Blog Masonry Full Width

The Bitcoin 2022 Conference, held in South Beach April 6-9, was very well attended with  upwards of 25,000 attendees, a marked increase over the 12,000 attendees in 2021. The conference was organized by Cash App (a mobile payment service developed by Block, Inc.) and supported by a wide variety of companies that are committed to furthering Bitcoin adoption and blockchain technology. Many of the common themes highlighted throughout the conference (no surprises here) included the importance of Bitcoin as a decentralized currency, not subject to central bank control, and the growing acceptance of Bitcoin as an asset class in a diversified portfolio, in particular, at the institutional asset class level. But wait, another noteworthy theme mentioned, hold on to your seats, was the need for more government regulation –  yes, calls for more regulation were touted on various panels, as discussed below, as a trigger to drive increased Bitcoin acceptance as an asset class. Overall, the conference agenda was far reaching and provocative, touching on a range of Bitcoin related topics, including macro-economic issues, valuation, payment systems, custody and the impact of Bitcoin on global security policies. 

Some notable observations – first, there were fewer Bitcoin price predictions this year, unlike last year’s conference when  price predictions of $250,000 and higher (much higher, actually) by 2023 were frequent. Why fewer? Perhaps, because Bitcoin is down 8% YTD and about 27% over the last year. I guess that explains some of that. 

At last year’s Bitcoin Conference, there was much discussion of the expansion of institutional acceptance of crypto currencies as an asset class. This year, the focus seemed to be on how to accelerate this process with industry support of public policies that invite more regulation. The crypto industry understands that more regulation is needed to gain the confidence of institutional investors, including pension funds, to accelerate the pace of institutional acceptance of crypto as an asset class. 

On this note, to help further this acceptance and allay institutional investor concerns, a number of eco-system vendors provide on-ramp KYC and AML screening in the blockchain space, much like the AML vendors, such as Equifax, in the financial services space now. Ironically, with regards to money laundering, one of the presenters pointed out that crypto is one of the worst places to launder money due to the transparency of blockchain transactions. Illustrative of this point, back in February, the DOJ arrested two individuals in Manhattan for an alleged conspiracy to launder cryptocurrency that was stolen during the 2016 hack of Bitfinex, a virtual currency exchange, presently valued at approximately $4.5 billion. Thus far, law enforcement has seized over $3.6 billion in cryptocurrency linked to that hack.

Another huge factor in promoting institutional crypto acceptance is the need to provide safe, secure custody. Crypto custody systems are becoming more sophisticated to address traditional custody concerns. There were technical discussions of off-line, multi-layered cold storage ( no internet access) encrypted systems to ensure crypto security to prevent hackers from stealing coins. Remember, no SIPIC or FDIC funds exist in this space, at least not yet, to help provide a sense of security for investors and, overall, private crypto insurance is still a nascent industry, and protection is quite limited. 

There was much discussion of the impact of blockchain on our banking industry (including financial services too as part of the banking space).  In short, the banking industry will continue to be transformed by blockchain technology over the next 20 years. Banks as we know them today will not survive unless they adapt their business models to blockchain. Disintermediation will take hold and disrupt the exiting banking structures and it’s already occurring. In the financial services space today, there are layers of financial intermediaries in place to conduct securities transactions starting with investment advisers/broker-dealers, all of whom use a custodian, all of whom route orders for execution, and finally, all of whom rely on the clearing agencies to act as the back-office custodians and paymasters for the industry. With blockchain, it’s one stop shopping as you can open an account at a crypto exchange where your crypto transaction will be executed and, likely, be custodied.   

Changes in the industry are starting already as Wall Street titans, including Apollo, BlackRock, Blackstone, BNY Mellon, Carlyle, KKR, Morgan Stanley, State Street, UBS, and WestCap, are backing a new consortium led by iCapital that will build a distributed ledger-based system for alternative assets. The above is reminiscent of the days when the titans of the financial services industry banded together to push for the formation of the clearing agencies to net settle and custody securities transactions through the clearing agencies. 

Other examples of these changes include: 

• IBM is carefully positioning its hardware security and cloud computing capabilities around the safekeeping of cryptocurrencies and digital assets. IBM’s aim is to leverage their existing reputation and relationships with banks and governments as enterprises adopt public blockchains. 
• Kraken Bank, the Wyoming subsidiary of Kraken’s crypto exchange, is inching closer to gaining a Federal Reserve Master Account, which would allow it to deposit funds with the US central bank and access the global payments system. It was recently granted a routing number by the American Bankers Association, a key first step towards gaining Federal Reserve access.

Of course, the Bitcoin conference wouldn’t be complete without its share of outspoken public figures weighing in on various macro-economic and crypto issues.  Kevin O’Leary, of Shark Tank fame,  is rather optimistic about the growth of crypto as an asset class and predicted that crypto will become the 12th sector of the S&P 500 index once more thoughtful regulation is enacted.  O’Leary pointed to the recent Presidential Order entitled, “Ensuring Responsible Development of Digital Assets” as a promising step in this direction. Billionaire Ricardo Salinas explained that about 60% of his portfolio is in Bitcoin and opined that current U.S. monetary policy resembles Mexico in the 1980s when hyper-inflation was on a rampage in Mexico due to irresponsible monetary policies. He further criticized central bank control of fiat currency money supply (with a focus on, the Fed, of course), which can result in severe inflationary pressures, a theme echoed by others at the conference. 

Peter Theil, billionaire founder of PayPal, said Bitcoin, “is a movement, and it’s a political question whether this movement is going to succeed, or whether the enemies of the movement will succeed in stopping us.” Theil dedicated the end of his remarks to slamming enemies of Bitcoin, calling them the “gerontocracy,” including Warren Buffett, who he labeled “enemy number one”.  JP Morgan CEO Jamie Dimon and the rest of the “New York City banker boys” and  BlackRock CEO Larry Fink were also mentioned as Bitcoin enemies by Theil.

Finally, and perhaps the most important take away from the conference, several speakers noted that the U.S. is at an inflexion point and that prudent crypto  regulations and laws are needed now to support the blockchain eco-system technology advances to ensure that the U.S. retains its leadership role in this space. Losing its leadership role to China could be disastrous for the U.S. as China could attempt to impose some level of state monitoring or control on the blockchain, in conjunction with their ongoing efforts to replace the U.S. dollar as the world’s reserve currency.  

I am raw html block.
Click edit button to change this html