The Breakdown - Exchanges Get the Green Light to Offer Crypto

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 Wednesday, September 3rd, and today we are discussing a big announcement about exchange regulation. 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. All right, friends, kind of a sneaky big one today. The SEC and the CFTC have clarified that

Starting point is 00:00:43 crypto can be listed on all regulated exchanges. This is the big piece of guidance that the crypto industry and exchanges of all stripes have been waiting years for. In their joint statement, staff of both agencies said that, quote, current law does not prohibit SEC or CFTC registered exchanges from facilitating trading of these spot crypto asset products. As contemplated by the President's Working Group report, the division's coordination will promote trading venue choice and optionality for market participants within the United States. In line with these goals, the divisions stand ready to support consideration by their respective agencies of exchange trading in certain spot crypto asset products. In a less jargon-filled statement,

Starting point is 00:01:23 SEC Chair Paul Atkins said, today's joint staff statement represents a significant step forward in bringing innovation in the crypto asset markets back to America. Market participants should have the freedom to choose where they trade spot crypto assets. The SEC is committed to working with the CFTC to ensure that our regulatory frameworks support innovation and competition in these rapidly evolving markets. The guidance then resolves one of the largest issues with the status of crypto tokens as either commodity or security being a little unclear. Under U.S. law, exchanges are not able to facilitate both commodities and securities trading.

Starting point is 00:01:56 That's the reason that the New York Stock Exchange doesn't list, for example, oil futures. It's also the reason that the Chicago Mercantile Exchange doesn't list tech stocks. trading venues need to choose one regulator and stick to one side of the financial asset industry. This new guidance then conforms with Atkins' stated view that it shouldn't matter which venue and instrument trades on. Instead, the important thing should be that it's properly regulated in the first place. This guidance throws open the door to many more listings. In the first instance, it ratifies the ability for crypto-native venues to offer both spot and derivatives markets in crypto tokens. The exchanges will need to get registered with the CFTC to list derivatives within the U.S.,

Starting point is 00:02:32 but the largest U.S. exchanges have already set that up. It also opens the door for TradFi exchanges of all stripes to add spot crypto markets to their venues. Vanek, head of digital assets research, Matthew Sigel noted, the NYSC, NASDAQ, CBOE, CME, etc, will soon have spot trading for Bitcoin Ethan Moore. Two Prime Digital Assets CEO Alexander Bloom commented, this opens the door for even more mainstream adoption, granting direct access to those commodity assets at venues where trillions of dollars already reside. Now, as with all expansions of crypto markets, having clear, legitimate, and easy access on the venues that institutions already use is a big unlock. The guidance has, I think, a wide range of very big ramifications. The first is that

Starting point is 00:03:11 the regulatory turf wars are over. The SEC and CFTC are on the same page and working together. We didn't see a single piece of joint guidance on crypto during the last administration, and congressional hearings tended to become a battleground for that turf war. Now it's clear that both agencies have a joint stake in getting crypto regulation right. As a small side note, this guidance also absolutely shreds the Gensler theory that existing laws weren't sufficient. The SEC and CFDC have just made crypto trading unambiguously legal using nothing more than the power to issue staff guidance. Second, this guidance immediately calls into question the validity of various workarounds that have sprung up over the years. In other words, it'll be unclear where Bitcoin ETFs are going to sit in the

Starting point is 00:03:48 environment if traders can simply buy spot Bitcoin on the New York Stock Exchange. Infrastructure and fees will still be an issue and the cheapest product likely wins, but this guidance certainly opens up that question and creates more optionality. That seems to go done. for the long list of all coin ETFs waiting in the wings. This guidance is completely agnostic about which assets are appropriate. Now, the crypto treasury companies don't have the same issues as they mix in an element of leverage to their crypto exposure. However, making spot crypto tokens more readily available could compete with demand for the treasury companies. Chain Yoda commented that it's not a moment too soon, tweeting, fantastic move. With this measure, the legend SEC chair Paul Atkins

Starting point is 00:04:25 may have deflated the crypto treasury bubble before it could end our entire industry in a giant crash. Poor deregulation is the source of pernicious regulatory arbitrage. Deregulate properly or not at all. Now, one small but important upshot of the guidance is that it allows crypto exchanges to move to a federal regulatory regime rather than dealing with a patchwork of state money transmissions licenses. It's not clear how exactly that will work, but there are several crypto exchanges that would love to access New York traders without dealing with the bit license. Now, obviously, this is in line with this year's theme of crypto-legitimization. So far, a lot of that legitimization has been about statements of what's to come, but this is a big practical piece of guidance that actually moves the needle for which markets are available in the U.S.

Starting point is 00:05:06 Novodias wealth president, Nate Gerasi tweeted, main takeaway, crypto trading going mainstream will be on the world's largest venues. Think NYSE, NASDAQ, etc. Next stop after that, every major traditional brokerage. Today's episode of The Breakdown is brought to you exclusively by Grayscale. Grayscale is almost certainly a name you know. They They've been offering exposure to crypto for over a decade now and offer over 20 different crypto investment products, ranging from single asset to diversify to thematic exposure to crypto and the broader crypto industry. They have long been innovators at the intersection of TradFi and Crypto, and one of the

Starting point is 00:05:46 benefits for a lot of us is that grayscale products are available right through your existing brokerage or IRA. Now, of course, investing involves risk, including possible loss of principle. For more information and important disclosures, visit Greatest. Grayscale.com. Go to grayscale.com to explore their full suite of crypto investment products and invest in your share of the future. Now for Coinbase, the new guidance really validates their roadmap of becoming an everything exchange. The past month has seen Coinbase integrate decks trading into their main interface as well as expanding their derivatives markets. Tokenized securities

Starting point is 00:06:21 and prediction markets are also part of the final vision, but that's going to take a little more time. On Tuesday, the exchange announced a new instrument, writing, we're diversifying our U.S. derivatives platform beyond single asset offerings for the first time, launching a new equity index product. The new product is called Mag7 plus crypto equity index futures. It seeks to track the price of Mag7 tech stocks together with BlackRock's Bitcoin and Ethereum ETFs as well as Coinbase's own stock. Coinbase said the instrument will follow an even-wading methodology with each of the 10 components representing 10% of the index. In a blog post, they wrote, historically there has been no U.S. listed

Starting point is 00:06:54 derivative that provides access to both equities and cryptocurrencies with a futures product. By introducing this contract, we are offering a diversified capital-efficient tool. CEO Brian Armstrong tweeted, We're launching the first U.S. futures that give exposure to the top U.S. tech stocks in crypto at the same time. We'll launch more products like this as part of the Everything Exchange. This product will trade as monthly cash-settled futures contracts rather than perps, and will be available in retail-friendly microsizing. Moving on to the latest in crypto IPOs, a pair of IPOs are getting set to go, as Gemini and figure technology file their final paperwork. Gemini is seeking evaluation of around $2.2.2 billion and will sell around 15% of the company to raise over $300 million.

Starting point is 00:07:33 Goldman Sachs, Citigr, Morgan Stanley, and Cantor are leading the IPO, and a laundry list of participants suggest their strong interest in the stock. Now, interestingly, Gemini filed as an emerging growth company, which exempts them from certain reporting requirements. The company has submitted only two years of audited financial statements and omitted compensation disclosure among other exemptions. The exchange made a net loss of $282 million in the first half of this year on $68 million in total revenue. The first half of last year was also a lossmaker for Gemini with the exchange $41 million in the red. Several platforms are already courting retail interest. According to people who have seen the roadshow pitch deck, the IPO is expected to go out next Friday.

Starting point is 00:08:10 Figure technology is aiming to raise $526 million in an IPO that would value the company at $4.3 billion. Figure is Michael Cagney's blockchain-powered lender. We haven't heard much from them this cycle. but they were a reasonably big deal back in 2021. They raised money at a $3.2 billion valuation and a round led by 10T Holdings. At the time, their main offering was digitized consumer lending products built on the Providence blockchain. They formed part of the drive to put mortgages and other consumer loans on the blockchain. Evidently, they're still operating a relatively strong business. They disclosed $191 million in revenue for the first half of this year, up 22% from a year ago. They also turned profitable with $29 million in net earnings. Figure is also expected to IP,

Starting point is 00:08:51 next week going out on Thursday one day ahead of Gemini. Still, it's very clear that when it comes to where the industry's excitement is, Cracken is the IPO that traders are waiting to see. This pair of companies will be a big test to see how much froth remains in the market. Circle and Itaro were hot crypto IPOs. Bullish's IPO saw a big pop, but the company quickly slid lower, although it certainly hasn't been a complete disaster. In any case, I think next week's IPO should be a very useful test of just how strong the narrative bull market remains. Speaking of stocks, Galaxy Digital has launched a new initiative to tokenize their stock. Beginning today, stockholders can tokenize their galaxy shares on the Solana blockchain using Superstates opening bell platform.

Starting point is 00:09:31 According to Galaxy's announcement, the tokenized stocks will be made available through Dex's and will be compatible with Defi lending protocols. On-chain trading will be permission, so traders will need KYC to hold or transfer the tokens. Superstates says that they are first to offer direct issuance of SEC registered shares rather than synthetic or wrapped versions. The KYC, in combination with Superstate's infrastructure, allows the share register to be updated in real time when tokens are transferred. So for the first time, then, the tokens are functionally digital stock certificates and transfer the actual ownership rights in the company. Galaxy CEO Mike Novograt said in a press release, we're proud to be working with Superstate to help lay the groundwork for an on-chain capital market that bridges traditional equities with next-generation infrastructure.

Starting point is 00:10:11 Our goal is a tokenized equity that brings the best of crypto, transparency, programmability, and composability into the trade. traditional world. And we're taking part in building a model that can scale, not just for Galaxy, but for the market more broadly. So then, while it's still a little quiet as we head into September, there's definitely some things brewing. The regulatory progress continues unabated, and in fact, we're starting to see things that are more action and less words. And on Wall Street, like I said, we have a big chance next week to see how strong enthusiasm for crypto stocks remains. We will, of course, be here to cover all that, but for now, that 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 - Exchanges Get the Green Light to Offer Crypto

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