Dispatch #106: The Quiet Institutionalization Continues

Sep 23, 2022•4 min read

In this patch of your weekly Dispatch:

  • Nasdaq moves into crypto
  • Markets react to another 75bps rate hike in the US
  • Bitcoin shows some correlations

The Big Idea

Bear Market, Huh?

When the ICO boom died in early 2018, it really dragged the crypto industry with it. Capital vacated the space. Talent vacated the space. Interest vacated the space. Many wrote it off as dead, and it would take years for the vibrant activity to come back.

The 2022 bear market has been brutal in its own way, with institutional and ecosystem collapses and intense regulatory scrutiny. At the same time, it hasn’t seen anything resembling the exodus of 2018. In fact, quite the opposite. One of the notable aspects of this bear market has been major institutions quietly positioning themselves for more, not less, engagement with the industry.

By means of background – remember December 2021? Back then, we teamed up with Fidelity Digital Assets to revolutionize institutional access to digital assets by offering the financial giant’s clients an opportunity to use Nexo’s products and crypto prime brokerage under one umbrella. Our collaboration was a bellwether for what will come next and coming it is.

Last week, the Wall Street Journal reported that Fidelity is considering allowing individuals to trade Bitcoin through its brokerage platform. This week, hedge fund Two Sigma joined hands with Coin Metrics to access better crypto trading data. Even more significantly, Nasdaq has launched a new digital assets unit that – pending regulatory approval – will begin offering customers custodial services for BTC and ETH.

These hardly seem like the actions of companies that think the best times have passed for the industry. In fact, it may seem like smart money is taking full advantage of this comparative quiet to get ready for what comes next.

Interested in more “smart money” data? Check our Prime Twitter account for some hot takes.

The Latest In…

US Monetary Policy

Jerome Powell and the US Federal Reserve have said, resoundingly, that there is more pain ahead in the fight against inflation. This week, the Federal Open Markets Committee raised the benchmark US interest rate by 0.75% for the third consecutive time. What’s more, they increased their expectation of the terminal interest rate to 4.6%. While markets had expected the 75bps jump, the tone of the FOMC was quite hawkish and seemed intent on convincing markets that they had more pain to endure before this was through. What’s that phrase again? Don’t fight the Fed.

The Latest In…

The Ups and Downs of Regulation

Another week in crypto 2022, another slate of regulatory action.

  • At the end of last week, the US crypto community got three reports from the US Department of the Treasury and a framework on digital assets from the White House.
  • The SEC continued its mission to catch up to the culprits of the ICO boom, this week settling with Sparkster and bringing a court case against token promoter Ian Ballina.
  • A leaked stablecoin bill suggests the US might be headed for a two-year ban on algorithmic stablecoins.
  • Colorado became the first US state to officially accept crypto for tax payments.
  • In Europe, the regulatory MiCA draft legislation is now finalized (although won’t be public for some weeks to come).

The Week’s Most Interesting Data Story

Bitcoin As a High Beta Tech Stock?

It is well established at this point that the 2022 bear market in crypto is part and parcel of the larger bear market stemming from the reversal of easy monetary policy. However, it remains striking to see the rise in the correlation between BTC and US tech stocks. While this has led some to dismiss some of the narratives that previously attracted investors to Bitcoin – its role as an inflation hedge or as an uncorrelated asset – those analyses fail to understand that 1) the time frame on which Bitcoin acts as sound money is years and decades, not weeks and months; and 2) that in a world where TradFi investors have rapidly adopted BTC, its correlation to the other risky parts of their portfolio will inevitably rise as well.

Hot Topics

What the Community Is Discussing

People are kinda freaked out by everything in markets like these..

Throwback.

TODAY. 🔥

What to Watch for Next Week:

  • Can crypto restabilize after the macro leg down?
  • Will another big institution quietly move into the space?
  • Will the draft US stablecoin bill actually be introduced?