The Breakdown - Coinbase Joins the S&P 500 as Bitcoin and Traditional Finance Converge

Starting point is 00:00:00 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 Tuesday, May 13th, and today we are talking about a major milestone in the convergence of Bitcoin and traditional finance. 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 in the show notes or go to bit.ly slash breakdown pod. Well, friends, Coinbase is set to become the first crypto company in the S&P 500. After the bell on Monday, S&P Global announced an update to their index, replacing Discover Financial Services with Coinbase.

Starting point is 00:00:52 The change will go live ahead of market open next Monday. Alongside reaching a top 500 market cap, companies are required to be profitable in the past quarter and over the previous year to qualify for inclusion in the index. Coinbase has now strung together six consecutive. quarters of profitability, their longest streak since going public in 2021. They're currently around the 190th largest company in the U.S. with a market cap of $82 billion. That puts them around the same size as Allstate, Robin Hood, and FedEx. They'll likely go into the index with a 0.1

Starting point is 00:01:22 wading based on their market cap. Coin-based stock jumped on the announcement, gaining 10% in after-hours trading. Index inclusion typically comes with huge tailwinds as the index funds buy stock to get up to wait in a price-insensitive manner. As we've seen from previous inclusion, like Dell, Palantir, and Super Micro, that tailwind can persist as the company's benefit from passive index flows. Still, while this is a big deal to Coinbase itself, it's an even bigger milestone for the industry as a whole. Crossing the threshold of inclusion into the S&P 500, as inevitable as it has felt for Coinbase, is still a serious sign of legitimacy for crypto. Practically what this means is that every retirement account in the U.S., as well as the gigantic

Starting point is 00:02:01 global investor base that owns the index, will have, yes, a tiny slice, but a slice nonetheless. less of crypto exposure for the first time. Coinbase CFO Alicia Hoss wrote, Joining this prestigious index reflects how far Coinbase and the industry have come and is a signal of where the world is heading. The Coinbase Twitter account posted, as the saying goes, first they ignore you, then they laugh at you, then they fight you, and then they add you to the S&P 500, or something like that. CEO Brian Armstrong tweeted, this milestone represents with the true believers from retail investors to institutional investors to our employees and partners new all along.

Starting point is 00:02:35 Crypto is here to stay. Many also noted the symbolic changing of the guard in replacing Discover Financial Services, a struggling credit card company that's in the process of being rolled up by Capital One. Glenn Rothwell, the bizdev lead at Alchemy wrote, Coinbase replacing Discover in the S&P 500 feels like our television versus radio moment.

Starting point is 00:02:53 Still, mostly, this is just a moment when crypto becomes cemented in the mainstream. Ark Invest's former crypto lead, Yassine Al Mendra commented, yesterday's rat poison is today's benchmark exposure. Coinbase enters the S&P 500 and the skeptics have no opt-out button. And indeed, this really also anchors the theme for today's episode more broadly. We are firmly in the convergence era where Bitcoin and traditional finance become

Starting point is 00:03:16 intermeshed at a totally different level. Another example of this? Bitcoin Magazine's CEO David Bailey is launching a publicly listed Bitcoin holding company. The company called Nakamoto Holdings will go public via reverse merger with a healthcare firm called Kindly MD. Kindly is a very small company that went public in mid-20204. They've been making a small but growing loss in each of the past two years, making them a good candidate for this sort of reverse merger. Nakamoto Holdings with Bailey and the lead brings a wave of fundraising to kickstart the pivot. The company will start with 710 million in fresh capital ready to deploy into Bitcoin

Starting point is 00:03:48 into Bitcoin through a mix of equity and convertible debt. They claim it's the largest ever private investment in public equity to launch a Bitcoin Treasury company. Now, on the one hand, one could argue that there's nothing particularly interesting about yet another micro-strategy clone. At this stage, the playbook is well-trodden, and there's more than a dozen small companies pursuing the strategy now. However, for Bailey, this isn't just about copying Michael Saylor. It's about taking the revolution in capital markets to the next level. Bailey said, traditional finance and Bitcoin-native markets are converging. The securitization of Bitcoin will redraw the world's economic map. We believe a future is coming where every balance sheet, public or private, holds Bitcoin. Nakamoto seeks to be the

Starting point is 00:04:24 first publicly traded conglomerate designed to accelerate that. Bailey said the ultimate goal is to use Nakamoto as a vehicle to bring Bitcoin to capital markets the world over. Not short on ambition, he aims to build a dynasty around the Nakamoto name, adding, the financial institutions who define their chapter and history have all carried the names of their founders. Medici, Rothschild, Morgan, Goldman, today we stake that legacy on Nakamoto. Checking in on another Bitcoin treasury company, meanwhile, Metaplanet now owns more Bitcoin than El Salvador. The former Japanese hotel chain has been building their Bitcoin treasury for a little over a year at this point, raising capital using a mix of debt in equity. Their latest purchase announced on Monday was a huge 1,241 BTC worth around

Starting point is 00:05:03 $126,000. This was a 20% increase in Bitcoin terms bringing their total to almost 6,800 Bitcoin. CEO Simon Gerevich tweeted, Metaplanet now holds more Bitcoin than El Salvador. From humble beginnings to rivaling nation states were just getting started. The company aims to reach 10,000 Bitcoin at the end of the year, and they seem to have pivoted to a much more aggressive strategy over recent months. Their Bitcoin stack has grown 170% year-to-date. The company is also starting to provide guidance in Bitcoin terms aiming for a 35% gain in Bitcoin over the next two quarters. It is not just small companies, however, increasing their Bitcoin exposure. Goldman Sachs clients are ramping up their Bitcoin buying, increasing their Bitcoin ETF holdings

Starting point is 00:05:43 by 28% last quarter. They now hold $1.4 billion worth of the BlackRock ETF, making their wealth management division the largest institutional holder of the fund. Goldman also holds around $315 million worth of the Fidelity ETF. Now, combine, this is still a rounding error in the $3 trillion in total assets under management, but the trend line is very clear. Macroscope reported on the new filings, noting that in December, Goldman disclosed large options positions alongside their spot exposure. The firm held over half a billion dollars in downside puts,

Starting point is 00:06:13 suggesting their clients were sacrificing some upside for protection. Those options positions have disappeared in the latest filing, which means either they'll be disclosed later, or Goldman clients have decided to get outright long Bitcoin. After years of saying they want to get into crypto, it seems that Goldman are now finally moving in that direction. Their head of digital assets, Matthew McDermott actually spoke at Bitcoin 2049 in Dubai last month, a first for the firm. For his part, he's keeping a close eye on developments commenting, if regulations allow stablecoins to be easily adopted by financial institutions, this could

Starting point is 00:06:44 accelerate the use of digital currency by big players. We're watching very closely. Another company moving over into the mainstream stock market space is Galaxy Digital. All systems are go for the company to Uplist to the NASDAQ. Trading is set to go live on Friday after a lengthy battle to move up from the Toronto Stock Exchange. Galaxy has been attempting to uplist since 2021, with CEO Mike Novogratz recently noting that they were on their ninth round of comments with the SEC. The SEC has now approved their relocation from the Cayman Islands to Delaware, a move that was ratified by a shareholder vote last Friday.

Starting point is 00:07:15 The addition to Galaxy to U.S. markets closes the loop on the mainstreaming of crypto equities that began in 2021. The company is now around twice the size of Marathon Digital, so it was always a notable exclusion. They'll also come into the market with the fourth largest Bitcoin treasury behind Micro Strategy Marathon and Riot. Discussing the uplisting on Bloomberg, Skybridge Capitals Anthony Scaramucci explained how his firm is thinking about optimizing their Bitcoin exposure using crypto equities. He said, Coinbase and Galaxy are companies that we think are highway systems in the world of digital assets. It's not just a pure play on the assets themselves. You're getting a little pickup on the infrastructure.

Starting point is 00:07:50 Meanwhile, Trump family-affiliated miner American Bitcoin plans to go public via merger as well. The Hutt 8 spin-off will merge with Griffin Digital Mining, a small U.S. miner from the last cycle. Now, Griffin is a penny stock down 99% since 2020 and seems to own little more than a ticker symbol at this stage. But that ticker symbol is valuable to American Bitcoin who need access to capital markets. as soon as possible. Asher Gannut, Boyd Member of American Bitcoin and CEO of Hutt 8 said, Taking American Bitcoin public is a critical step towards scaling the business at the pace and magnitude we envision. Time to market was a critical factor, and this transaction enables an efficient path to public markets by combining with an entity that is structurally aligned

Starting point is 00:08:28 with American Bitcoin's mining-focused launch strategy. The all-stock reverse merger will see Griffin mining take a 2% stake. The new combined company is expected to list on the NASDAQ once the deal closes, which is expected in the third quarter. Now, hold aside the Trump family dynamics, which we've been talking about pretty much endlessly on this show recently. Perhaps for our purposes, the more interesting part is just how many different companies are figuring out non-traditional ways to go public in an environment where the IPO window is very, very closed. It is clear that crypto companies are fighting to get access to the public markets and willing to take non-traditional paths to get there. Lastly, today, Tether's market cap has hit a new all-time high, crossing $150 billion for the first time.

Starting point is 00:09:08 The dominant stablecoin has been surging since the election, adding $30 billion in market following the ballot. Tether now represents 61% of the global stablecoin market market market, with their main rival circle holding a 25% share. No one else has managed to cross the $10 billion mark or represent more than a few percentage points of market share. And taking a look at these numbers while the Stablecoin bill is stuck in Congress really highlights the bind faced by lawmakers. Bringing Tether into compliance is in the list of changes that are currently in dispute, and the bill could easily give banks a regulatory advantage to stand-up competition. But for the moment, Tether is the vast majority of the stablecoin market.

Starting point is 00:09:42 Lawmakers can push to bring stablecoins into Tadfi, but they can't make Tether's path to compliance too difficult for fear of crashing the crypto market. Regardless of what they think, Tether appears to have reached escape velocity, and at this point is a pretty permanent part of the financial landscape. That, however, is going to do it for today's breakdown. Appreciate you listening, as always. And until next time, be safe and take care of each other. Peace.

The Breakdown - Coinbase Joins the S&P 500 as Bitcoin and Traditional Finance Converge

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