Caitlin Long @CaitlinLong_
The land grab by traditional banks entering #crypto has officially begun. July 22 = the OCC news + Visa’s blog post endorsing #bitcoin & stablecoins as valuable payment tech, & now Goldman breaks news that it has a team headed by a former #repo trader.
1/ MORE ANALYSIS-Goldman’s new head of #digitalassets is a #repo trader based in LONDON. This is significant bc UK law basically has no limits on #rehypothecation. To be clear I’m not worried abt #bitcoin–as a system it’s immune to WallSt’s leverage games twitter.com/CaitlinLong_/s…
2/ That doesn’t mean its price won’t be impacted tho–bc #rehypothecation fulfills real demand w/ artificially created supply & thereby suppresses price, all else equal. Rehypothecation works as long as there’s a lender of last resort. But #bitcoin has no lender of last resort!
3/ So, how many times could a #bitcoin be rehypothecated? In UK there’s basically no limit bc the broker/dealer takes outright title to the customer’s asset. This is why Lehman transferred so many of its assets to its UK subsidiary from its US subsidiary. kramerlevin.com/en/perspective…
4/ Details on all this stuff really matter, folks. Same goes for Goldman considering issuing a #stablecoin. Think it would (1) actually be backed 100% by risk-free assets that (2) will not be rehypothecated and (3) will be ring-fenced from a bankruptcy (“bankruptcy-remote”)?
5/ Very hard (but not impossible) to achieve under this legal/regulatory structure, even if they wanted to. It’s DANGEROUS to put a finite-quantity, volatile asset that has no lender of last resort onto a leveraged balance sheet, & then to leverage that asset. Big potential.
6/ This is why the #Wyoming #SPDI charter is non-lending, no #rehypothecation, 100% reserve + has legal clarity. #goodreasons So…grab bc big banks are in #crypto. More liquidity but also more of the bad kind of financialization. Let’s hope the risk ppl have eyes wide open.