#1236 Caitlin Long on the Fed and Bitcoin ETFs

Caitlin Long is the founder & CEO of Custodia Bank. In this conversation we talk about why she thinks the Fed is a bigger threat to the crypto industry than the SEC, bankruptcy cases, banks, bitcoin ETF applications, regulatory environment, Jerome Powell, FTX, presidential candidates, and bitcoin halving. ======================= Get Better Crypto Data: Do you want faster, easier crypto data? Sign up for Velo Data, a new product that we have been working on to solve this problem: ⁠⁠velowaitlist.com⁠⁠ ======================= Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Caitlin Long is the founder and CEO of Custodia Bank. In this conversation, we talk about why she thinks the Fed is a bigger threat to the crypto industry than the SEC. We talk about what actually having a federal bank charter means, what the differences between

• 0:46Anthony Pompliano?

  trust companies, and what the current status is, is a ton of the different bankruptcy cases throughout the crypto industry. I always enjoy talking to Caitlin, and I learned so much. This conversation was no different. And there is a little treat. We also had a couple of people who are subscribers on Twitter join live the remote recording, and one of them even got to ask a question that we've included in this episode. So shout out to Luke. If you want to join some of these remote recordings in the future, go ahead and subscribe on Twitter, and you will see when I post different Zoom links so that you can join, listen into the conversation live, and then get to ask your own questions of the guest as well. Here is my conversation with Caitlin Long. I hope you guys enjoy this one. Before we get into this episode, I also want to tell you about a brand new product

• 1:30Anthony Pompliano?

  called Velo. Velo is faster, easier crypto data. Everyone in the industry is always looking for, what's the price? What's going on in the exchanges? Where are assets flowing or not flowing? How is things like open interest and derivatives actually playing out in the market? Well, that's where Velo comes in. It's faster and easier crypto data. You can go to velowaitlist.com today. Myself and a couple of friends, we invested in the business, we're advising the founder, and we think it's pretty cool. This one is something that keeps me informed on a daily basis. So you should check them out at velowaitlist.com. That's V E L O waitlist.com.

• 2:09Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 2:33Anthony Pompliano?

  All right, guys. Bang, bang. Caitlin, I thought a great place for us to start this conversation is the Federal Reserve and the SEC seem like two of the most important institutions in the American financial system when it comes to Bitcoin and cryptocurrencies. You tend to think that the Fed is more important than the SEC to crypto. That may not be the thought process most people have. Why do you think the Fed is so much more important?

• 2:54Speaker 02

  Because it's the single, it controls the single point of failure for the industry, which is US dollar access. If we were to have US dollar access completely choked off, which they've tried to do, but haven't succeeded, then the digital asset industry would be completely without US dollar access. Now, again, I don't think it's possible for them to completely get rid of US dollar access because, for example, Tether is somehow getting US dollar access entirely offshore, right? We know there's something called the Eurodollar market, which is a market that the US doesn't

• 3:34Speaker 02

  control, where banks will provide US dollar balances offshore and out of the direct reach of the Fed, but it is indirectly connected to the Fed because ultimately whoever clears dollars for a non-US bank is ultimately clearing them through a US bank. But those US dollars can circulate permanently offshore and never come back offshore, which is ultimately what Tether is kind of proving. But the point is, this US dollar connectivity is a single point of failure issue for this industry. And until this industry is a lot bigger, it still does require US dollar access.

• 4:19Speaker 02

  And I've always thought that was more important than the securities piece. I understand there are a lot more people impacted by the securities piece, but the US dollar access is one of those things where nobody thinks about it until everybody thinks about it.

• 4:35Anthony Pompliano?

  Talk a little bit as to this US dollar access. You mentioned that they've already tried to cut it off to some degree. There's different levels of maybe sophistication and abrasiveness they could take. I know that there are a number of lawsuits. I think Custodia also has a lawsuit, you know, kind of in reference to the Federal Reserve. What are these lawsuits about? And are people trying to unblock access or kind of what's happening here?

• 4:59Speaker 02

  Well, the lawsuits are about access to what's called a master account at the Fed. The Fed doesn't serve individuals like you and me. The Fed serves only banks. And up until a few years ago, it was automatic that a chartered bank would get an account at the Fed. In fact, it was required by the Monetary Control Act of 1980 that the Fed, that all banks in the United States keep their reserves on deposit at the Fed. That's how the Fed effectuated monetary policy. It couldn't have reserves held outside of the Fed in order to keep monetary policy tightly controlled by the Board of Governors. And so in 1980, it all got centralized in the Board of Governors.

• 5:41Speaker 02

  And there's a requirement for all banks to keep their reserves there. But what has happened in the last few years is the Fed reinterpreted, quote unquote, the law and started to change how it was granting access requests. And it started with a Colorado Marijuana Credit Union. It moved to the narrow bank, which is T and B. It's a bank that was going to service the money market industry. And then it, of course, moved to digital asset specialty banks, which is what Custodia is. Now there are fintechs as well.

• 6:24Speaker 02

  So you mentioned there are multiple lawsuits. This is so much bigger than just crypto. It's, it's, it goes to the heart of what is a bank and who, who controls?

• 6:36Speaker 02

  Who gets to define what is a bank? And does the Federal Reserve have a veto that Congress never gave it over what is a bank? And that's what's being litigated. There are now three lawsuits and I understand more are coming.

• 6:50Anthony Pompliano?

  So what does it exactly mean when we talk about a bank that could be in existence without being beholden to these kind of federal oversight or federal regulations? You know, I'm an investor in Custodia and it seems like you guys have started out at the state level, now trying to get the master account, but there's still an option for a state level. How does this work?

• 7:10Speaker 02

  Yeah, so historically, banks have always been chartered by US states ever since the inception of the United States. It's only, it was only during the Civil War that they created a federal bank chartering authority called the OCC. And, but they're equal. The states and the OCC have equal power to charter banks. So the punchline is that if a bank has a state bank charter, which is what Custodia has, historically, again, it was always able to plug into the industry utilities. What I mean by that is the FDIC, which is the insurance fund for the industry and the Fed, which operates the US dollar payment system.

• 7:51Speaker 02

  Those were historically always viewed as utilities and Congress always kept separate the chartering power so that the states and the OCC chartered banks, but the utilities didn't have chartering authority. Okay, so again, they're trying to blur the lines and read power for themselves that they did not have. So you asked about the, how is it that we've tried to maintain US dollar banking access for digital assets in the face of the outright hostility from the Biden administration? And going back, previously, the Obama administration, which started something called Operation Choke Point.

• 8:36Speaker 02

  Now there's Operation Choke Point 2.0. So Obama, under the Obama administration was Operation Choke Point 1.0. And it's, that started with payday lenders where the FDIC FDIC just politically didn't like the payday lenders. It was the FDIC and the Obama Justice Department decided to sort of, again, reinterpret the law to re-power that they didn't have. And they started to pressure the banks for doing business with high-risk industries. And it ultimately expanded to thirty different industries. And it's this laundry list of industries that the left doesn't like. Adult entertainment, firearms, ammunition, oil and gas. And of course, it started with the payday lenders. The payday lenders sued.

• 9:21Speaker 02

  And originally, the FDIC said, oh, we never did anything like put pressure on the bank examiners to pressure the banks to stop serving these industries. But when the plaintiffs got access to discovery, guess what? It became clear that the FDIC had lied. And so there was a settlement and the FDIC agreed to roll it all back. But it unfortunately came back again.

• 9:48Speaker 02

  Trump was able to roll it back partially. But it's now back with a vengeance. And the beginning of Operation Choke Point 2.0 was the digital asset industry. And I will say, unfortunately, Washington just doesn't know how to separate the wheat from the chaff. They've basically painted the entire industry with a broad brush. That we're all, you know, we're all FTX, right? And the reality is FTX was an offshore exchange, never audited, never never even had a board of directors, apparently not regulated. And unfortunately, caused a lot of problems for all of us. It should never have been allowed to operate.

• 10:33Speaker 02

  And frankly, I think if there had been regulated alternatives that had been accepted at the federal level in Washington DC, FTX would not have operated. Now, we can put the tinfoil hat on and say, well, politicians were just addicted to the money flow in both political parties, and that's why FTX was allowed to have the impact that it had. But I think It's a simpler, it's it's simpler than that. Washington just it has its head in the sand. I saw somebody refer to it as the emu approach. Head in the sand, thinking that this whole crypto thing is going to go away. A lot of very smart people think that it's going to go away.

• 11:12Speaker 02

  And and the world is is proving them wrong. And arguably, the door just opened last week because the Fed announced a novel activities supervision program. If you go back and look at the Fed's denial of custodians application back in early January, which was the tip of the spear of this whole Operation Choke Point 2.0 and all of government crackdown on crypto. The door was slammed shut. Well, seven months later, they've now opened the door a crack. We don't know what it means, but it's not nothing.

• 11:46Anthony Pompliano?

  So when we look at kind of, let's take the crypto entities first. We have FTX, we have BlockFi, we have Celsius, we have Voyager. Now we have Prime Trust. I'm sure there's others that I'm not even remembering or kind of including in this group, but each one of them for different reasons. There's been bankruptcies, customer funds, you know, at risk, etc. What are the differences between some of these entities in terms of their legal structures? And how does that then compare to, let's say, a federally chartered bank versus something like what is going on in Wyoming or somewhere else?

• 12:17Speaker 02

  Well, the biggest issue is, the biggest distinction is, is the entity a bank or a non-bank? So a trust company, a money transmitter, those are non-banks. If it's a bank, if it's got a bank charter, there's one very big distinction that cannot be overcome, which is that banks cannot be resolved in federal bankruptcy court. They are exempt from federal bankruptcy. Banks and insurance companies and railroads are exempt from the federal bankruptcy code. So what does that mean? It means if if the institution fails and it's a bank, it will not end up in Chapter 11. If it fails and it's not a bank, like all the ones you just listed,

• 12:58Speaker 02

  then it will probably end up in Chapter 11. We just saw that this week with Prime Trust. They started in state, what's called state receivership or the State ordered them not to operate. There's Nevada Chartered Trust Company. And the state ordered them to shut down. But now, six weeks later, they just went into federal bankruptcy court. What's the biggest impact of that? In a federal bankruptcy, the law is designed to maximize the value of the estate's assets for the stakeholders. The law does not say that customers have to be put first. In a state receivership, by contrast, customers are typically put first, usually by law.

• 13:42Speaker 02

  So there's a big difference if your financial institution goes bust. If it's a bank, you're much more likely to be protected as a customer than if you're dealing with a non-bank that could end up in Chapter 11. Now, what's the impact of that? We saw that in Celsius. There's a lot of misunderstanding out there. People think that just because the assets are held in trust, that means that they're immune to taking a haircut in bankruptcy. Well, Celsius is Exhibit A for where that's not true. Because the judge in that case held that the custody assets at Celsius were indeed the property of the customers. But the judge would not let them take their assets out of Celsius

• 14:26Speaker 02

  because of the possibility that there were so-called preferences. And until all those preferences cleared, the custody customers couldn't get their assets out. So even though they were deemed to own the assets, guess what? They voluntarily agreed to take a 27.5% haircut. So they got 72.5 cents on the dollar voluntarily so that they didn't get stuck in years of litigation. This is what's called strong-arming. And that's what happens in Chapter 11. You can get strong-armed into agreeing to take a haircut because until all those preferences are cleared, you're not going to get your money. And so even though they were deemed to own the assets, the cost-benefit analysis done by that committee of custody customers

• 15:10Speaker 02

  ended up concluding that they were better off taking a 27.5 cent haircut on every dollar. Just so they could get the money out now. And then they were, all those preferences, they gave up all their preferences. They were, they, they got a release from the bankruptcy court that no one could come after them for preferences again. So they, they're now taking their money free and clear, but only seventy-two and a half cents. That's the difference. So yes, it does matter that there are banks here now. Bank of New York Mellon has been in, in custody, although as you know, they've been essentially handcuffed. So not been able to, um, to grow because of the, um, the SEC's accounting pronouncements that are, that are keeping publicly traded banks from, um, from, from building big custody businesses.

• 15:55Speaker 02

  But custody is exempt from that because we're not a publicly traded company.

• 16:00Anthony Pompliano?

  So when you look at prime trusts, which one are they going to fall into? Do you, are they going to end up following more probably the Celsius path? Or do they end up, uh, being able to protect customer assets? Or we don't know yet?

• 16:10Speaker 02

  We don't know. That's the point. Nobody can say with certainty. So all these folks who are, who are out there saying, oh, that's those, those, those assets are those, are their assets. Yes, but they might be stuck in a preference fight. Um, and, and you know, it does matter. I, I, I, one of the things that I think is so, so, so important for our industry is that everybody has to take some responsibility to start doing counterparty credit risk analysis on the, on the counterparties. And the reason that I'm saying this and to answer your question is that Prime Trust was engaged in a whole bunch of activities that muddied the waters. Okay. I pointed out in their customer agreement that they were

• 16:55Speaker 02

  trading with customer assets, this was lawful, in the cash accounts. And so basically those cash accounts belong to the estate. They don't belong to the customers. So any of the cash accounts are already not going to be deemed to be the customer's assets. But even if, i- i- even if the customer's trust assets are deemed to be long to the customers. Prime Trust was engaging in some of the lending businesses. What does that mean? If your counterpart is engaging in those lending businesses, they're creating preferences that may get fought over if the counterparty ends up going bust. Okay, and we're seeing that in the BlockFi and Celsius, um, um, Chapter 11s.

• 17:38Speaker 02

  So you want to be with, if you're going to use a counterparty, and I think you and I both are are big not your keys, not your coins folks, encouraging people to learn how to self custody your assets. But there are certain entities out there that legally cannot, um, a registered investment advisor, a money, a mutual fund manager, that by law, they have to segregate the management of the assets from the custody of the assets. Okay, so they're not legally allowed to self custody. So now what? Okay, what they want to do is do the counterparty credit risk analysis of understanding who their custodian is. If their custodian is engaging in lending activities, yeah, that that means if that custodian fails, probably

• 18:19Speaker 02

  there there's going to be a fight over preferences in Chapter 11. If that custodian is trying to be all things to all people and engaging in risky crypto protocols that are not as tested as, say, Bitcoin is, you might just have Bitcoin there and think, well, I'll be fine. But no, if that custodian goes down and it's not a bank, you're going to be in the, in the mix, just like with Celsius. So Prime Trust, the fact that it's going Chapter 11, just like Celsius did, um, unfortunately means I think there are going to be some adverse surprises for folks. But we don't know. That's the point. There's so much uncertainty that comes with any Chapter 11 process. Nobody can say definitively

• 19:00Speaker 02

  that even the trust customers will get 100 cents on the dollar back. Uh, we just don't know, and only time will tell.

• 19:07Anthony Pompliano?

  So what you all are doing, I think most people here bank, and they start thinking US dollars. They start thinking all about kind of the legacy financial system. But obviously Bitcoin and stable coins is a huge part of your plan. Um, what exactly is Custodia trying to do around like Bitcoin custody or things with a stable coin, um, whether you get the federal charter or not? Talk a little bit about kind of how you can, you can, uh, kind of mesh these two worlds together.

• 19:34Speaker 02

  Yeah, well, it's not easy to do that. But yes, we are meshing US dollars in Bitcoin custody. We're on the verge of launching Bitcoin custody. And as we've publicly announced, our US dollar deposit business is launched, as is US dollar money market funds. Both are live and operating and, and, and yeah, pretty exciting. So why put those two things together? Because you need to be able to safely bridge the two. And I, I feel very strongly that, that the new system, the so-called Web three system, should not hurt the traditional financial system. And the traditional financial system should not hurt crypto, or Web three, or Bitcoin, whatever, whatever reference you want to call it.

• 20:16Speaker 02

  It is a new and different financial system. These are new and different payment rails. And they don't mesh well with traditional finance. Why? Let me give you a quick example. Bitcoin settles every 10 minutes on average. There's a new block appended to the Bitcoin blockchain every 10 minutes. It takes you at least a day to settle an ACH payment for US dollars. Okay, so now you're looking at 10 minutes versus one day. Even if you send a Fedwire, it's not programmable. You're not going to be able to ensure that your US dollars reaches there, reaches the destination at, say, 10:30 PM on a Saturday night. But if, but you can program a stablecoin for US dollars to reach the destination at 10:30 PM on a Saturday night.

• 21:00Speaker 02

  So, so long story short, what we're trying to do is create real-time growth settlement where we match the settlement of US dollars with Bitcoin. And in order to do that, it has to be done under, under the same roof. Now, we're also offering the custody services as a bank. We just talked about why it's so important to have a clean counterparty and a counterparty that, that is a bank. If you're a fiduciary, that's what you want. Why is it that all the securities custodians are banks? It's exactly what I just talked about in those earlier questions. Because, because banks treat customers a lot better in bankruptcy than non-banks do.

• 21:40Speaker 02

  So, long story short, that's what Custody is doing. We're, we're, we're building the fiduciary asset manager of choice. Fiduciary, sorry, fiduciary custodian of choice for Bitcoin. Because we're offering what is the best customer protections and the most customer-friendly legal and regulatory regime. But we're also doing it connected directly to US dollars.

• 22:04Anthony Pompliano?

  Now, one of the things that becomes interesting is we've got BlackRock coming in. We've got Fidelity, obviously, has been here for a while. A number of these really large organizations all starting to put together ETF applications, become more interested. There's others who I don't know if their plans are public or not, so I don't want to mention them by name, but very, very large financial institutions that are sinking hundreds of employees of resources, literally hundreds of millions of dollars to build out things for this space, whether it's infrastructure or else. How does that change the pressure on either the Federal Reserve, the OCC, or kind of like the bank world, right? It's one thing if you're like, oh, the crypto people are the crazy people on the internet and, you know, we don't like them. It's another thing when Larry Fink is on national television being like, we believe this is an asset class that's going to be global in nature and we want to be a leader

• 22:49Anthony Pompliano?

  and we have, you know, a trillion plus dollars and like, we're coming. Those two things seem very different in the eyes of regulators. Is it changing the conversation for what you're trying to do?

• 22:58Speaker 02

  Not in banking, no. But I will say you're hitting on something really important, which is the soft corruption of the system. There is, there is an anti-startup bias. There is a very strong pro-incumbency bias, right? And so a lot of folks are celebrating the arrival of BlackRock. Why? Because BlackRock, I mean, go look at Jay Powell's calendar. Larry Fink can get time with Jay Powell. Could I get time with Jay Powell? No. I asked for it, never got it. Okay? So there is a soft corruption and a very strong incumbency bias. That is not legal, by the way, and that's part of the reason why some of the startups who are challenging here, including Coinbase challenging the SEC, are challenging the old order.

• 23:43Speaker 02

  It's not legal that it's done this way. And now, I don't know that BlackRock's going to have an advantage or not, because there's such a strong anti-Bitcoin bias at the SEC right now. But let me tell you what I think would be very, very, very interesting, is that if a spot ETF is approved, typically ETFs allow redemption in cash and redemption in the underlying, but it's typically the issuer that has the option to decide whether to redeem for the underlying. It doesn't, that's not the right of the ETF holder. I think the real game changer isn't the ETF. The real, which I've said publicly is a double edged sword because of all the,

• 24:27Speaker 02

  you know, rehypoplication games that ETF market managers can play. Here's the, here would be the real game changer, an ETF that gave the option to the ETF owner to settle in the underlying Bitcoin. Take that option away from the ETF issuer and give it to the owner or give it to both of them. Right now, the ETF becomes the wrapper through which if that happens, the market, that would allow, that would allow customers to buy Bitcoin through the ETF structure, but keep the discipline on the ETF manager that at all times, they damn well better keep

• 25:07Speaker 02

  enough Bitcoin in that custody pool to redeem one for one at all times. And they cannot play rehypoplication games where they're issuing more claims to Bitcoin. In other words, more ETF units in this case than they have real Bitcoin in custody. If there were a real ability for the owner to redeem for actual Bitcoin, that would be the game changer. And so I think that I would love to see that and frankly, would love for custodia to be part of that. To be clear, we're not approved for Bitcoin custody yet. We're waiting for final regulatory approval, but knock on wood, we will be soon.

• 25:44Anthony Pompliano?

  When you look out at kind of the regulatory environment in the United States, are there other places around the world that are one companies trying to get kind of this meshing of crypto and the banking system? And then two, what are the responses from regulators in those jurisdictions or those regions? Are they running into similar problems or are those regulatory bodies letting them get banking license and stuff like that? What's going on kind of internationally?

• 26:33Speaker 02

  Yeah, it's the opposite of what's happening in the US, which is why the US is just, those of us who are part of the industry who are actually trying to do lawful business and work with the regulators are dismayed at the terrible policy decision. And again, I think they, it only took them seven months to start to open the door, to realize that this isn't going to go away. And the Fed in their new novels, Activity Supervision Program acknowledged they don't have the skillset and that they're going to be working with the banking industry, the technology industry, fintechs, and academics, is what they listed in their public press release last week. So that's an acknowledgement. That's a big acknowledgement that they don't have the skillset in-house and that they need

• 27:17Speaker 02

  to go get it so that they understand how to administer these novel activities. And to be fair, the novel activities went beyond just crypto, but of course, they did mention crypto. So coming back to answer your question, Singapore just approved a stablecoin issuing regulatory regime just this week. We've seen the Swiss regulators not just allowing Swiss banks to custody crypto, but to hold crypto on their balance sheets. We've seen the Bank for International Settlements, which sets the BIS capital requirements for Basel III,

• 27:59Speaker 02

  what's called Basel III, for global banks, proposed to allow banks to hold crypto on balance sheet, which the Fed in the custodia case said, hell no, not ever. Right? So the US is really an outlier among the more developed nations. And of course, I would be remiss if I weren't mentioning what's going on in Hong Kong. There's a real opening of the Chinese market to the crypto industry again after a big crackdown.

• 28:31Speaker 02

  China has gone back and forth between cracking down and opening up, cracking down and opening up. And I think in part, in reaction to the US, what the US has done, China has substantially reopened and is actually putting pressure on the banks to give bank accounts to the crypto industry. So the US is just a massive outlier here.

• 28:54Anthony Pompliano?

  My last question for you is, you mentioned that you tried to get time with Jay Powell at the Federal Reserve, and you never got that time. Is that a common request for people to make of Jay? Is it common for them to deny that? You mentioned, you know, large financial organizations get meetings all the time. What was kind of your reaction? Why do you think that you were denied the time with Jay Powell?

• 29:14Speaker 02

  It's a good question. I don't know. We were an applicant. So, but we repeatedly asked for time. I do know that others in the industry have gotten times with Fed governors. I never met, never met any of the people who made the decision ultimately likely in the custodia membership application, which was done by the Federal Reserve Board, except for I was on a panel with Lael Brainard back in 2016, and then again in 2018. And that's, that's when I met her. But otherwise, the people who voted on the custodia membership application never, never got access to them. Again, that's part of the, part of the interesting dynamic that occurred there. But guess who got an hour with Jay Powell? Take a wild guess. Who got an hour with Jay Powell?

• 29:59Anthony Pompliano?

  Three-letter initials?

• 30:01Speaker 02

  Yep. Sam Bankman-Fried got an hour with Jay Powell. Yep.

• 30:05Anthony Pompliano?

  What do you think they talked about?

• 30:05Speaker 02

  Yep.

• 30:08Speaker 02

  I don't know. You know, it was before, of course, the whole thing blew up. And, and it was revealed to be a fraud. But I don't know. I mean, at that point, what he was after was Basically, you know, controlling the regulatory structure, right? Part of his PAC and his spreading money around to pro crypto politicians on both sides of the aisle, admittedly more so to Democrats, but a lot to Republicans as well. And by the way, go look at who gets to meet with Jay Powell. How many people actually get one hour meetings with Jay Powell? This wasn't just any meeting. Larry Finkel get 15 minutes, but Sam Bankman-Fried got an hour with Jay Powell. That's public knowledge.

• 30:52Speaker 02

  I don't know why the press hasn't picked that up, but I don't know what they talked about. It would be interesting if anyone from the press is out there listening. It is public information that Sam Bankman-Fried spent an hour with Jay Powell. What did they talk about?

• 31:06Anthony Pompliano?

  Yeah, that is pretty fascinating.

• 31:07Speaker 02

  But I will say one thing is that happened right before Alameda took a control stake in Moonstone Bank. Moonstone was the bank that, I think, there were a couple of media outlets, The New York Times, I think, and Protos, who broke the story that Alameda did this backdoor, what's called a charter strip acquisition, bought a tiny bank and with the intention of changing its business plan to be pro crypto. They were short cutting the process and the Fed didn't figure it out. One of Custodians advisors wrote an op ed in American Banker saying that acquisition violated the Fed's control rules and the Fed should have caught it.

• 31:51Speaker 02

  But I happen to know there are five of those in process right now. We'll see if the federal regulators catch them. It's very ironic because those of us who are going through the front door asking for permission are getting slapped down, but those going through the back door, trying to pull a fast one have gotten through and Moonstone is one of those. And so one of the questions, I don't recall the precise timing, but I think the Moonstone, Alameda took over Moonstone Bank in like February and the FTX meeting with Jay Powell happened right before that, I think in January. I might have those dates off by a little bit, but not by much.

• 32:31Speaker 02

  The time, the timing that separated Alameda taking over Moonstone Bank was not very long after FTX, the FTX meeting, as I recall.

• 32:42Anthony Pompliano?

  So we have a question here from Luke. Luke, if you want to come off mute and ask it.

• 32:48Speaker 03

  Yeah. Hey, my question is, I don't know if you can talk anymore about, I hate to bring FTX up again, but for the average person now, it's so confusing where it's at. What's kind of like the next stage is just for the average person in terms of that recovery, mate.

• 33:01Speaker 02

  So I'll take a first stab at it. But Pump, you may know, you may know more. I looked at the docket for that bankruptcy filing and it is staggering. And it's not shocking that it's staggering because if you looked at the corporate structure, there were hundreds of legal entities in that corporate structure and unwinding all that, just binding all of those legal entities is, is a lot of work. It sounds like from what has been disclosed, FTX did not maintain accurate books and records. So there has to be a lot of forensic accounting that's, that's being done. And the amount of, of consultant fees, including legal and accounting fees in that bankruptcy is staggering, precisely because of how complex it is. It's going, going and finding all those

• 33:43Speaker 02

  assets. But yes, you're right. From what I have read, they have found a lot of assets and they're also clawing back a lot of assets. As I understand it, every politician who received donations has been asked to give the donations back by the Justice Department. So that's, that's, that's significant. They are getting assets. I don't know what the ultimate settlement is going to be. And again, it's super complex because it's an offshore bankruptcy. It's not all onshore in the United States. At the time when that happened and it all came out, I said, this is probably going to be the most complex bankruptcy in US history. And based on what I can see right now, just the number of documents in the, in the docket and the number of lawsuits involved, it's, it is shaping up to be that way. Pump, do you have anything to add?

• 34:25Anthony Pompliano?

  I don't have much to add. I, I think the two things that I'm paying attention to, one are all the clawback stuff. So we've seen them already go back to a number of different venture funds they'd invested in, you know, different organizations, obviously the politicians you mentioned, like there's a whole bunch of stuff where they're trying to track down, hey, where did this money go? And like, how do we get some of it back? And then the second thing is the restarting of FTX. Like, I actually think that's like a pretty interesting component of this where I don't know if you ever build it back to what it was, but if you can even build it to a fraction of that from liquidity standpoint. A revenue standpoint, you know, could you actually, uh, you know, somehow get more funds back for these FCX creditors? Probably. Now, is that, you know, one cent on the dollar or is that 50 cents on the dollar?

• 35:10Anthony Pompliano?

  It's unclear. Um, but I, I think a lot of folks are focused on like, how much money can we recover from the existing assets? And a very big variable here is like, how much money can be derived from future earnings or equity value? By restarting the exchange and kind of coming out the other side? I don't know what that answer is, but it'd be pretty fascinating to watch that occur.

• 35:31Speaker 02

  Yeah, I mean, as you know, Pomp, that, that platform was one of the most favored platforms because of the tech. Unfortunately, what we know is that behind it, there was roughshod operations, uh, if any, you know, it doesn't sound like they even were keeping books and records. It certainly wasn't in a position ever to be audited, right? So, um, but the tech is, is, was by far the, the, the favorite tech of users in the industry. Um, and you know, what I guess the message I would have is as someone who did lose money in Mt. Gox, it was the same kind of thing. I was like, well, that was the only way to get Bitcoin way back then.

• 36:10Speaker 02

  And so I lost money in Mt. Gox. I hadn't taught myself how to, how to do, um, private key custody to self custody the assets. Uh, and nine years later, I still haven't gotten the money back. Um, I'm, I don't know if I ever will actually, but long story short, um, you gotta be careful because just because something is the only or the best, doesn't mean that's the counterparty you want to face.

• 36:32Anthony Pompliano?

  Caitlin, one last question that I have for you is when you look at, uh, the United States and obviously we now are getting a growing number of politicians uh, at the local, state and even federal level, uh, who are sympathetic to this technology, this industry, these assets. And I think to maybe the plight of the entrepreneur trying to deal with the, the regulatory uncertainty, et cetera.

• 36:53Speaker 02

  Yeah.

• 36:55Anthony Pompliano?

  How do you see crypto, Bitcoin, stablecoins, et cetera, playing out with the presidential election? So it's like, you know, all of these politicians, we've already seen that playing out, but this feels like maybe it's the first presidential election where Bitcoin is a part of the conversation. It's definitely not the thing, but it's a thing. And we've seen multiple presidential candidates come out in support of Bitcoin.

• 37:16Speaker 02

  Isn't that great?

• 37:17Anthony Pompliano?

  Does that become the norm? Or what are you thinking there?

• 37:19Speaker 02

  I love it. I mean, it is, it is somewhat generational, but the, the leaders in both political parties polling right now are both of a different generation than the average Bitcoiner, let's put it that way. And they're both anti-crypto, right? Trump himself was very anti-crypto because Steve Mnuchin, his Treasury Secretary was anti-crypto, although it has just been disclosed that he owns some Ethereum. And then we know what Biden, the Biden administration's view is. It's virulently anti-crypto and, you know, especially going after the people who are trying hardest to work with the regulators. It's been designed to sort of, you know, shoot the scallion, the stallion to scatter the herd, so to speak.

• 38:02Speaker 02

  And I don't think the Biden administration is going to change, although I will say, there are some people in the Biden administration who were, who are very pro crypto. It's, it's, it's a strange bedfellows kind of thing where it doesn't cut across traditional political parties and it doesn't cut across even, you know, within both the Trump administration, where you had Brian, Brian Brooks, who was very pro, and Steve Mnuchin, who was very against. There are very pro folks within the Biden White House, but the people in charge of economic policy right now are not among them. So, so long story short, yes, I think it will become a presidential election issue, but right now it's the secondary candidates who are talking about it.

• 38:43Speaker 02

  There's pretty much unanimity among those secondary candidates who have spoken about it, that they're pro. I suspect the neocon types are against. We haven't heard Tim Scott yet come out and say what he thinks. He is the ranking member of the Senate Banking Committee. So any, any legislation, any crypto legislation that goes through before The end of the Biden administration must go through him. So I think it's ultimately going to, um, he's gonna have to take a position at some point. And, um, my gut is that he's gonna be positive because of the, the freedom arguments. But boy, there are a couple of candidates in both political parties who are making beautiful

• 39:22Speaker 02

  arguments for the freedom to transact financially and for being able to protect financial privacy. I'm, I'm, I'm spending time with multiple of the, of them, their campaign staffs. I'm not endorsing anybody, but I'm willing on a policy discussion matter to talk to anybody who's interested in learning about Bitcoin and, and coming up with policies. And I just this morning, uh, someone asked me, how do we, how do we maintain financial privacy and balance the policy goal of not allowing the financial system to be used for money laundering? And the answer is you fix the third party doctrine, which is the doctrine that once you give up any data to a third party,

• 40:06Speaker 02

  you've given up a privacy interest in it and the government can go to the bank or to your cell phone company and get every financial transaction you've ever done, uh, and get every, every cell phone location ping that your cell phone has ever paid, right? That data is commercially available. And, and especially the banks just have to turn it over when the government comes calling. Um, and so the easiest way to deal with that is to say, all right, um, for money laundering, laundering purposes, the government can use that data, but the government can't use that data for anything else. So just pass a law that says it cannot be used as evidence in, in criminal cases and civil cases that it is private for everything except for money laundering. That, that, that would, boy, that would solve a lot of problems. That would, that would help, uh, help keep privacy.

• 40:51Speaker 02

  Um, so if you see a presidential candidate start espousing that, uh, uh, you might, might, uh, might trace it back to, to me because they thought it was a pretty good idea. So we'll see, um, if it, if it actually comes out in policy. But that's how you start to restore privacy rights and Fourth Amendment protections that have been completely gutted by the fact that the government doesn't need to go to a And prove probable cause to get a search warrant. They'll just go buy your data from a third party data provider and use it as evidence against you. And until we restore the Fourth Amendment protections, unfortunately, um, you know, the, the, the walls are closing in on Americans' privacy, on our finance, on our rights and freedoms to transact.

• 41:35Speaker 02

  And I hope that, uh, that a politician breaks through and, uh, one, one specifically that is truly committed to freedom.

• 41:46Anthony Pompliano?

  So I'll leave you with one last thing, which is a complete hypothesis on my standpoint, or from my perspective. I think that Trump's, uh, disclosure of Ethereum, um, it's unclear whether it's Ethereum or its assets in an Ethereum based wallet. And regardless of that distinction, I think it's probably related to the NFTs that he was selling as a fundraiser. So he was doing all like these like Trump NFTs, which like look ridiculous and you know, are exactly what kind of you would expect. Um, but my guess is that either it was Ethereum he was receiving, right? In, in exchange for those NFTs, or he has like NFTs left over, or like, maybe he like puts them aside or, or whatever.

• 42:27Anthony Pompliano?

  Which is funny because it's very different than I think people who are celebrating like, oh, Trump's into like crypto now. Right? Like, no, actually, he just thought it was like a vehicle, if that is what it is.

• 42:36Speaker 02

  To make money.

• 42:37Anthony Pompliano?

  To, yeah, to, to fundraise, right? Um, and like regardless of what you think of him as a president or an individual or whatever.

• 42:43Speaker 02

  Yeah.

• 42:43Anthony Pompliano?

  It, it almost speaks to the fact of like, this is a growing part of the world where somebody can do that. They can say it's not just an investment type vehicle. It is a commerce type thing. And so.

• 42:55Speaker 02

  Right.

• 42:56Anthony Pompliano?

  You know, eventually you're going to get businesses that do this. You're going to get people who are running who, who you don't know, are they buying these assets for investment purposes? Was it for something else that they did? It's just going to become much more, you know, kind of normal in the world than maybe what it was, you know, five years ago.

• 43:12Speaker 04

  Everyone's got a hard question about AI, your job, your kids, where it's going. Anthropic was built to surface those questions and share what it finds along the way, because there's hope in hard questions. Ask yours at claude.ai/spotify and keep thinking. That's claude.ai/spotify.

• 43:37Speaker 02

  Well, don't forget Melania issued NFTs as well, right? And since they're married, they could be hers, could be related to her issuing them as well. But you're absolutely right. Your broader point is absolutely right. This is all normalized now. I saw, I think it was a Coinbase survey, 19% of New Yorkers own digital assets. That's all New Yorkers. That's not, you know, within a certain generation. It's obviously going to be a lot higher in the younger generations and a lot lower in the older generations. But 19% of every New Yorker owns crypto. That's pretty meaningful. And I think the next bull market, maybe we can end on an up note.

• 44:15Speaker 02

  The next bull market, which is likely to be ushered in after the halving of Bitcoin in April of 2024. Typically, what happens is the miners consolidate. And because a lot of the old mining that was reliant upon the higher block rewards that get cut in half at every halving, those old miners will be shut down. You see some of those companies go out of business. You see the hash rate come offline. And then after that consolidation period, which typically lasts about six months, the bull market gets ushered in. Okay, what I just described to you is a fundamental process.

• 44:56Speaker 02

  This is not a technical thing, but a lot of people will trade ahead of it. And what we saw, there was a big debate four years ago, well, three and a half years ago, over whether the halving was priced in, and it was not. And this whole question of like efficient markets hypothesis, we all know the halving's coming. So it has to be priced in, right? And it was not priced in because these are very fundamental things. And nobody, you know, the miners will keep mining until the very last minute that their machines are no longer profitable and then they will all shut them off. They're not trading ahead of that. Maybe arguably because there are deeper futures markets than there used to be.

• 45:40Speaker 02

  Some of them are hedging so that they can trade ahead of it. But I still think this is going to be a pretty fundamental phenomenon. And we are likely to have a bull market. It's not going to be as material. Each time, the bull markets are less in their amplitude. But they're still coming and the impact of that on adoption, when all these...

• 46:02Speaker 02

  Anti crypto army folks who are trying to kill it and are trying to argue that it's worth zero and it's going to go to its intrinsic value, which they say is zero. And when it's when they're proven wrong, all of a sudden, I think you're going to see doors opening, right? And like the Fed announced last week with its novel activities supervision program, it reversed itself seven months later after saying essentially, hell no. Now it's, well, we've got to figure out how to supervise this stuff because it is causing risks in the banking system. And candidly, that's a positive development. And I think we're, the US is ultimately going to pull its head out of the sand and get there. But

• 46:44Speaker 02

  the rest of the world and the markets themselves are going to just keep right on going regardless of what the US does.

• 46:51Anthony Pompliano?

  Where can we send people to find you on the internet or find out more about Custodia?

• 46:54Speaker 02

  Ah, CustodiaBank.com and pretty active on Twitter and LinkedIn and Noster.

• 47:00Anthony Pompliano?

  Awesome. Caitlin, thank you so much for doing this. I always enjoy talking to you. I always learn something and we would definitely do it again in the future.

• 47:05Speaker 02

  Likewise. Yeah, thanks. And thanks for, for being a guinea pig. I was one of your first guinea pigs on your original podcast.

• 47:11Anthony Pompliano?

  You were.

• 47:12Speaker 02

  And I love helping you out, trying to, to, to try this new format. So thanks, everybody for joining.