The Breakdown - Why Kentucky Is Trying to Become a Crypto Mining Hub

Episode Date: March 20, 2021

On this week’s Breakdown Weekly Recap, NLW looks at: The beginning of the next institutional bitcoin wave NFT bubble signals Central bank policy changes Kentucky’s new pro-crypto legislation -- 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

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 NEM, and produced and distributed by CoinDes. What's going on, guys? It is Saturday, March 20th, and that means it's time for the weekly recap. I want to start the recap this week by actually going back to last week's recap. The subject of that show was the idea or the question of whether we were at the beginning of the next big institutional Bitcoin wave. So what evidence did we get one way or another about that this week? Obviously, the big standout news was Morgan Stanley joining the party in a huge way. They announced

three separate Bitcoin funds for their wealth management clients. They're run by NIDIG, FS Investments, and Galaxy Digital. And again, the TLDR is that they have really high minimums, $2 million held with the bank for individuals, $5 million held with the bank for investment funds, and they also have caps on how much they'll put in, 2.5% of total net worth. But still, the key thing here is real exposure to Bitcoin, not just synthetic exposure to GBTC or some basket of crypto-related stocks, real, honest-to-god, Bitcoin via these funds. Morgan Stanley got even more interesting, though, on Thursday night, when a local South Korean press outlet started reporting that Morgan Stanley is trying to acquire Korea's biggest exchange, Bithum, to the tune of $2 billion.

There is some skepticism about these reports. They haven't been confirmed by other news outlets, but it's still worth noting and pretty interesting, if true. A couple more pieces of evidence of this next wave of institutional Bitcoin. Grayscale announced that they are at $45 billion of assets under management. This juggernaut just keeps jugging. Of that, the vast majority is in Bitcoin, but ETH is getting up there too, nearly $6 billion. And finally, as I mentioned yesterday, the review period has formally begun for VanX Bitcoin ETF. It is currently one of four Bitcoin ETFs outstanding, with Nidig and Wisdom Tree being some of the other applicants. Given all that, it certainly seems to me that the institutionalization

of Bitcoin, the movement of institutions into Bitcoin, continues unabated. Next on this weekly recap, let's talk some NFT bubble slash mania signs. One of the the big non-crypto promoters of the NFT space has been Gary Vaynerchuk. Gary first got prominent for his daily wine reviews, Wine Library, TV, and from there, he built one of the most in-demand marketing and content agencies in the world, VaynerMedia. Now, Gary has had Bitcoin exposure for a long time, like 2014 or 2015 or even earlier, but has gone way deeper on NFTs than he ever did on some of these other cryptocurrencies. In fact, in an interview, he said, the reason I've gone harder onto NFTs than currency is because I enjoy it more. In that same interview, however, he also said it's basically a

replication of the dot-com bubble. Quote, a lot of people talked about the internet being fad. In reality, the internet was this game-changing revolution of technology, but a lot of the early projects were just overpriced on the excitement. This echoes what I said in my big NFT show a week or two ago, which is that when we look and compare it to previous bubbles like the ICO bubble, it's not so much that it's a direct comparison in terms of being vaporware. It's that it has the hallmarks of everything being overpriced because a big part of the market is being driven by speculators who are just going on the greater fool theory. It doesn't diminish the long-term potential necessarily, but it does make short-term activity potentially more troublesome, at least from a

financial perspective. What's more, this will likely always forever be known as the week the New York Post ran a headline, New York City Man sells fart for $85, cashing in on the NFT craze. It was all about making the metaphor of hot air explicit, and you had to know that getting crypto and modern art together was going to get weird. Looking for the best way to unlock your crypto's liquidity? Nexo.io is exactly what you need. Borrow against your digital assets at just 5.9% APR. Earn passive income, with yields of up to 12%,

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around decentralization, security, or performance. Learn more at casper.network. Hey guys, I'm excited to share that this week we have a special product launch sponsor. Symbol, the next-gen public blockchain from NEM, is here. Symbol from NEM is the connector between blockchain and business. It boasts enterprise-grade security and programmability, bringing cutting-edge technical features to projects at the heart of the new economy. Symbol from NEM is built to be interoperable.

It supports public and private hybrid models, trustless cross-chain swaps, and easy integration with existing business systems and processes. Join us in building the new economy. Visit simpleplatform.com or nem.io for more information. Third on this weekly recap, a look at how different central banks around the world are handling monetary policy at the beginning of year two of COVID-19 world. First, let's look at the Bank of Japan. The Bank of Japan has removed explicit guidance around buying ETFs.

They had committed to annually buying. at least $6 trillion worth of ETFs or $55 billion worth, now they're saying they're going to be buying ETFs only when necessary. Russia has actually increased interest rates for the first time since 2018. They're up 25 basis points to 4.5%. This follows rate hikes earlier in the week from Brazil and Turkey, and the thing that these three nations have in common is they're trying to combat inflation that is starting to run away from them. Russian food prices in particular have increased significantly over the past few weeks. The official Russian numbers are that they're experiencing 5.8% inflation, and they're also concerned that that might go up with the threat of new

U.S. sanctions. And then there's the Fed. In the middle of the week, they reaffirmed their commitment to keep interest rates near zero for the next couple years, but what they didn't discuss was changes to the supplementary leverage ratio or SLR that were expiring at the end of the month. On Friday, we got more information about that, and the Fed is actually letting what has been called a significant capital break for big banks expire. Basically, they changed this SLR last April to allow lenders to increase their treasury buying and deposits without setting aside capital to protect against losses. Effectively, the Fed thinks that the market is stable enough and banks are well capitalized

enough to return to previous norms. The hallmark of the market's response to Powell over the last three weeks or so has been to not believe his commitment to keeping rates low and keeping monetary policy very accommodative, and now at least in this one way, that position has been validated. Lastly, let's come to the main topic for this weekly recap, which is Kentucky's mining discounts and geographic competition. A few months ago, a handful of state legislators in Kentucky proposed a bill that would allow energy and tax breaks for crypto mining operations. Specifically, with proposed House Bill 230, sales tax obligations from electricity that was

purchased for crypto mining is removed. State rep. Stephen Rudy and Chris Freeland proposed the bill in January to help Kentucky become a national leader in crypto mining. Simultaneously, there is another bill, SP255, that provides additional energy incentives for miners. Both of these bills have passed in the Kentucky Senate with significant support, 230 passed 29 to 7 on Monday, while SB 255 passed 74 to 19 a week ago Friday. So what's cool about this? Well, first of all, I absolutely love seeing American mining initiatives. There are two possible responses to the idea that mining is concentrated in China. If you're sitting here as an American citizen. The first is to dismiss Bitcoin because of it. The second is to view Bitcoin mining as an actual national security imperative as well as a national economic

imperative and try to increase the portion of hash power that comes from the U.S. This legislation would obviously fall in that second bucket. Second, I think this is reflective of a broader geographic competition for business and talent that has been hyper-accelerated by the pandemic. It was happening a bit before. Throughout the 2010s, you had things like startup Chile or Estonia's appeal for digital citizenship. Crypto has seen its share of regions promoting crypto-friendly to attract people, from Malta to Puerto Rico to Zug in Switzerland. What the pandemic did was jump that mainstream. You have Miami aggressively competing for tech talent with probably the easiest example, but it certainly won't be the last one. I like seeing that competition play out

in the form of one of the most important pieces of friendliness for business and entrepreneurship, which is regulation that sets business incentives. I expect a lot more of this to comment. in a world where we are more than ever untethered by physical location when it comes to what we do. Anyways, guys, just a fun little thing to see happening in Kentucky. I'm excited for the governor to sign these bills into law. But for now, I hope you're having a great weekend wherever you are. Until tomorrow, guys, be safe and take care of each other. Peace.