Pod Insights The Pomp Podcast #1516 Caitlin Long | Every Bank Wants A LOT Of Bitcoin About this episode Caitlin Long is the Founder & CEO of Custodia Bank. This conversation was recorded at Bitcoin Investor Week in New York. In the conversation we talk about the struggles around debanking, bitcoin, stablecoins, regulation, US bitcoin strategic reserve, and what Caitlin thinks the US government will do. ========================BitcoinIRA: Buy, sell, and swap 75+ cryptocurrencies in your retirement account. Take 3 minutes to open your account & get connected to a team of IRA specialists that will guide you through every step of the process. Go to https://bitcoinira.com/pomp/ to earn up to $500 in rewards.=======================Pomp writes a daily letter to over 265,000+ 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/=======================View 10k+ open startup jobs:https://dreamstartupjob.com/Enroll in my Crypto Academy: https://www.thecryptoacademy.io/
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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2:11 Anthony Pompliano? You, I think, understand better than most the intersection of Bitcoin, stablecoins, the traditional banking system, and institutional investors. And when we first met, you were all over it. You said, "Look, this is a lot of my background. There's a lot of my personal interests. Like, this is an intersection point that's going to be very important." Start a company to go after this. And pretty much, the Federal Reserve and banking system has done everything they possibly can to stop you.
2:40 Speaker 02 Yes.
2:41 Anthony Pompliano? Tell us what happened.
2:41 Speaker 02 Tried to kill us multiple times.
2:43 Anthony Pompliano? Okay, tell us what happened.
2:45 Speaker 02 Well, the history is... So, we're seven years in now to creating a special-purpose depository-institution charter and a legal and regulatory regime in Wyoming. Wyoming was the first state, which is where I grew up. I was in New York for 30 years. But Wyoming was the first state to define digital assets as property and to create the commercial law regime for digital assets. And the rest of the country, about half of the states, have subsequently followed. So Wyoming did some really important things for this in the United States and was working with the Fed at the time. They were meeting every week. And the first group to apply
3:30 Speaker 02 for this special-purpose depository-institution charter was Kraken. I was trying to bring a whole bunch... This is a passion project for me. I was trying to bring a bunch of people to Wyoming to get this going. And then the Wyoming Division of Banking said there were 150 different groups who tried, and none of them would have gotten through the Fed. So I thought, "Well, I worked... I was managing director on Wall Street for many years. I can shepherd it through and try to solve the de-banking problem that we knew this industry has gone through many times." And frankly, part of the difference between Coinbase and others, if you go back to 12 years ago, was the first de-banking cycle in crypto. Coinbase survived because when they lost their Silicon Valley Bank account, they were able to get a Cross River account
4:15 Speaker 02 spit-spot because of the Andreessen connection. Those sorts of things mattered to who won in this industry. And durable banking services is something that we still haven't solved, unfortunately. So, long story short, it was friendly until FTX. And Sam, I will speak out very, very loudly against any attempt to pardon that man. That man caused a lot of damage to a lot of innocent, good people in this industry.
4:42 Anthony Pompliano? I think you're now allowed to talk about some of the details, given that the political change that's occurred, not just from the administration, but I think just generally people are kind of going back to some common sense.
5:01 Speaker 02 Yes.
5:02 Anthony Pompliano? What were they doing to you? And just so everyone understands, I'm an investor. I was getting the updates, and every update I got, I was like, it can't get crazier than this. And it kept getting crazier and crazier and crazier.
5:14 Speaker 02 The level of corruption in the United States is staggering. And I did not fully grasp it until I saw it. And it's not over yet, Anthony. I mean, you know more things than I can talk about publicly, Ben Nietzsche, of the fact that you're an investor. But the magnitude of skullduggery that is happening in Washington DC is really incredible. And it's going to come out, if we look forward, it's going to come out, and you're already seeing it with the stablecoin bill, the scrum between the big banks who want to dominate it and the incumbent stablecoin issuers, and then there's Tether out there, not in the United States.
5:55 Speaker 02 And then just this incredible flow of money that has gone both from the banks and the crypto industry to people in DC, and they're all going to fight. And I don't know how it's going to come out, I really don't. We're going to get a stablecoin bill soon, though, that's clear.
6:10 Anthony Pompliano? So I think a lot of people will be like, hey, wait a second, the screen says Bitcoin Investor Week, why are they talking about stablecoins? And they don't realize the importance of the stablecoins to the success that Bitcoin has already had, let alone the success that it will have. Talk a little bit about that relationship, and then we can talk about the bill itself.
6:25 Speaker 02 Yeah. It is still on a daily basis of a clear majority of Bitcoin trading volume is settled in Tether. So Tether is a really important part of this ecosystem, like it or not. And I think most of us like it. Most of the regulators and the banks don't like it because it's 140 billion of payment outstanding that grew up outside of the regulated banking industry. And so that's why it matters. And of course, yesterday you saw the CEO of Bank of America say, "We're going to get into stablecoins as soon as we get approved to get into stablecoins."
7:05 Speaker 02 By the way, as you know, Custodia applied for the patent on a tokenized digital dollar in 2020, and we were granted it in 2022. Now, the Fed, post-FTX, way overreacted, clearly, and told everybody, "Stay out of it." It is presumed unsafe and unsound if a bank issues a stablecoin or touches a stablecoin. And so that's why the banks have been off to the side, and we haven't been able to use our patent. But it sounds like we will be able to use the patent, and it's going to be really fun because we're not in any of those three groups I just described: the incumbent banks, the incumbent stablecoin issuers, and then Tether.
7:48 Anthony Pompliano? JP Morgan launched, or said they launched, a JPM coin back in like 2018 or something. And I remember writing, calling it "the corporate central bank playbook," which was if they issued a coin that was backed one-to-one to dollars, just like the Fed had unpegged in the 70s, they in the future could potentially unpeg, and then they basically have a money printer machine, and what bank wouldn't want to have a money printer machine? What do you think the stablecoins that these banks are going to end up issuing are going to look like? Will there be regulation that specifically says you have to keep it pegged to the dollar or other things?
8:24 Speaker 02 Yes. Yeah, it's that, it's interesting because the Biden administration was trying to kowtow to the banks and so they, their, their proposal was that only insured depository institutions could issue stable coins. They were trying to keep the stable, trying to kill the entire startup industry. And the crazy thing about that is, most of you probably understand, banks run what's called fractional reserve books. They, they keep about eight cents. The, the large banks keep about 12 cents in cash for every dollar of demand deposits, and the smaller banks keep eight cents in cash. So every single bank, every single day that runs that business model is susceptible to a bank run, when you're keeping that little liquidity. And they're taking the, your deposits and turning around and making loans with
9:08 Speaker 02 them and they're playing, they're, so they're taking credit risk and they're taking, in most cases, interest rate risks as well. That's the traditional business model. Very obvious how unstable that will be when you get crypto depositors that can be withdrawn in the span of minutes, and those bank runs would be faster than Silicon Valley Bank if we had traditional banks issuing stable coins. So the good news is that that proposal didn't go anywhere, and the, the now proposal is, of course, having learned from what happened at Silicon Valley Silvergettin Signature, is that the only stablecoin issuers must hold dollar-for-dollar liquid reserves against the stablecoin liabilities. And if an insured
9:52 Speaker 02 depository institution is going to do it, it has to be in a ring-fenced bankruptcy-remote subsidiary. So it doesn't need FDIC insurance, which is really interesting, because the, the Biden FDIC was frankly the problem. That, well, one of the many problems, but the Biden FDIC was clearly engaging in a lot of the de-banking activities that we're learning about now, but was, was really anti, anti-innovation across the board. They didn't want banks innovating, they didn't want any new banks coming in, they didn't want any startups in the banking system, and they certainly didn't want anything crypto-related in the banking system. So they just did everything they could to keep it out. And now we at
10:36 Speaker 02 least have pro-innovation people coming into those jobs.
10:41 Anthony Pompliano? The stablecoin regulation bill that is being floated, I have seen or heard multiple versions with different things in or out of it. One thing that has been consistent throughout almost every single version that I've been aware of is it seems like they have Tether in their crosshairs, that they are trying to essentially ring fence the United States in a way.
11:05 Speaker 02 Yeah.
11:06 Anthony Pompliano? One, do you agree with that analysis? And then, two, good, bad, do you think that gets approved? Talk through that.
11:12 Speaker 02 I don't know how that's going to play out, and I don't know what Tether's view is either. I saw an article recently that said they were looking at potentially doing something, they were waiting to see what happens in the United States. So we don't know what they want. And obviously, with Cantor Fitzgerald being the reserve manager for Tether, and Howard Lutnick being in the administration, they've got a pretty powerful advocate at the table in the administration. But the scrum that's happening, Senator Lummis is from Wyoming, my home state, the scrum that's happening with her and that digital asset subcommittee on the Senate running that bill is really interesting because the amount of attempted regulatory capture, I'm being
11:57 Speaker 02 nice about it, is pretty high. So what happens with Tether in that? I don't know. This is one of the risk factors in this industry. I think the right thing for the United States to do is to embrace it and to recognize that that is a significant owner of US treasuries. They have distribution all around the world, and it didn't grow up within the traditional regulated banking industry, which is why the banks are still trying to kill it, trying to use regulatory capture to kill it. And they succeeded in keeping it outside of the regulated perimeter, but they didn't succeed in killing it because obviously Cantor Fitzgerald was willing to stand up and defend it.
12:39 Speaker 02 There's another angle to this, which is, is that going to go mainstream? Because all the banks want to get into Bitcoin trading, and right now, all the banks can do, the big New York banks can do, is... ETFs and futures, they can't hold the actual underlying. And as a result of that, you see some pretty big arbitrage spreads and some of the trading firms in this space have been able to capitalize on that because the banks can't touch the underlying, so there's not as much liquidity. When the banks can touch the underlying, which I believe is coming soon, probably in the next six to nine months, the banks are going to have to be able to settle with digital dollars. You're not going to be able to prime broker these assets without being able to fast settle the dollar leg of your transactions.
13:21 Speaker 02 You're not going to, you're not going to be waiting to settle until after the close of business because you might have actually gone bust in the interim with how fast digital assets move, right? So the risk officers, if they're doing their job well, will say, we've got to ring fence the crypto piece, we're not going to co-mingle it with other prime brokerage assets, we're not going to allow collateral substitution with other prime brokerage assets, and we're going to, we're going to do, we're going to be running 15-minute settlement cycles. Well, you can't settle a US dollar in 15 minutes outside of this technology right now. FedNow is there, but of course it's for relatively small dollar payments.
14:04 Speaker 02 We're talking about large prime brokerage type payments. They're not going to do that with Fedwire, it's not programmable. You can't do it with ACH or FedNow. What are you going to do it with? You're going to do it with a digital dollar. So I think there's going to be a fascinating land grab on, on the digital dollar. And, and one question is, is Tether going to come on shore? Are they going to be able to expand that into institutional Wall Street? Or are we going to have a JPM coin, a B of A coin, a Citi coin, or an Avid, which is the name of Custodius Coin? Stay tuned because I'm working on something and we'll see, we'll see where that ends up going.
14:48 Speaker 02 Like I said, we're, we've got the patent on this. There are a number of banks who figured that out and are interested in making sure that they're part of the early wave. And I'm not talking about the big New York banks, I'm talking about Community banks who want to be able to offer this to their customers for foreign exchange. And especially banks that bank Bitcoin miners, the Bitcoin miners don't want to have to deal with Fedwire. They would rather settle their US dollar transactions in a Tether or a USDC or some sort of US dollar stablecoin because the settlement cycles match the cycle of their liabilities.
15:26 Anthony Pompliano? I think you once told me that you were pretty early in Bitcoin. And when you were at Morgan Stanley, there was like a chat where there were some Bitcoiners that were talking.
15:35 Speaker 02 Yes.
15:35 Anthony Pompliano? And you guys kind of were like quiet about it because you're in the big bank with this Bitcoin thing. One of the promises then was that Bitcoin was going to end up being a peer-to-peer electronic cash. And that includes buying goods and services with Bitcoin. It does feel like stablecoins have taken a lot of the transaction volume that people thought was going to go to Bitcoin. What is your current view about the relationship between Bitcoin and dollars and how people are using those two different assets?
16:01 Speaker 02 I think they're symbiotic. I'm glad you mentioned that and it prompted a thought. I was listening to Preston Pish's interview with Paolo Ordoino from Tether talking about an announcement that I got really excited about, which is that they're now working to put a US dollar stablecoin on the Lightning Network. For those Bitcoiners, we are all excited about the Lightning Network. It has underperformed expectations in the last couple of years. And some of that was as a result of what happened with the Taproot upgrade that started to clog the chain. Transaction fees went up. It was harder to open and close Lightning channels.
16:45 Speaker 02 That has forced, those market forces forced some very interesting new technologies to be implemented. But here's the punchline and here's why I'm bringing it up.
16:55 Speaker 02 Paolo's vision, I think, is the right one, which is that the Lightning Network, if you're going to scale to billions of, not just billions of people in the United, in the world, but machine-to-machine payments as well. The problem with blockchains is that it's a shared-state system. You need to anchor in, but you're never going to be able to get the efficiencies, regardless even if you're working on a faster chain like Solana, for example. You'll never be able to get the efficiencies of getting shared state fast enough to prevent a double spend. And for machine-to-machine payments that are going to be making payments in milliseconds. And you're talking about at scale, in billions and billions, potentially in a minute.
17:39 Speaker 02 How do you get there? And the solution, which is so interesting that he was going down this path, because I took the last six weeks and did a very deep dive into the Bitcoin L2s and making decisions about if Custodia issues our stablecoin because the world's changing, what is the protocol we would use now? Clearly ERC20, we've already gone through the process with that with our regulators. And we had also proposed a Liquid token, but Liquid is a sidechain of Bitcoin, as many of you know. That was five years ago. What has happened in the interim is a lot. And what I concluded is the Lightning Network is where the scaling is going to take place.
18:23 Speaker 02 That's where the vast majority of US dollar payment volume will end up. And to have Tether making a big investment in the scaling of US dollar stablecoins on the Lightning Network is, that is the announcement of the year to me. Because they're making the engineering investment in that. That is what's going to have symbiotic effects back to, I think, TradFi. And candidly, I think that that will end up with a better system than what we have now through the big traditional banks. It will start offshore, like so many things do in the Tether universe. It'll start offshore and then I think it'll come onshore. But what will have
19:04 Speaker 02 Happened between now and say two years from now when they bring that level of scale and the machine to machine payments through the Lightning Network. What will have happened with City Coin and JPM Coin and Custodians Coin? What will have happened? We don't know. That's the that's the fun thing to watch and a lot of money is going to be made by somebody along the way.
19:25 Anthony Pompliano? This industry is fascinating because it is so bottoms up. People bought Bitcoin first. Companies like Tether, even USDC, they're creating these things before the big banks, before the nation states. They're not going to sit around forever. The banks now are talking about this. Do you think the US will go ahead and one, try to launch a central bank digital currency? And then two, do you think that the nation state will actually establish the strategic Bitcoin reserve? And like, are they all in now that Trump is in office and he's been so kind of pro Bitcoin, pro crypto?
19:56 Speaker 02 Well, good news is Scott Besson is pro stablecoin. So I don't think the Trump administration is going to stand in the way of the stablecoin bill that's coming from Congress. So to me, that's a given. It's just a question of how many months we have to wait and exactly what that looks like. Does everybody have to get a bank charter? Does everybody have to get some sort of non-bank charter? Do the non-banks get access, get root access to the Fed's payment system, which is the master account that we're fighting for? Right now, you have to be a bank to get that. So those are, those are the questions we don't know. But we know definitively that the stablecoin bill is coming. So to answer your question, I don't think that the, I mean, Trump himself has said he won't support a CBDC. Scott Besson is supportive of private sector versions. So most likely,
20:41 Speaker 02 the Trump administration is going to allow the private sector to innovate with one caveat, which is that the Fed is standing in the way. We can come back and talk about that in a, in a minute, but we know where the Trump administration is going to be. And then in terms of strategic Bitcoin reserve, that was always going to be the Treasury Department, not the Fed. So the Fed can't stand in the way of that. But it depends on what you mean by that. I think if, if the strategic Bitcoin reserve is defined as the Bitcoins that the US government has confiscated in law enforcement activities will no longer be sold and that pile of Bitcoins is we're going to call that the strategic Bitcoin Reserve. There's a 100% chance that that happens. But getting the US government to go out and buy Bitcoin on the open market.
21:25 Speaker 02 I think it's a probably a 40% chance. It's not likely. It's just a step too far. And and I'm not entirely comfortable with all the discussion that's coming out of DC of a sovereign wealth fund. This country is so far in debt. And this idea, Howard Lutney was in the Oval Office with Trump saying, hey, if we're buying as the US government. Vaccines from a healthcare company, we ought to get warrants in the healthcare company. And I was sitting there thinking, that's not our free market capitalist. Approach to the world. So I don't know how serious they are about all that. That that all makes me think strategic Bitcoin Reserve is priority number three.
22:08 Speaker 02 In fact, actually, even Senator Lummis said it. Stable coins, number one. Market structure, number two, strategic Bitcoin Reserve, number three. I'm not sure they'll get to number three.
22:18 Anthony Pompliano? Trump has been very curious about acquiring land from other countries.
22:26 Anthony Pompliano? And in some of these places, there's a lot of natural resources. There's also a lot of energy. The US government historically has stayed out of mining. But there are other countries. We know Russia is mining. We know that the UAE is mining and elsewhere.
22:40 Speaker 02 Bhutan and yeah.
22:41 Anthony Pompliano? Yeah. Is it just a thing that the United States, like, maybe that's the way that they should actually enter is like, forget the buying. But you just kind of dollar cost average into Bitcoin by monetizing energy assets, whether within the domestic borders today or, you know, potentially acquiring new areas that are energy rich.
22:57 Speaker 02 Yeah, I've never heard Trump talk about mining as an opportunity. He's a big energy guy. Of course, Wyoming is a big energy state. And so he's more interested in green lighting some of the activities like.
23:11 Speaker 02 Like the sort of portable nuclear plants and things like that that are being talked about in Wyoming, for example, as we speak. So I think that's probably more likely what he will do is encourage private sector development of. ...those resources and stand back and not kill it with red tape and regulation. It's interesting, I'm not sure how much Trump himself is a true believer in this. He sees a lot of smart people around who are, and he wants to seemingly get a lot of the red tape out of their way, but it's not something that he seems philosophically committed to.
23:50 Anthony Pompliano? So this is something I've talked to friends about a lot. I actually don't think it matters whether he understands Bitcoin or not, in the sense that what you really need is you need him to say to the people he trusts, who do understand it, "I will support you." Is that how you kind of view it?
24:04 Speaker 02 Yes, exactly. I mean, there was the scrum for Treasury Secretary between Howard Lutnick and Scott Besen, and I looked at that and said, "We're gonna win either way," right? Because they're both Bitcoiners, which is great. And so, having both of them in that, in the cabinet, in high positions, Howard, of course, being Commerce Secretary, Scott being Treasury Secretary, they're in positions to really make some of these things work. And that's to your point, he doesn't need to really understand it if the people around him are saying, "Here's what we need to do." And it is, I think, something that helps dollar hegemony. We can debate whether that's a goal that should be out there, but it is a goal that the Trump administration is pursuing.
24:48 Speaker 02 And it would not make sense to force a liquidation of Tether because they haven't met a regulatory requirement and have them forced to liquidate 140 billion of Treasuries if the goal is to support the US dollar. So I can't imagine that that's gonna come to that, but in that scrum, with the big banks trying to elbow everybody else out, and then even the incumbent stablecoin is trying to elbow Tether out, again, I don't know how that all ends up.
25:14 Anthony Pompliano? I can't wait to see what the stablecoin bill is. I think that's gonna have such a massive impact. So, ladies and gentlemen, Caitlin Long.
25:22 Speaker 02 Thank you.
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