Original title: Market Crash. But at Least We Get a $200K Bitcoin? - The Chopping Block

Original source: Unchained

Original translation: TechFlow

Guest: Jeff Park, Strategy Manager and Project Manager, Bitwise Asset Management Alpha

host:

· Haseeb Qureshi, Dragonfly Managing Partner

· Robert Leshner，Superstate CEO & Co-founder

· Tom Schmidt, Partner of Dragonfly

Broadcast date: April 11, 2025

Summary of key points

· Bitwise Alpha Strategy Director – Bitcoin’s target price will reach $200,000 by the end of the year.

· Bitcoin vs. Gold - Bitcoin is a means of value storage, and its characteristics are similar to gold. Investors mainly consider volatility when choosing. Therefore, it is usually the older people prefer gold, while the younger people prefer Bitcoin. The reason why young people prefer Bitcoin is largely because of its volatility. If you believe this is one of the key factors driving the value of Bitcoin.

·"TradFi's altcoin" - MicroStrategy plays the role of altcoin in traditional finance, which is actually a combination of cryptocurrency and Bitcoin.

· Circle Delays IPO – Circle’s financial situation is better than initially looking, and despite their high costs, they are now making a lot higher than they were a year ago.

· Ripple’s acquisition of Hidden Road – It’s strategic for Ripple, where they can make more efficient use of their balance sheet, and the acquisition also helps expand the market for their new stablecoin, RLUSD.

· The return of the Bitcoin market – Some people believe that Bitcoin will perform differently depending on the interest rate changes. The drop in interest rates is good for Bitcoin, as this leads to financial suppression and inflation, making Bitcoin a tool for store of value.

· Impossible Trinity—After the end of the Bretton Woods system, we face an impossible trinity, that is, only two can be chosen between open capital flows, independent central banks and floating exchange rates to build a monetary system. If you give up one, the other two have to be adjusted.

· Macroeconomic decoupling of cryptocurrencies – The Fed and central banks around the world are undergoing real stimulus to try to save their economies from shocks, which will distort asset prices. In that case, there may be a decoupling between Bitcoin and other tokens.

The impact of tariffs on cryptocurrencies & the role of Bitcoin in portfolios

Haseeb ：

Jeff, you work for Bitwise Asset Management and have a deep understanding of the macro economy. Let’s talk about the impact of tariffs on cryptocurrencies. What changes have occurred in the crypto market? Why should we expect tariffs to have such a big impact on cryptocurrencies, although cryptocurrencies themselves are not directly affected by tariffs because they do not involve imports or exports. So, why does the crypto market care about tariff-related issues?

Jeff：

From a positive point of view, I hope to mark the bottom of the market so that I can review this episode in the future.

Overall, cryptocurrencies and Bitcoin have been the focus of investors, and their role in the portfolio is changing. Since the launch of the ETF, mainstream investors can more effectively use Bitcoin as part of global assets, which is why Bitcoin’s correlation with risk appetite and risk aversion sentiment has increased.

In particular, Bitcoin, as a means of value storage, has similar characteristics to gold, and investors mainly consider volatility when choosing. Therefore, it is usually the older people prefer gold, while the younger people prefer Bitcoin. The reason why young people prefer Bitcoin is largely because of its volatility. If you believe this is one of the key factors driving the value of Bitcoin.

On the other hand, if other macro assets become more volatile, the opportunity cost of holding Bitcoin will also rise because you need to compete with these non-traditional assets. The volatility of traditional assets has influenced institutional investors' interest in Bitcoin through ETFs. So I think Bitcoin is usually the best choice for risky trading, but timing is important, especially in terms of behavioral path dependencies for other assets. There is no doubt that with the volatility index and VIX index changing, many people are starting to focus on discounts on stocks, and they may find opportunities on the price of Tesla or Nvidia to sell bitcoin for arbitrage. I think these are the reasons for the market volatility over the past few months.

Haseeb ：

We have seen that the market has declined significantly over the past few days. If you count Thursday and Friday, which is the market trading day after the tariff announcement, you will find that the market has fallen by 4% to 5%. Then on Monday, oh, sorry, until Tuesday closed, the market fell another 2%. So overall, we're down nearly 16% to 17% from this year's market high. Depending on the different indexes you are concerned about, the situation can be worse. So far, Bitcoin has not really been a safe haven, and its trading performance is very close to other major indices.

Comparison between retail investors and institutional investors & Bitcoin’s sensitivity to interest rate changes

Haseeb ：

In fact, retail investors are buying in the stock market, while institutions are selling. Last Thursday and Friday were the biggest retail purchases in the past few decades, setting an astonishing record, JPMorgan Chase reported. Retail investors took the opportunity to buy on dips, and they believed that the market would rebound, so they seized this opportunity.

It is not known whether this situation also applies to the cryptocurrency market and whether cryptocurrencies are dominated by retail investors. While institutional investors are involved in the crypto space, retail investors are still the main holders, even in the complex environment of ETFs. So, considering that the cryptocurrency market is dominated by retail investors, is this why Bitcoin remains relatively strong? Would it be worse if Bitcoin was more of an institutional asset?

Jeff：

I think Bitcoin has always shown its characteristics as a leading indicator of global liquidity channels, and its trends usually reflect people's expectations of changes in global liquidity. Now, institutional capital may respond a little faster than retail capital two years ago, which is still an important factor at present.

One unique challenge for Bitcoin is its complexity to investor goals. I usually divide Bitcoin into two situations to discuss with institutional investors: positive rho bitcoin and negative rho bitcoin. Rho here indicates Bitcoin’s sensitivity to interest rate changes. Some people believe that Bitcoin will perform differently depending on the interest rate changes. Negative rho Bitcoin refers to the fact that falling interest rates are good for Bitcoin, as this leads to financial suppression and inflation, making Bitcoin a tool for store of value.

Bitcoin is regarded as a safe-haven asset when the world collapses and extreme deflation is under the circumstances of the collapse of the world. In this case, Bitcoin became an asset that people seek in the crisis. The situation in China yesterday is an example of such complex relationships. In response to what Trump has done, China has actually expanded the scope of its currency depreciation to allow the yuan to appreciate in a way that has not been allowed in history. Today, we see the yuan depreciating so quickly that it almost returned to its 2008 level. If you think about this effect, the actual depreciation of the RMB is a result of deflation, which usually reduces global prices, which is more likely to lead to deflation due to imports. This is a positive Bitcoin world, and it is not the situation they want for both the United States and China. They are actually increasing the intensity of this confrontation.

Another approach China could have taken is to drive consumption through a massive internal fiscal stimulus package, which is actually the version of inflation, which is actually the negative rho that frees the bitcoin valve China quantitative easing. Yesterday, the Bitcoin market experienced some volatility, which initially rose, but later realized the risk of deflation and the price fell back.

Overall, Bitcoin’s sensitivity to interest rates has been relatively unstable in the adoption of global markets. I believe we are currently in a negative Bitcoin environment where inflation and easing are generally expected to drive the value of Bitcoin. However, there is no doubt that when the situation becomes extremely chaotic, Bitcoin will rise as its ultimate store of value.

Haseeb ：

In the world of Bitcoin, there are two forces. This power may be more obvious when Bitcoin becomes a more mature asset. Bitcoin’s reaction sometimes appears unstable and difficult to predict. Sometimes it has no response to the macroeconomic shock, but it suddenly drops sharply over the weekend. Today we see it performing very close to the Nasdaq.

Altcoins and institutional investors’ interests

Haseeb ：

In the current market environment, altcoins have been hit harder. What do you think of the performance of altcoins in this environment? Now everyone has a lot of expectations for policy relaxation. In addition to tariffs, there may be significant tax cuts. In addition, the market expects the Fed to cut interest rates more frequently than previously expected. As far as I know, CME is currently expected to cut interest rates five times this year, and only predicted a few times before, or even once. How do you view these changes and how will they affect the altcoin market?

Jeff：

Altcoins are quite complex and face two major challenges.

First of all, other altcoins are very different in consensus mechanisms except Bitcoin, which requires more maintenance.Bitcoin is like a cold wallet you can put under a mattress, and usually there is no problem. The problem with altcoins is that if they are proof of stake tokens, investors must participate in the ecosystem to get benefits, which reduces the cost of investors. But if you are an institutional investor and cannot participate in this value accumulation mechanism, it is like missing out on a stock's special dividend because your stock holds a custodian that does not allow on-chain operations, not the kind that is allowed. In this case, investors will have natural resistance because they do not want to be in an unfair playing field. In the altcoin market, this unfair situation sometimes does exist.

The second factor is that many investors regard altcoins as a leveraged trading tool.They are excited about Bitcoin’s volatility and believe that altcoins can provide higher returns, higher leverage and greater volatility in capital efficiency.

But the fundamental change is that last December we had the Bitcoin ETF option. Through a regulated market, we can trade Bitcoin options, which provides a stimulus similar to speculation and protection. In this way, investors can trade leveraged more strategically without worrying about the risks brought by "insider" or "narration".

MicroStrategy: Alternative Investment in Traditional Finance

Haseeb ：

It sounds like you are saying that altcoins are attractive to institutional investors because they feel that Bitcoin is not stimulating enough to want higher risk investments. Altcoins are like a more gambling version of Bitcoin. Now, institutions can trade bitcoin options and ETF options through CME, which makes them more inclined to choose bitcoin options than altcoins.

Jeff：

This may be the reason for MicroStrategy's rise. In my opinion, MicroStrategy plays the role of altcoin in traditional finance, which is actually a combination of cryptocurrency and Bitcoin.

MicroStrategy is like an extra thrill. Its volatility is actually greater than Bitcoin. Bitcoin is now priced between $45,000 and $55,000, while MicroStrategy shares are around $100, sometimes even $200. Therefore, for liquid investors, MicroStrategy offers a more exciting investment experience than altcoins without risking those that don’t know much about it. In addition, MicroStrategy creates a leverage effect through financial engineering. They issue convertible bonds and preferred stocks of different structures, which provide investors with a variety of risk-favorable options. Just like choosing the risk of altcoin you want in a Bitcoin buffet.

I think MicroStrategy's success as the largest stock and option contract, and the 2x leverage MSTR ETF, shows that the financialization of Bitcoin has allowed traditional investors to see greater appeal through MicroStrategy, which to some extent reduces the attractiveness of altcoins.

Haseeb ：

I have a little bit of a hard time believing this story. While MicroStrategy's derivative structure may indeed be the case, in the ETF market, institutional investors acquire altcoins mainly through Ethereum, which has never exceeded $10 billion. Therefore, this is not a big market. Most altcoins are actually held by retail investors and are not really institutional asset classes. Therefore, any analysis explaining the current status of the altcoin market must start with retail investors. Retail investors are not the reason that dominates this market, and institutional investors may trade Bitcoin ETF options or leverage trading on MicroStrategy, but this is not the reason for the altcoin decline.

Jeff：

Yes, if you talk to most cryptocurrency traders and investors, they will say they are working to make their tokens generate profits. Even though Ethereum performed poorly against Bitcoin last year, this price difference is less obvious if we consider the additional benefits of using Ethereum for productive uses. If you restake with Ethereum and use the capabilities of Eigenlayer or EtherFi Rent to participate in these restake activities, the total return in the ETH market will not only reflect the price of Ethereum. This is the point I want to express. So if you are an institutional investor and you don't have access to Renzo and EtherFi.

Haseeb ：

If I could re-explain your point of view just now, global funds are now pouring into the US stock market. Although this is somewhat abnormal, because the United States is a relatively slow-growing country, it attracts global savings. We are trying to solve the problem of trade imbalance, hoping to change the direction of US dollar inflows, but we still need a market that investors are willing to take risks. This market may no longer be the US stock market, but the crypto market.

Jeff：

In this case, I think this is good for Bitcoin because at least at that time, we can start thinking about building strategic Bitcoin reserves, as the path to Bitcoin may require redefining the social contract of dollar hegemony.

Haseeb ：

Now we are clearly in an uncertain situation, no one knows how the tariff issue will develop, and the market is volatile as a result.

Geopolitical impact of tariffs

Tom：

Jeff, you wrote an article about "Place Agreement 2.0" about two months ago, mentioning the use of tariffs to adjust the U.S. dollar exchange rate and lower interest rates. We are going through a different version of this situation. Obviously, this situation existed ten years ago. Is the development now as you expected? What surprised you? How do you think we deviate from this path?

Jeff：

Since I shared my views on the long-term impact of tariffs on Bitcoin prices, I have become less certain about Trump’s ultimate goal.

In an ideal world, it is reasonable to develop a strategy similar to Square Agreement or Core Agreement 2.0. That is, the dollar does need to depreciate to improve the competitiveness of the United States, but you want foreign creditors to continue buying U.S. Treasuries and need to achieve this through some form of agreement. This must be achieved through a strategy rather than a non-divergent consensus. This is the ideal scenario.

The moment that made me lose confidence was when Trump began to blindly attack almost everyone, including Japan, an ally I think is the least worthy of touch. If there is a country that needs to be treated specifically, it is Japan, because they are currently the largest holders of U.S. Treasury bonds. You need to be sensitive to this. However, not only did Trump not show this sensitivity, he instead classified Japan and China as a group, saying that they are also currency manipulators. This shocked me because Japan manipulates currency usually for the benefit of the United States. So this lack of meticulous treatment of allies made me realize that the ultimate goal might be a higher level of protectionism, which I didn’t think would happen.

Robert：

I gradually formed the theory that it is not just about protectionism, but about creating conditions for the transformation of protectionism. There are many companies now considering that maybe we should relocalize some production activities because there is uncertainty and we hope to be closer to the market. Many people are actually pulling demand ahead of time. I know a lot of people are trying to deal with tariffs by buying cars, furniture and durable goods. I think the government does want to see the return of manufacturing jobs, and there is a lot of discussion and jokes about that, because we probably won’t make sweaters, socks and Nikes here.

I don't think in reality there are people who expect us to bring low-end manufacturing back to the United States. I think if there is any, it is just targeting some extremely specific industries, such as strategic industries such as semiconductors and chips.

Haseeb ：

But we do not impose tariffs on semiconductors, and it seems that the only part of this policy that might be geostrategically meaningful is excluded from the tariffs.

Robert：

We can't have such a big impact on the system, can you imagine if we impose tariffs on them? But I do think there is one aspect that is not discussed enough, and that is, I think it is not just a geostrategic factor in the trade itself. In fact, this is an attempt to shift the focus of manufacturing from China to a country closer to us.

Haseeb ：

We have been working hard to get people to build factories in Vietnam, Malaysia and Mexico, and we have higher tariffs on them than we do for China.

Robert：

But we will reach agreements with them and find friendly solutions with these countries. We may not reach such an agreement with China, and the rhetoric and escalation about China are very different. So, I think the ultimate state may be that we have significant tariffs on China and not on our allies. If you are a business based in China, the first thing you think of is that I need to relocate, go to Vietnam or Japan, or other countries that are more closely related to the United States.

Jeff：

I agree with you, Robert, that is in some way the path we as Americans must envision because it is the most effective and ideal result. At the same time, we cannot assume that the path to achieve this result has no negative impact.

For example, I think yesterday the White House conveyed that Japan would have priority access as a way to conduct tariff negotiations. I believe part of the reason is to give Japan a little compensation, because the United States offended them to some extent in order to give them a strategic advantage as an allies. So, they are playing these games. But in fact, just as Japan was annoyed and the United States did not give priority access, China actually announced that they were exploring tripartite trade relations with South Korea and Japan. The public statement shows that some kind of backstage conversation has happened, in a way that China can benefit from it, because China will not make such a statement easily.

These three countries are unlikely to cooperate in Asia because they are not friendly to each other. So you can't know if there is some kind of marginal transaction in the U.S. path dependence on action, which may ultimately have a negative impact on the U.S. power vacuum—and that's my biggest concern, fearing that these things may cause collateral damage, because we live in a multilateral world, and we should be cautious about it.

Haseeb ：

I think these tariff policies are very wrong and lack a coherent strategy. While we exempt semiconductors, which are considered the most important products in military and geopolitical terms, we have higher tariffs on many of our allies than on openly hostile countries. Russia and Belarus are the only countries that are excluded from the tariff list, which gives us a clear opportunity to engage in free trade with them. By becoming a very stable partner, China has taken advantage of this situation and increasingly promised free trade and gradually became a stable trading partner of more and more countries.

Global monetary system and the role of Bitcoin

Haseeb ：

I think Trump pays more attention to power in negotiations and political decisions than alliances and diplomacy. Sometimes, this strategy is tactical. But in peacetime, when the economy is in good shape, unemployment is at an all-time low, and the economy is growing rapidly, and we are on the brink of the technological revolution of artificial intelligence and cryptocurrency, it is not a good time to suddenly provoke disputes and turn everyone into enemies.

Jeff：

My concern is that there may be various alternatives if the world starts to reevaluate the role of the dollar and the US-dominated global financial system. One of the things we can discuss is the "Trinity" theory. The core idea of ​​this theory is that after the end of the Bretton Woods system, we face an impossible trinity, that is, only two can be chosen between open capital flows, independent central banks and floating exchange rates to build a monetary system. If you give up one, the other two have to be adjusted.

For example, the United States chose open capital flows and an independent Federal Reserve, so it needed to let the dollar float freely. China has adopted a different strategy. They do not open up capital flows and the People's Bank of China manages the exchange rate, so they can keep the exchange rate fixed. The euro zone chose open capital flows and floating exchange rates, but there were no independent central banks, and the policies of each country were summarized into a larger euro zone. Therefore, there are multiple ways to design the global monetary system, and people are now questioning whether there is a system that is more effective than the free floating model advocated by the United States.

Bitcoin’s performance in different economic environments

Haseeb ：

The possibility of an economic recession is high. If we enter a state of stagflation, that is, the situation where the recession and high inflation are present at the same time, this may be due to the impact of tariffs. How do you think Bitcoin will perform in this case?

Jeff：

I expect Bitcoin’s target price to reach $200,000 by the end of the year, and I still think there is a great chance of achieving this. Even in the case of stagflation, Bitcoin can still be the fastest growing asset and will perform well.

Haseeb ：

So you think Bitcoin will win in the speculative market. If it weren't stagflation, but the Federal Reserve cut interest rates sharply and implemented quantitative easing policies, the economy would regain vitality, but inflation would still be high. How do you think Bitcoin performs in that situation?

Jeff：

I think it will perform better. The direction of these things may change greatly, but in fact it is just a reflection of time. As a liquid asset, no one knows where these things will eventually go. It is a commodity.

I'm an option pricer who relies heavily on paths, so I'll evaluate the entire local volatility surface that requires us to recalibrate.

Haseeb ：

Assuming the tariffs are withdrawn and the court overturns them, Congress has no courage to reimpose the tariffs. So the whole tariff strategy ended like this. Do you think in that environment will Bitcoin be higher or lower, compared to tariffs that remain unchanged, we enter a world of stagflation and Fed expansion?

Jeff：

I think that is still a good result, still good for Bitcoin and maybe end up reaching 175,000.

Haseeb ：

So it would be worse if we withdraw tariffs, and it would be better if tariffs remain the same and the Fed expands, what do you think?

Robert：

I don't think it's possible. If we remove the tariffs, it will actually have little impact, just like going back two weeks ago, the only real change is the trust between the United States and its different trading partners. I do think this may continue to be a potential problem for the United States, but it may also benefit alternative economic structures and even be good news for Bitcoin. I think people may lose confidence in the U.S. Treasury bonds and the dollar.

Haseeb ：

Do you think it would be more beneficial to Bitcoin if the tariffs remain unchanged and the Fed continues to expand its policies? Or the other way around?

Robert：

I think it might be better if the tariff remains unchanged. Because the market usually only focuses on current changes, rather than the two-step changes in the future, the market operates based on what is happening in front of you.

Tom：

Even if the tariffs are completely removed, we go back two weeks ago and the dollar is still depreciating, which I think may be more favorable for Bitcoin. I've been thinking about the relationship between global liquidity and Bitcoin. Although we have discussed it many times, Bitcoin still seems to be a risky asset. I hope it becomes another alternative to gold, but that hasn't been achieved yet. Maybe it's time now, there's always the first time. If you look at the price trends over the past three or four years, you'll feel that this is the final qualitative change.

Haseeb ：

So, would it be better to withdraw tariffs? I'm not quite sure, as the unchanged tariffs could bring more pain and instability, which could push up the price of Bitcoin at the end of the year. I think this is a possibility of a cryptocurrency decoupling from the real economy, as the Fed and central banks around the world are doing real stimulus to try to save their economies from the shock, which will distort asset prices. I think this is likely to happen on Bitcoin, not on other tokens.

In that case, there may be a decoupling between Bitcoin and other tokens, and I am very uncertain about the outcome of both cases. I think this is very counter-intuitive because on any day, Bitcoin’s performance is not as expected, and other tokens are not as expected, and the correlation is breaking down. Sometimes Bitcoin is trading with gold, sometimes with Nasdaq, sometimes completely abandoning both and going their own way, and it is obvious that this asset is changing.

I think by 2025 or 2026 we will talk about Bitcoin in a very different way and we will have a different mental model. I guess by the end of this year we will have a different understanding of how cryptocurrencies perform in a huge macro imbalance.

Jeff：

I agree. The same is true for global liquidity. I think people will start to understand the leverage in these conversations more nuancedly. Because, Tom, as you said, one of the problems with global liquidity is that the depreciation of the dollar is actually good for global liquidity. But I'm not sure if the increase in global liquidity brought about by the depreciation of the dollar will drive Bitcoin's valuation.

Circle's IPO and its commercial feasibility

Haseeb ：

I want to talk about two stories related to the capital market, which are related to the overall context. The first is the news that Circle announced its IPO application. Circle plans to go public at a valuation of $4 billion to $5 billion. Obviously, Circle has been working hard to enter the open market, but has been hampered by Gensler and the former SEC, making it difficult for crypto companies to go public. Now they have finally gotten approval, but they announced a postponement due to tariff issues. Therefore, Circle withdrew the application. However, discussions on the feasibility of the company continue, and questions remain unresolved as to how the capital markets will view it and whether they can obtain the expected valuation.

What do you think of the prospects of Circle? How do you think it will be treated in the open market? Obviously, all IPOs are now suspended and all companies planning to go public are waiting for the market to stabilize. But putting this aside, how do you think of Circle as a business entering the public market?

Robert：

I don't think their financial data fully reflects USDC's growth over the past few months. USDC has been growing. Since they are a company that earns interest through stablecoin reserve floating, there is a certain lag effect. If a business continues to grow within a year, its revenue will not increase significantly immediately, which has an average effect. So I think they are in better financial situation than they initially seem, and despite their high costs, they are now making a lot higher than they were a year ago. If USDC supply is growing, this will have disproportionate benefits for them. I think this is underestimated.

Regarding the discussion on encryption on Twitter, I also noticed that Circle is a huge organization compared to Tether. People say Circle is only a small part of Tether’s size, but it has 40 times the size of Tether. This suggests that they may be able to allocate their HR more efficiently in the future. Executives are also paid very well. All of these suggest that operations may not be the most effective now, probably because they made more than 4% gains during the boom period without putting in much effort. Therefore, there may be "Good Time Syndrome". But if the economy continues to improve, their business will take off; if the situation goes bad, they will have to make some difficult decisions.

Haseeb ：

A core question about Circle is, how will the public market view the company? Will they see it as an asset management company, or a technology company? This will directly affect the valuation multiples they can obtain. Robert, how do you think the public market would look at Circle when it went public?

Robert：

I think it's an asset management company because every dollar they earn is pretty considerable, about 4% or more. They have to share some of the fees with Coinbase, but their yields are still high.

They earn huge fees in asset management behind stablecoins. So no matter what kind of additional features they launch for developers, these won't really change their revenue. The driving force behind their revenue and profits is how much USDC is issued and what the target interest rate is. This is the whole business.

Jeff：

This is indeed an asset management structure, but it may be a reverse asset management multiple. As an asset management company, it can be very profitable in a high interest rate environment, as you say, it is a long-term interest rate, and in fact most publicly traded companies like Blackstone benefit in a low interest rate environment. Therefore, it has a different relationship with the direct creation components of the asset management business, which can have far-reaching implications. I would even say that combining a Bitcoin portfolio with Circle as a hedge can be a useful tool.

But I would like to emphasize the revenue share with Coinbase, because the level of multiples depends on whether there is a defensible strategic moat. If the fee ratio as a distribution partner is so high, how strong is Circle's business model's defense? This made me wonder if this is really not a tech game, but more like a distribution game. If it is a distribution game, this will be very different from the way it applies to the multiple. Let's wait and see.

Haseeb ：

Tom, what do you think of Circle?

Tom：

I'd be a little restrained because I don't want to be seen as an opponent of Circle. I think their people are all very good and I really appreciate the contribution they have made to the industry. I just feel like, last year I half-jokingly tweeted that Tether could easily acquire Circle with just one quarter of profit. Frankly, the joke seems to have become less exaggerated over time. I think Tether has a better structure in terms of overall company operating costs. They can easily acquire the company. No one of them tried to interfere in Washington. And they can easily tear up the agreement with Coinbase, or simply turn off the product and convert it to USDT, and eventually form a better corporate structure.

As I look at their changes over the past year, their profit margins continue to shrink and their overall profitability is also declining. I really don't know what their strong prospects are. I think the technical story is cool, but it doesn't really come true. It looks more like an asset management company.

Haseeb ：

I must admit that I didn't take a closer look at Circle's S1 file, but I noticed some points. As interest rates start to rise, the overall stablecoin supply falls. This is understandable because when interest rates are zero, there is no opportunity cost for putting funds on the chain and businesses can make a profit. As interest rates fall, more funds should be attracted to the stablecoin market.So is this reverse force completely equal? I'm not sure, maybe not. Some changes are likely to happen when stablecoins are more regulated and considered safer than 2021 and 2022.

Second, it is obvious that Circle can charge high fees on issuance and redemption.If you have stablecoins that people use to pay for, then if Circle can gain an advantage in the context of the stablecoin bill and other regulations, get a license more easily, and win the favor of regulators, they may gain a big advantage over Tether in terms of regulation. So, can they monetize this advantage? It may be possible, especially when other companies are scrambling to work with stablecoins and integrate them into their domestic business. Therefore, in addition to banking, holding assets and liabilities, and collecting floating income, there are many stories to tell. I agree with you, the business does look more like this at the moment because the interest rates are high. As interest rates fall, they will find other ways to monetize the business. After all, it is basically a duopoly market between Circle and Tether. I think you might see the market being split into different areas, like you see in DeFi, USDC dominates the market. In emerging markets, Tether's use dominates.

If things go this way, then every stablecoin issuer can aggressively monetize within his own field without having to worry too much about price competition. Because if you are in DeFi, there are few other options. If you are in an emerging market, there are few other options. You have to use their tokens so they can charge more upstream and downstream. Take Tron as an example, the fees for Tron are historically very high. If you look at Tron’s blockchain fees now, most blockchains are currently very low because it is a downturn, and everyone is focusing on macro activities and the transaction volume is not large, but Tron’s fees are very high.

Why is Tron so expensive?Tron’s fees are not due to network congestion, but because validators voted to increase the fees. You can think of this as Justin Sun taking advantage of the opportunity that people have to use Tron. So Tron basically draws huge profits from all payment activities conducted on Tron. This is a great example for me, showing what happens when you have a monopoly on your payment infrastructure. So, can Tether and USDC find a way to create such a fee for themselves? I can't see why they can't do this when the core business model of Treasury is no longer so attractive.

Tom：

I think it's a story, and all the bonus capture stories are part of it. But I think the balance sheet tells a very different story, and that is how much proportion of USDC is on Coinbase. Therefore, it is not used as a payment infrastructure. So I think it's a good wish and I really hope this happens. I hope to see more duopoly in this market and have more competitors. But in reality, unless their efforts make Tether illegal, I really can't see that it will become a reality.

Jeff：

I think this is almost impossible because the strategic interest of the United States is to maintain the independence of the two entities. The privilege you mentioned actually reflects the value of the foreign country’s willingness to deposit funds in the US dollar and pay any price for it. Therefore, the United States can take a different approach when treating foreign fund holders and its own citizens, and this privilege itself is a premium that can be withdrawn. Therefore, philosophically, even if the United States wants to embody its superiority, it wants these two entities to remain independent. So if the two entities merge, it would be a bad result, as other companies may appear to try to compete with Tether, which would present a bigger challenge to the United States.

What is the significance of Ripple Labs' acquisition of Hidden Road

Haseeb ：

Today we learn about the biggest M&A deal in the history of the crypto industry, Ripple Labs acquired Hidden Road for $1.25 billion. Hidden Road is an institutional product provider that mainly serves institutional clients, which may be unfamiliar with most retail investors. As the second-largest major broker in the crypto industry, Hidden Road processes about $3 trillion in transactions a year and has more than 300 institutional clients. Usually in mergers and acquisitions, headline numbers are often a combination of multiple factors, or a complex structure linked to performance constitutes a large number. But the deal is undoubtedly significant and strategic for Ripple. First, they can use their balance sheet more effectively because they obviously have a lot of cash on hand; second, acquisitions help expand the market for their new stablecoin, RLUSD.

This merger and acquisition transaction is very interesting. We are actually investors in Hidden Road, so now we are also investors in Ripple Labs. Congratulations to us, the Hidden Road team performed well. This is an interesting moment for the industry as a whole, especially in the current macroeconomic context where the market is generally unstable, with assets in almost all crypto industries falling. This year is underperforming, but stablecoin growth, increasing institutional entry and the ETF ecosystem looks very strong.Therefore, I would like to ask everyone to share their views on this major transaction. Robert, what are your thoughts when you see this transaction message?

Robert：

I need to disclose that I am the CEO of Superstate and we are clients of Hidden Road. We use their transaction execution services, the team is excellent and the products are great. When I saw this news, I felt a little "ahha". There were rumors that Falcon X was considering acquiring them, and I could also imagine they would be acquired by Coinbase or other trading platforms. So it was a bit surprising to see Ripple become the acquirer. I think this makes sense for Ripple, which isn't quite expensive considering Hidden Road's market share. If that could increase the use of XRP Ledger, I think they could sell the story to the public and sell enough XRP to finance the entire deal. So, it was a clever decision for Ripple. I just didn't expect it would be the result.

Jeff：

I was also surprised, but not entirely surprised, because the trend of integration between crypto services and traditional financial services is very obvious, and providing multi-asset solutions may be a goal worth pursuing.

To my surprise, I have always regarded Hidden Road as a "deposit" for Citadel when considering the crypto market. I thought Citadel would find it a business worth taking on, especially with regulatory transparency, or they would continue to fund it as outsourcing, but would not want to step in directly.

This confirms my opinion: it is much easier for traditional companies to enter the crypto space to provide some ancillary services, and in turn it is relatively difficult. I noticed that Hidden Road is trying to expand into some areas that are not related to encryption. For example, they have crypto short-term transactions but also want to offer a complete multi-asset solution, wanting to be a fixed income clearing partner or market maker, which are things Citadel can do.

It reminds me of what’s happening right now, where companies like Goldman Sachs are trying to offer major brokerage services to compete with Falcon X. In fact, it is quite challenging for crypto companies to enter the traditional finance field, while it is relatively easy for traditional financial companies to enter the crypto field. This deal may reflect this trend.

Haseeb ：

Tom, what do you think?

Tom：

I was really surprised considering that this is a portfolio company, but that's good. As an investor in Ripple Labs, it’s really exciting.

Haseeb ：

I think for most listeners, the average person may not even know what a major broker is. So for many people, they hear "wow, the biggest M&A deal in the crypto industry", which is like a complicated thing, with only 300 customers using it. So, I think this is to some extent the growth of financial infrastructure in the crypto industry. To some extent, Hidden Road is also a response to FTX, as more and more institutional traders, especially after the FTX incident, do not want to face opponent risks. They want to have a neutral participant between them and the trading platform, which is the basic function of the major broker. So Hidden Road offers many other services to improve capital efficiency, but that’s one of the main stories. As you mentioned, they were spin-off from Citadel, a large hedge fund asset management company. Therefore, this is indeed the intersection and combination of traditional finance and crypto market structures.

The biggest story for me is that, besides Ripple sees the advantage of leveraging Hidden Road for distribution, Hidden Road still needs to remain neutral and will operate in an independent way in order to continue as a useful primary broker. This is also why Coinbase cannot really have a major broker, because Coinbase itself is a trading platform and is therefore not considered neutral. So, I think the biggest thing is that it proves that the crypto industry is maturing. Such real mergers and acquisitions, as well as the success of this company, are signs of the growth of the crypto industry, which is maturing. I think it's a good signal for the future market for everything in this field.

Now, it is very difficult to maintain a positive attitude due to what is happening around the world and how far the market is falling. But at least events like this, I think are positive highlights, showing that there are forward-looking reasons to be optimistic in this field. I think for long-term capital, there are a lot of people who see this and are willing to invest a lot in this. For me, this is an important gain: M&A is still happening, which is also a good sign.