Navigating the Crypto Landscape: Interest Rates, Tokenized Stocks, and Retail Demand

Mm.

Bitcoin continues to move with the macro tide sliding briefly after Nvidia's earnings and again following Friday's weak jobs report.

Meanwhile, momentum is building around tokenized stocks.

Now Galaxy just tokenized shares on Solana via Super State as lawmakers in the Senate push to classify these as securities under new market structure rules.

Well joining me to weigh in as we kick off a new trading week is John Dagostino, head of strategy for a coin-based institutional. board member for IMMA.

Well, good morning.

Thank you so much for joining me.

Good morning.

Thanks for having me again.

Well, as we come back from the Labor Day market holiday, here we are.

We're keeping a close eye on macro factors and on the heels of that jobs report last Friday and ahead of that Fed rate decision, we continue to monitor how macro factors are affecting crypto.

So what do you make of this and how are you assessing this?

So I think the big story, at least for the crypto complex, has been This expectation of lowering of interest rates.

So we'll find that around the 17th what that is.

We're starting to see the yield curve behave in a pretty interesting way.

Shorter term yield yields are decreasing faster than longer term yields.

That's confident for the long term health of the economy, and I don't think anything that's come out in the last 24 to 48 hours has changed the market view that we're probably going to get a lowering of interest rates come mid September.

So why is that interesting?

Well, two things are happening simultaneous to that in the digital asset world.

We're seeing this proof of an insatiable appetite by retail for all things digital assets.

We see that in increased growth of ETFs.

We see that in the seemingly endless amount of oversubscribed digital asset treasury firms that are going public.

And so why do lower interest rates mean more retail flow into crypto?

Well, it means that that $7 trillion that's tied up in money markets because the average retail investor doesn't know where else to put it is going to be yielding less.

And if even a fraction of that starts to move into risk bearing assets and a fraction of that moves into crypto, we're going to see.

I wouldn't say a wave because we already have a wave.

We're going to see an exponential wave of retail asset flows into digital assets that will correspond with the already increasing institutional flows into that same asset class.

Yeah, and while we're on this topic, of course we're paying attention to what's happening with.

That, but there have been plenty of announcements on both sides of the Atlantic regarding tokenized equities.

So tell us about this and what role it plays.

So this is groundbreaking.

So I was talking with a dear friend of mine who was the chief technology officer of the NYMEX when the first guy who hired me.

We had this great conversation last night and we both admitted that if you would have asked us a year ago.

We would have both said the same thing, which is we're clearly heading towards this like my child, my 12-year-old girl, when she's my age, will obviously be trading on infrastructure that is blockchain based.

It's just a better solution, but because he and I both went through this horrible period of trying to take the NYMEX from Open Outcry to electronic trading, we both were kind of a little bit skeptical about a year ago.

We said, you know, it's going to happen, but it's probably going to take much longer than people think.

There's lots of reasons why everyone grounds into inertia.

These systems.

If I look back here, there was a day where this floor was bustling with people, and they gave that up grudgingly because there's huge value in concentrating that information.

There used to be people called specialists, and they had the book on Nex we used to have local market makers, and they knew everything.

They knew all the flows.

They knew the order book.

They knew who was buying, who was selling.

It's very, very valuable to open that up to public consumption, that information, and allow everyone to trade on an equal weighted basis.

You can understand why they wouldn't want that to happen.

So Sam and I were both like, it's going to happen.

It's going to take years.

Things have changed.

I think two things have happened.

One is we've seen proof that the infrastructure is stable.

So Solana, for example, which Galaxy chose to list on, I know people have different views about meme points, but the one thing you can't deny about meme coin growth is it's proven that the infrastructure works 24/7 at scale.

And that's what you need to replace critically important systems like this.

So we have proof of infrastructure and then we have three things proof of infrastructure, regulatory clarity.

And then we have brave souls like Mike Noranz who are willing to take a valuable asset and say, hey, you can now buy this on chain.

Yeah, and John, I'm so glad you walked us through this, and you mentioned the Nymex and how this trading floor used to be bustling with all the people, so, yeah, but as you mentioned, while we're shifting our focus to regulation and what's happening at the nation's capital, when it comes to this regulatory clarity.

And your expectations that this is all going to take a lot more time than expected.

What are your expectations now, now I, now I'm sorry, just be clear, that was my old expectation.

Now I think in the next 18 months to 2 years you are going to see first of all, sooner you'll see banks shifting to that infrastructure.

You're going to see more and more companies like Galaxy willing to take that risk, and I'm going to throw something out there.

I think you'll see major exchanges like the one we're sitting in, not necessarily the one we're like the one we're sitting in, start to.

Seriously consider replacing or parallel processing certain parts of their infrastructure using blockchain technology.

So I think those three things I mentioned before have rapidly accelerated the pace of adoption and will overcome all the inertia that he and I saw, you know, 5, 1015 years ago at major exchanges and banks.

Yeah, and of course when it comes to the institutional side and institutional adoption, what do you see not just in the near term but also the long term?

So a couple of things.

So as I mentioned, we have this sort of rapid growth of retail interest in the asset class.

So what happens when retail says they want something, institutions, no matter where they were prior to that realization, suddenly now all see the light and say how do we offer different products to these these masses of retail that are clamoring for this?

So obviously we see more ETFs being listed.

We see DAS.

Coinbase launched its Mag7, which is the first time you're.

To use a simple futures product to get both exposure to equities in the digital space and blockchain space as well as crypto itself through the ETFs, so you get access to the Magnificent 77 top technology stocks, coin-based stock plus Bitcoin and Ethereum through the BlackRock ETFs.

So this is the beginning.

You're going to see a massive launch of anything and all all things retail.

Work.

Some won't.

The market will kind of clear and a year from now we'll see orders of magnitude higher.

What's also happening is if you look at sort of last year versus this year, the other big story is derivatives.

Now crypto spot volumes are doing quite well.

They're up about 30-40% from last year.

Crypto derivatives, futures and options open interest and volumes are up 2 to 3.5 times since last year.

Now I don't want to get too wonky, but the first thing you learn when you're studying futures and options is if open interest is rising, if price is rising and volume is rising, that is a healthier growing market.

That's not people closing out positions, that's people entering into the market.

So all of those are fantastic signs.

Yeah, and finally John, before I let you go, while we're talking about this and building on everything you just said, when it comes to market dominance of the crypto majors, what do you think of the what we're seeing in Bitcoin and EE as well as the other altcoins right now?

So coin-based research, which I encourage everyone to follow David Wang, he's wonderful, very, very smart, much smarter than me.

He He is of the belief, and I tend to agree with him that we're heading into not all coin summer we just passed summer an all coin fall and that's because of those those everything I talked about freeing up of capital, decreasing bitcoin dominance, increasing focus on cryptocurrencies like Solana and ether which should carry over into potentially other all coins.

So I think all coins are exciting.

Last thing I want to mention very, very quickly because I want to give them credit.

Um, secretary Chairman Atkins of the SEC published a tweet yesterday, which is extraordinary.

He published a tweet with Carolyn Pham, acting chairman of the CFTC, talking about working together on September 29th to, amongst other things, promote innovation.

In my lifetime, I have never seen a cross SEC CFTC announcement that references explicitly innovation.

So I think it's hard to overstate what a sea change we've seen and that's part of what's going into all this excitement.

Yeah, and before I let you go, since we do have time, this event that we're talking about, why is it so important and what is the potential impact on the market, what the event happening the SEC CFTC.

So again, so if we look back and ask Chat GPT, I did, it can't find any explicit references to the word innovation in any prior joint harmonization announcement.

Usually what we see.

Going back to the Chad Johnson Act of 1981, usually what we see and what we've certainly seen in the last 5 to 7 years, is enforcement announcements, joint enforcement announcements.

So what I think is going to happen, I just, I just know what everyone else knows from the tweet, but based on what I know is we have two regulatory agencies that truly respect each other.

We have leadership that understand their job is to not just enforce, which is a very important job, but to foster innovation.

So on September 29th, I think for the first time we'll see publicly available evidence of US regulatory agencies acting in harmony to not just harmonize rule sets around things like reporting requirements, which is important.

It's important.

It saves a lot of lot of Ada, but understanding their dual requirement to foster healthy market innovation.

So again, I think that's I'd love to see even more clear rules coming out of Congress, but I think the evidence of that, the public evidence of that is incredibly conducive to confidence in the market.

OK, John, well, we will have to leave it there, but we'll keep our eyes on what comes out from the nation's capital as we head into the rest of this month.

Thank you so much for joining me.

Thank you for having me.

Thank you.