The Breakdown - Why a Massive 169-Year-Old Insurance Company Just Bought $100M in Bitcoin

Episode Date: December 12, 2020

Today on the Brief: FDA panel recommends Pfizer vaccine approval as initial jobless claims soar Antitrust lawsuit calls for Facebook breakup Crypto-friendly CFTC chairman to resign at the beginning of the year Our main discussion: Why MassMutual bought $100 million in bitcoin and why it matters. In this episode, NLW looks at recent news that MassMutual had purchased $100 million in bitcoin for its general account, as well as made a $5 million minority investment in $2.3 billion asset manager NYDIG, which helped facilitate the bitcoin purchase. He discusses why insurance company purchases are different than other institutional buyers like MicroStrategy, and why this might be the beginning of a more significant industry trend.

Global insurance company general account assets are bigger than global central bank balance sheets. Think about that for a second. Think about how huge a pot of money that is and how significant it is that this storied firm has decided to start allocating into Bitcoin. It may be small, but the fact that it exists is huge. 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 crypto.com, nexo.io, and leveled, and produced and distributed by CoinDest. What's going on, guys? It is Friday, December 11th, and today we are discussing why a famed, 169-year-old insurance company just bought 100 million in Bitcoin.

First up, however, let's do the brief. First on the brief today, a vaccine has been approved, but jobless claims are way up. So let's check in on the most important narrative trade of the year the vaccine information trade. A key FDA advisory panel has voted to endorse the Pfizer and Bio-Ntech COVID-19 vaccine. They say that the benefits outweigh the risks for people 16 or older. The vote was 17 to 4, and this paves the way for the FDA to greenlight distribution of this vaccine. This is likely to happen as early as today, Friday, December 11th. President Trump, of course, in his usual style, nug them for moving too slow,

calling the FDA a big old slow turtle, but it seems like there is a vaccine on the horizon for real. This is a good thing because we had the twin news yesterday with that of a sharp rise in U.S. jobless claims. initial jobless claims climbed by 137,000 claims this week to 853,000 total new claims. This is the highest number since September and continues a trend. Claims had been between 700,000 and 800,000 since mid-October before jumping last week. Now, of course, this only makes sense as we see the return of partial lockdowns and also voluntary reductions in business activities as COVID-19 cases swell. In other words, this vaccine can't come soon enough.

Next up on the brief today, Zuckerberg's antitrust troubles. On Wednesday, the FTC and more than 40 states accused Facebook of acquiring companies to illegally kill competition. What's more, they called for the harshest punishment to have deals like Instagram and WhatsApp unwound and essentially spun out into their own companies again. This is harsher than the Google antitrust suit we saw a couple months ago, which stopped short of demanding that Google be split up. So why you might ask, does this matter? And I think the reality is that anti-Big Tech is one of very few bipartisan issues. Although the reasons why conservatives and liberals in the U.S. don't like Big Tech very wildly, everyone agrees that they have too much power.

This matters in crypto because the narrative particularly around stable coins is also getting swirled up in this Big Tech animal. A lot of the tension that you feel in things like the Stable Act stem, I believe, from a broader sense that these private institutions, particularly tech institutions, have too much power relative to governments. And the fact that the first time most legislators heard about a stable coin was Facebook's Libra certainly doesn't help. This is going to be a long, drawn-out battle, but it will be important to watch. Finally on the brief today, Chairman Heath Tarbert of the CFTC is resigning. So speaking of legislators, CFTC chairman Heath Tarbert intends to resign early next year. This was announced yesterday on Thursday. Tarbert has been an extremely pro-crypto chairman.

He even mentioned in his statement about leaving office that Ether was declared a commodity during his time as chair. This is one of many potential departures that could hit the crypto industry. There's a lot of bluster and conversation around OCC's Brian Brooks who could also be out soon, depending on what the Biden administration chooses to do. This episode is brought to you by crypto.com, the crypto super app that lets you buy, earn, and spend crypto all in one place and earn up to 8.5% per year on your Bitcoin. Download the crypto.com app now to see the interest rates you could be earning on BTC and more than 20 other coins. Once in the app, you can apply for the crypto.com metal card, which pays you up to 8% cashback instantly on all purchases. Reserve yours in the crypto.com app today. Many investors want to be a part of the next bull run.

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Level is a revolutionary new Bitcoin exchange with no trading fees and no hidden spreads. With a free level mobile app, you can trade Bitcoin, Like Coin, and Ether. hotel your coins in a secure multi-signature wallet and spend cash from your crypto with a debit card. Level checking accounts are FDIC insured up to $250,000. And CoinDask has partnered with the new exchange to give our listeners a free month of premium service. So when you sign up, use the promo code CoinDesk or just visit level.com slash coin desk. That's LVL.com slash CoinDesk to get started today. Let's move over to our main conversation about why an insurance company founded

in 1851 just bought $100 million in Bitcoin. Last month, I welcomed Robbie Gutman of the New York Digital Investments Group, or Nidig, to the show. Nidig, as we pointed out then, has quietly built one of the largest institutional Bitcoin businesses in the space, as well as helping their parent, Stone Ridge Holdings Group, invest tens of millions in Bitcoin as their primary treasury asset. Since that interview, Nidig has been absolutely moving. Over Thanksgiving, news broke that Nidig has been.

raised $150 million across two funds to invest in crypto. Fund 1 was a $50 million fund to invest entirely in Bitcoin and is the firm's latest offering for a group of institutional clients who are long BTC. NIDIG Digital Asset Funds 2 raised $100 million and it's less clear what that mandate was. But even more interesting than the size of these two funds is the fact that they only have three investors total. Two for the Bitcoin Fund and just one for that big $100 million digital asset fund too. In short, these funds are testimony to the size of the new institutional whales coming into the space. Then, just earlier this week, news broke of the hire of Patrick Sells, the former chief innovation officer at Quantic Bank. His remit with Nidig is to help them develop custody,

execution, financing, and AML-KYC compliance for banks in a white label offering. As you'll hear about on tomorrow's show, the Bitcoin banking battle is heating up and Nidig is getting in there by offering white label services to banks who want to compete. But yesterday, news broke of something that is, I believe, from a narrative standpoint, even bigger. Massachusetts Mutual Life Insurance, better known as Mass Mutual, is one, taking a $5 million stake in Nidig, and two, making a $100 million investment in Bitcoin, facilitated, of course, by Nidig. As part of the announcement, it was also reveal that NIDIG has 2.3 billion in assets under management. So why is this significant? First, it is another piece of evidence confirming this narrative of institutionalization that has been

driving Bitcoin's rally. This year, as we've heard from so many people, has been a respectability rally, a rally of big institutions, of wealthy individuals, of the most enfranchised class of finance coming to this asset in a big way. Second, however, I think it's even more significant than that. The phase that we're in is one in which it is slowly but steadily becoming more risky to have no opinion and no exposure than to have some exposure or even too much exposure. And this is not just from an upside opportunity cost perspective, but from a career risk perspective. A few years ago, career risk was getting your institution in Bitcoin. That could seriously bomb your trajectory if it went pear-shaped. However, I think it's switching now and quickly career risk is going to be coming

missing this wave and having to buy in later at higher prices. Jameson Lopp tweeted something along these lines the other day saying, imagine the reputational risk of being a financial advisor who has public tweets posted predicting Bitcoin's failure back when it was orders of magnitude cheaper to acquire. In this transition, the nature of the firms getting involved matters greatly. Paul Tudor Jones was huge because of his influence in standing in the hedge fund world. Mass Mutual similarly is huge because of what it represents. This is a firm founded before the Civil War, whose job is to keep safe people's money for when they need it most. Tim Corbett, the chief investment officer at Mass Mutual, said, quote, we believe that having an equity

stake in Nidig as well as a Bitcoin position in our general investment account will help us deliver long-term value to our policy owners. We look forward to further exploring additional ways to work with Nidig consistent with our ongoing focus on innovation. and diversification. I want to point out, importantly, just how different a type of institutional buyer and insurance firm is. I was chatting about this with Adam Bloomberg from Interaxis, who has direct experience in this industry, and this is how he put it, and I thought this summed it up really well. Mass Mutual investing in Bitcoin is different than micro strategy. First, Mass is an insurance company, which means they have their reserve requirements. This has to be in very

low-risk assets, usually government debt. The idea is to have cash on hand to pay claims and to match short and long-term income with actuarial data and potential claims in the future. Then, add to that the fact that they are a mutual, and there is not a profit motive like micro-strategy. They aren't publicly held. Owners of the company are the participating life insurance policy owners. Mass has to be even more conservative than most insurance companies. They have to offset potential future claims with current and future revenue and with income and growth of investments. However, much of their investment has to be conservative. Much of their competitive edge is in the ability to maintain a consistent dividend for their policy holders. With such

low interest rates now and in the future, this becomes difficult. That makes the Bitcoin choice that much more interesting. To be fair, they have billions of dollars and they chose to invest 100 million, so doesn't really move the needle. However, they saw enough need to offset low interest rates and found the best place to invest that 100 million was in Bitcoin. As I said, I think this does a great job of just really articulating and showing how different this is than maybe some of the other institutional actors that we've seen enter the space. I also asked Robbie Gutman, the CEO of Nidig, if he had anything to add to the press release, and this is what he emailed back. Quote, there are three trillion of assets in the general accounts of the top 10 U.S.-based life and annuity companies.

There are another 2 trillion of assets in the general accounts of the top 10 U.S.-based property and casual insurance companies. That's 5 trillion of assets in just 20 companies, just in the U.S. Global insurance company general account assets are bigger than global central bank balance sheets. This is the start of something enormous. Not only is this asset pool gigantic, but they are some of the most sacred assets in the world. These companies protect our loved ones in their most critical times of need. I couldn't be more impressed by the team at Mass Mutual. Their long-term view and willingness to think outside the box

is among the best in the industry, and the diligence process they ran was extremely thorough and another big validation of our platform. The equity investment comes at the same time as the announcement of our bank solutions business, where we are working with financial institutions to help them bring Bitcoin products to their customers. We couldn't be more excited about the opportunities to innovate with bold, thoughtful partners like Mass Mutual. So two quick things following up from that. First, I want to point out just a quick note about this bank solutions business. There is clearly an accelerating battle for Bitcoin banking. This is something that actually is going to be the topic of the weekly recap tomorrow. And NIDIG is very clearly making a play

with these white label services. And really, it suggests that they're going to be a big contender there. The second point, though, I want to go back to Robbie's statement, global insurance company, general account assets are bigger than global central bank balance sheets. Think about that for a second. Think about how huge a pot of money that is and how significant it is that this storied firm has decided to start allocating into Bitcoin. It may be small, but the fact that it exists is huge, which gets me to my final point. There is finally the question of precedent.

Other people I've spoken to with proximity to the insurance agency have suggested that other firms like New York Life, Star, and Allegheny have done similar arrangements in terms of size and structure with Nidig, leading some to wonder if Bitcoin denominated life insurance and annuities might not be far off. Imagine for a moment that you could get insurance claims paid in Bitcoin. This may not be crazy for long. Anyways, guys, this is a pretty exciting moment, I think, and maybe even more significant than a lot of us are giving it credit for. I have a feeling that because the price of Bitcoin is off just a little bit and because we've had a veritable barrage of these institutional announcements, that what makes this one different, maybe flying just a little under the radar. So I hope that this show helps give you my perspective on it, the perspective of some other folks who are more

proximate to the insurance industry. And I appreciate you listening as always. If you like this show, please go throw a rating and review on Apple. It really makes a difference. And until tomorrow, guys, be safe and take care of each other. Peace.