Welcome to Galaxy Brains, an infinite amount of cash. I'm your host Alex Thor, head of firmwide research at Galaxy. Today we have Arjun Sethi, general partner at Tribe Capital and co-CEO of Kraken. We'll talk about what they're seeing in the market, the new regulatory regime, and the future of crypto. We'll also check with Bimet Abibe from Galaxy trading about markets and tariffs. Please refer to the disclaimer in the notes. Let's go now to our friend Bimet Abibe. Bimet, welcome to Galaxy Brains, what's going on?
Thanks for having me. I'm sorry, it's an exciting time. Today is Liberation Day according to the president. He'll announce reciprocal tariffs. I think the level of uncertainty after today will remain high. There's a debate on implementation. You get a relief rally but it will be short-lived because the market will focus on responses and deteriorating sentiment. Goldman upped their recession probability to 35%. The Fed downgraded growth. Consumer sentiment is bad. Canadian flights to the US are down 70%. There's a robust set of factors weighing on the US economy.
You're saying there are a lot of other things that raise questions here.
Corporate America is very good at estimating outlooks, and the message has not been good. Walmart, Lululemon, Nike—people are buying secondhand. The sentiment shift leads to behavior changes. In classic economics, substitute goods. If you can't get a Coke, you go to Pepsi. So these dynamics are happening. That's really the core theme of 2025.
Interesting, well that's a lot to think about. I was at the Cherry Blossom Summit in Washington. Treasury Secretary Scott Bessent was there. He joked about the market and doubled down on micro moves. I wonder how much leeway they have while they try to do this detox.
I think they have a lot more capacity for pain. The S&P was up 20% last year. People owning assets are sitting on 3% mortgages. This is the wealthiest country. They can stomach the pain. I worry about Bessent's focus on cutting the deficit. Tax receipts are falling short. If he wants to cut spending by 300 billion and tax receipts are 300 billion lower, that's 600 billion of cutting needed. It's going to be more painful than people think.
That's a key takeaway. It doesn't mean things go a lot lower, but it makes you wonder whether you should be buying risk assets.
Correct. They're not yet anywhere close to saying tariffs have worked. They still have a lot more to do. It takes years to build a factory. They are trying to do the right thing—cutting spending, making the US more resilient. But to accomplish those goals, you need to exert some pain on the market. No way around it.
Well all right, we'll keep watching my friend Bimet Abibe from Galaxy trading. Thank you so much.
Let's go now to our guest Arjun Sethi, co-CEO of Kraken and chairman at Tribe Capital. Arjun, thank you for coming on. It has been a fascinating year. Tell me about Kraken at a high level and you joining as co-CEO.
Sure. The best way to think about Kraken is that it was started by two co-founders, Jesse and ton, who were very capital efficient and built the company with security first, coming out of the Mt. Gox incident. They built a fair order book and liquidity for everyone. The company raised less than $25 million and used profits to build more products. Today we have a dozen partners using our API, we have deep liquidity in Europe and the US, and we cater to professional traders in over 180 geographies. A professional trader thinks the same no matter where they are, which is different from a consumer. We sit with a core constituent that really matters.
Yeah, I think it's... you've been around a long time. I wanted to ask about the L2 you're launching, called the Ink Foundation. How does that interplay? Is it like Coinbase's Base? Is it a tokenization play? What's the idea?
Taking a step back, the promise of DeFi is access to a future that's not evenly distributed. We're trying to bridge the gap between traditional finance and crypto. We built a centralized exchange, but we want to build our own applications on top of the L2 to help bridge what our customers need. We want a developer ecosystem akin to Android and Apple. We can partner with them and continue to have shots on goal because this market is so early. We're talking about bringing billions of people into DeFi products, but we shouldn't have to use the word DeFi. We're just using protocols to bring best-in-class products to anyone worldwide.
Yeah, I think it makes a lot of sense. One of the other products you were early with was staking for exchange users. You encountered an onslaught from the prior SEC. Can you contrast that experience to what you're seeing now in Washington?
On my history, I was an early shareholder, independent board member, and Tribe Capital has invested significantly. We went through two versions of the SEC—one neutral, one enforcement-oriented. The most important thing was to serve our clients, secure our clients, and help them grow. We were compliant and best in class, licensed in almost all regions. The US was trying to figure out what crypto was. Technology has always been a protagonist. Crypto is a massive paradigm shift. Traditional banks fear it because it bypasses them. The Elizabeth Warrens of the world weaponize that. But the future is already here, just not evenly distributed. Now there's a recognition that this is good for consumer protection and investor protection. We can use the technology to enable the rules of the road.
Yeah, I think that makes sense. I've been a close watcher of Hester Peirce. She published two statements this year cataloging the mess left by the prior SEC. Have you and your policy folks been loving this moment of working with the government to define the future of digital assets? Does it feel like we're on the precipice of grand adoption?
Look, I think the job of the US government is to get out of the way of people's lives and businesses. That's why my parents came here. I think it's dangerous to say the government can work with us now—we should always talk to them, but their base goal is to make sure a company like Kraken, based and regulated in the US, can build best products and build trust as a currency worldwide. We want a base set of rules we can adhere to and grow with. I'm more excited about Washington setting up the base set of rules, including stablecoin legislation and market structure bill, because it enables us to build best-in-class products. We should be talking about what products customers want to use. The last administration was about defending; this one, I hope, is about enabling us to walk freely.
Yeah, I mean one of the points you make I think is very well taken: we don't want this pendulum to swing back and forth forever. If we let's say we get...
Some regulatory relief, but we don't get something more durable like federal law. Then someone who hates crypto or Bitcoin could come in the next administration and change everything back. So I think this is a huge impetus behind these legislations. The stablecoin legislation, whether it's the GENIUS Act or the STABLE Act in the House, and then this idea of market structure, who should regulate, and trying to encode and make permanent that distinction in federal law. These are things people are working on in Washington. I think the stablecoin bill in the Senate is quite far along. It hasn't had a floor vote yet, but it came out of committee with five Democrats joining all the Republicans to vote for it. Do you guys have a view on these bills in particular, or generally speaking, is that a big priority for Kraken to get that type of codified clarity?
We do, and we're supportive of first and foremost a level playing field. We want to make sure that as an exchange, we have the ability to work with one regulator. I think the dual structure mandate that we've seen post-Dodd-Frank doesn't work. I think the way it's been thought about now probably won't work, and I think people are coming to the same conclusion. So we're excited about everyone rowing in the same direction, which is the market structure bill and the stablecoin bill. There are two to three pieces in there that are really important. One is how do you make sure that clients believe their assets can be custodied safely and they can move their money, so liquidity ends up being a really big part of that. Also, this is a network effect business in some cases. You're going to want to use a stablecoin that's most likely USD-denominated, and you don't want to have to think about volatility, just like you don't think about your cash. That's really important because that's what makes the market stable, and for you to be able to build best-in-class products. So we're pretty neutral there. We are not an issuer, we don't have any specific deal where we're taking the majority of the economics of another stablecoin. For us, it's may the best stablecoin win on behalf of the customer, to make sure we can make the best products in their local region. That's the way we think about it and that's what we've promoted.
Do you buy this idea that stablecoins can be this giant tool? If widely adopted, if codified in law, if banks can issue them, which is effectively the GENIUS Act's sort of thrust in the Senate. Do you buy it that it can create decades more of dollar dominance, that it can be super supportive for the national debt because they have to hold Treasuries? Even Secretary Treasury Scott Bessent has said almost explicitly that one of the ways we will solidify the dollar is through stablecoins. Is that an interesting part of this to you, or is it more just about onchain usage?
It's pretty synonymous. What's important is that from a US perspective, it's really important to create stability in the markets. We do this through so many different mechanisms, from market to military. The stablecoin ends up being part of a national security conversation as well as a market stability conversation. So you take those two pieces together and say, how do we make sure we can enable that? Having the companies and issuers in alignment with making sure they're buying and focusing on US Treasuries is priority number one. I would 100% agree that should be the case. Now the question ends up being how do you start thinking about the friction between one stablecoin and another for another region and the local currencies and how they interact. These are all pieces that are not complicated, but you have to think about traditional finance and traditional markets and how customers interact there. I go back to the same thing: there's a large set of products we want to help enable in emerging markets, emerged markets, and continuing developing markets. When I say developing markets, I think of us as a developing market, not like we're finished. So what are the products we need? We need market stability, stablecoins, and the ability to trust that this system works so we can continue to enable it. It's great for the US because the more you enable innovation, especially around stablecoins, and have anyone, when they think about customer segmentation from Fidelity to Tether to Circle to USD1 now, whoever their customers might be, if they have a mechanism to make sure their product is stable on behalf of their customers, they can enable folks like us and others to build best-in-class products. So one of the friction points for us building best-in-class products is non-market stability. Once we have that, we're off to the races, and the paradigm shift happens again in crypto. We've seen so many arcs.
