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TUSD/PRIME BOMBSHELL | BTC ETF IN AUGUST?! #CryptoTownHall
Recorded: June 28, 2023 Duration: 1:15:30Space Recording
Short Summary
The crypto market is witnessing significant developments, including the potential approval of Bitcoin ETFs by BlackRock and Arc, which could reshape institutional investment. MicroStrategy's substantial Bitcoin purchase signals continued institutional interest. Meanwhile, FTX 2.0 is set to relaunch, aiming to recover assets for creditors. However, Prime Trust's financial discrepancies and operational failures highlight ongoing challenges in the industry. The evolving dynamics of stablecoins, particularly TUSD's relationship with Binance, underscore shifting trends in the market.
Full Transcription
Hey, Alex, since you're the first person up here, we can talk about your book.
Sure, why not?
I know, it's a perfect, perfect start.
But since we don't have a panel up and we're getting everybody up, it's a good time to do it.
So go ahead, have a had it.
Well, thanks, Scott. I appreciate it. It wasn't intentional, but I'm sort of glad that I released the news today when I was joining this show. Yeah, so I just announced that my new book, Web 3, Charging the Internet's Next Economic and Cultural Frontier, is officially kind of been announced. It's available for pre-order now, and it is,
available to buy on September 19th of 2023. The book's been a long time in the making. I've
been working on it for a little over a year now, conducted over, I think, 50 or 60 interviews with
plenty of, you know, builders, entrepreneurs, creators, regular people, venture capitalists,
policymakers, and so forth. And the book basically makes the case that the web and with the internet are
entering...
a new era and that this new version of the web web three is going to be a transformational technology
for business but also for culture and could even you know potentially allow us to solve some
global problems too um you know i think despite the progress that that we've made as an industry
uh there's a lot of misconceptions that continue to skew public opinion on the topic and that really kind of
increased my sense of urgency to write a book on this on this subject intended for a really broad
audience so you know of course it's going to be a technology that that changes business and i think
you know leaders in the enterprise and entrepreneurs and
policymakers and journalists and others should pay heed.
But my hope is that, you know, this book will be read by, frankly, anybody who cares about
the future and wants to play a role in shaping it.
So, you know, I owe a huge debt of gratitude to so many people for helping to teach me
and to help shape my views on the subject.
And I'm just really excited to get the book out into the market and for it to, you know,
have an impact, hopefully.
Yeah.
Guys, by the way, this was not intended, for real.
I'm excited about the book.
I'm going to read it, and so I happen to have Alex up here.
But it comes out in September, right?
Yeah, that's right.
September 19th.
And, yeah, you can check on more information on my website,
Alextapscott.com or, you know, go to Amazon, like Barnes & Noble,
like basically anywhere where you can buy a book.
It's going to be available for pre-order.
What's a book?
What's a book?
Is that that thing that made you hold?
Do they still make those?
Do you mean a PBF?
Come on.
well you know of course there's an audio book and actually i got to choose who my um who my speaker was
i say hey do you want me to do it they're like no should have your dad i would have had your dad do it
for sure yeah no he would have he's not he's sort of an um yeah he's not he's not impartial
oh i guess that's fair but does that come across in tone when you're reading a book though i don't
know you know that's actually why you know unless you're you know
famous politician or actor or something.
They generally don't want people narrating their own books because they are impartial.
And so they put emphasis on things that they think are important, but maybe the reader doesn't, you know.
And so you want like a neutral voice to be the voice of reason, so to speak, when someone's reading a book for an audiobook.
So at least that's my opinion.
You know, it's a audio books, it's a real job to read a book, you know, for an audiobook.
And so you want a professional taking care of it, too.
Awesome. Awesome, man. I can't wait to read it. And now everybody here, you have to read it or you're not allowed back. I'm sorry.
Scott, I got it. This was not intentional at all, but I really appreciate that. That's very kind of. For sure. I see we got Josh James, Joey. God, it's the Jays. You guys are like a boy band. And Travis. James, which part of the boy band are you, I guess? I don't know. Bass?
Okay.
something like that i'm terrible singer so please please don't have the british voice that's
a requisite of any like uh you have to have one one guy you know with that accent in any boy
band anyways guys everyone obviously uh welcome it is wednesday uh june 28th
a very quick market update here. Welcome to the Cryptotown Hall. Things down slightly. Bitcoin
trading about 30,200 down about 1.8% over the last 24 hours, Ethereum, down 1.37% at 1855. But I don't
think anyone's particularly surprised that the price action is going a bit sideways after seeing such a
monster move from 25,000 up to about 31,000 just last week, that candle of last week
basically bullishly engulfing 10 weeks of consolidation and price action to the downside.
But it's definitely we're going to get into at some point here today,
some theories for why that might have happened,
why we might have seen that massive move to the upside.
I think the ETF hype, a huge part of that, obviously,
BlackRocky announcing their ETF and then news today that Arc,
if you guys haven't seen, sort of the breaking news,
that they have refiled, uh,
and we'll be basically having a surveillance sharing agreement with, I believe, CBOE, which is the differentiator that BlackRock has the surveillance sharing agreement with NASDAQ.
Kathy Wood came out and basically said, hey, we can do that too.
And so now ARC is definitely in line first.
ahead of Black Rock, Black Rock being second and arguably no discernible difference between those two ETF applications.
So that's going to be very interesting to see.
The other narratives, obviously, for this Bitcoin move to the upside micro strategy just announced once again that Sailor is a massive Chad and is buying the hell out of Bitcoin.
They bought 1,200.
12,33 Bitcoin for 347 million cost basis of 28,136.
They now own 152,333 Bitcoin, which they acquired for $4.5 billion in average price of 29,668.
So maybe, maybe slightly up depending on fees and interest on their Bitcoin position.
But that was a very, very heavy bid, obviously, on Bitcoin over the past, probably months, not necessarily weeks.
And then there's the FUD, which I guess we will get into about True U.S.D.
I was talking about it on my YouTube show today, but basically they minted a billion coins right at the dead bottom of this move before heading up, which is a third of the circulating supply of True U.S.D.
And if you go back in history, the last few mince.
of true USD of any significant size have actually immediately preceded roughly 20% moves to the upside for Bitcoin over a period of a week.
So we have a hell of a lot to talk about here today.
First, I want to dig into the ETF here and ARC getting ahead, but what this BlackRock ETF means if anybody has an opinion who's up immediately,
if that really is the reason that we are seeing this move or if it's something else.
Go ahead, James.
Yeah, please.
I'll make a few comments.
Yeah, I mean, there seems to be this new model, this surveillance model coming along, BlackRock.
You have their surveillance theoretically with NASDAQ, surveilling Coinbase.
And then we've obviously got ARC with the CBE.
I think it is CBOE.
This is that I'm not I don't want to pour too much cold water on all this but this has actually been tried before the SEC with various other applications.
So it's not new this whole surveillance model thing.
And it is a lot.
It's around to prevent market manipulation.
And if we look at some of the key exchanges out there, I mean, but finance in the past allegedly has been known to wash trade.
So this doesn't, you know, sit that well with the FCA.
The other thing I would highlight is we've got to wait another, what, three months for the FCA to respond to all of this.
I mean, I know it's BlackRock and they have a certain amount of clout here.
But it's still, I think it's a big step for them to approve an ETF at this juncture.
Sorry, why is it the FCA rather than the SEC?
Because he's in England and his brain is on a certain track.
Okay.
Just making sure I didn't miss something there.
Replace everything I said about the FCA with the SEC.
Sorry.
I mean, Travis, what do you think?
I mean, Bloomberg putting it basically at a 50-50 chance of an approval
and thinking those odds actually increasing now with the new arc filing.
So what do you think?
I mean, it's definitely multifaceted.
I mean, I get why people are fired up about it.
Like BlackRock's like approval record, what are they, 575 and 1 on ETF approvals or something like that?
Yeah, 575 out of 576.
Yeah.
So, I mean, you couple that with the fact that they're such a behemoth that they essentially are the U.S. government, right?
I mean, they're in incredibly close.
contact with the highest levels of U.S. government and U.S. regulators.
And it's like, okay, they probably wouldn't file this if they didn't think there was
quite a good chance of getting it approved.
And then it seems like this gray scale.
And James, I think you would probably have something to talk about this as well, too,
but just this gray scale GBT SEC case with...
the potential for it to, for the judge's side in favor of the SEC,
which would then put them in a position to either, I guess, approve GBT's conversion
or deny it for some additional reason that they would then have to make up,
or they could potentially revoke the approvals of the CME
Bitcoin futures ETFs like Biddo.
I think those would be the three options if the judge rules in favor of the SEC versus
gray scale, which that seems to be like a pretty big component of this.
Yeah.
Yeah, I mean, I don't know how to wait the likelihood.
Bloomberg, by the way, James really quick.
Bloomberg now saying on that gray scale case saying they believe 70% chance that
Grayscale beats the SEC in that case.
James, go ahead.
Yeah, I mean, that's very interesting.
I think, you know, Grayscale has to make all the noises that they want to convert to an ETF.
but that would mean a dramatic decline in their management fee.
To come in line with most other competitors,
it's got to be at least sub 100 basis points annual management fee.
Currently, they're charging 200 basis points.
It's not massively in their interest, therefore, for this to become an ETF.
In fact, it's a very captive.
There's been virtually no inflows or outflows recently.
It's just very captive.
They've got $25 billion of AUM.
Why suddenly halve your income stream?
I mean, that's the kind of the way I'm looking at it from a business perspective.
But I can see at that point, let's say it is approved.
That will open up the floodgates to a ton of other ETF.
So whatever way, Grace goes look at it,
they will have to cut that management fee, I suppose, if it's approved.
Scott, can I get in here?
Yeah, so I think that James makes a good point.
Right now, Grayscale is earning a 2% fee not on the value, or not on the market value, but rather on the nav.
And so it doesn't matter to them that they traded a huge discount because they're going to continue earning fees on the actual dollar value of the Bitcoin that they hold.
And it's a closed-end fund, so there are zero outflows possible.
You know, most open-ended funds like ETFs allow for redemptions at NAV, as do traditional mutual funds, but the closed-end trusts do not.
So it is captive money.
It's permanent capital, and they can continue to earn those fees.
in perpetuity. So why convert, right? Like to James's point, and I think it's an interesting one.
The counterpoint to that, though, is that they will begin in the lead with tens of billions of
dollars more than the next largest competitor. And currently, the limitations on who can actually
hold closed-end
like funds that trade OTC is limited.
But the second that you convert to an ETF, you open yourselves up to RIAs and advisors
and other like more traditional kinds of investors who have been looking for presumably
an easy way to own this asset class.
So, like, I think that the calculus, if they do want to convert, is just simply, you know, a smaller piece maybe of a much larger pie.
And maybe that that offsets any kind of fee compression that would happen as a result.
So if they've got, I'm making this up, a $20 billion, they're earning 2%.
Well, if they're at...
a hundred billion and they're earning 70 basis points, then they're still up massively from
where they were.
So I'm not totally sure that this is all kind of a pantomime that they're pretending to,
or, you know, going through the motions because playing both sides, right?
I mean, playing both sides.
I think, but I think, I think, I think, well, I'm just saying like there's, be the good
guy and apply for the ETF.
If the ETF comes, then they know that GBTC is screwed.
So I think they're hedging.
Exactly. Well, it's kind of like a, you know, heads, I win, tails you lose kind of thing.
Like they're, you know, they're one of the rare groups that's in a good position vis-à-vis the SEC where no matter how it goes, they're going to, I think they're going to be okay, is my point.
Josh, we discussed this this morning. What do you think?
Yeah, I mean, I agree with what Alex is saying.
I mean, I think they kind of have to do this, right?
You know, and ETFs are generally winner take all are close to it.
Yeah.
They have massive AUM right now.
And, you know, if the ETF gets approved, they're going to get sued like crazy to enable redemptions if they don't have an ETF.
and I don't know if they necessarily want to deal with that.
And, you know, even earning 100, you know, basis points rather than 250 basis points on, you know, the amount of assets undermines what they have now is a lot better than earning nothing if they have to allow redemptions and everyone redeems.
Right.
So, um,
I think they kind of have to do it at this point.
I don't think you have another option.
I'm still unclear then on why the GPTC trade is so unpopular right now.
I mean, I get it in theory, so popular, excuse me, right now.
I get it in theory of the discount closing the chance that they could win,
but nothing that's happening here guarantees that all of a sudden that discount goes to zero,
especially if they don't get approved.
So it seems like a very risky trade if you've already gone,
you know, taking the advantage of 44% to where is it 31% or something today?
Travis, Joey or Travis, actually, do you guys know anyone who's like really taking that trade right now?
Yeah, I definitely know some guys that bought grayscale kind of immediately on the Black Rock filing.
Agree, you do have to jump through, you know, a decent amount of hoops.
But, you know, I mean, I get why people would read through the Black Rock filing into how folks are thinking about the SEC Grayscale case.
And people were already, you know, I think legal experts that had been paying attention to that case were already, you know, feeling like Grayskill had quite a good chance just based on the response from the judge in the case or the questions that were being asked.
Well, I think a lot of this is down to timing.
I mean, it's inevitable at some point an ETF will be approved,
where it's gray scale, black rock, or whoever.
It's just timing.
So if you take that trade right now,
you might be sitting on it for a lot longer than you expect.
That's what I'm thinking.
And that's the biggest problem.
I will add, from what I've heard,
There is a chance that Grayscale wins the case, but the ETF, that doesn't mean that they have an ETF approved as well, right?
That just means that the argument that the SEC is arguing on is kind of ruled over, right?
And what that means is that they're still going to have to refile, is my understanding.
And the SEC gets so rejected for another reason.
But somebody can correct you if I'm wrong on that.
There's also a capital gains risk here as well because it will be a different legal entity.
So I don't think you can just convert it to an ETF.
So whoever is in the mutual fund, the close end fund, will have to crystallize gains.
So you're a force seller and then you re-buy at a different cost basis?
Yeah, I think that's how it will work.
I'm not sure you can...
just make that conversion without crystallizing a taxable event.
So, sorry, I just want to jump in again.
I don't know how it works in the US, but I actually, we had a great, excuse me, we had a Bitcoin trust,
which was a closed end product that traded on the TSX.
It's called 9.5 Bitcoin Trust.
And we converted it to an ETF 18 months ago, and it was a tax fee rollover.
over. And that's that's that's that's Ontario securities. So I don't know if it's the same as
SEC and in the US, but but the the the the markets are regulated in a very similar manner.
And the tax regimes are also quite similar. So I think it's I don't know for sure.
Good get a tax expert, but in Canada at least it was a tax review event.
Another thing just to talk about on this is because so much of this does boil down to basically the surveillance sharing agreement and whether or not the SEC feels like there's proper, like all of the denials of prior spot Bitcoin ETFs.
have boiled down to the potential for manipulation in Bitcoin markets.
And there was this weird thing when they approved the Bitcoin Futures ETF back in the fall of 2021,
where they said, you know, the CME Bitcoin Futures are sufficiently surveyed,
such as not to be manipulated.
But then people were saying, yeah, but the price of the CME futures is based on this reference rate that's based on spot Bitcoin prices.
And, you know, spot Bitcoin is a manipulated market that is not, you know, sufficiently surveyed.
I had such bullshit, though, because, I mean, the futures ETF is futures from CME that are tracking the spot market in theory anyways.
But yeah, go ahead.
That's, yeah, yeah, that's what I'm saying, right?
And so, and so, you know, even though, you know, I guess the crypto community was like kind of happy, I guess, when we got the CME futures ETF.
One, it was an inferior product to a spot ETF because of the contract role, which just makes it worse.
And two, it...
the reasoning behind it really didn't hold water to your point, Scott,
because the futures are based on an index of spot prices,
spot price, you know, still has manipulation to it.
So then when you look at this BlackRock deal
that's going to use this CF benchmarks Bitcoin reference rate,
New York variant, which is volume-weighted,
Coinbase cracking, Bit Stamp, It Bit, Gemini, and LMAX.
And so you just think about those six exchanges, volume weighted, and just like ask yourself,
I don't know, like as a market practitioner, like, is that sufficient surveillance such as to
ensure that the spot market is not being manipulated? And, you know, I think
I guess it just kind of depends on what happens with price discovery and the bifurcation, potentially of price discovery over, you know, the coming quarters and years and specifically what happens with finance.
To a lesser extent, OkX matters. Bit for next certainly matters. Buy bit certainly matters. Quobey matters. Coakine matters. I mean, there are, you know, there are certainly other exchanges that matter. Binance is the massive gorilla in the room, although, you know, we're not really sure what trading volume market share really looks like because, you know, most of the offshore exchanges are
you know, kind of the not well-kept secret is that most of these guys do wash trading.
And to what extent people don't really know, but it's present.
But it makes it a little hard.
When I read out those six exchanges, Coinbase Crack and Bit Stamp It Bit, Gemini, LMAX, and you go...
If you have surveillance on those exchanges, is that sufficient to ensure that the price of spot Bitcoin is not being manipulated?
My answer is no.
Right.
But isn't that like I don't actually disagree so I can see where they're coming from.
But that's sort of like an infinite regress in logic for all the ETFs that track all markets.
I mean, there's ETFs for absolutely absurd things.
Right.
I just don't see how this is like such a bigger issue for Bitcoin than other markets that have gotten ETFs.
Maybe that's just me. And the rest of the world has moved on with these. I mean, we have
ETF products in Canada, in South America, in Europe, ETP, but a very similar product. So, I mean,
we're really the last to be sort of litigating this.
I mean, if you end up having some very heavy-handed regulatory action against Binance that significantly diminishes its dominance in price discovery,
or if the exchange in a most bearish scenario gets shut down entirely, then on the back end of that, it's much, much easier for me to imagine, you know, this reference rate and surveillance sharing agreement actually being sufficient.
in that world, but TVD on the outcome.
Yeah, since I've got you, Travis, the next topic I want to talk about as you're one of obviously,
sadly, the biggest creditors is FTX 2.0 in the news at Wall Street Journal saying today that
we're getting a lot of momentum behind the idea of FTX 2.0.
I would love to hear your stance on that.
I obviously would rather never hear the three letters FTX put together again, but, you know,
as a creditor, you might have a different opinion.
Yeah, it's going to happen.
Yeah.
In some form, they're running an auction.
They will pick a winning bid from that auction, TBD on the structure or the exact timing, the details of that deal.
But it looks like what will happen is the bankruptcy estate will carve out the exchange assets, sell those to the winning bidder for some price at some structure.
And then the bankruptcy estate will then continue on clawing back assets, liquidating assets down into cash, getting cash back to creditors.
So you'll end up with this parallel path.
And this FDX 2.0 will likely have some component of creditors becoming equity holders, probably.
In a token or an actual equity in the exchange?
No, no.
Don't know on details.
All you know is you can comb through the fee statements of the FTX bankruptcy, and you can see that there has been discussion and research and analysis on a recovery rights token.
But don't know one way or the other on that.
I would love everyone else's thoughts on FTCS 2.0.
I mean, I'll say one more thing on it.
It's a good thing for creditors.
I think it's a good thing for creditors.
I'm just not sure it's a great thing for the space.
TBD, yeah, I mean, TBD on what happened.
You just, you don't know nearly enough right now.
Like in theory, if the management team is good,
if it's the most transparent exchange in the history of offshore crypto exchanges,
if their product and strategy is good,
and if the structure of the deal itself is good,
that's kind of four boxes that you need to check,
management, transparency, product, and structure.
If you check all four of those boxes,
And then you hold that in one hand.
And then in the other hand, you examine the competitive landscape that is the offshore
crypto exchange markets.
I think that there's room for something like that.
I mean, I know there is room for something like that.
Yeah.
So does that mean, I mean, look at the, look at the behemoth.
dominant player in the offshore crypto market and look at how bad of an actor that entity is.
Could not be a worse actor.
I think I think that I think the good follow up then, Travis, is given the situation that
you've been in, what would need to happen for you to deposit money on FTC2.0?
Like, like, how do you become comfortable with that?
I mean, I know you laid something out, but does, are you still?
I mean, would you really put money on it?
Uh, yeah, yeah, in theory. Yeah. Um, yeah, I would trade on it. I mean, better transparency in anything you've had before. There may be a separation of...
custody and brokerage where it would look like something like a kind of internal clear loop for folks that are familiar with the copper product where you can you can kind of have crypto that is held in cold storage and then on a you know maybe a daily basis is reconciled against
you know, basically IOUs on the brokerage side of the exchange itself.
You know, I would love to see for the first time ever, you know, we have these proof of
reserves, quote unquote, that various different exchanges put out, but they really are
kind of worthless without knowing what the liabilities are. Like, what is the stated
total amount of customer deposits that match up with the quote unquote proof of reserves.
I would love to see, you know, on the front page of the exchange website, you've just got a ticker
for proof of reserves that you can tie to on-chain. And then you've got a proof of liabilities
that, you know, I don't know how you would be able to actually prove that because it's
It's records in a database not on a blockchain, but at least you could maybe try and give some additional layer of transparency to give folks comfort.
I mean, it's very obvious, right, that coming from where this exchange will be coming from,
If they're not more transparent than any exchange ever, it's probably dead on arrival.
Like it just, it has to start with next level of transparency.
Kind of like people arguing that Silicon Valley Bank became the best bank on the planet to be banked with right after the FDIC stepped in.
Because it's the most transparent audited and you know that it's backed.
I can see that argument, although I just hate the idea of FTX.
Guys, I do want to go back to the ETF.
I know we weren't intend to do that, but Eric from Bloomberg is here, and he's the guy, obviously, on this.
Eric, what's up, man?
I'm glad we got you got you on.
We kind of talked about it superficially, obviously, and we've been talking about it every day because it's the hot button topic.
But maybe you could give us some color on the odds of BlackRock getting approved,
and now what's happening with Kathy Wood and ARCS update.
Yeah, hey, thanks for inviting me.
Yeah, I'll keep it brief.
We basically give 50% odds of one of these getting approved by the end of the year.
You have to have, I think you give BlackRock the edge just because they're Black Rock.
And, you know, they're, you know, very connected.
And they just don't, they just don't put markers down.
They don't randomly fail things.
It's just not what they do.
They really sort of play to win.
They want to bring a gun to a knife fight.
That's just how they are.
Black Rock changed everything. We went from 1% odds to 50 just on BlackRock. Now, Arc filing is interesting because Arc, get to give credit to Ophelia Snyder and Kathy Wood. They saw the grayscale arguments, and they were like, wow, the SEC could lose this. So they filed right then. So they would be alive and active when the gray scale decision would be made. And so they made a heads-up play.
And then BlackRock comes in in files.
We don't know why, presumably because of the same reason.
The gray scale decision could be bad for the SEC,
and this could give the SEC a way to save face and approve somebody who is in
Grayscale who pissed them off because they sued them.
But ARC is sort of this wildcard in the whole picture because they were first, and now they've updated their 19B4 to include the exact same sort of surveillance sharing agreement language that BlackRock had, which you could argue maybe gave a differentiation for BlackRock's filing.
So to make a long story short, if you're looking at this fairly, ARC should be in the poll position to be approved first because they filed first.
But because it's BlackRock, you've got this giant unknown variable out there.
So, you know, again, we've got two active filings that could very well benefit from a gray scale winning that lawsuit.
Am I correct, Eric, that you guys have put a 70% chance now on gray scale winning?
That's I believe what I read and I said it earlier.
I want to make sure that that was accurate.
Yeah, this is our senior legal analyst who made this.
He went from 40 to 70% based on the, that, you know, when the audio, the arguments and the questions that were asked by the court.
So that was a big jump up.
So I will say, we're leaning on him for that.
He's the legal guy.
I heard the same thing, though, and I agree.
It was, I was shocked at how fluxed.
What's the word I'm looking for?
How, what's the word when you're like?
when you're a little taken back in schlmixed flummixed gosh man that's like 15th and i did really well
the sce the lucre vocabulary portion so there you go thank you the the lawyer for the cc you could tell
was on her heels the whole time and i was like wow i couldn't believe it so anyway um that's where
we're at and it's obviously a race that's been going on for 11 years i'm pretty exhausted but black rock
is such a massive change, and you have to open up your mind to many theories.
I kind of feel like, you ever seen the movie JFK?
Of course.
Where Jim Garrison goes on this whole thing to try to figure out who the other shooter was.
And I feel like that.
Like, it's easier to say, oh, they're going to deny it because they've always denied it.
That's saying Lee Harvey Oswald act alone.
But with all these other things that come out, and with BlackRock and all this surveillance sharing agreement information that's in Black Rock, plus the winds of change seem to be blown towards a more traditional finance version of crypto.
And Gensler has some issues in own.
You sort of put all this together.
And again, you feel like Jim Garrison saying he didn't act alone.
And so that's sort of where our team is on this.
We're really giving a good 50% chance that.
It is the time.
But again, we keep 50% open just because we've seen denials for 11 years.
And we've, you know, again, they're 33 and O in denying the spot Bitcoin.
I know you mentioned how surprised you were at sort of the how Flummox the SEC attorney was.
But anyone who's been paying attention to these cases with crypto and the SEC, the SEC has kind of been losing.
Yeah.
Right. I'm not saying they're losing the cases, but there's a lot of people believing Ripple will win.
The Voyager bankruptcy judge pushed back extremely hard on the SEC.
And in those grayscale opening statements, to your point, I mean, that literally caused Kathy Wood and Ophelia to file, right?
It was so bad for the SEC.
Yeah, absolutely. And I think you're right. There's been, you can say that Gensler has become –
He's got, you know, he might be more in a corner than he was a year ago, right, in this regard.
And there's no actual, at least I don't know, any real legislation or any other rules or regulations that are going to be for crypto.
Thus, approving a spot Bitcoin ETF and handing that to BlackRock, who, you know, is, I almost said that the fourth branch of the government, but let's just say,
They're all three of the other branches, some would argue.
So, yeah, go ahead.
So this is a way to sort of transition crypto to, again, a more traditional finance.
So again, this is where you sort of read the tea leaves.
So the tea leaves are real strong for approving a BlackRock ETF.
And I agree with you.
All of this stuff adds into...
adds into this and i think if you're gensler and you're somebody who wants to get another appointment
you could if you if you're able to sort of get these exchanges to be more transparent and safer
and you get black rock out there with an etf you could sort of say to people yeah i sort of made
crypto more legitimate and that would be like a you know a feather in your cap so to speak so the
etf actually plays into i think
his politics or his, you know, ambitions in a way. But again, all this is tea leaves versus what has been written thus far, which is we just don't trust it. There's no, there's manipulation and fraud potential. But yeah, I certainly think what you just said factors into it.
And, you know, because at the end of the day, I think, you know, a lot of this is just up to his brain because we've had two commissioners dissent from his decision to denial.
So it's clearly the SEC is not all on the same page here.
So really it's, you know, Gensler's brain is really, and his, all the things he's thinking about and what's important to him, both politically and legally, I think are really interesting factors.
Eric, I have a couple of follow-up questions for you.
The first is, is it?
typical for somebody to jump ahead of another filer for an ETF, like if BlackRock was to jump ahead of Arc, that's the first question.
Second is how important do you think it is actually to be the first one to get approved for an ETF?
Like if Arc somehow gets approved first and then BlackRock gets approved a month later, does that put Arc in this just massive kind of leading position?
And the final question is, what do you think the odds are that multiple just get approved at the same time?
Great questions. If I'm the SEC, you know, honestly, I would approve Arc and BlackRock the same day.
But in all fairness, Arc should be approved first. When the pro shares futures Bitcoin ETF was approved, they filed first.
And Valcary was approved within 24 hours, I believe, by the way.
I think it was 72 hours. Within days, very quickly.
Yes, but they had filed three or four days later. It was almost like clockwork the days.
So if we're going to use the futures...
paradigm that Arc should be out first and then BlackRock a month later and how much is important
it's crucial I mean for Arc it's really crucial if they're a month after Black Rock it's a lot
harder if they have a month lead they start getting a lot of volume they get some assets
Black Rock doesn't isn't as pressured because they're Black Rock and they have massive distribution
so Black Rock Vanguard are two companies that are
are so beloved by advisors that an advisor might wait a month just to use the Black Rock one over the Arc one.
But Arc is, I think, and with 21 shares, by the way, is huge in Europe with their crypto ETF.
So they're maybe more going to be appealing to the more crypto-native people and maybe some of the more younger people.
I think BlackRock comes in.
They're appealing to the Boomer advisors.
But the Boomer advisors are where the money is, right?
So advisors in America manage $26 trillion.
Right.
and most of them are older.
And so that is going to unlock some of that money.
That's why this is such a big deal.
ARC, I think, you know, can carve out its niche as more of a sort of, you know, we're more of a crypto company.
We're into this.
You know, we know more about it, BlackRock, more mainstream.
Now, the question is the third and fourth.
After those two, then it gets really tough.
Usually, you know, one or two have a good amount of assets and volume, and then it becomes harder and harder.
But what you'll have, what was going to be fascinating is the one to come in third, fourth, fifth.
they're going to lower the fee to become appealing.
And so that's when a fee war is going to break out.
And you're going to find that one of them might come in, you know,
a double as cheap as the next one.
And people are going to respond to that.
And so you're going to have, and that's probably good for the investor, right,
to be able to buy into Bitcoin and to trade it for a basis point.
That'll be the spread to trade it.
And then your fee would be, let's say, we get down to 35 or 40 basis points,
which is where GLD was.
That's a pretty good deal. I think that's going to appeal to a lot of people. Eric, and you can do it tax-free on your retirement account. Absolutely. Which I think is the part that, I mean, we talked about it a bit yesterday here, actually, but to your point, the boomer unlock or even the unlocked in general to 401ks in retirement accounts where people, they're not going to trade, but there will people who do that for the lack of fees, but where people are comfortable dollar cost averaging into whatever asset and generally passively do it instead of actively, that's the major unlock here. I agree with you.
Yeah, and an ETF is just that it's a trusted vehicle that most financial professionals really are comfortable working with.
So the plumbing works for them, and it's very, this is all underrated, in my opinion.
Sometimes I'll see people on crypto not understand, well, they can just go to an exchange.
But this is just the preferred method of distribution for them.
I used to use the metaphor of.
If you're, if, you know, if the Beatles want to reach millennial listeners, they had to stream their music or put them on iTunes.
For a while, they didn't.
And so millennials probably were just going to miss out in the Beatles.
So certain groups of people just like their thing in a certain way.
And that exists in all kinds of industries.
And for advisors, they just like the ETF.
They trust it.
And they particularly like Black Rock and Vanguard ETFs.
Those two have two thirds of all the assets.
they are we call them the big two
and so that's why
you know one of the big two filing was just
such a mind-blowing game-changing
thing for us because
that that really has a lot of potential.
I see James.
You're here as well.
So now we got both of you guys.
It's awesome.
So I think the other part of that, Eric, and to James as well, is that that's the conversation
for your average investor, but for an institution, and listen, I'm not making the claim that
a bunch of pensions and endowments are waiting around for their opportunity to buy
Bitcoin.
But if they were in theory.
buying spot Bitcoin on exchange would probably never get past the risk managers and the
ETF would solve that as well. So if there is an institutional wall of money that decides at some
point to come in, the risk managers can finally green light this.
Yeah, I mean, I wrote a book called The Institutional ETF Toolbox, and I explored how institutions use ETFs in that book.
I also wrote it as a primer for people wanting to learn it.
So obviously, shameless plug, if you're looking to learn about ETFs, that book will help.
But what I found was like, GLD in particular, which I equate this to being like, I think this will be a lot like GLD.
What institutions, big boy institutions, really liked about GLD.
is how easy it was.
Even an institution doesn't really want to deal with buying gold and holding it and storing it and all that.
They will pay to outsource that.
So GLD was used a lot for what's called portfolio completion.
So if you're an institution, like a pension or an endowment,
and you have a portfolio and you want 2% dedicated to gold,
most of them will buy GLD.
And in other cases, institutions do not use ETS because they can get exposure even cheaper than the ETF.
But there's a couple places where they will.
And they also like liquidity.
So whichever one of these ETS gets liquid, let's presume it's the BlackRock one,
is...
If it trades a billion dollars a day and it's BlackRock and it's an ETF, that would definitely qualify for that big boy institutional level.
That's a whole other level, by the way. Institutions have 70 trillion in assets.
But the advisor is probably the sweet spot for this, but I agree. I think this could even appeal to institutions, especially once it gets lifted.
Yeah, I can't remember who it was yesterday. Josh, it may have been you actually, but I don't think so. But basically said that they had some information that BlackRock, well, conjecturally BlackRock would just not even be applying unless they knew that there was going to be a massive wall of money coming in the minute that they were approved. It's not like BlackRock would.
apply for an ETF and then just hope for the best that a couple hundred million, right?
There should be billions.
And somebody said that maybe it was Joe McCann said they had some information on that.
James, go ahead.
I see you have your hand up.
Yeah.
And the other thing I would say is piggybacking on what Eric just said is the
the reason that like if you look at arc and what everything all these other issuers that have
invested in gbdc ets aren't allowed to hold bitcoin directly right like they they for the most part
um so a lot of these other companies 1940 act funds whatever they are they went out if they wanted
bitcoin exposure they
own GBT. This would be a way more efficient way to get exposure, even if it's only a small
part of your portfolio. So Kathy Wood has led that charge, but there's a lot of mutual funds and other
ETFs that have put slices in GBC or Bitcoin ETFs or Bitcoin futures ETFs. So it's just another
avenue on the institutional side of things so that you could get other ETFs than holding this
thing. Alex, I saw you lifted your mic.
Oh, yeah, no, I was just going to ask for the Bloomberg folks.
You know, in the event that the ETAF does get approved from either Black Rock or Arc, I'm not sure which one would come first, how quickly thereafter could Grayscale theoretically convert?
And if they were able to, like, how much credence do you give to the fact that they...
already have so much AUM.
And would that act as a head start?
Or do you think like the pull from the 401k advisor crowd
to BlackRock and Vanguard would just...
overwhelm that. Like I'm just wondering like in gray scale's case could they see their growth scale
significantly because they've opened up all these new channels. Yeah, so there's two sides of this,
right? There's probably people on this panel right now that would make the argument that gray scale
is going to do everything they can to slow roll their conversion to an ETF. They're going to take as long
as they possibly can because they want to milk that two p.
fee.
I'm going to give them the benefit of the doubt and say they're going to do what they said
they've been doing and what they've said their goal was.
I can't hear anything.
I can hear, so it's probably on your end.
Keep going, James.
Yeah, so...
All right. So I think they're going to convert basically. I don't know if it's going to be as soon as humanly possible, but I think they're going to do it in a relatively timely manner. But that could be months, maybe longer before they're able to convert.
I don't see a positive path here for Grayscale. The more we talk about it, I understand that people are buying GBCC because the discount is closing, but it's almost no chance that they get approved first. And their approval is going to knock their fees down 10x. What am I missing here?
I mean, the benefit here is that he kind of hit on it is right. They have all those assets. So they're already a leader in the space. They have immense liquidity. It's like the most traded thing on the OTC market. So it's not as it used to be number one now biddo is number one, but it has a lot of things going for it. And in my opinion, if Grayscale doesn't do this, if they don't do what they're saying they're going to do if they don't convert. It's just like they're taking a death.
I agree, but that's the point.
Aren't they going to have to 10x the assets under management in the ETF from the trust to make the same amount of money?
Yeah, so I'll let Eric chime in here a little bit too.
But basically in the ETF world, everyone cannibalizes themselves, right?
It's part of what's been happening.
Fees have been coming down across the asset management industry.
It's been something that's been happening for...
borderline decades at this point.
So if Grayscale wants to be a going concern going forward,
they're going to have to get competitive on fees.
And they said they would, so I'm going to take them at their word for the most part.
But you just look at anywhere else in the ETF ecosystem, the ETF world,
everyone's cutting fees and they're trying to grow assets.
And there's other, obviously, Grayscale has other products that they're still going to charge
hedge fees on because the Bitcoin ETF, if it does get approved,
will be way before anything else happens.
Yeah, I would add, I would just add, again,
ETFs are very disruptive.
You know, I even think what you're talking about with Grayscale,
I think will also be an issue for the exchanges.
I mean, if you can trade an ETF for one basis point, right?
That's a, that's 0.01% commission, if you will.
And you can, you know, and they'll hold it for you for like, say, 30 basis points.
That's going to steal some business from the exchanges as well.
ETFs.
are very good about eating market share from really unique places.
Like they've definitely taken market share from mutual funds, right, which are high fee,
and there's no other issues with them.
They've taken business from the derivatives world, options and futures,
and they've taken business from single stocks.
A lot of people will be like, well, just buy the gold miners' ETF instead of trying to pick one or whatever.
So in this case, I think you've got to really give a lot of credence to ETF.
So you're right, gray scale.
This is going to be...
almost more of a curse than a blessing for them
because they
had a monopoly and
they were able to charge 2%. You know
way you're going to get away with that for long in the
ETF world, especially after a couple
file. And the real irony
is if they spend all this money suing the SEC
and they win and that's
ironically what triggered
SEC to, you know, or
BlackRock to file and then BlackRock
and Arc get out first and they convert
maybe like after that.
There's a sort of
cruelness to that because obviously they will have been maybe one of the losers in that,
even though they instigated this whole thing and sort of were able to overcome the SEC's issue
by suing them. So there's another subplot, I think, that's worth watching. And so I think your
points are pretty well made. Yeah. Any final thoughts, everyone, on the ETF? I know we've kind of
beaten it, but it really is such an impactful thing. It's hard not to talk about it any day, every day.
Anyone else, final thoughts?
Eric, James, thank you guys for joining and talking UTF with us.
It's nice.
We reference you literally every single day, and we pin your tweets up top,
so it's nice to actually have you here.
Thank you. Thank you so much. We appreciate it. Thanks, Scott. All right.
Awesome. Thank you. Thank you, Eric and James. So guys, I'm going to reset a little bit right now.
Obviously, give a quick market update. Nothing has changed since the beginning. We're going to move on to the next topic momentarily.
But first I want to tell you about the awesome sponsor that we have. It is pinned above planet.
You can also see it's pinned from the Crypto Town Hall website.
Twitter account, brand spank it new.
That was actually the Wolf of All Streets podcast account.
I donated it to Crypto Town Hall, my passion for the Crypto Town Hall.
So eventually, guys, we're going to actually end up hosting all of these Twitter spaces from that Crypto Town Hall Twitter account up above.
So I would ask you guys to play.
please follow that account.
We're going to be bringing it up as the co-host to get people familiar with it.
But as you can see, we have that tweet pinned above from Planet,
tell you a bit about them.
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Yeah, I mean, I just mentioned guys that they're going to be working with some celebrities.
We're not allowed to break it yet, but literally one of the top, I would argue, three biggest celebrities in the world is a massive part of this.
So something that's going to be really significant.
So guys, please check them out in the tweet above.
And also, please just follow the Crypto Town Hall account because, like I said, eventually we're going to be moving all of the hosting duties up to that account.
So, guys, what I want to talk about right now, obviously, is Prime Trust.
So anyone who's been following me obviously knows that,
and this Cryptotown Hall, more importantly,
a couple weeks ago, there were some rumors David Bailey had shared
and we kind of discussed it here, that Prime Trust was
likely going into bankruptcy. They needed $25 million, and then we obviously saw the BitGo deal come
through. We had some knowledge, or at least rumors of events at that time, that Prime Trust had lost
private keys, and then the part that we didn't share at the time because we didn't have it vetted
was that they had used customer assets to fill those holes. We now know that's true, has come out
from the state of Nevada, basically charging them, and that's
really coming out today. The details being their FID alleged Prime Trust lost access to legacy
wallets in 2021. That's when they tried to move to fireblocks and use customer assets to buy back
crypto. Yikes. So this is outright fraud. Prime Trust owes customers $85,670,000 in Fiat, but only has $2.9 million. And
And they owe $69,509,000 in crypto and only have $68,648,000.
If you do a bit of digging, the bulk of that $68 million that they hold currently in cryptocurrency
is apparently one single token, which is audio.
They have about $61 million worth, which I believe is 30% of the circulating supply.
We can get into how that may have happened because, frankly, I have no idea.
But the further you go down this prime trust.
rabbit hole it leads you to true usd and then the sort of fud surrounding that which i guess
i can allow you guys to we could discuss i can summarize i don't know the best way Travis you and i
have been talking about this quite a bit in the background josh you and i talked about it on
youtube this morning but i mean Travis what are you hearing here and what does this all mean to you
i mean it does seem like a lot of smoke for there to not be any fire
and the connection between TUSD and Binance,
and there was a contract swap for TUSD onto B&B,
chain and the next day they printed a billion dollars of TUSD and then the market ripped and then you can look at
you know kind of the quantitative data behind the market move and you can see that the TUSD pair was
being aggressively bid while other pairs were being sold into that price pump
You know, it seems like the prime trust thing as it relates to TUSD, I think is probably okay.
Apparently, just to be clear, guys, people were conjecturing that the coin wasn't fully backed because Prime Trust was the custodian.
It seems that Prime Trust only had $26,000 left of TUSD's assets.
So, yeah, go ahead.
Yeah, but there was after, after U.S. regulators basically forced Binance to shut down BUSD by pressuring Paxos, then Binance moved fee-free trading to T-U-S-D pairs, which prior to that T-U-S-D was like a, you know, really just like a deeply second-tier, um,
Stablecoin, I think it traded about, you know, $40, $50 million a day until March 11th when they turned on fee-free trading, printed a billion dollars of TUSD, price pump, BDC price pumped a ton immediately thereafter, and then trading volumes on TUSD have increased about 20x.
from where they were at the beginning of this year on some days.
Couldn't that, you know, in between?
Just real quick, couldn't that be explained simply by Binance being shut down, like you said,
on BUSD and if they're going to adopt TUSD being that they are the highest volume exchange on the planet,
I mean, wouldn't we naturally see that massive move?
I'm just playing devil's advocate here.
No, no, no, no, I agree with that.
Yeah, I agree with that.
But, you know, like, Binance obviously kind of, like, adopted this TUSD, and then there's a connection between TUSD and Justin's son, which is unclear.
And neither side seems to be particularly forthcoming about the nature of that relationship.
Yeah.
And I don't know if there's anybody in this space right now that can explain what that contract swap was moving TUSD over to B&B chain.
But I don't know.
The timing of that was a little suspicious to me.
So it's just there's a lot of moving pieces there.
Obviously, you know, you would just love if you could get more transparency, more forthrightness.
from TUSD, just have management come out, you know, come in the space, do a tweet thread, go on a podcast.
you know, whatever, just do a blog post, communicate.
Yeah, comms.
Coms space are absurd.
If you look at it, I don't know if people saw, but literally,
clearly probably an intern or something shared a bragging tweet about their high
watermarked volume today while all of this was happening.
They had a deleted tweet that said that they,
that their audit proved that they were 100% back.
They literally like deleted it from a thread just that one part.
And if you really dig into this, guys, I do not, you guys know I don't do Tin Hat.
We dig in pretty deep.
So we're putting this out there to actually try to find more.
But the auditor who's been doing the attestations for TWSD, who's named the network firm,
used to be Arminino, who famously did the FTX audits.
And then obviously that went so badly that they rebranded.
FTX US worth noting.
Correct, correct.
FTCS U.
And then if you look, and this is a lot of this is coming from a thread by Adam Cochran,
the attestation is through one chain link oracle, which is 17 different nodes all pulling from the same source.
So as he sort of summarized it here, if you want to just look at what the accusations here are,
You have a stable coin that. This is from Adam Cochran.
Won't tell you it's banking partners. The only one we knew about was Prime Trust.
So the only known partners bankrupt has audits from a formal FDx auditor.
Is it tested by an article run only by that auditor?
Doesn't seem to be redeeming.
That's another story here, by the way, that people are claiming that when they go to redeem
TSD, they're being sent to Binance to just trade out of TUSD.
and that they pumped $2 billion into circulation after knowing they had issues.
To your point, that billion dollar mint took them circulating supply from $2 billion to $3 billion,
a 50% increase.
And as I said, which could be entirely coincidental, it was literally within 30 minutes of the dead bottom of this entire market move.
It was when Bitcoin was 24,736 and it went to $31,000 the week after.
So that's what's happening here.
People are wondering why Travis is saying there's smoke.
potentially not fire. I mean, is anyone else here have any color on TUSD or anything additional
that's happening with Prime Trust that we haven't, haven't covered?
You might not. It might be a conversation between me and Travis. I know a lot of people don't want to jump in.
David Silver, I'm calling on you because you're the lawyer here. And we talked about this last week when I was talking about prime trust.
We did. And, you know, I don't have any insight or any, you know, substantive knowledge to contribute. And as a lawyer, I love saying that because it just means giving my own personal opinions here. But think of how bad this has turned from when we talked about this last week.
Last week, I say within a minute of each other, God, I really can't believe they lost keys here because they would have just come out and said that.
I was wrong.
A minute later, I said, what we're really going to find out here, I think the tip of the iceberg is the TUSD.
Because I've said this for a while now.
I do believe that the regulators are going to go after the stable coins next.
And this is a great stable coin for regulators to go after.
I can't remember.
I think it was Travis who just said.
This isn't like an A-list stable coin.
This is like a B or C-list stable coin.
Ran used to make fun of me back in the early days.
I used to say I was a D-list celebrity in the CryptoCirc speaking tour.
This to me is like a D-list stable coin.
So...
It's amazing because we were talking about 17 million being missing.
Now that number is up exponentially.
There's going to be a lot more investigation into the smoke.
And unfortunately, from what we've learned in all these investigations in crypto, where there's smoke, there's not just a little fire.
There's a forest fire.
And I expect we're going to uncover forest fire here.
There's going to be a lot more players that go down.
the numbers just don't add up in the prime trust.
I mean, they just don't add up.
They raised 100 million after 60 million went missing.
Then they do redemptions.
They do, they end up doing, you know, they come back.
They're saying only 60 million was missing.
None of these might, I'm a 16th century English major in college that had to go to law school because I couldn't get a real job.
At the end of the day, there's something here about the numbers, which should.
So do not add up that some regulator who, you know, again, we're still in Nevada.
There's an issue in Nevada right now that smart people are talking about as right now there's a receiver.
This is not a bankruptcy.
Is this going to convert into a bankruptcy, which all, you know, means no one's ever going to get money back?
But.
But there's no one publicly proclaiming that they're missing money yet.
And I find that so odd.
Usually, I'm inundated with calls with people who their funds are locked away.
They can't have access to their money.
Institutions wanting to get consults with their general counsel.
There's not a whisper out there right now of large players who are missing money.
So where is all of this money?
Who's missing the money?
And where is that going next?
That's really a great question because clearly they were rolling it sort of rolling it forward in a Ponzi scheme type scenario, right? If someone came to redeem, they just buy more assets, give it to that person, hope they fill the whole...
further down the road, but it is curious that we're not seeing.
And David, and then what do we make of the fact that their client list, at least on their website,
literally went down from like 24 huge name clients to five or six that were left by two or three weeks.
Exactly. And, you know, we'll use the stealth.
But does that mean everybody knew? Like, does that mean everybody knew? Because I can tell you, as you know,
like it was a quiet secret in the industry that some large custodian had lost some private keys,
but nobody would say who.
Well, here's the problem.
And this is, again, I'll use Celsius as the example.
Celsius claims they're going to do customer clawbacks.
I'm wildly against customer clawbacks, especially consumer customer clawbacks.
But how in this instance can they not clawback money from people who were able to get their money out a week, two weeks or three weeks ago?
That would be the...
situation where a clawback should actually apply.
Someone had inside knowledge.
There was clearly leaks going on.
And, you know, people are running, you know, jumping off the ship and they knew something to pull all their money out.
But isn't the whole point of a trusted and regulated custodian that there can't be clawbacks?
I mean, I guess that's assuming that all the assets are there.
But I mean, that's the, isn't that the entire point of this trust structure?
I think Kathleen Long made this point.
That's the difference of a trust structure in Nevada versus a trust structure in Wyoming for crypto.
This couldn't have happened in Wyoming.
I'm not sure I 100% agree with her, but at least they're trying to make laws here.
This isn't the violation of the trust structure.
This is just out and out fraud and stealing.
So no matter how good your laws are to prevent fraud, you can't stop the act of a madman.
Here, the act of the madman is once the keys by lost, they dipped into customer funds.
Someone's going to go to jail for this.
That is out and out stealing.
So that's a criminal act.
So the path to hell is paid with good intentions.
There's no one out there.
No law can stop anyone from stealing money when they have access.
So here, no matter what was supposed to happen, it wouldn't have stopped the person from stealing it once they had access.
I still don't know how the hell you lose the private keys if your one job as a custodian is to maintain them.
I mean, we know that it was when there was sort of a migration over to fireblocks.
These were legacy wallets.
So something happened there, but I'm not far enough down the custody rabbit hole.
But, I mean, how does this even happen?
Well, I think that's, I mean, good lawyers, you know, are going to point out that this is a complete violation.
You know, the custodial arrangement in the trust obviously says this crypto is yours.
And while I'll use Celsius as the example one way, I'll use Celsius as an example the other way.
These assets belonged to the individuals and clients of prime trust.
They did not belong to prime trust.
So from that perspective, as we're going back and we're going to start examining this, you know, when someone's going to eventually come up here and say, I'm missing money, we assume.
Otherwise, because if this just turns out to be a circular wash, that could be even worse from another perspective.
But someone's going to eventually stand up here and be like, I'm out $50 million and I need to get my money back.
And the regulators and the lawyers and everyone's going to come together.
You know, this is going to go back to November of 2022 when all of this happened and they knew about it.
Yeah, apparently it's actually 21, to be clear.
So they're saying it was the end of 2021 and then somehow they raised $100 million in July, which means due diligence, not a thing.
And then they fired their CEO in November-ish of 2022.
Yes, they're completely right.
Sorry, I got the dates wrong.
That's what makes this so crazy is they raised the $100 million.
And, you know, forget, forget, I...
My belief is that whoever gave on the $100 million raise, the due diligence was clearly predicated on the lie.
So people are like, well, didn't someone do due diligence?
Well, I'm sure whatever documents they did and received to do due diligence was like.
Clearly, they didn't put down, oh, by the way, we lost our keys and we don't have our crypto.
And we're rating our customer funds to buy crypto.
And by the way, I did a tweet about this this morning.
If you do the timeframe from when they're supposed to be buying more crypto,
They should almost be, you know, if they bought crypto at the right time with $100 million raise, they should be at like $150 million plus.
Where the hell is all this money?
That's a great question. It is very suspect. Here's what I want to know, and I'm sure we don't have anyone on stage, and this is what I've been trying to dig into, but somebody may have some color on this. Obviously, if you're regulated federally and by the state, there's got to be regular audits and attestations. So clearly the coins are in a wallet, right? So I guess...
doing that diligence, you could say the coins are there.
They showed, they proved it.
Shouldn't they also have to prove by doing some small transactions
that they have access to those wallets and actually can make transactions?
Because this is, like you said, it's been a year and a half.
I see we have another lawyer now, Adam, on stage as well.
You requested to speak, so maybe you have some color there.
Yeah, thanks.
Adam Atlas here.
I'm sort of a dinosaur legal in crypto.
was working on the early, early, early stuff opposite New York, DFS and Vincent, etc., like 2013.
Just a couple quick things to your point.
What seems to have occurred in the last, let's say, three, four, five years is that the more money you have,
the more you want to invest in crypto, but the less you're capable of investing in crypto wisely.
The bigger the firm, the worse, the due diligence.
I think that's what we're seeing with Sequoia and FTX.
That's what we're seeing with this investment in prime trust,
which exactly, as you say, they could have easily tested for issues in their crypto custody.
So to me, I've been completely puzzled.
And I wonder if the other lawyer agrees with me,
but it seems that the legal expertise...
in basic issues in and around crypto declines with the size of the law firm involved.
Of course, this is self-serving because I come from a small firm.
Well, so does David.
Okay.
So that's one point I want to make.
I just want to make quickly one other point, which is,
When that investment occurred about a year ago into prime trust, there was a massive cultural change at prime trust.
Prime trust used to be a kind of like, because I represented quite a number of fintechs going back to 2020, getting plugged into prime trust as sort of the solution for their issues.
And it used to be, hey, let's sit, you know, side by side, solve your problem, get this going, make sure it's safe, and let's get you going.
And then about a year ago, when the big money came in, again, to the point of these sort of,
with all due respect, sort of unsophisticated large big money coming in, they became totally unfriendly.
Scott Purcell, the old CEO, fantastic guy, very friendly.
But dealing with the boarding teams and the underwriting teams at Prime Trust in the past year has been hell on wheels.
Very, very difficult.
Now, you could say, well, Adam, they were being more stringent.
They weren't just taking anybody.
And okay, fair enough.
but if they're being so tough on clients like clients of our firm trying to get hooked up with
Prime Trust, how come they weren't being equally rigorous with the back office?
So those are just a couple of thoughts I wanted to share.
Cheers.
You talked about Scott Purcell. A lot of actually the rumor has kind of swirled around him and not in a positive light actually. I'm interested here that you have personal experience with him. And like I said, this goes down the rabbit hole a bit. But he obviously was with prime trust and then bank, which was a subsidiary. He was accused at bank of basically
converting their entire business into an NFT business without board approval,
then leaving and taking all of the trade secrets to the company to go to Fortress,
which curiously is where a lot of the prime trust...
clients have gone, which is too fortress.
But people are not speaking favorably of him.
I don't know the guy.
I have nothing against him.
I'm just telling you what's being printed and discussed.
So maybe things.
So I'll jump back in on the question of the audit.
And I'm going to quote Jesse Powell, who has said horrific things about me in the past.
But Jesse sometimes hits things perfectly.
When the FTX collapse happened, he was taking shots at Binance and he was talking about
proof of reserves and how he was arguing that it's not, and he's going to exactly what
you said.
He said that it's not just about showing the wallets, you have to show control over wallets,
and that any proof of reserve audit requires the cryptographic proof of client balances
and wallet control.
What we're seeing nowadays is just...
proof of client balances, not wallet control. And without wallet control, you cannot see whether
someone actually has the reserves they have. He then goes on to talk about just showing what's in
a wallet is not really proof of reserve either, because reserves truly mean assets minus
liabilities and that finance never showed their liabilities. But Jesse was one of the early
people who were using proof of reserve audits and trying to make proof of reserve audits better, more transparent, and showing not just the reserve that was the asset, but also the control of the asset.
This is the custodian, right? I agree with you 100%, by the way, but there's enough problems with proof of reserves with exchanges.
We know that none of them have successfully found a way to do proof of liabilities.
With Travis, you love to point that out.
obviously, but this is the custodian that the exchange is trusting.
So even if the exchange did a proof of reserve with that custodian, those coins would be there.
No, but that's the whole point.
They would have to, the auditor would have even on the, even on prime, the auditor would have to, as part of the audit, seeing the control of the wallet.
Clearly here, they never would have seen the control of the wallet with the, with the, with the, with the, with the, with the, with the, with the, with the, with the, with the, with the, with the, with the, with the, with the, with the.
What a shit show. I mean, I don't know how else to summarize it at this point.
Let's talk about then what the implications of this are, right?
Because as many have pointed out by this time, I mean, I think a $50 million dollar hole, 80, 100, who knows, while significant, it's not the awe-striking 8, 9 billions that we see from the FTXs of the world.
So is it more of a narrative issue at this time, like that these crypto kids can't be trusted once again,
and we need to move our custodians to BNY Mellon and the trusted Wall Street guys?
I mean, is that where this is going?
Is this more fuel for regulator fire against the industry?
100%, because now it's low-hanging fruit.
There's no one that can defend this action.
This is indefensible.
So it gives regulators the ability to say, look, this is what everyone's doing.
And it's just everyone's going to get tarred together.
People have heard me say that the finance and the Coinbase SEC lawsuits are wildly different.
One they're accusing a fraud, one they're accusing of a legal business model.
Those are completely different things.
Now you're going to be regulators are going to throw in and say, this is how custodians do things.
This is why we need trusted custodians.
And they're going to go after low-hanging fruit.
Travis, I saw you lifted your mic.
Yeah, I agree with that.
It seems like, you know, it's just a bad look for the industry as a whole.
When you read into the details, if it looks like Prime Trust ended up doing what it looks like they did, which was like,
lost keys had a hole in their balance sheet because of that didn't tell anybody about it and then use customer funds to trade shit coins to try and get it all back basically like if that's what happened then that's just a really bad look the for the industry as a whole uh
you know, trying to get the rest of the world to take us more seriously, you know, on the back of the long line of own goals that we've had over the last 18 months.
The total dollar amount size, not that big of a deal.
So the knock on, the kind of like immediate knock on effects.
don't seem like they would be that significant, you know, and I think the one caveat is like what the deal is with TUSD, which, you know, there just seems to be a lot of, of opacity around that right now.
So, so kind of TBD on whether or not there's real issues at TUSD or not.
I guess that's a rabbit hole that we can continue down in the future.
I think we've beaten this one to death and probably go ahead and wrap up, guys.
Once again, please check out the sponsor above, but also importantly,
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I'm going to ask you guys all...
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But also, like I said, we're going to eventually be hosting. So if you're going to want the
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account. Of course, we will be back again tomorrow 10.15 a.m. Eastern Standard Time and
On Friday, if you're wondering why Rand and Mario's voices are only appearing every so often,
it's because they are filming a show called Killer Whales in L.A. right now with Scaramucci and a whole
bunch of other people, basically a shark tank for crypto.
So they're three hours ahead and filming like apparently 17, 18 hours a day.
So that's why they only have been popping in of late.
But that's great because you guys only want to hear me anyways.
See, I can say that when they're not here and listening.
Thank you all for tuning in.
That's it.
We'll see you guys tomorrow.
Peace.
