The Great Convergence of Crypto & TradFi w/ Alex Thorn

11:00Galaxy:In the futures market, potentially, you know, I don't think that's confirmed or not. And so, you know, basically it seemed like we hit the market-based stop loss order for the administration. Right. And everything that's happened since, you know, that Sunday open has been, you know, de-escalation oriented. Yeah. Now, the problem is, like, there's still limited traffic through the Strait of Hormuz. And folks have cut production.

11:36Alex Thorn:In response to that because they don't have boats to put it on necessarily correct and there's also like a backlog of

11:43Galaxy:Orders and correct raise yeah, yeah, and so The situation is very tricky the futures market You know is a little dislocated from like physical markets Because like at the end of the day like oil and commodities is about moving like molecules from a to B Yeah. And like the true cost of the molecules, not like some financial representation and like futures form or options, like whatever it may be. And so like the ultimate cost, you know, is is higher. Yeah. And, you know, taking a step back, what markets are basically saying is that the inflationary impact of higher energy prices and what they know about the situation on the ground is going to lead to, you know, persistently high inflation, especially if you look at like European inflation break evens, because their economies are super sensitive to things like, you know, net gas prices.

12:42Galaxy:You know, you're talking about some places in G10 economies having like a 4 % expected inflation.

12:48Alex Thorn:Yeah.

12:49Galaxy:Right. And that's a big deal, particularly for the bond market. And so you've seen a pretty huge sell-off in G10 fixed income. The U.S. is probably the best one where it's had the least amount of sell-off because it's probably least sensitive to energy prices and net gas prices. But the rest of the bond market is a bit scared. And then what's happening in conjunction with that is you've had these fears around private credit. And there was a headline out today saying that JP Morgan is going to restrict lending versus private credit. And the implications are that other banks and large G-SIBs as well as some regional banks might follow suit.

13:33Galaxy:Right. And you've already had a crazy amount of redemptions. I saw that BlackRock has a big private credit fund that they halted redemptions for. And a bunch of other ones have also halted redemptions. And so people are starting to get concerned.

13:48Alex Thorn:This is a big concern for the Treasury Secretary. I was watching him maybe two weeks ago at the Dallas Economic Club, and he was talking a lot about this. They were sort of trying to get him to talk about inflation and other stuff like that. And he kept saying, like, just to be clear, like, I'm one of the main things that we're concerned about, not even – he wasn't even saying that there were fears that they had. But, like, one of the main things they're following is the private credit markets and their interaction with public markets and, like, what this – because I guess this has been – I'm not an expert on this at all.

14:18Alex Thorn:But a giant rise in this private credit is pretty new in the scheme of things, right? And now you're getting so much lending is done through private means and private credit and not at the banks where regulators do have a lot of oversight. And so it's like outside the view of the regulatory agencies and the treasury. And so then if it goes –

14:39Galaxy:Yeah, but again, like it is a relatively small market in the context of things. um you know i think the global uh private credit market is around two trillion dollars um versus like you know i think the s &p is worth like 65 yeah the global bond market is like way bigger than that right uh but it doesn't mean that the underlying reason why some of this this credit is shaky like is is going away or doesn't manifest itself in other parts of the market right Like part of the reason private credit sold off so much is because of the AI re-rating of software enterprises basically. And does that challenge, you know, large parts of the traditional equity markets as well?

15:28Galaxy:I mean you've seen that move already.

15:29Alex Thorn:We're calling it Saspocalypse a couple of weeks ago. Others and, you know, one person like suggests that like maybe like dentists could be like disrupted and then like all the stocks related to dentists go down like 10%. And there was one about I think – I can't remember who said this, but it was like a research note from a bank or something that said that registered investment advisors could be the next one to go and then all the brokerage stocks went down. Yeah, information security. We're still playing whack-a-mole with that. Definitely. Yeah.

15:55Galaxy:And AI is only continuing to get better arguably at an increasing rate. Yeah, that's true. And so what that – like the private credit concerns and the SaaS concerns, you're seeing that manifest itself in credit markets. Like so IG credit has gone from like a 40 handle to like the mid to high 50s. High yield credit spreads have also widened out. So not only are the outright like nominal level of interest rates going up because of inflation concerns surrounding oil, but the credit spreads that a lot of companies need to pay for are also increasing. So it's like a double whammy.

16:38Alex Thorn:Things are getting more expensive and they're having to pay more to borrow to buy them. Correct.

16:43Galaxy:And so, like, at some point that's going to reflect itself in the broader equity market because if you think about it, one, like, what is an equity? It's, in theory, like, discounted cash flows, right? So if your yield levels are going up, the present value of those assets are going down, right? And then you think about how much paper has to get rolled this year or how much new issuance there has to be on a go-forward basis. In the US, you've got all this CapEx that has to get funded, a lot of which hasn't been funded. I think this week alone you've got like almost$70 billion worth of IG that's getting issued.

17:27Galaxy:What is IG? Investment-grade credit. So higher-quality bonds.

17:30Alex Thorn:The highest quality. The highest. Got it. That's an enormous amount,$70 billion.

17:34Galaxy:Yeah. But like – but the real implication is like, OK, as like paper matures and has to get rolled or as more CapEx stuff needs to get funded, it's happening at higher outright levels of like treasuries or risk-free rate and higher credit spreads. And so that might cause some problems. Right.

17:56Alex Thorn:So you're saying there might be even some – let's say it's an AI company. We're talking about data center type buildout or any kind of company that needs to borrow a lot of money. like it might become cost prohibitive and thus you'd see growth slow down?

18:08Galaxy:No, no. I mean it's just – I don't necessarily think that the market freezes up. Like there's – I think there's enough liquidity and if there isn't, Fed will probably step in on the liquidity side. But it's just like the cost of it is going up. And so your IRRs are going to –

18:25Alex Thorn:Right when you need even more, it's getting harder. Yeah. So it's an interesting situation. Let's turn to another topic I've been talking with you about for a while, which is UAP disclosure, unidentified aerial phenomena.

18:40Galaxy:Yes.

18:40Alex Thorn:Formerly called UFOs. You know, I think our audience probably knows a bit about – I mean everyone knows something about UFOs. Maybe you've just seen like Will Smith saying like in Independence Day, like, welcome to Earth. One of my favorite movies, by the way, Independence Day, phenomenal movie. But I'll give a little just backstory for the audience if they haven't been following, and I'll skip forward. But suffice to say, like, for all of millennia, all of time, there have been hints that there might have been some sort of UAP. You can see this in ancient hieroglyphs and medieval woodcuts.

19:12Galaxy:I mean, who built the pyramids?

19:14Alex Thorn:Cave paintings and stuff, right. So that question has long existed. And then in the 40s, right, there was the event, whatever it was, in Roswell. and then sort of through the 50s and 60s, UFOs became a cultural phenomenon, right? There were sightings, there were all these movies made about it, right? The government created a project called Project Blue Book to investigate and then reportedly shut it down in 1969 saying there was nothing to see. So then you fast forward and by the way, like discussions of it were relegated to like conspiracy theory basically and you may even remember, there's a, I know you like the West Wing, which I'm a big fan of, there's an episode where a guy goes from like NASA, he goes into Josh Lyman's office and is like, there is an unidentified flying object, like coming in and out of radar over Hawaii.

20:03Alex Thorn:And our Navy doesn't know what it is. Don't you think this matters, Josh? And he's like, no. So anyway, the situation has changed dramatically recently. In 2017, I think it was the real blockbuster New York Times revealed the Pentagon had been running a secret program to look into it again. Navy pilots had started coming forward with cockpit videos, objects exhibiting flight characteristics that defied known physics. Congress has since held congressional hearings. David Grush, a former intelligence official, testified under oath about an alleged crash retrieval and reverse engineering program.

20:37Alex Thorn:And the biologics that were recovered. He said there were biologics, right? And this is all just an open...

20:42Galaxy:Congressional under oath testimony.

20:44Alex Thorn:Yeah, and kudos to Congress. There have been a lot... Harry Reid, the former Democratic Senate Majority Leader, was a major proponent of disclosure and coming out about this. I think he actually once had told a story, and I think Senator Reid has passed RIP, but he had told a story about seeing a UAP himself and it being a spiritual awakening moment for him. But kudos to Congress, which has really been pushing and giving David Grush and other, I guess, whistleblowers, we'd call it. Anyway, now there's a new documentary that's been out for six months or so on Amazon called The Age of Disclosure, which compiles a lot of this story and has former DOD officials disclosing and saying that this is going on.

21:22Alex Thorn:And by the way, features like Marco Rubio. Yeah, absolutely. I believe from when he was a senator, but it's not clear. He's cited as the national security advisor and secretary of state, which he currently is, also saying that it should be disclosed. So – and then just to wrap it up to lead into the main question I want to ask you, which I don't think people are asking and it's a very important question. But Trump following – Barack Obama did an interview where he basically said aliens are real and he tried to walk it back and saying it was like the Fermi paradox where it's like – What I really meant was like surely they're real because the universe is so large.

21:56Alex Thorn:But in response to that interview, the president – President Trump posted on Truth Social ordering agencies to release files related to, quote, alien and extraterrestrial life, unidentified aerial phenomena and unidentified flying objects and any and all other information connected to these highly complex but extremely interesting and important matters. So it's not fringe anymore. And there is a poly market, which currently has pretty low odds, like in the 20 percent range of formal U.S. government disclosure before the end of this year. So the question to you, BimNet, is – and we'll leave aside some of the big topics and philosophical questions.

22:32Alex Thorn:I'm interested what you think the market reaction would be to a formal UAP disclosure. or some ideas. It could be a risk-off moment, maybe flight to gold or Bitcoin or safety. Maybe defense rallies on the idea that we're going to, I don't know, spend a lot more money either to build stuff with the tech or to fight it, right? Or maybe the market just shrugs it off because of this drip, drip, drip of disclosure has sort of conditioned the public and everybody kind of already knows. What would you think if, I don't know, if the president came out tomorrow?

23:05Galaxy:I mean, at this point, like, people have gotten desensitized to it. But I really think what's important to think about in this scenario is, like, why there's been this drip, drip, drip of information. As if, you know. They wouldn't have let, like, intelligence officials testify in the past, right? And, you know, like, there's still, like, scientists that are going missing. And, like, there's been, like, three. I saw that.

23:35Alex Thorn:energy experts and stuff like msq physics labs yeah there was one in california the military official like two weeks ago that's gone missing former dod like ufo official i mean and so like

23:49Galaxy:i feel like the reason and why the government is is like drip drip drip is important to know but i don't necessarily know if that reason is going to be given away by right we don't know what the

24:00Alex Thorn:reason is, but it does feel like what you would allow to sort of slowly push it out into the public domain if you did intend to disclose something. It feels like disclosure is coming.

24:11Galaxy:Yeah. But yeah, I mean, just going back to that question, like my initial gut is like, I can't avoid the theological questions, right? Like, why are we here? What is that? All that stuff. That's not typically the type of stuff you want the market thinking about because it creates

24:27Alex Thorn:It's fear.

24:27Galaxy:It's fear. So my initial gut tells me it's got to be a risk-off move.

24:32Alex Thorn:Yeah.

24:33Galaxy:But in terms of, like, the crazy stuff, I think is really kind of like the physics implications. Right. Right? Like, oh, yeah, these objects, like, move around as if, like—

24:43Alex Thorn:I mean, there's famous, apparently documented, certified, formerly classified sightings of the Tic Tac, where it's, like, accelerating to the speed of sound with no noise and no propulsion and then stopping immediately and hovering and, like, it's not— Yeah, absolutely.

24:56Galaxy:I mean, there's that Kentucky congressman guy that's like, oh, yeah, you know, we think there's like Thomas Massey. Thomas Massey. He's like, oh, yeah, we think there are four bases in the ocean. Right. And in the mountains. Right. And so, like, are they living here? What are they trying to do? How many species are there? Like, you know, what parts of physics, like, do we know? Is there, you know, zero point energy, free energy? Like, there's so many, like, things to consider.

25:24Alex Thorn:Anti-gravity technology. Yeah. Oh, man. Yeah, but so you think risk off in the sort of –

25:29Galaxy:I think risk off because there could be like whole industries that are completely obsolete.

25:34Alex Thorn:Totally.

25:35Galaxy:Right? Yeah. And you have to like present value that like today. Yeah. Right? And so it has to be risk off. And I think that's one of the big motivations as to why there hasn't been that much disclosure.

25:46Alex Thorn:And why they're dripping the disclosure to try to minimize the impact. Correct. And the fear, not just on the market but just in Americans and people's minds.

25:53Galaxy:And it's also, I do think that there's a little bit of an angle where I'm pretty confident that like lots of laws have been broken in order to prevent disclosure and to avoid mass panic and to keep secrets secret.

26:08Alex Thorn:Yeah.

26:09Galaxy:But, you know, what you've seen recently, particularly in the age of disclosure, is like a big push for like amnesty.

26:15Alex Thorn:Yeah. And I think. That'll become a question.

26:20Galaxy:Yeah.

26:20Alex Thorn:It will become – I'm sure there's tons of cold cases where – who knows? We don't have to – everybody can understand what we're speculating about, right? There's movies about this and I don't know. No, but I mean high level – Private companies like defense contractors or like intelligence agencies that have kept people quiet or whatever. Yeah, there might be calls for investigations. But you're right. It probably is the type of thing where it can't really quite move forward without amnesty for the past – whatever it was that they had been doing. Yeah. If they get that, then disclosure and productively moving forward looks easier.

26:56Alex Thorn:Yeah.

26:57Galaxy:But, you know, like right now, like equities in my head are less about does this company like produce cash flows, et cetera. I think it's just turned into like a store of value trade for a lot of folks. You just got to own stocks to beat inflation. Yeah, to keep up with inflation. And so like does that thesis like get challenged by UAP? Yeah, the base thesis, yeah. UAP disclosure? Because like it's really like it's so hard. It's like does money even matter? Like I don't know where it goes. I don't know if my brain is being up to him.

27:37Alex Thorn:Because of the unbelievable weight that the big tech companies have in the indices and just in the market their size, AI is – and that AI could disrupt a lot of them. has that dented the store of value thesis a little bit as well, right? Like if they're just – they should be – not anyone in particular, but like SaaS companies should be less valuable. They should. Absolutely.

27:59Galaxy:I mean like every day I'm confronted with somebody that like creates something really cool and new.

28:06Alex Thorn:I mean it's our favorite conversation at the office is like literally what are you building with AI at this exact moment? Yeah. Should I build it too? I'm always asking people now what they're using it for so that I can get ideas for what to use it for. No, absolutely.

28:18Galaxy:So it's – But you get this. This is a little meta. But AI, if run honestly, like can maybe like discover the physics concepts that have been kept hidden.

28:33Alex Thorn:Yeah.

28:34Galaxy:Right? There's that research piece that got actually published in a physics journal like a couple weeks ago.

28:40Alex Thorn:On zero-point energy. Correct.

28:42Galaxy:Yeah. And energy in the quantum vacuum. And apparently like in a single like quantum vacuum block or whatever, there's more energy than that's produced in the sun. So if you can figure out a way to harness that. But really like I do think that there's been a ton of censorship of physics departments and like knowledge.

29:03Alex Thorn:Which by the way is totally precedented like with nuclear technology is one example. Manhattan Project. It's crazy to think that as part of this disclosure, if it occurs, one of the things that Americans might be told, which is what you're saying, that actually whole branches of science may have been classified in order to cover stuff like this up. Absolutely. And that is just a crazy thought, not just because of whatever might have been deemed to classified related to UAP science, but also just the idea that like there are bodies of knowledge that are not – you're not allowed to work on, which was true during like the Manhattan Project as well.

29:45Galaxy:I mean the other parts are like the historical like implications. I mean if you read about some of the ancient stuff.

29:53Alex Thorn:Even like in the Bible. Yeah. And there's crazy like descriptions of things that are often I think by theologians attributed to like angels. But like you read the actual description in the Bible and you're like, what is that? That doesn't sound like I'm a kindly fellow with wings. That sounds like something a little different. Yeah.

30:13Galaxy:What's fascinating though is Elon's take on this stuff. He still claims that he hasn't seen any information on this stuff. I'm like, dude, come on. Like you run the largest private space company in the world?

30:26Alex Thorn:You guys haven't like documented that. There's no chance. Oh, come on. Come on. Because there's also been a bunch of old stuff. And I think we'll wrap it up in a second. But like there's videos of apparently like apparently real of like from the ISS and like in space and like in tales from astronauts. Yeah, absolutely. Like we see weird stuff up there that doesn't always make sense. Like things flying around in the atmosphere and stuff. I mean I could talk about this all. Yeah, yeah. But your initial take is what? Risk off? And then they try to manage that and drip and try to calm fears after they – yeah.

30:59Alex Thorn:Yeah. I think there's a lot of people who have panic.

31:01Galaxy:I mean folks that are like deeply religious and like –

31:05Alex Thorn:It raises the biggest, deepest questions. It's not just like let's keep the factory open and make widgets and that's our main focus. Now we've now got to reassess everything. Yeah. All right. Well, we don't know when that's coming, but I think the poly market is about 20 % likelihood that it happens before the end of 2026. So we'll see. And thank you, my friend, Pimnetta Beebe from Galaxy Trading.

31:26Galaxy:Thanks for having me.

31:27Alex Thorn:All right. So I wanted to give a little update of where I see the convergence of traditional capital markets and blockchains because there is no doubt it is converging. They are converging. really the sheer volume of developments is almost impossible to track day by day, even, you know, let alone week by week. Just a couple recent things that have occurred. So Kraken is reportedly partnering with NASDAQ to somehow assist them with tokenizing stocks. That followed previously last week when I believe NYSE announced a strategic investment in OKEx, apparently also to solidify a partnership to do the same.

32:08Alex Thorn:Numerous crypto companies have gotten OCC banking charters, which is the national banking license. And very interestingly and importantly, Kraken Financial, which is their Wyoming special purpose depository institution, which is effectively a narrow bank, a non-lending, fully collateralized bank in Wyoming, It was just granted apparently provisional access to a so-called skinny master account at the Fed, which is an account at the Fed that gives them an ABA routing number. It lets them affect final settlement of dollars. They can't access lending facilities or other things at the Fed, but they can move money.

32:47Alex Thorn:And I don't think people realize this just as an aside on that one that you can't actually move dollars without a bank that has a Fed account. OK, in fact, basically the only type of money that really there's only three types of money of dollars. Right. There's money in a Fedmaster account. There is physical paper and coins. And there is the TGA, the Treasury General account at the U.S. Treasury. Like so every time you've ever sent money like Phineas, if I send you money on Venmo, obviously, if I have money on there already and you don't cash out, then it's really just rejiggering inside Venmo's bank account.

33:24Alex Thorn:But if I put money on Venmo for my bank and then send it to you on Venmo and then you export the money back to your bank, Venmo is not doing much. Venmo is a slick UX on top of a traditional bank and the traditional bank is using correspondent. If they don't have a Fed account, the traditional bank literally has a bank account at a bigger bank that has a Fed account and it's that Fed account that ultimately settles the dollars effectively. Effectively. So totally ground shaking news that for the first time ever, a non-traditional bank in the U.S. has gotten access to the Fed payment systems. It's not old.

34:03Alex Thorn:It's not new worldwide. So the Bank of England already gives these out to like 300 non-traditional banks like, you know, Stripe and Revolut and like fintechs. So does the European Central Bank. But in the U.S., it has never has not been the case since the creation of the Federal Reserve. Right? Banks have had a total monopoly on payments. And like I said, like even other things you think you're doing payments with ultimately is actually a bank under there, right, that's doing the payments. So this potentially portends an entire new era of how payments work in the US, setting wholly aside the question of stablecoins.

34:38Alex Thorn:And there's a whole bunch of other stuff that's been happening with the convergence between traditional banks and financial services and blockchains. But I want to talk about the banking lobby because they've been actively opposing stablecoin rewards and thus holding up the Clarity Act in the Senate. They have – they are very big mad about the Skinny Master account claiming it poses risks to the financial system, which you have to chuckle at because like it's the banks themselves that have repeatedly posed risks to the financial system. And also Kraken is a non-lending, fully collateralized bank.

35:15Alex Thorn:How does that pose a risk to the financial system? And there might be a way. It might be too safe. People might – I think they might worry that, well, if they – where would you rather hold your money, Phineas? A bank that has a 0 % reserve ratio and is either lending or investing all of your deposits, you need to rely on that just to send a payment? Or would you rather use a bank that takes no risk at all?

35:36Beimnet Abebe:No risk at all.

35:37Alex Thorn:Right? I think that's – this has been one of the theories about why the Fed hasn't previously allowed these types of accounts because they're worried that it would expose the fragility of the fractional reserve banking system, which is the rest of the banking system. So maybe there is some truth to there being risk from the banks, but I will say they're actively opposing that. And that's a pretty esoteric argument I'm making. I think the reality is it's just actually insane that why do Americans have to exclusively use highly levered institutions just in order to send a payment, right? That seems crazy.

36:09Alex Thorn:So I think it's going to continue and expand would be my guess, like it has in the UK and in Europe. But the banks are also now, I saw a story in the Wall Street Journal that they're threatening to sue their own regulator, the Office of the Comptroller of the Currency, the OCC, which is the National Bank Regulator, because they're mad that it's been giving out banking licenses to crypto firms, right? I think Ripple has one. Anchorage has had one, right? And there's others I don't want to misname any, But so they're suing the banks, the banking regulator, about crypto firms getting access. They're probably going to sue the Fed over the skinny master account, you have to assume.

36:49Alex Thorn:This is the banking lobby. So the Bank Policy Institute, which represents like Goldman and Morgan Stanley, some of the biggest banks, the American Bankers Association, which is like all the banks, and then the ICBA, which is the lobby for the community banks. They're all furious about all three of these things, stablecoin rewards. That was going to threaten the banking system. OCC giving licenses to these new banks, that's going to threaten the banking system. Letting a firm access a Fed account, that's going to threaten the banking system, right? It's this full-throated opposition to these innovations, each of these undeniably an innovation.

37:24Alex Thorn:And they look pretty obstinate doing it. Like it's pretty transparent in my view that it's much more about protecting their monopolies and the regulatory, you know, moat that they've created for themselves over the decades in the U.S. than it is about risks to the financial system. Again, not letting people get interest on their money. Like we had a whole episode with Omid Malekan from Columbia Business School a couple weeks ago that was really good where he just wholeheartedly thrashed their arguments about – like they don't even do the lending, right, most of it, et cetera. And we talked with Bimnet earlier about private credit.

38:02This is what's so interesting as sort of a dichotomy to me because you've got all the big banks doing stuff with crypto, saying they're building it, right?

38:10Alex Thorn:You've got the big custody banks like BNY and publicly working on crypto custody and other stuff. You've got Morgan Stanley with Bitcoin ETFs and a bunch of other work they're doing. And those are the same big banks who, on the one hand, are preparing to integrate or actively integrating blockchains into their products or workflows, while their lobbyists are directly opposing the innovations that would let others do it. So this is a very interesting time, I believe, for traditional financial services because this is one of the most highly regulated and gatekept industries in the world that has not been subject to substantial disruption from innovative technology.

39:01Alex Thorn:I mean, maybe like, you know, it's true that like the voice and physical trading floors of old were replaced by computers. Right now, if you go to the New York Stock Exchange, it's mostly just performative. Right. It is a cool place to go. But like the people there aren't the ones actually like trading a lot of the stocks usually. And so there have been some obviously technology improvements, but they have not been wholly disrupted by a challenger before. and this is another point this is one of the reasons i don't think stablecoin rewards are quite the issue i think that in clarity in the clarity debate i think it's much more again about them perhaps rightly fearing disruption to their monopoly the banks right so and i've argued that the the you know fears of like oh community banks will be hurt specifically is kind of a red herring and they're kind of using these you know cute little hometown banks they like to pat them on the head and say like, you surely wouldn't want to kill this, right?

40:00Alex Thorn:They're like using community banks as a human shield in the negotiations. And it really is a dichotomy because they are actively opposing it while also building it. And so I think, which is a reasonable strategy, right? Like let's prepare, but let's also pump the brakes, right? And you see this on tokenized stocks, despite all the announcements, like really not, you know, not that much from a regulated standpoint has occurred yet. We expect more from the SEC that they're preparing while they're also sending their lobbyists to oppose it. What do you make of that? It feels like an interesting dichotomy to me.

40:39It seems like they recognize the inevitability.

40:44Alex Thorn:And so they know they have to prepare and they want to try to make it a managed transition so they don't get disrupted, basically. That seems to be the strategy. I think also that the pace of change is making

40:59Beimnet Abebe:people uncomfortable. Yeah. And they don't know how to change or evolve or integrate or update or tweak. And so they stall. And you see this in a number of different sectors that are related to crypto or blockchain or now AI, of course, is the obvious elephant in the room when it comes to the pace of change.

41:19Alex Thorn:Even the newspapers relating to the internet, right? Like now New York Times makes more money than they ever made just with nytimes.com.

41:27Beimnet Abebe:Right. And they could acknowledge that many of these changes are ultimately inevitable and even positive. Right. And I do think that most people, when you sit down and have a conversation, when you break down the merits of blockchain and its integration with TradFi, I think people would agree that ultimately that That sounds good. Decentralization sounds appealing and is inevitable and positive, but the level of understanding and the sort of the mental and what they would potentially lose. It's power. It's, you know, there's a lot of things there. And so the pace of change, I think it's more of a delay it, right?

42:04Alex Thorn:I mean, we did when I worked at Fidelity and I ran blockchain research in the innovation department, you know, that group had done 50, I don't know, call it 50 proofs of concept for how to use blockchains in Fidelity's businesses, which, of course, are brokerage, not a bank, but trading, right, stocks. And the vast majority of them, we decided were either not viable, were not viable for one of a few reasons, which were, okay, the tech wasn't ready. Okay, right, that occasionally happened. Or it's the wrong tech. Actually, the issue with XYZ was something else, not that we need a decentralized ledger, but some other thing.

42:43Alex Thorn:but a blocker for plenty of them was the presence of intractable entrenched intermediaries right where it was like this would be a good idea but the main parties that would need to be just would have to disrupt themselves and they choose not to right and that that has been a a whole issue right like with all innovation um is you know and you can disrupt right there's the they call it the innovator's dilemma, can the incumbent innovate fast enough, faster than the challenger can disrupt them? And that is, I think, where we find ourselves now with the banks and the brokerages facing the innovator's dilemma, where it's like they want to prevent the disruptors from disrupting the innovators, but they also have to innovate themselves because you can see it converging on a point i do think their protectionism is going to fail ultimately and they and i think they probably know that and like you said it's an effort and delay i think to give themselves time

43:40Beimnet Abebe:to build it up it's quite interesting quite interesting what would lead to them successfully avoiding the what we believe or what we hope they want to rebuild i mean they want to rebuild right

43:54Alex Thorn:like think think about and i and by the way i think they absolutely can like i'm not at all predicting the death of the traditional banking system or the traditional capital markets. Far from it. I think they will successfully integrate a lot of this. Take stable coins as an example. I think they're cool because I can, you know, with reasonable assurances, self-custody, digital dollars myself for the first time. I don't have to put it in a Venmo app that actually has a bank and a correspondent bank below it that has a Fed account. Now, of course, they can be frozen or seized, but like, you know, that's really only used for terrorism and stuff.

44:29Alex Thorn:So I'm not saying it's like full self-custody the way like hiding dollars under your mattress might be. But I like that and I intend to use non-custodial wallets to store dollars once that becomes widely, you know, once the economy is widely, and of course I have stable coins separately for crypto purposes for the most part, but once everyone can accept stable coins, I'll be walking around with digital dollars self-custodially. But probably the majority of people will actually still just use the payments cards, the fintech apps, right? And those companies will be using stablecoins in their back office processes.

45:04Alex Thorn:So again, I think that's like an interesting thing where there will be some marginal bleed where I no longer use a checking account because I can just use a non-custodial stablecoin wallet. But most people probably won't do that, in which case they'll survive, right? And I think that's what we're going to be seeing. There'll be disruption here and there, but it's not like everyone immediately decides at self-custody and stops using their bank or their credit card, right? That's why the card companies like Visa and MasterCard have done tons of work on stable coins, right? They intend to use them.

45:32Alex Thorn:So I think it'll be similar for the big banks and for the brokerages, right? And, you know, it's almost like the Bitcoin ETFs, right? Like a lot of people just own that. They don't own the quote unquote physical Bitcoin, right? And that has big and possibly negative implications for crypto architecture or the ethos of self-sovereign use of crypto. But that tension has always existed in crypto as well, like the push and pull between custodial services and non-custodial decentralized use cases. There will always be both, to be clear. And I think in relation to the Bitcoin ETFs as one example, rather than oppose them, I I think what I've advocated for and have done myself is work to make sure they're on our team, that they understand that Bitcoin is only valuable because it can be self-custodied.

46:25That doesn't mean everyone must self-custody, but there are certain red lines that can't be crossed or we'd lose the decentralized nature, which is actually the thing that makes it valuable, right?

46:34Alex Thorn:Like if it was just a ledger of fake digital coins in a bank's ledger, then it's not a decentralized blockchain. And that's been possible for decades, and it's been valued by the market at exactly zero, right? So it's more about, I think, trying to help them understand the actual core benefits. It's not about trying to convince them to adopt an ethos. It's to make sure they understand why these things are valuable, why people want tokenized stocks, why they might use stable coins, right, and not corrupting that. So trying to turn the institutions into our biggest advocates and not our adversaries has been, I think that that's the only real path.

47:13Alex Thorn:You're not going to, you can't bring in the idea that, you know, hey, here's TradFi, this giant institution, and we're just going to tear you all down and use DeFi. Like, they'll never stand for that. The government won't stand for that, right? So it's an integration, not a, you know, excoriation or a.

47:31Beimnet Abebe:Well, it's also why folks like yourself, not to pump you up, but folks like yourself that sit with a deep understanding of both sides. I mean, there's a lot of sort of like – there's many folks and there's a lot of discourse that are just very crypto-focused or blockchain-focused that don't acknowledge the real actual – the way that these things happen in government and the way they're adopted in committee rooms. And that's a really – there is somewhat of a disconnect there. There's been more, obviously, in recent years of sort of that crossover, but still, I think, quite minimal.

48:06Alex Thorn:Yeah. I mean, there's some noted – yeah, there have been some, but you're right. It's like it's kind of something that the crypto world has anticipated as far on the horizon, right? Like we will win. Eventually, we'll win, quote, unquote. But I don't – it's one, a sign of the times of how successful crypto has become that now I'm talking about the inevitability and that the banks are actively building while lobbying against. Like they didn't care 10 years ago. Now they care so much that they're spending millions to build and spending millions to delay, right? Like it's a major milestone, I think.

48:46Alex Thorn:But you're right. This is also like earnestly discussing and delving into and planning for and building for the overlap and eventual integration of crypto into traditional capital markets. That is a sign of the times as well, right? And so those conversations, there are now more people than ever before who can do that crossover, which is good. That's a story of growth, right? But this is going to be one of the more interesting tensions in markets for a decade, this transition. There will be a transition period. In fact, I'm more convicted now than ever before that they really are going to integrate.

49:25Alex Thorn:There really will be stocks on blockchains. There really will be stocks you can use in DeFi. There will be your ability to, like, send in or receive stable coins or bitcoins from your banks and brokerages. I think they all know that it's great. The products are great for them, by the way. Like, look how big these crypto exchanges have been. They're great businesses, right? Like, there's – the banks want that business, right? And they don't have to take a moralizing view about whether or not they like Bitcoin. They're not out here saying they like every stock that they let clients trade on their platforms, right?

49:58Alex Thorn:Like, I think that what's so interesting is that what had been furious opposition even literally to, like, Bitcoin specifically, has now morphed into complacency and acceptance of these assets and this technology. But there will be a lot of difficulties in integrating, too. I think that's why there's a good delay strategy. And there are many companies, Galaxy included, helping these institutions adapt to blockchains and adopt blockchain technologies. It's kind of interesting, too, because the Genius Act is really the straw that breaks the camel's back here. because now, like, if you're a bank, a big part of your job, as we discussed, is sending and receiving money.

50:42Alex Thorn:And now there's this new, totally sanctioned, regulated, extremely efficient way to send and receive money. Surely you immediately need to at least have the capability to do that. It's not saying you have to issue your own stable, but, like, surely you have to be able to send and receive stable coins and provide the option to your clients to send and receive stable coins. like pretty quickly some employees of some companies are going to start getting paid in stable coins and they're going to want to put them in their bank account and any bank that can't do it is going to lose that customer right so but what's great is that that's the key management the wallets um the custody of the private key material to manage stable coins either for the bank itself or for its clients is materially similar to the wallets and key management and custody you need for Bitcoin and other cryptos.

51:32Alex Thorn:So it's like even if they don't want to allow you to send and receive Bitcoin from your bank account, they yet or they don't think they want to build that, but then they decide they have to build stable coins, they ultimately kind of end up building both at the same time. So I think that is already happening. And I would say Clarity Act, which as we all know is effectively tied up in this dispute between crypto and the banks right now, it would materially help here as well. That is the last leg of clarity that a lot of these banks and brokerages and institutional investors want to see to fully settle the question of how cryptos fit into the markets broadly.

52:15Alex Thorn:I'm of the view you don't quite need clarity and look at all the stuff that's already happening without a new statute and that you're going to get a lot of what clarity has from administrative guidance or interpretive, you know, interpretive guidance and exemptive relief and stuff from the SEC or the CFTC. But that stuff is possibly time limited. It's not codified in statute. It can be changed and rolled back. And it's not the foundation upon which you want to build an entire long-lasting new financial economy the way things like the Securities and Exchange Act, right? The main legislation that literally empowers and powers U.S.

52:57Alex Thorn:capital markets was all passed in the 30s. So something like clarity. Without clarity, we're probably in a pretty good spot with this current regulatory agencies. But that's theoretically only about two and a half more years, right? Then administration changes. Who knows what happens? whereas codifying genius and then clarity in federal statute that's the thing that hundred year industries are built on so i think they do want it they we need it they need it but also they're they're you know is it all about stable coin rewards that's ostensibly what the dispute is over in clarity but i think it's also part of their just like pump the brake strategy here right like they need time um and and one of the other things a couple other things i want to talk about But in relation to all of this, one of the outcomes for crypto is that it's boring now, right?

53:50Alex Thorn:Because the big growth area right at this moment, and there have been many over the years we've talked about, you know, NFTs and whatever else and stuff. The big growth area right now is effectively back office infrastructure at traditional financial services companies. There is a gold rush happening right now for that. i talked about nasdaq and and kraken and okx and nisey and there's myriad other examples of this right and is it if blockchains become just good back office infrastructure settlement rails clearing tokenized assets stablecoin payments etc is that the end of the exciting speculative era of crypto right now we're getting what we wanted which is they really are admitting that blockchains and DeFi have really good uses and they're going to try to bring them in-house or interact with them.

54:42Alex Thorn:Isn't that what winning looks like? And I think it is. But I think it also can feel deflating to the crypto natives because many envision something a lot more cypherpunk than that, and a lot more self-sovereign than... Satoshi didn't say the root problem with traditional fiat money is that the banks don't have a faster payment stable coin. That's not what he said, right? Like the underlying vision that launched Bitcoin and subsequently spawned this entire crypto ecosystem was something even more disruptive than that, rather than just like, oh, this is a back office tech upgrade for the existing financial system.

55:22Alex Thorn:So I think that's creating that the fact that this convergence is occurring, and it is occurring, is extremely positive and a sign of maturity and adoption of the technology, and it can bring a stablecoin or a Bitcoin or an ether into every person's account or portfolio or whatever, which is positive, it's also a little deflating. And I think it's one of the aspects in this bear market, even though we're at$71 ,000 of Bitcoin, which still to me seems so high. I mean, not like it's too high. I think it should be higher. But I mean, I've been around for a long. I was sitting in this chair when it was$15 ,000 after FTX, right?

56:04Alex Thorn:So in this bear market, I think this is one of this tension between the traditional and the DeFi is one of the sort of malaise-causing tensions in this current bear market. That's quite interesting. Okay. Another final thing here, this time about Bitcoin, a little bit different here. the Bitcoin Policy Institute, great folks over there. Shout out Connor and David and Grant and Steven and everyone who works at the BPI. That's the Bitcoin Policy Institute, not the Bank Policy Institute. They're both called BPI, which is, I think, an intentional joke on the BPI. They put out a fascinating study. They did an empirical study and ran 9 ,000 queries across all the major frontier AI models.

56:52Alex Thorn:They published the queries and they're nonpartisan and they used, I don't know scientists to prompt in a non-biased way but they found in interrogating the models that ai broadly prefers stable coins for payments and bitcoin for savings and they have numbers for each the most uh the the one that preferred bitcoin the most across the most test was anthropic i think the lowest was open ai but um very interesting dynamic i think possibly set to emerge, particularly if we actually do start to see autonomous agents running businesses, stuff like that, is that they are choosing Bitcoin for store of value.

57:35Alex Thorn:And I think, shouldn't surprise anyone, that makes a lot of sense, right? And it makes particular sense for an AI, let alone one that was invented by humans and humans like Bitcoin for store of value. but an agent can't store wealth in a non-immutable digital asset, then it's a pretty straightforward thought process. Wait a sec. Someone can take my wealth away? That's not a good option, right? And so I can really envision that Bitcoin will be widely owned by AI. And by the way, things like the Lightning Network are great for AI. I mean, Lightning is faster than stable coins, actually. It's incredibly fast transfers.

58:15But it's a little clunky to use.

58:18Alex Thorn:But you know who's good at figuring out weird little tech stuff is the robots, the clankers. They're good at it. So I think it's something to watch. And I think also in this world of increasing digital abundance where I can generate images of anything I want and at the push of a button and tell Claude to write 10 ,000 words about XYZ and it's just like instantly done, right? In that world of supreme digital abundance, I think digital scarcity will become even more important and they'll dovetail and grow together. In a way, I'm saying that Bitcoin can be an antidote to slop, slop in all forms, AI, slop content, inflation slop of the never-ending money printing that's going to certainly be part of our story of growing digital abundance.

59:09Alex Thorn:it can't be copied, diluted, manufactured without limit, right? And that's juxtaposed against the AI revolution in which everything can be copied, diluted, and manufactured without limit, right? So I think there's going to be – and I think it's deeper than people realize. Like the dichotomy that is going to – they're going to grow together for that reason. I think digital scarcity, whether in the form of Bitcoin as an asset, which of course is scarce, or just the verifiable scarcity that blockchains provide, I think they will be overlaid on top of more parts of our economy, as we talked about in finance, as an antidote to the AI slop that is being produced at astronomical rates and volumes.

59:58Alex Thorn:So I think something really important to follow there as well, and it's part of our thesis at Galaxy as to why we are working and building in both AI and crypto. Because blockchains, I think, provide not only the data structures that agents need to transact, right? I mean, they actually can't, which is crazy. But like AIs aren't loading up a website and dragging a mouse to a box, right? Like in clicking a button, they want to interact with data and transactions programmatically, and blockchains are perfect for that. They're open. Think of them like open API structures that anyone on earth can access at any time and build on, right?

1:00:38Alex Thorn:And that is very powerful. And you're going to see, I think, not only payments and the stuff that are storing wealth and the assets or not just their adoption in traditional financial services, is, but you're going to see blockchains emerge as an important counterweight to the digital abundance of AI. And they are already. So we're at the early stages of that too. These have been the two big thoughts in my head over the last two months, basically since the start of the year, is assessing, participating in the convergence of traditional finance and decentralized blockchains. Of course, we have our own tokenized stock, GLXY, which is our stock.

1:01:17Alex Thorn:So we're working in that space directly, right? And we build infrastructure for blockchains for institutions, right? So obviously we're participating in the convergence. We also believe it is a mega trend. And then this overlap between Bitcoin and AI, you know, and like I said, not even just Bitcoin, just verifiably, provably scarce, transparent digital ledgers, right? Of course, of which Bitcoin is the oldest and most decentralized. Ethereum and Solana are excellent as well as blockchain structures that are decentralized. These are the two big ideas. I don't know. People, if you have comments on these ideas, I mean, I've been posting plenty about them, but hit me up.

1:02:06Alex Thorn:You know, we got to get a phone number, Phineas. Remember you like a radio station, people can call up, do you know Heather McMahon, the comedian? She's got a great show. I love her.

1:02:13Beimnet Abebe:Yeah, we need a phone number. She has people voicemail her.

1:02:16Alex Thorn:Yes. And like she plays the voicemails on her show and they're always really funny. I think hers is absolutely not is the bit. All right, my friend. That's the rant. That's it for this week's episode of Galaxy Brains. Thank you to our friend Bimnet Abibi as always for joining. And everyone have a safe and happy weekend. We'll see you next week.

1:02:47Alex Thorn:Thank you for listening to Galaxy Brains, the weekly podcast from Galaxy Research. I'm Alex Thorne, head of firmwide research at Galaxy. Follow me on X at Intangible Coins. Follow Galaxy Research on X at GLXY Research. Read our written reports at galaxy.com slash research. And don't forget, if you like Galaxy Brains, to like and subscribe on your favorite podcast platforms like YouTube, Spotify, Apple Podcasts, and more. We'll see you next time.