The Bulls Are Back: Treasury Intervention, SEC Crypto Rules & Trump Says Hyperliquid

Transcript

Nothing said on Xerox Research is a recommendation to buy or sell securities or tokens. GM GM and welcome back to another episode of Xerx Research. Joined today by Mark and Nick from the Blockworks Research team after a huge week in markets. Um across the board we saw Treasury teasing up to trillion dollars in uh purchases of long duration treasury securities. Uh SEC came out with regulation crypto assets. Uh some new proposed rulemaking for capital formation in crypto. And Trump name dropped Hyperlquid at a um press

conference. across the board. We saw the biggest oneweek candle in Bitcoin's dollar value in its history and a lot of the longtail assets rallied 100% if not more alongside that. So certainly feels like one of the biggest oneweek sentiment shifts uh I've ever seen in crypto. Um a lot of things seem to have have set their low and vibes are back and spirits are high. So, I'm curious, Mark and Nick, how's how's the sentiment sentiment check on markets right now?

>> I'm feeling pretty good, pretty pretty euphoric at the moment. Um, which is a I think a hard position to be in, but looking at the assets that I really believe in and starting to build a watch list. >> Yeah, I mean, how could I not be happy after a week like this? Um, like you said, we've had like a bunch of catalyst and once and we're breaking records already. Um, you know, I've been slowly DCAing during this um this downturn. So, I think my only point of contention is that this this big move happened a bit sooner than I thought it would. I didn't get to fully allocate, but I am not complaining about that. Um, the higher the better. So, yeah, let's go. Perhaps we could stop start uh kind of top down and do our little macro larping uh with

what the Treasury has been doing or teasing over the past week where they came out and said we're first going to buy back maybe two billion in uh 30-year Treasury bonds. They upped that to 4 billion. And then yesterday you got your little leak. Sources say the Treasury is considering buying back up to a trillion uh in 30-year Treasury bonds. And if we take a look at what's been going on in the bond market, here's your 30-year Treasury yield, which in recent weeks it poked fresh highs.

And of course, bond prices and interest rates are inversely related. So, if you look at something like the TLT long bond ETF, uh this thing has been smoked almost trading like an altcoin in a bear. Uh basically down 50% from where it was back in the 2020 days. And what I think is pretty interesting about this is, you know, that the Treasury is a very large well- capitalized player. Um perhaps indefinitely capitalized in nominal terms.

And when they come in and say, you know, we're going to buy buy these securities, like how much does the market move um against them? How much would these yields come off and and bonds rise? And this point in time, it's it's not much. And what we've seen rally instead is Bitcoin and gold kind of running back the debasement trade. Um to me it's you know it's a very different financial mechanism than the bank term funding program back in uh the 2023 low but is very reminiscent of the same thing where whether it's the Fed or the Treasury

coming in with some form of easing uh that kind of set the low in in Bitcoin's price and you know its role as the debasement hedge kind of comes back into the spotlight. So curious, Mark, if you have any any thoughts on what's going on with uh with macro right now. >> Yeah, for sure. I mean, if we just pull up the um the yield curve, I think people are asking, is this regular treasury business or if this is, you know, the Treasury maybe doing its own version of yield curve control? And honestly, I probably think it's a bit of both. So you know if you look at the 10

years the 10 years is around 4 [snorts] 470 and the 30 is around 520 right so that's a 50 50 basis point spread in between the two of them and the 20 year you would think should be half between the 10 and the 30 so about 4.95 but the the the 20 year is um at at 520 as well so you know doesn't it make sense to you know buy back the 20 year and issue more 10 and 30s that will save the Treasury some money and you know on the margin reduce the deficit. So, you know, I think it's maybe good debt management, but I think more importantly, and why we've seen um a rally in risk assets and the basement trade is this is more like

the Treasury drawing a line in the sand, saying that it's really uncomfortable with rates going higher and you know, it's good debt management as well. So, they have a lot of covers from that. And when you actually look at it, the amount that they announced, okay, they're going from 2 billion to $5 billion. And so on on the other slide, there's like the history of Treasury buybacks. And you know, this is something that's always been going on. Um, you know, the Treasury has always done buybacks. This isn't unprecedented. And even the levels that they announced, so from next month, they're going to double buybacks from 2 billion to 4 billion. Even the levels that they announced aren't, you know, it's still less than previous levels.

And this chart here shows you, I mean, the two years is the big one. And a lot of those spikes there just from like tax and cash management stuff. But if you look look at the look at the orange, look at the red, it's, you know, you're seeing around you're seeing like previous years that 2 to4 billion is is not irregular. And then when we're talking about I think I think it was last week the US debt just hit 40 trillion. the so when we talk about you know doing 4 billion 2 billion we're talking about a drop in the bucket so I don't think and that's why I think that even though this has been announced that the yields are still high um but I think it's more the

signaling that they and especially that leak that you mentioned they are probably willing to do more to stop that the higher end the 30 rates from going even higher so I I think like that kind of quote unquote forward guidance is is what matters more than anything else? >> Yeah. So, do you read this as as stimulus or quantitative easing? And what does this have to do with our Bitcoin bags? >> It's a very that's a funny question, you know, cuz like it's not quantitative easing. We're not printing more money and you know it's you know but you know money is getting moved from from the treasuries balance sheet. It's being

repurposed. It's it's just moving around treasuries and cash, right? There's no extra you know treasuries being printed out of quote unquote thin air. But it it's you know it does seem to have some kind of effect on on on the what like Kiwi what Kiwi does for risk assets. And I don't know if you know maybe this was the intended effect. Um you know and a lot of the risk assets are rising. We're talking about crypto you know gold has also has also risen from a debasement trade. Um but it it hasn't actually you know a lot of sometimes the you know quantitative easing yield curve control it's interlin. This one actually hasn't really affected the 30-year yield. I

mean it I u I think it briefly came down and then the day after recovered by half and then now it's basically essentially completely gone. Um and then something that I I realized that I just that just came to my attention. Um I I put up this I put this chart on slide three showing that over the last 12 months more money has actually gone from from private foreign investors has actually gone into private companies than it has to in as in US corporate bonds than it has to treasuries. And if you look at where those corporate bond what who the actual issuers of the corporate bonds are a lot of it is surprise surprise AI you know

the mag 7 trying to raise funds to build their um to build their data centers. So to me it was like one this AI this AI trade it definitely it crowded out crypto a lot of that got a lot of the attention a lot of the speculation went across into the AI you know justifiably so I would argue and you know crypto is kind of like oh old news right and so it didn't do well for asset prices and then on the other side when we you have the the the yields the treasury rates comparable to the rates that you're getting with corporate bonds nor normally when when the Fed does anything to do with interest rates, they tend to crowd out other trades. They take the pace and

you know, you say don't fight the Fed. But now, it's almost like what we've seen recently in the past 12 months, it's these AI companies who are crowding out the Treasury bonds. And so, in a sense, AI hurt crypto by diverting attention and then it also hurt crypto by keeping interest rates high because a lot of a lot of the a lot of the investor interest went to these AI corporate bonds. I mean obviously inflation and tariffs and the other factors that have you know helped you know cause these higher these longer for higher rates but this is just another piece of the puzzle. So I think you know on that AI has actually hurt uh crypto more than most people think and then it's actually so big now it's I think it's playing a part in in yield rates as well.

>> Yeah a lot of interesting forces at play. So like as as the AI opportunity got so hot, uh the market at large, you could say selling the long end of the Treasury curve to instead buy US corporate bonds kind of lending to the data center build out. That's caused long to rise uh much much more so than the Treasury would like. Um now they're now they're kind of stepping in. They haven't bought any yet. Um, but they've guided to, you know, up up to a teased 1 trillion. Um, which should hit the tape in September. Uh, we'll see. We'll see how much of that clears. But at the end

of the day, like it's it's now the Treasury instead of the Fed that we're we're now Treasury watching. Um this is a form of forward guidance and um a form of not kiwi as we like to say by removing duration from the market. And at the end of the day like this is uh this is like a perfect catalyst for setting the Bitcoin floor and kind of reinvigorating the role and attention it plays um in a portfolio as a debasement hedge. And yeah, it's a it's a good point where over the past year like the AI trade in equities uh stole all the thunder, got all the flows. Um now

perhaps the forces at play are are working in the other direction um and passing the baton back to crypto. >> Yeah. I wonder if um with Kevin Walsh's let's just say pull back from forward guidance and I wonder if he um if he ever thought that the Treasury would be part of the free markets trying to impact um control on it. I mean obviously I'm being a bit facicious here but it's just something that you know it wasn't on my bingo card. >> Yeah. I mean, continuing to be facitious, I would say the uh the market for US Treasury paper and debt securities is the most manipulated market on Earth. Um and and that continues to to be in play when you have

these large indefinitely capitalized players in nominal terms willing to bid um or offer certain points of the curve to engineer it to where they'd like it to be. um we'll see how much how much the market is willing to be on their side or against them um at certain points in the curve and whether or not these flows actually can uh can control the shape of the curve longer out in time. Um that's that's kind of the wait and see game. I mean that gives us, you know, looking out over the next month, that gives us a lot to watch to see um how how much stimulus is needed to actually engineer the long end lower.

Uh perhaps more on the regulatory front. Um we just started kind of top down with the macro lararing. Uh perhaps more bottoms up. The SEC came out with some proposed rulemaking last week uh titled regulation crypto assets. Uh it basically offered like a pretty clear framework for um early stage capital formation with crypto tokens. Um, it kind of coincided with a lot of things such as the Treasury announcement and um and Trump named dropping Hyperlquid, but it seemed to be a very friendly and accommodating path for uh basically

token issuance, token offerings and ICOs to basically lay a compliant framework for how this industry can can form capital with those instruments. So I'm curious um Nick or Mark at a high level you walk us through kind of the the key exemptions and implications for ICO market. >> Yeah. So there they proposed two exemptions and then one sort of off-ramp path in the in the proposed documentation that we have today. There are quite a few requests for questions to be answered within there.

So, this isn't going to be the final state, but the TLDDR is that there are two exemptions. One is a 4-year $75 million fundraising uh exemption, and then I believe the other is a $5 million and sixmonth exemption. Um, and then yeah, so the startup exemption, the fundraising exemption, tier one and tier two, uh, $5 million over four years for that startup exemption, which I think is probably going to be the the least utilized portion of the framework.

Um, the fundraising exemptions, tier one and tier two. And I think that depending on the kind of project you're building, those tier one and tier two exemptions are likely going to be where the majority of new projects choose to file with the SEC. There is also the form TR um and I believe that's linked to the startup exemption, but that's sort of the the off-ramp path in the longer run. And we have been modeling a little bit of data on that. Mark and I released a report on this last week, but finding that there's probably going to be a large influx of projects filing that form TR in the short term, sort of as a a way to clear the backlog and then

going forward that'll be probably the the lower utilization path. But Mark, curious to get your thoughts. >> Yeah, I mean I I think it pretty you summarize pretty much what it is. is just you know these they're saying these things are still securities but even though they're security tied to an investment contract you can get an exemption from regular stuff you still have I think most importantly I think this is the big take away from it whether you're doing the 5 million startup whether you're raising the 20 or up to the 75 million you still need to put out disclosures and you know at at those higher levels not only disclosures but also financial statements and then at a certain level those financial

statements need to be audited And these are the I mean the SEC is about investor protection, right? These are the kind of things that we want to see. These this is what investors want to see. This is what research analysts like ourselves want to see. This is what research analysts in TRFI have. They have financial statements. They have disclosures from the from the issuers themselves to help to make better informed decisions, better capital allocation. And for this one, better capital formation. And it's particularly nice for block works end. you know, you know, not to toot our own horn, but you know, with our token transparency framework, this is literally something that we've been trying to push out to the industry for essentially a year now.

And it's great to see that you know it seems like there will actually be some you know regulation and legal enforcement behind it because for the token transparency framework which has been a success and I I think a lot of investors um and even retail have appreciated um being able to you know gain these kind of insights into the different you know market making deals or the token supply allocation or all of these different u metrics about one token in just one you know succinct place. Um I think that's really helped and you know now that there seems that there you know there will be more reason than just volunteering to have to submit these kind of disclosures. I think it's a win for the

entire industry as a whole >> 100%. Yeah. increase the disclosures, you can uh lower the uncertainty, lower the discount rate. And big picture like it seems very uh very friendly to the earliest stage of capital formation like that sub5 $5 million mark. Um I'm curious like how how burdensome really do you think it is for uh many many token projects to um fit fit these disclosure requirements or is it is it and should it just be table stakes to meet what's proposed in this rule making?

I think many issuers don't really have their reps in today with creating disclosures and so I think it's going to be a bit of a wakeup call as well as a process that begins to get formalized. But that said, I don't think any of the criteria that these disclosures are looking for are particularly intrusive. They may just require either digging back through, you know, 5 to 10 years of statements and contracts to get the required information or having to do some light data science work to calculate exact percentages. Um, but for the most part, I think that the majority of issuers should be totally capable of filing these exemptions at at any stage really given that they they have the documentation in front of them.

And I think that I'm looking at like the teams that are going to pursue these exemptions and trying to determine like who is the the issuer that cares. I think the majority of your top assets are going to care, but issuers that target and mainly operate in offshore jurisdictions, I'm not sure if this is going to be a path that they choose to pursue. >> Yeah. Um, and if somehow providing these disclosures is an exorbitant task for the issuer, then I probably don't want to be investing in their project if they can't even handle something as basic as this. Um, sorry to

say. Um Nick correct me if I'm wrong but the the startup exemption you know interestingly is everybody can apply for that but then when it comes to the actual fundraising ones the 20 million up to 75 million that has to be US-based companies and then for the the pathway to let's just say no longer tied to the investment contract no longer security status that's also just that one didn't have a you that wasn't US- based either. So, it seems like just the fundraising in the middle was US-based.

>> Yeah. Yeah, you're correct there. >> Um, and I I also think that the the term investment contract is probably worth defining here because my assumption coming into this before giving it my initial read was that an investment contract construed a project itself across multiple fundraising rounds. But in the SEC's uh definition here, the investment contract is really just what you promise to do from a given raise. So like a a unis swap v3 or unis swap v4 each construe their own investment contract. Um so I think you're going to see teams trying to raise more frequently as a result as well.

I think that's a big thing too because you know this isn't the language that they use wasn't too dissimilar from the you know the proposed clarity act and you know whether we get that or not remains to be seen. I think we have one more chance one more shuttered it this year in September but you know the clarity was kind of through its iterations it it it was kind of having this offramp path to some to we were calling it at the time like a decentralized um project a network token whatever the language is but for you know the SEC's new proposal it's not even really necessarily about decentralization maybe it's just one pillar you know of It it's it's not like it's the Nakamoto coefficient to how geographically

distributed you are. It was about and like you said the promises made on in the quote unquote investment contract. And so once those promises are fulfilled and it's you know by the definition of what the issuers set out it once it is considered to be fun sufficiently functional then it then it can have that offramp path and the the path towards it is like you said um filing this like it's a certificate the TR form and you don't actually need the SEC C to give you a tick box after you file this form. It's more like once you filed, you're considered to be

sufficiently functional, but then the SEC can retroactively, you know, take that away for you or say, you know, actually, we see that you haven't fulfilled your promises or whatever reason that they that they they might deem to pull that away from you. So, the the certification process seems like do you think that this could be a bottleneck, an issue for the SEC? And do you agree with the the the framing that they've used as sufficiently functional versus, you know, maybe going all the way and saying decentralized? >> I think in the in the context of an investment contract, the level of decentralization feels to an extent irrelevant, right? Like a look at a hyperlquid today. Have they fulfilled

their investment contract? Probably not. It's still under active development. Um, and their team is obviously still shipping on the protocol, but hyper a hyperlquid 10 20 years down the road from now is is probably not going to be sufficiently decentralized. But does that mean that it shouldn't be accessible within US markets? Probably not. I mean, I I don't think that the average uh the average investor today cares about the level of decentralization in projects where it it isn't um for building a global L1. Like maybe that matters, but I I don't think that the SEC should be opinionated on a level of decentralization because ultimately that's going to force poor design

choices in the majority of projects. On the point about clarity, uh, you know, odds have fallen to about 14% today. They rallied up to 28 over the past week, perhaps just tracking sentiment in the market. Um I think midepptember uh we're going to have a closure vote on clarity which is uh really just a a decision whether or not um the body wants to to move forward and continue pursuing implementing the the legislation. So, I'm I'm curious from your guys' read, how much does uh the SEC's regulation crypto assets kind of

address or implement what what Clarity would have or is is clarity still a needed piece of the puzzle um for crypto markets? I I'll say that the SEC is, you know, you know, cryptoreg is a lot narrower than people think. Um, clarity was very all-encompassing and I actually think that's why it's been so hard to pass because I think it was probably too too much to put into one bill. Um and then you know now if we look at why the odds are so low what are the biggest holdups? It's nothing to do

with market structure which is supposed to be the whole point of the bill. It's ethics. It's um it's money laundering and illicit finance. It's it's um developer protections which is half market structure half not. But I mean I think the two bigger ones are just weren't even in weren't even fully in scope when the clarity's first draft was written. Um, so is the SEC's new, you know, cryptoreg enough? No, it's not. I think we need more regulations. Is clarity. It doesn't necessarily need to be clarity, but you know, it needs to be some other bill. And I guess we'll see

what the what what the vote says about that next month. Um but then you know the CFTC has also come out and stated that they they are going to u put look to put regulations on crypto assets as well. Um the FAS the FASB has said something similar in terms of you know stable coins and cash revival loans. So I think the different you know threeletter agencies are stepping up now to fill this gap. Uh I you know people worry that all you know these rulemakings might flip if there was if there was to be a change of power you know in the next presidential election but I think I'm not I think it's more sticky than people think I think like after years of maybe people filling out

these these disclosure forms and requirements like do do you really see that flipping like having to undo years of work and good not I think objectively good investor protection consumer protections. I don't I don't see that just disappearing um just because an administration changes. But I still do think eventually that we will need actual regulations passed by Congress in the US. But you know for now I think the different three-letter agencies um you know imposing their own regulations is a sufficient stop gap. I just worry about ending up in a similar problem to years ago where there's maybe a fight between

the agencies over certain jurisdictions. They've said that, you know, they said they've they've made up and they're friends again now. But, you know, that that again, just like Clarity's scope went overboard and that was kind of more politics than it was like actual technical market structure. I think you know there's a there's a similar concern about that happening with these agencies as well. >> Yeah. So while while the regulation crypto assets proposal is like pretty pretty narrow and focused clarity is much more broad and all-encompassing um perhaps too broad to the point where uh it embeds hurdles to actually getting it over the finish line. Um on regulation crypto assets specifically, we have this

like 60-day comment period um before anything actually changes uh in in the enforcement or legislation and how that body operates. Um I'm curious who do you guys think are the biggest winners or beneficiaries of this sort of rule making? I think beyond the obvious which would be your US focused compliant issuers who have been preparing for this for a number of years it's it's likely onshore exchanges um there has been sort of this obviously this lack of clarity around which assets should be listed which shouldn't but

this is going to force exchanges to be compliant in the US um which is ultimately going to I think cause a reckoning in like your coin market cap coin gecko top 100. You're going to see some tokens get delisted from US markets. Hopefully, not very many of them but um you're going to see some tokens that choose to be compliant and be early receive an outsized share of exchange listings in the short term or an outside share of uh avoiding D-listings in the short term.

And as a result, your your exchanges end up being the ones that that benefit the most. Yeah, definitely. I mean, exchanges, anybody working in crypto, a lot of the longtail assets, even the majors like but you know, this is this is really beneficial for everybody. A tie that lifts all boats, so to speak. But you know drilling down a little bit you know paradoxically I think you know we've we've we've hated on Dows for so long but maybe Dows could become even more important as regulatory infrastructure because you know we've had this idea that you know you know it firstly DAO started off as very ideological and then it became a little bit technical a little bit cumbersome and you know now if if a if a if a project is going to

transition You know, I think a lot of the the projects that have these more functioning Dows in place that kind of facilitates that transition a lot more smoothly than than those team those projects that this team is driving basically 95 to 100% of of of all of the upgrades and the effort. There's there's not really any contributors from anything outside. I think it it becomes very hard it becomes more difficult then to justify that you know those essential managerial efforts have actually disappeared um and you know that it's not only that promises are to be fulfilled in the past the the regier also talks about no new promises right so the team can't say oh look we we only

have one promise we fulfilled it and now we're going to do this no I mean regier is very clear about some of these loopholes so I think like those those those DAO those protocols that have very mature Dows might actually be might finally have a benefit from it after all of this time. I I don't know what I mean but I don't know if you have any take on that. >> Yeah, I think it uh on the Dow point specifically like maybe we can look to that model as um a good way of running a worse business. Uh, but I think specifically within this regulatory context, it's it's um it's kind of back on the table for uh a viable path to

that critically decentralized threshold that you'd need to see on like who the winners are. Um, at large, I think it's the the American investing public. um with like the bar we need to hold these token issuers to like as we started out with uh capital formation's a a sacred process if you can't meet the common decencies of basic disclosures then perhaps you should not be forming capital um so to the extent like we can we can mandate that that critical threshold be hit by these issuers um and you can lower the discount and uncertainty uh through

disclosures and transparency. I think that's just a much better picture for the investing public. Um and we've kind of realized that already with uh depreciation over the past week and and pretty much everything. Um, perhaps going going deeper into the the trenches, we spent almost all of last week's podcast episode talking about Metadow um, and I think in light of regulation crypto assets like ICOs are coming back um, particularly at that sub 5 million threshold which is where a lot of metadata raises have ended up and

like in the era of um bike coding and um the ability for like a s single founder or small person team to um ship a product and build a business and then form capital around it like I expect that pipeline to only grow and accelerate. Uh so the opportunity for for metadow to facilitate capital formation for that sort of pipeline in a compliant manner um it it kind of just got that green light. So I would expect um I would expect that pipeline to continue to grow and like metadow if not

broadly the ICO landscape to to win from this. Unsure if you guys have thoughts on that. Okay. Can I play devil's advocate here? So so >> I definitely agree that ICOs are coming back and you know especially there's some hindrance to actually doing air drops as well because air drops might actually require you to apply for the exemption. So there's not really a loophole there either. um you know in in this era of vibe coding is that safe to launch these projects on Metadau um with these you know more and more vulnerabilities being found in is Metadau's position

solidified enough can I vibe code another Metadau can a bank or another crypto exchange with more distribution and more capital create a metad competitor or purchase one like coin based did with Echo. Um I I I'm definitely I definitely agree with the ICO sector and I I and I do think Metad will be a benefit. It's just that the past year has taught me distribution and capital matters a lot in the crypto space that more so maybe than first move advantage.

>> Yeah. So perhaps the moat may be maybe non-existent and instead it's a more incumbent platform with better distribution, broader installed base like perhaps Coinbase Echo um that I know you mentioned could win more of it. >> Yeah, I think the the permissionless ICO is maybe the part of disagree with here is I I think that ICOs are going to become more and more permissioned. They're absolutely going to come back. We're going to see an influx of ICOs occurring uh throughout the ecosystem, but there you're likely going to have to KYC at some point for the majority of ICO platforms. I think Metadow has built

probably the most successful permissionless ICO launchpad at least uh independent of any other ecosystem looking at like unis swap or air drromes launches but it's the landscape is going to evolve and I think the the founder archetype is going to evolve as well at least thinking about metadows ICOs where you're you're seeing obviously some DeFi products but many established businesses going live, but it's primarily going to be first-time founders. It's primarily the folks who either really care about ownership and like the Metadow structure or are choosing to raise in sort of a a differentiated model that they know the

market values. So I think Metadow's infrastructure itself like yes zero mode but the the platform that they've built, the community they've built and the the meta data of metad I guess is a good way to put it are are interesting and I think differentiated pretty widely from anything other than UMIA which is really just like a a similar future launchpad on the EVM. And then I wonder, you know, a lot of Metadaw's pros were that it was programmatic. The treasury was programmatic. It could be

refunded to investors. Certain things were bound by whatever the parameters said. But then in this age of disclosures where and financial statements and well audited financial statements where there is actually you know legal consequences to misleading investors to mismanaging money you you know you need to put you need to document all of these things the related persons the management any contractors like how how much do these I don't know I don't want to call them arbitrary but maybe let's just say for lack of a better with arbitrary preset parameters for those kind of functions actually matter or even versus hinder these protocols. Um, you know, so yeah,

Nick, maybe you and I should have been on last week's episode to to be to talk about the counter side. >> Yeah, I think about the average investor here. like would you would you rather go through like a a lengthy legal process in order to receive funds or would you prefer to have a programmatic treasury where you and the other holders can vote to liquidate the treasury? Like it if you can make this happen in a month instead of in a year, two years, it's it feels better. It saves everybody some time, money, and effort on that front.

>> Yeah, 100%. That's a good point. and then maybe can be copied as well. But yeah, >> good bare cases. Appreciate it. You guys also brought up an interesting point that um perhaps discussion on regulation crypto assets has missed which is specifically uh the language related to air. Um I know there's some some language in there. So, I'm curious what your guys's read is on implications for uh for the crypto users like is the airdrop farming days over. Can I expect another uh six seven figure uh distribution from a token issuer or um what is what does

that playbook look like going forward? >> Yeah, I mean I think I don't know if it changes how much it changes. I think that it's definitely going to lean more towards ICOs of airdrops. I mean, at the end of the day, these are US regulations and a lot of US people were throwing on VPNs anyway to kind of get away from the US laws from these airdrops in the first place. But I I think to kind of let me bring it back a bit because what the crux of it is that what the what reggg CA says was that if an airdrop requires any you know part like any specific or active participation or any subsequent action from the recipients after the protocol has already announced that they're

having an airdrop then you know that would actually constitute what I think an exchange of consideration So it's essentially you giving them you performing a task which is kind of like investing in the ICO and they giving you back the tokens which is the receipt of it and so it's still an investment contract and that has kind of been more implicit. You know points based farming you see your points go up on the right and I'm bronze I'm silver whatever it is right and you you know at the end of this you're going to be entitled to some of the token air drop.

If you think about it, that sounds like a contract to me. So I think it's only fair that it was included in in this in this regulation. And so the only airdrops that are going to be like actual free money are the ones that had no expectations from from from the participants to to do to perform any task to buy NFT to do any of that. And I don't know if I ever I don't know if I see those anymore. And then even if they are doing that, what would be the point of that? You're not you're not even like incentivizing growth in your ecosystem or or bootstrapping anything. So then why would you do that? And then secondly, if you do do that and the value of it ends up being more than the

5 million um then then we start to then you might have to have applied for the other exemption anyway. And so I mean and I think a lot of air drops end up being more than the five or even the 20. So yeah, I I I I just think it's a push away from the air drops. Um even if it's just for fear of you know you know regulatory uncertainty or you know or and lack of reason to even do it now that's my take. >> Mark under rega do you have an understanding on if issuers can offer different FDVS or different prices to investors within the same round? Like it it feels like the I've seen some ICOs where like the points you earn in the

app don't convert to an airdrop, but they convert to a discounted price on the ICO and that feels like a natural evolution here if it's possible under the new legislation. >> That's a good question. Maybe one for a lawyer. Um my to my head um you participate in these things, you get some kind of consideration and that consideration is a discount on the ICO. Still sounds like an investment contract to me. So, but again, I don't know. I'm not a lawyer. >> Mark is a CFA, but but he's uh he's not legal counsel, unfortunately.

Um, great. So, yeah, good thoughts on regulation crypto assets. Definitely excited to see um it implemented and perhaps any changes that come in with the comment period. Um, but that was kind of like Catalyst 2 on the week. Looking at Catalyst 3, uh Trump had a meeting with number of leaders in US tech and innovation sector specifically a number of leaders within the crypto industry uh such as Brian Armstrong, Vlad Tennv, Brad Garlinghouse, uh a number more and in this conference um basically made the claim that CFDC

chairman Mike Selig is working very hard to onshore uh the perpetual futures market including hyperlquid. So president of the United States name dropped hyperl on a conference. Uh so you kind of know Baron's kind of in his back ear whispering that the ticker is Hyperlquid and indeed was uh traded within excess of 30% higher to a new all-time high. And what this means is it's really like a step function increase in hyperlquid's total addressable market if you can get an onshore version of that and access to the US investor and institutional base.

Um so all this together kind of that green light for crypto assets, crypto industry. Um everything trading incredibly well. curious if you guys have any thoughts on uh on on Trump's name drop and and the opportunity for US perpetual futures in particular. >> I I don't have any data on this, but my assumption here is that the the average US retail investor is more and more exposed to per today. And I think that's been a ramp up over maybe the past three years that new products have been offering per to retail as well as sort of the existing per instruments

becoming more and more either accessible or like trendy on Tik Tok is probably the best way to put it. Um maybe besides the point here, but I my my implication the the implication that I see here is that if if Hyperlid is on short, obviously that's great for crypto. It's extremely bullish for Hyperlquid. It's bullish for other crypto perpetual products. But if I'm a SoFi, right, I'm working to become more and more retail focused. Like, why would I build my own per product when I could just layer Hyperlquid on top of my app?

And so, I think we're going to see a lot of that. Hyperlid's an extremely performant perpetual futures product market. it's got um if it has that regulatory exposure that it needs and it has the the proper exemptions that it needs with the CFTC, I think it's very very likely that we'll see Hyperlid become the go-to for integrating per into existing apps as well as the go-to crypto focused onchain per deck which I mean is the case today but I think that gap becomes wider and wider as uh Hyperlick will likely be the first venue to receive an exemption.

>> Yeah, I mean we we Shondaanda from Blockworks Research, we put out a a report last week on onsuring hyper liquid. Great piece. Recommend read it if you're a subscriber. Um you know, I do see that as not just the natural evolution for per just for, you know, the DeFi money for a lot of other apps as well. I think PES per's a little bit tricky. It sounds like a very casual term now. I the pathway proposed by the hyperlquid policy center to keep hyperlquid as a neutral layer and then have almost this permission layer on top of it. I think that makes the most sense to me especially I mean I don't fully understand the mechanics but but from what I understand I guess the the market

makers will share liquidity between the permission and the permissionless. I I don't know how that would work in practice, but that would be that would be a if that could work, that would be very strong for keeping obviously order depth um like size and volume um very rigid. Otherwise, if it's separate, then there's a lot of competition from the Coinbases and possibly the Robin Hoods and others of the world who can just have just offer their own perks products and have potentially greater volume and not have to have the hassle of connecting to another another neutral layer or whatever it is. You know, books are very easy. And then this I've I had this conversation a couple months ago and it's just been stuck in my mind and

it's a purpose actually futures and I I I was like of course they're futures they're future contracts right and then I there's then the I think the CME put out a lawsuit arguing that you know some of these per can actually be swaps because you know a future a futures contract has a future delivery date and you know a future price that you agree to but With PES, there's no expiration date. There's no delivery date, but there is an exchange for funding rate. And you know, the more I delve into the math, the more and more PES seem like swaps. And let me not again, let me not say PES as a catch all term. Um, like certain, you know, cuz like for instance, Ki's PES just got approved, but those are for like short

time frame Bitcoin markets, right? I think that's different, right? And I think you know maybe a bitcoin one um underlying is different from an equity underlying. So I think it's very different but I think depending on which of the two progresses faster between the onshoring of a per venue versus um getting to the bottom of whether or of what is a per versus a swap. I think that might affect the regulatory outcome here. >> Yeah. All taken together, I think if we we go back to this point a week ago or two weeks ago, the sentiment was kind of was beyond bleak and it was kind of what

is there to be bullish on? Uh there's no reasons to be bullish. I can't identify a catalyst. And I think from those points in time, it's like that when there's zero reasons to be bullish, there's only upside to the number of reasons you'll get to be bullish. And that's exactly what played out in uh in the past week with um pretty much like three huge catalysts hitting the tape. And you know looking at ETF flows um this is the biggest uptick we've seen in quite >> since October 10 10 weeks.

>> Yeah. So the there are large outflows in the the May and June period. Um interest has been pretty anemic throughout the summer. Um these vehicles are they're stacking hard again. Um likely likely setting the floor in AUM. Um additionally, we're seeing like digital asset treasury company MNAVs creep up back towards uh back towards one. If those flip positive, you might might see a lot of them start tapping the ATM again. um then that's more more bid from those large capitalized players. And I

think it's interesting is like Sailor was was sidelined for this huge weekly candle like he he was not in the books um driving positive flows for Bitcoin and in instead this rally happened without the support of his bid which I think is incredibly constructive. Um yeah, so zooming zooming back like digesting this whole week, uh what do you guys think the market's going to shape up like over perhaps into year end and and what are you looking for?

>> Uh it's just I mean for some time it's been my expectation that we end higher. Um and I think you know you put out a great piece a few weeks ago on bottom signals. um you know elaborating you know showing all of the different metrics pointing towards how the bottom is near and maybe nearer than even you thought um we had this massive short squeeze the biggest since so enter 21 and I think the difference with this one and the and the previous one in 2021 is as you've just highlighted in that chart the ETF flows um and you know I did like this Granger causality test between ETF flows and Bitcoin price and you know

just like with crypto markets is actually price that dictates what's going on. And so the more the price moves, the more the ETF flows um happen. And so while I I do think ETF flows can act like a flow a flaw but we put a lot of um I don't know we put a lot of weight on this institutional capital as though these institutions aren't just people themselves and also just don't foro in and I I think I think the difference you know the other short squeezes the one in 2021 and 2020 that were close to this one size I think those you know yeah thanks for putting up on screen I think I I think those didn't have um didn't have this kind of tailwind behind it. And the the ETF

flows are what I'm going to continue to watch to see whether whether this is sustained or not. And I and and so far it looks like it will be. And you know, it's just another green tick on a list of signals that shows me that we're going to end the year higher. >> Yeah, I I certainly agree on the on the long-term sentiment there. I do think that the blind euphoria that we've seen over the past week or so has been maybe a little bit early and I do expect some selloff as a result, but I don't I don't think we're nearing that today. We're recording on the the 25th and it it seems like the the market is still responding positively. So, yes, like longer term, 3 to six months, I feel really good about

where crypto is at. short term, I think everything's going to depend on a like retail sentiment and b what proposed regulation happens at the end of the 60-day comment window. And I'm I'm super excited to see any public comments that come out from larger players in the ecosystem and start to read through some of those critiques if they exist. And I think that'll be a great indicator of how the institutional capital in the space is feeling. Great thoughts. Yeah. So, we'll be tracking ETF flows, treasury company bid and MNAVs.

Um, but ultimately like the picture is very constructive right now going into year end. And I'd agree with you, Mark. I I expect uh I expect we close close the year above the current level. Um, going to my bottom signals chart, I was I was bullish, but I was honestly not this bullish. Um, I thought it was kind of be, you know, sideways chop into year end with kind of coin tossque upside to downside um into year end close, but we kind of already realized the bullcase move um before year end with kind of that 80k level. Um, so yeah, I wouldn't be surprised to see things just sideways

for a few weeks. Um, but ultimately I'd just be looking for a higher low in a high time frame uptrend before much higher prices throughout 2027 and 2028. Um, beyond just green on screen, I'm also incredibly excited for D Asia and D London. Uh, D Asia coming out in October. Uh we'll get Jeff Yan um of Hyperlid uh speaking at the conference. Hopefully pair him up with Shondaanda, which would be an unreal uh dream team.

And then I'll also be attending D London in uh in Mark's neck of the woods. Um been to a few DS New York City, but not D London yet. So great excuse to get across the pond. And um I think like the the discussions around the most important things driving this market higher that you'll have the highest quality discussions on those things at at these conferences. So that's what I'm looking forward to with that lads. Uh yeah, want to thank you for your time and great thoughts and thanks to our listeners for tuning in.

Uh future is bright and um it's a good time to be bullish. 100%. Thanks for having me. >> Likewise. Yeah, thanks for having me. Feeling pretty euphoric. [snorts] >> Nothing said on Xerox Research is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Luke and our guests may hold positions in the companies, funds, or projects discussed.