Bits + Bips LIVE - May 5th, 2025

This episode of Bits + Bips LIVE unpacks the intricate dance between volatile macroeconomic policies, particularly US-China tariffs, and their profound ripple effects across traditional and crypto markets, while also dissecting pivotal internal crypto developments like Ethereum's strategic recalibrations and the evolving stablecoin regulatory landscape.

Guest Introduction: Catalin Tishhouser and Signnum Bank

• The episode features Catalin Tishhouser, Head of Research at Signnum Bank. Signnum, headquartered in Switzerland and Singapore, is a cryptonative bank established in 2017 and licensed in 2019.
• Catalin explains Signnum was "built from the ground up with no legacy... infrastructure," offering a full suite of banking services including accounts, lending, brokerage, custody, staking, asset management, and tokenization services for crypto clients.

Macro Landscape: Tariffs, Market Sentiment, and Policy Uncertainty

• Initial Market Reactions and Rahm's Outlook
  • Rahm Malawalia notes a recent nine-day S&P winning streak, suggesting a potential "local top." He observes that "peak PTSD is behind the world on tariffs," evidenced by a declining VIX (Volatility Index, a measure of market fear) and the resumption of share buybacks.
  • Despite strong earnings and a robust Non-Farm Payrolls (NFP, a key US jobs report) beat, Rahm anticipates short-term weakness, viewing the current environment as a "buy the dip regime." The ultimate macro direction, however, hinges on the still-unclear "end state of tariffs."
• Catalin's Fundamental View on Tariffs and Global Economy
  • Catalin Tishhouser offers a more zoomed-out, fundamental perspective, seeing an improving picture. She believes the initial US tariff approach was flawed, potentially driven by unstated objectives like blockading China, as hinted by Scott Bessent.
  • She argues the US is "deeply dependent on China" for essentials like antibiotics and rare earth minerals, making a complete cutoff unviable.
  • With China not cracking and industries raising alarms, Catalin sees the policy hitting "a wall with reality," leading to carve-outs and a normalization that is "much more positive workable and favorable." She suggests bad news is priced in, and a global slowdown could prompt central bank liquidity, creating a positive setup.
• Alex's Perspective on Market Pricing and Political Influence
  • Alex Krueger emphasizes high uncertainty for the next 60 days, where headlines and administration signaling are more critical than macro (macroeconomic) data. He believes a recession is not fully priced in by markets.
  • Alex highlights the danger of political bias influencing market perception, stating, "it's very easy to get dragged into political biases and ignore the fact that the economy is not the market." He advises flexibility and a middle-ground approach.
• European Perceptions and the Competence Debate
  • Catalin shares that the general European sentiment views the US administration's tariff policies as nonsensical and self-destructive, leading to a "superficial impression... of incompetence."
  • However, Catalin personally believes the administration is "full of incredibly intelligent people" likely working towards different, unstated objectives, which explains the perceived incoherence.
• Deconstructing Trump's "Ripped Off" Narrative
  • The discussion touches on President Trump's rhetoric about the US being "ripped off" by China. Rahm questions this, pointing out that US companies voluntarily engage in contracts with China.
  • Catalin interprets Trump's "ripoff" comment as referring to the trade deficit, suggesting the administration's varied messaging stems from a discrepancy between stated and actual goals. James Safford adds that there appear to be "warring factions" within the administration regarding tariff policy.

Analyzing Scott Bessent's Influence and the Manufacturing Jobs Debate

• Scott Bessent's op-ed and his role in the administration are discussed. James quotes Bessent on restoring the working class and re-establishing the US as an industrial powerhouse.
• Alex Krueger praises Bessent as "the best there is in the administration," suggesting his presence calms markets and that the S&P might be 10% lower without him. He notes Bessent "knows how to talk to markets."
• Alex shares a chart illustrating that while US industrial production and manufacturing output have trended higher for decades, manufacturing employment has plummeted. He argues, "that's not China. That's basically the fact that... manufacturing is just becoming more and more efficient and progress in technology."
  • Strategic Implication: Investors should understand that technological advancement, not just trade policy, is a primary driver of shifts in manufacturing employment. Policies aimed solely at reshoring jobs without addressing technological displacement may have limited long-term success.
• Rahm adds that private companies inherently invest in automation and technology for profit motives, questioning the efficacy of top-down government mandates in this area.

The End of an Era: Warren Buffett's Departure and Investment Philosophy

• The panel discusses Warren Buffett stepping down as CEO of Berkshire Hathaway. Rahm calls it a "sad day" and highlights Buffett's "classic Americana" status.
• Buffett's comments on trade are shared, where he stated, "trade should not be a weapon" and emphasized that global prosperity benefits the US. This aligns with the view that trade creates mutual wealth, not a zero-sum game.
• Alex, despite "despising value investing," expresses immense admiration for Buffett.
• Rahm questions if a "Buffett premium" will leave Berkshire's stock and notes the difficulty of applying Buffett's value investing style today, as quality companies with moats are often expensive. "Costco is more expensive than Nvidia," he remarks.
  • Investor Insight: The shift in market dynamics means traditional value investing, as championed by Buffett, faces new challenges. Investors may need to adapt or look to niche areas like small caps for similar opportunities.

Ethereum's Crossroads: The "ETH Pivot" and Market Sentiment

• Performance Concerns and Vitalik's Leadership
  • James Safford describes Ethereum (ETH) as appearing "very dysfunctional," with its situation seemingly worsening. Alex Krueger considers ETH "not a good asset" on a relative basis compared to Bitcoin (BTC), Solana (SOL), and others, noting its flatlined usage and revenue.
  • Rahm uses a "Bezos transformation" analogy, suggesting Ethereum's co-founder Vitalik Buterin needs a significant image and strategic overhaul to improve ETH's "vibes," which he deems "off."
• Catalin's View on TradFi Adoption and Network Effects
  • Catalin Tishhouser, rejoining after technical issues, argues that if ETH's future "hinges on Vitalik's charisma then I think they're doomed." She notes that recent pivots and roadmap changes haven't swayed negative sentiment.
  • However, she believes major TradFi (Traditional Finance) use cases like stablecoins (cryptocurrencies pegged to stable assets) and tokenization could still predominantly land on Ethereum due to its large market share, network effects, and security. This potential institutional adoption could change ETH's trajectory.
    • Researcher Note: The success of Ethereum's pivot may depend less on internal narrative shifts and more on its ability to capture large-scale institutional flows in tokenization and stablecoin usage, leveraging its existing infrastructure and security.
• The L1 vs. L2 Value Accrual Debate
  • Alex suggests a "tariff" or tax on L2s (Layer 2 scaling solutions) to bring value back to the Ethereum L1 (Layer 1 base blockchain), calling L2s "parasites in a way."
  • Catalin acknowledges Ethereum is considering ways to shift economics back to the L1. She also points out Solana faces a similar value leakage problem (value going to validators, not the token) but has managed its narrative better. "Solana earns currently double the fees of Ethereum, but half of the revenues," she states, highlighting a disconnect.
• Crypto Valuation: Momentum vs. Fundamentals
  • The discussion shifts to crypto valuation. Alex admits value investing principles would have led him to sell SOL prematurely, emphasizing, "crypto is fundamentally a momentum asset."
  • Rahm concurs, stating, "These are attention markets." He argues that valuing crypto assets on traditional metrics like cash flow often leads to "insanely rich multiples."
    • Investor Takeaway: Traditional valuation metrics may not fully capture the value drivers in crypto, where network effects, community engagement, and narrative momentum play significant roles.

Navigating the Regulatory Maze: The Stablecoin Bill Saga

• James Safford reports that nine US Senate Democrats have reportedly withdrawn support for a bipartisan stablecoin bill, the "Genius Act." He finds it "insane" that Democrats might be siding with big banks against broader crypto regulation, potentially pushing innovation offshore.
• Rahm expresses skepticism about swift regulatory action, suggesting politicians "will keep crypto as a hot ball issue for as many years they can to extract as many political donations." He believes a stablecoin act will eventually pass, but the process will involve conflict.
  • Strategic Consideration: The path to stablecoin regulation in the US remains fraught with political maneuvering. Crypto AI investors should monitor these developments closely, as clear regulation could unlock significant institutional capital and innovation, while continued uncertainty could stifle growth.

M&A in Stablecoins: Ripple's Bid for Circle

• The news of Ripple's reported $5 billion+ offer to buy Circle, a major stablecoin issuer, is discussed. James notes Ripple's substantial XRP holdings give it significant purchasing power.
• Rahm views this as Ripple "trying to get a real asset," comparing it to AOL's acquisition of Time Warner. He suggests the "ultimate owner of Circle should be a bank" due to the ability to rehypothecate (reuse client collateral), but this would come with bank-like valuations.
  • Market Insight: Consolidation in the stablecoin sector, driven by entities with large crypto treasuries like Ripple, could reshape the competitive landscape. The valuation and regulatory treatment of acquired entities will be key factors.

DOJ, FinCEN, and Non-Custodial Wallets: The Samourai Case

• James highlights a report that FinCEN (Financial Crimes Enforcement Network), a US Treasury bureau, had informed prosecutors that Samourai Wallet, a non-custodial wallet (where users control their keys), was not a money transmitter. Despite this, the Department of Justice (DOJ) reportedly prosecuted the developers and suppressed this exculpatory evidence.
• The implications of this for developers of non-custodial technologies are significant, though Alex Krueger had not seen the specific news at the time of recording.
  • Researcher Alert: This case, if details are accurate, could have a chilling effect on the development of non-custodial crypto tools, signaling an aggressive prosecutorial stance even when other regulatory bodies may not see a violation. This warrants close observation for its impact on privacy-enhancing technologies and developer liability.

Deeper Dive into Ripple (XRP): Potential and Pitfalls

• Revisiting Ripple, Alex Krueger acknowledges their financial resources and capable team, suggesting they "can find ways to drive value into XRP when the time comes." He attributes XRP's past resilience partly to unique ownership and trading restrictions in the US.
• However, Alex criticizes Ripple's long-standing narrative of replacing SWIFT as "gaslighting."
• Rahm sees the high market caps of assets like XRP as indicative of the "how much liquidity is in the system" in the post-COVID era, where retail investing and social media have transformed market dynamics.

Apple Opens Doors: NFTs and Crypto Sales on iOS

• The panel briefly touches on Apple App Store's decision to allow NFT (Non-Fungible Token) and crypto sales within its ecosystem.
• Alex views this as "very good" for dApp (decentralized application) revenue generation, noting the shift from Apple charging developers to enabling new monetization avenues for crypto projects.
• Rahm sees it as another sign of "more mainstream acceptance of the space."
  • Trend to Watch: Apple's policy change could significantly broaden user access to NFTs and crypto assets, potentially driving new adoption waves and revenue streams for projects integrated into the iOS ecosystem.

Shifting Influences: From Buffett to Portnoy?

• Rahm humorously contrasts Warren Buffett's declining active role with the rising influence of figures like Dave Portnoy in financial discourse. He notes, "Berkshire was the first hyperliquid influencer right for financial markets. And now we're at the Portnoy level."
• This reflects a broader shift in how financial information is disseminated and who holds sway over retail investor sentiment.

Currency Volatility and AI Chip Geopolitics: The Taiwanese Dollar Surge

• James points out the Taiwanese Dollar's (TWD) significant appreciation. Alex Krueger notes this is part of a broader trend of Asian currencies strengthening against the USD, with the TWD move being particularly extreme (a 19 standard deviation move). The exact cause remains unclear, with theories including Taiwanese entities selling dollar assets.
• Alex also highlights the irony of Kyle Bass's long-standing short position on the Hong Kong Dollar, which is now strengthening. Rahm adds, "Ideology is not a profitable strategy."
• Crucially, James mentions rumors of potential US tariffs on semiconductor chips, despite previous carve-outs. Rahm questions, "How do you win the AI race if you're going to have tariffs on GPUs that you're importing from Taiwan?" This would directly impact hyperscalers investing heavily in AI.
  • Crypto AI Nexus: Tariffs on GPUs would directly impact the cost and availability of computational power, a critical resource for both AI development and certain crypto-mining/computation networks. Investors and researchers in Crypto AI must monitor this geopolitical risk closely, as it could significantly alter the economics of AI model training and decentralized compute projects.

Conclusion

This episode underscores the critical need for Crypto AI investors and researchers to monitor macroeconomic shifts, particularly tariff policies, alongside crypto-specific developments. Vigilance on regulatory clarity for stablecoins and Ethereum's evolving L1/L2 value capture will be key to navigating emerging risks and opportunities.