down with Nathan a couple weeks ago in Miami for a great conversation.

0:42Focused a lot on institutional adoption and the Clarity Act and how it will impact crypto.

0:47Alex Thorn:But also Anchorage, I think the first crypto company to get an OCC national bank charter back during the Brian Brooks era, I believe, and Trump won. It got kind of put on ice by the Biden administration. No surprise there. But now there's a gold rush of crypto firms seeking or even getting preliminary OCC charters. What is that? And how does Anchorage sort of maintain their initial lead and moat in the growing field of national crypto banks, quote unquote? We'll ask Nathan that and a bunch more. We'll also talk with our good friend, Bimnet Abibi from Galaxy Trading, as always, to talk about markets and a good conversation on the state of U.S.

1:29Alex Thorn:bonds and debt and what it says that the world wants less of our debt and what sort of the U.S. is going to do about it. Before we get to that, I need to remind you to please refer to a link to the disclaimer in the podcast notes and note that none of the information in this podcast constitutes investment advice or an offer recommendation or solicitation by Galaxy or any of its affiliates to buy or sell any securities. Hey, big week last week in the U.S. Senate. The Senate Banking Committee held its markup on the Clarity Act, the comprehensive market structure reform bill that would normalize and integrate crypto into the U.S.

2:03Alex Thorn:capital markets. This is a big deal. you know, I think our audience knows a lot about clarity, but last week, as late as Wednesday night, crypto policy watchers and the ecosystem were pretty negative and thought that we were going to get a partisan markup, meaning that no Democrats would join Republicans to vote yes on Thursday, Wednesday night. Now, the Republicans have a majority on that committee, 13 to 11. So the fear wasn't that the bill wouldn't pass the committee. The fear was that it might pass with all 11 Democrats voting no. And that's what it looked like, you know, almost halfway through this markup.

2:39Alex Thorn:And then about 90 minutes in, Senator Ruben Gallego, Democrat from Arizona, said while talking about one of the amendments that the committee was discussing that he would be a yes vote in the committee, though he caveated that did not guarantee an ultimate yes vote once the bill was on the floor. And then later, Senator Tim Scott, the chairman, said that there had been And a deal had been reached, and as a result of that deal, he wanted to introduce five more amendments from Cynthia Lummis, which were apparently to consummate that deal. They were the amendments that some Democrats had agreed to vote yes on as part of this bipartisan compromise that literally emerged during the hearing.

3:21Alex Thorn:And ultimately, Senator Angela also Brooks, the Democrat from Maryland, also voted yes with Ruben Gallego from Arizona. Only two Democrats, I'd like to have seen three to five vote yes, but nonetheless, Senators Gallego and also Brooks deserve a lot of credit for breaking ranks with their caucus and voting with Republicans to keep the bipartisan momentum alive for this bill. Again, it would have advanced anyway, but making it bipartisan as it heads to the floor, I think, dramatically increases the odds that it will ultimately pass the Senate. I raised our odds from what I had called a coin flip 50-50 about three weeks ago to 75 % chance likely for the bill to become law in 2026.

4:05Alex Thorn:There's still a lot of pitfalls and potholes, potential zigzags that could hold this thing up. I mean two of the biggest would be the ethics issue and then something around law enforcement, illicit activity. It's not clear exactly how that might shake out. But I think the fact that this deal was able to come to fruition during the hearing in such a dramatic fashion in the Senate Banking Committee last week, it does. It gives us sort of confidence that though twists and turns, there may be tricky issues outstanding that there are, that perhaps those could get resolved as well. So people are very excited about clarity.

4:42Alex Thorn:I think now it comes down to some dealmaking on these other issues on the floor. And then this timeline, I think we think we have about nine weeks of Congress time until the August recess and that this will take six or seven weeks of work potentially, that many. Historically, nothing really of serious importance actually gets done between the August recess and the end of the year during an election year, a midterm election year, which this is. Not impossible. Technically, it could get done in September, October, or even in a lame duck session after the election has occurred. But I think the shot clock is up and it's ticking down towards August.

5:20Alex Thorn:And so we were feeling pretty good about it, I would say, overall. And more twists and turns to come. But nonetheless, that was a big story last week. We've got a lot of content about that. I was on Bloomberg TV yesterday. Check out that video. I was on there talking about this. So I also did a good episode of Bankless last Friday, the day after that hearing, where I went deeper into this analysis. And of course, stay tuned to our content. I'll write a lot more about Clarity as the show goes on. Let's hop right into it with Bimnet Abibi. Let's go now to our friend Bimnet Abibi from Galaxy Trading.

5:53Alex Thorn:As always, Bimnet, welcome back to Galaxy Brains. Thanks for having me. We're, I don't know, ranging slightly down in Bitcoin, but it's basically where we've been. It's elevated from months ago when we were very upset. Well, you were predicting it, but I was upset. I don't know. And what's happening? I mean, last week, the big story really was CPI was super hot. What's the story in equity markets this week? It's just Iran negotiations. You know, Trump over the weekend stated that, you know, he's very close to attacking Iran, took that back. And it seems like we're on a pathway to some kind of negotiated agreement that saves face for all sides, but accomplishes like the tangible goals, which is denuclearization.

6:43So nuclear material. Leaving Iran, taking it out of the country. Potentially leaving Iran. but there's like some ways to make it look like iran is still doing like nuclear stuff maybe they're allowed to like run one plant for a period of time yeah or only enrich up to a certain but i think in terms of like the overall structure like the skeletal structure of an agreement you're already kind of there it's just about the small nuances that make both sides feel like they can declare victory yeah in a way um i think the iranians are most eager on you know proper sanctions relief release of of frozen funds um in the u.s is more interested in free passage as well as um you know nuclear kind of ambitions throttled yeah uh but if you think about like freedom of navigation in a way that both sides can appear to win is like well every ship has to check with some random like Iranian authority before passage, okay, that's fine.

7:49If 100 % of ships get through, like does it really matter? Just adds a phone call they have to make as long as functionally they say yes every time. And it's not like a huge toll like or anything like that. And so there's lots of middle ground to get to kind of like an end game deal. But I think it's constructive that we haven't struck again. But I also think that there is still a risk that there is some kind of military escalation, simply because there's a pathway where escalation leads to de-escalation eventually. And, you know, if progress isn't being made quickly enough, like you have like an issue where inventories reach like incredibly critical levels sooner rather than later.

8:37And so you kind of want to avoid that point. And so if it seems like the length of time to get to somewhere reasonable is longer than you might like then you might need to you might ratchet it back up but i do worry that ratcheting back up like just

8:50Alex Thorn:leads to like an escalation kind of like oh 100 100 and you know like escalation spiral we used to call it in international relations class it's never one of those but apparently everyone's an ir expert these days yeah well don't worry myself i think everyone was they were an ir expert then And they became hantavirus experts. And that's that old thing. Ebola, don't forget about that. But I think the most important story, which deal aside, is you're having significant stress in fixed income markets globally. And that's driven by an inflationary impulse that, even if the strait were to open today, would still exist.

9:32And you haven't seen it feed through the data. You had some soft UK data today.

9:36Alex Thorn:Even oil is not that high. Should it be higher? um yes and no i think at this point uh most of the market is aware of the inventory story the you know dynamics it's pretty well priced at the moment i think it's reasonably well priced but the the the issue is not really like on the front end but like what happens like six months like where the future are they the futures are higher i'm assuming yeah like like crude i think in December is like on in the low 80s uh which is still like very elevated that seems low for uh it was frankly a generational disruption yeah no fair enough um but i don't know who knows i guess this is a big question right i mean i don't know yeah i guess but but there there's also just a ton of other stuff and and like what i would remind folks about inflation here in the u.s is that it was already high going into.

10:34Alex Thorn:They'd made progress, but it wasn't. Do we ever really get below three annualized? Maybe 2.89 or something? Yeah, yeah, yeah. But we wanted to choose the target, so it's still elevated. But the Fed's about to move the goalposts a little bit on you. They're going to use this figure called Trim Mean PC. Yeah, I saw that. This is what Kevin Warsh favors, right? What does it take out? It takes out more of the volatile components, So not just stripping out like energy and food, but like other stuff. So additional things removed. Yeah. Yeah. Actually, I don't know like the specific dynamics, but I'd say that what's relevant is the Fed's going to pick its own measures that it thinks gets to the policy that they want to get to.

11:19And you've seen it with Powell. You've seen it with Yellen. You've seen it with, you know, a ton of Fed folks. you know used to you know powell when inflation was too high he was like well let's look at super core inflation then super core got too high and then it's like oh like headline corp ce and so it's always a moving goalpost of like what you want to do right but at the end of the day what matters is the market and the marketplace for for treasury securities and bond assets and the issue you're facing now is they're not really great stores of value because we've all seen inflation average is higher than the you know the four percent that you get on some part of the yield curve um and you're telling me that the government consistently runs huge deficits and stuff just keeps getting more expensive like if i'm a big bond buyer like what am i in a rush to buy bonds i don't think so right like it's like you telling me you want to sell me that that galaxy hat i know you've got like 15 behind i do why why am i that's why it's so clean on the why am i gonna pay like a reasonable price because i've got a bunch of others i'm gonna inflate as soon as you

12:31Alex Thorn:get one i'm gonna put it as soon as i sell this one to you i'm gonna reach out and put on another one but again you're gonna deflate the value of the bonds with the hat with with more supplies so the bonds have to get cheaper which was just higher yields yeah um and so you've got this like huge supply story yeah um and there's no you can't really like the other problem is warsh has come in with this view that the fed balance sheet should shrink not increase right and so in theory if you're gonna add more supply from the fed balance sheet and more fiscal supply like why am i in a rush to buy bonds and why wouldn't i demand like a much higher premium why wouldn't i demand like term premium that is consistent with like historical levels but point is bond market's a bit shaky and it has the potential to to get a lot shakier um because if you're talking about fundamental value like you could argue way higher easily you're taking 30 year bond risk i know what am i getting paid on the 30 right now you're getting paid about 5 11 5.1 doesn't it that's a view of where of the inflation that i don't need a lot more to beat inflation than that over 30 years which is the government going to be solvent don't i probably need 20 though i mean in reality like truly though i mean you don't think that we're gonna inflation is going to be 20 over over 30 years i think like a reasonable hasn't it been like 20 like basically since 2020 depends on what you look at i know if you look at like the average s &p return over its lifetime let's call it like eight percent yeah a year yeah right like i feel like you probably need something on the order of like six to seven yeah that's like probably like a fair market value um but i don't know man i'm just saying that like you know five percent doesn't cut it no it doesn't like over 30 years it just seems like i'm pretty i guess i'm bearish on uh or i guess i'd be bullish on debasement and, you know, stocks are going to give you a lot more, I don't know, it just doesn't seem that attractive.

14:40Alex Thorn:It does not. And you're right. Like, do we think they're actually going to be able to, they're just going to, hopefully, I guess with the bond market, with a long dated bond from the US government or any probably big government, I guess you're hoping they just keep the carousel moving and they don't bankrupt before they have to pay you, right? I mean, it's basically the bet. And like, you know, it's sort of like a, honestly, it's like a greater fools kind of situation. Because we all kind of know that eventually they will not be able to pay this debt. Yeah, but the issue is like there's only so many hard assets in the world.

15:10Yeah. And two, like if you're talking about like all the houses you could buy, like let's say you only have the option of buying like 15 houses, right? The problem is the U.S. house is still the best house on the block.

15:23Alex Thorn:Yeah. And, you know, there's this phrase, you know, Tina, which is like there is no alternative. Yeah. Like the U.S. house is still like the U.S. dollar. Well, and you're also like, where else do I put my money for 30 years, especially if you're in a pension? I mean, I get it. You're right. Or years. It's the best house on the block. Yeah. Probably dollars, and it's probably— And gold, like, you can only do so much with gold. Like, you can't—I can't wire it to, like, Indonesia tomorrow. Yeah. Right. Bitcoin, yes, but again, it's— It's still too small for this. It's still too small. Yeah. And it's young.

15:58Alex Thorn:I mean, you're going to really do a 30— I mean, I am pretty much, and some Bitcoin believers for sure are, but you're going to do a 30-year allocation to something that's only existed for 17? It seems – Yeah. Shouldn't it have at least existed for 30 before you invest for the second 30? But I heard this on social media the other day, and I wish I could give credit to who said it, but I just don't know. Yeah. But the way you described it is like the world is effectively like – like imagine me and you were dating, right? and like you're the US and I'm, you know, everyone else, we've effectively like broken up.

16:35Yeah. Right. But we still, how about this? We're a couple. We live in that USA house. We're separated. We're separated. We live in that. We're living in separate bedrooms. Separate bedrooms, all that. We're in the USA house. That's right. Right. We've broken up, but I can't really move out because I don't have like another mortgage lined up. I don't have any like suitable like situation. and so you're in this weird situation where it's like, we don't like each other anymore. We hate each other.

17:01Alex Thorn:They all loan our debt and they have to. Right, but like, until you find an alternative, like, you have to stay in that house even though, like, you know, we're kind of... This has been sort of the risk and I think why the US, and you can apply it to a lot of things, whether it's geopolitics, even our sanctions policy. I've always been cautious on using sanctions because you're adding encumbrances to the dollar and eventually it'll be so cumbersome to use that people will choose a new one. It just turns out that our moat is so deep. But we're hanging a lot on our hat of it being hard for you to move out of that house.

17:33Alex Thorn:And eventually it could become too much and people will create an alternative, though they haven't yet, and there isn't a clear one yet. But people talk about the digital yuan might be a way, and it's like, well, the USD is still a lot better than that. The euro is not very good and the European economy isn't dynamic like the American. So there is no alternative. We are sort of gambling and we're sort of like, what's the word I'm calling? We're sort of offering the world to call our bluff, basically. It just hasn't come up with anything better yet. Well, what's happening though is like slowly you're seeing, like think about NATO, right?

18:09All those countries buy a shit ton of US debt. The data says they're buying less of it. The Chinese. Buying less of it. Less of it. Japanese foreign holders, reducing. There's only like a few pockets that are actually like increasing. And so. It's like tether. Yeah, like the world is like slowly trying to decouple itself from from the u.s whether you know i mean we we talked about taking over a nato ally like a couple months ago greenland and that whole thing correct fucking canada to the north right like that was mostly a joke right but again like you know i i think right some of the the comments around taiwan the other week were like a little bit concerning um Um, you know, like, like, like there's, there's, there's a push to like not be so reliant on the U S totally in part.

18:57Alex Thorn:And, but back to your original point, this is yet another reason why bond buyers want to see higher payments, right? Because, um, there aren't as many buyers. I mean, right. I mean, basically all of this adds up to like, we're going to have to pay our bond buyers more. Yeah. It's getting more expensive for us to borrow. Correct. Because they don't like us as much basically and the issue is like they don't trust us as much as they did the market the bond buyers i mean absolutely yeah and and the other issue is like are we we're talking about like a one and a half trillion dollar defense budget next year yeah right like double or something didn't he say like double it yeah yeah and so like it's not like and then the tariff revenues aren't there as well sort that out right didn't they get a lot of them got overturned by the the Supreme Court.

19:42Alex Thorn:Correct. They're refunding money right now. Right. And so like, okay, you've got to roll the existing debt at higher interest levels. You got to take out more debt at higher interest rate levels. And then all of a sudden you're paying like a trillion dollars a year in interest expense. And like the issue gets that much harder to solve. Like. So debt, more expensive commodities, uh, tricky here. Oil and inflation still likely to rear its head worse or inflation in particular. Inflation, yeah. Some of that commodity-driven, though, and what, in equity markets, we're just chugging along here, like mostly, I mean, we were at all-time highs, like what, last week or the week before, right?

20:24Yeah, no, I mean, here's the thing about equities. You know, you're trading at like almost like a 21 forward PE. There's still some, which isn't like unreasonable.

20:33Alex Thorn:Do you know what it was off the top of your head at like the top of the dot-com or something? Like what are prior tops for PE? like, talking like 50? Like, how bad's a blow off top in that one? We'll check and I'll add that to the follow up here on the show. But I think we're... It's not like totally crazy is your point. It's not totally crazy. And there's like structural things like memory is going to get bought until like kingdom come. You just need so much memory for this. Right. You need power. Yeah, power. And like, who's going to host all these fucking machines? You need buildings and energy and RAM and And all that.

21:09Alex Thorn:You need quartz and silicon and, right? I mean, it's true. Like, I have seen the AI build-out really doesn't – we are not there yet. People are like, oh, are we topping with the CapEx? I mean, maybe they've – the announced forward CapEx has already been so big. Who knows how much more there is to announce? But they're nowhere close. The build-out is nowhere close to having finished at all. Yeah. I mean, like, you can say you're going to spend$750 billion on CapEx. Yeah. But realistically, if there's no generator to buy. It's just sitting there waiting to be allocated someday in the future. That's a good point.

21:44Alex Thorn:All right, well, let's leave it there. This has been a good one as always. My friend, Pim Netta BB from Galaxy Trading. Thank you so much. Thanks for having me. Nathan McCauley, co-founder and CEO of Anchorage Digital. Nathan, thank you so much for coming on Galaxy Brands. Thank you. It's great to be here. It's an exciting time in institutional crypto. You guys are kind of the OG institution because you've had an OCC, correct me on this, National Trust Charter. That's right. Yes. Since 2021. Yep. Right before the last Trump administration exited, Brian Brooks gave you guys that license. That's right.

22:16We got it right there at the tail end of the initial Trump administration. What I joke with people is while Trump was signing the first round of pardons to end his first term, we were getting our bank charter. So, yes, truly closing days.

22:29Alex Thorn:Right in the last minute. And Brian was a great acting comptroller of the currency. No doubt. But we got a really bad one right after that. This guy, Mike Su, is terrible. He hated crypto. I was there at a, well, I was there, I'll be happy to say it. I was there at a, I think maybe it was the Digital Chamber event in D.C. like six months after Biden took office. And Mike Su gives a keynote address. he's like he's like i've i've been known he opens it with like i'm well known to like not like crypto that much and we're all like but there was no but then he just proceeded to yell at us for an hour um now though the situation is very different and many other people are getting that license this is a main question i want to ask you like you guys were early in the door you you saw where the puck was going you skated towards where the puck was going but now you got airborne fidelity like, I mean, I think Morgan Stanley is going to get one.

23:31Alex Thorn:I saw the floodgates are open. How helpful is your early advantage or like, how do you think about the competitive nature now with the OCC license? Yeah. So I think it's been, it's been really interesting. So you're, you're totally right that we had, you know, first Trump administration did some trailblazing on crypto stuff. Biden folks came in and had what we can call a different point of view on this. And it's just kind of funny in hindsight to think that one of the main themes of that period of time was debanking. Yeah. Where people were actually losing their bank accounts. We ourselves got debanked even as a national trust bank, which is totally ridiculous.

24:09I actually testified in Congress about that. Yes, you did. And they were floored. And so I welcome the new administration looking to issue more charters. We kind of consistently all through the last five years, while we've been the only one that had it, said, hey, we need more. We need more innovation here. And so the way we think about it is there was one for many years. Now we got something like 10. And our goal is for there to be 5 ,000. Yeah. And we want every bank to come into digital assets. There's no reason that any bank shouldn't be interacting with cash just as much as they're interacting with stable coins.

24:44And so I think it's wonderful. And frankly, many of those banks, as they're coming in, are going to need infrastructure. Yeah. And are going to need rails, and they're likely to partner with someone else who has regulated Power to Pursue with them and has a five-year history with the OCC. And so that's what we're finding is it's actually an incredible business opportunity for us. And so I think it's very, very positive.

25:06Alex Thorn:Is that the new gold rush is selling the picks and shovels to TradFi Entrance? I think it's hard to call it a gold rush because it's going to be such a slow burn. It's one of these things where you set out the business and then it scales over time periods that are measured in decades. But I do think over time, it's going to be one of the bigger trends to see banks start to come in, start to offer crypto offerings to their wealth management clients, start to lend against crypto assets, and then even start to look at things like, what do stable coins look like? What do stable coins look like for international remittance, for settlement internally?