Crypto and China + in from the margins
plus: signals from a political earthquake, Powell pressure, markets and more
“The greatest challenge to any thinker is stating the problem in a way that will allow a solution.” – Bertrand Russell ||
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IN THIS NEWSLETTER:
Signals from a political earthquake
China and crypto
Crypto comes in from the margins
Macro-Crypto bits: markets, Powell pressure, systemic cracks
COMING TOMORROW: the BIS is scared of stablecoins, South Korea isn’t, Barclays is scared of clients investing unwisely, SoFi is getting into crypto, and possibly more unless something else happens and again I run out of time – unlikely, right?
If you’re not a premium subscriber, I hope you’ll consider becoming one! You get ~daily commentary on markets, tokenization, regulation and other signs that crypto IS impacting the macro landscape. As well as relevant links and music recommendations ‘cos why not.
WHAT I’M WATCHING:
Signals from a political earthquake
In keeping with the rhythm of now-frequent signs of the “old order” breaking down that I often write about here, yesterday delivered a big one. Zohran Mamdani won the Democratic primary for November’s New York mayor election, sending shockwaves through the political as well as financial establishment and executing what is being called the “greatest political upset in New York City politics in a generation”.
Even ignoring his social media posts in favour of “globalizing the intifada”, what has alarmed analysts and investors is his support for rent freezes, state-run supermarkets and free public transit, to name just a few of his more controversial campaign promises.
If implemented, of course these would be disastrous for New York’s economy, as anyone who has lived in places with these policies can tell you. But our collective focus on the economic outcome of what he wants to do is missing the point.
Mamdani won for a reason. Or, more likely, several. We may not agree with them, but we can’t ignore them, and until they are understood and dealt with, we will see more electoral results like this.
It certainly helps that he comes across as attractive and likeable, and in this social media age, that matters more than sound policy, at least for now. This is not new, as television is credited with being influential in John F. Kennedy’s victory. But Mamdani’s team does great videos which end up in the palm of everyone’s hand – a different level of impact. (Not for nothing, his mother is film producer Mira Nair, behind Monsoon Wedding, Queen of Katwe, Vanity Fair and many more).
And he represents more than a nice smile. I asked my son (a borderline millennial) what he thought – he’s excited, he said, by the energy Mamdani brings. It “feels good”. I don’t think he’s ever said that about a candidate before, and we talk about politics quite a lot at home.
This highlights what many of us have been saying for a while – politics has increasingly felt “other”, the arena for the rich, the old, the entrenched. More about continuity than change. Here is someone who can channel voters’ frustration with the lack of affordable housing, the debt from student loans in a wobbly jobs market, the threat to careers from new technologies and the lack of clarity as to what to do about it. Not to mention the possibility of higher prices due to tariffs, the flip-flopping on trade and the uncertain outcome of the initiative to bring industry back to the US.
Their grievances are not invalid, and calling Mamdani voters “entitled”, “envious” and “stupid” may feel righteous but it is not going to help win over anyone, it just further polarizes the issue. What would win over his voters? Addressing the grievances, with sincerity. Unfortunately, that looks like an impossible task for anyone part of the “establishment”, since they will first have to explain how the establishment is not part of the problem.
Now, Mamdani hasn’t won yet, there’s still the actual November election to get through and I imagine a ton of money is coming Eric Adams’ way. But, although I’m on record as saying I didn’t think Mamdani would win (I also thought that about Trump in 2016 for the same mistaken reasons), I now think he might. If he doesn’t, it will have been a close call. The takeaway is that we all have to listen to the message his primary win is sending: for most Democrat New York voters, the current system isn’t working.
China and crypto
I’ve written before about how it appears China is warming to the idea of regulated (and observable) crypto trading, rather than continuing to pretend it doesn’t happen.
Today we got a signal on that path: the international arm of China’s largest securities broker by asset value, Guotai Haitong (formerly Guotai Junan), has obtained a Hong Kong license to offer trading of crypto assets.
Guotai Haitong is not directly state-backed, but it is state-influenced as several state-owned enterprises own stakes in the company. The largest shareholder, for example, is an entity controlled by the Shanghai municipal government, and the original firm (Guotai Junan) was reportedly created with government involvement.
So, here we have the first large Chinese “connected” financial institution to get authorization to offer crypto services in Hong Kong. This licensing would not have been solicited without support from head office, which would not have been given if there were doubts as to the PRC’s acceptance.
For now, these services will not be available to Chinese residents, but Hong Kong is typically seen as a testbed for new types of financial services, as well as a bridge between the mainland and the international investment community. What’s more, according to state-run Securities China media (in an article with a headline translated by Google as “Virtual asset trading has set the market on fire!”), several other international divisions of large mainland brokerages have also applied for the Hong Kong virtual assets license. Slowly, but surely.
Crypto comes in from the margins
The director of the Federal Housing Finance Agency Bill Pulte has asked the regulator to explore how crypto holdings could be included in the mortgage qualification process.
This is a big move for two main reasons, according to the excitement on X yesterday:
1) It in theory removes some sell pressure from the market as holders won’t have to sell their crypto in order to buy a house. I’m skeptical this is a big deal – it’s not clear crypto holders would sell their digital assets rather than other assets to raise funds for a home purchase, or rather than seeking financing elsewhere. Crypto lenders, for instance, have deep experience in taking crypto and turning it into cash without the holder giving up ownership.
2) A more convincing positive takeaway is that the move further entrenches institutional acceptance of crypto as a valid asset group. It would bring crypto more definitively in from the “margins”.
Even here, though, there is a big caveat. The proposed inclusion in total wealth calculation only applies to crypto assets held in third-party custody “on a US-regulated centralized exchange”. Not self-custody. I’ve written before about the risk of over-institutionalizing the promise of the ecosystem, and here is an example. On the surface, it’s not a big deal – but the underlying message is self-custody is not “valid” at the official level, even though positions are trivial to validate. Not a surprise, I guess, but still…
What I fail to see is how this move will, according to some influential investors, “revolutionize simple single family ownership” and “SOLVE many of the problems inherent in real estate” (are all-caps contagious?). It could potentially expand the pool of potential home buyers, which is good – but “revolutionize”? I’m missing something.
Macro-Crypto Bits:
This section offers brief comment on some of the news items I’ve seen today that are relevant for the macro and crypto narratives I talk about. I’ll try to keep this short, but there is SO MUCH going on.
Markets
As if to make a point about heavy uncertainty, the major US stock indices were largely flat yesterday. Oil bounced along steady levels, bonds didn’t do much despite the Fed Chair’s testimony, and gold staged a weak rally.
BTC, on the other hand, showed some movement, at one stage popping above $108,000. That was brief, however, and so far today there is pullback.
(chart via TradingView)
Macro
The political pressure on Fed Chair Jerome Powell is ratcheting up. Beyond President Trump publicly calling the head of the world’s largest central bank “stupid”, we now have Commerce Secretary Howard Lutnick piling in, just a few months after he was reportedly one of the saner heads urging the president to tone down his anti-Powell rhetoric. Yesterday, Lutnick hit social media to justify Trump’s calling Powell “a loser” and to urge the central bank chief to “do his job”.
You would expect increased uncertainty around Fed independence to push yields up, as it would rack up doubts as to the economic stability of the world’s largest market.
But no, bond yields continued to head down, helped by Trump’s suggestion that he’ll soon release the name of Powell’s successor – who will, of course, be someone in favour of lowering US rates fast. The front runners for now seem to be former Fed Governor Kevin Warsh, and current Fed Governor Chris Waller (who incidentally last week recommended a rate cut as soon as July).
(chart via TradingView)
Lower rates generally mean a lower US dollar, at a time it has been heading down anyway – the DXY dollar index is now at its lowest point since early 2022.
(chart via TradingView)
Good for US exports, sure. Bad for US inflation.
Systemic cracks: some get patched, new ones appear
It looks like NATO avoided a dust-up, for now, and Secretary General Mark Rutte deserves praise for his masterful handling of the US President – his flattery may come across as cringe, but it was smart.
This is good news. I wrote yesterday about how damaging another global institution fracture would be, especially one as existential as the largest, most powerful military alliance. The political and economic headwinds are still real, as are the consequences of increased spending (both good and bad) – but it’s a relief that more time has been bought.
Meanwhile, it now looks like new institutional cracks are appearing in an unexpected corner of the geopolitical landscape. Apparently, for the first time ever, China’s President Xi Jinping will not attend the annual summit of the BRICS group, a trade alliance between China, Russia, India, Brazil, South Africa and a recently-added list of five more non-western countries, including Iran. As the largest economy in the bloc, at a time when trade agreements are front-and-centre (ok, along with military considerations), this sends a loud signal that is not easy to decipher.
Russia's president will also skip, due to risk of arrest under the International Criminal Court warrant – but China's president giving it a pass is odd.
LISTEN/READ:
An excellent speech from Alex Thorn on how vested interests instinctively reject crypto because they want us to think everything works fine as it is.
Tether CEO Paolo Ardoino talks to the Bankless podcast crew about his firm’s profitability, stablecoin demand, global growth plans, outlook on US crypto market, diversification and more.
Kyla Scanlon has published an an original take on the political and economic impact of attention: how it moves minds, shapes strategy, attracts money and is changing the structure of power.
Here’s a good quote:
“Succinctly… everything feels like crypto now? Crypto doesn’t represent “real” value (some things in the industry do, but broad brushstrokes), but it synthesizes it through speculation and belief. Vibes, volatility, and mindshare, if you will.”
And another one:
“Because right now, the person who can generate the most compelling speculation about the future gets the most power to create it, regardless of whether they understand the consequences.”
I think she’s right, this goes a long way towards explaining Mamdani’s victory (see above).
WHAT I’M LISTENING TO: When simmering moves to a boil – Experience, by Ludovico Einaudi
HAVE A GOOD DAY!
DISCLAIMER: I never give trading ideas, and NOTHING I say is investment advice! I hold some BTC, ETH and a tiny amount of some smaller tokens, but they’re all long-term holdings – I don’t trade.