Hi everyone! You’re reading the free weekly edition of Crypto is Macro Now, where I update and/or re-share a couple of things I wrote in more detail about during the week. If you’re a premium subscriber, you’ve probably already read them, so feel free to scroll all the way down for some non-crypto links.
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In this newsletter:
Going deeper on BlackRock’s and Moody’s tokenization narrative
Africa’s faith in democracy: a bumpy road ahead
About those “collective values”
Some of the topics discussed this week:
What’s behind the BTC selling?
BTC vs Nasdaq 100
ETF digestion
Jamie Dimon vs Howard Marks
Davos debate: should tokenization follow the “same activity, same rules” approach?
So much for “data dependent”
Bank executives: the consumer is strong
It wasn’t just Waller’s words that moved rates expectations
The global economy can breathe a bit easier
Taiwan’s significance
The end of the war in Ukraine?
Going deeper on BlackRock’s and Moody’s tokenization narrative
Earlier this week, Moody’s published a report on tokenization of funds. It contained no piercing breakthroughs, rather it was a general overview that reviewed the tokenization process as well as the progress so far. The report highlighted the potential of tokenization to reduce costs, enhance transparency, boost liquidity, eliminate intermediaries and shorten settlement times. It also pointed out the risks of deploying money on a relatively untested technology, with a focus on the potential pitfalls of public blockchains.
One intriguing point made in the report, mentioned in passing but worth highlighting because it’s something I’ve been looking into, is that tokenized money market funds could serve as a yield-bearing alternative to stablecoins. I find this fascinating because it would be yet another nudge in the evolution of what we understand to be “money”. We’ve seen tokenized assets start to be tested as collateral. But using a tokenized fund to settle an asset purchase?
Stablecoins are generally not yield-bearing (in Europe, they won’t be allowed to, and other jurisdictions are likely to follow suit to protect the banking industry). But a tokenized fund could be. After all, the yield you get on your bank deposit depends to a large extent on what the bank earns on holding bonds. Only, with tokenized funds, the yield can be embedded in the asset. This becomes dizzying and a bit terrifying when you think that tokenized funds backed by government bonds could be used to buy government bonds. But money evolves, and I think we’re looking at the beginning of that.
The mention of this possibility is especially significant given the source: not a startup visionary, a traditional finance ratings agency.
It's a good report overall, Moody’s has obviously done its homework. And this brings us to the key point: why?
Because Moody’s wants the tokenization ratings business. A few days ago, the agency released its first official classification of a distributed ledger-based fund. It gave tokenized fund units issued on Ethereum and Stellar by Singapore’s FundBridge Capital an AA rating – less than the AAA rating of the underlying assets (Singapore government debt) due largely to technology and issuer risk.
If indeed tokenized funds and other structured products are the “next wave” of financial innovation, they will need ratings. Moody’s charges a lot of money for that.
Now let’s bring in BlackRock (stay with me, there’s a connection): last Friday, the firm’s CEO Larry Fink gave a couple of high-profile interviews in which he connected spot crypto ETFs to tokenization: the former are “stepping stones” towards all assets running on blockchains and eliminating all financial fraud. A lot of what he said just did not make sense, and since I’m allergic to baseless froth, I picked his statements apart on an X thread that triggered a fair amount of controversy. You can read the thread and comments here.
However, I don’t think Larry’s comments on Friday were about the ETFs. Rather, they were about BlackRock’s likely upcoming tokenization initiative. It is the world’s largest fund manager, and if it indeed does believe that “all assets” will eventually run on the blockchain, it will want to get ahead of and help shape the shift. It is in a prime position to do so.
So, is the timing of the Moody’s report, so soon after Larry Fink’s tokenization promo, a coincidence? Perhaps. But, BlackRock is one of Moody’s largest shareholders. And Moody’s report was about the tokenization of funds. BlackRock has plenty of funds it might want to tokenize.
Furthermore, it’s not just about tokenized funds. BlackRock knows about structured products. So does Moody’s. And, arguably, reducing the cumbersome cost of structured products while enhancing their flexibility and liquidity is where blockchain technology can really flex its muscle.
Stepping back, these two moves, whether related or not (and I think they are), set the stage for what will most likely be a year of tokenization breakthroughs, where high-profile traditional finance names work with issuers, technology providers and regulators to build new market rails. It has already started, but 2024 will be the year it becomes the norm.
There will of course be too much disappointing hype, which I will do my best to call out. But I’m excited. One of the main reasons I do what I do is because I care about the evolution of marketplaces. But not just that: it’s also a privilege to witness our changing understanding of money, capital and access.
Africa’s faith in democracy: a bumpy road ahead
A recurring theme in this newsletter is the erosion of political confidence around the globe – this is relevant for bitcoin in its role as a “hedge” asset. It’s not just a monetary hedge for billions of people facing profligate economic policies and/or dollar scarcity. It’s also a financial repression hedge, giving holders a lifeline when they find themselves cut off from banking and payment access because of their political activity.
Well, here’s a worrying chart from Bloomberg that reflects the results of a recent survey on the strength of democratic sentiment in Africa.
(chart via Bloomberg)
Roughly 60% of respondents do not have a high opinion of democracy. 60%. More than half. Given how much blood has been shed in the global fight for democratic rights, this is alarming.
Combine that with the long list of elections due this year in African countries, with a total of 24 countries on the continent going to the polls, and you can start to see why higher demand for bitcoin and other hedges could become yet another driving force in crypto markets.
Of course, this is unlikely to be nearly as significant in the short term as institutional flows. But it matters in that it reinforces bitcoin’s diversity of use cases, while reminding us of why the asset and the underlying technology really matter: it’s about freedom and independence, anywhere.
On the one hand, this highlights the bittersweet nature of bitcoin popularity and price increases: when BTC is doing very well, it could be because the world isn’t.
On the other hand, BTC’s price going up brings more funding into the ecosystem, hopefully improving access points for those looking to safeguard their savings and making it easier for individuals and businesses to invest in some protection.
About those “collective values”
The Wall Street Journal published yesterday a translated excerpt from Argentine President Javier Milei’s astonishing speech at Davos. I say “astonishing” because Davos is all about “collective values”, you’ll have heard it mentioned again and again in main-stage talks. Not only does Milei not subscribe to those collective values, he lambastes the very concept. It was the most un-Davos talk I have ever heard at Davos, and the fact that he held that global stage captive feels like another example that the narrative tide is turning.
Here are some examples:
“The Western world is in danger, and it is in danger because those who are supposed to have to defend the values of the West are co-opted by a vision of the world that inexorably leads to socialism, and thereby to poverty.”
“We are here to tell you that collectivist experiments are never the solution to the problems that afflict the citizens of the world. Rather, they are the root cause.”
“The problem is that social justice is not just, and it doesn’t contribute either to the general well-being. Quite on the contrary, it’s an intrinsically unfair idea because it’s violent.”
“If measures are adopted that hinder the free functioning of markets, free competition, free price systems, if you hinder trade, if you attack private property, the only possible fate is poverty.”
“Do not be intimidated, either by the political caste or by parasites who live off the state. Do not surrender to a political class that only wants to stay in power and retain its privileges.”
Powerful stuff, especially given the venue. What’s more, Milei stops just short of accusing the WEF of being co-opted by neo-Marxists, saying instead that the infiltration of “international organizations” is particularly poisonous because of their influence on the political and economic decisions of countries.
What does this have to do with crypto? It’s significant not just because of the refreshing take on the inexorable spread of government interference in economic and social life. It’s also significant because of the strong signal that the narrative is changing, trust in established institutions is eroding, and the search for alternatives is intensifying in some corners of the globe. (I know a globe doesn’t have corners, but I like the phrase.)
What’s more, in 2024 roughly half of the world’s population will vote in elections, at a time when the need for change is becoming increasingly apparent. This degree of change is scary. Economies and currencies are likely to become even more volatile in coming months.
A natural consequence of this is an increased interest in “hedges”, as I mentioned in the previous section. We’re entering a world in which we should be especially grateful that Bitcoin exists.
HAVE A GREAT WEEKEND!
At least in my household, January has gotten off to a particularly dramatic start (regular readers will know why, but it involves ambulances and lots of time in hospital waiting rooms). So much for our plans to “ease into the new year”, and that’s even before the momentous moves in crypto markets.
Now that things are back to normal (family all well and back at home, markets back to doing not very much), I want to share one of my key coping strategies for when I’m feeling anxious: soundscapes.
This may not be as uplifting as the music recommendations I often post here, but you may find it useful since, let’s face it, anxiety is unfortunately often an unwelcome guest, more often for some of us than for others.
I haven’t studied the science of background sound, but my uneducated theory is that it has something to do with brainwaves, and something to do with subliminal imagination: I’m not at my desk with an impossible deadline, I’m on a farm in Australia and it’s raining outside. Or, I’m not trying to balance my computer on my knee in a busy hallway, I’m in a Japanese zen garden. Or an Amazon rainforest. Or a Canadian wheat field.
My go-to source for soundscapes is the Calm app, which I just love (it also has great meditations and mid-day stretches). The choice is vast, from city streets to mountaintops, winter wonderlands to tropical jungles, Snow White’s coal mine to Merida’s Scottish woods (from the film Brave). There’s a public museum, submarine, coffee shop, carnival, desert island and I could go on.
Spotify also has some great ones – I particularly love their thunderstorm playlist.
Of course, many of you have your own tricks for dealing with anxiety – for some, it’s probably loud, angry music, for others, it’s sad strings. For me, it’s being transported in my mind to a different work environment, one that feels cozy, peaceful and safe. See you there one day, maybe?