Outplaying the House: Beating the Banks at Their Own Game

Hi, everybody. We’re here to talk about the cross between Bitcoin and banking. I’m Anthony Magliacca, co-founder of Five Bells. We’re a programmable escrow tool you can use on Bitcoin to disintermediate banks. Do you guys want to introduce yourselves, and then we’ll get into it?

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Absolutely. Hey, everybody, I’m Will Reeves, founder and CEO of Fold.

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I’m Alex, the founder and CEO of River, and we do Bitcoin banking.

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And I’m Harsha, the founder and CEO of Magnolia.

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So it’s 2008, and the white paper is released. It talks about a system that allows two counterparts to exchange value without a financial intermediary. It’s released in the heart of the crisis. It’s a way to become less reliant on banks, to opt out of the system.

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It’s 2026. Everybody in Bitcoin wants to become a bank. It feels like we talk a lot about financial engineering in the space these days, a lot about how to become a bank, the cross between Bitcoin and banking, and not a lot about things that are happening on chain that continue to allow you to not become reliant on banks.

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So we’re here with the experts at the cross between Bitcoin and banking to talk about whether we are on the right track. We’ll start with you. Do you think we’re on the right track? Are we staying true to first principles using Bitcoin-native things, or are we just building Bitcoin for the existing financial infrastructure?

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I think it’s everything all at once. There’s incredible work being done on both sides. How do you bring Bitcoin into traditional banking? How do you bring banking concepts into trustless or trust-minimized protocols like Bitcoin?

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Since 2008, I think two things are really important that have happened. You have the release of Bitcoin, which presents an almost diametrically opposed alternative to banking. You can’t exit the banking system. Bitcoin gives you an exit. Bitcoin has 24/7 uptime. You can actually self-custody Bitcoin. All of these concepts are truly foreign in the traditional banking system. You cannot audit a bank the way you can audit proof of reserves of a Bitcoin institution.

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So I think Bitcoin provides things that are almost the undoing of banks. But at the same time, since 2008, another thing has happened where banks have essentially been compressed into a suite of APIs that anybody can access and use. MrBeast just launched a bank a couple months ago. Anybody can do it.

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What’s happening is banks are getting taken on the flank by Bitcoin companies that are both making use of what makes Bitcoin incredible and special, but also leveraging the fact that what was once gatekept by banks, their services, are now freely available via APIs. Ultimately, I think that is going to give an edge to those that privilege Bitcoin and what it can do, and what banks can never do, while at the same time providing the convenience that banks do give today.

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Alex, what do you think about that?

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I definitely agree with what Will said. Maybe to take it in a little bit of a different direction, I think it was inevitable that there would be Bitcoin banks. Even Hal Finney predicted such.

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What I always say is important is that the vision for Bitcoin, in my opinion, wasn’t that nobody ever trusts institutions. It’s that you don’t have to trust institutions. That’s the power of Bitcoin. As Will said, there’s an exit door now. Having the exit door fundamentally changes how the institutions operate. That’s what we’re seeing happen. That’s what was meant to happen.

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So I do think we’re on track. I gave a talk earlier saying I think what we’re seeing is Bitcoin exchanges building up toward banking, and banks building down toward Bitcoin, or whatever you want to call up and down. Overall, I think things are going well.

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If we’re going to keep banks honest with Bitcoin the way you describe, to me it means we need to be building things on chain, Bitcoin-native devices that allow you to use the network in creative ways.

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I think you already can. All that’s really important is that you can self-custody, that it’s decently easy to self-custody and move your Bitcoin without trusting anyone else. I don’t think we need some really rich on-chain ecosystem of complex financial instruments to realize the benefit of Bitcoin. It’s cool that we can do that, but I don’t think that’s necessary to realize its potential.

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I’ll take the other side of this. I don’t think self-custody is all it’s going to take in order to beat banks at their own game, specifically because right now banking is two factions. It’s the regulators, but it’s also institutions that get regulated. When we talk about banking in Bitcoin, what we’re talking about is getting the institutions that are regulated to actually use and hold Bitcoin one way or another, either providing financial services or providing new leverage opportunities for a lot of people to actually use an asset that goes up and down to their benefit.

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The problem for so long has been that these regulated institutions have not been open-minded to the cool things you can do with an asset that traditionally goes up over time. They certainly don’t even begin to understand the things you can do with a self-custody asset that goes up over time.

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I think right now, especially this year in particular, the tables are going to get flipped on a lot of banks as Bitcoin-native banks come online and challenge them directly in the only place that matters, which is revenue.

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I’ve started to think about the Bitcoin network less as the coin and the price, so to speak, and more about the ledger. Because when you hire a bank, what are you doing? You’re asking them to recordkeep for you in one way or another. It’s interesting to think about: if we already have a ledger on the Bitcoin blockchain, why don’t we just use that as a disintermediating service?

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Are you using anything today, Bitcoin-native, that’s interesting to you? What are you seeing out there that’s useful that works on chain as opposed to using a bank?

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One thing that’s cool, and this is actually hilarious because you said on chain, this is explicitly off chain with Lightning, but something that’s been really cool with Lightning is that we can actually onboard a lot of these other networks like Ark and Spark with Lightning without going through a pretty intense coin-listing process, which is a big compliance hassle.

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So we can effectively onboard folks and businesses that are doing business here, there, and everywhere while only having a compliance program set up for just Bitcoin alone. That has been immensely powerful.

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For background, I’ve worked on Lightning for seven or eight years. I love the thing. I’m very aware of its flaws, but it’s been excelling at this almost interoperable, ACH-like thing where you don’t have to buy into a direct relationship with Magnolia. You can just buy into Lightning and therefore get a route to us directly. It’s actually pretty interesting.

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Alex, where do you want to see Bitcoin usage go? You mentioned self-custody gets us there, but what does that look like for Bitcoin usage five or ten years from now? Where do you want to see that head?

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I would love to see Bitcoin continue to grow in its role as a medium of exchange. I think we’re still very early there. We have a long way to go, and it’s a little unclear.

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The thought experiment I like to have is, let’s say we had a perfect layer two. It was perfectly censorship resistant, had no transaction fees, and had everything we could ever possibly imagine. Would that unlock people using Bitcoin as a medium of exchange? I think the answer is maybe a little bit more, but not drastically overnight. There’s still more to the story around onboarding people to Bitcoin as money. Maybe it’s a marketing problem. Maybe it’s an economic and volatility problem.

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I want to see Bitcoin go there, and I think getting more people holding Bitcoin will get us there eventually. The work that companies like Block and Square are doing will hopefully continue to accelerate Bitcoin as a medium of exchange.

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Another area that I actually think is genuinely interesting and solves problems really well for people is collateralized lending on chain. We’re actually seeing that’s where the best economics are. That’s where the best prices are for borrowing against your Bitcoin, maybe it’s like an L2. Coinbase has a lending product powered by their wrapped Bitcoin on Base.

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Objectively, the rates are better than any centralized lender. We’re talking about four to 5% instead of 8 to 12%, so literally half the price. There’s much lower friction to deploy capital and lend it out. I think that’s super interesting, and I’m interested to see where that goes.

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Will, you’ve been in this space a long time. Same question to you. Where do you want to see Bitcoin usage go five or ten years out?

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As I’ve been building Fold over the years, I think there’s a habit in the community, because it is insular and very technical, where we get lost in L2s and on chain or off chain. We built bridges that were failed experiments. We went heavy into Lightning before. Lightning is great on many merits.

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But ultimately, where we found success is less about whether I am using an L2, or whether it is on chain or off chain, and more about whether we are bettering someone’s life with Bitcoin. That is the first thing, because there are so many other hurdles after that and before that. If you can nail that, everything opens up.

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You have a user now that ideally is either accumulating or self-custodying Bitcoin, or has the ability. They’ve seen the magic that Bitcoin can bring. So we try to look at what is the shortest distance to getting someone to that point.

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We have always focused on how to make it easy to accumulate it, hold it, and ultimately self-custody when you’re ready. Our customers range from many who are getting their first little bits of Bitcoin to those that are entirely living on Bitcoin. Personally, I don’t have a bank account besides Fold. I live entirely on Fold, with all the great limitations that are there.

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I hope that we don’t get lost in technical discussions that block us from truly finding the shortest distance between making Bitcoin valuable to more people in the world. The Satoshi quote, if you don’t believe it or don’t get it, it might make some sense to get some in case it catches on. We’re still saying that in many ways.

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I would like a proliferation of products that meaningfully increase people’s purchasing power, make people more financially stable, happier, and optimistic. That’s the real win.

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Do you think L2s like Lightning, protocols that scale Bitcoin, are primarily going to be used through institutions? Or are retail customers that use River, Fold, and the like going to be the ones that ultimately use it directly?

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Historically, correct me if I’m wrong, but I think most of the numbers on Lightning versus on-chain Bitcoin show Lightning has always been in the range of five to 10% of on-chain Bitcoin. At the end of the day, that’s where it’s lived since my time at Fold. I don’t know if it has changed, but it’s probably still right there. That sucks, and that’s not good. So it’s clearly not doing its job.

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My favorite take on Lightning is from the founder of Muun, Dario. He sees Lightning as this connective protocol for all of the L2 ecosystem popping up, whether that’s Ark or other L2s. It’s an interoperability layer between anything that’s not L1.

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I think the jury is still out on whether the average human is going to directly use Lightning and have a self-custody Lightning wallet themselves, or whether they are going to use something else that is plugged into the Lightning Network and just makes all of these separate systems compatible.

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You guys mentioned collateral a few times so far. Since the beginning of the year, I’ve noticed the world finally come to us. Institutions have finally come around to the fact that Bitcoin is good collateral. They’re happy to accept it as collateral, which has been a real positive in the space, because I’ve spent the 10 years I’ve been in Bitcoin trying to convince institutions that it’s not scary. It’s actually a lot safer than a lot of the things you’re working with. It’s a lot more transparent.

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What do you think will draw institutions closer to Bitcoin? How do you convince them this is not scary, and that you can do more things with this than just park it in an address on an exchange?

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I’ve got so many thoughts on this right now because the entire industry is changing quite dramatically when it comes to lending on collateral assets. Number one, the biggest way to get institutions by far is going to be supplying the stablecoin capital, just a massive amount of capital that’s moving in that direction, because stablecoins are incredibly necessary for collateralized lending schemes. They need a lot of lending power.

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Right now they’re all getting pretty heavily restricted. Everyone is searching for any source of capital. I’ve been seeing some crazy deals in that direction.

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More importantly, this is 2026. This is the year the 1099-DAs are going to get issued. As a result, if I sell my Bitcoin trying to spend it, I get taxed on that, like 30-ish percent or even more. A way around that is taking a loan out against my Bitcoin. That’s a good way to effectively sell the Bitcoin I have and spend it without having that tax burden. I think that is going to really drive collateral use cases in Bitcoin going forward. I’m very excited for that.

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For ideas that are outstanding, but you need to draw institutions closer, how do you get folks at large institutions or banks to get comfortable with Bitcoin?

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One of the ways we do it is just plain-vanilla insurance. A lot of times that’s just a box that needs to be checked on a due diligence document or some ODD from a third-party ODD provider. Telling them you have insurance, saying that even if you don’t understand this and I’m wrong and this fails, worst comes to worst, there’s insurance that backs it up.

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You guys talk to institutions all day long in this space. How else are you getting them comfortable? Are there novel ways you’re using to get them there?

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You don’t make them comfortable. You beat them with revenue. Banks that are weak and need more revenue will see what you’re doing, and they’ll change whatever they have to do in order to beat their direct competitors. That’s the only way to beat them.

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If you’re trying to de-risk this asset, de-risking is just an exercise to get around the fact that they don’t want it enough. That’s all it is.

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Will, what do you think?

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We definitely deal with institutions from the financial sector, but a big part of Fold’s work is actually dealing with traditional businesses outside of institutions. I think they’re an interesting group to look at.

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We just launched a Bitcoin bonus program with Steak ’n Shake. All 13,000 employees are getting bonused in Bitcoin. Twenty-one cents an hour drops in their account live. This is just to regular employees.

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We’re having a lot of discussions with other businesses that want to do this. We do a big rewards program. Often the way we get to the center is not necessarily saying, hey, I need you to believe 100% in Bitcoin, but exposing to them how Bitcoin can materially either de-risk their business or make their business better.

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In the Steak ’n Shake example, their recruiting is going up in terms of applicants. They’re getting longer retention. They’re getting excitement from their employees. For an hourly wage business, that is an incredible superpower to have, to stand out from the pack.

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We really educate them, getting away from the world of ideas of Bitcoin and more down to: what’s important to you? What’s going to move the needle? Do we want to save some money? Do we want to retain more? Do you want more customers? Do you want a bigger business?

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We’ve deployed Bitcoin in all of those ways that helped that. Many times, all it took was not a Bitcoin maximalist at the helm of the company. It was a great operator and someone who is a rational person. I think there are many arguments to be made about Bitcoin that don’t have to get technical, don’t have to get scary, and can simply be made on terms that people understand. That is at least what has made us successful.

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Alex, how does River do that? Anything you could share with us?

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At River, we focus on serving individuals and small and medium-sized businesses. Frankly, I don’t really care if the big institutions get on board with Bitcoin. I’d rather take their clients and make them mine. That’s more Bitcoin than anything. That’s really getting to the heart of it.

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You’re building a better bank in some ways.

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Yeah. If the big banks get on board, if they could or not, it doesn’t matter to me. I’d rather their clients leave them and open accounts at River.

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Fair enough. To that end, when you think about other things to offer your clients, whether it’s working with a third party, what are you seeing in the space, specifically in Bitcoin, that excites you right now outside of River? What’s one project in the space you get excited about when you think about it?

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Honestly, like I mentioned, I think it’s going to be really interesting to watch these Bitcoin L2s as they start to come into production, like Alpen, which is a Bitcoin-native L2 that will have protocols like Morpho, which are, I think, pretty well-constructed DeFi protocols for collateralized lending.

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I think it’s going to objectively be the most economically optimal way, assuming you can get past the technical risks of this whole new paradigm. There definitely are new risks here that don’t exist with centralized lending. But I think it is going to be the economically optimal way to borrow against Bitcoin, and I think that will make a bit of a splash.

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Plus one for Alpen. What they’re doing is super cool.

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Something I like in the space that’s maybe a little more simple is this Tether wallet that’s just been released, and the only assets it covers are USDT and Bitcoin. I like that from the perspective that those are the sorts of things that are going to draw people to Bitcoin, like all the USDT holders in developing countries or around the world. They’ve done a great job with their street teams to propagate actual use of this.

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Just having that sit next to something that acts as a Bitcoin wallet as well feels a little bit more direct to consumer. It feels like a good excuse to layer in products that could excite people and incentivize them to get onto Bitcoin.

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It’s not actually that hard to beat the banks at their own game right now. Their entire model is very extractive. Almost every single activity you make on a banking platform is in service of the bank’s interests. That’s just a reality that we’ve had. The reason we have that reality is that there’s no way to exit the banking institutions.

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They compete on modest terms, but you look at this platform here on this stage. You can go to River and they’re going to pay 3-point-whatever percent on cash holdings. None of the banks are doing that. You can go to Fold, and you can earn rewards on a debit card. None of the banks are doing that. You can on a credit card.

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All of this is a competitive advantage to us because we see the value that is locked in and not going back to the user. Oftentimes you can just draw a schematic of all the activities you do at a bank and actually reverse the flow of value back to the customer. That’s a wonderful product to bring to market, and it will be competitive.

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I agree with Alex. I would love the institutions to take a lot longer because their customers are increasingly coming to us. But I think it’s inevitable. I think they’re moving very fast, and I don’t think they misunderstand our space. I think they know very well how they can benefit, and they just want to be well positioned. We’re seeing that in real time right now.

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Do you think that’s one of the reasons why they’re gumming up the CLARITY Act? Because it’s much easier to compete with them now, in the age of AI and the mobile age, than it was five or ten years ago?

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It’s still very difficult to compete from a lawfare or regulatory perspective, and that’s ultimately the moat that they have.

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Bitcoin and Bitcoin banks offer a model that is simply more valuable and transparent, and provides this incredible opportunity for exit that does not exist in the normal system. That is a gift that is being increasingly recognized by individuals, families, and businesses of all sizes. There is just clear momentum.

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Again, I get back to working with teams over at Simple Mining or Steak ’n Shake, where you have whole executive teams who are realizing the competitive advantage that Bitcoin can bring to them. They, just like us here, are saying, I hope our competition doesn’t learn this and jump on it, because we have a window that is going to be to our benefit. Ultimately, that is forwarding very simple, aligned ideas of a new system. I think that’s a very noble way to do it, and also a great business choice.

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Last question for you both. Do you find people using Fold, River, and Magnolia more for dollar banking once they’re on your platform?

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It’s all about the dollar still. Even people with Bitcoin. We were talking backstage, and all of our problems are actually directly related to the dollar rails. Bitcoin actually functions quite well every day for our customers. All of the headaches come from building and managing on the dollar rails.

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Getting that right is very important, because that’s what allows people to jump into Bitcoin and reap those benefits without sacrificing the conveniences they rely on to buy groceries, pay the mortgage, and make sure they’re living a good life.

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Alex?

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Historically, most people used River just for Bitcoin, but over the last few years, with the products we’ve launched, like Bitcoin interest on cash, direct deposit, and bill pay, we’re trying to show people what this new dual-money banking app looks like. Increasingly, we’ve seen a lot of growth of people using River for their actual daily fiat banking needs, which haven’t really changed even if they do hold Bitcoin.

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Bitcoin works. Dollar rails don’t. But I think in 2026, that’s going to change. Right now, specifically, the OCC is pretty open-minded about digital asset bank charters, and we’re seeing a pretty big rush of digital asset banks come to market. These are going to be direct market challengers.

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I think they’re going to be able to do a lot of really interesting things that solve a lot of the big friction points all of us on the stage are very familiar with that don’t really need to exist in the banking system, things like chargeback risk and multiple-day settlement times. Those don’t actually need to exist, and certainly I think a lot of these new banks are going to challenge that.

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As far as how people use Magnolia, they move money through and withdraw pretty quickly. It seems like it works out for us.

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Awesome. Thanks for having us, guys. That’s our time. Appreciate you being here instead of another stage. Take care.