The Breakdown - SEC Chair: "Crypto’s Time Has Come"

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 Thursday, September 11th, and today we are talking about why crypto's time has come. 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 in the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. chair Paul Atkins is doubling down on tokenization and super apps as Project Crypto continues.

Starting point is 00:00:43 In a keynote address at an OECD roundtable in Paris on Wednesday, Atkins reconfirmed the direction of the agency, stating, policy will no longer be set by ad hoc enforcement actions, we will provide clear, predictable rules of the road so that innovators can thrive in the United States. Speaking to EU regulators, he outlined some big initiatives to overhaul U.S. capital markets. Atkins fleshed previous discussions that the SEC would allow platforms to trade securities alongside commodities, paving the way for so-called super apps. He said, our priorities are clear. We must provide certainty regarding the security status of crypto assets. Most crypto tokens are not securities and we will draw the lines clearly. We must ensure that entrepreneurs can raise

Starting point is 00:01:20 capital on chain without endless legal uncertainty. And we must allow for super app trading platform innovation that increases choice for market participants. Platform should be able to offer trading, lending, and staking under a single regulatory umbrella. Now, recent guidance has all been pointing in this direction, and Coinbase is clearly running ahead of the rulemaking with their initiative to become an everything exchange. Shifting to the tokenization push, Atkins said, Our goal is simple to spark a golden age of financial innovation on U.S. soil. Whether through tokenized stock ledgers or entirely new asset classes, we want breakthroughs to be made in America's markets under American oversight for the benefit of American investors. The comment is

Starting point is 00:01:57 particularly relevant given the context. Atkins was attending the inaugural OECD roundtable on global financial markets. Ostensibly, the theme was coordination of American and European regulators to ensure a more unified capital structure. In Europe, the current major project in this speech seems to be asserting that Europe was welcome to come along for the ride, but the next generation of capital markets will be fundamentally American. Given the overall scope, Atkins indicated the SEC's mandate under Project Crypto is not just about delivering clarity for crypto assets. Instead, it is, in his words, a sweeping initiative to modernize the securities rules and regulations to enable our markets to move on chain. There were a ton of other notable comments

Starting point is 00:02:34 from Atkins, although they were largely a repetition of things we've heard before from the SEC chief. A significant portion of the speech was dedicated to the notion that the Gensler era of regulation by enforcement was over, and, as he put it, belongs to history. The takeaway is that the SEC is moving ahead with not only a plan to bring clarity to the crypto markets, but an initiative to fundamentally remake capital markets using blockchain infrastructure. Atkins framed the entire speech around the words of Victor Hugo, who said, quote, An invasion of armies can be resisted, but not an idea whose time has come. Appending the quote, Atkins added,

Starting point is 00:03:05 today, ladies and gentlemen, we must admit, crypto's time has come. Now, the SEC's direction couldn't be more clear, and crypto companies are off to the races. On Wednesday, Cracken announced that they would be launching tokenized securities in Europe. The exchange has expanded availability of their X-Dox product, which trades on the Salon of blockchain to customers across Europe.

Starting point is 00:03:24 According to Cracken, the initial rollout in May, had covered essentially all countries, excluding the U.S., the UK, Australia, and Europe. Mark Greenberg, Krakens' global head of consumer products said, expanding X-stocks to the European Union was a natural next step for Cracken, given our dedicated growth strategy and market presence here. For too long, it's been unnecessarily challenging to gain exposure to U.S. markets, and with X-stocks, we're removing many of the barriers. Now, X-stocks has been a roaring success for Cracken since launch. Between centralized exchange and Dex venues, the products have cleared almost $4 billion in volume and reached more than 27,000

Starting point is 00:03:56 holders. Co-CEO. Arjunsethi tweeted, 17 tokenized equities cleared 1 million and 24-hour trading volume. 16 are X stocks. The other one is lonely. Now, one of the looming fights around tokenization is going to be the battle for liquidity. In their proposal to the SEC on Monday, NASDAG argued that tokenized stocks should be offered by established market players. They warned that the current trajectory could end up with dozens of siloed trading venues. The exchange also expressed concern about tokenized U.S. stocks gaining traction in Europe, trading on venues outside of the SEC's jurisdiction. Addressing these comments head-on, Greenberg said the future of capital markets won't be one-size-fits-all. He added, there will be space for walled K-YC-only models like what

Starting point is 00:04:35 NASDAQ is exploring, but the real technological breakthrough lies in permissionless, interoperable platforms like X-Dox. With X-Dox, assets aren't trapped inside a single exchange, wallet, or even blockchain. They can move as freely as any crypto asset. That openness is the essence of Web3, reducing friction, increasing transparency, and ensuring tokenized equities serve everyone, not just a gated subset with access to legacy platforms. Adding to the long list of crypto companies working on tokenization, Binance has announced a new partnership with Franklin Templeton. The two companies announced plans to develop tokenized asset products and collaboration. Franklin is bringing their Tradfai credentials as well as their tokenization infrastructure.

Starting point is 00:05:10 They were actually one of the first financial institutions in America to tokenize real-world assets, launching their money market fund in 2021, three years ahead of BlackRock. Binance is providing their gigantic pool of customers to ensure secondary market liquidity. Now, it's a little unclear how wide the scope will be, with the duo stating that specific products and launch timing will be disclosed later this year. It's also not clear if Franklin will be targeting Binance's existing global client base, or if this marks a return to the U.S. for Binance. Still, it's another major partnership in the tokenization space and further evidence of a gold rush in real-world assets. In IPO land, both crypto companies scheduled to go public this week have

Starting point is 00:05:45 supersized their deals. Figure markets disclosed on Tuesday that they had increased their pricing by 10%, and will be offering almost 20% more shares for sale. If the allotments are all filled, the company is set to raise almost 700 million in fresh capital at a valuation above 5 billion. The company provides blockchain-based lending and other financial services. And while they might not be as much of a household name, they fit neatly into the stable coin and non-chain finance niche. Stan Druckenmiller is among the highest profile investors looking to get in on the IPO, with reports stating that his family office have requested a $50 million allocation. The stock was set to debut as I was recording, so that by the time you're listening, you'll

Starting point is 00:06:18 probably know if it was a success. The other big IPO this week is Gemini, who have bumped their target valuation from $2.2 billion to $3 billion. The offer price on the shares was increasing by 35%, although the number of shares on offer is unchanged. The price uplift will mean Gemini could raise up to $430 million, a big jump from the $320 million they had previously been targeting. Gemini also disclosed that a massive 30% of the IPO is going to retail traders across Robin Hood, sofi, and other platforms. Both IPOs will serve as an interesting heat check on the market, but it's now clear that pre-IPO demand is still red-hot. Gemini in particular is a litmus test on whether markets are pricing the company or the story. Their financial disclosure showed a not-so-great state of

Starting point is 00:06:56 affairs, the exchange made a loss of $282 million in the first six months of the year, and saw revenue dropped by 8% compared to the first half of 2024. However, Gemini's narrative got a massive boost earlier in this week when NASDAQ invested $50 million in the company as part of a strategic partnership. Gemini will be providing the Tradfai Exchange with staking and custody infrastructure, while Nasdaq will share their collateral management platform with Gemini. The Gemini IPO will take place on Friday and feels like it has echoes of the Circle IPO in June. Circle had also shared some more skepticism-inducing financials and was a little bit panned by the experts on crypto-twitter. However, once the stock began trading, it was clear that the stablecoin narrative was the only thing that mattered,

Starting point is 00:07:34 and investors were hugely bullish. It seems difficult to predict how Gemini's IPO will do, but with that many retail investors loading up, the safest bet is probably a ton of volatility. Now, commentary on another part of the stock market, JPMorgan analysts have said that Micro Strategies' rejection from the S&P 500 last week is not only a blow for the company but a setback for crypto treasury companies in general. Micro Strategy seemed all set for index inclusion last week. They met all the qualification requirements and are among the top 120 companies by market cap. However, S&P 500 inclusion is decided subjectively by an anonymous committee who passed over Micro Strategy, instead choosing to include Robin Hood, AdTech firm App Loven, and Construction Services firm, Mcor. JPMorgan analysts suggest this decision signals caution over adding companies who have transformed their balance sheet into vehicles for crypto investment. Barron's had a similar take last week, writing that Microstratology, quote, may never make it into the S&P 500. They noted,

Starting point is 00:08:26 the company looks more like an ETF or closed end fund than an operating company with ample recurring revenue and profits. S&P specifically excludes ETFs and closed end funds from their indices. So for now, it is all eyes on Figure and Gemini. That is certainly what I'm going to be paying attention to for the next couple of days. We'll have the Friday 5 tomorrow to dig into all of it with Scott Melker. For now, though, 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 - SEC Chair: "Crypto’s Time Has Come"

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