Mike Cagney: Bitcoin’s stability rivals gold and silver, Tether’s shift to gold signals market confidence, and capital is rotating from crypto to precious metals | The Wolf Of All Streets

Key takeaways

• Bitcoin is being compared to gold and silver in terms of market behavior, indicating its potential as a stable asset.
• Tether’s investment in gold over fiat or treasury securities suggests a belief in gold’s superior returns.
• Gold’s valuation could be significantly higher if aligned with overall monetary aggregates.
• China’s preference for silver over gold is rooted in historical perspectives on monetary value.
• The silver to gold ratio is expected to decrease, indicating potential changes in market dynamics.
• Increased reserve requirements at the CME could boost silver market volatility.
• Rumors of silver scarcity due to Chinese export restrictions are unfounded.
• Capital is shifting from crypto to precious metals, impacting interest in digital assets.
• Trading volumes in precious metals are moving towards DeFi platforms, indicating a shift in market practices.
• The US regulatory environment is hindering the promise of tokenization and crypto growth.
• Institutional capital may eventually migrate to DeFi, recognizing blockchain’s benefits.
• A new equity capital market is emerging on blockchain, offering significant potential for financial transformation.

Guest intro

Mike Cagney is CEO of Figure Markets, a digital asset-focused subsidiary of Figure that operates a decentralized custody crypto exchange and launched Democratized Prime, a DeFi lending protocol connecting lenders and borrowers with on-chain assets like mortgages. He previously co-founded and served as CEO of SoFi, pioneering marketplace lending in student loans, mortgages, and personal loans. Cagney also co-founded Figure Technologies, the first company to originate consumer loans on the blockchain.

Bitcoin’s market behavior and comparisons

• “Bitcoin is showing signs of life and is being compared to gold and silver in terms of market behavior.” – Mike Cagney
• Bitcoin’s stability is likened to that of gold and silver, suggesting its potential as a long-term asset.
• “Well you know the title said bitcoin shows life and I looked down and here we are back at 89,000 so you know it’s it’s bitcoin is a stable coin…” – Mike Cagney
• The comparison to precious metals highlights Bitcoin’s evolving role in the financial landscape.
• Bitcoin’s market performance is drawing parallels with traditional safe-haven assets.
• This comparison underscores the growing perception of Bitcoin as a reliable store of value.
• “Every time people keep saying that silver is a speculative bubble and it’s gonna stop you look down at the price and it continues to march higher gold continues to march higher…” – Mike Cagney
• Bitcoin’s behavior in the market is increasingly resembling that of established commodities.
• The narrative around Bitcoin is shifting towards viewing it as a stable and mature asset.
• This insight reflects the broader acceptance of Bitcoin in traditional financial circles.

Tether’s investment strategy and implications

• “Tether’s decision to hold gold instead of fiat or treasury securities indicates a belief in gold’s superior marginal return.” – Mike Cagney
• Tether’s asset allocation reflects a strategic shift towards gold as a more reliable investment.
• “What they’re clearly saying Dave is that they think that you know the marginal return on gold is gonna be outperforming you know whatever tenor of treasury they decide to hold…” – Mike Cagney
• This decision highlights a growing confidence in gold’s long-term value.
• Tether’s strategy suggests a reevaluation of traditional asset classes in favor of commodities.
• The move to gold indicates a broader trend of seeking stability in uncertain economic times.
• Tether’s choice could influence other stablecoin issuers to reassess their asset holdings.
• This shift underscores the importance of diversification in asset management.
• Tether’s strategy may signal a broader market trend towards commodities over fiat currencies.
• The implications of this decision extend beyond Tether, potentially affecting the stablecoin market as a whole.

Gold and silver market dynamics

• “Gold could be valued significantly higher based on its relationship to overall monetary aggregates.” – Mike Cagney
• The potential for gold’s value to increase is tied to its alignment with monetary aggregates.
• “There are people who genuinely look at gold and say it should be equal to overall monetary aggregates which you know would make it worth 16 to 18,000 give or take.” – Mike Cagney
• China’s guidance to buy silver over gold reflects a strategic historical perspective.
• “China has been has had for a while now guidance to their citizens to buy silver not gold and China has always… historically… that’s considered silver money.” – Mike Cagney
• Silver is viewed as a long-term arbitrage opportunity in the market.
• “I’ve been much more bullish on silver than most of the most other professional traders that I talk to because I look at it as the ultimate stat arbitrage.” – Mike Cagney
• The silver to gold ratio is expected to decrease, indicating potential shifts in market dynamics.
• “I’ve said it’s gonna get down to the thirties… since you know silver got to it first hit 80 in the cme raised reserve reserve requirement.” – Mike Cagney
• Increased reserve requirements at the CME could boost silver market volatility.
• “That will actually increase volatility and likely be positive for the market because most of the buying of silver is coming from not the United States.” – Mike Cagney

Capital shifts and trading volumes

• “There is a significant capital rotation from crypto into precious metals like gold and silver.” – Mike Cagney
• The ongoing rally in gold and silver is affecting interest in Bitcoin and other crypto.
• “I think as long as these the gold and silver are rallying we’re gonna we’re gonna see you know decrease kind of like interest in in bitcoin and cryptos.” – Mike Cagney
• Trading volumes in precious metals are moving towards DeFi platforms.
• “I would guess that a lot of those volumes are moving to these defi platforms like hyperliquid with over $1,000,000,000 a day in volume happening.” – Mike Cagney
• Crypto tokens representing physical assets can be used as collateral for trading.
• “I can own a crypto token representing an ounce of gold and use that as collateral to transparently borrow cash to trade bitcoin.” – Mike Cagney
• The market for precious metals is expected to become more transparent with crypto platforms.
• “I think ultimately it’s gonna become more transparent of a market.” – Mike Cagney
• The shift in trading volumes indicates a changing landscape in asset management.
• The integration of DeFi platforms is revolutionizing trading practices for precious metals.
• The use of crypto tokens for collateralization enhances market transparency and efficiency.
• The ongoing trends suggest a significant transformation in how precious metals are traded.

Regulatory challenges and opportunities

• “The clarity act has a very low chance of passing soon, potentially only 5%.” – Mike Cagney
• The media portrayal of the clarity act’s passage is overly optimistic.
• “If you watch the media from Davos you would think that the clarity act was gonna pass this week… and the people who are actually there… are saying what you’re saying.” – Mike Cagney
• The SEC was caught off guard by language in the Senate bill that limits their regulatory powers.
• “She admitted that the the sec was surprised that there was language in the senate bill that would restrict their ability to to work and do exempted relief.” – Mike Cagney
• The current political climate makes it unlikely for meaningful agreements on crypto regulation.
• “The democrats and trump are not gonna come to an agreement on ethics clauses which no that’s difficult.” – Mike Cagney
• Bitcoin businesses are likely to receive exempted relief due to their simplicity.
• “You will get bitcoin businesses get exempted relief because bitcoin businesses are are simple which is better than under Gensler.” – Mike Cagney
• The promise of tokenization is being restrained in the US due to regulatory challenges.
• “The promise of tokenization is being restrained and everyone kinda knows that and so it’s at least in the US so it’s it’s not it’s not great.” – Mike Cagney
• If clarity on regulations doesn’t pass, the crypto industry faces a critical moment.
• “If clarity doesn’t pass it’s a critical moment for the crypto industry because we have to actually show massive mainstream and institutional adoption.” – Mike Cagney

The future of finance and DeFi integration

• “The trading volume in precious metals is shifting towards decentralized finance (DeFi) platforms.” – Mike Cagney
• The market for precious metals will become more transparent as trading shifts to crypto platforms.
• “I think ultimately it’s gonna become more transparent of a market.” – Mike Cagney
• The regulatory environment for crypto in the US is unlikely to improve significantly soon.
• “I just arrived in Dubai actually and we’re headed to Hong Kong next week… the business has moved offshore for the large volume traders and hedgers… I don’t see that shifting anytime soon.” – Mike Cagney
• US crypto products are struggling due to a lack of favorable regulatory conditions.
• “These US crypto products are gonna continue to be anemic… if you look at the volumes on coinbase’s onshore derivatives it’s tiny.” – Mike Cagney
• Foreign companies are now looking to establish a presence in the US due to perceived regulatory changes.
• “I will say one piece of anecdotal information is literally over the last week post Davos I’ve had three meaningful organizations reach out to crypto mondays… they want to start establishing presence.” – Mike Cagney
• Investment in the US is not a priority compared to international markets due to regulatory uncertainties.
• “We’re investing abroad I would say more than in the US just based on our viewpoint.” – Mike Cagney
• The overwhelming opinion is that while you can build applications in Bitcoin, many other use cases are currently impossible.
• “The overwhelming opinion is that’s out there is that you can build them in bitcoin and you can can work on some of the ui ux and some of the custody and the things that people care about bitcoin but that a lot of the other use cases are like impossible.” – Mike Cagney

Innovations in trading and asset management

• “US exchanges can offer leveraged trading through bespoke products, but these are not as effective as perpetual swaps.” – Mike Cagney
• “What they can do is let’s say you wanna buy bitcoin on leverage for an institution or an accredited investor in the US okx and similar exchanges will basically lend you tether to buy bitcoin or they’ll lend you bitcoin to short bitcoin… it’s not as effective as as a perk because they need to actually have the inventory and so it’s not as widespread.” – Mike Cagney
• The traditional asset world and crypto worlds are converging, allowing for innovations like margin settlement in stablecoins.
• “What I’ve been saying to to most people who who ask or or whatever is that the kind of traditional asset world and and crypto worlds are are coming together and what that means is now I can put up margin in tether on a weekend instead of waiting you know for the banks to open…” – Mike Cagney
• Cross margining is a critical factor for adoption in the financial markets.
• “The reason ftx got to be the biggest exchange at the time was because of cross margin cross margin is a very big deal anyone who’s ever been in a hedge fund to run money understand that the ability to cross margin across all these products is is a holy grail right.” – Mike Cagney
• The metals markets are likely to continue moving higher in the mid to long run.
• “I think the metals in the mid to longer run are gonna move higher here… I think any pullback is a is a buying opportunity.” – Mike Cagney
• We are in a commodity super cycle with significant inflows across the sector.
• “I think we are in a commodity super cycle… the whole commodity sector is is seeing massive inflows.” – Mike Cagney

Tokenization and real-world asset integration

• “Tether Gold is becoming an increasingly important player in the gold market.” – Mike Cagney
• “I think it’s clear that the tether gold is the number one and the most important player here and it’s going to continue to grow.” – Mike Cagney
• The physical demand for gold from Asia, particularly China and India, is a major driver of the current gold market rally.
• “The main part of course and that’s I think the main driver for this crazy rally is the physical demand out of china out of asia out of india.” – Mike Cagney
• The discussion of gold versus bitcoin is misguided as they complement each other.
• “I really think you wanna hold both and this whole discussion gold versus bitcoin makes absolutely no sense in my opinion… I think they complement each other wonderfully.” – Mike Cagney
• The focus on metals may shift back to bitcoin in the near future.
• “Right now the music is in the metals and I’m pretty sure down the road maybe already in a few months maybe in a year maybe in two three years the music will be also back in bitcoin.” – Mike Cagney
• The rise in gold prices raises the potential ceiling for bitcoin’s value.
• “What will… we will look back and say well it was one the other thing that’s obvious is gold being you know two and a half times higher raises the ceiling for where you think bitcoin could go to in the intermediate term by two and a half times.” – Mike Cagney

Blockchain’s role in financial transformation

• “The real world asset (RWA) market needs native digital assets to function effectively.” – Mike Cagney
• “You need to be able to create native digital assets and I think one of the challenges that the rwa space has had is you know there’s been a lot of what I would consider you know non blockchain.” – Mike Cagney
• Bitcoin has attributes that gold will never have, particularly in terms of trust and transparency.
• “There are things about bitcoin that gold will never have you will have to trust right you know there’s there’s lots of stuff plus the difference is that transparency matters.” – Mike Cagney
• Trust undermines the value of blockchain when dealing with non-native digital assets.
• “You know that that’s not a native digital asset you have to trust that office building exists you have to trust you actually have to do it once you introduce trust you start to undermine the real value of blockchain.” – Mike Cagney
• The company has originated approximately $23 billion in loans on-chain since 2018.
• “We started originating loans native on chain back in 2018… we’ve dialed that I think you know something like $23,000,000,000 of of loan origination on chain.” – Mike Cagney
• The company plans to expand its yield-generating activities on Ethereum.
• “We’re gonna do the same thing on on ethereum we’re gonna do you know obviously continue what we’re doing on provenance with with democratized prime.” – Mike Cagney
• Yield becomes more interesting to investors when Bitcoin is trading sideways.
• “When bitcoin’s trading sideways yield becomes a lot more interesting.” – Mike Cagney

Opportunities in DeFi and institutional capital

• “$400 billion in asset-backed commercial paper and $1.3 trillion in prime money market mutual funds could be better served in DeFi.” – Mike Cagney
• Institutional capital will eventually recognize the benefits of blockchain and migrate to DeFi, albeit initially requiring higher returns.
• “I think you know we’re gonna have to in the beginning probably pay an outsized return to get those dollars to come over but ultimately you know people realize the benefit of of the blockchain ecosystem.” – Mike Cagney
• The democratized prime model allows for unique cross-collateralization opportunities between different assets.
• “You can potentially borrow where you use figure stock bitcoin to buy figure loans you could use figure loans and figure stock to buy bitcoin.” – Mike Cagney
• We are originating upwards of a billion dollars in loans monthly.
• “We have a lot of collateral that we can bring over to support this and you know one of the one of the key things that we’re gonna be doing… we’re issuing figur stock native on blockchain.” – Mike Cagney
• We’re democratizing access to lending opportunities that were previously exclusive to major financial institutions.
• “We’re democratizing that access access so we’re basically leveling the playing field where you know what used to be the domain of the goldman’s and the morgan stanley’s of the world… to anybody who wants to contribute capital.” – Mike Cagney
• The yield from democratized prime is more straightforward and predictable compared to previous DeFi models.
• “The yield is is you know relatively straightforward in terms of how how it’s being generated… what we found… was people really resonated with the idea of understanding where the yield came from and having comfort in the predictability and sustainability of that yield.” – Mike Cagney

The emergence of new capital markets

• “DeFi is poised to leapfrog traditional brokerages by creating a new capital market structure.” – Mike Cagney
• “I think it’s gonna happen on a couple of dimensions… what we’re doing with our loans on chain is we’ve created… liquidity and now financing opportunity… we’re dropping equity native on blockchain so there is no dtcc registry.” – Mike Cagney
• The new equity offering on the blockchain eliminates the need for traditional intermediaries.
• “You show up with a wallet, you don’t need an introducing broker to attach you to that exchange… you can borrow against it and you can also lend it out.” – Mike Cagney
• A new equity capital market native to blockchain is emerging, which is more significant than merely tokenizing existing stocks.
• “This is actually you know a brand new equity capital market that’s native on blockchain that is absolutely extensible under the broader defi ecosystem.” – Mike Cagney
• The growth of new yielding assets on-chain is expected to accelerate, with an addition of $1 billion per month.
• “We’re adding into the ecosystem about 1,000,000,000 a month of new yielding assets and that’s accelerating and you know we expect that to continue to grow as we go through the course of the year.” – Mike Cagney
• Access to liquid real-world assets that generate yield is the future of finance.
• “Getting the access to real world assets getting yield from real world assets that are liquid that you can see through into the marketplace, you know that that is the future.” – Mike Cagney