Fundamentals of Fundamentals

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Summary

This conversation explores the rise and fall of two Bitcoin companies, Swan and Fold. Swan was once highly respected and known for calling out scams in the industry, but their reputation took a hit when their custodian, Prime Trust, went bankrupt. On the other hand, Fold built alternative rails and avoided the Prime Trust issue, leading to their upcoming IPO. The conversation raises the question of whether there is such a thing as a Bitcoin company and highlights the importance of discipline and avoiding blind spots in the industry.

Takeaways

• Swan and Fold were two Bitcoin companies with similar objectives, but Swan's reputation suffered when their custodian, Prime Trust, went bankrupt.
• Fold built alternative rails and avoided the Prime Trust issue, leading to their upcoming IPO.
• The conversation raises the question of whether there is such a thing as a Bitcoin company.
• Discipline and avoiding blind spots are crucial in the Bitcoin industry.

Chapters

00:00 Introduction and Background

02:24 The Rise and Fall of Swan and Fold

07:05 Swan's Unfortunate Sponsorship

10:47The Bankruptcy of Prime Trust

14:20 Swan's Layoffs and Fold's IPO

19:08 Swan's Humility and Fold's Watchlist

[00:00:00] Unknown:

Hey everybody, it's FUNNIMENTALS here, back doing another rip.   I haven't done one of these in a little while, but I really want to do more of them and I've   been looking back at some of the ones I did and some of them kind of suck and that actually   takes the pressure off of doing these and maybe I'll want to do them more.   A lot of times I think about doing one and I'm like the standard is so high that I just   won't bother unless I have something profound to say.   Anyway, I do think I have a pretty original take on something today and it's been like   a year of trying to talk about it to no avail.  

I've talked about it a little bit on rock, paper, Bitcoin, but this episode is called   The Fundamentals of Bitcoin Companies.   The thought was inspired by a conversation I had with a friend of mine named Richard   Graser and he had asked me this question, like, is there any such thing as a Bitcoin   company?   I thought it was really interesting.   It was a cool conversation, but really what came down to was something I've been thinking   about for the past year, year and a half are two companies that were sort of kind of like   two ships passing in the night with similar objectives and one was well known, maybe one   was not, but one has now emerged the clear winner.  

So I'm talking about the story of Swann and Fold.   So let's go back to the year it all began.   That's not really the year it all began, but the year it all began for me where I started   paying attention and the year where all the shit went down was 2022.   So in 2022, I really think Swann was probably at the peak reputation wise of where any Bitcoin   company or any company operating in the Bitcoin space would want to be.   If I could somehow define where they were, I would say that is the absolute goal of where   anybody wants to be.  

They were well respected.   They were putting out really good content.   Nobody can deny this.   And the public fights that their CEO, Corey Clipston, was waging, the public wars he was   waging were effective and good and helpful.   I recall him really taking it hard to Alex Mashinsky before really it was kind of a popular   thing to do.   I mean, all Bitcoiners know this guy was a fucking scammer and everything, but the reality   is a lot of guys got caught up in Celsius.   And I know a lot of people who tell me, like they know I have this Swann view, so they   go out of their way to tell me like, look, Corey was instrumental in getting me out of   my shitcoins.  

So like you got to give credit where credit is due.   And in 2022, he was, I think really, he was on top of his game and the time came to meet   the moment of what he was strong at.   What he is strong at is scams.   I don't want to be mean or have this come off in a way I don't intend.   He was good at detecting them and then explaining them to people.   And he was good at calling them out.   I don't think a lot of people are that good at the type of confrontation that's required   to call these scams and these scammers out.   And you can give Corey clips and all the shit you want about other behavior, but the reality   is he and his company were dealt a consequence for those actions.  

Meaning like the scammers who run the money printer were very hostile to Swann.   And I criticize, I criticize, I fucking, this is why I can't podcast.   I can't fucking talk.   I criticize them for different reasons, right?   But I'm not, these guys are dancing on their grave.   It's a different story.   So like, yeah, I don't understand that the wars that were waged on guys like Mike Novogratz   and Andreessen Horowitz and you guys are like big money.   And Corey, like, he really did take it to those guys.   I think at great risk to great risk to his own reputation, great risk to his own ability   to raise capital.  

So like those things have to be acknowledged.   And all the while there was also this other company called Fold that was pretty great,   pretty great for people.   Everybody knows what Fold is, right?   In 2022, man, Fold was sick for its benefits.   It was given a lot of benefits.   Not only was it really generous, but like when Bitcoin was down to 15K, it was just   incredible.   Like, it was incredible.   I think the kind of fortune some people have asked through Fold, if they were really fully   taking advantage and paying their bills and doing all that shit, that was pretty incredible.   Now the thing they had in common is the reason I'm talking about them in the same way.  

The thing they had, so they had something in common.   For the sake of storytelling, I'm thinking through how I stage this out.   So Fold was kind of a small company.   They were, I think, dealing with a lot of compliance issues, still are.   You know, they are basically like the best fiat company for us.   They take the thing that we do in fiat and they just give us back Bitcoin instead of   fiat.   It's pretty great.   So someone's at the peak of their game, 2022, and then a sequence of events takes place   that in my opinion is the beginning of unraveling the sweater, you know, the thread in the sweater   that takes apart the sweater.  

So it's public knowledge that sometime in 2022, probably around the summer, maybe before   then, Swann had expressed an intention to go public and to do an IPO.   It was either they expressed it or it was the worst kept secret in the industry.   And then they, you know, then they announced they were hosting their own conference.   And it's really interesting because 2022 is like really bad, you know, for like before   the market, for the market tanked, you know, you had the Bitcoin conference in 2022, which   was basically a total, total, total shitcoin conference.   I mean, people criticize it now.  

It's nothing, nothing compared to what it was in 2022.   You know, you basically people like Serena Williams, Schilling, shitcoins, you know,   all this.   You know, you have like Trump, Schilling fucking, you know, Trump and his kids selling trading   cards and weird shit like that.   But I mean, in 2022, there was almost nothing left really of the Bitcoin focus.   And so Swann comes in, says, I'm going to bring back Bitcoin only.   And then they said, we're going to go public and we're going to have our own conference   and our conference is going to be Bitcoin only.  

And people didn't like it.   So all good so far, right?   All this sounds really good.   The problem was, in order to run that conference, Swann chose a very unfortunate sponsor.   And it wasn't one of many sponsors.   It was their lead.   I mean, I guess it was, but it was their lead sponsor.   Their lead sponsor was a company they had a relationship with called Prime Trust.   I guess I'm going to, I guess I'm going to get into what happened to Prime Trust just   for the completeness of the story.   But Prime Trust was Swann's custodian, meaning anybody who held their keys, which in fairness,   Swann discouraged, not institutional, but individuals who held their keys with Swann.  

So individuals were discouraged from holding their keys.   Institutions obviously were not.   But all of them had their, really had their keys held by a custodian named Prime Trust,   who has the official designation of a qualified custodian.   And I think there's four or five companies that have such a designation.   We're talking BitGo, Coinbase, and these are the same companies that are holding keys for   the ETFs.   So Prime Trust is one of these companies.   So they're in an ilk that's highly respected, highly trusted.   We're talking like, you know, unlike Coinbase, this is like where grandma keeps their money.  

So Swann has this partner and they believe in each other and they decide to go all in   with each other on this IPO.   And Prime Trust says, fine, we're going to be a lead sponsor of your Pacific Bitcoin   conference.   All the while, you know, guess who else has Prime Trust as their custodian fold and strike,   by the way.   I could have added strike to this conversation, but I'm going to keep this simple.   But you do a fold strike, companies like CoinBits, you have a lot of companies, almost all of   them were using Prime Trust.   Prime Trust had a very easy, simple product, I guess, for to onboard a company without   having to do much work.  

So everything's kind of humming along just fine, except, except it turned out that Prime   Trust lost, Prime Trust had a situation, they ended up in bankruptcy.   They lost some keys.   They ran a Ponzi for a while to cover, to cover up the fact that they lost keys.   And then basically, in November, after FTX crashed, the secret could no longer be kept   and they had to basically announce almost like total bankruptcy and they were losing   their money transmitter licenses.   I'm pretty sure.   And all this happened during the Pacific Bitcoin conference in November of 2022.   All very, very ironic.  

Now, here's why I'm having this conversation and why I think that the world moved the way   it did.   2022 was such a great year for Swann, 2023 not so much.   It was an undeniably bad situation for their key holders.   Because as the bankruptcy proceedings went along, Prime Trust was starting to get rumored   to be bought by certain companies, one of them being the parent company, one of whose   parent company was Ripple.   I mean, what an undeniably bad situation you would have when your entire, I'd say your   entire good name is based on decrying shitcoins.   And then your customers end up essentially through your own fault.  

Yes.   They end up becoming customers of like one of the worst shitcoins and enemies of our   space.   And I'm going to say it is Swann's fault.   I know they like to say it's not.   And a lot of people love to carry water for them and say that, well, it was an innocent   mistake.   But the reality is by the time Ripple was in the conversation, by the time these bankruptcy   proceedings were in play, all the other customers, I'm sorry, all the other key holders like   Strike, Fold, all of those guys were already gone.   They had nothing to do with Prime Trust anymore because they spent 2022 building other rails.   They saw this coming.  

They saw an issue with Prime Trust.   They sniffed it out.   They built around it.   And it was not an issue for them in 2023.   Actually, Prime Trust's bankruptcy had like no impact really on Strike or Fold.   So that's interesting in that it had a complete impact on Swann, like a total, almost like   a total, I don't know if it almost annihilated them, but I mean, in terms of their reputation,   it's like they could never really recover what they had in 2022.   It was that bad.   So the point I had been trying to make is that there's a relationship between A, the   desire to go public, B, the choice of sponsorship for their flagship conference that's really   the marketing linchpin of them going public, and then C, the absolute singular, the absolute   singular inability to see the problem with that company when others in the industry who   didn't have that relationship did see the problem.  

Right?   Okay.   So that was kind of like what happened to Swann, what happened to Swann via Prime Trust.   Now the reason I'm doing this now is because it's just so interesting in the last two months   that Swann and Fold are like now two ships passing in the night because you had the day   where Swann just suddenly had to lay off 65% of its workforce and abandon the good businesses   they were in, i.e. they had to abandon the mining business and any growth there.   When you lay off 65% of your workforce, it's almost scandalous.   It really is.  

I mean, it is almost scandalous.   If that happened to any company in like the S&P 500, right, it would be like there would   be investigations.   Okay?   So clearly Swann is in a lot of trouble and on the ropes.   And I would actually say good on them for doing what they had to do to keep things going,   but it's pretty obviously indicative of real trouble.   Oh, and then the other thing they did was abandon the IPO.   So as we sit today, I feel like Swann is sort of doing its time and they're starting to   earn their way back as maybe a decent Bitcoin company, but they are where they are right   now.  

What happened in the last two months recently, Fold is launching their IPO.   It's incredible.   So Fold, this is like the tortoise in the hair, right?   All Fold did for the last two years was sniff out the prime trust problem, build another   rail and basically just take away rewards that they couldn't afford to pay.   Time over time over time, quarter over quarter.   All Fold does is give less and less and less.   And like I'm a Fold customer.   I love it.   I don't love that I get less and less and less.   The gravy train days are long, long gone, but I respect them as a company for doing   that, for doing what they have to do.  

And I guess that is getting the attention of capital allocators.   It's just all very, very interesting to me.   And then Fold, the Bitcoin company, of course not.   Fold is a fiat company.   It's the fiat company we all wish we could do business with because they do everything   we want them to do, but they pay us in Bitcoin.   Is Swann a Bitcoin company?   I would say in the last two years, they certainly were not.   They were a fiat company.   They were chasing fiat money.   They were looking for public fiat money.   Again, I think that caused them to lose their focus, lose their fastball, gave them a blind   spot and then they made some bad decisions that I'm sure they justified in the name of   going public, but it turned out the way it turned out.  

So I just love this contrast of these two companies.   Now I'd say Fold is on my list of companies to watch out for in a very suspicious way.   I think we have to be very suspicious of Fold now that they're getting their IPO because   while everything I've seen from Will Reeves has been kind of solid and disciplined, not   going to lie, this event, nobody is above losing themselves in this type of event.   Now he's getting his IPO, I'm sure if he is everything that he says he is, I'm sure he's   terrified of making a big mistake now, of having a similar blind spot maybe as Corey   had.  

The thing is Corey is very public and so we see his hubris on display.   Not everybody is that public.   Not everybody wants to be a public figure.   I don't think Will Reeves wants to be a public figure like that, but I'm sure he is aware   of what is...   This is why I think people shit on VCs like 1031.   I don't know if they had anything to do with Fold or anything like that.   This is more of a general statement.   I do think companies need people like that.   I think Will Reeves needs somebody who understands what he's about to go through to keep him   honest and disciplined.  

I'm sure he knows that.   I'm not close enough to know who the fuck is who's leading the IPO or who's really giving   the funding, but I'm guessing whoever it is is able to give him pretty good counsel, the   whole thing.   My point is they're on the clock now.   They're on the watch list for some dumb shit.   We'll see.   We'll see.   Actually, Swann is now off that list a little bit because they did the discipline thing.   It's just that they did it in a crash.   They did it in a way that was absolutely miserable for a lot of, frankly, a lot of my friends   and a lot of people I know that worked that they were surprised by the sudden...  

Again, 65% reduction in workforce is a desperate act of an absolute failure.   There's just no other way to look at it.   Swann's taken its lumps.   Now, Swann's sort of like kind of the maybe the humble guy.   Maybe they're the humble guy trying to get better.   Fold is now the king.   We've got to watch out for them.   So anyway, there you go.   So to put a bow on this, I don't necessarily know if there's any such thing as a Bitcoin   company.   I think it's a good question.   And always feel free to shout whatever the fuck you think at me, wherever it is that   I'm at, whether it's on this, on Fountain here, whether it's on Noster, on Twitter,   you see me at my meetups.  

Don't hesitate to give me shit.   All right.   That's all.   That's it for that.   Thanks, guys.   We can't wait to hear what the directors have to say.