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| The biggest crypto news and ideas of the day Oct. 14, 2021 If you were forwarded this newsletter and would like to receive it, sign up here. Sponsored by Welcome to The Node.
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–Daniel Kuhn
Today’s must-reads Top Shelf REGULATORY RULES: Coinbase is pitching policy makers on a crypto-focused regulator. While Binance appointed its first chief regulatory liaison officer amid a period of global regulatory scrutiny of the crypto industry. Separately, G7 finance officials outlined a set of 13 public policy principles for the development of central bank digital currencies (CBDCs). “Do no harm,” is included on the list – let’s see where the watchdog comes down on digital financial privacy.
MINING MOVES: Antpool, the largest bitcoin mining pool, said it will block internet access from mainland China to comply with government regulations. The mining pool will also deploy its know-your-customer (KYC) user authentication system globally. Meanwhile, Russia’s minister of energy, said crypto miners should pay higher electricity rates than households. Finally, a crypto miner in the U.K. has been jailed for 13 months for stealing £32,000 ($44,000) of electricity to operate bitcoin mining machines – don’t steal, folks. LACK OF DEMAND? Morgan Stanley CEO James Gorman said in a Q3 earnings call that clients have had muted demand for its crypto offerings (which include wealth management services and funds, but not the ability to buy crypto directly). Separately, Chainalysis has found that decentralized finance (DeFi) has driven North America to become the world’s second-biggest largest crypto market. Monthly transaction volume in North America grew by over 1,000% between July 2020 and this past May, from $14.4 billion to $164 billion, with about a third of trades happening over decentralized services. LEFT BEHIND? Coinbase Global (Nasdaq: COIN) was rated to underperform with a $160 price target by a market analyst with Autonomous Research, who cited the exchange’s lack of “crypto innovation.” The exchange announced Tuesday it would build a non-fungible token (NFT) platform, with about 1 million on the waitlist, following fellow centralized juggernaut FTX into the market. Finally, Visa is launching an NFT support program to help artists join the digital art space. CAPITAL RAISES: TradingView, a charting platform and social network, secured a $298 million investment round led by Tiger Global, valuing the company at $3 billion. Fintech startup Tala has raised $145 million in a Series E round to expand its financial services and develop a mass-market crypto product for emerging markets. Lending platform Upstart led the round.
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As heard on CoinDesk TV... Sound Bites “It would be helpful to have more clarity between the CFTC and the SEC and … we’re going to need a congressional action to set those boundaries a little better.”
What others are writing... Off-Chain Signals Russian President Vladimir Putin said that he doesn’t think crypto can replace the U.S. dollar in settling oil trades yet, though he does believe it has value. In an interview with CNBC, Putin also criticized the use of the U.S. dollar for sanctions. An expert critiques Craig Wright’s samurai skills (Protos). CSW on camera (Calvin Ayre/Twitter) Digital Pound Foundation launches, aiming to promote a UK CBDC (The Block) Auction house Sotheby’s has launched its own Ethereum-based NFT marketplace called Sotheby’s Metaverse (Decrypt) How do you display this digital-only art once you've bought it? Stephen Graves set out to find out for Decrypt Osinachi, the first African NFT artist to be featured at Christie's, is doing a social token at a London exhibition (Decrypt) Cato’s Steve Hanke co-authored a National Review op-ed about how much crypto “innovation” is marketing. Speaking of, the NBA’s Sacramento Kings are doing an ad deal with Ankr (Blockworks)
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Putting the news in perspective The Takeaway If Crypto Causes 'Instability,' It's Because the System Is Unstable I started reading Nobel prize-winning economist Robert Shiller’s bestselling book “Irrational Exuberance” about asset bubbles recently. Wait, I should be more specific. I started reading the third edition published in 2015, during what Shiller identified as another asset runup. The modern classic economics text was first printed in 2000, before the implosion of the “dot com boom,” and again in 2005, ahead of what turned out to be a housing market meltdown.
Shiller, you may not be surprised to learn, is not a huge fan of cryptocurrencies. He’s said interest in the sector is part of the “Wild West” mentality across stock, housing and bond markets. Something of a “perma-bear,” his dour prognostications seem to come from a place of concern about painful losses for investors of all stripes … in addition to selling books. The Yale professor isn’t the only economist who sees bubbles everywhere. Jon Cunliffe, the Bank of England’s deputy governor for financial stability, yesterday likened the $2.3 trillion crypto market to the $1.2 trillion subprime mortgage market in 2008, which contributed to that decade’s great financial crisis. Risks aren’t localized, but shared across this interconnected, global financial system.
“The crypto world is beginning to connect to the traditional financial system, and we are seeing the emergence of leveraged players. And, crucially, this is happening in largely unregulated space,” Cunliffe said. Could a major price correction in the volatile crypto market cause knock-on effects? Cunliffe was short on specifics and also on recommendations.
Indeed, today, crypto is something more than just an economic niche. Major financial actors, from pension funds to hedge funds, are taking on exposure to crypto assets – buying bitcoin directly, buying shares in investable vehicles like trusts and even leading capital raises for crypto startups. Millions of Americans trade in crypto markets. A nation state “hodls” bitcoin.
It seems fair to “take notice,” as Cunliffe says, of an industry that has exploded in value from $16 billion five years ago to the juggernaut it is today. But concerns from financial overseers are also a bit misplaced and seem designed to scapegoat crypto for overheated financial markets that their policies enable.
Cunliffe, to his credit, wasn’t totally paternalistic. He cautioned governments and regulators against overreacting to this novel tech-driven sector and added that crypto could offer “radical improvements” to traditional financial services.
Of those improvements, he might mention, is the fact that crypto does offer a more “interconnected” economy. Crypto is something new, something frightening, something potentially dangerous because blockchains and smart contracts open access to financial services to nearly everyone. It leaches power from power brokers and decision makers.
But as much as people talk about bitcoin “decoupling” from the financial system, that seems unlikely. The full picture is still emerging – crypto sometimes moves up and down following classic inflation hedges, sometimes like tech stocks, sometimes independently. But interconnected it is, and the sector’s growth isn’t whole and away independent from the runup in asset prices across the economy.
Bitcoin may be the best performing asset ever, but its growth coincided with the longest and most profitable bull market in stocks in history. The S&P 500, a benchmark, closed out a decade-long bull run beginning March 2009 with 370% returns. It’s still growing. And the same cheap money policies and “inflation is good” mentality driving it are still in play.
Shiller, the expert on how emotions and narratives drive finance, has also noted the “impressive technology” behind crypto. But always the skeptic, he also thinks its “ultimate source of value is so ambiguous that it has a lot to do with our narratives rather than reality.” That was true too, he thinks, for the 90s tech sector, the aught’s housing speculation and today’s meme stocks. But what’s the bigger story behind this bubble?
–Daniel Kuhn
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