Hello, everyone, I hope you’re all well and enjoying the summer! I’m refusing to fall into the trap of complaining about the heat when I spend most of the year missing it.
You’re reading the free weekly version of Crypto is Macro Now, where I reshare/update a couple of the articles from the week.
If you’re not a premium subscriber, I do hope you’ll consider becoming one! You’ll get ~daily commentaries on the growing overlap between the crypto and macro landscapes, including market narratives, regulatory moves, tokenization trends, adoption news and more. There’s a new section offering brief updates along with longer commentary; usually some links to relevant (even if tangentially) articles and podcasts; music I’m listening to; and often a liberal sprinkling of charts.
Feel free to share this with friends and family, and if you like this newsletter, do please hit the ❤ button at the bottom.
In this newsletter:
Lightning and Bitcoin stablecoins
State Street and stablecoins
Some of the topics discussed this week:
Trump, the dollar and the Bitcoin Strategic Reserve
ETH spot ETFs!
Stablecoin roundup
Superstate’s innovation
Contrasting crypto narratives
Value rotation – what would AI say?
Still waiting for those clear economic signals
On to the next political phase
China’s policy focus
… and more
Lightning and Bitcoin stablecoins
This is a potentially very big deal: the Lightning Network (a layer-2 for Bitcoin) can now support assets other than BTC.
Lightning emerged in 2018 as a layer-2 that executes instant transactions with insignificant fees and periodically settles to th e Bitcoin blockchain.
In exchange for lesser short-term security (at least until the transaction batch settles on the Bitcoin blockchain), users get scalability and fast, cheap transactions while counting on Bitcoin’s longer-term security.
Now, Lightning can support other assets, such as Bitcoin-based stablecoins.
This matters for more than peer-to-peer crypto payments: Lightning already connects to major exchanges (Coinbase, Binance and others), and it’s not a stretch to imagine new stablecoins forming the base of new trading pairs, especially of Bitcoin-based tokens.
So, you can see yet another use case for Bitcoin blockspace emerging. This highlights an overlooked feature of BTC as an investment asset. Yes, it’s a store of value. Yes, it’s a hedge against crazy. But it’s also a new technology, and we still don’t know what its eventual use cases (plural!) will be.
And, in my opinion, growing demand for Bitcoin blockspace is not priced in. At all. The potential for Bitcoin-based stablecoins and other related developments is, in my opinion, huge. I’ve lost count of the number of Bitcoin layer-2s either in production or development. In May, a Bitcoin staking project raised $70 million, a big number in these markets. MicroStrategy is working on Bitcoin-based identity tokens. Bitcoin is the third largest NFT platform, well ahead of Polygon in terms of sales volume. There are now tokenized treasuries on Bitcoin, Bitcoin-native application platforms, onchain Bitcoin lending projects, and I could go on.
In sum, this Lightning news is significant and welcome, especially because it feels like a step rather than a result. Stablecoin volumes on Bitcoin will probably take some time to get going, and there are pieces to the puzzle that still need solving (Lightning’s UX is pretty bad, and minting stablecoins may be complicated at first – I could be wrong, I confess I haven’t tried it out yet). But a door has been opened, and we are all yet again reminded that Bitcoin is technologically stable, secure, but still evolving.
State Street and stablecoins
There was a lot of movement this month on corporate and bank stablecoins.
Perhaps the biggest news was a Bloomberg report saying that State Street was considering issuing dollar-backed tokens. This could take one of two forms, and the largest custodian bank in the world is reportedly considering both.
One is a deposit token, a blockchain-based asset backed by deposits. These tokens tend to move on private blockchains, with a user’s fiat deposits converted into tokens that then sit in a KYC-ed wallet. These tokens can then move around on the permissioned blockchain and be converted back into deposits by the receiver, who would also have an account at either the issuing or a partner institution. These can be limited to clients of the same bank – an example of this is JPMorgan’s JPM Coin. They can also include other deposit-taking firms participating in the same network, with the corresponding intra-bank adjustment – an example of this is the multi-institution Project Guardian trial, spearheaded by the Monetary Authority of Singapore.
Another potential form of dollar-backed tokens is a stablecoin, a blockchain-based token backed by dollar reserves. Stablecoins tend to run on public blockchains, although there’s no reason they couldn’t also move on private or permissioned versions. The big difference is that, when the tokens are transferred, the reserves do not necessarily move. The tokens can whizz around the network, confident that they are always backed 1:1 by the corresponding amount of dollars sitting in the established reserve account. These would be available when any authorized holder wished to redeem. Well-known examples are Tether’s USDT and Circle’s USDC.
(chart via TradingView)
Here is where it gets particularly interesting. Deposit tokens sound like a no-brainer for a financial institution that takes client deposits. JPM Coin is by all accounts successful – it powers JPMorgan’s Onyx network, and processes over $1 billion worth of transactions per day.
Clients get the convenience of blockchain-based payments, while JPMorgan has real-time insight into all activity in the ecosystem. It also has the flexibility of iterating on the innovation to improve utility, such as the introduction last November of programmable payments on the JPM Coin network. Earlier this month, a white paper revealed that Ant International, the global payments affiliate of the Alibaba Group serving over 2 million sellers across more than 200 countries (and which has its own blockchain-based treasury management solution), has processed billions of dollars via JPM Coin.
A similar set-up for State Street could make sense. It’s not a deposit-taking bank, but it does hold assets on behalf of customers around the world, and – regulatory approval permitting – it’s not a stretch to imagine State Street expanding its cash management and settlement services to include deposit-backed, blockchain-based liquidity.
But a stablecoin? This is an intriguing twist for a globally systemic financial institution. I imagine the idea would be State Street would mint new stablecoins in line with deposits into a newly established reserve account. These stablecoins would move amongst State Street clients, divisions and possibly also external partners, with the reserves staying put until an authorized holder redeems.
The potential reach of these stablecoins would in theory be broader than for deposit tokens, since full onboarding would not be necessary for the transfer of value. When the tokens represent actual deposits, whose backing value moves with the token, then full account authorization for both sender and recipient would be required. Not so for stablecoins, since the underlying reserves don’t necessarily move. Relevant identification would no doubt be needed, since State Street is a heavily regulated financial entity. But that is a lighter lift.
A stablecoin could also fit into decentralized financial (DeFi) networks, either existing or yet-to-be-built. Imagine a State Street stablecoin on a permissioned version of Ethereum (this is just me speculating here, I have no inside information). In theory, this token could be accepted by existing DeFi services, or could draw on Ethereum’s developer community for the creation of specific applications.
This could be especially relevant given the firm’s intention in the past to offer digital asset custody services (recently mothballed given the SEC’s guideline SAB 121 which essentially blocks banks from offering this service) and tokenized funds. What’s more, last month it published the results of a survey of 300 investment institutions with the following relevant findings:
62% of respondents either have or are building a digital assets function,
56% said they were either already trading assets onchain,ç or were “extremely prepared” to do so,
71% envision a hybrid tradfi-defi market over at least the next 10 years, with the majority of assets moving onchain some time after that.
So, State Street is not a newcomer to the digital assets space. It may have had some changes of direction recently, but few firms haven’t. It obviously recognizes the need to think about what’s coming rather than what’s right in front of us today. And, given the firm’s size and financial clout, its potential impact is significant.
HAVE A GREAT WEEKEND!
This was probably the first Olympics opening ceremony where I bet most of the celebrity attendees wished they had stayed home to watch it on TV instead. The idea of having the artistic interpretations up and down the Seine sounds cool – but it means that no-one, literally no-one actually got to see them all. Not even the TV watchers.
And confining the athletes on boats that ferry them past spectators means they didn’t get the well-deserved thrill of entering a stadium to the sound of full-throated applause. They were reduced to a passive rather than an active participation, and they didn’t get to mingle and meet each other. Plus, hanging out in the rain for hours may sound romantic – but, as anyone who has ever done it knows, it is not at all fun.
Some of the acts were entertainingly original, but I don’t understand the penchant for celebrating the guillotine. And as for the over-abundance of rave-style dancing – well, I get that it’s about transmitting rebellion and energy, but what happened to uplifting?
There were a couple of epically cool episodes: the horse galloping along the Seine was one, that was beautifully executed. And the laser show from the Eiffel Tower was amazing. I love the idea of making the city the main backdrop, rather than a specific building. The sheer complexity of the event had an inspiring beauty of its own.
But, on the whole, the opening ceremony felt disappointingly tedious, preachy and ever so damp. Now, on to the games.
Some good photographs (and gushing reportage) here (CNN) and here (BBC).
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.