The Breakdown - Goldman Looking Into Bitcoin-Backed Lending as Jobs Report Disappoints

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 Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, December 4th, and that means it's time for the weekly recap. Now, this week will be a true weekly recap. We're going to go through a bunch of topics that I didn't have a chance to cover during the week. And we're going to start with maybe the key macro discussion. of the last couple days, which is the November payrolls. Each month, for those of you who aren't

Starting point is 00:00:43 familiar, the Bureau of Labor Statistics releases non-farm payroll changes for the month before. It's a great chance to look at the labor side of the economy, and the markets follow it pretty closely. Last month, November was kind of a mixed bag. On the one hand, the unemployment rate fell to 4.2%, which is obviously good, and what the Federal Reserve is looking to see. But at the same time, we added the smallest number of jobs this year, just 210,000. Many economists had expected that number to be closer to 550,000, which is a fairly significant miss. Labor force participation edged up slightly to 61.8%. And all in all, these mixed signals mean that although job growth might be disappointing, this report doesn't really have anything in it that would change the Federal Reserve's

Starting point is 00:01:29 current taper trajectory. Remember, the Fed has dual mandates, and right now those mandates are dueling. On the one hand, they have price and market stability. They have to be concerned about inflation. That mandate is pointing to more hawkish policy, a taper of bond purchases and potentially a willingness to let interest rates go up a little bit. On the other hand is the maximum employment mandate, and that has been driving the reason that they've kept policy so dovish throughout the year. Given that the jobs reports keep missing, those two mandates are pointing in potentially different directions, but still, it's pretty clear, as we've seen over the last couple weeks that inflation concerns are finally in the political driver's seat.

Starting point is 00:02:08 Now, one more interesting note on the Fed, it's possible that Senator Cynthia Lummis will oppose the nominations of both Jerome Powell and Lail Braynor on crypto grounds. In an op-ed on Tuesday in the Wall Street Journal, she wrote, over the past year, my faith in the Fed has been deeply shaken by its political approach to digital assets in my home state. Now, Lummiss is specifically pointing to delays around Cracken and Avanti Bank, which are regulated in Wyoming as special purpose depository institutions and are trying to get access to traditional financial rails. She points to a 1994 congressional degree that the Fed must act on banking applications within one year and says, while Mr. Powell and Ms. Braynard have said that they want to promote responsible

Starting point is 00:02:48 financial innovation, when Wyoming provided a perfect opportunity, the Fed instead inexplicably chose to ignore its legal obligations. I want to know why, but haven't received an answer. Now, in a possible sign that the Fed is trying to be better equipped for exactly this sort of thing in the future, they are launching a new fintech research wing. It's in partnership with the Bank for International Settlements Innovation Hub and is going to be focused on supervisory and regulatory technology, financial markets infrastructure, future of money, open finance and climate risk. So things that encompass this set of issues. Let's move now over into the regulatory sphere. SEC Chair Gensler was at a crypto regulatory conference this week called DECOM and was actually

Starting point is 00:03:29 interviewed by former SEC chair, Jay Clayton. Now, there are two big highlights from the reporting. One was Gensler saying that Bitcoin was competition for the U.S. system, although it was reported a lot on Twitter as though he was talking about Bitcoin competing with the U.S. dollar. That wasn't really what he was referring to. He wasn't talking about monetary policy competition. He was talking about Bitcoin being a potential way around the AML KYC regime. Bigger, at least in terms of its indexing on social media, was the refrain that we frequently heard. And here's a direct quote. work with us. These platforms need to come in and get registered, come within the investor protection remit. The question remains for some, register as what? Gabriel Shapiro, Lexnode, tweets,

Starting point is 00:04:09 every lawyer I know who has had settlement discussions with the SEC over Dow's, DFI, etc., has heard from enforcement that their client must register, and then heard from trading in markets their client is not eligible to register. Maybe you figure this out before cracking skulls? I think if you want to give Chair Gensler the benefit of the doubt, that question is at least a little bit for Congress, not just for him. Still, overall, mostly it was a repeat of previous themes, which is probably why the response on social was a little more muted. A potentially bigger deal is that there is a House Financial Services Committee hearing next week called Digital Assets in the Future of Finance, understanding

Starting point is 00:04:43 the challenges and benefits of financial innovation in the United States. It has a heck of a witness list. FDX's Sam Bankman-Fried, Circles Jeremy Allaire, Bitfury's Brian Brooks, who was also formerly of Coinbase and Binance U.S. and was the former acting comptroller of the currency. Paxos Charles Kaskeria, Stellar Development Foundation's Dinell Dixon, and Coinbase's Alessia Haas. Now, I think we're a little triggered to think hearings are all bad, right?

Starting point is 00:05:08 I've talked a lot about the old Libra hearings, for example, this week, but I don't think that that's the right way to look at this. NIDIG sponsors this podcast, and they're helping CFOs, traders, and risk managers safely and securely integrate Bitcoin into their operations.

Starting point is 00:05:28 Learn more about what NIDIG does and how they do it at NIDIG.com slash NLW. That's nydig.com slash NLW. This regulatory discussion has to happen. I keep referencing that these individual departments really need Congress itself to act to determine what the regulatory regime for crypto in the U.S. should be. I've also previously noted at different hearings that sometimes what feels missing on the witness stand

Starting point is 00:05:56 are the actual builders and investors, so now they actually have a chance to testify. It seems highly unlikely to me that this group gets together, and it doesn't actually allow the people in Congress who genuinely want to engage in good faith to learn more and move things forward. So I'm going to head into this with some amount of optimism. Of course, it's not just the U.S. where regulatory things are happening. India continues to be confusing AF. For a while earlier this year, it sounded like a ban was coming. Then some officials said, no, it was regulation, not a ban. I've pointed out on this show before how much the Indian community has said that regulation is a good thing. It means that there will be a safe path for crypto. But then last

Starting point is 00:06:36 Last week, it was back to ban. Big headlines all about how India's forthcoming legislation was going to ban crypto. But then this week, Indian media is now reporting that it will be regulation and not a ban again. So I feel like at this point, we need to just not report anything until we actually get the substance of this legislation. In Germany, a new ruling coalition has called for the EU to regulate crypto, and it seems like their key policy concern is KYC. But there's also attention, as they want to make Germany a hub for tech companies focused on fintech. In South Korea, there is a forthcoming 20% crypto gains tax, which would treat crypto differently than stocks. It was supposed to start next year in 2022, but it has now been moved to 2023. And there's speculation that it's because both the government and the opposition party are trying to appeal to young voters in next year's election.

Starting point is 00:07:23 And this tax is unlikely to be a popular issue with that demographic. Just a few more things to wrap up on this weekly recap in the institutional space. there have been a lot more ETF rumblings over the course of the whole last month. Remember on November 4th, Congressman Tom Emmer and Congressman Darren Soto wrote to the SEC urging a Bitcoin spot ETF approval. On November 12, VanEx Spot ETF was rejected, but then on November 30th at the beginning of this week, Fidelity launched a spot ETF in Canada. So this is the largest ETF provider having a Bitcoin Spot ETF, but not in the U.S.

Starting point is 00:07:58 Eric Balcunas, the ETF watcher from Bloomberg, says this should be embarrassing, the SEC, that one of America's biggest, most storied names in investing is forced to go up north to serve its clients. But it probably won't matter. On the same day, Grayscale and the blockchain association wrote to the SEC regarding their spot ETF approval. Craig Somm, the VP of Legal, tweeted last night our attorneys at Davis Polk, sent a letter to the SEC arguing that approval of Bitcoin futures-based ETFs but not Bitcoin spot-based ETFs like Grayscale Bitcoin trust is, quote, arbitrary and capricious, and therefore in violation of the Administrative Procedure Act. He goes on to basically say that their legal argument is that the APA requires the

Starting point is 00:08:37 SEC to treat like situations alike, and that they believe that differentiating spot ETFs and Bitcoin ETFs based on the 1940s Act and the 1933s Act are, quote, an example of two like situations that should be treated alike but are no longer. Another big one, Goldman Sachs, is looking at Bitcoin-backed loans. And really the story, which is currently just reported from sources, is two things. One is retail-facing loans against Bitcoin, but the second is a sort of business-to-business repo lending facility as part of a prime brokerage service, which could be a fundamentally different way of looking at a key part of the business infrastructure. I know this is something that many in the space are watching closely as soon as we get more confirmation. Finally, we've talked a lot about it

Starting point is 00:09:21 this week, so I don't need to go in depth, but I do think that probably when the stories are written, this will be a week that we see as a pretty fundamental shift from the Web 2 era to the Web 3 era. Whatever that means and whatever false starts are to come around it. Jack Dorsey leaving Twitter to focus on Square, which renamed itself to block to focus more on blockchain and Bitcoin specifically. And Facebook's David Marcus leaving the Libre Project, which was renamed DM, and which was Facebook's first but not last attempt to get involved in this crypto and virtual currency space. Of course, Facebook is now, putting all of its focus on the Metaverse, even going so far as to change its corporate name

Starting point is 00:10:00 to Meta. Marcus leaving feels like the end of one attempt and the beginning of a new entry of Facebook into this digital asset space. All in all, it was a week that as significant as it was feels like a prelude to what comes next, from a regulatory standpoint, from an institutional standpoint, and of course from the way the big tech will interface with the next generation of the internet. Hopefully, this gives you a slightly better sense of what happened, and as always, I appreciate you listening and hanging out. I hope you are having a great weekend. And until tomorrow, guys, be safe and take care of each other. Peace.

The Breakdown - Goldman Looking Into Bitcoin-Backed Lending as Jobs Report Disappoints

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