Dispatch #101: The Institutions Remain

In this patch of your weekly Dispatch:

• Crypto gets a path to Federal Reserve Master Accounts
• The Netherlands arrests a Tornado Cash developer
• $10M+ transfers dominate the Bitcoin network

The Big Idea

Institutional Crypto Continues

One of the big narratives that drove the 2020-2021 bull run was the idea that institutions were finally deploying capital into crypto. This started with hedge funds, but expanded to pensions and became a part of corporate balance sheets.

Since around the middle of last year, the narrative around institutions coming to crypto has been much quieter. While the stories may no longer be driving news cycles, even deep into the bear market the connections between crypto and traditional markets continue to grow.

Some of this is about new market participants. BlackRock, the world’s largest asset manager, recently announced the Bitcoin Private Trust. In so doing, the TradFi player is addressing Bitcoin environmental concerns as well, saying that transparency around sustainable mining is growing. On top of this, nine-figure crypto venture funds announced this week their limited partners included hedge funder Bill Ackman and the Texas Teacher’s Retirement System pension fund.

The Fed also made moves to clarify how novel financial institutions could directly access the payment system through so-called “master accounts” – a significant step for the institutional infrastructure of the industry.

Bear markets are for building.

The Latest In…

The Tornado Cash Situation

The fallout of the US sanctioning of Tornado Cash continues. Late last week we learned that Dutch authorities had arrested one of the developers of the protocol – a major attack on the deeply held conviction in the crypto industry that code is speech. Additionally, much of this week’s Twitter discussion has been about whether Ethereum’s transition to Proof-of-Stake opens up more possibilities that large institutional staking actors will be forced to censor transactions for OFAC compliance.

The Latest In…

Recession Speculation

The macroeconomic signals have rarely been as confusing as they are now. This week, a prominent New York manufacturing index fell as much as during the first weeks of Covid-19, and homebuilder sentiment dropped for the eighth week in a row. These are warning signals that harken back to the Global Financial Crisis. At the same time, US industrial production rose by double economist estimates. At this point, almost everyone is scratching their head and recognizing that maybe our old models don’t make sense anymore.

The Week’s Most Interesting Data Story

$10M+ Transactions Form Majority of BTC Transfers

In our Big Idea above, we discussed how institutionalization has continued unabated. One of the places that shows up is in Bitcoin’s relative transfer volume breakdown by size. According to Glassnode, around 63% of the current on-chain volume on Bitcoin comes from transfers over $10M. This number has been steadily growing since the middle end of 2020. This suggests not only the increased role of big institutional players in the space but also means BTC is getting comfortable in its role as a global settlement layer.

Hot Topics

What the Community Is Discussing

Bout says it all.

Ouch. This is really what they chose?

Mr. Wonderful, we’re hiring.

What to Watch for Next Week:

• Will the Fed’s Jackson Hole summit suggest any new paths for the economy?
• Will we get any clarity from macro data?
• Will the “dog” coins continue their counter-cyclical run?