8th February 2025 > > The UK & US states.

tl;dr

Andrew Bailey, cor blimey guv’! Kentucky and Florida join the wait-list of US states queuing up to adopt BTC as a treasury reserve asset.

Market Snap

Market Wrap

NFP came in under expectations, and far under what the betting markets were predicting, giving a short-term pump to over $100k for BTC. However, revisions to previous months (reminder – this data is incredibly inaccurate with virtually zero correlation to actual economic activity) led to a rapid re-pricing lower. The volatility created in financial markets because of the Fed’s obsession with this particular bit of economic news raises the cost of capital for all businesses, lowering productivity, and making us all poorer. I do wonder if that is the fundamental reason why the Fed focusses so much on NFP.

Curious Cryptos’ Commentary – Blimey, he’s only gone and done it again

Trigger warning – this commentary is about to mention Brexit. The CCC remains fiercely apolitical, assessing news only in the light of its influence on the crypto revolution. Regardless of your position on Brexit, it has an impact on cryptos. For those of a sensitive disposition, for whom the mere mention of Brexit is upsetting, may I gently suggest you stop here.

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The CCC is rightly harsh on those who are an impediment to making the world a better, safer, and more inclusive place. But we are also very fair, and give credit where credit is due. Just yesterday, the CCC applauded Andrew Bailey, Governor of the Bank of England, for his (probably accidental) insight yesterday into why an ever-burgeoning public sector at the expense of the private sector is dangerously damaging for future growth and productivity.

Well, blimey, he’s only gone and done it again.

Basel III capital rules for banks is a set of regulations drawn up in response to the financial crisis caused in the first place by poorly designed regulations imposed upon banks. There is a type of technocratic who truly believes that the answer to bad regulation is to add more bad regulation, which I must admit is not a view I subscribe to. Yes, we need regulation, but not just for the sake of it.

The new rules are designed to increase the amount of capital a bank must put on its balance sheet to support its lending activities. It effectively acts as a dial-down on the fractional banking reserve system, a system that is the only reason why we have moved on from an agricultural society of poverty and low life-expectancy. Without the banks, the Malthusian view of the world was largely accurate, made redundant by technological innovation, enabled by fractional reserve banking.

As an aside, Basel III also reinforces the legislative assumption that government bonds are risk free, which is of course utter nonsense, but it does force banks to buy more government bonds than they would otherwise. This is a variant on the government’s policy of manipulating bond yields across the curve using the central bank as cover.

The new rules are more restrictive, but are themselves restricted to a subset of the banking population that comprises internationally active banks. The EU – as is its wont – will apply the rules to all banks within the EU, even the plethora of purely domestic German, French, Spanish and Italian banks who wouldn’t know a collateralised default obligation when slapped around the face with it. This is an obviously self-harming decision that will strike at the heart of small businesses across Europe.

Andrew has said that the UK will not take the EU approach, a decision that is now in our hands to make. Let’s see if he really means it, but if he does, then the SMEs of the UK will be in a better place than otherwise, making everyone in the UK wealthier.

The CCC might have to review the nominations for the worst Governor of the Bank of England ever. I think Mark Carney looks like he has now regained that prestigious position after two entirely unexpected and positive interventions by Andrew, on consecutive days.

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This news also reflects well on Rachel Reckless Reeves, Chancellor of the Exchequer. Oh, how we laughed at the news that she had written personally to all the different regulators asking for their suggestions as to how to improve productivity, a concept that has never before been considered by a regulator.

Well, she could be laughing now, if Andrew is but the first of many bureaucrats to come up with some cracking ideas that will actually help the UK out of its current problems caused by a lack of economic growth. All very pleasing, I must say, and bodes well for the recent signs of nascent enthusiasm by the UK’s political elite to adopt cryptos:

https://www.curiouscryptos.com/post/6th-february-2025-us-uk-regulatory-revolution

It would be a tremendous irony if the crypto political divide was upended in the UK, a development that would be most welcome.

Curious Cryptos’ Commentary – Kentucky and Florida

Kentucky and Florida have joined the list of US states (now totalling 17) making legislative moves to incorporate BTC as a reserve treasury asset.

Kentucky’s bill states:

“… authorize the State Investment Commission to make investments in certain digital assets … prohibit investments in central bank digital currency … authorize state agencies to accept digital assets as a method of payment … prohibit acceptance of central bank digital currency as a method of payment … require the Department of Revenue to accept digital assets as a method of payment … prohibit the State Treasurer from accepting central bank digital currency or converting receipts to central bank digital currency.”

I mean, what’s not to like?

This bill caps investments in cryptos at 10% of excess state reserves.

Florida’s bill meanwhile states this:

“… authorizing the Chief Financial Officer to invest money in Bitcoin from certain public funds; providing limits to such investments; providing requirements for holding acquired Bitcoin; authorizing the Chief Financial Officer and other parties to loan Bitcoin under specified circumstances; requiring the Chief Financial Officer to adopt rules governing such loans; requiring taxes and fees paid in Bitcoin to be transferred to the General Revenue Fund …”

The legislative wheels move slowly, but it looks increasingly likely that a number of US states will soon be entering the BTC OTC market, competing with the spot BTC ETFs for an ever-dwindling number of coins.

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If Andrew Bailey really wants to cement his position as not being the very worst Governor of the Bank of England ever, he might want to try to raise the subject of the UK adopting BTC as a strategic reserve asset now, before the UK is forced to do so at a later date at prices so much higher than we see today.