The Breakdown - Soros Breaks Into Bitcoin

Episode Date: March 27, 2021

On this week’s Weekly Recap, NLW: Highlights the four most important happenings around regulation and central bank digital currencies in the U.S. Updates the macro inflation narrative for a “new normal” era Digs into what we’ve learned recently about George Soros’ bitcoin and crypto strategy -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

Soros wasn't the only new investor we saw come into the space this week, however. A retirement fund in New Zealand is reportedly now a Bitcoin investor. This KiwiSaver fund did not try to get this to press. It was dug up by a local news outlet. My question then is how many more retirement funds or sovereign wealth funds or institutions or insurance companies or some other category of actor has been moving into the Bitcoin space without us even knowing it? 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 nexo.io, Casper, and Exodus, and produced and distributed by CoinDes. What's going on, guys? It is Saturday, March 27th, and that means it's time for the weekly recap. So three things I want to analyze a little bit more this week. First, I want to recap the bajillion hearings in times we heard from major U.S. officials. Second, I want to talk about the shifts in the macro scene, and three, I want to talk about the institutions that continue to come. First, let's talk about these hearings and Powell and Yellen. There was just so much chatter from the political class this week, and I've spent a lot of airtime on it on this show, so I want to just focus here on what I think are the key highlights. First was Jerome Powell, the Fed chair,

calling Bitcoin a substitute for gold. To be clear, this was a dismissive of association with gold. This is someone who thinks that gold is a relic of a bygone era, someone whose fiat system totally replaced the need for gold, calling something a substitute for gold. But there are some silver linings in that. It suggests to many that the most regulatory ire will not be reserved for Bitcoin. If the U.S. does not believe that Bitcoin constitutes a threat to the dollar, it is much more likely for Bitcoin to continue to grow unabated. On the other hand, it could mean that more regulatory scrutiny will be coming for stable coins, which are more competitive for that currency status. Second on these highlights is the new Financial Action Task Force

Cryptocurrency Guidelines. As I mentioned on the show where I discuss this, Coin Center argues that previous FATIF guidelines around crypto have been, while egregious in the sense that they really support a surveillance money system, at least we were in line with all of the rest of the traditional financial scene. This seems to change. This seems to change. that in a pretty significant way. These new guidelines, they argue, have the potential to radically expand the definition of who or what is a virtual asset service provider. VASPs are the entities that have to participate in AML KYC. And when the potential for VASPs to include people who run nodes, it could constitute a major legal threat to the way the P-2P networks function. It is simply

impossible for most nodes to collect KYC-AML information about every other node on the network, every other transaction that flows through their node. So this could be a potentially big deal. Third, on these highlights, we had Treasury Secretary Janet Yellen and Fed Chair Jerome Powell testified before Congress, and we had a couple times where they discussed digital dollars and central bank digital currencies. On the, I guess, plus side, Jerome Powell said that any digital dollar should have more privacy than China. Gee thanks, I'm glad that we're on the same page on that. On the downside, he also went on the record saying that he did not support. an anonymous cash-like digital dollar. Janet Yellen agreed that anonymity made AMLKYC issues

very difficult. This means that the starting point for our most important leaders is not to look at a digital dollar like a digital cash approximation, but instead yet one more tool for surveillance in the battle against financial crime. And speaking of a digital dollar, the last highlight from the regulatory and CBDC side, we learned this week that we're going to see two prototypes from MIT and the Boston Fed in a couple months for how a digital dollar might be designed by the beginning of the summer. So in summary, this week affirmed that, one, we are headed aggressively and quickly into the central bank digital currency era. Two, stablecoins are seen as more of a threat than Bitcoin currently. And three, nasty stablecoin policies can still

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Markets are trapped in a strange cycle with the Fed where they see things getting better because of the vaccine, where they see signs of inflation that the Fed doesn't want to seem to recognize, and they find it simply unbelievable that the Fed would be able to keep interest rates near the zero bound or continue their asset purchase programs at the level they've been at. In that context, Bitcoin has a bit of a weird place. Markets pricing in inflation is a good thing for Bitcoin, given the hedge against inflation for institutions has been a major, the major macro driver for the last year, at the same time, Bitcoin still falls for many institutions, if not most institutions,

in the risk asset category for most allocations. So a repricing and move away from risky assets could hit Bitcoin from that price side as well. My feeling in general is that there's a shift in the macro landscape that is going to leave risk on on and is going to leave inflation concerns hot for Bitcoin. We're moving in short from fix the problem spending to build the future spending. The easiest way to see this is the move from the recent $1.9 trillion stimulus, all about direct payments for COVID relief, supports for states and cities, to a new debate around a $3 trillion stimulus package that is for future-oriented infrastructure spending. Now let's hold aside whether infrastructure is a good place to spend $3 trillion. I think it's probably a much better

place than a lot of the places we spend $3 trillion currently. The point is that the aggressive spending isn't changing, it's increasing. It's just what it's directed towards is different. That's not the only part of the shift, however. The thing that markets keep being unwilling to hear when Powell speaks is that the Fed is obsessed with the full employment side of their mandate. That's what they're focused on. Of course, at the same time, it's not like the Fed has a different toolkit to get employment up. It's the same things. And what that means is there are going to be cantalon effects. Financial institutions and the companies they loan money to and the investors who can afford assets are all closer to the money spigot than the unemployed, which means that they're going to

benefit first and more. And of course, a likely byproduct of this is continued asset price inflation. What I believe the Fed is saying is that that is a price they're willing to pay for making sure that everyone who wants a job has a job. The point of all of this is that the narrative of concern around inflation from the economy running hot and staying at the zero bound for interest rates with expanding monetary and fiscal engagement remains. It's just shifting from crisis to new normal mode. Last up on this weekly recap, let's discuss the continued inflow of institutions. I discussed yesterday how coins moving off exchanges suggest a dip-buying from whales and institutions. I also discussed Fidelity's addition to the ETF application scene.

I wanted to wrap this week with a little bit about another actor that has gotten more public about their participation in the space in the last few weeks, which is Soros. Yesterday, a clip from Bloomberg's front row featuring Soros chief investment officer Don Fitzpatrick started to make it around the Twitter sphere. We think the whole infrastructure around crypto is really interesting. And we've been making some of it. investments into that infrastructure. And we think that is at an inflection point.

I'd say it's everything from kind of exchange, asset managers, custodians, to the mundane, like, tax reporting on your crypto gains, you know, and everything in between. But we think that's interesting. So when it comes to crypto generally, I think there are some some important, we're at a really important moment in time in that something like Bitcoin might have stayed a fringe asset, but for the fact that, you know, over the last 12 months,

we've increased money supply in the U.S. by 25%. So there's a real fear of debasing of fiat currencies. And when you think about Bitcoin, I don't think it's a currency. I think it's a commodity, but it's a commodity that's easily storable, it's easily transferable. The IRS classifies it as a physical asset. It has a finite amount of supply, and that supply halves every four years. So I think it's interesting. And I think, by the way, when you look at gold price action in the context of a fairly robust inflation narrative of late, it's,

struggled getting traction, and I think that's because Bitcoin is taking some of its buyer base away. For many, this was the first they'd heard of Soros getting into Bitcoin in the crypto space as a whole. Obviously, Soros is one of the most storied and controversial names in investing, but undeniably an influential one. In truth, the tea leaves have been there for anyone to read. A couple weeks ago, Nidig announced its $200 million financing round, and Soros Fund Management was among the investors. If you'll remember as well, NIDIG's CEO, Robert Gutman, said that none of these investors were just investors. They all had some deeper partnership or engagement with Nidig around Bitcoin. So far, we've learned about two of those deeper engagements.

The CEO of New York Life joined the Nidig board, and a week later, Morgan Stanley announced three Bitcoin funds available to wealthy clients, one of which was powered by Nidig. So the question around Soros to me is obviously, what bigger Bitcoin play are they working on? I will obviously be watching this closely. One final note about Nidig at Real Vision's crypto gathering this week, their CEO also confirmed that sovereign wealth funds had approached them about Bitcoin, although not giving any more details. For many, the sovereign wealth funds are another huge domino to potentially fall,

and many think that there probably are allocations beyond just a fund tied to Singapore that we already know about. Soros wasn't the only new investor we saw come into the space this week, however, a retirement fund in New Zealand is reportedly now a Bitcoin investor. New Zealand fund management's KiwiSaver growth fund has invested 5% of its assets in Bitcoin. The fund has around 244 million USD in assets and began investing in crypto in October. The CIO, James Grigor, said, if you're happy to invest in gold, you can't really discount Bitcoin. Now, this is more than a random fund.

This falls under the auspices of the national KiwiSaver program that was created by the New Zealand Labor Party in 2007. I think that there are two important notes about this announcement. First, it's a whole different category. Retirement and pensions funds represent a massive, massive pool of resources globally. Second, this KiwiSaver fund did not try to get this to press. It was dug up by a local news outlet. My question then is how many more like this are out there? How many more retirement funds or sovereign wealth funds or institutions or insurance companies or some other category of actor has been moving into the Bitcoin space without us even knowing it. All in all, I'm feeling pretty good about this weekend. I'm feeling pretty good about where this

industry is, and I hope you are as well. Until tomorrow, guys, be safe and take care of each other. Peace. Hey, folks, I'm CoinDesk's managing editor of podcasts. Would you like to turn your passion for crypto and news into a career? CoinDesk editorial is growing. We're looking for full-time reporters and market analysts who can move quickly and help unpack and explain the nuances of this crazy world we're living in. If that sounds interesting, send us an email at recruiting at coindex.com. That's recruiting at coindesk.com and tell him you heard about it on the breakdown. Thanks for listening.