Tuesday Topic: Crypto Gains More Ground, But Will It All End in Tears?

Our industry is valuable because we underwrite credit based upon the value proposition that supports income producing assets and the viability of the debtors to service debt.  With crypto currency there is nothing to underwrite.  The system has no intrinsic practical use case.  I have observed no income producing utility in the cryptocurrency systems and there are certainly no accountable entities which backstop the value.  Therefore, there is nothing to underwrite.  One can only report recent transactions that can therefore represent recently observed valuations.  Ultimately, cryptocurrency is valuable only because people believe it is valuable.  Any serious cryptocurrency investor is betting that other investors "Won't Stop Believin!"  Didn't think I would reference Journey today. :)

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Neil Stanley
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Original Message:
Sent: 05-02-2022 13:50
From: Rob Blackwell
Subject: Tuesday Topic: Crypto Gains More Ground, But Will It All End in Tears?

After holding out for years, some of the largest financial institutions in the country are venturing into cryptocurrencies. Investors are flooding into the space, and those who manage their money-from pension funds to mutual-fund companies-are turning to banks to safeguard, lend, and trade digital assets. As the opportunity costs of sitting on the sidelines increase, banks are going along. Both The Wall Street Journal and American Banker recently ran stories on Wall Street's recent foray into crypto markets. And Fidelity will now allow individual savers to invest as much as 20% of their 401(k) in bitcoin.

 

But it's not just big banks-smaller ones are experimenting with crypto, too. I recently spoke with Steven Schall, the CEO of $900 million-asset Quontic Bank, about how his bank became the first to offer a checking account with a bitcoin rewards program. And customers are signing up. (If you missed the conversation, check it out here.)

 

Of course, with more institutions getting into the crypto game, regulators are giving the area a much closer look. President Biden issued an executive order to conduct a broad review of digital assets in March, and the Fed is exploring whether to create a central bank digital currency. (I'm currently very focused on CBDCs and see a U.S. version as an existential threat to banking. I'll have more to say on that soon.)

 

But plenty of skeptics remain, including moderately successful people like Jamie Dimon and Warren Buffett. And while Treasury Secretary Janet Yellen hasn't taken an official position on crypto, she did warn last month about the risks it poses to the financial system. And there are many, among them former FDIC Chair Sheila Bair, who think crypto is headed for a "correction," by which they mean crash. Even Schall acknowledged concerns about that, though he thinks bitcoin will be fine while other coins will collapse.

 

One interesting thing about the debate is that despite all the risks, uncertainties, and volatility of cryptocurrencies, people are discussing its potential value either as a hedge against inflation or an alternative to stocks and bonds as returns on those assets sour. As Schnall said, one of the reasons Quontic was attracted to bitcoin in particular is its scarcity-something fiat currencies can't offer.

 

I'm curious to hear from the group on this. Are you taking cues from Dimon and Buffett and steering clear or is crypto something your bank would consider?

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Rob Blackwell
Chief Content Officer and Head of External Affairs
IntraFi Network
Arlington, VA
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