Market Structure, Macro Volatility, and the Next Phase of Crypto | Michael Anderson & Vance Spencer

Brian Armstrong and Coinbase came out and said, "We do not support this. We're pulling our support." That led to a total freeze in terms of action and momentum and movement.

That total freeze, at least initially, kind of freaked everybody out and said, "Wait, are we done? Is this over? Is it dead?" I think the answer ultimately is no.

Hey everyone, quick disclaimer before we get into today's episode. Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds, or projects discussed.

All right. We're in it. Are we recording? Yes. Yes, we are. We're recording. And our producer and editor and magnificent behind the scenes team is on an airplane. I know you're watching this, so sorry about all those things we said. The airplane Wi-Fi. Let's go.

So, we got some stuff to talk about. Let's go through the Verizon cellular coverage outage didn't kill the Wi-Fi.

So, basically, since last time, we're in two new foreign wars. Market structure is happening. Lighter has launched. The AI trade has advanced a little bit. The Fed chair is almost arrested. And I think there may have been a rate cut, but that's what we want to cover today.

I mean, the last time we checked in was before the end of the year, before the holidays. So, a lot of things have happened. Maybe not all of those, but certainly most of them.

Let's talk about market structure, though. It's the timely news. We're recording this on Thursday, January 15th. It feels like everything has happened in the last 72 hours. It's all go. It's no go. It may be back. Who knows? Kind of like where things stand right now.

But the run of events has been I think Senate Banking said that today would be the day that they vote on passing it through committee. The draft text that was put out by the banking committee was floated I think at like midnight Eastern on Monday that sent basically everybody and both sides into a frenzy.

You had the opening of amendments which led to basically the industry coming out and saying we need to get rid of this, we need to change that. And in particular Elizabeth Warren and Senator Reid coming through and saying rip all this out. This doesn't work.

The number of amendments that you could see on the page from Warren was like an entire page of amendments, which all of them put together negates the entire purpose of the bill. So it's those are all non-starters.

But where things landed, I think, are I believe yesterday, yesterday afternoon, Brian Armstrong and Coinbase came out and said, "We do not support this. We're pulling our support." That led to a total freeze in terms of action and momentum and movement.

I think and so that total freeze, at least initially, it kind of freaked everybody out and said, "Wait, are we done? Is this over? Is it dead?" I think the answer ultimately is no.

You've got David Saxs coming out tweeting, hey, this is like this is part of the process. You've got Chris Dixon coming out and saying, we're supportive of rules of the road, like entrepreneurs need to know what these rules are. This is positive for the industry.

We're ready to work on this. I think everybody kind of, had the immediate well if I can't get what I want, then nobody gets anything perspective. And now I think saner heads are finally prevailing and there will be some sort of amicable resolution, let's say, is my read of the situation.

The other thing that's going on in process is banking is one half of it. Senate A is the other half. Senate A has said I think it's the 27th or the 29th of January that they're going to put through their draft and have their own markup and vote.

The idea was that oh and and so at the end of the day yesterday or actually maybe that was today Tim Scott officially pulled the vote. So the vote has been postponed in Senate banking. There is still a question as to what Senate AD does.

Maybe there's an amicable path in and middle ground that can be met basically in the next two weeks. I think there's a lot of politicking going on right now. There's a ton of horse trading going on right now.

We should get into it and talk about kind of like what that actually means and how that's working. I do think that that's kind of the lay of the land at least. It'll be interesting to see how this whole episode of House of Cards plays out.

The other thing is their stocks their stocks both went down by like 8% today and I think it was generally a bad day for the market but specifically or not like a good day for crypto. I would say a bad day for the actual stock market.

But I think really what that's being labeled as is you know the failure of this act to get through at least on this pass has not materially changed the condition of their stock prices but it has impacted them.

I don't think now especially given that feedback given the given the pause that market structure is dead I would say Poly Market has I think at 56 60%. Probably I'm a little bit higher than that.

If you really read the bill, which if you haven't, you should and if you don't really want to put it into JAT GBT and see and just ask it kind of topical questions, but this is landmark legislation for US capital markets.

It's probably the biggest change in terms of adding a new asset class since the how we test with securities and then fixed income becoming popular in the 80s and '90s. But it's super exciting and I think the industry would thrive under this.

I think the chance that it doesn't happen is probably smaller than it does. But I think what that would be like is the 10 to 20 really big incumbents using their balance sheets to consolidate market share in the space and then going off and using that to bridge to trady through other regulated vehicles like ETFs things like an IPO for like a tether the DATs probably become more important.

There's a lot of just like kind of different stuff that comes out of this but I'm still positive and I, if this does happen, David Saxs is definitely out a debt of gratitude and his tweet probably came at the exact right time for people to just relax a little bit and, hopefully go forward with with a better thoughtout plan.

I mean, I think totally agree with all of that. I think there are it's what will happen is some sort of relenting on certain points to basically get the main points that they want.

I do think that it's not just coincidental that the proposal to cap interest rates on credit cards happens at the exact same time that it seems like the banking industry is pushing to ensure that stable coin yields are not possible.

What I'm meaning with this is you got Brian Moahan, the CEO of Bank of America who's coming on and giving an opinion this week or yesterday saying that $6 trillion of assets of deposits will leave the US banking system if stable coins are allowed to pass back yield.

Stable coins have been allowed to pass back yield basically since the start. They got codified in that got codified in Genius last summer and you still haven't seen deposits leave the banking industry first and foremost.

Second off, you've got JP Morgan hitting record not net interest income last year in what they've announced. Anybody who has interfaced with a banking provider or has a checking or savings account recently knows that you put money in the savings rate that you get is singledigit basis points.

So what we're talking about isn't like oh well they're going to leave to go get three and a half% at Coinbase and screw us. It's like it's been so low that nobody even cares about that in the first place.

I think that that's just it is a narrative. It isn't reality and he's kind of like taking data points to prove his point that aren't real.

The second point is on this credit card capping interest rate bill or the proposal to do so. Many of Bank of America and JP Morgan, the two largest net interest margin acrewers from a banking perspective in the country have massive payment services payment businesses.

If you were to take Chase and say the 26 to 29% interest rate that Chase charges its customers is capped at 10%. There's a couple things that happen. The first one is revenue goes precipitously down.

The second is customers will end up finding out that their credit cards are canceled because they are in a risky band that requires Chase to price them above that 10% threshold. It isn't like a oh we can so we will. It's like you you are because your credit score is 550.

I think that there's a real issue with this that will hurt consumers, but I think the banking lobby knows that you can't find a fight a two-front war, especially in Congress right now.

They're going to be forced to choose. Do you want to give on stable coin interest and have that be the or have that be the fight that you have the last stand on or do you want to try and fight two wars if we bring this capped interest rate concept into play?

I think it's pretty savvy if if the overall intention and it seems pretty timely to not be just a coincidence. If that is the intention of basically pulling the banking industry back from stable coin yield and saying fine, we'll cap interest rates, then we'll see what it does.

We said this earlier today in the office, but it is paradoxically this may be a bullish pause.

It's also worth considering what consumers stand to benefit or gain from legislation like this. I tweeted this earlier, but imagine a world where nobody can access Open AI or anthropic shares forever. Imagine that they don't go public at all. So, you have no equity exposure to anything.

Then imagine a world where you can't earn yield. You have no fixed income or debt exposure to anything. That's just like a really dystopian version of the world that I don't think anyone should root for.

My hope is that this legislation does happen, but there's probably good reason for at least taking a bit more time to get it done. I think people downplay the effect of legislation like this.

Similar to how genius created so much market opportunity, excitement, and liquidity. I think that is the similar dynamic that plays out if this passes.

Let us talk about let's talk about Fed chair stuff actually and interest rates. So y Powell got I guess prosecutors looking into him. Trump has now kind of backed off that threat to replace him.

It seems like there's at least a couple locked interest rate cuts this year. JP Morgan came out with the expectation for a hike which I think is just kind of way off market. But I think generally what we expect is that rates will get cut and there will become this thing called like a steepened yield curve where the rates are really low at the short end but at the long end they're still high.

At the long end that would be kind of like where 4% 5% is today. The other thing that Trump has directed the at least housing chair to do is use $200 billion to go off and buy mortgage back securities and I chatbed this earlier but the the pack the max pace during co for MBS security buybacks was $30 billion.

If you do the math between now and where the midterms are, six months divided by $200 billion, that's like 30 35. So maybe housing rates come down as well, but what's your take on on this entire environment?

Not QE, but QE in so many different formats. Look, this this not quantitative easing. We're just going to ease the quantitative. I don't know. It's like housing market ever going to come back? It's pretty back and we we've talked about that, but like what about the rest of the world?

There's two elements of the housing market. There's the value of the house, then there's the cost of capital to buy the house. Right now cost of capital is effectively never been higher. But also, the cost to buy the house has never been higher.

You've got this entire generation or potentially two at this point, they're just unable to buy homes. I've had this comment like I've listened to the podcast with a few of the podcasts with Nick Shirley over the holidays and I one of the standout comments that he made is like you know our generation I think he's like 22 or 23 maybe a few years older than that but he's like all my friends and in San Francisco this sounds crazy but in the rest of the world and the rest of the country this is probably the sentiment the feeling is he's like all my friends none of us can buy homes.

It is kind of what everybody in the previous generations, whether it's Minnesota in the Midwest or any of the southern states, rust belt, wherever, you're going to find most people want to be able to buy a home. They want to buy a $250 starter home and be able to deduct the the interest payments from their mortgage and have that be kind of like an economic engine that works for them as opposed to dumping rent payments every month.

I think you have a total and this is what I think has given rise to memecoins to mimetic trading probably some of the speculative nature of meme of crypto as well it's sort of this anxiety that the generation has that is unable that that they're unable to participate and it's kind of like this is their shot this is their chance and you've got on the front end impossible you of thresholds to to even get a house to live in.

On the back end, you've got AI chasing you and going to steal your jobs. Try being a 22 or 23 year old knowledge worker these days as an entry-level analyst at a bank or consulting firm or even a tech company. It's like, well, writing code, building powerpoints, doing models, like that's like at least from the I would say quote unquote attractive most attractive jobs coming out of college a decade ago, those are going away and it's this it's this insane kind of questioning of purpose but also capability and viability from an economic perspective.

I think the big hurdle and you're starting to see this even in California with like Tom Styer coming out as you know a potential run for governor. I guess he's running for governor. His entire platform at least all the ads that I see are all about affordability.

The 2026 midterms are all going to be about affordability. It's probably going to be a major subject of the 2028 election cycle as well. Affordability. What that comes down to is do you have a job where wages are increasing?

You have sturdy structural you have low fears of losing your job either due to competition or outsourcing or technology. Are you able to participate in the the economy or do you feel like your parents' generation was more advantaged than you are?

Being able to prove that I think you tactically it's hard to do right now other than affecting housing and housing is going to be the biggest asset. It's going to be the those most uniform you know level way of participating. It's usually the older generations that have large 401ks who have access to the public markets or exposure to the public markets.

I don't think equities markets are the best way to attract this as well. Going after housing I think is the right move. It's just a very very hard very large problem.

It's a very hard very large problem and most people's and I don't think this will hold true for the Nick Shirley generation nor will it for millennials like I think millennials and we're we're not elderly millennials. I found out about that term recently but we are probably middle of the band millennials. I think that is most millennials don't own houses but most people do and most people have most of their net worth tied up in it.

As rates go down things like refies or helocks you know and that creates liquidity in the economy. The other thing about housing which is interesting right now and like I think our hope is that we can start doing financing for you know things like housing at some point through crypto rails because the liquidity is so good there's government guarantees and there's actually decent interest rates.

Fanny and Freddy May are actually going public should be this year and that will be the first kind of of the mega IPOs to hit. Apparently it's worth between like 400 and 600 billion which is a lot of money. They would raise 30 billion in an IPO but just like adding another of these IPOs to the list of this SpaceX.

I don't think anthropic or open AAI go public this year but I think once you do have this like string of of IPOs like that is when a potential top for for an equity market starts to appear obviously doesn't matter if you're building something that has enduring value over you know multiple years but just that quantum of liquidity coming out of the market would be tough and I think some of it could flow into things like crypto and worth doing like kind of like BMR update and and crypto update, but the ETF flows since the beginning of this week, January 15th, have been really strong.

Bitcoin had 850 million yesterday. I think ETH had almost 180 million. Salana had inflows, too. So, it feels like there is kind of this this flow and like the animating dynamics of this market are the DATs and the ETFs. If they get rolling at the same time, it can be a very positive flywheel.

I'm looking at BMR shareholders who are in the I think it's the Venetian in Las Vegas. God, it's like lying around the around the casino to get into the BMR shareholder meeting. So like Tom Lee is kind of killing it. He also made a 200 million investment in Mr. Beast that we were talking about.

We should talk about all of this. What before moving on to like crypto and BTC ETH in particular, I'm curious your take on you know what happens with this Fed chair like closing the loop on JPAL. Oh yeah. How do we feel like but like what do you think the macroeconomic outlook is from a Fed perspective going through the rest of the year?

I know JP Morgan's got hikes. There's like one to two cuts. I think there was a tweet last night from from Trump saying both of Kevin's, you know, look pretty good. I'm where where are your odds in terms of what happens with the Fed chair and how that affects rates and midterms and all the all the all the things?

I think most people were surprised that the market didn't crash when the Fed Powell arrest thing came out. I think especially older people have such respect for the Fed as an institution and I just don't think that's shared by anyone under the age of 40.

I don't think there's much difference in terms of it's just going to be Max aggressive cuts, Kevin Hasset, Kevin Worsh, one of them. I could also see it being Rick Reer from Black Rockck, which I think it would be kind of uniquely bullish for crypto because he's like part of the crypto. He's part of the firm where their number one product is the Bitcoin ETF.

Like Rick Reer is my dark horse. David Zervos. If you haven't looked up a picture of this guy, you should. He was my ultimate candidate, but he looks like a magician, so he probably's not gonna get the job. But I think it's just like I don't know, 100 bips of cuts. That's pretty bullish with housing with all this other stuff is bullish.

Agreed. Should we talk Tom Lee and ETH? cuz I think I think the big one so there's the BitMine vote. I think that that was supposed to go through by midnight tomorrow or last night. The shareholder meeting today. The vote I think it's worth it to talk about kind of like what's going on behind the scenes here.

I don't know, we've tried to we tried to collect information that leads us in a direction of kind of like what's going on. There's a vote to approve the compensation package for Tomley and there's a couple of elements to it. There's an ETH percentage target which is 4% or 5% and then there's also a price target and there's also a market cap target.

Those are the elements that will kind of unlock value for Tomley. The expectation is and the 4% is kind of that that minimum or the first trunch of unlock for him and he's almost there.

One thing that was actually picked up by way he he's got 3.8 or he's got maybe 3.9 million ETH and I think it's like 4, you know, three or four is like the watermark for the first trunch. Exactly. To date, Tom Le has been basically given kind of like this very generous but flat package of like here's these shares, but the one that he's up for right now is is hundreds of millions of dollars, maybe even more if he hits these thresholds.

The thresholds are 4% and then 5%. If he wants to hit 4%, he's probably got like a few hundred thousand more ETH to buy. There's some speculation that this options position that he may or may not have on is that exposure.

The next target is like almost, you know, 1.7 million ETH away. Maybe maybe more. So 1.7 million ETH is what is that? Five billion bucks, something like that, give or take. Maybe more. It's like six or seven billion.

That's to hit his next incentive target is he needs to buy six to seven billion more of ETH. I think kind of the the backdrop just to give everyone context is like if the ETFs are 200 million a day and then you know Tom Lee is moving at 100, 200, 300 million a day, that's especially right now that's significant market impact with a bunch of people short the market and maybe ETH specifically too.

Agreed. One of the bloggers has picked up is basically this the giver. The giver, right? That's right. The giver has picked up this effect of whenever there's an announcement, they disclose the number of ETH that they hold, purchases, cash raised, and cash balance.

There's been this $1 billion cash amount that's been basically stagnant. while there's also been additional cash raises as well as some ATM or as well as some ETH purchases. I think the rumor or kind of the hypothesis that the giver has come up with is that Tomley is actually buying in the money call options.

The in the money call options there is there's some expectation that the in the money call options because they're short data don't have to be disclosed in in the AK. He is potentially just rolling them whenever he gets to that expiry but that this gives him some ability to get that ETH exposure.

He's probably even over the 4% if these were to be exercised because there's a billion of like ETH notional that could be exercised with these call options. That hypothesis is also tied back to what happened in August when there was frankly the same effect where they started buying call options to get the exposure they were able to exercise them this also coincided with kind of a an ETH squeeze back then and and e that's when ETH hit 4850 or whatever the whatever the last high was right around this time and the expectation was a lot of this was being driven by what you didn't have back then or sorry what you had back then what you don't have now is you had a massive multi- I think 3 million ETH stake unstake happening and now the opposite is true.

There's zero in the unstaking queue and there's actually a lot in the staking queue. You've got the the reverse effect which is that more ETH is being locked up as opposed to being unlocked. It seems like the notional size of this this options call is actually about five times larger than what was happening back in August.

Coincidentally coincides with the Bitmine shareholder vote happening last night today. Also I think this brilliant move by investing $200 million into into Beast Industries. I think there's a lot of stuff that you can kind of read within the tea leaves and Mr. Beast gives you distribution.

The other angle to this too is like how else think about how many people would love how many of his, you know, most fervent followers would love to be able to get access to Beast Industries. Well, now you can because Bitmine the the company owns four or 5% of Mr. Beast Industries in addition to all ETH.

That that's a great mechanism for getting more distribution for your shares, attention for you, but also making Mr. beast just you know a super huge believer in Ethereum. I would say that there's a really really strong bullish case going on right now and I don't know if this plays out in a matter of days, weeks or maybe a month or two but it is something that's happening in real time.

Tom Le's put on a clinic on how to run a company for the 21st century and also he's just a capital assassin. Like he will raise at MNAV and he will ditch playbooks and create new ones, use options. It's just an absolute clinic.

I think whenever it was in Q1 when everyone was very down on ETH, I don't even think anybody could have imagined a bull case like this where it's like, okay, Tom Lee is going to be the CEO of Ethereum and then he's going to get Mr. Beast on board as well. It's it's very very interesting and he's got a cult following of this stock and that's something that I think we've noticed over the past year is like there's certain public equities like some of the Bitcoin miners that have turned HBC some space companies now it's kind of broadening into like robotics and defense like there there's things that have like cult stock status and I think Bitmine is certainly one of them now and the volumes as well for you know Bit mine are picking which is really what you want to see if he's about to kind of shift directions or kind of put on some turbo boosters.

What was the volume today? Yeah, I mean 46 million shares of volume at $31. That's like a billion and a half of volume in a day. That is I would think that the real volumes from Ethan Bitcoin are probably pretty similar.

Kudos to him and it and it seems like this stock may turn from the alchemy of 5% to we're investing in the future of the best creators on earth to this is Tom Lee's this is Tom this is your this is like Delta 2 exposure to Tom Lee. If you like Tom Lee, he's going to build the future in the stock and you can invest in it which I appreciate.

I think there's more room for innovation on on on public equities and and and corporations that that have someone strong like Tom at the top. So, we wish him the best and obviously we'd like you too. So, that's great.

Let's talk about AI stuff. One of the things that is starting to happen is people are leaving these other labs to go back to open AI. I think AI is important for crypto because that is where all the capex is that these stable coins will go off in finance.

At some way, shape or form, if your stable coin is passing back yield, it probably comes from AI at some level. Especially as these things get to, you know, trillions of dollars of scale. But at the same time, kind of like the labs, which honestly remind me of the L1 blockchains. It's like when when like you know Gav York split off from Ethereum and then like Polka Dot happened and Polka Dot didn't end well but certainly looked like a competitor for a little bit.

What do you make of these people fleeing? Is it is this like a rats fleeing the ship moment or is this just like normal consolidation within coming back to open AI? Yeah, like the thinking machines, the three founders of thinking machines left, the other two founders of thinking machines to go back to OpenAI. People are are now saying that SSI is going to be the next one.

I think it's interesting. I don't it's hard to know what the internal politics are but I think it's extremely difficult to frankly start a scaling any type of company but even an AI company if you've got like a starting valuation of5 or 10 billion you're able to give huge equity incentives because on paper it's worth that but the problem is you you have to grow into that you have to you have to like scale into that to be you know something that's potentially able to be realized.

The other element that I think I think came through in some of the the texts that I think Andre Carpathy had something like $4 billion of OpenAI stock that there's another $10 billion of OpenAI RSUs that were allocated to employees. It's also it's not like, you know, OpenAI isn't willing to say, hey, like we can give you some serious dough.

Also this will be worth something potentially even more than what we're giving you when we go public in the next, you know, 18 to 24 months. I think that there's like a real kind of opportunity cost from from going and joining these these companies or at least staying at them.

The other element that I think is important to call out too is so just taking a step back in terms of the AI space right now what has fundamentally changed in the last basically since five GPT 5 came out which I think was August or July is that open AI was in the lead and and at the start of the year everyone's like Google's never going to be able to do AI they are going to have to cannibalize their entire business model just to be able to do AI.

You also kind of had anthropic which, you know, they they had this like kind of almost ESG perspective to AI that I think kind of made made them look inferior from a competitive standpoint, just like they weren't trying as hard as OpenAI is. You also had all these rumors of like Sam Alman paying $100 million or Mark Zuckerberg paying $100 million, Sam Alman countering, like there's this talent war going on. They're willing to play the game. Mark Zuckerberg's buying scale or investing in scale for 15 billion dollars. There's a lot going on in the background.

What I think has happened is OpenAI, you know, really didn't have a great launch of GPT5. I think it was it was going after a different market which is less compute and frankly just like smaller instance size than what people were expecting which is just like a a massive leap in terms of capabilities.

Then what you had happen is Gemini came out and Gemini started beating all of chat GBT 5 capabilities. All the benchmarks kind of started getting beat by Gemini. Google kind of started to slowly integrate Gemini into every single product.

I listened to Yano and Chiao on the podcast and Chiao had a great line which is like I just did a quick search on earlier this year on like what are my top applications and it's basically like Google Suite, Google search and YouTube and like those are all of them by the same company and now it's Gemini too and I think Google has really come back this year and I think their stocks up like 65% this year or was last year. they have really come back onto the scene as a real dominant player in AI.

Anthropic also has come back on the scene in terms of what their capabilities are from an enterprise perspective. Maybe Claude isn't going to be like the consumer application that has 850 million, you know, weekly active users. That's okay because they're going after a different game which is enterprise which they believe is where all the value is going to be.

The answer is probably it's both. This market is gonna be so big, you're going to have, you know, possibly trillion dollar outcomes on both sides of of the equation. OpenAI has been feeling it really over the last few months.

You also have that footand mouth podcast that Sam Alman and Brad Gersonner did. Where Sam probably wishes he could take it back. I don't know if they've done an episode after that. I do think that that was the last one. I also remember seeing a few months later, more news like this, please.

The head of PR and comms at OpenAI was moving on. There's definitely some stuff going on, but but I think they're trying to write the ship and I think we talked about this on the pod last time. Gavin Bader had a great line which is we have yet to see any models that have been trained by Blackwells.

OpenAI and XAI so Grock will definitely be you know a benefactor here as well. OpenAI because of their distribution will be kind of the largest showcase to what the possibilities are with that whenever I don't know if that's GPT6 or if that's a improvement on five however they're going to do it they're going to showcase that first and what has happened is chatbt 5.2 two the the new reasoning model actually is now caught back up to Gemini.

There are I'd say improvements that are being made. It's this horse race. It's the same thing that's been going on. If you're a Thinking Machines or SSI, like you're watching this happen from the sidelines. You're probably you're probably feeling like you're too far behind to really get in the game.

You may be a smaller player which has a great outcome from a financial perspective, but I think ultimately all the people that we're talking about here are not caring about the financial outcome that it's going to be a large outcome for them either way. What they're talking about is being at the place when it happens. If they're not in the middle of it, you're going to feel like you missed.

That I think is probably what a lot of these people are seeing. There's probably a lot of pull as well as push. Political infighting at these companies. Startups are tough, especially when you're talking about big personalities and big numbers. So yeah, a little bit of a ramble, but that's those are my thoughts.

I think the first cluster of Blackwells gets live this quarter