The Breakdown - Is U.S. Crypto Regulatory Bluster About to Become Action?

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. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, July 24th, and that means it's time for the weekly recap. And this is going to be a quick one, but I think it'll still be informative. First, for those of you who haven't listened to yesterday's show yet, it was sort of a banana's week in the institutions getting in on Cryptosphere. I won't spend too much time on it because, like I said, it's all in that episode, but here are the highlights. Fidelity Digital Assets surveyed

Starting point is 00:00:46 found 52% of institutional investors are already allocated to crypto. 71% say it's important to them, and of those 71%, 90% expect to have an allocation in the next five years. Goldman Sachs released a survey of family offices that it works with that found that 15% are already allocated in crypto, while 45% total are interested in the space. Family offices, again, are meant to serve the investing purposes of usually a wealthy individual or sometimes a small consortium of individuals. They can be either nimble or conservative based on the person whose money is being managed and so represent a really interesting bridge space in the institutional investor landscape. Speaking of the institutional investor landscape,

Starting point is 00:01:25 J.P. Morgan is enabling all their wealth management clients to access crypto now. That makes them the first major U.S. wealth practice to do that. What's more, they're giving indirect exposure products like the Grayscale and Osprey trusts available to retail, including it seems, through the Chase mobile app. So that could also be a pretty big deal. Finally, BNY Mellon joined State Street and a consortium of four other banks to back a new exchange pure digital. But this wasn't the only thing going on in the institutional space.

Starting point is 00:01:55 Kathy Wood and Ark hosted the B-word, a virtual event designed specifically to help institutional investors wrap their head around the crypto space. The event had eight hours of sessions across a huge array of topics. designed by the teams at Arc with input from Square, but the main event was Jack Dorsey, Kathy Wood herself, and Elon Musk talking. I gave my full recap a couple of shows ago, but here's the TLDR. Elon is a supporter of Bitcoin. He also owns Ethan Doge, but much less. He seems genuinely interested in this layer one scaling potential of Doge. SpaceX owns Bitcoin. None of Tesla, Elon, or SpaceX has sold their Bitcoin. As he said, he pumps, but he doesn't dump. Elon thinks that based on

Starting point is 00:02:36 on the trajectory of renewables in Bitcoin mining, it is likely that Tesla will again start accepting Bitcoin. So all and all, not bad for a little session if you're thinking from an adoption standpoint. There was other bullish news as well, particularly around massive crypto fundraising that seems to suggest that investors from both crypto and traditional finance remain extremely focused on this space. OpenC raised 100 million for their NFT platform, obliterating the idea that people think that that sector was just a fly-by-night flash in the pan. FTX, which disclosure I helped blockfolio, which FtX bought last year with marketing, as I mentioned on the pot a few days ago,

Starting point is 00:03:12 raised $900 million, including from some top-flight non-crypto folks like Paul Tudor Jones, of great monetary inflation thesis fame. Then there were just the overall numbers. According to CB Insights, Q2 saw $4 billion in VC flow into crypto. That included monster deals for Circle, Ledger, Paxos, Bits, so and more. And of course, I saved the biggest thing for last. Busta Rhymes is in the crypto game. He tweets, after watching the Bitcoin conference live with Jack, Elon Musk and Kathy Wood, I'm sold on Bitcoin, officially holding Bitcoin, looking into ETH next. But then he tweeted again, and this was even

Starting point is 00:03:49 cooler. He got into that statement about the monopoly on violence that governments had, which I spent a bunch of time on the other day. He tweets, my biggest takeaway was this. The way Elon Musk phrased this statement has got me seriously thinking, especially what's been happening around the world recently. Government and its monopoly on violence. Damn. I would say honestly, I was a little joking when I said this was the biggest news, but for that to be the takeaway, that incredibly substantive, thoughtful, provoking part of the conversation, to be the thing that Buster Rhymes said was his biggest takeaway has to be seen as a win. One of the most important developments in this space is that community banks, regional banks, and credit unions can now start offering

Starting point is 00:04:36 Bitcoin to their customers. That's right. Checking, saving, and now Bitcoin. It's all happening seamlessly thanks to a platform by NIDIG that offers institutional-grade custody and compliance. They're also the sponsor of The Breakdown. And if you want to find out more, go to nidig.com slash NLW. That's nydig.com forward slash NLW. Take all this together, and I mean, Geez, that sort of looks like a bill market, doesn't it? Well, the market sort of agree. The beginning of the week started really, really crappy, with Bitcoin printing its first close below 30K since New Year's Day.

Starting point is 00:05:14 Since then, however, things have rebounded. On Wednesday, Bitcoin jumped back to around 32,000, where it has been ever since. Now, we are living on a very, very thin psychological fault line where a little down feels like the end of the world to people, and a little up feel like the party commences. I recommend neither of these views, as they're bound to mess with your brain, but that said, I'm glad we're ending the week on the upside.

Starting point is 00:05:38 But alas, friends, that isn't where our story ends. There were two little regulatory stories at the beginning of the week that got people a bit nervous. The first was something I previously covered from the EU. Now, Bloomberg headlines made it seem super scary that the EU is coming after all private wallets. In point of fact, it's not quite that dramatic. Basically, the EU is trying to apply current financial action task force FATIF rules to transactions that exceed a certain size threshold. A lot of the articles and commentary I saw from folks who spend all of their time focused on this basically had the theme, no, the EU is not banning private wallets. Still, I do think it's an encroachment that needs to be tracked. There is an ongoing battle around how private

Starting point is 00:06:21 people's transactions should be allowed to be and we kind of can't afford to neglect any front in that battle. So while I agree, we should not succumb to hyperbole and freak out, I'm certainly still watching this closely. Then there was Gary Gensler, head of the SEC, talking about stable coins. Speaking at the American Bar Association on Tuesday, Gensler basically said that some tokens that say they're not securities are. Quote, make no mistake, it doesn't matter whether it's a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These platforms, whether in the decentralized or centralized finance space are implicated by the securities laws and must work within

Starting point is 00:07:00 our securities regime. Is this cause for concern? Not necessarily. In fact, I think one could argue that stable coins and derivative offerings finding a clear home in the U.S. regulatory regime would be to those products benefits. Still, anytime a regulator says anything, people get spooked. But, but, but these weren't the biggest regulatory story of the week. That definitely belongs to BlockFi, which now has three different jurisdictions, effectively accusing them of offering their yield products based on trading unregulated securities. Texas, Alabama, and New Jersey have all alleged that BlockFi's interest account is an unregistered security and thus in violation of those states' laws. New Jersey set a deadline at the end of this month to get them to explain

Starting point is 00:07:43 themselves or halt onboarding in the state. The director of the Alabama Securities Commission said to Coin Desk, quote, I think most states are looking at Blockfi. When I discussed this earlier, this week, before a couple of these had actually come to light, I made the point that one of the most obvious macro narratives that could drive new people to crypto right now is yield. Think about it like this. One consequence of today's monetary policy, specifically money printing, could be inflation that wroughts the value of savings, hence the need for a sound money, Bitcoin. A second consequence of today's monetary policy, specifically zero interest rates, is difficulty finding consistent yield, hence a flight to higher yield crypto accounts. That narrative may now be being pruned at the

Starting point is 00:08:24 roots by regulators. Now, here's the good news, and yes, I'm going to wrap this up in a positive news sandwich. These regulatory questions must get addressed sometime. It sucks for BlockFi's business right now, but hell, if I'm them, I want to deal with this right now and be able to fight for the interpretation I believe in and get clarity. This is a company reportedly on the verge of raising another $500 million in anticipation of going public in 12 to 18 months. Regulators might disagree with their interpretation of securities laws, but they're clearly not trying to be a shady back-alley yield dealer. So let's actually get it sorted, right? So all in all, even when I really push on it, it feels to me like, yes, the regulatory bluster

Starting point is 00:09:08 is moving closer and closer and closer to action. But it's almost like it's about time. Let's get these decisions, let's have these conversations, let's have these debates. Sure, if things went on longer, maybe we'd be able to recruit some more allies to the fights ahead. But the flip side is we also could entrench ourselves deeper with products that are more risky and seen as more risky. So it has to start some place, it has to start some time. What better place than here? With better time than now. Anyways, guys, I hope you're having a great weekend. I appreciate you listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Is U.S. Crypto Regulatory Bluster About to Become Action?

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