Banks go Crypto, Stablecoins Circle, AI and the M2M Economy

Hello friends. I’ve got a fun blog in store for you today, blending the current headlines and key news with some glimpses of where our world is evolving – perhaps in ways you might not have thought of.  On the crypto front, while bitcoin bounced around and really didn’t do much this month in light of the uncertainty of war, we did have a huge amount movement in regards to the increasingly friendly regulatory environment here in the USA. These moves are seminal, foundational, and have set the stage for a new future. Let’s jump in.

Bank Blessings

First let’s talk about banks. The regulatory environment in the US continues to get friendlier and friendlier as, in the midst of his ongoing cold war with Trump, Fed Reserve Chair J. Powell announced that banks are free to provide banking services to the crypto industry and are also free to conduct crypto activities. Stop the press. Let’s let that sink in for a second. Banks. Can. Now. Do. Crypto. This statement was made in concert with a huge reversal from the Fed regarding this topic. It’s crazy that a few short years ago, in 2022 and 2023 they issued rules which were specifically designed to prevent banks from participating in this new sector. Now, they are free to have at it. And, if that’s not enough, it was further noted that the Fed will go into a supervisory role (as it does for other aspects of the financial world.) While this may seem more appropriate in the “Boring but Important” category, in reality it is a watershed moment. In order for us to really get to widespread adoption we need to have the ability for banks to participate… and now we do. Huzzah!

Of course, Wall Street is already ahead of the power curve as Bitcoin ETFs now have over $130B in Assets Under Management and they are driving the charge. But mainstream adoption (we are still so… far… away…) is going to require banks, the institutions for the everyman, to embrace and normalize this space.

As if on cue, William Pulte, Director of the Federal Housing Agency ordered that Fannie Mae and Freddie Mac, which combine to support 70% of the home mortgage market, to consider cryptocurrencies as reserves when considering lending for single-family home loans. This not only aligns with bank participation, but is an economic green light and a game changer. Up until this point, those that have held their assets in crypto have been forced to liquidate those assets if they wanted to move to real property. Now it seems that in the not-too-distant future, those assets may well be valued and considered. Certainly (and appropriately) there will be a volatility premium, but ultimately it makes sense. If Strategy (formerly MicroStrategy), now joined by 21 Capital, Nakamoto and ProCapBTC are all companies stacking bitcoin & other assets as a part of their treasuries, while simultaneously, governments, states and companies around the world are also poised to stack crypto, well, then clearly these are considered assets of long term value. As such it’s time that the individual retail investor – the little guy – gets to play in the same field as the big boys. Candidly, I’ve been predicting this for a while, and I am quite excited now that it is moving forward (and, on a separate note, this may also spur the stalled housing market, which is also a good thing.)

We’re moving forward with some gusto now, acknowledging that crypto assets have real value, and paving the way for commerce. Ultimately, we’re on the way to these assets becoming normalized and, in the not too distant future, in the same way treasuries around the world are stacking, I see these assets as becoming not only a part of everyone’s portfolio, but a commonplace tool for transactions.

This is a big deal.

OMG Circle IPO

Meanwhile, let’s go back to Wall Street and, in particular, IPOs. IPOs were all the rage in the early days of the internet. They were every company’s dream and they were everywhere. Until they weren’t. Now, they may be back again with crypto companies leading the charge. Case in point, U.S. company Circle, the creator of the stablecoin USDC, had a ridiculously successful IPO on June 4. With initial pricing at $31 a share, stock opened at $69, double the initial price, before closing at $83. Then, over the ensuing days the stock never looked back, continuing to climb and ultimately reaching an intraday price of almost $300 mid- June before stabilizing to its seemingly normalized level (for now) at roughly $180/share. Even at this level, the stock is up 500% from the IPO pricing and 160% over its market offering price.

Certainly IPO investors were bullish, but why in the world would we see this kind of run? Well, let’s step away from the “make some money” part of IPOs an consider the fundamentals of this business. Circle deals in stablecoins. Stablecoins are the future. Full Stop.

Circle is the issuer of USDC, which is a crypto asset that is backed 1-1 to the US dollar. In plain English this means that if you hold 100 USDC you can, at any time, exchange said assets for $100 (especially now that banks have been given the green light to go crypto!) It’s a dollar running on a blockchain. This of course, begs the question, “So what?”

Here's the so what. Consider that frictionless exchange of financial instruments, without having a concern about volatility, is the next real wave of this crypto revolution. In the real world today when you give a friend (or a store owner, or a valet) cash, you just do that directly. Your cash goes from your pocket to their pocket. This is peer-to-peer (P2P). It’s how we exchange in the physical world. Up until now, in the digital world however, it simply has not been possible. Sure, Zelle (or Paypal or Venmo etc, etc, ) will allow you to send dollars, but it’s through their gateway, and they can approve/deny or even limit the amount that can be sent. There’s a middleman. Imagine if this is how all transactions needed to be done. Let’s say you go buy some groceries and you wanted to pay with cash but, in order to do so, you needed to take your cash to a transfer kiosk which took your cash and then transferred it to the grocery store for a fee. That’s obviously silly. Yet, that’s how ALL digital transactions work today.

Blockchain changes that and allows us to have frictionless P2P transactions between two parties. That’s great, but we need more than that to do commerce. We need stablecoins so that our financial transactions aren’t subject to volatility. While everyone talks bitcoin and certainly it has cemented itself as a reserve asset, I don’t see many people transacting in it in the future. And it’s not just that it is too volatile, it’s that I just don’t see why someone would pay for a coffee with bitcoin any more than they would take a chunk of gold or a silver round to Starbucks as payment. Bitcoin, like gold, is a commodity and It’s simply too valuable. Stablecoins, on the other hand, give us the ability to transact in the digital world with a familiarly denominated asset, and P2P exchange reduces fees, reduces friction, and allows us to move forward in a much more elegant and direct way. In our world, everything seems to ultimately go digital… Right on time then, this is the digitalization of our money. And it’s happening today.

Of course, we should have some regulation that makes sense to guide us since we are talking about financial instruments. Fortunately, and in line with this, the first meaningful stablecoin regulation in the U. S. is moving forward as the GENIUS act officially passed the Senate and is heading to the House. We touched on this a couple blogs ago and noted that this is the guidance we needed for the safe issuance and usage of stablecoins. Now, with banks given the green light, stablecoins in the spotlight, and crypto on the rise, this long overdue legislation will allow the US to finally participate on the world stage. Sorry we took so long world. We’re coming. Thanks for waiting.  

BlockchAIn: P2P to M2M

Given all of the above we can now look at how this is laying the bedrock for the machine age. As noted last missive I intend to explore not only how blockchain technology is going to affect us and how we do business today but, importantly, how it’s going to empower the machine age of tomorrow. We see above the value of a peer-to-peer exchange. That’s here now. We’re still putting guardrails around it but it’s happening. Going forward, however, it’s not going to be long before we see machines doing transactions in the same way.

First, let me give you the high level. Humans, using crypto wallets, can send digital assets like stablecoins back and forth just like we were handing each other a $20. We can do this because we control these crypto wallets. (Note – we still have a way to go before this is commonplace but, imagine in the future you have a wallet built into your phone just like ApplePay or GooglePay. I see this as the hurdle for mass adoption, and I have to believe it’s coming in short order). The important part is we have access to said wallets and can do business with them. The logical extension then is, if humans can control a wallet… why can’t a machine? The punchline that you’ve already figured out of course is…. they can. And in fact, they are. We are in the nascent stages of what I’m going to call the Machine to Machine (M2M) economy, where machines – which can control wallets – can transact with other machines that also control wallets. Yes, that’s right… M2M. (You heard it here first, folks!)

So, let’s take a step back. While everyone is talking about Artificial intelligence, the reality is that right now AIs are, in general, really spectacular knowledge workers, able to compile and gather information and crunch it into something useful… the ultimate analyst. This, however, is just the beginning. The next step is AIs – machines - working on our behalf and negotiating with other machines. Doing business. Consummating transactions. Of course, this is all done via their respective wallets.

Sound too science fiction? Well, let’s look at what Bosch is doing. Specifically, they are piloting a project where, smart cars negotiate with smart charging stations and even get a deal done. Here’s the scenario: You are pulling your electric vehicle into a parking space with charger attached. Your trusty auto, (let’s call her Cara) recognizes the charging station (let’s call him Charles) and the following dialog ensues.

“Hi I’m Cara. I’m an electric car and I need a charge,”

“OK, I’m Charles the charger. how much do you need?”

“I need 30 KWh.”

“No Problem. That will take 12 minutes and cost $9”

“Hmmm… that’s 5% more than expected. Can you do it for $8.55?”

“Yes we can, our margins will be OK. $8.55 it is.”

“Great! Do you accept USDC?”

“I sure do! Here’s my wallet address.”

“Great! I’ve set up a smart contract to pay you as soon as the charge is delivered.”

“OK. I see the smart contract for $8.45. Just plug in and you’ll be all set!”

And, with that, the transaction is basically complete, all within the time it took for you to roll up to the parking spot. All you need to do then is plug in the car, go get a sandwich, and marvel at the age we are living in.

I want to stress that this is not in the far-flung future. This is being worked on today, and the entire transaction is made possible via stablecoins on a blockchain. P2P was the starting point. The evolution is M2M transactions, which means that our trusty AI sidekicks will soon be more than just data analysis… they’ll truly be our co-pilots in life. Beam me up!

In Closing

So, to sum this up: Banks can now participate, stablecoins will facilitate, and machines will orchestrate. This is the world we are operating in today, a world of digital assets, peer to peer transactions and AIs that are destined to become our best friends and business partners.

Of course, it will evolve from there and certainly I’ll be elaborating on these concepts in future blogs, but for the moment I think I’ll stop here and let you digest this. It’s just a little taste but, honestly, it is a lot, so take some time and consider. We’re entering the Age of Autonomy®, and it will be unlike any age we have ever seen.

Well, that’s all for now. Until next time, be well, stay safe and I’ll keep Decrypting Crypto for you!