The Breakdown - A $4.2T Asset Manager Just Said Governments Will Buy Bitcoin

Starting point is 00:00:00 On the one hand, some folks on Twitter are saying, oh, they're just talking their bag. On the other hand, we should note that when a $4.2 trillion asset manager comes to decisions about what their bag is and invests years and tens of millions of dollars to build capacity in that bag because of their high conviction, it maybe has jumped out of the realm of talking their bag. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking. our world. The breakdown is sponsored by nexo.io, Abra, and FTX, and produced and distributed by CoinDesk.

Starting point is 00:00:39 What's going on, guys? It is Wednesday, January 19th, and today we are talking about how a $4.2 trillion firm just said that governments that buy Bitcoin will be better off in the future than those that don't. Before we get into that, however, if you're enjoying the breakdown, subscribe to it wherever you listen to podcasts, Chuck us a five-star rating if your podcast app has ratings, leave a review, or if you want to get deeper into the conversation, come join the Breakers Discord. You can find the link in the show notes, or you can go to bit.ly slash breakdown pod. Finally, the standard disclosure, in addition to them being a sponsor, I also work with FTX. Now, 2022 is very clearly going to be an important year in determining government's relationship with the crypto industry. China's complete ban last year really kicked this off.

Starting point is 00:01:35 When China first started reiterating its policies from the People's Bank of China, it really seemed like just more of the same. This was around March slash April of last year. However, when the vice premier of the CCP said that a Bitcoin mining ban was happening, Boy, howdy, was that something different. If you listen to my end-of-the-year shows, you'll have heard how many people thought that the most significant thing to happen in the crypto industry last year

Starting point is 00:02:02 was the China mining ban and the subsequent hash rate migration. China has followed up on that mining ban with bans on trading, bans for employees in China even working with external crypto agencies. It really is a full and total shutdown. This year, I think we can expect

Starting point is 00:02:20 many countries to get their crypto houses in order, which of course doesn't mean banning and following China's example, but means finally figuring out how crypto companies are going to fit into public policy frameworks. One example is we're expecting to finally see legislation in India, and in the U.S. there is going to be so much conversation around stable coins, central bank digital currencies, regulated crypto offerings, and yes, energy. We're kicking that all off this year with a house hearing tomorrow called cleaning up cryptocurrency, the energy impacts of blockchains. This is going to dominate a lot of the rest of the week, but as a preview, the downside is that the memo that they published has a fair number of pretty dubious facts. The upside is it seems like a fairly

Starting point is 00:03:05 pro-Bitcoin panel of witnesses. Brian Brooks, the former acting comptroller of the currency, as well as chief legal officer at Coinbase and CEO of Binance U.S., is back now in his capacity as the head of Bitfury. John Belizzer, another witness is a green computing data center guy who has written pieces like Bitcoin is a better battery. So there should be a lot of fodder to discuss over the next couple days. But for today, we're going to look at some of the other news and topics related to the relationship between governments and crypto. Let's start with a fiery report from Fidelity's Digital Asset Division that comes from earlier this month and is titled Research Roundup 2021 Trends and their potential future impact. They wrote a tweet thread about it,

Starting point is 00:03:49 pretty well sums things up. Skeptical that digital assets are still a passing fad? Read our latest piece for a look back at 2021 and why we think the last year helped solidify that digital assets are here to stay. Here's a few of the most influential trends of 2021. We continued to see more high-profile individuals and institutional investors make allocations to Bitcoin, more corporations added to their balance sheets, and even the first sovereign nation to declare it as legal tender. The Bitcoin Network demonstrated its resiliency despite the second largest economy in the world effectively banning it. We've seen the rapid rise in demand for stable coins, a parallel money market-like product that has drawn the attention of regulators.

Starting point is 00:04:26 Furthermore, digital assets have officially entered the legislative and political arena and will likely receive more attention come midterm elections. Now, the part that everyone is talking about this report has to do with banning on the one hand versus adoption by governments on the other. They write, we think the two developments observed this year couldn't be more opposed. Time will certainly tell which path is more successful, but given our view of digital assets, it isn't surprising that we think an outright ban will be difficult to achieve at best, and if successful, will lead to a significant loss of wealth and opportunity.

Starting point is 00:04:57 History has shown capital flows to where it is treated best, and embracing innovation leads to more wealth and prosperity. We also think there is a very high-stakes game theory at play here, whereby if Bitcoin adoption increases, the countries that secure some Bitcoin today will be better off competitively than their peers. Therefore, even if other countries do not believe in the investment thesis or adoption of Bitcoin, they will be forced to acquire some as a form of insurance. In other words, a small cost can be paid today as a hedge compared to a potentially much larger cost years in the future. We therefore

Starting point is 00:05:28 wouldn't be surprised to see other sovereign nation states acquire Bitcoin in 2022 and perhaps even see a central bank make an acquisition. So on the one hand, some folks on Twitter are saying, oh, they're just talking their bag. On the other hand, we should note that when a $4.2 trillion dollar asset manager comes to decisions about what their bag is and invests years and tens of millions of dollars to build capacity in that bag because of their high conviction, it maybe has jumped out of the realm of talking their bag. Still, the more significant thing is the really interesting game theory here, this idea that El Salvador has opened up a new phase where governments are thinking about Bitcoin in totally different ways. While Fidelity is really focused on the idea of

Starting point is 00:06:13 central bank holdings of Bitcoin, El Salvador has also created this question around currency affiliation. As people imagine the next generation of their monetary systems, are they going to have their own currency, are they going to have a CBDC version of their currency? Are they going to peg their currency to a global currency like the U.S. dollar? Are they just going to adopt a U.S. dollar-denominated stable coin? These are all now open questions in a way that they wouldn't have been even 12 months ago. Stacey Herbert tweets Fidelity is one of the biggest asset managers in the world. They say, see what ID10 T's, yes, that's what people are saying now, fail to understand. First mover advantage goes to El Salvador. Game over for Fiat, game on for Bitcoin. Rebecca, Real and Ready on

Starting point is 00:06:54 Twitter, writes, ignore Bitcoin price. So far in 2022, strike app launches in Argentina, cash app, integrates Bitcoin Lightning, Bill Miller has 50% of net worth in BTC, Binance buys over 43,000 Bitcoin, BTCS to pay out dividend in BTC, and Fidelity Canada to add Bitcoin to ETFs. Now, on that last point since we are on the Fidelity train. They also announced that they would be adding Bitcoin exposure to their growth and balance broad asset exposure investment strategy ETFs, which are available in Canada. On top of that, one more thing from Fidelity. Uri and Timmer, who's their head of global macro, tweeted a thread about why 40K is the new 30K in Bitcoin. Quote, a few days ago I made the case that 40K could be the new 30K for Bitcoin,

Starting point is 00:07:37 based on the rising intrinsic value from my S-curve model. I just came across an indicator that further suggest this, dormancy flow. It has reached the kind of oversold levels seen at past bottoms. My understanding is that entity-adjusted dormancy flow measures the accumulation and distribution between hot wallets and cold wallets, i.e. Hodlers versus speculators, i.e. smart money versus dumb money. According to Glass node, dormancy flow is the ratio of market cap to the annualized dormancy value. The latter measures the average number of days destroyed per coin transacted. And coin days destroyed is measured as the number of coins in a transaction multiplied by the number of days held. To me, this is further evidence that 40K could be a major line in the sand,

Starting point is 00:08:14 much like 30K was last year. Now, holding aside the specifics, there is a lot to unpack there around dormancy flow and coin days destroyed and all these terms that are pretty in the weeds. The key thing to me here, hold aside all that, is that this is not the head of digital assets at Fidelity. That's coming straight from their head of global macro. Put simply, we are no longer in the speculative store of value era for Bitcoin anymore. We're in the very serious institutional economists and macro folks are interpreting on-chain data era of Bitcoin. Nexto is a trusted and easy-to-use crypto platform where you can buy cryptocurrencies at the touch of a button and start earning up to 17% annual interest that is paid out daily.

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Starting point is 00:10:10 FtX US is also the only leading exchange that supports, both Ethereum and Solana NFTs. You can trade NFTs with no gas on FTX US, and gas is subsidized when you withdraw off the platform. Help support the breakdown and visit FTX.us today. That's FtX.us. From here, there are a couple places we could take this discussion. We could talk about institutions. Bank of America told clients in a research note this week that, quote, Solana could become the visa of the digital asset world. J.P. Morgan is increasing their spend on technology by at least 20 percent, to spend $15 billion this year building out their tech architecture. They've already aggressively staffed up their blockchain unit.

Starting point is 00:10:54 But instead, I want to focus on the international game theory side and some new updates there. A quick one out of India, the Indian Prime Minister Narendra Modi gave a speech at the Winter Online Davos meeting. And while the speech was much broader about positioning India, promoting investment in India, wellness, decarbonization, self-reliance, etc. Towards the end, he gave a pitch on global cooperation around crypto, saying, cryptocurrency is an example of the kind of challenges we are facing as a global family with a changing global order. To fight this, every nation, every global agency needs to have the collective and

Starting point is 00:11:24 synchronized action. The language to me is super weird, this idea that crypto is somehow a fight and a challenge versus something that is creating incredible economic opportunity right now for folks in his country. But as always, when it comes to India, it continues to be a situation of reading the tea leaves. As I shared in a previous episode, we're likely to not see legislation until later this year. Now, a quick hop over the border to Pakistan. According to a new report, the country's federal investigation agency is asking the country's telecommunication authority to block websites dealing with crypto, and it seems to stem back from an investigation of a suspected $100 million crypto scam. Just a few days ago on January 13th, local media had reported that a document

Starting point is 00:12:06 submitted to a provincial court suggested that the government and central bank wanted to ban the use of cryptocurrencies in the country. And maybe this isn't surprising in that power. Pakistan is one of the fastest growing crypto markets in the world. Last October, chain analysis came out and said that Pakistan recorded 711% growth in crypto-related investments during the 2020-2020 fiscal year, which was even higher than India's 641% growth. The Asia Times summed up, Bitcoin ban could backfire on Pakistan. Let's round this out with an interesting trend that we're seeing, which was a tightening around crypto marketing. In the UK, the advertising standards authority has had some issues lately.

Starting point is 00:12:47 They banned two ads from Crypto.com for being misleading. One involved an ad in the Daily Mail newspaper app that said that users could, quote, buy Bitcoin with credit card instantly, and the other ad that the ASA targeted was in the Love Ball's mobile game, which offered interest rates of, quote, up to 8.5% from staking crypto. The ASA found that both were, quote, irresponsible and took advantage of consumers in experience or credulity, and also said that the interest rate claims, quote, could not be substantiated. The ad agency said in a press release, quote, we told them that future ads must make

Starting point is 00:13:17 clear that the purchase of cryptocurrency using a credit card can be subject to higher interest rates, extra fees, and that some credit card issuers prohibit the buying of cryptocurrency. Over in Spain, the National Securities Market Commission has established a pre-approval mandate for any crypto ad that is aimed at 100,000 people or more. To get approval, any of these ads will have to add a cigarette-like caution language. Investments in crypto assets are not regulated. They may not be appropriate for retail investors, and the full amount invested may be lost. Interestingly, these ads seem to exclude NFTs, which is the first time I've seen that distinction, and the fines for not registering can be up to 300,000 euro, which could be levied against

Starting point is 00:13:56 advertisers, PR firms, or even individual influencers. In Singapore, the Monetary Authority of Singapore released their new guidelines on provision of digital payment token services to the public and basically said, one, that ads must avoid portraying crypto trading, quote, in a manner that trivializes the high risks of trading. Two, bans ads for exchanges and tokens from advertising, quote, in public areas in Singapore or through any other media directed at the general public in Singapore, and says no to out-of-home, social media influencers, and more. Finally, the UAE sort of related.

Starting point is 00:14:26 They had new online security laws go into effect this month where promoters of crypto scams can face a five-year jail term and a $270,000 fine. This is different because obviously promoting scams is illegal. Scams are not the same as promoting an exchange, for example. but still, it's part of this broader trend of countries honing in on advertising specifically when it comes to crypto. What do I think of this, especially given my particular vantage point, doing advertising and marketing in crypto and for an exchange? I think on the one hand that you could argue pretty compellingly that there is a higher burden on crypto or coming to be a higher burden on crypto relative to other industries. That Spanish law that's going to force cigarette-type disclosures is not something you see in other types of industries.

Starting point is 00:15:09 However, there is a much more optimistic side of this for me as well. There is going to be an incredible force and pressure exerted on the crypto industry in the coming year or more to get cleaned up, to get buttoned up, to get super professional, compliant from an advertising standpoint in particular. As that happens, we will jump from a status that some see as under-regulated and under-compliant to over-compliant. We will, in fact, be one of the most responsible industries when it comes to advertising because of that additional burden and pressure.

Starting point is 00:15:40 I think there's a reasonable analogy here with mining. Nick Carter tweeted 12 months ago it was all China, part coal, part hydro. Then the narrative shifted to Cossack coal. Now you're just left with the truth. Mining is the cleanest large-scale major industry in the world. And what he's talking about is this shift in how the world is going to come to see Bitcoin mining over time, given the incredible scrutiny around it.

Starting point is 00:16:03 When people start really paying attention, they're going to find that just because Bitcoin, energy consumption is so much more highlighted than other things, it doesn't mean that it's worse than other things we use every day, like washing machines and dryers. I like those shifts for us long term where this gauntlet that we have to run to prove it with a higher burden of proof, a higher burden of obligation, ends up leading us to be leaders in whatever particular area we're discussing rather than pariahs. Also, finally, I can say confidently that as a marketer, we can handle this. It's an extra burden. It's not impossible. It's at work.

Starting point is 00:16:38 annoying, at least in the versions that are imagined so far. That could change, and I certainly don't agree with outright bans, but when it comes to being more clear with consumers about the choices they have, I would much rather that the burden is placed on advertisers to not mislead consumers than to come in the form of regulations that determine what decisions consumers can or can't make. I want to say thanks again to my sponsors, nexo.io, Abra and FTX, and thanks to you guys for hanging out and listening. Until tomorrow, be safe and take care of. of each other. Peace.

The Breakdown - A $4.2T Asset Manager Just Said Governments Will Buy Bitcoin

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