The Breakdown - BlackRock’s Larry Fink Says Ukraine Conflict Could Accelerate Digital Currencies

Starting point is 00:00:04 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 nexus.io, Arculus, and FtX, and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, March 26th, and that means it's time for the weekly recap. Before we get into that, however, if you are enjoying the breakdown, please go subscribe, give it a rating, a review or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find the link in the show notes or go to bit.ly slash breakdown pod. Also a disclosure as always, in addition to them being a sponsor of the show, I also work with

Starting point is 00:00:50 FTX. Finally, one more thing before we get into this weekly recap. If you haven't bought your tickets yet, I highly suggest you check out CoinDesks Consensus 2020, which is happening this year in Austin, Texas for the first time. It's going down June 9th through June 12th. This event is one of the biggest in the industry and has a ton of topics that cross-cut everything this industry touches. The speakers are great from Kathy Wood to Sam from FTX to CZ to to non-thought leaders like Punk 6529. All in all, I think it's going to be a really enlightening and fun time. And if you're interested, you can use Code Breakdown for 15.5.

Starting point is 00:01:33 percent off. Check out coindesk.com slash consensus 2022. All right, this is a true weekly recap. We're going to talk institutions. We're going to talk geopolitics, inflation, macro, and stuff from the industry specifically. And we're going to start with institutions, although it sort of combines geopolitics as well. Larry Fink wrote a letter to BlackRock investors about everything going on in Ukraine with a somewhat surprising conclusion. And given that BlackRock is the world's largest asset manager, I think it's worth seeing how they're discussing things. Quote, the Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades. We had already seen connectivity between nations, companies, and even people strained by two years of the pandemic. It has left many

Starting point is 00:02:18 communities and people feeling isolated and looking inward. I believe this has exacerbated the polarization and extremist behavior that we are seeing across society today. He notes that the big deal wasn't just the letter of the law of sanctions, but in fact the mass exodus of private businesses from Russia as well. Numerous commentators have noted that this was one of the biggest shocks to Putin in the wake of his invasion, to see so many companies, particularly in the energy sector, just taking multi-billion dollar losses on the chin to get away from Russia. Think sees this anti-globalization force coming out of Russia as accelerating a trend that was already happening. Russia's aggression in Ukraine and its subsequent decoupling from the global economy

Starting point is 00:03:02 is going to prompt companies and governments worldwide to re-evaluate their dependencies and reanalyze their manufacturing and assembly footprints, something that COVID had already spurred many to start doing. Now, the implications of this, he says, are that nations are going to re-evaluate who they rely on, what supply chains they're a part of, and in that process, some countries are going to lose, while other countries, he suggests countries like Mexico and Brazil, stand to gain. On the topic of inflation, he basically just articulates the rock and the hard place that central banks find themselves in.

Starting point is 00:03:35 Quote, central banks must choose whether to live with higher inflation or slow economic activity and employment to lower inflation quickly. This is, in other words, the R word by any other name that we discussed the other day. But the thing that really got people's attention, particularly in the crypto industry, is the impact he suggests for this war on digital currencies. quote, finally, a less discussed aspect of the war is its potential impact on accelerating digital currencies. The war will prompt countries to reevaluate their currency dependencies. Even before the war, several governments were looking to play a more active role in digital currencies and define the regulatory frameworks under which they operate. The U.S. Central Bank, for example, recently launched the study to examine the potential implications of a U.S. digital dollar. A global digital

Starting point is 00:04:22 payment system thoughtfully designed can enhance the settlement of international transatlantic transactions while reducing the risk of money laundering and corruption. Digital currencies can also help bring down the costs of cross-border payments, for example, when expatriate workers send earnings back to their families. As we see increasing interest from our clients, BlackRock is studying digital currencies, stablecoins, and the underlying technologies to understand how they can help us serve our clients. So clearly think here is not really giving any indications of how BlackRock is going to be involved in the digital asset space. In fact, he doesn't even really differentiate between cryptocurrencies that are non-sovereign and sovereign central bank digital currencies. It seems like they're

Starting point is 00:05:01 more interested in the formal digital currencies that may come out of governments than they are in the non-sovereign versions that are such a big part of the industry that we are a part of. Ultimately, what's most notable about this isn't the specifics but the fact that in this relatively short letter, the leader of one of the world's most significant financial institutions is paying so much attention to the digital currency space. Nexto is the go-to platform for all things crypto. Invest in the hottest coins out there and start earning risk-free interest of up to 20% APR, paid out daily. Need cash ASAP but don't want to sell?

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Starting point is 00:06:52 FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCX, you pay no gas fees. Download the FTCX app today. and use Referral Code Breakdown to support the show. There were many other things that happened on the institutional side of the market this week, certainly given that this hasn't been the narrative for quite some time, right? Goldman Sachs became the first major U.S. bank to do a crypto-over-the-counter transaction, with Galaxy Digital as their counterparty.

Starting point is 00:07:24 Interestingly, as basic as this seemed, many financial publications said that it was likely to open up the Bitcoin and Crypto space and get more banks comfortable with this type of transactions. so I guess we'll have to see. Ray Dalio's Bridgewater Associates is, according to reports published by CoinDesk, on the verge of investing in a crypto fund, which would be its first deployment into the crypto space. Cowan, a prominent investment bank, has created a digital assets division. Jane Street is investing in a new lending protocol based on the near protocol.

Starting point is 00:07:56 Chipmaker Qualcomm has created their own Metaverse Fund, the $100 million dollar snapdagon Metaverse Fund, but it's focused on a different part of the Metaverse. So this is focused on a little bit heavier technology around augmented and virtual reality. Quote, it will establish a grant program for software developers creating virtual and augmented reality, content in fields such as gaming, health and wellness, media, entertainment, and education, as well as content targeting businesses. And then, of course, there is Exxon, not exactly an institution, but certainly a big corporate. Again, according to reports on CoinDesk, ExxonMobil is running a pilot program using excess natural, that would otherwise be burned off from North Dakota oil wells to power cryptocurrency mining

Starting point is 00:08:37 operations and is considering doing the same at other sites around the globe, according to people familiar with the matter. The oil giant has an agreement with Crusoe energy systems to take gas from an oil well pad in the back-end shale basin to power mobile generators to run Bitcoin mining servers on sites, said the people, who asked not to be named because the information is in public. The pilot project, which launched in January 2021 and expanded in July, uses up 18 million cubic feet of gas per month that would have otherwise been burned off or flared because there aren't enough pipelines. Still in the realm of unconfirmed but seems pretty solid. And if indeed, a company the size and significance of Exxon is thinking about how Bitcoin integrates into their natural gas

Starting point is 00:09:18 process, you have to think that that is going to have ramifications for the rest of the industry. So that's a little whistlestop tour of the institutional side of the crypto industry. What about what's going on in geopolitics? Well, in addition to the general view of Russia and Ukraine, that that we just discussed with Larry Fink, we've also got two really significant events in the energy space that have implications for the U.S. dollar, as you heard yesterday if you listen to my show. The first is that China and Saudi Arabia are accelerating their conversations about pricing oil in the yuan. Right now, 80% of the world's oil is priced in dollars, Saudi Arabia's economy and currency are pegged to dollars. And this has been the way of the world since 1974 after

Starting point is 00:09:58 negotiations with President Richard Nixon. This is why we call it the petro dollar. system. However, these days, China consumes 25% of Saudi's oil output and is pushing hard for the yuan to be the settlement currency for more international trade. In Russia, Vladimir Putin is biting back at sanctions by forcing what Russia calls hostile states to pay for their energy from Russia in rubles. These are contracts that were formerly priced in dollars or euros that Putin is now saying they will not fulfill unless those countries, many of whom are lined up against Russia because of its belligerence in the Ukraine, instead pay in Russia's national currency, the exact currency that sanctions are trying to tank. A Russian state official also offhandedly mentioned that if they

Starting point is 00:10:42 needed to price things in Bitcoin, they would as well. So, you know, there's that. Bringing it back more domestic in terms of inflation in the macro scene, the big thing this week was Jerome Powell discussing 50 basis point rate hikes, which, while not seemingly very aggressive given the fact that inflation is at 8% or more, based on even official numbers, it's pretty significant in historical context, given that we haven't seen a 50 basis point rate hike in a single meeting since March of 2000, subsequent to which the dot-com bubble was burst and we went into recession. Also a bit of an interesting narrative watch in the macro space.

Starting point is 00:11:17 There is lots of chatter around how stocks are indeed inflation hedges, and that's why they continue to be buoyant despite all of this volatility. And then let's close out with our industry, and obviously one of the big themes for 2022 is the relationship between governments and crypto. And boy, was that on display this week. Florida's governor, Ron DeSantis, said that he had directed the state to explore accepting crypto for tax payments. He said this as part of a larger discussion around signing a bill that would have a financial

Starting point is 00:11:48 literacy requirement for graduating from high school. The Austin, Texas government is exploring something similar around tax payments. Meanwhile, up north, New York State is moving closer to a moratorium on proof of work mining. The specifics of that moratorium have gotten a little less aggressive than they were before, but obviously not something that those of us in New York, at least, are overly thrilled about. In India, the finance bill, which includes extremely high crypto taxation, is moving forward while in Thailand. They are outlawing cryptocurrency for payments, not for use as a speculative asset or a tradable asset, but just for payments starting April 1st.

Starting point is 00:12:28 In what could either be a small deal or a pretty big deal, El Salvador has delayed its Bitcoin bond, saying it's not the right time based on global market volatility. Now, the reason this could be a big deal versus not such a big deal is that many countries, many jurisdictions, are looking at the El Salvador experiment with keen eyes. For some, they're wondering if that's a type of policy they would pursue. For other international actors, such as the IMF,

Starting point is 00:12:54 they're watching to see if this El Salvador Bitcoin thing represents a real threat to the way that the global monetary order is set up now. If the Bitcoin bond delay is just about what they say it's about, global market volatility, which obviously there is right now, then it probably doesn't have any real impact one way or another on the success of the overall experiment. If, on the other hand, they're finding much less demand for this thing than they thought or they're running into logistical or technical issues, that could be a different story. The Bank of England has outlined a framework for regulating crypto, which people are now pouring over, and an official in Malaysia has said that the government should recognize Bitcoin as legal tender. And then, of course,

Starting point is 00:13:31 on top of this, the industry continued to move forward as it always does. As the cap end to a story from last week, we got Bored Ape Yacht Club parent and now Cryptopunk IP owner as well, Yuga Labs, formally announcing their $450 million fundraise. This, as I have said, is the year of absolutely everything, and this week was no exception. For now, I want to say thanks again to my sponsors, nexus.a.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 Decentralized World, this June 9th through the 12th in Austin, Texas. This is the only festival showcasing and celebrating all sides of blockchain, crypto ecosystems,

Starting point is 00:14:24 Web 3 and the Metaverse, and is designed for crypto newbies, investors, entrepreneurs, developers, and creators. Don't miss speakers like Kathy Wood, SBF, CZ, Punk 6529, and Joe Lubin to name just a few. Use code breakdown to get 15% off your pass at coindesk.com slash consensus 2022.

The Breakdown - BlackRock’s Larry Fink Says Ukraine Conflict Could Accelerate Digital Currencies

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