Banks and brokerages will ultimately go 'headfirst into BTC': TradFi CEO

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Welcome to the On the Margin Newsletter, brought to you by Ben Strack and Casey Wagner. Here’s what you’ll find in today’s edition:

A reminder from a TradFi CEO: Banks and brokerages will ultimately go “headfirst into bitcoin.”
NVIDIA’s woes seem to bring the whole market down with it. But things may be looking up.
There’s a new politician in town, and his sights are set on Elizabeth Warren’s seat.

Banks ready to go ‘headfirst’ into BTC

Bitcoin’s price is bouncing around. It was trading below $20,000 in early 2023 before hitting an all-time high price above $73,000 last March. BTC was trading just north of $58,000 at midday Wednesday.

“But ultimately over the next five years, as it gets invited into this party, up we go,” Howard Lutnick, CEO of financial firm Cantor Fitzgerald said in a video posted on X.

This party he’s referring to? A festival of sorts where some of the world’s biggest companies reverse bitcoin’s historic role as “an outsider to the TradFi community.”

“Banks still can’t clear [bitcoin]. Banks still can’t transact in it. Banks still can’t [custody] it…and they won’t finance it,” Lutnick added.

He paused before adding, “Yet.”

There’s a misunderstanding that TradFi players don’t want to transact in bitcoin, Lutnick claimed.

“If the regulatory environment was good, you [would] see all the traditional financial service companies — the big banks, the big brokerage companies — they’re all going to go headfirst into bitcoin,” he noted.

(Sidenote: Maybe Vanguard really is an exception, as they’ve said repeatedly. Still, some believe they’ll come around.)

Lutnick pointed out that for banks to custody a client’s bitcoin, “they would have to set aside their own money equal to that amount in sort of like a jail.” This is thanks to the SEC’s Staff Accounting Bulletin (SAB) 121.

On that note, financial organizations said in a February letter to SEC Chair Gary Gensler that SAB 121 “has curbed the ability of the Associations’ members to develop and bring to market at scale certain digital asset products and services.”

Though lawmakers came together in May to pass a resolution that would invalidate SAB 121, President Joe Biden vetoed it.

The rule has “effectively precluded” banks from safeguarding crypto, the letter added. Notice that Coinbase (rather than big TradFi banks like State Street) are custodying the BTC for spot bitcoin ETFs issued by BlackRock and a handful of others.

Speaking of State Street, the financial giant last month teamed up with crypto infrastructure provider Taurus to add tokenization and digital custody offerings. Deutsche Bank too said last year it was set to establish crypto custody and tokenization services with Taurus’ help.

With institutional traders looking to mitigate counterparty risk by finding trustworthy custodians, that market is projected to see a compound annual growth rate of 23% through 2028, according to a recent OKX research report.

Beyond just custody, we’ve talked before about the tokenized money market funds of asset management titans BlackRock and Franklin Templeton. JPMorgan, Goldman Sachs and others continue to explore blockchain tech use cases.

OKX chief commercial officer Lennix Lai told Blockworks “a point made forcefully” by financial executives at the crypto exchange’s second quarter roundtable was indeed that greater regulatory clarity would be a significant catalyst for growth. They praised the EU’s Markets in Crypto Assets Regulation and UAE regulatory advancements, he noted.

While we know TradFi players have shown interest in crypto in recent years and months, hearing Lutnick’s blunt words that essentially all of them want in feels like a welcome reminder during what could be deemed a weird time for crypto.

And to realize the upcoming presidential election could help spur more crypto policy discussion — and maybe that coveted regulatory clarity — perhaps makes the possible wait time feel more manageable.

— Ben Strack

$175,000

The amount Uniswap is set to pay to settle allegations made by the CFTC.

Uniswap, according to a Wednesday CFTC release, “illegally offered leveraged or margined retail commodity transactions in digital assets via a decentralized digital asset trading protocol.”

Uniswap didn’t immediately return Blockworks’ request for comment.

In a dissenting statement, CFTC Commissioner Summer Mersinger said: “Wielding the hammer of enforcement against these DeFi protocols may result in some short-term ‘wins,’ but in the long-term, without more, it will only create problems.”

NVIDI-Oh No

It’s been a tough couple weeks for NVIDIA.

Despite beating earnings expectations last week, shares of NVDA lost as much as 7% in pre-market trading and 2% at the open on Aug. 29 — the day after its record-setting report dropped.

The stock had hardly pared losses before yesterday’s ISM report sent most stocks lower. And then, just as the market was closing, Bloomberg reported the Justice Department had sent NVIDIA and others subpoenas as part of an antitrust violation investigation.

Combine all that and you get some disappointing results: NVIDIA lost roughly $279 billion in value on Tuesday. It was the largest single-day loss in market value for the US company so far in 2024.

It looks like we have some dip buyers out there, though. NVDA shares were up 0.7% as of 2 pm ET. The stock is down around 15% over the past five trading days but still up 9% over the month (and 126% year to date).

The Philadelphia Stock Exchange semiconductor index dipped to its lowest level since March 2020 on Tuesday, but was also paring losses by Wednesday, trading 0.9% higher at 2 pm ET.

Still, things could be worse. The VIX hit 22.6 this morning, which is a five-day high but a far cry from levels hit a month ago, when the index approached 40.

Analysts say the key level to watch for NVDA will be $100 (shares were hovering around $109 at 2 pm ET). I’m not one to give investor advice, but the last time shares went below triple-digits, they came back more than 30% in less than two weeks.

One quick note: You may have seen reports on social media that US Rep. Nancy Pelosi sold her NVIDIA shares just before news circulated that the DOJ had subpoenaed the chipmaker. These claims were fabricated; there are no filings showing Pelosi’s shares aren’t just as in the red as everyone else’s. Well, unless you bought NVDA this morning.

— Casey Wagner

It’s Warren v. Deaton

Crypto advocate and attorney John Deaton will be up against Elizabeth Warren in November for her seat in the US Senate. Deaton blew the competition out of the water last night, winning the Republican nomination with close to a 65% majority (as of this morning, when 95% of votes had been counted).

“Tomorrow, we begin the next phase of the campaign — an effort that will hold Elizabeth Warren accountable for her failures on the border, the unaffordable cost of supporting a family, a broken healthcare system, abandoning our ally Israel and restoring faith in our politics,” Deaton said in a statement Tuesday evening.

Deaton likely owes a good portion of his success to his funding. As of mid-August his campaign had raised $1.7 million — $1 million of which was a loan from Deaton himself. He has not repaid himself any amount, FEC filings show.

Industrial engineer Robert Antonellis — Deaton’s runner-up in the primary with 26% of votes — had raised $46,449 for his campaign as of mid-August, per FEC filings. About half of this amount was a personal loan from Antonellis.

It’s still a bit early for polling, but Warren has a strong track record against Republican candidates. She defeated GOP incumbent former Sen. Scott Brown in 2012 with 53% of votes. In 2018 she won against Republican Geoff Diehl, 60% to 36%.

So far, crypto remarks from presidential hopefuls Donald Trump and Kamala Harris have been very one-sided. But with Warren vs. Deaton now confirmed, I’m expecting this race to be far more crypto-centric.

Here’s a review of Warren’s crypto track record:

Last year she penned a letter to crypto exchanges and lobbying groups accusing them of undermining bipartisan efforts to regulate the industry by hiring ex-government officials.
In January she said the SEC shouldn’t have approved spot bitcoin ETFs, stating that regulators were “wrong on the law and wrong on the policy.”
In May she doubled down on her stance that crypto companies need far more robust anti-money laundering policies.

Meanwhile, Deaton has emerged as a pro-crypto candidate — despite not having a formal digital assets platform on his website. He became a leader of the so-called “XRP army” in 2021 when he championed token holders during the SEC’s lengthy lawsuit. His campaign started accepting crypto donations in March.

Deaton has expressed interest in debating Warren, although nothing has been scheduled yet. Should the two face off, I’d be willing to bet that “bitcoin” is mentioned and golf handicaps are not.

— Casey Wagner

Bulletin Board

Bitcoin was trading at about $57,900 just after 2 pm ET Wednesday — up 0.8% in the last 24 hours but a 2.5% drop from seven days ago. ETH, down just slightly in the past week, has also seen a lift in the trailing 24 hours, amounting to about 1%.
The net capital flowing out of US spot bitcoin ETFs totaled $288 million on Tuesday. This marked the highest single day of outflows for the category since May 1, Farside Investors data shows.
Speaking of crypto ETFs, Tuesday marked the ninth time in the last 11 trading days that the largest spot ether ETF — BlackRock’s iShares Ethereum Trust (ETHA) — saw zero flows. Net outflows for the segment now total $525 million since the US spot ether funds’ July 23 launch.
After Riot Platforms yesterday criticized Bitfarms’ proposed acquisition of Stronghold Digital Mining, Bitfarms fired back. The company said the comments made by Riot (its largest shareholder) were “misleading,” adding that Riot is “attempting to acquire Bitfarms at a discounted price.”

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