Dispatch #17: The OCC Setting Crypto Free

In this patch of your weekly Dispatch:

• The US banking regulator says public blockchains = SWIFT for banks
• Bitcoin soars, Ethereum and other altcoins follow suit
• Data story of the week: BTC vs ETH global searches

The Big Idea

The OCC Transforms the Legitimacy of Blockchain in Traditional Finance

The Office of the Comptroller of the Currency (OCC) under Brian Brooks just won’t stop.

Last summer, the office said that federally regulated banks could custody crypto assets. Then in the fall, it said that banks could work with stablecoin issuers.

The moves were significant enough that they drew the ire of a number of members of Congress, who first wrote an open letter to former Coinbase legal chief and acting OCC Director Brian Brooks asking him to stop acting unilaterally and stop focusing on crypto, before later introducing the STABLE Act to offer an alternative (and distinctly anti-crypto) industry approach to stablecoins.

Now the OCC has issued its most important guidance yet: an interpretative letter that gives banks the freedom to use public blockchains and stablecoins as settlements and payments infrastructure alongside existing standards like SWIFT and ACH.

It’s hard to overstate how significant this shift is. This gives banks the ability to innovate and move at the speed of crypto. It also creates an alternative path to a digital US dollar that flows now through the US private sector rather than a central bank design committee.

What’s for sure is that there will be more regulatory battles around stablecoins, banks, and the future of the financial infrastructure. Indeed, this move by the OCC virtually ensures that those battles will happen sooner rather than later.

2021, you are off to one heck of a start.

The Latest In…

Crypto Markets

The last few weeks have been absolutely insane. If you’re reading this, you probably already know, but since our last issue, Bitcoin smashed through every number on the way to above $40,000. ETH not only crushed its psychological barrier of $1,000 but cruised 20% higher after that to above $1,200. The numbers have gotten fundamentally unignorable, and we anticipate that once the news cycle isn’t quite so dominated by Washington shenanigans, we’re going to see a heck of a lot more retail FOMO.

The Latest In…

Bitcoin

…or rather, Bitcoin beyond the ATH. While BTC had a huge 2020, layer 2 on Bitcoin – specifically Lightning Network developments – were relatively quiet. Jack Mallers is on a mission to change that for 2021, announcing to great fanfare the launch of Strike Global, an LN-powered global payments network with unbelievably fast settlement. This comes at an interesting time, just after the OCC’s opening up of banks to use public blockchains for payments and settlements.

The Latest In…

Institutions

JPMorgan has had a long, strange history with the crypto industry. In September 2017, Jamie Dimon said he’d fire anyone on staff he found crypto-trading, in part for being stupid and betting on something that was “worse than tulips.” Fast forward three years and JPMorgan has not only launched a private stablecoin but also just released an analyst note calling for $146,000 BTC at some point in the future. 🌷

The Latest In…

Central Bank Digital Currencies

With the OCC’s move, there is speculation that maybe a US digital dollar could come through the door of the private sector. That would stand in stark contrast to China, which is plowing ahead with its top-down CBDC, officially known as Digital Currency Electronic Payment (DCEP). The latest move is a new $3M lottery trial of the digital yuan in Shenzhen. It seems highly likely that the DCEP moves from trial to full production in 2021.

The Week’s Most Interesting Data Story

The Interest Story: Bitcoin vs. Ethereum in Google Searches

The conventional wisdom is that the current crypto bull market has been driven almost entirely by institutional buyers coming in and claiming large (and increasingly hard to acquire) positions. As the price soars, however, there are clear signs that retail is beginning to FOMO in. Coinbase has rocketed from about #300 up to #25 on the Apple free apps chart and Google search interest is coming back in a major way. While Bitcoin hasn’t quite achieved the levels of searching from the late 2017/ early 2018 bull, Ethereum reached a new all-time high this week. The below BTC vs. ETH graph shows that retail interest in the space is returning, providing yet another source of demand to this rally.

Hot Topics

What the Community Is Discussing

This would be one interesting outcome of this week’s madness.

This inevitability of monetary policy is a key part of why people think Bitcoin is pumping.

Our Take

@AntoniNexo This Week

• What a first week of 2021 this has been! As crypto enthusiasts worldwide kept refreshing their portfolio balances, Bitcoin breached another all-time high and climbed above $40,000. “Bitcoin continues to defy all expectations and doubters,” our very own Antoni Trenchev told Bloomberg. “It’s leaving all other assets trailing in its wake, like it’s done year in, year out for the past decade,” he added.
• While Bitcoin was the indisputable mover and shaker, altcoins followed suit in their ascent and helped drive the total market cap of all crypto assets combined to a record $ 1 trillion, equivalent to 1% of all the money in the world. Antoni shared this sobering thought about it to Decrypt: "Behind this milestone once again lurks the financial crisis, which caused money to flow into the safe haven of gold, but also out of gold and into its digital equivalent — Bitcoin. With BTC gains now starting to spill into altcoins, we’re likely to see greater diversity and a more even spread among large-cap assets. And, as I’ve said before, it is also likely that Bitcoin will capture at least 10% of gold’s market."
• And if you’re only interested in predictions, Antoni is sticking to his from early 2020, telling Bloomberg that Bitcoin “will be on the road to $50,000 probably in the first quarter of 2021.”
• What is the impact of the Georgia run-off election on the crypto space? Listen to Antoni’s commentary on The Decrypt Daily podcast with @MatthewADiemer.
• Antoni also took a break from talking to the media to share his thoughts on the proposed FinCEN regulation about self-hosted wallets on Twitter.

What to Watch for Next Week:

• Can crypto markets keep going up or will they have to take a breather?
• Will political chaos spook traditional markets?
• Can DeFi punch above $25B in total value locked?
• Can Nexonomics get even better?