The Breakdown - The Real Story of Institutional Crypto Interest

Episode Date: March 20, 2025

We keep hearing that institutions are still stoked on crypto despite retail stress. Today NLW explores what evidence we have one way or another. Sponsored by: Ledger Ledger, the world leader in digital asset security, proudly sponsors The Breakdown podcast. Celebrating 10 years of protecting over 20% of the world’s crypto, Ledger ensures the security of your assets. For the best self-custody solution in the space, buy a LEDGER™ device and secure your crypto today. Buy now on Ledger.com. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

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, March 19th, and today we are talking about the upside of this weird period that we're in in crypto. 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 on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pop. One of the things that you've heard a lot on this show and probably from other sources is the fact that there is, or at least the argument that there is, some big divergence between how normies and retail are feeling right now, specifically the set of retail and normies that hang out on crypto Twitter, and how institutions are institutions really true? Are all these reports of institutions being super excited, staying super excited actually valid? Well, one resource seems to suggest the answer is yes. A survey of institutional investors commissioned by Coinbase found that there is huge demand to allocate to crypto this year. EY Parthenon surveyed over 350 institutional investors and found more than three

quarters planned to increase their allocation to crypto this year. Fifty nine percent of respondents said they were planning to reach an allocation of more than 5 percent of assets under management. EY Parthenon's global blockchain leader, Paul Brody said, The level of adoption in the highest net worth individuals and family offices for some level of crypto, tokenized real-world assets, and defy was already quite high, but now the interest is spreading broadly into the institutional investor space. Alas, there is something of a caveat here. The survey was conducted in mid-January when Bitcoin was in a three-month expansion and hitting all-time highs, so we might need to take these specific results with a little bit of a grain of

salt. Still, bull market demand seems to be there, and institutions seem much more ready to allocate at the first sign of optimism. Below the headline finding, there are a few other interesting results as well. Regulatory clarity was the number one reason for institutions to increase their allocation. No real surprise there, but it's curious that further regulatory changes could move the needle for institutional allocators. 60% of institutions prefer to take their positions using the ETFs. However, 74% said they also hold one or more all coins beyond Ethereum. So, perhaps these firms are looking for more assets to be available with an ETF wrapper before they increase their positions. Brody commented that interest in DIPI is strong, but there just isn't much incentive to get

involved in current conditions. He said, there are a lot of use cases for defy, but in the institutional space, I think demand will really take off if interest rates come down. Defi offers a mechanism for squeezing additional return from the same asset by doing things like adding it to a liquidity pool or borrowing against its value. And so this is going to be the big theme for today, is institutional adoption where it really is, what's going on. Well, speaking of things that are happening as institutions adjust to the new regulatory stance, law firms are seeing a rush of crypto and fintech firms seeking bank charters. Reuters reports that a wave of these companies are looking to become banks in a bid to expand their business. Alexander Steinberg-Barrage, a partner at law firm

Troutman-Pepper-Lock said, we've seen a lot more interest. We're working on several applications now. Is it in full swing yet? I don't think so. Our clients are being cautiously optimistic. They're waiting for things to settle. Now, crypto companies trying to become banks is not a new phenomenon, but it's been in hibernation for the past few years. Anchorage Digital managed to get federally chartered in 2021, but faced extreme restrictions on activity during the chokepoint era. There was also a cluster of state charters obtained in Wyoming in 2020, most notably by Cracken and Custodia. But new charter approval slowed to a crawl from 2022, and most crypto companies abandoned that strategy. Roiders noted that we've been in a 15-year slowdown for new

banking charters more generally. 144 new banking charters were approved annually between 2000 and 2007, but following the financial crisis, just five new banks were approved per year. A sclerotic pay that has continued until now. A question you might have is why crypto companies and fintechs are looking to become banks at this moment. Banking compliance is much more onerous and costly than the money transmission licenses that are currently used. Gaining approval typically costs between $20 and $50 million. But the shift in interest rate policy makes banking a much more attractive business, especially for new banks that can start fresh. The key benefit of a banking license is the ability to borrow from depositors at a low rate rather than funding through capital markets. Carlton Goss, partner at law firm,

Andrews Kerth, confirm this is part of the logic for the three applications he's working on. Gras noted that light-touch fintech regulations could be coming to an end, stating, online companies know they will be coming under greater regulatory scrutiny. It makes sense for them to get ahead of the curve and in turn get more credibility and capital at a lower cost by applying for a charter. Beyond that, becoming a chartered bank could be a very good way for companies to reinstill confidence in the public. Both fintech and crypto have had very prominent failures over recent years, so the added legitimacy could be a big benefit. The Trump admin has also signaled that they want to rethink how crypto and fintech is operating. In January, FDIC acting

chair, Travis Hill, said he would be encouraging more firms to pursue banking licenses in order to generate more competition in the sector. He added that this would be a key focus over the coming months, which would explain the recent rush of applications. 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 make digital ownership more secure and accessible. You can buy your Bitcoin with Ledger and Ledger Live and so much more. Basically, not only did they want to keep your assets secure, they want you to be able to do more with them. Ledger's newest devices, the Ledger Stacks, and Ledger Flex, introduced the world's first secure touchscreens, making it easier and safer to manage your transactions and assets. Alongside Ledger Stacks and Ledger Flex, the company also launched the Ledger Security Key app, offering a safer alternative to traditional

passwords and enhancing your digital security. If you are in this space, you owe it to yourself to at least check out Ledger and their ecosystem what they have available to you. So thanks, once again, to Ledger for sponsoring the show. Earlier this week, Fed Governor Michelle Bowman was nominated to become the next vice chair for supervision. In a statement, Bowman said that she would, quote, promote a safe and sound banking system through a pragmatic approach to supervision and regulation with a transparent and tailored bank regulatory framework that encourages innovation. There's also a sense that the Trump administration will be more tolerant of more risk in the sector in exchange for a more dynamic lending environment.

This would lead to more applications being accepted as regulators lower and possibly high standards in the pursuit of zero bank failures. Nigel Modin, Global Banking and Capital Markets Leader at EY, said that the administration is, quote, encouraging regulators to adjust risk appetite and take a more pro-growth line. that could lead to an opening up of the market to some more competition. And yet, for as much as the trend lines are good when it comes to institutional adoption, that does not mean that every new institutional product is going to be a hit. Solana Futures, for example, went live on the CME on Monday,

but it seemed that very few traders cared. The contracts did a total of $12.1 million in trading volume on their first day. In contrast, Ethereum's first day in 2021 garnered $31 million in volume, and Bitcoin's 2017 debut was a clear success with $102 million in volume. Then again, both of those markets launched at times of peak euphoria, and Solana is coming to the CME while sentiment is dismal. K33 Research noted that there was, quote, little interest in the asset, but did comment that adjusted for market cap the launch was more in line with the other crypto assets.

It's not clear that the SEC will be looking for deep and liquid futures markets before they approve the next crypto ETF, but if that is still a prerequisite, we could be waiting a while for the spot Salana ETF. Jack Kubanik of Blockworks wrote, not much day one demand for CME Salana Futures, only 110 Solana futures contracts have traded hands today. The SEC has historically wanted to see a regulated market of significant size before approving spot crypto ETFs. Sol is going to need a whole lot more than 110 trades for significant size. A question lurking around not only the Salana launch, but everything happening right now, is whether we're still in a bull market in crypto or whether we've actually

shifted to the bearish. Investment Bank Bernstein is still a believer in the bull, arguing that this crypto cycle is, quote, still in early stages. As we head into the fourth week of the correction, many are starting to make calls for a prolonged bear market, but not from Bernstein. In a research note published on Tuesday, analysts wrote, we remain convinced that the $100,000 Bitcoin price level is not the cycle top, and the Bitcoin market has multiple legs to run further. We expect Bitcoin to touch a 200,000 cycle peak towards 2025 end. If 2025 markets remain jittery on macro and Trump disruption risk,

we may see a delay in achieving our Bitcoin cycle highs, and we may see a potentially elongated Bitcoin bull cycle into 2026. Burrstein included a laundry list of Bitcoin policy shifts under the Trump administration to underpin their thesis, that of a, quote, Great American Homecoming. Giving a clear call, Bernstein believes that Coinbase is well-positioned as the dominant U.S. platform. They expect the company to ride the tailwinds as stablecoins and tokenized stocks go mainstream. They attached a price target of 310 for Coinbase shares 69% higher than they're currently trading. On the negative side, Cryptoquant's CEO Kiyung-Ju thinks it's all over. On Monday, he posted, Bitcoin bull cycle is over,

directing 6 to 12 months of bearish or sideways price action. Every on-chain metric signals a bare market. With fresh liquidity drying up, new whales are selling Bitcoin at lower prices. This is the first time the on-chain indicators have truly gone south, with Jew adding, I've been calling for a bull market over the past two years, even when indicators were borderline. Sorry to change my view, but it now looks pretty clear that we're entering a bear market. Realized cap-based indicators show a lack of new liquidity. Massive volume around 100K failed to push the price higher, and ETF inflows have been negative for three consecutive weeks. I can't keep sharing just my hopes when the data keeps signaling bearish. For a more Zen view, however, you can turn to on-chain analyst checkmady who writes,

my base case for this Bitcoin cycle is that there is no cycle. The lines between bull and bear will become blurred, and folks will lose sight of when the cycle started and ended. Pattern recognition based on previous cycles won't be as clear cut. Investor behavior dictates all. Now, to the extent of that survey that we started with is correct, and more regulatory clarity is going to mean more institutional investment, good news from Bo Hines, the executive director of the White House Crypto Council, who says that stablecoin legislation is imminent. Speaking at Blockworks Digital Asset Summit in New York, Heinz said, we saw that vote come out of the Senate Banking Committee in extremely bipartisan fashion, which was fantastic to see. I think our colleagues on the other side

of the aisle also recognize the importance for U.S. dominance in this space, and they're willing to work with us here, and that's what's really exciting about this. You know, there's not many issues in Washington, D.C., in which folks can come together from both sides of the aisle and really propel the United States forward in a way that's comprehensive. When asked for a timeline, Heinz added, I think that Stables could be on the president's desk here in the next two months. Speaking at the same event, California Democrat Ro Khanna spoke about the bipartisanship emerging around crypto policy. He commented that Congress should be able to pass both stablecoin and market structure legislation within the year.

Kana believes that there are now 70 to 80 Democrats who understand the importance of stable coin legislation in extending the global reach of the U.S. dollar. He said, I understood from conversations with many entrepreneurs and leaders that this was a very important technology. That's why I never understood why it became so political. To me, this is about the extension of American leadership and influence, but I don't think the Democratic Party fully understood that. To the extent that this sliver of bipartisanship is threatened, the fault lines are pretty clear. Kana continued, I'll say this just to challenge, folks. I've been a supporter of blockchain of crypto technology, but I criticize this idea of the president having a meme coin. I don't think any

elected officials should be having a meme coin, and those types of things, in my view, distract from the fundamental technology and making the case. We have to recognize that those types of things are not helpful in convincing the American public that there's an underlying technology that is valuable. I think whether you find yourself on the political left or right, there are plenty of people who argue that in crypto as well. Still, overall, I think that while markets are in a confusing, pretty nervous general moment, there's still so much positive happening. And the institutions seem at this point to have a lot more tolerance for this short-term volatility than the denizens of crypto Twitter do. That, however, is a lot of the business.

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.