WEEKLY - stubborn fearmongering
plus: cautious institutions, assorted links and more
Hello everyone! I hope you’re all doing well, and get to touch grass this weekend.
You’re reading the free weekly Crypto is Macro Now, where I reshare/update a couple of posts from the past few days, offer some interesting links I came across in my weekly reading, and include something from outside the crypto/macro sphere that is currently inspiring me (it’s a fascinating world out there).
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In this newsletter:
“Free banking” is not a threat
Institutions are cautious
Assorted links: apolitical politics, the weaponization of vocabulary, the absurdity of narrative, the banality of relying on the old, and more
Classic fear
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Some of the topics discussed in this week’s premium dailies:
Coming up: G7, GENIUS Act, macro data and more
The G7 swings, roundabouts and balancing act
Macro-Crypto Bits: geopolitics, markets and macro
ECB: Crypto risks and ownership in Europe
Macro-Crypto Bits: Geopolitics + trade, market reactions
“Free banking” is not a threat
Macro-Crypto Bits: FOMC, macro, war, markets
Institutions are cautious
The US dollar has some problems
Stablecoin updates: institutional moves
Macro-Crypto bits: markets
“Free banking” is not a threat
The “wildcat banking” critique of stablecoins just won’t slink away in defeat.
Back in 2021, it was working overtime, with then-Fed Governor Lael Brainard, Senator Elizabeth Warren and others with high-profile curricula arguing that stablecoins recreated the destabilizing private money risks of the 19th century “Free Banking Era”. This connection was thoroughly refuted at the time by not only crypto venture investor Nic Carter but also reputable economists such as George Selgin and Larry White, all of whom have written and spoken extensively on the subject.
But on Tuesday, in an op-ed for the New York Times, economist Barry Eichengreen trotted out the dusty central banker talking points. It seems that yet again we have to revisit US history.
After the pseudo-central Second Bank of the United States closed its doors in 1836, several states passed laws allowing anyone meeting minimum capital requirements to open a bank and issue bank notes backed by a narrow range of permitted assets. The result was a patchwork of different paper representations of value, not all with the same quality of backing and not all accepted at the same price. Indeed, several of the issuing banks ended up collapsing, leaving note holders high and dry.
(image via Wikipedia)
There’s no reason, Eichengreen argues, to think that the destruction of the “singleness” of money won’t happen again.
The trigger for this renewed concern is the GENIUS Act, which sets out requirements for stablecoin issuers. Eichengreen’s main objection is that this would give hundreds and perhaps thousands of companies the right to issue their own stablecoins. There are strict requirements as to reserve ratios and assets, but he doesn’t think the regulators can be trusted to enforce the law – after all, if they couldn’t prevent the collapse of Silicon Valley Bank, how do we expect them to monitor a much more complex landscape?
And if producers and consumers can’t trust the integrity of the stablecoins in their wallets, they won’t be able to transact and “activity will grind to a halt”.
Where to start…
I’m not an expert on financial history, but even to my relatively unversed eye there are obvious errors of logic here:
First, back in the Free Banking Era, the private dollar system was the only one available. There was no central bank-issued money alternative. The use of stablecoins, on the other hand, is optional. If businesses and individuals aren’t comfortable with tokenized fiat, or don’t think the advantages offset the minimal risk, then they can use the traditional system.
Second, the fragility of Free Banking Era institutions stemmed mainly from short-sighted regulation. For instance, reserve requirements varied from state to state and often allowed “low-quality” assets. Stablecoin issuers, on the other hand, can only hold short-term US government securities. Considerably safer.
Also, many states did not allow banks to open branches, which concentrated their depositor base and made them more vulnerable to bank runs. Stablecoin issuers obviously don’t have that limitation.
Third, Eichengreen takes liberties with the concept of money “singleness” to support his concern. In the Free Banking Era, there were many currencies floating around. Stablecoins, on the other hand, are not a new currency – they are a new representation of the dollar. To be fair, he doesn’t explicitly argue otherwise, but he insists that each “$1 stablecoin will be worth exactly a dollar only if the system operates infallibly”.
This is not true, and misunderstands how markets work. A stablecoin is worth $1 if the market thinks it is worth $1. Put differently, a counterparty will accept it as worth $1 if they believe they can sell it for $1. When it comes to money, faith matters more than reserves – just ask anyone who holds fiat. Knowing the stablecoins are backed 1:1 helps reassure that faith, but verifiable reserves alone would not be enough to ensure parity.
As an example, for much of its early history, Tether had less than 100% high-quality reserve backing for its stablecoin. The market didn’t care, one USDT was still worth one dollar. Circle, on the other hand, had nothing but high-quality reserves – yet a loss of market faith in these reserves as well as Circle’s access during the 2023 US banking crisis led to a USDC depeg. The reserves were there, but faith was temporarily weakened.
Diversification strength
Departing from incorrect historical analogies, Eichengreen makes the extraordinary claim that if indeed stablecoin holders end up with assets backed by $2 trillion worth of treasuries, as Treasury Secretary Scott Bessent predicts, then any panicked exodus could send bond yields soaring, destabilizing the global economy. So, if every single stablecoin holder around the world decides local fiat is more efficient and dumps every single holding of every single stablecoin regardless of the location and reputation of the issuer, then roughly 7% of the treasury market would need to find a new buyer.
The assumptions here are bewildering.
First, the likelihood that all stablecoins go to 0 is, well, pretty close to 0%. Issuer and market diversification are among the product’s key strengths. There may be glitches with some, sure – but a liquid market can self-correct and stronger stablecoins will benefit.
Second, the argument overlooks the likelihood that any ructions in stablecoins are more likely to be caused by rather than be the cause of treasury market issues. And Eichengreen assumes the Fed and/or Treasury wouldn’t step in should that happen – they’ve done it before, they’ll do it again, because they can.
In sum, the author is an experienced and intelligent economist, and yet seems to be parroting the centralized control doctrine that innovation in value transfer is bad. The arguments are selective at best, and the generous interpretation is that he knows that new technologies break things, and money is not something you want to break.
We can agree there – but the implication that money is that fragile a concept highlights why innovation is necessary. When it comes to stablecoins, efficiencies will boost dollar demand around the world, broadening rather than weakening the market. And greater diversification of users and onramps is more likely to add than subtract resilience, especially as our global understanding of money evolves.
Institutions are cautious
One of the events I was at this week was The Network Forum, an annual gathering of traditional market infrastructure providers, mainly post-trade. For years it has featured a few panels and round tables on digital assets (that’s why I get invited), and provides a useful glimpse at what traditional institutions are actually thinking, not what crypto proponents want you to think they’re thinking. There are usually a couple of crypto firms present who are selling an idea, but it’s an invite-only event and the mood is generally low on hype.
Below are some scattered thoughts taken from panels and conversations – Chatham House rules, which means I can talk about what was said without naming names.
Less disinterest than in previous years – almost everyone I met told me “of course we’re looking into it”, and by that they usually meant more than reading some articles, they meant setting up trials, proofs-of-concept and often actual client-facing services. I heard from one traditional market infrastructure service provider representative that there was “no structural reason to stay out”.
But there seemed to be a deeper degree of scepticism that the hype is justified, that processes can be totally rewritten, and that these are broken enough to warrant the considerable cost.
The main area of interest has to be custody – most of the people I spoke to were either working on custody solutions or identified it as a key concern of clients. This reminds me very much of a few years ago: around 2018, a lack of institutional custody solutions was the main barrier for traditional investment. Then that got solved with high-level crypto-native services, usually built by people from the institutional side. Now, traditional custodians are responding to clients who want to participate in the new technology, but with familiar names. Full circle? Not really, the service providers may end up being the same, but the landscape is different, much more diverse in terms of participants.
For tokenization, the main barrier now is lack of adoption. There’s very little mainstream demand for tokenized assets, little justification for the investment in figuring out a new process – most of the surge in market cap from onchain “real-world” assets comes from crypto-natives and institutions that are “kicking the tires”.
But that doesn’t mean the stage isn’t being set: a few people I spoke to said that the work they were doing in tokenized assets wasn’t about “appetite” but about “agenda”. There’s a recognition that digital assets will be a meaningful part of capital markets going forward, even if the tipping point is still far off, and that “organizational knowledge” takes time to build.
It’s not clear to all that the missing link is onchain money, either stablecoins or a central bank digital currency (CBDC). One of the payment solutions in the recent round of ECB digital asset trials was a link between a distributed ledger and fiat payment – that seemed satisfactory to most. But, several did mention the frustrating lack of a widely accepted “cash leg”. In Europe, for large securities transactions, that will most likely need to be a wholesale CBDC.
Some mentioned that a key appeal of stablecoins for institutions is the ability to more efficiently “surveil” money. And at least one large financial infrastructure component mentioned inbound enquiries as to how to handle onchain assets while complying with sanctions.
ASSORTED LINKS
(A selection of reads outside of crypto and macro, although these may find their way in anyway. I try to choose links without a paywall, but when I feel it’s worth making an exception, I specify.)
Kyla Scanlon has an uncanny ability to dip you into some news but pull you out just in time before it seeps in too far so you can see the landscape rather than the firehose. (Everything Feels Like It Doesn't Make Sense, Kyla’s Newsletter)
Lyn Alden on what we’re getting wrong about the US deficit – basically, it does matter, it’s not going to get any better, but it’s not about to push us over a cliff into to an economic collapse. (June 2025 Newsletter: 3 Misconceptions About US Debt, Lyn Alden)
Eugyppius discusses “apolitical politics” and laments the exit of intellectual rigor from what passes as “ideology”. (Why establishment political discourse is so vacuous, dishonest and oblivious to reality, eugyppius: a plague chronicle)
Ayaan Hirsi Ali writes about the sacrifice of semantic precision for political convenience, and the injustice this inflicts on the oppressed. This resonated with me as I’ve been fretting for a while about how the weaponization of vocabulary contributes to political polarization as well as the emotionally charged refusal to step back and take stock. (The Propaganda Machine Turning Victims into Villains, Restoration)
“When every military action becomes genocide, when every policy becomes apartheid, and when every disagreement becomes fascism, society loses the ability to distinguish between different grades of moral failure.”
Ted Gioia points out that not only are we all getting old, but that ideas are drying up – old people in Congress, the dominance of sequels and remakes on the screen, old songs on Spotify… And data suggests the young are getting tired of this. (The New 80% Rule in Culture, The Honest Broker)
Irina Slav scoffs at the idea of more European debt to raise the profile of the euro, and warns about its root: that more debt is now the norm. (Bad habits, Irina Slav on energy)
“This is the problem with bad spending habits. Wants turn into needs before you can say ‘addiction’.”
HAVE A GREAT WEEKEND!
(in this section, I share stuff that has NOTHING to do with macro or crypto, ‘cos it’s the weekend and life is interesting)
As I mentioned on Monday, last weekend I sat down with the family to watch “Jaws”, in honour of its 50th birthday. Surprisingly, it did not feel dated, and even absent CGI and other modern special effects, it’s freakishly scary but not so much so you don’t enjoy the superbly executed craft. A fun summer recommend.
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.