The Breakdown - BlackRock's Larry Fink Gives a Laser-Eyed Bitcoin Interview

Episode Date: July 6, 2023

On Wednesday, July 5th, BlackRock CEO Larry Fink gave an interview on Fox that made clear that the Bitcoin ETF initiative was coming all the way from the top. NLW analyses the community reaction and argues that it's all even more significant than the hype suggests.  Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribeto the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

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. What's going on, guys? It is Thursday, July 6th, and today we are talking about Black Rock's Larry Fink giving a laser-eyed Bitcoin interview. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link of the show notes or go to bit.ly slash breakdown pod. All right, friends, today we have a fun one for you. It's really in many ways a continuation of the biggest news we've had in the last couple weeks, and as you'll see what I think is the biggest news in some ways post-FTX.

What I'm talking about is, of course, the BlackRock ETF filing. For as big a deal as people think this was, I think they're wrong, because I think it's a bigger deal. It is the Gandalf You Shall Not Pass moment stopping SBF from dragging the entire industry down the hole with him. And it's not so much a narrative moment because the key narrative moment for Bitcoin post-FTX came during the banking crisis. While Bitcoin was doing well as all the bank shuddered and mainstream media picked it up that these things might be connected, this is instead a psychological moment. But I suppose before we get into all that, I should actually tell you guys what happened. On Wednesday night, BlackRock CEO Larry Fink gave a wide-ranging interview on Fox business. Among the topics he covered were the toxicity of the ESG movement, the dramatic size of Biden's

infrastructure stimulus, and the likelihood of more Fed rate hikes to come. Of course, for our little corner of the world, there was only one topic, and that was Bitcoin. Fink ratified what Bitcoiners had been saying for more than a decade at this point that Bitcoin represents the digitization of gold. Fink said, quote, the role of crypto is digitizing gold in many ways, instead of investing in gold as a hedge against inflation, a hedge against the onerous problems of anyone country, or the devaluation of your currency of whatever country you're in. Let's be clear, he said. Bitcoin is an international asset. It's not based on anyone currency, and so it can represent an asset that people can play as an

alternative. Now, interestingly, this interview was one of the first that I've seen that didn't make a choice between the Bitcoin or blockchain narratives and instead embraced both. Think basically expressed a belief that blockchains could be a transformative step in the evolution of financial infrastructure. He said, we're a believer in digitization of products. ETFs were a big revolution from the mutual fund industry, and it's really taking over the mutual fund industry. We do believe that if we can create more tokenization of assets and securities, and that's what Bitcoin is, it can revolutionize finance again. Now, he elaborated this even further later in the interview, pushing back against host Charles Gasparino's suggestion that the value of cryptos had diverged

from their perceived lack of use cases. Gasparino said at one point, I don't know a lot of people who use the blockchain to transact. I know a lot of people who own Bitcoin. I don't see the utility in the underlying technology. Fink basically immediately shut that down and said, I actually believe the underlying technology is fantastic. The blockchain will help you accelerate the process of transactions. Let's be clear, if you have a pure blockchain and you have knowledge of who the buyers and sellers are, we don't need custodians anymore. the whole process of finance, some of the intermediaries are broken down. Now, at the same time, Fink acknowledged that there's still work to be done to achieve a financial system with fewer

intermediaries. We're not close to there, but it's an advancement of technology, he said. This represented a pretty dramatic rebuttal to the idea that Bitcoin has no use cases talking point. And I'm not even really capturing the tone. Fink basically laughed in the host's face for saying that. You got to think the other cable news personalities saw that and might rethink their approach to this question just a little bit. Now, if you're you've been in the Bitcoin space for a while, you might recognize just how much of a shift this new outlook on Bitcoin is for Larry. Back in October 2017, when Bitcoin was up 470% for the year and making new highs on a daily basis, Fink called the asset an index of money laundering.

Adding that, Bitcoin just shows you how much demand for money laundering there is in the world. That's all it is. Now, Fink did indirectly speak to some of these previous comments, asserting that in the early days Bitcoin's primary use case was illicit transactions. However, he suggested that as adoption has grown, the reasons to own and use Bitcoin have become more legitimate. Now, while Fink is prohibited from making specific comments about BlackRock's ETF application and its prospects for approval, he did comment that, quote, we work really closely with our regulators and we want to hear from the regulators, what are their issues and can we fix those issues around that?

Speaking to the rationale behind offering a Bitcoin ETF, Fink said, quote, What we're trying to do with crypto is make it more democratized with all of crypto to make it much cheaper for investors. Right now, the bid-ask spread for crypto is very expensive. It does erode a lot of the returns you speak about because it costs a lot of money to transact Bitcoin, and it costs a lot of money to get out of that. We hope our regulators look at these filings as a way to democratize crypto. Think also even took a moment to address some of the more outlandish theories out there,

suggesting that BlackRock is just going to try to immediately create a BlackRock fork of Bitcoin or something like that. He said, our job is to be working on behalf of the asset owners. We're the largest asset manager. That means none of the money is ours. We're a fiduciary. We do what our clients are asking. And we've had good performance.

We've been right on market calls. So there are a few things that stood out to me about this interview. First of all, the interview was on Fox. This was an exclusive interview that could have easily been done with Aaron Sorkin on Squawk Box or Bloomberg, but it wasn't. Remember, think is a major, major Democratic contributor in the U.S. The fact that he chose the right-aligned rather than the left-er-line media seems telling. What's more, as much as we're talking about the Bitcoin side of this interview, he was definitely there to publicly denounce ESG and criticize the hard left and hard right for politicizing energy policy. His big point was that we need fossil fuels at the moment while the world builds out renewables and carbon reduction tech.

In fact, no one really picked up on it, but Fink said at one point that they were in the middle of a big deal with a major gas producer to work on sequestration. Obviously, it's getting a little too far ahead of ourselves at this point, but it's not crazy to see that sort of thinking leading. to something like, oh, I don't know, financing of gas flare mining on a large scale? Anyways, the point was that there was a clear political motivation underlying this interview that was exhibit in where it happened. A second really interesting thing to me was this idea of Bitcoin being an international asset. This was in some ways a more sophisticated development of Paul Tudor Jones' great monetary inflation thesis. One of the things that has been confusing for some people about that thesis is that Bitcoin went down as inflation went up. Now, of course,

there's a lot of nuance there, but I think that the biggest thing is that in a lot of ways, what we mean when we say that Bitcoin is a hedge against inflation is actually that Bitcoin is a hedge against debasement. Larry Fink made that point explicitly, and in a way that really undermines the why do we need Bitcoin when we have Venmo take. Lastly, I sort of mentioned this before, but the fact that tokenize everything was sitting right next to the Bitcoin narrative is really fascinating and marks something new. It seems likely to me that Fink recognizes that regulatory acceptance needs to happen on a large scale first before the U.S. can really begin working on blockchain-based tokenization in the U.S., but it's probably hard for him to ignore the tokenization

progress that's happened in the EU, Singapore, Hong Kong, etc. He didn't say it explicitly, but I wouldn't be surprised if Larry is thinking about what the world looks like if the U.S. is stuck with the DTCC and other intermediaries taking a massive rent out of all financial transactions, while other jurisdictions are slinging around fractional securities on smart contract platforms for pennies. But if that's what I thought, what were other people in the community taking away from this interview? Well, one type of commentary was certainly the peevish annoyance from people who don't particularly like Bitcoin. Isabella Kaminsky from the blind spot wrote, Masks Off. Turns out Larry Fink was a Bitcoin bro all along.

There was, of course, also the pump my bags take. Sherlock Hoddles wrote, Breaking, BlackRock CEO Fink just said on Fox that he believes my bags will pump back to all-time high. These may not be the exact words he used, but I can read between the lines. lines, probably the biggest reaction in the crypto community was something like validation. American Hoddle wrote, you could have heard it from Fink Today or you could have heard it from the average Pleb five years ago. The front running of Wall Street has been epic. Dylan LeClair from Bitcoin magazine said, BlackRock CEO saying what the average laser-eyed anon has been saying for years. Color me shocked. Pomp put it really simply, BlackRock CEO is now the chief

marketing officer of Bitcoin. Another theme that many picked up on was this turnaround in the discussion of ESG. Kelly Greer from Galaxy Digital said, Larry Fink's shilling Bitcoin on Fox while saying he doesn't say the ESG word anymore is the real pivot. Mikey Bolito from Blockwork said, Larry Fink in 2020. Bitcoin is a scam and uses too much energy. Larry Fink in 2023. ESG is a scam by Bitcoin. Now, there was some amount of concern or recognition of the irony of cheering on BlackRock, the world's biggest financial institution getting involved in an asset that is meant to break the power in some ways of traditional financial institutions. Wendy O tweeted, BlackRock is about to be accepted by the Bitcoin Maxis. I thought the point was removing third-party predators and being your own bank. Self-custody will die.

More importantly, I'm excited to get rich and ride the grift wave. Smart Economy podcast host Dylan Grabowski wrote, looking in the mirror, I am laughing at myself for getting excited that the head of a financial behemoth is validating the technology built to operate without figureheads and centralized institutions. Yet, here we are, an entire industry of self-sovereigns cheering him on. Now, the ETF crowd was really looking at broader implications for the BlackRock ETF proposal specifically and tokenization more broadly. Nate Garassi, the president at ETF store, said, BlackRock's CEO on a major news network talking Bitcoin ETFs is really all you need to know. This thing is going to happen, in my opinion. What's more interesting to me than anything Bitcoin ETF related is Larry talking about

the future tokenization of all securities. Now, Nate also made a point that this did actually validate all the people who had been pushing for a Bitcoin ETF and trying to argue why it was valuable to consumers over the last few years. He tweeted, I feel like people just thought we were pumping a Bitcoin ETF for the past however many years. Now everyone's starting to see the light. People investing in Bitcoin anyways through all kinds of expensive in suboptimal ways. ETF can be much cheaper and more efficient option. Finally, James Seafard, an ETF analyst at Bloomberg wrote, TLDR, BlackRock is all in on getting SEC approval for a spot Bitcoin ETF. In case that weren't already obvious,

And now we know unquestionably that it's coming from the top. I think this is a really important point. There's a difference, ultimately, between BlackRock filing for an ETF and Larry Fink going on national TV telling all the bozos on the street to get with the program. And that leads to what I think is the most important conclusion and takeaway from this all, which was about psychology. Neil Jacobs wrote, Larry Fink's endorsement of Bitcoin today as an international asset reminds me of the Paul Tudor Jones endorsement of Bitcoin in May, May 20. 20. Another signal to Wall Street and Main Street. The Overton window is shifting. Macroscope tweeted, Things Pro-Bitcoin remarks today should not be underestimated. Openly gave BlackRock stamp of approval to Bitcoin

broadly, but also as an acceptable and arguably superior alternative to gold, will be consequential in terms of impact on psychology in the asset management world. I think Will Clemente got it even more simply when he said, the CEO of the largest asset manager on Earth, calling Bitcoin Digital Gold on live TV, significantly decreases the career risk of portfolio managers holding Bitcoin. So I said at the top of the show that it's not a narrative moment. It's a psychological moment. And what I mean by that is that this was, in many ways, a declaration with three audiences. The first is the crypto industry. As I pointed out, this is a validation of what so many of us have felt for so long. It was also, however, a declaration to the regulators.

Adam Cochran summed this up a couple weeks ago when BlackRock first filed. He wrote, Lots of weird takes of folks being like Warren and the Dems will never let the BlackRock ETF happen. Larry Fink is a card-carrying Democrat, Dem's super PAC donor, and Kingmaker. This is one of the bankers who puppets Congress members. Everything just changed. It's a classic case of first they fight you. We're in the stage where BlackRock realizes this doesn't go away, so now they try and get their slice of the market. If Gensler denies Fink, they'll sue, they'll call in political favors, and they'll apply again until they win. The largest money manager in the world, with the most politically connected banker in the world, does not simply

decide to wake up one day and take on a losing fight. And that, of course, gets to the third audience that this is a declaration for, which is the rest of the business world. You heard it from Neil, but a bunch of people are comparing this to the Paul Tudor Jones 2020 Bitcoin comments. I think one can argue that this is in many ways bigger. Paul Tudor Jones is brilliant. He's famous. He's enormously successful. But ultimately, he's a cowboy hedge fund manager. There is a gigantic difference between a cavalier risk taker advocating for Bitcoin. And hearing it coming from the mouth of one of the most famously conservative bond fund guys in the world. When Paul Tudor Jones and Stanley Drucken Miller talk about Bitcoin, people think speculative hedge. When Larry Fink talks about

Bitcoin, people think prudent hedge. I think we are likely to see more comments around Bitcoin coming from BlackRock and Larry Fink in the future. But as I said right at the top, I think this is the most significant post-FTX moment in the entire crypto industry. Until tomorrow, guys, be safe and take care of each other. Peace.