The Breakdown - Second-Largest US Bank Says Crypto Is Too Big to Ignore

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 Friday, October 8th, and today we are doing a bit of a grab bag, extended brief type episode. This week has been so chockful of things happening that I haven't had a chance to talk through a number of different stories that are all reasonably important on their own terms. So let's dive in to the show. First up, let's talk about US Bank. U.S. Bank is the fifth largest bank in the U.S. and they have made a major move into the crypto sector. They have just announced that they're

Starting point is 00:00:57 launching custody for crypto assets. Now, it is sort of a random set of digital assets that suggests that maybe their clients have been holding for a while and need different terms, so they're going to be custodying Bitcoin, which makes sense. They're also going to be custodying light coin and Bitcoin cash, which don't strike me as necessarily the highest in-demand assets right now. They also say that Ethereum is in the works. It's an offering for private fund managers in the U.S. in the Cayman Islands, so not just a retail offering or anything like that.

Starting point is 00:01:26 And it's being supported and enabled by, big surprise, this show's sponsor, Nidig, who are quietly enabling Bitcoin. and crypto infrastructure for it seems like half of the financial institutions in this country now. So why this matters? Well, it's one thing for these very big traditional banks to give lip service to the importance of this industry. It's another thing entirely for them to actually build the infrastructure to offer products to important clients that they already have. Every single time that happens, Bitcoin and other digital assets get woven more deeply into the fabric of the financial infrastructure of the U.S. and the world as a whole, and inevitably

Starting point is 00:02:05 that makes Bitcoin more lindy, more likely to continue surviving. And of course, the thing about Bitcoin is that the longer it survives, the more people feel like they have to pay attention. Which brings us perfectly to our next bit of news, which is from the Bank of America. Bank of America is the second largest bank in the country, and in July they spun up a crypto division. They've now launched research on digital assets, and it's the theme of their first report that has people pretty jazzed. The name of the piece overall was digital assets primer, only the first inning, and the key headline was this. Digital asset sector, too large to ignore. Let's actually just read the first page overview because it's not too long, and I think it gives a

Starting point is 00:02:50 good sense of all the things that they're interested in. Quote, with a $2 trillion market value and 200 million users, the digital asset universe is too large to ignore. We believe crypto-based digital assets could form an entirely new asset class. Bitcoin is important, with the market value of around 900 billion. Editor's note, we're now backup above a trillion. But the digital asset ecosystem is so much more. Tokens that act like operating systems, decentralized applications, without middlemen, stable coins pegged to fiat currencies, central bank digital currencies to replace national currencies, and non-fungible tokens enabling connections between creators and fans. Venture capital, digital asset, and blockchain investments were $17 billion in the first half of 2021

Starting point is 00:03:30 dwarfing last year's $5.5.5 billion. This creates a new generation of companies for digital assets trading, offerings, and new applications across industries, including finance, supply chain, gaming, and social media. Bitcoin was designed as money, but it is increasingly viewed as digital gold. Ethereum created a generalized platform powered by smart contracts, enabling the development of hundreds of applications that could transform finance, insurance, legal, real estate, and many other industries. Digital assets that enable applications to be built, like the Apple iPhone did with its app store, are gaining the most value. Our view is that there could be more opportunities than skeptics expect. In the near future, you may be able to use blockchain

Starting point is 00:04:08 technology to unlock your phone, buy a stock, house, or fraction of a Ferrari, receive a dividend, borrow, loan, or save money, or even pay for gas or pizza. Decentralized finance is an ecosystem that allows users to utilize financial products and services, such as lending, borrowing, insurance and trading without relying on a traditional financial institution. DAPs may bring financial services to many of the $1.7 billion unbanked globally through a simple smartphone app. NFTs are changing the way creators connect with fans and receive compensation and Gen Y and Gen Z along with a few boomers are snapping them up. NFT sales were $3 billion in August up from $250 million in all 2020, led by demand from celebrities, corporations, and individuals. Obviously, as you can tell, this is really a,

Starting point is 00:04:48 wow, this industry has everything, it has so much going on. And of course, there are many partisans and many areas that will take issue and umbrage with many different parts of what they have written. But that's really kind of not the point. The point for many is that they're writing it at all. Now, there are many questions floating around out there and kind of a lot of rampant speculation about Bank of America's financial solvency at the moment. They lost a lot of money in the first two quarters, and there are many, especially in the Wall Street bets crowd, that are asking questions about them. In that light, it's possible that they're quickly trying to catch up and looking for an edge. As someone tweeted, the banking industry finally waking up and realizing they are victims of an

Starting point is 00:05:27 innovation lag, the banks are currently in the blockbuster movies, Border Books, music industry, Kodak position here, and it may be too late to evolve. I sort of think that for our purposes, it doesn't actually matter. Put it this way. Scenario 1 is that Bank of America is healthy, solvent. And they think that this whole digital assets thing is way too big to ignore. scenario two is that they're not healthy, they're not solvent, they're worried, they're concerned, and they think that the digital asset space is big enough to help save them. Either of those scenarios are bullish. So again, what matters more than anyone detail is that headline, too big to ignore.

Starting point is 00:06:03 And this is something that I've had a few people ask me, where I really think these markets are. If I had to say in a sentence or two, what the state of the crypto industry is, I keep coming back to this idea of on the verge of mainstream, we are way more mainstream than we've ever been before. There are still these challenges, and you can't say that it's fully there yet, but it is on the verge in a way that it has never been, on the cusp of something mainstream. And I think that this report, whether it comes from a place of genuine enthusiasm or just ass covering and opportunism reinforces that. This podcast is sponsored by Nidig, a firm that's making Bitcoin accessible to banking

Starting point is 00:06:48 customers on Main Street and Wall Street alike. As part of their mission to bring Bitcoin to the people. Find out more at NIDIG.com slash NLW. That's NYDIG forward slash NLW. As I said, there are a lot of things that happened this week that I haven't had a chance to cover, so let's get to them. First of the jobs report. So the Friday after every month ends, we get a report from the Bureau of Labor Statistics

Starting point is 00:07:18 about how the last month went with regard to jobs creation. In September, non-farm payrolls added 194,000 jobs. That is the smallest number this year. It is also way below estimates. The median estimate for economists asked by Bloomberg was 500,000 jobs, so we're talking about the median estimate being 250% higher than when it ended up being. Indeed, only one economist that Bloomberg surveyed had anywhere approaching that smaller number. There was some other news in this report as well.

Starting point is 00:07:50 Unemployment is down to 4.8%, which is a good thing, right? Sort of, but it also reflects a decline in labor force participation, especially among women and adult black men. Now, the real question is what this means for the taper. If you'll remember, the Fed has been emotionally preparing the market for a couple months now that a taper, particularly around bond purchases, is coming as soon as this November. The question is, were there macro scenarios that would take the Fed off that taper? Remember, the Fed's mandate is two things, financial stability but also full employment.

Starting point is 00:08:25 The Fed has laid out a test for themselves of substantial further progress for the labor market improving to actually go through with this taper. After the last Federal Open Markets Committee meeting, Fed Chair Jerome Powell said, quote, a reasonably good employment report for September was required to meet that substantial further progress test. The question is, was this a reasonably good report? And I guess that's in the eye of the beholder. Bloomberg writes, Fed's seen pushing ahead with November tapered despite payroll miss.

Starting point is 00:08:54 Jobs likely meet the test for, quote, substantial further progress. Reading that article after reading this report makes it clear to me that the nice thing, from the standpoint of the Fed, is that these are completely subjective measures dictated by almost nothing, because the worst report that we had all year with more people leaving the employment market doesn't really seem like substantial further progress. But here we are, and it's going to be what it's going to be. Next up, Bitcoin ETF speculation is reaching a fever pitch. Bloomberg writes, Wall Street could get four Bitcoin futures ETFs by the end of the month.

Starting point is 00:09:28 So there are a huge number of Bitcoin futures ETFs that are coming up for approval this month. Pro shares, Invesco, Vanek, Valkyrie, Galaxy at the beginning of next month, and the Bloomberg intelligence analysts are pretty high on this. Eric Balcunis, who is one of their lead ETF analysts, has previously put the odds at 75%. James Seyfart says, quote, we're pretty bullish on approval here. We just can't see Gensler and the SEC going out of their way to state positive comments about a 1940 Act Bitcoin Futures ETF at the end of September, and then denying all of them less than a month later.

Starting point is 00:10:01 Nate Grassee, the president of the advisory firm ETF store, says something similar, quote, given that ETFs have been tirelessly pursuing Bitcoin ETFs for over eight years now, it seems somewhat disingenuous for the SEC to encourage more filings at this point only to disapprove them. Approving futures-based Bitcoin ETF seems like an easy win for the SEC and Chair Gensler to get a win in terms of appearing forward-thinking on crypto. Of course, for those of us in the industry, the question is what it will actually mean for markets. As I said on yesterday's show, I think that it's going to be more about narrative, about Bitcoin getting some type of approval in the traditional US system, even while there are big questions around stablecoins, defy, etc. That's a narrative win.

Starting point is 00:10:42 I don't necessarily know what it changes in terms of investor access. Are there? some set of investors waiting for this type of futures ETF and who haven't gotten in yet but will when that happens? I'm not sure. But again, we'll have to wait and see. Next on this quick hit list of things to cover for the end of the week, Shiba is up 400%. Should we quit this industry? Just kidding, I'm not covering this. In a permissionless world, things like Shiba will always exist. It is best to ignore them and move on. And if you do happen to hold Shiva, God bless. Dinner is on you next time. For a chain analysis report on global crypto adoption. Chainalysis looked at the number of crypto wallets between January 2020 and January 2021,

Starting point is 00:11:22 and found that they jumped 45% to 66 million. This is not the only report that chain analysis has done this year showing that crypto is growing. In August, they published a global crypto adoption index that found an 880% rise in global adoption, driven by peer-to-peer trading and use in emerging markets. One of the things that I found most important and interesting about that report was in it, Vietnam, India, and Pakistan top the adoption index. Now, of course, one can quibble about the way that chain analysis decided to measure their adoption, et cetera, et cetera, but I think it's really important that we remember that when we talk about the utility that Bitcoin has or that crypto has,

Starting point is 00:12:00 we can't just have our perspective be the U.S. We can't just have our perspective be anywhere with a fully functioning traditional financial system. It was the relevance of Bitcoin to global markets that got me interested in this industry, and it continues to be one of the things that I find most important. All right, we're almost done. Two more quick ones. First, BitGo sees growing crypto interests. One of the key narratives, obviously, of late 2020 into early 2021, was this idea that corporations were going to start putting Bitcoin on their balance sheets. And really, that was going swimmingly until Elon boffed it and backed away from his Bitcoin commitment and started going in on the energy concerns after they had actually put Bitcoin on the Tesla balance. And

Starting point is 00:12:40 sheet? Well, apparently this is starting to come back because Darren Jordan, the managing director of EMEA at BitGo, said that corporates are coming to them and asking about adding Bitcoin to their balance sheets in a pretty regular clip. At the Token 2049 conference in London this week, he said, the dramatic change, and I have this conversation many times per week, is with corporates, and they are looking to allocate a small percentage of their balance sheet. This has been the most significant change we've seen over the last 12 months. I think that if you see another corporate balance sheet announcement around the same time as a Bitcoin futures ETF, even if that changes nothing really about market structure, it's going to put the narrative into overdrive.

Starting point is 00:13:19 And lastly, a Wall Street journal piece from this week, Fed prepares to launch review of possible central bank digital currency. From the article, officials will release a paper and solicit public comment but are unlikely to decide soon on government-backed cryptocurrency. I just wanted to point this one out as such a great example of the utter confusion and lack of clarity and lack of purpose that the Fed has around a central bank digital currency. It's like at first we were going to get plans from the Boston Fed in conjunction with partners at the beginning of the summer and then that changed to later this fall, but now they're just launching a review. I think that there are big questions around

Starting point is 00:14:00 the right way to do a CBDC and whether a government should or anything like that. But I think it's absurd that there isn't just some commitment to figuring out at least what they want to figure out. Anyways, I just thought it was funny that this is somehow news, even though it's the most non-news story I've ever seen. Anyways, guys, I hope that your week was awesome. I hope that you're heading into a wonderful weekend. Go pick a pumpkin, go eat an apple, grab a scented candle, have a good time. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Second-Largest US Bank Says Crypto Is Too Big to Ignore

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