Bitcoin Treasury Companies with Jason Urban

22:06Alex Thorn:I think it's pretty much just if like Saylor had to sell coins, that would be an oh shit moment. Yeah, because he's so much bigger than all – these are all like little – now if they start to consolidate and you see some financial gravity there or they get big one or the other, then you have to at least start to pay attention to some of that. I think the other thing is the other risk that people don't think about is does there become, to your earlier point, a jurisdictional issue where somebody says these things are illegal? Yeah. Or there's a new, you know, all of a sudden we – something like the 40 Act where it's like, okay, you're a company that's in the business of acquiring other assets.

22:43You're basically a fund. Yes. Now you have to register differently and then there's – Changes the whole – That could change the dynamic. But right now, I think there's a pretty clear path forward and things are – Yeah, I agree with that.

22:54Alex Thorn:I also think most of them really are quite small in the scheme of things. Yeah. I mean even if they raise a billion, it's still not sailor. They're not all sailor-sized. Right. And I don't think most of them will be able to use debt in the same way that sailor is because they're new issues or they're in markets where that isn't really a thing, right? So the – because that was the question people have had for microstrategy is like, well, he does owe debt. He's got some debt that he owes. And I was like, well, most of it's termed out to like 27, 28. There's a runway and he'll be able to roll. And the debt to NAV is pretty low still.

23:32Alex Thorn:But like I think one of the things that was so interesting about strategy – I'll be polite here. I still call Block, Inc. Square. I hate it when they change Facebook. I don't know what meta is. I hate it when they change names. You should never change your name. Well, if you're winning, if nobody knows who you are to begin with, yeah, maybe you got to try. But they had had like a 20-plus year existence as a publicly traded equity. So there were options markets. Like they were seasoned. So it was a very different situation than like a reverse merger SPAC that has no history. Right. Yeah. All right.

24:05Alex Thorn:We'll move on. The treasury companies is interesting though. That is new. It's new. It's innovative. it's exciting in a lot of ways it's obviously very exciting for us given you know we're a service provider it's a great intersection of the things we're good at but people have been bad what's going to happen with these you're supposed to know i'm like just to be clear like i mean we've got some ideas about where this might go but like this has never been done before this is totally new i mean this thing could they could all trade you know at huge multiples or they could you know they could fizzle or you could what you could see is you could see volumes explode because you have all these people who are going to arb one versus the other, trade one versus the other.

24:43And, you know, and so even within, there's an opportunity to differentiate yourself within that. There is.

24:50Alex Thorn:There is. All right. Let's talk a little bit more about the trading business in general. I know that, you know, obviously there's, for example, like you could sell, these are corporates that buy coins. Obviously we interact, Galaxy Trading, with corporates and institutional traders like corporates. But what else are you excited about nowadays in GDT? I mean, I know you guys do everything that you can really imagine in trading. But, you know, what's got you excited at the moment? Here, there's obviously what we just talked about. But then you look at the lending business for us has been an enormous, you know, has had some great tailwinds.

25:29I think as people start to realize that they need to either borrow cash or coin. Now, the market is so interesting. The market is flush with cash right now. which historically that has been like, if you had asked me any time in the last 10 years -

25:42Alex Thorn:It would be like way cheaper to borrow Bitcoin than cash for crypto firms and crypto investors, right? Historically. Historically. And listen, it's still cheaper to borrow Bitcoin or, you know - Cryptos. Depends on the staking and the other dynamics, but yes, generally, but cash has been dear. And I think that now that you've de-risked crypto broadly, new administration, new set rules - I was going to say, is that why there's more cash available? Because people start to feel better about it. And what the markets are very good at, groups like us, coming in and saying, all right, well, I can borrow out of this regulated vehicle.

26:17I can turn my Bitcoin into an ETF and I can post an ETF at a prime broker and then I can get a cash release and so on and so forth. And so even though it's not always necessarily direct, over time it makes its way back to where – back into the ecosystem. So that's why you're seeing basis collapse broadly. Interesting. People are getting more access. So that cash component that drives that is there. But that's been – the lending business has been great for us. I mean obviously tokenized securities as – We're interested in, yeah. Yeah, something that we're interested in. And I think that there's going to be a huge opportunity there in time because you're going to have, you know, effectively two separate markets that are never going to be perfect.

27:02So at first, it's going to be the big arbiters that are going to come in and just do, you know, large sizes. But in time, you'll start to see, you know, the Janes and the Jumps and, you know, those HFT Flashboy shops are going to come in. And it's going to be tight and right. And that will be, you know, that'll, I think will be the exchanges, both sets of exchanges, TradFi and crypto will be beneficiaries. It's really quite interesting.

27:29Alex Thorn:You know, I'm not, this is, I mean, this is almost like Ahab's white whale, right? It's like the holy grail. We've all been searching for it for so long. It really, in a lot of ways to me, has always made a lot of sense. Like there is a, you've got an automatically cryptographic decentralized settlement protocol in the blockchain. and most of the impediment is regulatory and the regulation is complicated. It's quite complicated. I mean, our regulatory structure, partly because we are a fully international firm, I jokingly say it looks a little bit like a Jackson Pollock painting. You've got a square and a triangle and a circle and the arrows pointing and you're like, and the reason we have to do that is - How many licenses do we have?

28:11Alex Thorn:Like, I don't know, an innumerable number. It doesn't ever stop. And listen, those aren't cheap. That's part of why we're in an advantageous spot because to just even think about doing some of these things is multiple millions of dollars. And some of the stuff that we've heard reported and we wrote about like Robinhood's thing with their tokenized securities, they're not strictly legal in the way that a firm like us wants to be doing it in a – going through the front door with the regulators. So like this offshore like SPV tokenized equity structure, which I can't blame. There's innovation there.

28:48There's innovation. I'm not opposed to it.

28:50Alex Thorn:It's not legal in the U.S. to do it that way. And the challenge to that point is that it checks the box and there will be fringe players who are a little farther out the risk curve that will feel very comfortable. And they will make a lot of money doing it until there's – Until they can't anymore. So they can't or there's regulatory clarity that makes some of the larger players feel comfortable stepping in. And then you'll see that compress over time. But that's all markets. That's OK. And I agree with that. There's innovation there, too. Like some of these companies that are doing either they put the stocks in an SPV and tokenize the shares of the SPV or they are doing it like other ways.

29:29Alex Thorn:Like that's all interesting. And it all does sort of represent progress and like sort of the – what we know, which is that driving wave of like it is coming. It's coming. You see it. It's just somebody is going to find a way that catches – I mean think about back to the strategy conversation we were just having. Like Michael Saylor was the first to do it and he was innovative and he found the pathway that actually got – Quite brilliant. Yeah, 100%. I'm actually kind of shocked it took like four years for other people to try it. I think MetaPlanet was basically the second one. Yeah. And that was what, like last summer-ish?

30:05Alex Thorn:And he, but Saylor bought his first Bitcoin in summer of 2020. Yeah. I'm like shocked it took this long. Well, here I am. But I'm not because, I mean, we didn't think of, I didn't think to do it. No, 100%. To your point, though, like this could start, it's like gradually then suddenly. It could be that way for tokenization. 100%. Someone's going to find a pathway that, you know, to some of these structures that you're talking about. There is a lot of homework that has to go into that, right? What does the SPV look like? Is it bankruptcy remote? Like who's – all those things, people have to do the work.

30:33And then at some point, someone is going to do the work and they're going to say, OK, this is cookie cutter. This works. We all did it the same way as XYZ. We kick the door down. We drive the car through. And then it's – yeah, then it's off to the races.

30:44Alex Thorn:I think it's exciting. That one really is – because one of the sort of risks that I've been seeing for broad crypto assets has been like you've got Bitcoin. It's widely understood. People love Bitcoin. They want to own Bitcoin. You've got stable coins, which are widely useful. That we – I think the market knows. And that is tokenization, by the way. You've got DeFi apps that – particularly like swaps and lending. They're great. They're quite useful. But most of the assets are shitty, like in the scheme of things. Not all of them, obviously. Yeah, you're right. But I was like, I want to upgrade the quality of assets on chain, right?

31:19Alex Thorn:And one way would be to get like real equities out there. Well, I think that's your natural progression. I mean, we think about our – There's like 30 million crypto assets and surely like 29.9 of them are not good. Yeah. But that still leaves a lot of good ones. There's still a lot of – But I just mean like that's what I want to see is like DeFi be able to get used with assets that are better, right? And for a lot of reasons, a lot of the reason there aren't better assets was Gary Gensler's fault, by the way. 100%. I don't think it's – I think this is an area where it's not the industry's issue or it's not the – it was truly a regulatory – there was a big shadow that was put over a big swath of the market.

31:57So everybody was either forced to be a pure commodity or like a meme, like where you're a joke. And then like all the stuff in the middle, everybody knew that it was there. And the technology – we have the technology. Yeah.

32:09Alex Thorn:Right. Right. You couldn't offer any kind of tangible benefit to your token holder or you'd be illegal. Exactly. And so you either did it illegally offshore somewhere else or you did meme coins only. Yeah. It really is true. He boxed out. He made it impossible to register any kind of equity-like feature. And the true power of the blockchain in that regard is that you can do all this programmatically, cryptographically secure, et cetera. And so we're starting to see that, you know, and as people get comfortable, you know, I used to say back in the day when we were first evangelizing Bitcoin, it was like, all right, or crypto broadly, you know, it took somebody, Trad5, some person, six, you know, 12, you know, six to 12 months to learn about Bitcoin.

32:57And then it was three to six months to learn about ETH. And then it like, you sped it up. And I think we're seeing that now.

33:03Alex Thorn:One of our old employees used to call this time, I think, time to boomer. Do you remember that? It was like it used to – sorry, yeah, that it would take like a baby boomer like a year to understand Bitcoin. But this compresses. As you go down the rabbit hole, you get faster and faster and faster at learning it. And we're going to see that innovation take place. Like we're going to get – we're seeing a lot of growth in the stables, right? And then stables are going to become other financial products and then so on and so forth. And that half-life as you go pretty soon. And that's how crypto wins.

33:37Like we've always said that crypto wins because it's just better. Yeah. Right. Like broadly, like the technology is better. And to your point, like some of the things that we see that are exciting, you know, we're finally we're finally, you know, getting live with our prime platform. And simultaneously, we're building on chain prime because we know our clients are going to want to, you know, access, you know, DeFi, go into on chain, you know, native native solutions and having a way to do it. that's regulatorily, you know, approved, that's safe, that we've spent a lot of time doing it ourselves, dogfooding the process.

34:10And so that when someone shows up, when these large institutions who are generally our clients show up, we can say, all right, we've been doing this for five years. We're one of the largest on-chain participants. And we've vetted all these. These are the smart contracts. And being able to say, hey, if you want to try something, go out this curve over here and we can allow you to do that. But this is your safe space here where you feel comfortable.

34:33Alex Thorn:I love that. I think it almost feels like the on-chain environment, which you can call on-chain or DeFi or whatever. It's kind of crossed the chasm here where it's like people really, it is very useful. Like it's maybe not literally everything, but like there is stuff that people want out there. A hundred percent. I mean, if we think about one of the powers of crypto broadly is democratization of finance, that we can get away from rent seekers at different places, which it's a little bit of an oxymoron because we seek rent by helping people. We're an intermediary and a bridge to that world. Right.

35:09But if the purpose is to democratize it, what you see with DeFi and on-chain is you have a universe of people who are retail, right? And now they're able to participate in markets that they used to not be able to. And it allows people to get access because their risk profile might be different. And so now you have institutions that can access that pool directly without having some intermediary take the lion's share of the trade. So ultimately, the user and the supplier are truly the beneficiaries.

35:40Alex Thorn:Yeah, and the lending stuff on chain, I think we think about this really well. Your team, I've talked, we work with them a lot, and we're researching it. They're using it and whatever. And they start, the lending team or DeFi team, they started, it's been a couple years of this, But they've started thinking about like these pools of capital are kind of just unified. Like if you want to borrow Bitcoin or cash, it's like you've got your you've got, you know, our counterparties who might want to lend it to us. You've got the banks or somebody who might give us cash. And then you've got the on-chain environment.

36:14Alex Thorn:It's all sort of part of the same thing now. It's sort of like a facility. It's one giant facility. And what you manage downstream from there, like that's the use case. downstream it's just understanding okay i have a an isda with with a large bank these are my concerns i have smart contract risk and i have to do the audit of the smart contract but it's similar it's just understanding how that works downstream at the end of the day if we're borrowing dollars secured by bitcoin right right like okay like what's the rate this rate from here right exactly what's the rate and then you get through that you risk adjust it like okay i'm i'm right you know well and there's a certain risk of one place versus another place but it is it is like on the menu of it is truly part of like on-chain defi is is part of capital markets it's not its own capital it's part of it there you know we used to think about it and and maybe i'm partially to blame some of the regulatory backdrop but you know you'd say okay we have on-chain and you'd have other right now it's like okay if i need to trade a future right i can go to trad fi exchanges you something like the CME, you know, wherever.

37:20I can go into crypto native, you know, Binance. And now I can go into on-chain applications and I just have to compare each. And so I can be capital efficient. If I've had a client come in on the other side and I have capital that's sitting in, say, an on-chain universe, it's actually cheaper because I don't have to move it. It's there already. Or if I have a TradFi application where I'm on CME and I'm like, oh, I got a client that this client bought and this client sold, and I can marry them up there. It just gives you more choices.

37:50Alex Thorn:It's very interesting, and that is a democratizing force also. A hundred percent. You can see that - Keeps everybody honest. I know. You can see that TradFi is, you know, they're on a range of a spectrum of emotion about this. They're interested and embracing, but also, for example, CIFMA, which is the securities industry primary lobby, which is, we want, I think, I don't think we are a member. We would like to be a member. We are in the securities industry, of course, as well. But it's all the big financial service, big lobby. They wrote a very angry letter to the SEC about tokenization of equity securities, basically saying, please, let's pump the brakes here, which, again, it's not surprising.

38:27Alex Thorn:I mean, because this is a democratization question. It takes from the power, from where the power currently resides and we're distributing it downstream to where the money actually really resides with the average person. And so those rent seekers clearly don't want to have to deal with it. And they'll be around. They're going to figure out how to play there. They have a massive role to play in. And it's interesting because, as you know, we talk to all of them. Yeah. And you have pockets. They're all very interested in it. Yeah. They're extremely interested. And then you find pockets of people inside those organizations that just totally get it.

39:01Alex Thorn:Yeah. It makes sense because, like, this is the same thing. I used to say that, you know, the St. Louis Fed puts out, historically has put out phenomenal research about Bitcoin. Like, there's guys there that love Bitcoin. and think it's super interesting, which shouldn't be surprising because they're in the business of money. And Bitcoin's a very interesting monetary phenomenon. So it shouldn't be surprising. But it is, you still, that's the other thing. It's like we have the dual regulators in the US, the commodities and futures, and then the securities. We're like the only country in the world that has this split.

39:30Alex Thorn:It's very stupid in a lot of ways. People have wanted to fix this for years, but there's tons of reasons why not. Yeah, there's a myriad of reasons. But what's interesting, you know, when you think about that, When you think about the bifurcation of the regulatory framework, you think about a lot of the different elements. We're in this time of tremendous change right now. Globally, if you just think about it like politically, geopolitically, there's just a lot of – You're like generational. Yes. Well, you've got the baby boomer demographic that's rolling through and then you go to millennials or the next one, right?

40:08And so they're going to drive outcomes. And so that's going to push things. That's going to cause more change, which at that point, when you shake up the snow globe, the thing that's the best is going to come to the top. And crypto blockchain is truly the best. It's just way better.

40:25Alex Thorn:How do you see, like, what's exciting internationally? Is there particular demand in certain jurisdictions or like what? Yeah, I mean, it kind of pick up on the democratization front. You know, we're seeing, I guess you have your traditional stalwarts where you have APAC broadly. Yeah. You know, you've got the China funnel that comes through Hong Kong. The diaspora out there, yeah. Yeah, and then you've got Singapore. I mean, they've loved Bitcoin and crypto forever. Yeah, forever. Yeah. And so you've got that. And so we still, we're leaning in heavily there that APAC office continues to just, we're have to get a new one.

40:58I was there.

40:59Alex Thorn:We went last year with you. Well, we're getting a new one that's got to be twice the big. It was pretty tight, actually. It was already pretty full when I was there in September. Yeah, that's why we need to get a bigger one. It just keeps growing because there's opportunity. But what's interesting is that democratization piece, we're seeing a huge growth in LATAM. We're seeing huge growth or at least green shoots that you know can grow into giant oaks out of Africa. The Mideast continues to embrace and there's just – it makes a lot of sense if you think about – you know, I jokingly will say, not in a pejorative way, but in a real way, like the Mideast in a lot of ways is like the bottom of the drain in the bathtub.

41:38You've got all this money flowing from China. You've got all this money from the West flowing in. And so you have a real, you know, so we're, we're making a really concerted effort to grow that. Yeah.

41:47Alex Thorn:And it's kind of like, uh, the, the Emirates and the GCC, uh, I don't know why I'm using the security. It's a Gulf cooperation, but you know, the, the, the Middle East there in, um, it's kind of like the new Switzerland in some ways too. It's sort of this fulcrum between East and West. And that, and that's why, because, because that is the bottom of the drain. Like if you, if you're, if you're East, you don't necessarily want to, if you're in the East, you don't necessarily want to run all the way to the West to bank. Like we did 40, 50 years ago. I mean, that was something different. Now it's like, Oh, Hey, I can diversify my capital center.

42:19Alex Thorn:It's geographically central. They have energy there. They're, they're business oriented, right? It's really interesting. That's a huge story that I'm not that intelligent on, but I should probably learn more about. Well, we can talk about it offline. We've got some big plans there. We've made some good strategic investments and have good partners there, but we're leaning in even more so. Yeah. Well, that's exciting. The APAC, but also the Middle East, I guess it's part of our, what are the people in the bank called? EMEA? EMEA. Europe in the Middle East and Africa. Yeah. It's pretty like, that's what the bankers always say for that.

42:54Alex Thorn:It's like, oh, really? You're going You're going to put like three giant continents in one guy's remit. Just slam them in and now you're in charge of this. Go make it happen. Yeah, exactly. You know, very different. But, you know, like that is one of the, again, powers of us and Galaxy is that we can operate in all these jurisdictions legally and with people on the ground, boots on the ground that know the culture, know what matters. and really engage with our client base, with the markets generally, because you never really know where something's going to happen or how these ideas kind of start off as just like a little nothing, and then before you know it, it's a real business.

43:34Alex Thorn:Well, I think it's one thing I've always been excited. Granted, I'm a big firm guy. I came from Fidelity. Galaxy always feels like it's a big company, and we've got a lot of interesting stuff happening, an enormous amount of it in your business, speak, which makes a lot of sense, by the way, because, you know, getting access to trading, hedging against borrowing crypto is at the core of pretty much what everyone is doing. Yes. And so I'm always excited to talk with you, Jason. All right, real quick, I was going to throw this on you. I'm always bothering Jason about his time in the commodity pits in Chicago.

44:07Alex Thorn:And one of my favorite things about that is that you guys, it's back when it was a big thing, It was a big, giant, massive people trading, yelling to each other. And you can't hear. So when you would trade, you'd be yelling to a broker or something across the room or something. You use hand signals. All the time. If I wanted to say, like, buy 100 Bitcoin, if you wanted to sign that to me, how might you say that? I mean, I'd be like, hey. Or let's say it's even better. It's like Merrill Lynch. Merrill wants to buy 100 Bitcoin. How would you sign that to me? I'd be like, Merrill's working to buy 100, you know, BTC, whatever.

44:44You know, Goldman, gold ring. Goldman is working to sell. Market's two-bit at four.

44:50Alex Thorn:I would be able to just see you now-bing it, but you'd also be hand-sign-ing it. Hand-sign-ing it. And then if you didn't see it, like, hey, hey, you know, one more time or whatever. And I'd be like, you know, Goldman is working to sell, you know. I really wish we could bring this back in some way. Can we start doing it on the floor here? I mean, there's got to be some way to... I don't know that we want that. Bitcoin is progress. We don't need... That's fair. All right, my friend, Jason Urban, Galaxy's Global Head of Trading. Thank you so much for coming on Galaxy Brains. Thanks, Alex. It was great.

45:20Alex Thorn:That's it for this week's episode of Galaxy Brains. Thank you to our guest, Jason Urban, Galaxy's Global Head of Trading, and Michael Harvey from Galaxy Trading. Everyone have a safe and happy weekend, and we will see you next week.

45:34Alex Thorn:thanks for listening to galaxy brains the weekly podcast from galaxy research if you enjoy the show please like rate review and subscribe wherever you get your podcasts to follow galaxy research sign up for our weekly newsletter at gdr.email read our content at galaxy.com research and follow us on twitter at glxy research see you next week