The Breakdown - Bitcoin Is Coming to Your 401(k)

Starting point is 00:00:00 I think this is a huge deal. One of the easiest, sure, why not add a little adoption mechanisms we've ever seen? I also think that in our current context, that employers are going to be looking for any edge to keep talent. Bitcoin and your retirement accounts may not seem like a big thing. But some companies will definitely see it as a tool to signal to their younger employees, their Gen Z and millennial employees, that they get it. And I think they'll be successful if they do so. Welcome back to The Breakdown with me, NLW.

Starting point is 00:00:33 It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io, Arculus, and FTX, and produced and distributed by CoinDesk. What's going on, guys? It is Thursday, April 28th, and today we are talking in the latest in post-narrative industrialization. Before we get into that, however, a quick reminder. There are two ways to listen to the breakdown. You can listen on the Coin desk Crypto Podcast Network feed, which features both the breakdown as well as other great Coin desk shows, or you can listen on the Breakdown Only feed. They both come out the same day, but the CoinDesk feed comes out in the afternoon,

Starting point is 00:01:12 while the Breakdown Only feed comes out in the evening. In either case, if you're enjoying the show, definitely subscribe, rate, review it. It helps people discover the show. And finally, a disclosure as always. In addition to them being a sponsor of the show, I also work with FTX. So we have been heavy on the geo-regulatory side, and understandably so. We had the second nation to officially adopt Bitcoin as legal tender this week, something that I'm sure we'll be returning to. We had the advancement of legislation in places like Panama and

Starting point is 00:01:42 Brazil, and we had an interesting dichotomy of what different jurisdictions in the U.S. might do with a new mining moratorium in New York, contrasted with Fort Worth, becoming the first U.S. city to start mining Bitcoin. On top of that, we also had a nice dose of Elon. So today, what I wanted to do is check in on the other thing that, while no longer shaping the narrative of crypto day-to-day, continues to be a tectonic shift for the industry. That, of course, is growing institutional involvement. I've called the phase we're in post-narrative institutionalization. And what I mean by that is a recognition that the firms who are building new products that integrate their traditional finance offerings with the crypto industry or who otherwise are starting to

Starting point is 00:02:27 trade digital assets, explore NFTs, etc., etc., are not doing it with press in mind the same way they might have been at the height of the recent bull market. Instead, they're doing it because they're positioning for a future which they have increasingly high conviction in. I think in many ways that's much more bullish than fomo-induced press-seeking innovation engagement. Today we have a few interesting stories on that front, and the first is a gauge of sentiment. BitStamp has released another edition of their Crypto Pulse survey. This survey had 28,000 respondents, including 5,000, quote, institutional investment strategy decision makers and 23,000 retail investors across 23 countries. Apologies in advance for a bunch of numbers, but this is a survey. Bitsdamp found that

Starting point is 00:03:16 88% of institutional respondents and 75% of retail investors believe that crypto will see mainstream adoption within a decade. 54% of retail investors believe crypto will overtake traditional currencies within 10 years. 67% of retail investors believe crypto is a trustworthy investment, while 70% of institutional investors responded that they trusted. This one is really important, I think. Individuals and institutions in emerging economies are much more likely to trust crypto, with nearly 80% reporting they do compared to 62% in more developed markets. And then, of course, there was the stat that Twitter absolutely latched onto, which is the survey's discovery that 80% of institutional investors

Starting point is 00:03:58 believe that cryptos will overtake traditional investment vehicles. Julian Sawyer, the CEO at BitStamp, says, the adoption of crypto and other digital assets is advancing at an unprecedented rate. We've seen interest propel in the year since the pandemic and crypto is now part of the wider conversation in global macroeconomic matters. Our survey shows something we have advocated over a long time. Talking about the survival of digital assets is firmly over. The question is now about evolution. Bobby Zagata, the CEO of BitStamp USA, said, but there's more to these trust scores.

Starting point is 00:04:31 The data tells us that the more people know about crypto, the more they trust it. This is notably different from other tech sectors where more knowledge of how something works actually can lead to lower trust. Over half of respondents said that crypto will overtake traditional currencies in less than 10 years. We need to prepare people for a future where, crypto plays an even bigger role. This speaks volumes about its potential to truly change the world. End quote. Now, I think it is totally reasonable to have a big grain of salt and skepticism for any industry-funded survey. And that's not just in crypto that's in any industry. Surveys are

Starting point is 00:05:07 notoriously hard to do well no matter how well-intentioned you are. It's incredibly easy to lead people with the way that you construct questions. Certainly the fact that over half of respondents think that crypto is going to overtake traditional currencies in a decade, suggest that we have a very particular audience here. But even with that, I think there's a lot that we can extract that's still really interesting. In many ways, the survey's core contention is about the trust and belief in crypto compared to trust in traditional assets. And within that context, a few things stand out.

Starting point is 00:05:39 First, there is generally high conviction that crypto is here to stay. Even asset managers that don't currently trust crypto are conceding that point. which is very different than what we saw in the past. Another really interesting point is the gap between emerging market trust and developed market trust. This suggests that in places where there is relatively less trust in fiat currencies and traditional markets, crypto is seen as a much more viable alternative. It's interesting to note that trust seems to be relative rather than absolute, which might suggest that collapsing trust in developing markets and developing market currencies could be a stronger adoption driver in the future. Finally, one negative side thing,

Starting point is 00:06:18 it's definitely the case that the perception that crypto markets are unregulated or poorly regulated is really sticky. And this makes sense. We've had a decade of harsh rhetoric and condemnation from governments, traditional media, and just in pop culture. That's started to shift, but there's still a long history of crypto is for criminals, or it's not useful, and we see it even today. But still, there are clearly big things shifting. So if that's the sentiment side of the side of of the story. What about the actual adoption side of the story? Well, we've got that too. Looking for ways to step up your crypto game? Then go with Nexo. For starters, you get free crypto for each purchase or swap. How about earning guaranteed yields? Up to 17% paid out daily.

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Starting point is 00:08:21 When you trade NFTs on FTCX, you pay no gas. FDX app today and use referral code breakdown to support the show. Fidelity is one of the world's largest financial service providers. It's also the United States single largest retirement plan provider. It manages the retirement plans for 23,000 companies. This week, Fidelity announced that those retirement planners will have the option to put Bitcoin into their accounts directly. The product is called the digital asset account and will be a part of Fidelity's core 401K. The account will hold Bitcoin and short-term money-market investments for liquidity purposes. The Bitcoin will be held in the Fidelity Digital Assets custody platform.

Starting point is 00:09:06 When the plan goes live later this year, savers will be able to allocate up to 20% of their 401ks to Bitcoin, although the plan sponsors, i.e. the companies that Fidelity works through can lower that threshold. Initially, they will only offer Bitcoin, although they anticipate other digital assets will follow. David Gray, who is the head of workplace retirement offerings and platforms at Fidelity said, there is a need for a diverse set of products and investment solutions for our investors. We fully expect that cryptocurrency is going to shape the way future generations think about investing for the near term and the long term. Gray also said that this came effectively from demand. We have seen growing in organic interest from clients, especially those with younger

Starting point is 00:09:45 employees. Now, this is definitely forward-looking for the retirement industry. Only a month ago in March, the U.S. Labor Department, which regulates company-sponsored retirement plans, cautioned employers to, quote, exercise extreme care before they consider adding a cryptocurrency option to a 401k plan's investment menu. Vanguard Group, which is a major fidelity competitor, said that it, quote, has no plans to offer a cryptocurrency option within its 401K plans. On their website, the company says, since cryptocurrencies are highly speculative in their current state, Vanguard believes their long-term investment case is weak. The interesting thing to me is that Ultimately, I think Fidelity here is making a play that while the buyer, quote-unquote, of their

Starting point is 00:10:26 programs may be the employers, their real customers are the employees who are young, hip to this asset class, and want in. There is another element of Fidelity's calculus, which I think matters in the context of retirement, is that as people are thinking about their retirement, they're also thinking about how they hedge how things might change in the future. I would venture to bet that the number of people who hold crypto with low personal conviction, but as a hedge because they see so many of their peers with genuinely high conviction, is growing as well. If you're surrounded by people who are telling you that this is the next big thing,

Starting point is 00:11:00 and you just don't see it, but there's so many of them that do, why not put one or two or three percent of your retirement fund in just in case? Now, in maybe the least surprising part of this news, it will be Michael Saylor's micro strategy that will be the first company to take advantage and offer these new accounts. Sailer tweets, as Microstrategy continues to be a pioneer in Bitcoin for corporations, we are planning to offer our employees the option to invest in Bitcoin as part of their 401k portfolio. Microstrategy looks forward to working with Fidelity Digital Assets to become the first public company to offer their employees the option to invest in Bitcoin as part of our 401k program.

Starting point is 00:11:38 Lin-Aldin writes, some of the biggest pools of capital out there, like 401K plans, haven't been able to own Bitcoin yet. Fidelity is planning to add that access. I'm with her. I think this is a huge deal. One of the easiest, sure, why not add a little adoption mechanisms we've ever seen? I also think that in our current context, the great resignation, remember, that employers are going to be looking for any edge to keep talent. Bitcoin and your retirement accounts may not seem like a big thing, but some companies will definitely see it as a tool to signal to their younger employees,

Starting point is 00:12:13 their Gen Z and millennial employees that they get it, and I think they'll be successful if they do so. A couple quick more stories to round this institutional episode out. Dragonfly has raised a new $650 million crypto-focused venture fund. Two reasons this is relevant. First, it's just another example of something I keep talking about, which is that capital keeps flowing into this industry, despite the fact that prices are going sideways or down. Remember, when venture firms are well capitalized and when startups are well capitalized,

Starting point is 00:12:41 it tends to make the bottom of a bare market less severe. It means that there is more capital to keep building even in those down markets. The stuff that gets built during those down markets tends to be what drives people back into the space. But as always, the more relevant thing is who is investing. And for the sake of this show, does it extend to our idea of post-narrative institutionalization? The short answer is yes. The investors in Dragonflies Fund include Tiger Global, KKR, Sequoia, China, Ivy League Endowments, Invesco, top-tier capital partners, and an undisclosed Southeast Asian state-owned investment company, among others. Multiple ivies with endowments investing in this space is what caught my attention. It was really big news when the first endowment started investing in crypto a couple

Starting point is 00:13:26 of years ago, and this suggests that it's becoming a bit de rigour. Another one, Goldman Sachs is apparently exploring the tokenization of real assets. Security tokens are back on the menu, baby, but now they're called NFTs. Matthew McDermott, the global head of digital assets at GlobenSack, said at the Financial Times Crypto and Digital Assets Summit on Wednesday, we are actually exploring NFTs in the context of financial instruments, and actually there, the power is quite powerful. Clearly a quote taken from a live conversation. We could do a whole series of shows on the first wave of tokenized securities and what that

Starting point is 00:13:59 meant and why they didn't go anywhere and what the appeal was then, what it continues to be. But the point relative to this show is that this is another example of a firm just doing the Web 3 thing rather than trying to make hay out of it. Now, wrapping this all up, I think it's important as we're talking about these bullish long-term institutional investor attitudes that we recognize that it continues to be pretty bloody in terms of short-term institutional participation. We've seen a couple weeks of institutional outflows from crypto-related funds, and even in the weeks that we've had some inflows, it's not like it's been a steady climb. Honestly, when you take this together with all of this actual adoption that we're talking about,

Starting point is 00:14:37 it should make you even more bullish. These institutions aren't out there making huge hay getting pressed with their announcements. They're not doing massive, fomo-induced deals. They're actually building long-term infrastructure to be involved with Bitcoin and other digital assets, and getting ahead of what they clearly believe will be increased consumer demand. I think that's a pretty exciting thing, and clearly I'll be keeping an eye on it to share with all of you here. For now, I want to say thanks again to my sponsors, nexo.io, Arculus and FTX. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace. Hey, breakdown listeners. Come join CoinDesk's Consensus 2020, the festival for the

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The Breakdown - Bitcoin Is Coming to Your 401(k)

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