This episode of Bits and Bips dissects the explosive Trump-Musk feud, Circle's sky-high IPO valuation, and the relentless trend of corporate Bitcoin treasuries, offering critical insights for navigating the volatile intersection of crypto, macro, and political power plays.
Episode Introduction
This episode unpacks the market reverberations from high-profile political spats and blockbuster crypto IPOs, questioning whether current valuations reflect fundamentals or speculative fervor, and what this signals for Crypto AI investors.
1. Pre-Show Banter & Introductions
- The hosts, James Safert, Rahm Alawalia, and Steve Erlick, along with guest Sal Trinella, engage in light pre-show conversation about upcoming travel and personal interests, including a humorous discussion about being an "Eagles fan in crypto."
- James Safert introduces the show "Bits and Bips," outlining the day's topics: the Trump and Musk blow-up, the Circle IPO, macro topics, and Bitcoin treasuries.
- Sal Trinella, Managing Partner at A100X Ventures, re-introduces himself. A100X Ventures recently announced Fund 2, a $50 million early-stage fund for pre-seed and seed opportunities. Sal has a background at State Street and KPMG, focusing on public blockchains.
2. The Trump and Musk Feud: Political Drama vs. Market Impact
- The discussion kicks off with the recent public falling out between Elon Musk and Donald Trump. James Safert describes it as "bravo housewives type stuff, but with people that actually matter."
- Rahm Alawalia downplays direct market impact, stating, "There's no real market impact. What drives markets are earnings growth, inflation, policy. This is a tempest in a teapot." He believes it primarily affects Tesla short-term, not its long-term earnings.
- Rahm speculates on the cause of Musk's black eye and notes the "All-In Podcast" (often seen as at the overlap of Musk and Trump) not releasing an episode, suggesting a "house divided."
- He expresses sympathy for Musk's efforts to cut government costs, which were rebuffed, and surprise at Musk's sharp attacks on Trump.
- Rahm views Musk's potential third-party aspirations as credible and ultimately sees competition as good for the US.
- James Safert highlights the timing of the feud, noting figures like Kash Patel and JD Vance were live on podcasts when the news broke.
- His main take is that Musk's desire to cut costs clashed with political realities. He references the "big beautiful bill" potentially adding to the deficit, arguing that both Republicans (via tax cuts) and Democrats (via spending programs) contribute to deficit spending.
- James suggests that politicians prioritizing austerity are unlikely to get elected, leading to an unstoppable "deficit spending train."
- Sal Trinella agrees with the setup, calling the outcome "disappointing" as it dashed hopes for reining in government spending.
- He sees it as a story of "a brilliant entrepreneur hits a brick wall in the context of government and mixed incentive schemes."
- Sal believes Trump acted diplomatically given political realities, while Musk hit a point of huge frustration. He hopes for reconciliation but is disappointed by the public spat.
- Steve Erlick likens the situation to "House of Cards," specifically the Frank Underwood vs. Raymond Tusk dynamic, emphasizing that in conflicts between oligarchs and state power, the state usually wins.
- He cites the example of Jack Ma and the pulled Alibaba IPO after Ma criticized Chinese regulators.
- Steve underscores the importance of getting crypto legislation passed, as a new administration could reverse progress. "It's really important to get this settled now because a new government could come in and do a complete 180."
- Strategic Implication for Crypto AI Investors: The primary risk highlighted is the potential derailment of crypto policy if political infighting distracts from legislative priorities like stablecoin regulation. Investors should monitor how such high-level conflicts might shift focus away from crucial industry advancements.
3. Circle's IPO: Valuation, Competition, and Venture Liquidity
- Circle's IPO (Initial Public Offering, the process by which a private company first sells shares of stock to the public) saw its stock price surge from $31 to $118, reaching a valuation around $26 billion.
- Sal Trinella views it as "crypto speculation hits public market sentiment." He acknowledges the success for early Circle investors but suggests the current valuation isn't consistent with fundamental analysis, especially considering the competitive landscape for stablecoins over the next 2-3 years.
- Rahm Alawalia points to a "balmy 363 times trailing PE ratio," suggesting overvaluation. He describes Circle as an "on-chain digital bank" and notes competition is coming.
- He anticipates big banks launching their own stablecoins with existing distribution, potentially integrated with services like Zelle.
- Rahm highlights that Circle's high margins are partly due to paying zero for holding digital currency, which he expects to change as stablecoins compete on yield. "The innovation is that now you have digital currency in your wallet that accrues interest."
- He believes Tether has a better moat internationally.
- A key positive outcome: the IPO could "re-liquefy venture markets" by providing DPI (Distributions to Paid-In Capital) to Limited Partners (LPs), encouraging re-investment in new funds.
- Sal Trinella elaborates on the venture capital fundraising environment, noting it was "super super hard" due to a lack of DPI. He hopes Circle's IPO and others (like CoreWeave, Kraken, Chainalysis, FalconX) will improve liquidity and make fundraising easier for emerging managers.
- Regarding stablecoin deals, Sal notes an "inordinate number" of projects, from application-specific Layer 1s to XUS (non-USD) stablecoins, though the latter have seen dismal traction.
- He finds stablecoin deals generally overvalued and A100X has been prudent, investing in only one such project, One Money.
- Steve Erlick recalls interviewing Circle's CSO, Dante Desparte. Desparte didn't directly address the profitability disparity between Circle and Coinbase for USDC.
- When asked about the story sold to investors to justify the high valuation, Desparte emphasized Circle's R&D, infrastructure supporting 20 chains, payment integrations, and regulatory compliance (e.g., MiCA (Markets in Crypto-Assets), a comprehensive regulatory framework for crypto-assets in the European Union).
- Steve believes the bet is on achieving critical mass and scale, but "these valuations are so far divorced from the fundamentals that there's going to have to be a climb down."
- James Safert notes Circle's valuation is about 50% of USDC in circulation and contrasts Circle's cost structure with Tether's higher profitability. He also brings up the significant portion of Circle's business tied to interest rates; rate cuts would heavily impact profitability.
- Rahm Alawalia adds that banks have an edge as they can rehypothecate (re-use assets posted as collateral by their clients for their own trading and financing purposes), potentially offering more lucrative deals to distributors like Coinbase. He mentions that 20% of Circle's market cap traded on one day, likening it to a "meme stock."
- IPO Allocation Controversy:
- James mentions Jeff Dorman (Arca)'s frustration over IPO allocation, highlighting a clash between Wall Street IPO mechanics and Web3 ecosystem alignment.
- Sal isn't surprised, explaining investment bankers prioritize buy-side clients who participate in multiple deals.
- Rahm shares a personal anecdote about Lumida's allocation for QXO (Brad Jacobs' company) being drastically cut, illustrating how IPO allocations favor large, repeat players.
- Actionable Insight for Crypto AI Investors: The Circle IPO's performance, while impressive, warrants caution. Investors should critically assess stablecoin valuations against rising competition and interest rate sensitivity. The IPO may, however, signal renewed liquidity for venture capital, potentially benefiting early-stage Crypto AI projects.
4. Gemini's Potential IPO and Broader Exchange Landscape
- It was reported that Gemini, the Winklevoss twins' exchange, filed a confidential S1 (a registration statement filed with the SEC prior to an IPO).
- Steve Erlick is curious about Gemini's financials, given their challenges with the Genesis/Earn program fallout. He notes their volumes aren't particularly high and their platform is relatively expensive. "I'm really interested to see what kind of story they're going to try to sell to investors."
- James Safert commends Gemini for making Earn program customers whole "in kind" (meaning they received the actual crypto assets, not just their dollar value at the time of the incident), a rare move. He also notes Gemini's new crypto rewards credit card as a growth area.
- However, he criticizes the high trading fees on exchanges like Gemini, Coinbase, and Kraken, comparing them to 1970s Wall Street fees, and expects compression.
- Rahm Alawalia views the flurry of IPOs as "late-cycle behavior" and hypothesizes a potential top in digital assets in Q4, similar to how Coinbase's IPO preceded a market peak. "When Coinbase went public in April '21, that was the top in Bitcoin miners... Bitcoin started to follow a few months later."
- Sal Trinella expects more exchange listings but wonders if the "animal spirits" will get exhausted. He agrees with Rahm about keeping a level head, anticipating a "wild explosive moment" towards year-end or Q1 2026.
- Competition Intensifying: Rahm notes Robinhood and eToro are increasing their crypto focus, adding to competitive pressures for established exchanges, which should lead to fee compression.
- Strategic Implication for Crypto AI Investors: The potential wave of crypto exchange IPOs signals market maturity but also late-cycle exuberance. Investors should be wary of valuations and anticipate fee compression impacting exchange profitability. This period could offer liquidity events but also heralds increased volatility.
5. Macroeconomic Outlook: Tariffs, Inflation, and Growth
- Rahm Alawalia believes much bad news is priced in and dismisses dire predictions from figures like Ray Dalio and Larry Summers regarding US debt or recession from tariffs.
- He observes mixed effects from tariffs: no price hikes at Best Buy, but auto sales pulled forward, leading to auto inflation. He sees deflation in electronics.
- Rahm doesn't see significant economic weakness, citing strong earnings growth, boomer spending, and capex. He emphasizes productivity growth from AI as a counter to fiscal and inflation concerns. "The AI story is real. We are seeing innovation."
- James Safert notes the US trade deficit was cut in half recently due to reduced imports from tariffs, but questions if this is sustainable. US and Chinese trade officials are meeting.
- Steve Erlick is keen on the US-China trade talks and upcoming April inflation data (clarified later to May data). He highlights the difficulty in striking a deal as China supports its manufacturing while the US aims to curtail it.
- He wonders how markets will react as the July deadline for Trump's 90-day tariff extension approaches.
- Sal Trinella thinks the market impact of any aggressive Trump reaction on tariffs would be less significant than the April drawback. He's watching employment data for clues on Fed rate cuts and is in a "not complacent patient wait and see mode."
- Strategic Implication for Crypto AI Investors: The macro environment remains complex. While AI-driven productivity offers a bullish long-term narrative, short-term volatility from trade tensions and inflation data could impact markets. Investors should monitor how these factors influence Fed policy and overall market sentiment, which indirectly affects crypto.
6. Corporate Bitcoin Treasuries: A Growing Trend
- James Safert highlights significant activity in companies adopting Bitcoin for their treasuries: MicroStrategy's billion-dollar purchase, MetaPlanet's $5 billion stock rights program (surging 22%), and numerous smaller companies adding Bitcoin.
- He cites data: June 2nd-6th saw 42 updates, 16 new treasuries added, and 11 companies announcing future purchases.
- Sal Trinella sees three points:
- Potential for a supply shock as Bitcoin on exchanges plummets. "We've all seen blowoff tops in the space."
- A background concern about systemic risk from over-leverage.
- Emulation down the ladder, with strategies extending to Ethereum and Solana. He doesn't see the trend stopping soon.
- Rahm Alawalia advises staying long Bitcoin tactically now, given it's flirting with all-time highs and new capital inflows. "If there's less Bitcoin on exchanges, then Bitcoin is more sensitive to that incremental bid." He notes Michael Saylor's average Bitcoin purchase price is now above the 2021 peak.
- James Safert agrees with the potential for a blowoff top but also notes the commodity market adage: "the cure for high prices is high prices," suggesting higher prices will bring more sellers to exchanges.
- Rahm Alawalia mentions his current approach is focusing on off-grid Bitcoin mining using cheap natural gas.
- Strategic Implication for Crypto AI Investors: The corporate treasury trend is a strong demand driver for Bitcoin. This could lead to supply squeezes and price appreciation. However, investors should also monitor for signs of over-leverage and be aware that rising prices can also induce selling pressure.
7. Crypto ETFs: Strong Inflows and New Filings
- James Safert provides updates on crypto ETFs:
- Ethereum ETFs are nearing $3.5 billion in net inflows, recovering from earlier outflows.
- Bitcoin ETFs have significantly retraced outflows; BlackRock's IBIT is now a $70 billion fund, the fastest to reach this AUM.
- Trump's Truth Social has filed for a Bitcoin ETF.
- Basket ETFs (holding multiple cryptos) are expected for approval in early July, with potential for altcoin (cryptocurrencies other than Bitcoin) ETFs (Solana, XRP, Litecoin) around the same time.
- Sal Trinella calls the ETF launches "wildly successful" and is excited about Ethereum's mispricing and positive sentiment shift. "Last time I was here, I was saying it's a setup for a short squeeze [for Ethereum]."
- Rahm Alawalia finds it exciting to see TradFi (Traditional Finance) grappling with stablecoins, especially with legislation advancing. He notes Visa and Mastercard stock prices were down, perhaps hinting at perceived risk to legacy payment networks.
- Strategic Implication for Crypto AI Investors: Strong ETF inflows demonstrate institutional adoption and provide a continued tailwind for Bitcoin and Ethereum. The potential approval of altcoin and basket ETFs could broaden market access and bring new capital into diverse crypto assets.
Reflective and Strategic Conclusion
The episode underscores a crypto market fueled by new institutional products and corporate adoption, yet shadowed by speculative valuations and macro uncertainties. Crypto AI investors should balance enthusiasm for innovation with cautious analysis of market cycles, regulatory shifts, and the sustainability of current trends.
