Citi to Trade Bitcoin Futures?

Citigroup is the latest in a stream of institutional adoption into everything from NFTs to BTC.

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On this episode

Citigroup is the latest in a stream of institutional adoption into everything from NFTs to BTC.

This episode is sponsored by NYDIG.

On this episode of “The Breakdown”:

  • Surveys and reports detailing expected institutional adoption
  • Citigroup to trade on the CME
  • Global perception of crypto, CBDCs
  • NFT and DeFi on the rise
  • Bitcoin news from Michael Saylor, Blockstream and Substack

Recent reports from Deloitte and Nickel Digital help set institutional and general public adoption expectations. Of 23 asset managers surveyed by Nickel Digital, more than half expected to increase crypto asset exposure by 2023, and a quarter to increase dramatically. Citigroup is one such investment company toying with BTC as the firm says it will trade bitcoin futures on the CME.

From the global perspective, a Politico survey of U.K. adults revealed a distrust and misunderstanding of CBDCs, while in India, retail crypto investment is up with young citizens looking for alternative ways to make money after strict COVID-19 lockdowns.

Visa’s CryptoPunk purchase fueled an NFT-buying frenzy, resulting in a daily sales volume record for Punks. DeFi on the whole, however, remains powered by experienced crypto enthusiasts, as the technological barrier to entry remains. Will NFTs bring more of the general population into DeFi?

Bitcoin’s rally above $50,000 this past weekend was bolstered by institutional news: Michael Saylor’s MicroStrategy’s latest purchase of BTC, Blockstream’s $210 million Series B funding round and Substack’s implementation of bitcoin as a payment option using the Lightning Network. Who’s next?

“The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Tidal Wave” by BRASKO. Image credit: Brent Lewin/Bloomberg/Getty Images, modified by CoinDesk.

Transcript

What's going on guys, it is Tuesday, August 24 and today is going to be a big grab-bag news day. So, instead of your normal three-topic brief and one main topic, I'll be doing six or seven, or even eight brief topics. Let's start with institutional adoption expectations. Yesterday I shared some results of a recent Deloitte survey that showed just how normalized digital assets were becoming among fund managers. Today, another survey out of the U.K. said something very similar. Nickel Digital is a digital asset hedge firm that was started by former Goldman Sachs and JPMorgan investors. They recently surveyed wealth managers and other institutional investors and found that more than half plan to increase crypto asset exposure between now and 2023. Over a quarter say that they will dramatically increase their exposure. The reason most often cited predictably was number go up, aka the long term appreciation prospects of crypto assets. Now to be clear about this study, only 23 asset managers were surveyed. So, a relatively small sample size, but those managers oversee $66.5 billion dollars in assets so it's certainly not small if you're looking in terms of assets under management. Of these 23 managers, nine said that they'd become more confident about how digital assets work, and nine said that the regulatory environment was improving. In terms of concerns, 16 still cited market structure issues of liquidity and lack of transparency. So summing up, a very small sample size but much in line with the Deloitte survey we discussed yesterday, which had for its part a much larger sample size of 1,280 managers.

Going to institutional news on the other side of the pond, an inside source within U.S. banking leviathan Citigroup said that the firm is set to begin trading bitcoin futures on the Chicago Mercantile Exchange, aka the CME, once they get regulatory approval. Apparently, they're seeing a huge surge in client demand for bitcoin alongside the asset's return towards $50,000. Citi is also reportedly hiring aggressively in London for a crypto-focused team. And this all squares with the May 2021 report from the Financial Times saying that Citigroup was considering jumping into crypto trading and or custody. So the story from the institutional side is pretty clear. But what about regular people? How are they feeling about this big old crypto industry of ours? 

Well, while fund managers in the U.K. might be excited about crypto assets, British citizens have some concerns about government-backed digital assets. Politico ran a survey of 2500 U.K. adults about their attitudes around a central bank digital currency, less than a quarter, only 24%, said that they believe the CBDC would be a net positive for society. Compare that with a total of 30% who thought it would bring more harm than good to the U.K., and these 2500 citizens had many concerns. 73% were concerned with cyber attacks or hackers undermining a CBDC, 70% were concerned with the loss of privacy, 66% were concerned with increasing government power and 45% raised environmental concerns, which shows how people don't really understand how a CBDC might work, as most cbdc designers aren't really looking at a Bitcoin-style proof-of-work. In fact, the Bank of England said this summer that a CBDC could help bring the British economy to net zero carbon. Clearly, if the Bank of England wants to get their citizens on board, they've got a lot more work to do. 

Let's now jump to another part of the former British Empire to look at crypto adoption in India. TLDR, the number of young investors getting involved in stocks and crypto in India is way up, especially outside of the biggest cities. Overall, according to data from the BSE Stock Exchange as shared by the economic times, new user registration for crypto and stock brokerage platforms is up 45% to 70 million total users. According to one brokerage, signups from the top 30 non-metro cities grew about 30% faster than their metro counterparts. Another brokerage registered 60% of new user signups from what they call "tier two" and "tier three" towns compared to 30% eight months ago. Crypto platform CoinSwitch Kuber reported 135% month-over-month growth in non-metro city sign ups and CoinDCX, which is now a crypto unicorn, saw 48.7x growth in user signups from those tier two and tier three cities over the last six months. One 25-year-old, full-time pharmaceutical consultant put the motivation this way: "A single source of income is not enough if you want to be rich, you should have a passive income that is more than your active income which can take care of your expenses. This is the freedom provided by investing and trading." Another 22-year-old put it in the context of the pandemic: "Following the COVID-19 pandemic, everything has become chaotic outside and it's not easy to get a job. I'm not okay with working eight hours a day under someone else. I'd rather be financially independent based on my learnings and my skills."

What's clear is that the role of the pandemic is pretty undeniable here. A ton of these folks, especially in these tier two and tier three cities, lost their jobs. But there's also the larger macro context where fiat currencies are devalued because of government intervention, meaning that assets that are denominated in those fiat currencies are up in fiat terms. That makes these strategies look like really good bets over the past year. The cynical or pessimistic take on this is that it's just not a sustainable approach for a country of 1.33 billion people's youth to look to stocks and crypto trading as their careers. The less cynical take is that it's hard to be mad about people getting their first glimpse of financial empowerment and freedom, and wanting to learn more to participate in the economy on a deeper level. 

Okay, but now let's keep up this theme of adoption and look over to NFTs and DeFi. As was pretty predictable, yesterday's announcement that Visa had purchased a CryptoPunk set off an absolute frenzy. Sales volumes yesterday hit $86 million, which is a daily record according to CryptoSlam. In August as a whole, volume has already reached $332 million. The previous peak was July with around 135 million. The average price for a punk this month is just under $200k, which is double last month. But one interesting question is how much of this is normies versus just crypto people flexing, one of the really wacky quirks of NFTs, especially when it comes to these OG art projects, is that one could have a completely, and I mean completely, cynical view about their value and still come away thinking that they're likely to keep being valued. I've seen more than a few people on crypto Twitter, and not just Bitcoiners, basically argue that Punks and Bored Apes, etc are effectively just a new status symbol for the crypto rich, there are ways to flex how much you've made in crypto. That's obviously a very different narrative to the idea of them being these cultural projects that bridge technology and art, etc. 

But, even if one takes that view, there are a ton of people who have made a ton of money in crypto, who seem to love this particular flex. That alone can move markets a lot higher than one might think and still sustain some pretty nutty price floors, even if attention around them dies down. Either way, while they're certainly increasing mainstream interest in NFTs and DeFi. There are also some indicators that remain a pretty internal crypto thing. Chainalysis released a report today they called the "Global DeFi Adoption Index" and here's the TLDR: the rising DeFi "has primarily been powered by experienced cryptocurrency traders and investors looking for new sources of alpha in innovative new platforms, even when we weigh our index to favor grassroots adoption." So this Chainalysis study used three metrics to rank 154 countries: on-chain crypto volume received by DeFi platforms; total retail value, which is the value of transactions under $10k; and individual deposits to DeFi platforms. On-chain volume is adjusted by purchasing power parity per capita. 

Perhaps unsurprisingly, these stats show that growth in DeFi was driven largely by North America and Western Europe. Now, this is a pretty broad brush to paint with and I'm not sure that national adoption is the real metric that matters here in terms of understanding how much of DeFi is being driven by retail versus crypto whales. But I still think that the report by Chainalysis reinforces the broad sense that I've shared before, that serious technological barriers to entry have kept DeFi relatively self-contained to the crypto space, which I will continue to argue, I think remains healthy. 

Now just a few more topics here before we wrap, and let's talk some bitcoin. Michael Saylor is back up to his old tricks: MicroStrategy has purchased another $177 million worth of bitcoin, 3,907 bitcoins to be exact, for an average of $45,294 per bitcoin. That means the total the company now holds 108,992 bitcoins, which were acquired for an average price of $26,769 per bitcoin. Bigger news, however, was Blockstream's $210 million Series B round, which valued the firm at $3.2 billion. The raise was led by a U.K. investment firm plus the parent company BitFenix and Tether. The money is intended to allow Blockstream to push into an expansion, manufacturing bitcoin ASIC mining chips. One last little Bitcoin one as well. Substack, the newsletter platform that has attracted attention over the last year for enabling high-profile defections from vaunted publishers like the New York Times and Rolling Stone, has started integrating bitcoin as a payment option. The initiative is enabled by OpenNode and currently includes just a handful of crypto-focused publications like folks from Willy Woo and Dan Held, but the goal is to continue to expand. Substack: "We're excited to introduce this option, even at a small scale to start. Bitcoin payments are fast, convenient and secure with low fees. We use the Lightning Network for transactions, which are even faster than credit cards." 

So, take all of this together from institutional adoption to Substack enabling Bitcoin payments and focusing on Lightning, to people talking about Visa and Punks and the short takeaway is that there is a whole lot of mainstreaming happening. It's not happening evenly or in the same ways at the same time, but it's happening surely, every day. And just like that, every day, I appreciate you hanging out and until tomorrow, be safe and take care of each other. Peace!