The Breakdown - Stock Tokenization and the Fight Against Accredited Investor Rules

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 Wednesday, January 29th. And today we are doing a grab bag catch-up on a bunch of different topics from Gary Gensler's next gig to French authorities investigating Binance. Before we get into all 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 podcast, conversation. Come join us on the Breakers Discord. You can find a link in the show notes or go to bit. ly slash breakdown pod. All right, friends, welcome back to the breakdown. Today we have a very

Starting point is 00:00:47 grab baggy, kind of a split show. There are some stories that are anchored in the past and the crypto world we're leaving behind. There are some that are focused on the new and what's next. But where I want to start is actually just a quick follow-up to yesterday's show about Deepseek. Basically, as things have resolved, most analysts have come around at the same position that we took this week, which is that this had pretty much nothing to do with Bitcoin. Derivatives trader Gordon Grant said, the deep-seek-induced sell-off certainly tested the correlation that Bitcoin has tended to exhibit versus large-cap tech stocks and broader risk assets. The strength of Bitcoin's bounce back and narrative shift alongside it can start to create a salubrious differentiation that Bitcoin differs

Starting point is 00:01:24 materially from and may actually have very little in common with the blanket bets on an AI-powered future. Sir, that is the first time I've heard salubrious in a research note, and I am here for it. Now, this focus on breaking the correlation with tech stocks carried across a number of different analyses. QCP Capital wrote, this week could test whether Bitcoin's correlation with equities weakens, particularly as a favorable regulatory environment, offers potential support. Bitwise's European head of research, Andre Dragos, noted that price action diverged between the NASDAQ and Bitcoin after the initial drawdown, adding, this implies that Bitcoin had limited downside and there was some decoupling event already. Basically, what I think is valuable

Starting point is 00:01:59 about this analysis, and really about this moment, is that as Wall Street has come into Bitcoin, it has necessarily gotten more correlated and has in general been sort of like a high beta tech stock. Now, that's not always the case. Bitcoin always, for example, has a very different base of core buyers and hoddlers who will never let it go entirely. But what was interesting about this particular market crash was that it wasn't a general market environment situation. It was very specific to a set of stocks and how they're exposed to a very particular type of risk. In this the risk that the revenue these companies are making from selling chips isn't as durable as some might have thought. In that way, it's actually good to see Bitcoin bounce back and decouple a little bit,

Starting point is 00:02:38 showing in short a bit of sophistication and a recognition that ultimately Bitcoin is its own thing. Indeed, going back to Dragos, he thinks the price action was bullish for Bitcoin, pointing out that the dips are starting to become sharper and recovering more quickly. He commented, people often stress over correlations when the market takes a hit and crypto assets follow suit. However, history shows that for Bitcoin, a short-term dip often leads to a long-term surge. Ignoring the short-term price action, investment bank Bernstein put out an extremely bullish note on Tuesday declaring that crypto is back. They wrote that investor groups across finance, payments, data centers, energy growth, and technology are all acutely aware of political shifts currently

Starting point is 00:03:14 underway. However, they wrote that most investors are not specifically aware of the, quote, transformative digital assets regulatory regime expected. Analysts added, things are still early and we expect investors are just getting started on crypto. Bernstein is currently seeing interest from long-only funds and hedge funds, but discussions are more typically about crypto-related stocks and Bitcoin price catalysts rather than the broader token market. The bank specifically noted that Michael Saylor's plan of selling to new investors has worked, with the firm seeing interest from traders who deal in convertible notes and fixed income. More generally, discussions are being had about micro-strategy's impact on the Bitcoin market and risk factors associated with

Starting point is 00:03:49 the company's aggressive accumulation strategy. In terms of their own analysis, Bernstein sees multiple catalysts on the horizon that would allow Bitcoin to approach their $200,000 price target for this cycle. They cited the Crypto Task Force, which will explore a strategic digital asset stockpile and the SEC's repeal of SAB-121, clearing the way for banks to deal with crypto. Bernstein also projected that Bitcoin held with ETFs and corporate purchases would double to 120 billion this year, potentially supported by banks offering credit and leverage against Bitcoin for the first time. Analysts wrote, overall, investors were curious and neutral on Bitcoin prices. We did not sense a strong, bullish or bare a stance among institutional investors. Further within equity investors,

Starting point is 00:04:27 focus remains on crypto-related equities due to inability to buy spot Bitcoin directly or participate via ETFs. So if we believe that institutional demand is the real driver of this cycle, then this note says a lot about where we are. It sounds like interest is still in early innings with many firms still in the exploratory phase. The conversation is also a reminder that institutional demand works on a much longer time horizon than crypto Twitter, which, as we well know, has an attention span measured in hours. Speaking of institutions, the Altcoin ETF applications keep flooding in. On Tuesday, Bitwise officially filed for a Dogecoin ETF after setting up the Associated Trust last week.

Starting point is 00:05:02 The firm will still need to file some more paperwork before the application can be considered by the SEC, but they seem very serious about launching a project for the original Joke token. CIO Matt Hogan told the Financial Times, the reality is that there are a lot of people who want to invest in Dogecoin. It's the sixth largest crypto asset in the world by market cap, and it trades over a billion dollars a day. Meanwhile, asset managers are brushing up on their paperwork for Solana ETFs. The CBOE refiled 194 rule change forms to support Solana ETFs from Vanek, Canary, BitWise, and 21 shares. It's reasonable to imagine the SEC requested the forms be withdrawn and refiled as work begins on their approval. North of the border,

Starting point is 00:05:37 Purpose and 3 IQ have filed for Solana ETS to trade on the Toronto Stock Exchange. Bloomberg Zarok-Balkunis wrote, Canada probably going to beat U.S. market again. There's a 35-year trend of U.S. filing first, and then Canada launches first because they have more liberal regulators. On the flip side, this isn't your grandfather's SEC anymore, so dot, dot, dot. If you've been around Bitcoin for long enough, you've heard the term hoddle and the name Leden. Lennon has been the go-to leader in Bitcoin lending for over six years. They help clients unlock the liquidity of their Bitcoin, allowing them to hoddle while still accessing the wealth of their BTC.

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Starting point is 00:06:35 That's LEDN.org.com. Please visit leaden.com slash legal for product terms and disclosures. Product availability varies by jurisdiction. Hello, friends. I am thrilled to share that Ledger is once again partnering and sponsoring with the breakdown. Many of you know, but for those of you who don't, Ledger is the most secure hardware wallet for your crypto and logins. It's trusted by 7 million users and secures 20% of the world's digital assets. What's more, Ledger is a lot more than wallets. Over the recent years, they've built a comprehensive ecosystem of products and services, all of which are designed to

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Starting point is 00:07:48 In the realm of the weird, Tuttle has filed 10 applications for leveraged alt-coin ETFs. The token selection ranges from alternative layer ones to down-only meme coins launched by the first family. Each fund is 2x leveraged. Bloomberg ETF analyst James Safegart jokingly wrote, I'm starting a movement to bring back Gensler. Who's with me? He added, to be very clear here, this is a case of issuers testing the limits of what this SEC is going to allow. I'm expecting the new Crypto Task Force led by Hester Purse to likely be the linchpin in determining what's going to be allowed versus what isn't. Speaking for what might be allowed, Robin Hood is pushing for tokenization. Specifically, they're pushing for asset tokenization as a way to bring private

Starting point is 00:08:25 company stock to market. In an op-ed in the Washington Post, CEO Vlad Tenev argued that accredited investor rules keep too many people locked out of investing in startups. He noted that companies are now staying private for longer, leading to a market with half as many private companies as existed in 1996. The solution he claimed is crypto. Tenive wrote, Crypto's blockchain technology allows for the fast, easy, and secure creation of digital tokens, which can confer ownership claims to something of value. He mentioned that tokenization could go beyond private company stock, allowing fractionalized trading of artwork, sports teams, carbon credits, or music publishing rights.

Starting point is 00:08:57 Beyond expanding the spectrum of assets, Tenive wrote, anyone with a mobile phone could trade any tokenized asset in any quantity 24-7, a technological step-change improvement over our current stock markets. Tenive suggested regulatory changes would be necessary. He wants to ensure that private company stock can be offered to retail crypto traders who are, quote, growing increasingly more sophisticated and investment savvy. The proposal was to allow private companies to offer their stock as tokens without having to go through the compliance and disclosure requirements of an IPO.

Starting point is 00:09:25 Although Tenave framed the proposal as allowing the companies to tap retail investors, quote, without sacrificing the private company protections they are used to, such as employee vesting and stock holding requirements. Although the proposal seems a big shakeup, Tenive warned that stock tokenization regulations are being implemented in the EU, Hong Kong, Singapore, and Abu Dhabi, threatening to leave the U.S. behind. At the base level, Tenav pointed out that accredited investor rules and limits on investing in private companies are, quote, nonsensical and anachronistic when compared to free access to crypto markets. He wrote,

Starting point is 00:09:54 limiting retail access to these investment opportunities has likely led to a net destruction of wealth by concentrating the upside from private market investing within roughly 20% of the population. If accredited investor rules must exist, they should be based on knowledge of investing, and its risks are self-certification, not how rich you are. I can practically hear the snaps and shouts and cheers of agreement cross the listeners of this particular show on that line. Tenive didn't advocate for a Wild West approach to private market investing, but noted that tokenization would, quote, provide an alternative path to the traditional IPO, which has become so bloated and labor intensive over the past two decades that only the largest companies can

Starting point is 00:10:29 justify going public. In sum, the op-ed was about pushing the discussion forward about what the crypto industry could be under a new permissive regime. Even if tokenizing private companies is a bridge too far, 10 have wanted to advance the discussion out of the previous era. He wrote, It's time to update our conversation about crypto from Bitcoin and meme coins to what blockchain really makes possible. A new era of ultra-inclusive and customizable investing fit for this century. The world is tokenizing and the United States should not get left behind. Bridget Harris of Founders commented, Robin Hood is trying to tokenize private markets and you're bearish? Look, here's how I feel about all of this. One, my libertarian side has never been able to get behind accredited investor

Starting point is 00:11:07 rules. I don't even know if it's a libertarian side or just a human side that bristles against the idea that the government needs to protect us from ourselves when it comes to what we can and can invest in. There are certainly ways if we want to keep up the regime of quote-unquote investor protections to do it not based on money. Plenty of those ideas have been shared. Knowledge-based certification is the most common version you hear about. I think that we should pay extra attention to this right now. In my lifetime, the American dream, however you define it, has never felt so out of reach for so many people. Some parts of that are, of course, structural. The complex set of reasons, for example, that housing costs as much as it does, which includes everything from underproduction in the wake of the global financial crisis,

Starting point is 00:11:45 to changes in the mortgage market following that crisis, to new business models that have introduced new actors into the house buying market and beyond. But on the other side of those structural forces are the narrative forces and the sense of belief. people just don't really see a path to making it anymore. And this is, of course, leading to the sort of financial nihilism that has been discussed so eloquently by people like Travis Kling and Dmitri Kofenis over at Hidden Forces. Now, I am not arguing that tokenizing all private company stocks somehow all of a sudden solves the problem of belief in the American dream. However, I do think in general, things that empower people to make more decisions and have more control over their own financial futures are a good and positive step that would do work in this particular environment.

Starting point is 00:12:27 I'm excited to see how this type of conversation shifts with the advent of a new administration. And of course, as I sense or see any real shifts, both on policy or narrative, I will share them with you here. 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 - Stock Tokenization and the Fight Against Accredited Investor Rules

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