July 23, 2025 • 26 mins
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Stablecoins represent a fascinating middle ground in the crypto universe - digital tokens backed by real dollars, designed to provide stability in the notoriously volatile cryptocurrency landscape. Steve Davenport and Clem Miller take you on a deep dive into this evolving ecosystem, examining the regulatory framework established by the recently passed Genius Act and what it means for companies like Circle that have gone public.
The conversation reveals the surprising vulnerabilities of stablecoin issuers, particularly their exposure to interest rate fluctuations. When Circle's stock soared from $45 to nearly $200 before retreating, investors weren't buying more backing assets - they were speculating on future revenue streams at multiples far exceeding traditional financial institutions. This creates a precarious situation where shareholder value could evaporate if interest rates decline, as regulations prevent these companies from hedging against such risks.
We explore the crucial distinction between investing in stablecoin companies versus holding the coins themselves, unpacking why shareholders have no claim to the underlying reserves that back the coins. The discussion extends to government involvement in cryptocurrency, raising important questions about the wisdom of establishing crypto reserves with taxpayer dollars. Are we legitimizing activities without fully understanding their implications? Should governments be speculating in digital assets? The answers aren't simple, but they're essential for anyone navigating this rapidly evolving financial landscape. Whether you're curious about crypto or actively investing, this episode provides clarity amidst the intentionally complex terminology that often surrounds digital currencies.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Steve Davenport (00:08):
Welcome everyone.
This is Steve Davenport andClem Miller here today to talk
about the ever-evolving week ofthe Genius Act and the Trump
administration's efforts to makecrypto mainstream.
The Trump administration'sefforts to make crypto
(00:29):
mainstream.
This week, we focused a lot onstablecoin and different ways to
allow stablecoin to be an assetthat could be used in many
transactions, particularlydollar denominated, and I think
it's an interesting step forwardto start with stable coin
versus Bitcoin, and there's alot going on in this space.
(00:51):
What do you think, clem, aboutwhat's happened this week and
what might be happening in thelegitimization of crypto?
Clem Miller (01:01):
So, first of all, there's basically three acts of
Congress that are in play rightnow.
Act one one is the genius act ,which has already been passed
by both houses .
(01:22):
Then you've got the so-calledClarity Act and then, third, you
have the Central Bank DigitalCurrency Anti-Surveillance Act,
which is still kind ofstruggling up there.
So let's focus first on theGenius Act.
(01:43):
So what the Genius Act does isit creates some rules around how
various companies can issueso-called stable coins.
So let's talk about what astable coin is.
I mean, essentially, a stablecoin is a crypto token whose
(02:08):
value is equal to that of the USdollar.
So, basically, it's a dollar,it's linked to the dollar.
It's like another currency, butit's linked to the dollar.
It's actually dollar for dollar.
And you might wonder well, whywouldn't you just want a dollar
(02:31):
rather than something that is arepresentation of a dollar?
And the answer to that is thatthere are lots of so-called
decentralized financeapplications that operate solely
within a token framework, andso they don't really use real
(02:55):
dollars.
They just use these tokens thatrepresent dollars.
So that's how that's used.
So that's that those are stablecoins and there were no rules.
I mean, there are no rulesaround crypto in general, but in
particular, there were no rulesaround stable coins, and there
(03:18):
is this perception out there.
Steve Davenport (03:20):
Clem who keeps track of whether it is actually
backed by the dollars, like whensomeone says this stable coin
has $60 billion in treasuriesbacking it up.
Is there some custodian whowill say, yes, that's the value,
or will report that to the newsmedia so that you can get your?
(03:43):
Or is it live in terms of itsvaluation, because it would seem
like people are adding andtaking out all the time?
Clem Miller (03:53):
Yes, well, that's that's true.
And there are auditors that arehired to to manage that by the,
by the stable coin companies,that by the stablecoin companies
(04:16):
, basically the second biggeststablecoin company just listed
on the market.
Its company is called Circleand it manages the so-called US
digital coin, or USDC, andCircle does have an auditor who
makes sure that there's enoughin cash and in short-term
(04:39):
treasuries to back that currencyone for one.
Now, that's a good thing, butit's also a bad thing.
And it's a bad thing becauseone of the limitations on
Circle's profitability is thefact that they do have to have
(05:00):
all of this short-term backingand they really can't do
interest rate hedging so thatyou know if you've got changes
in interest rates.
Those could work against Circleas a company, and so that's one
reason really not to, you know,not to hold Circle as an
investment.
If that's what you know you'rethinking about, which is, you
(05:22):
know, maybe you know what arethe investment opportunities
here.
There's a real risk of interestrates working against, working
against circle.
Uh, there's another problem too, steve, with circle, and that
is, um, that, uh, you know,circle, uh, you know, is the
technology that, that and theplatform that backs up the USDC.
(05:51):
But really the people who tradeUSDC trade it on Coinbase and
Robinhood and other kinds ofexchanges and other kinds of
exchanges and what happens isthat a good chunk, in fact the
(06:13):
majority of the revenues thatcome in from the trading of USDC
actually go to Coinbase andRobinhood and don't go on to
Circle.
So that's another limitation onCircle's profitability and
ability to grow going forwardand those things were One thing,
clem, if we could just stop forthat example of Circle.
Steve Davenport (06:37):
So I understand the idea that it's backed by
$60 billion and I understand itwent public, and it went public
at 45, 50, and then it raced upto almost 200.
And now it's pulled back fromthat.
So that would tell me if it'sgone from 45 to 200 and
(06:57):
originally it was 60 billion.
If there's no more than the $60billion, what are we really
getting for $200?
We're not getting four times asmuch crypto right or four times
as much stablecoin, because itstill has the $60 billion
original.
So what we're paying for is theinterest amount, is what you
(07:23):
own the stream of income comingfrom that $60 billion.
With Circle, you don't actuallyown something that's backed by
$240 billion or $300 billion.
They haven't gotten more stablecoin, they just have gotten a
higher multiple on the interestearned of the treasuries they
(07:46):
owned.
Clem Miller (07:47):
Is that how it works?
So let me just make sure weunderstand what happens.
You're not actually backed byeither USDC or by dollars
themselves.
I mean, this is not acollateralized stock.
(08:13):
The stock is just the flow.
What you're backed by is onlythe flow of potential
profitability going forward,just like with any other stock.
So there's no collateralizationof the shares that you're
buying.
There's only collateralizationof the token itself, and so
(08:35):
those who buy and sell the tokenitself USDC are, at least
conceptually, collateralized bythe reserves that are there.
But if you invest in Circle,you're just taking a chance on
whether that company is going tobe profitable in the future and
what the earnings stream is.
So two different things.
Steve Davenport (09:00):
So when I think about what I'm buying, if,
worst case scenario, circle wereto have some financial
liability come because of alawsuit or something, and it
would be put into bankruptcy,let's just say because interest
rates go back to zero and itdoesn't have much of a stream of
(09:24):
income and therefore we findsome reason that the corporation
will have to reorganize you asa shareholder would not be
allowed or contracted to receiveany of the underlying $60
(09:44):
billion of assets.
You are only really invested inhow the company manages the
income it receives from thosetreasuries.
And so if that income goes downbecause we have low, low
interest rates which I know wewould never do here in an
inflationary environment, butlet's just say that happened we
(10:07):
went back to zero.
If we went back to zero, thevalue of circle, which is
distributing that income, shouldalso start to approach zero.
Is that true?
Clem Miller (10:20):
That's exactly what would happen.
Is that true?
That would.
That's exactly what wouldhappen, and you know to the
point about where the collateralwould go.
The collateral would go to theholders of USDC, theoretically
at least, they would be the.
They would be the debt holders,in effect, right of of.
(10:41):
You know of Circle, in effect,right of Circle.
And so, in any bankruptcycircumstance, the debt holders
get paid out first and theshareholders can be left holding
the bag which, essentially,might have zero in it.
Steve Davenport (10:55):
So am I right to assume that there's quite a
bit of interest rate risk in theCircle company?
Clem Miller (11:03):
rate risk in the Circle Company?
Absolutely.
As I mentioned earlier, theGenius Act.
The so-called Genius Actactually says that they have to
hold short-term instruments orcash.
They can't hold long-terminstruments.
There's no ability here tohedge interest rate risk.
Steve Davenport (11:28):
It feels like if we know rates are going up,
they're going to be leveraged tomore right.
Clem Miller (11:35):
Sorry, what did you say?
Steve Davenport (11:42):
If we are going to have rates go higher and
they go from 4% to 6%, that's50% more income.
The only thing that happens isyour multiple as a circle
shareholder goes down becauseyou now have more income.
But the ratios that we'relooking at are 300 to 400 times
(12:10):
the income level for this shareof stock.
So if we were looking at it ascompared to a JP Morgan or a
Bank of America and otherholders of complex instruments,
(12:31):
they're trading at 15 to 16times their earnings.
So what's the advantage ofgetting a 300 times?
Because if more and more peoplekeep buying it, isn't it going
to be harder and harder for itto survive, especially if rates
stay the same or go down?
Clem Miller (12:42):
Absolutely.
I mean, it's much better to buya more established financial
institution and, on top of that,the established financial
institutions are looking atdoing their own in-house
currencies or crypto tokensin-house currencies or crypto
(13:06):
tokens to use with their clients.
So MasterCard is looking at it,paypal is looking at it.
Actually, paypal already hasone.
Mastercard is looking at it,visa is looking at it and some
of the banks I believe JP Morganitself is looking at some kind
of crypto token.
Steve Davenport (13:27):
So the reason we call it a crypto token versus
just any other kind of token isthat because it's set up with
being able to transfer andcompensate people on that crypto
platforms.
That's why it's being viewed.
It's a treasury-based, USdollar-based item that is able
(13:52):
to be used on the differentcrypto platforms, but it isn't
really a crypto in the sensethat its value is determined by
a formula or by some way ofsecuring the information
regarding the internal coin.
(14:12):
The value of the coin comesfrom something to do with the
interest on the dollars, so it'snot based on some formula and
similar to a Bitcoin.
Clem Miller (14:27):
Correct.
Bitcoin is based on analgorithm and these stable coins
are based on having reserves toback them, so, in a conceptual
sense, the stable coins areactually, in a sense, more real
(14:48):
than Bitcoin.
Is because of Bitcoin beingsupported only by an algorithm,
using stable coins as a means ofexchange and investing in the
companies that issue them, giventhe interest rate risks that we
were just discussing.
Steve.
Steve Davenport (15:10):
So, when I look at this, I do like stable coins
better than Bitcoins, based onthe being backed by treasuries
and dollar denominated assetsbeing backed by treasuries and
dollar-denominated assets, butit feels to me that we should be
buying the coins.
If we want to have a medium totransport, then we should be
(15:34):
buying the stock of the coinproducer.
Is that a fair statement?
Clem Miller (15:42):
Well, yeah, fair statement.
Well, I yeah.
If, uh, if indeed there was anability, uh, you know, a
sustained ability to makeprofits, uh, I would say, yeah,
maybe uh circle and and thoseother and you know tether, if it
becomes uh, if its companybecomes uh public, you know,
(16:03):
might be good opportunities, butright now this Genius Act
constrains them.
The Genius Act actually helpsto protect the banks.
It doesn't help to protect thestable coins.
Steve Davenport (16:17):
Now, when we talk about the future in this
space, is the government goingto?
I know they own some of thesecoins because of criminal
activity, where they've beenseized, and the government has
them in seized assets and theymight be distributed, but as for
(16:39):
now, they sit at the USTreasury.
Do you see us using or buyingmore stable coins versus dollars
in the US government, theTreasury, or how do you see
governments being able to usethis as, instead of buying gold,
(17:01):
they're buying stable coins?
Is that the way we should thinkabout it?
Clem Miller (17:06):
Well, now we're sort of on a slightly different
topic which there's beendiscussion, and in fact, there
have been some laws passed aboutwhether there should be a
crypto reserve or not, and myunderstanding of these laws is
that there's essentially tworeserves that have already been
created in the US.
(17:27):
One reserve is to basicallyformalize the holdings that have
been seized as a result ofcriminal activity, and the other
one is one that couldconceivably buy cryptocurrency
(17:48):
as being just a way oftransferring taxpayer money to
those who create these tokens.
So, in other words, it's almostlike a criminal venture, I
(18:15):
think, for the government toactually just sort of subsidize
and buy these assets.
Steve Davenport (18:20):
That may not have any.
It's legitimizing what is anactivity that we don't really
have a reason to understand thelegitimacy of.
Is that?
Clem Miller (18:28):
fair.
That is absolutely fair, and soI think it's.
You know, from a public policystandpoint.
Yeah, you got to do somethingabout crypto that has been
seized through criminal activity, but to actually buy crypto
from those who issue it and sendreal dollars to those people
(18:51):
who are issuing it, some of whomthemselves may be criminals or
quasi criminal, I think that's apublic policy mistake or
quasi-criminal.
Steve Davenport (19:03):
I think that's a public policy mistake.
But if the US government gets agood price I mean, if we
entered Bitcoin at 20,000 andnow we're at 120, then the
treasury made a good trade right, and so shouldn't we give them
the benefit of the doubt andhope they'll do another good
trade on the next few buys?
Or how do we determine thatTreasury is doing a really good
(19:24):
job of when to enter and when toexit some of these?
Do they have a model, you thinkat the Treasury, of how they
put the valuation on crypto andthat helps drive their decisions
about when to buy and when tosell?
Clem Miller (19:40):
that helps drive their decisions about when to
buy and when to sell.
Well, you know.
So, even though this capabilityexists, you know, as far as I
know, they haven't done anythingyet with this capability, and
so I'm not sure what kind ofmethodology they're using in
order to decide when to buy orwhen not to buy.
I do know that, with regard tothe holdings that have come
(20:01):
about through, you know, throughseizures, to buy, uh, I do know
that, with regard to theholdings that have come about
through uh, you know, throughseizures, through criminal
seizures uh, you know they get,they get the coins whenever they
see they get the price uh, thatexists whenever they seize them
, right, so they're not making a.
They're not making a decisionbased on price, they're making a
decision based on uh, right, onfighting crime, and so they're
(20:29):
not presumably they're going tosell them when the value rises
to a certain level.
So there's some decision that'sto be made about whether, if
they think a profit can be madein the future, they may sell it.
So there might be somemethodology with regard to
deciding when to sell the seizedcrypto, but in reality, the
(20:55):
idea is to try to sell seizedassets as quickly as possible,
and that's true whether it's aBitcoin or any other kind of
seized asset.
Steve Davenport (21:06):
So when they get cars, do they renovate them
and paint them before they sellthem, or do they sell them as is
?
It would seem like they wouldjust sell every asset as is.
Clem Miller (21:21):
I am pretty sure they sell them, as is all right.
I think they're not thegovernment.
The government doesn't flipassets.
The government, you know.
They seize them and then theysell them, as is when you, when
you uh encounter auctions ofgovernment seized property, uh,
it's always I.
(21:41):
I don't want to use the wordalways, because always is a
strong word, but I've only seenthem advertised as is.
Steve Davenport (21:51):
All right, I think we're going to ask for any
final comments and wrap up.
It feels to me like this is apath that we're going down, that
we don't fully understand allthe benefits and liabilities of
how we're going to do this.
So I thought the government wasstruggling to pay debt and
(22:14):
struggling to keep a balancedbudget and trying to keep the
debt levels down so that theywould be within the government's
debt ceiling.
But if we're buying assets thatwe don't have a real
methodology or valuation for, itfeels like we might be opening
(22:34):
up the proverbial can of worms.
How would you wrap up thistopic, clem?
Clem Miller (22:47):
of worms.
How would you wrap up thistopic, clem?
I would say that, regardless ofwhether you want to experiment
or not in using these cryptotokens, I would stay away from
this area in terms of stockinvesting, because right now, I
don't think it's uh, you knowit's an investable area for
stock, uh, stock investors.
So that would be my, that wouldbe my warning, that's always
(23:07):
been my, uh, my warning aboutthis.
You know people who, you knowpeople who put aside their own
money, uh into, uh, thesecompanies, uh, whether it be
through deposits, you know, likethe FTX circumstance or whatnot
are subjecting themselves topotential, uh, you know, um, you
(23:31):
know, fraud, uh, potentialtheft.
Uh, it's a, uh, it's a fairlydangerous area, and I would say
don't be, don't be, confused byall the terminology that's out
there.
There's a lot of terminologybeing thrown around.
Just realize that this is not,you know, this is not rocket
(23:52):
science, right?
This is not.
You know, nvidia, ok, this is.
This is stuff that'scomplicated and I think, to a
certain degree, the terminologyis meant to be confusing, and
that's exactly the kind of areawhere a reasoned investor should
(24:15):
be very skeptical and, ifyou're me, uh, avoid altogether
I mean, it feels like it's um,you're, you're doing something
that's basically speculationversus investing, if you don't
have a real system for this.
Steve Davenport (24:34):
so, thank you, listeners, we appreciate you and
and please share with othersand let us know if you have any
comments.
Again, we're going to haveguests coming up over the next
few weeks and we would love tocontinue the discussion.
(24:54):
Thanks, have a good day.
Welcome everyone.
This is Steve Davenport andClem Miller here today to talk
about the ever-evolving week ofthe Genius Act and the Trump
administration's efforts to makecrypto mainstream.
The Trump administration'sefforts to make crypto
(00:29):
mainstream.
This week, we focused a lot onstablecoin and different ways to
allow stablecoin to be an assetthat could be used in many
transactions, particularlydollar denominated, and I think
it's an interesting step forwardto start with stable coin
versus Bitcoin, and there's alot going on in this space.
(00:51):
What do you think, clem, aboutwhat's happened this week and
what might be happening in thelegitimization of crypto?
Clem Miller (01:01):
So, first of all, there's basically three acts of
Congress that are in play rightnow.
Act one one is the genius act ,which has already been passed
by both houses .
(01:22):
Then you've got the so-calledClarity Act and then, third, you
have the Central Bank DigitalCurrency Anti-Surveillance Act,
which is still kind ofstruggling up there.
So let's focus first on theGenius Act.
(01:43):
So what the Genius Act does isit creates some rules around how
various companies can issueso-called stable coins.
So let's talk about what astable coin is.
I mean, essentially, a stablecoin is a crypto token whose
(02:08):
value is equal to that of the USdollar.
So, basically, it's a dollar,it's linked to the dollar.
It's like another currency, butit's linked to the dollar.
It's actually dollar for dollar.
And you might wonder well, whywouldn't you just want a dollar
(02:31):
rather than something that is arepresentation of a dollar?
And the answer to that is thatthere are lots of so-called
decentralized financeapplications that operate solely
within a token framework, andso they don't really use real
(02:55):
dollars.
They just use these tokens thatrepresent dollars.
So that's how that's used.
So that's that those are stablecoins and there were no rules.
I mean, there are no rulesaround crypto in general, but in
particular, there were no rulesaround stable coins, and there
(03:18):
is this perception out there.
Steve Davenport (03:20):
Clem who keeps track of whether it is actually
backed by the dollars, like whensomeone says this stable coin
has $60 billion in treasuriesbacking it up.
Is there some custodian whowill say, yes, that's the value,
or will report that to the newsmedia so that you can get your?
(03:43):
Or is it live in terms of itsvaluation, because it would seem
like people are adding andtaking out all the time?
Clem Miller (03:53):
Yes, well, that's that's true.
And there are auditors that arehired to to manage that by the,
by the stable coin companies,that by the stablecoin companies
(04:16):
, basically the second biggeststablecoin company just listed
on the market.
Its company is called Circleand it manages the so-called US
digital coin, or USDC, andCircle does have an auditor who
makes sure that there's enoughin cash and in short-term
(04:39):
treasuries to back that currencyone for one.
Now, that's a good thing, butit's also a bad thing.
And it's a bad thing becauseone of the limitations on
Circle's profitability is thefact that they do have to have
(05:00):
all of this short-term backingand they really can't do
interest rate hedging so thatyou know if you've got changes
in interest rates.
Those could work against Circleas a company, and so that's one
reason really not to, you know,not to hold Circle as an
investment.
If that's what you know you'rethinking about, which is, you
(05:22):
know, maybe you know what arethe investment opportunities
here.
There's a real risk of interestrates working against, working
against circle.
Uh, there's another problem too, steve, with circle, and that
is, um, that, uh, you know,circle, uh, you know, is the
technology that, that and theplatform that backs up the USDC.
(05:51):
But really the people who tradeUSDC trade it on Coinbase and
Robinhood and other kinds ofexchanges and other kinds of
exchanges and what happens isthat a good chunk, in fact the
(06:13):
majority of the revenues thatcome in from the trading of USDC
actually go to Coinbase andRobinhood and don't go on to
Circle.
So that's another limitation onCircle's profitability and
ability to grow going forwardand those things were One thing,
clem, if we could just stop forthat example of Circle.
Steve Davenport (06:37):
So I understand the idea that it's backed by
$60 billion and I understand itwent public, and it went public
at 45, 50, and then it raced upto almost 200.
And now it's pulled back fromthat.
So that would tell me if it'sgone from 45 to 200 and
(06:57):
originally it was 60 billion.
If there's no more than the $60billion, what are we really
getting for $200?
We're not getting four times asmuch crypto right or four times
as much stablecoin, because itstill has the $60 billion
original.
So what we're paying for is theinterest amount, is what you
(07:23):
own the stream of income comingfrom that $60 billion.
With Circle, you don't actuallyown something that's backed by
$240 billion or $300 billion.
They haven't gotten more stablecoin, they just have gotten a
higher multiple on the interestearned of the treasuries they
(07:46):
owned.
Clem Miller (07:47):
Is that how it works?
So let me just make sure weunderstand what happens.
You're not actually backed byeither USDC or by dollars
themselves.
I mean, this is not acollateralized stock.
(08:13):
The stock is just the flow.
What you're backed by is onlythe flow of potential
profitability going forward,just like with any other stock.
So there's no collateralizationof the shares that you're
buying.
There's only collateralizationof the token itself, and so
(08:35):
those who buy and sell the tokenitself USDC are, at least
conceptually, collateralized bythe reserves that are there.
But if you invest in Circle,you're just taking a chance on
whether that company is going tobe profitable in the future and
what the earnings stream is.
So two different things.
Steve Davenport (09:00):
So when I think about what I'm buying, if,
worst case scenario, circle wereto have some financial
liability come because of alawsuit or something, and it
would be put into bankruptcy,let's just say because interest
rates go back to zero and itdoesn't have much of a stream of
(09:24):
income and therefore we findsome reason that the corporation
will have to reorganize you asa shareholder would not be
allowed or contracted to receiveany of the underlying $60
(09:44):
billion of assets.
You are only really invested inhow the company manages the
income it receives from thosetreasuries.
And so if that income goes downbecause we have low, low
interest rates which I know wewould never do here in an
inflationary environment, butlet's just say that happened we
(10:07):
went back to zero.
If we went back to zero, thevalue of circle, which is
distributing that income, shouldalso start to approach zero.
Is that true?
Clem Miller (10:20):
That's exactly what would happen.
Is that true?
That would.
That's exactly what wouldhappen, and you know to the
point about where the collateralwould go.
The collateral would go to theholders of USDC, theoretically
at least, they would be the.
They would be the debt holders,in effect, right of of.
(10:41):
You know of Circle, in effect,right of Circle.
And so, in any bankruptcycircumstance, the debt holders
get paid out first and theshareholders can be left holding
the bag which, essentially,might have zero in it.
Steve Davenport (10:55):
So am I right to assume that there's quite a
bit of interest rate risk in theCircle company?
Clem Miller (11:03):
rate risk in the Circle Company?
Absolutely.
As I mentioned earlier, theGenius Act.
The so-called Genius Actactually says that they have to
hold short-term instruments orcash.
They can't hold long-terminstruments.
There's no ability here tohedge interest rate risk.
Steve Davenport (11:28):
It feels like if we know rates are going up,
they're going to be leveraged tomore right.
Clem Miller (11:35):
Sorry, what did you say?
Steve Davenport (11:42):
If we are going to have rates go higher and
they go from 4% to 6%, that's50% more income.
The only thing that happens isyour multiple as a circle
shareholder goes down becauseyou now have more income.
But the ratios that we'relooking at are 300 to 400 times
(12:10):
the income level for this shareof stock.
So if we were looking at it ascompared to a JP Morgan or a
Bank of America and otherholders of complex instruments,
(12:31):
they're trading at 15 to 16times their earnings.
So what's the advantage ofgetting a 300 times?
Because if more and more peoplekeep buying it, isn't it going
to be harder and harder for itto survive, especially if rates
stay the same or go down?
Clem Miller (12:42):
Absolutely.
I mean, it's much better to buya more established financial
institution and, on top of that,the established financial
institutions are looking atdoing their own in-house
currencies or crypto tokensin-house currencies or crypto
(13:06):
tokens to use with their clients.
So MasterCard is looking at it,paypal is looking at it.
Actually, paypal already hasone.
Mastercard is looking at it,visa is looking at it and some
of the banks I believe JP Morganitself is looking at some kind
of crypto token.
Steve Davenport (13:27):
So the reason we call it a crypto token versus
just any other kind of token isthat because it's set up with
being able to transfer andcompensate people on that crypto
platforms.
That's why it's being viewed.
It's a treasury-based, USdollar-based item that is able
(13:52):
to be used on the differentcrypto platforms, but it isn't
really a crypto in the sensethat its value is determined by
a formula or by some way ofsecuring the information
regarding the internal coin.
(14:12):
The value of the coin comesfrom something to do with the
interest on the dollars, so it'snot based on some formula and
similar to a Bitcoin.
Clem Miller (14:27):
Correct.
Bitcoin is based on analgorithm and these stable coins
are based on having reserves toback them, so, in a conceptual
sense, the stable coins areactually, in a sense, more real
(14:48):
than Bitcoin.
Is because of Bitcoin beingsupported only by an algorithm,
using stable coins as a means ofexchange and investing in the
companies that issue them, giventhe interest rate risks that we
were just discussing.
Steve.
Steve Davenport (15:10):
So, when I look at this, I do like stable coins
better than Bitcoins, based onthe being backed by treasuries
and dollar denominated assetsbeing backed by treasuries and
dollar-denominated assets, butit feels to me that we should be
buying the coins.
If we want to have a medium totransport, then we should be
(15:34):
buying the stock of the coinproducer.
Is that a fair statement?
Clem Miller (15:42):
Well, yeah, fair statement.
Well, I yeah.
If, uh, if indeed there was anability, uh, you know, a
sustained ability to makeprofits, uh, I would say, yeah,
maybe uh circle and and thoseother and you know tether, if it
becomes uh, if its companybecomes uh public, you know,
(16:03):
might be good opportunities, butright now this Genius Act
constrains them.
The Genius Act actually helpsto protect the banks.
It doesn't help to protect thestable coins.
Steve Davenport (16:17):
Now, when we talk about the future in this
space, is the government goingto?
I know they own some of thesecoins because of criminal
activity, where they've beenseized, and the government has
them in seized assets and theymight be distributed, but as for
(16:39):
now, they sit at the USTreasury.
Do you see us using or buyingmore stable coins versus dollars
in the US government, theTreasury, or how do you see
governments being able to usethis as, instead of buying gold,
(17:01):
they're buying stable coins?
Is that the way we should thinkabout it?
Clem Miller (17:06):
Well, now we're sort of on a slightly different
topic which there's beendiscussion, and in fact, there
have been some laws passed aboutwhether there should be a
crypto reserve or not, and myunderstanding of these laws is
that there's essentially tworeserves that have already been
created in the US.
(17:27):
One reserve is to basicallyformalize the holdings that have
been seized as a result ofcriminal activity, and the other
one is one that couldconceivably buy cryptocurrency
(17:48):
as being just a way oftransferring taxpayer money to
those who create these tokens.
So, in other words, it's almostlike a criminal venture, I
(18:15):
think, for the government toactually just sort of subsidize
and buy these assets.
Steve Davenport (18:20):
That may not have any.
It's legitimizing what is anactivity that we don't really
have a reason to understand thelegitimacy of.
Is that?
Clem Miller (18:28):
fair.
That is absolutely fair, and soI think it's.
You know, from a public policystandpoint.
Yeah, you got to do somethingabout crypto that has been
seized through criminal activity, but to actually buy crypto
from those who issue it and sendreal dollars to those people
(18:51):
who are issuing it, some of whomthemselves may be criminals or
quasi criminal, I think that's apublic policy mistake or
quasi-criminal.
Steve Davenport (19:03):
I think that's a public policy mistake.
But if the US government gets agood price I mean, if we
entered Bitcoin at 20,000 andnow we're at 120, then the
treasury made a good trade right, and so shouldn't we give them
the benefit of the doubt andhope they'll do another good
trade on the next few buys?
Or how do we determine thatTreasury is doing a really good
(19:24):
job of when to enter and when toexit some of these?
Do they have a model, you thinkat the Treasury, of how they
put the valuation on crypto andthat helps drive their decisions
about when to buy and when tosell?
Clem Miller (19:40):
that helps drive their decisions about when to
buy and when to sell.
Well, you know.
So, even though this capabilityexists, you know, as far as I
know, they haven't done anythingyet with this capability, and
so I'm not sure what kind ofmethodology they're using in
order to decide when to buy orwhen not to buy.
I do know that, with regard tothe holdings that have come
(20:01):
about through, you know, throughseizures, to buy, uh, I do know
that, with regard to theholdings that have come about
through uh, you know, throughseizures, through criminal
seizures uh, you know they get,they get the coins whenever they
see they get the price uh, thatexists whenever they seize them
, right, so they're not making a.
They're not making a decisionbased on price, they're making a
decision based on uh, right, onfighting crime, and so they're
(20:29):
not presumably they're going tosell them when the value rises
to a certain level.
So there's some decision that'sto be made about whether, if
they think a profit can be madein the future, they may sell it.
So there might be somemethodology with regard to
deciding when to sell the seizedcrypto, but in reality, the
(20:55):
idea is to try to sell seizedassets as quickly as possible,
and that's true whether it's aBitcoin or any other kind of
seized asset.
Steve Davenport (21:06):
So when they get cars, do they renovate them
and paint them before they sellthem, or do they sell them as is
?
It would seem like they wouldjust sell every asset as is.
Clem Miller (21:21):
I am pretty sure they sell them, as is all right.
I think they're not thegovernment.
The government doesn't flipassets.
The government, you know.
They seize them and then theysell them, as is when you, when
you uh encounter auctions ofgovernment seized property, uh,
it's always I.
(21:41):
I don't want to use the wordalways, because always is a
strong word, but I've only seenthem advertised as is.
Steve Davenport (21:51):
All right, I think we're going to ask for any
final comments and wrap up.
It feels to me like this is apath that we're going down, that
we don't fully understand allthe benefits and liabilities of
how we're going to do this.
So I thought the government wasstruggling to pay debt and
(22:14):
struggling to keep a balancedbudget and trying to keep the
debt levels down so that theywould be within the government's
debt ceiling.
But if we're buying assets thatwe don't have a real
methodology or valuation for, itfeels like we might be opening
(22:34):
up the proverbial can of worms.
How would you wrap up thistopic, clem?
Clem Miller (22:47):
of worms.
How would you wrap up thistopic, clem?
I would say that, regardless ofwhether you want to experiment
or not in using these cryptotokens, I would stay away from
this area in terms of stockinvesting, because right now, I
don't think it's uh, you knowit's an investable area for
stock, uh, stock investors.
So that would be my, that wouldbe my warning, that's always
(23:07):
been my, uh, my warning aboutthis.
You know people who, you knowpeople who put aside their own
money, uh into, uh, thesecompanies, uh, whether it be
through deposits, you know, likethe FTX circumstance or whatnot
are subjecting themselves topotential, uh, you know, um, you
(23:31):
know, fraud, uh, potentialtheft.
Uh, it's a, uh, it's a fairlydangerous area, and I would say
don't be, don't be, confused byall the terminology that's out
there.
There's a lot of terminologybeing thrown around.
Just realize that this is not,you know, this is not rocket
(23:52):
science, right?
This is not.
You know, nvidia, ok, this is.
This is stuff that'scomplicated and I think, to a
certain degree, the terminologyis meant to be confusing, and
that's exactly the kind of areawhere a reasoned investor should
(24:15):
be very skeptical and, ifyou're me, uh, avoid altogether
I mean, it feels like it's um,you're, you're doing something
that's basically speculationversus investing, if you don't
have a real system for this.
Steve Davenport (24:34):
so, thank you, listeners, we appreciate you and
and please share with othersand let us know if you have any
comments.
Again, we're going to haveguests coming up over the next
few weeks and we would love tocontinue the discussion.
(24:54):
Thanks, have a good day.
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