Bitcoin’s “One-Two Punch” in Crypto Regulation, Clears Fog on Blockchain Outlook

at the crypto space. Bring Sam welcome in our nexst.ation an Joining us, Matthew Sheffield, the Chief investment officer over at Sharp Matthew, thank you for taking the time to be with us today. Now, as we look at crypto over last month, Bitcoin and ether both up. What do yo think is driving this move. And are you viewing thi rally as being different from crypto rallies that we've seen? Yeah, I think that this is a very different rally b it's off of a de-risking of the political side of things that I think was honestly a cloud looming over the industry. We saw clarity ultimately not pass in less than 24 hours later, we went on a pretty swift run higher. And I think that was largely because up until that point, anytime we had heard a whiff of doubt whether or not it would pass, the market was overreacting and thinking that that was kind of a death knell for the industry and ultimately, the rulemaking process that happened along the w The discourse added so much value that we immediately saw rules getting submitted 48 hours later to the white House. We saw innovations, exemptions happen. And I think that once people realize that the majority of the value already happened, that clarity wasn't this kind of point in time, super important event. We were able to move past what had been this narrative, kind of holding us back for a bit and start to actually reprice a bit of the, the momentum that we've actually started to see on chain actually realize. So is that alone enough to continue to propel things higher when you have the other added risk right now of obviously higher yields and, you know, a sort of tighter macro environment gen what the Fed's doing. So ultimately, there's always going to be a risk trade component to it. But what do think we see here is a really good setup for an industry that really goes with the consensus. You know, crypto is very difficult to trade with the rest of the population because the end of the day, it's still a very tightly retail traded market with a lot of momentum factors. And so we've seen thisrically about a year ago. This time we event. And that really caused crypto to enter into a six month period of just trying to get out from under the damage that had happened from that $19 billion that was lost on a single day, October 10th. And it really caused it to break fromundamentals of what we were seeing happening on chain. It also broke from general macro doil. And so I think we're seeing a repricing right now of playing a bit of catch up. And I think what we need to see continue is these fundamentals improve continue to see more and more large traditional institutions tokenizing their funds. There'st the large banks for crypto positions. Just today we saw Morgan Stanley announcing like a crypto innovation cente All these banks a year or two ago weren't even allowing you to either ETFs or hold spot crypto. And so there's been a very quick repri of w that future on chain look like. And the Tam is just so much larger than where we currently are. I think that there's a lot of room to go s. And it's got legs. And Matthew Cryptos had some very interesting reactions that of course been tg. And one of them that stuck out for me was the reaction to d rate hi I mean, we saw it sell off September hike, but the it reversed sharply. So what has changed sincet initial reaction to the rally that we're seeingow? And also how important is the ten year being around 5% north of 5% to the crypto outlook? So I thinkt it was actually a one two punch, because clarity waslso before the fed hike. And so the fed hike happen the nextn day, I think that there was just a general sentiment lem. Ann immediate knee jerk reaction to both events. And thenay after the fed hike, you actually started to see the rules getting submitted. Weaw the CFTCubmit rules to the white House. We saw an innovation exemption come from the SEC that will enable on chain trading of certain securities. Thesehings that ultimately we wanted to see from clarity. And at the end of the day, as long as the agencies are going to be accommodative ton chain finance growth story, we don't necessarily need that rulemaking to happe a single bill. And then when you go back to the macro side of things, it's, I think, the same trade as everything else. Like as long as the growth continues, I don't think the rates are necessarily going to be prohibitive. If anything, a lot of the value proposition for why we think the next trillions come on chain is capital efficiency and thale are leaving so much on the table. I mean, stablecoins as one of the prime cases that Wall Street is adopting right now, is all about Nim capture. And so the h rates are, more valuable those are for people to adopt, and the more valuable for you t have your float tied up in inefficient processes. So I think there's a lot of unity for crypto to seize the day here. At the end of the day, there's sti risk asset trade. We need risk to perform well. But I think crypto ultimately has fundamentals to capitalize on this environment better than most. So you've obviously got the regulatory aspect to all of this. You've obviously got macro. What about the geopolitics. I mean is some of the uncertainties we're seeing around, for instance the war in Iran.that fntally bullish for crypto assets or bearish. So I think that it very much depends on the inflation outlook So Bitcoin has historically done well as a store of value. But at the end of the day, as an emerging asset, when risk catches a bid, that's when you're going to see the swifte moves higher. And I think that because the market was so depressed after late last year from something that was secular to crypto, it has a bit more room to move n I think opposite macro, and you do see it outperf the last three months, one month it is materially outperforming and that is mostly the catch up trade. Now I think where we are right now is yes a terrible macro headlin A terrible geopolitical headline probably drags all risk assets lower. And crypto is not immune to that. But it still does have thistective layer around it,whia beach ball being held uner for the last year from this secular leverage decline that is just finally cleared out of t system and beginning to, I think, begin a healthyt back. And, Matthew, we've seen a major improvement in sentiment after what you called that one two punch that we saw in crypto. But as we know, crypto sentiment can turn very quickly. So what signals are you watching for toee if this ra losing momentum? So I'm definitely looking see if the on chain indicators of volume adoption growth continue. There's a lot of great opportunities to see more funds coming on chain. Ultimately, this is the metric that everyone is tracking to see. Is this growth story true? Is the future of finance really coming on chain? And so as I see more institutions tokenizing their funds, as I see more of these job opportunities tare currently posted for head of crypto at ex bank, head o tokenization at bank convert into actual tokenized products that are going bring capit efficiency on chain. That's going to be good if we ultimatelyee stablecoin volumes dropping off, stablecoin issuance, dropping off tokenized RWA volumes decreasing, then that's probably an indicator that, know, maybe the next wave isn't necessarily being adopted as quick as we thought, and peoplee accordingly. It really is a utilization metric, I think. And ca we talk about your strategy over at Sharp Link? I mean sort of the role th play in everything right now because you've made Ethereum accumulation a core part of your strategy here? I'm j wond what you're seeing as far as demand forereum and what you've seen largely been driven by. I mean,s this some short covering? Is this institutional demand that you're seeing? Yeah. So I think it's abination of both. Soin tht year since I've been here, we've seen institutional adoption grow materially for us. So, you know, when we initiated ourasury strategy about 15 months ago, I think Sharp Link was roughly 10% owned by institutional. And now it's about 58%. An that's coming a large part from like real money holders who maybe previously weren't will to take exposure to either the on chain ecosystem or digit assets. we'rt kind of institutional first foray. Ethereu is specificallywr bet on, because we think it's decentralized trust where like, ultimately it has the longest track record with security side of things. And as Wall Street is looking to te large exposures, security is the thing that is top of mind. And then you have the trustless onent of it. Like at the end of the day, you're betting on a global technology, trying to bring the world together to democratize on chain finance, to bring these fees down and ultimately make everything a lot more efficient. That can't really be guardrail by individual companies and actors. So sharp links thesis is Ethereum is a fantastic opportunity. Our goal is to build value on top of Ethereum, be a Ethereum denominated company, essentially no different than so else looking to make dollars on their investment in any other company and hoping that companye just decided to effectively denominate our treasury in Ethere because we think that in and of itself is a convex opportunity t And Mthew, you clearly think that this move in Ethereum and the institutional interest we're seeing for it as well is a durable tre So what would says argument is that it's simply following B higher? So what I would say is that Ethereum has actually been starting to break out and lead relative to Bitcoin. And I think that for the longest time there was a kind of Ethereum is the little brother of Bitcoin narrative, largely because people either understood crypto or they didn't. And they often traded together Bitcoin being the largest asset. But I think the fundamental difference between the two is Bitcoin a digital gold proxy. It's not an inherently productive asset. And Ethereum is like it's made productive by deploying it on chain. I made productive by securing the network. There's a native yield that you can generate from it. And that is a story that appeals much more to an investor base like traditional finance, where ultimately the cost of carry and the tailwind of being an investment matters. And so ultimately, you can Bitcoin in a safe and ten years from now have the exact same number of them. And if Bitcoin appreciates, that's fantastic. But I think there is a strong value proposition to being able to generate additional ETH on ETH returns b you're looking to generate a yield just like anything else, and it's a tailwind for the investmehe other benefit of that is that it brings more members into the community, because the staking that you are doing to generate additional Ethereum is a business activity. So Scharpling runs validators, revenue activity. There is no native productivity to necessarily at a corporate treasury for Bitcoin. And so it just creates a very different business model that isn't necessarily as compelling for a trying to bring that into an institutional context. Matthew, really appreciate you takin the time to be with us today. Matthe