What matters in the crypto-bank fight is ubiquity, not yield

New money
I wrote last week about the Depository Trust & Clearing Corporation and the digitized, blockchain-y platform it's building for post-trade processing and custody, highlighting a story our Penny Crosman wrote. One aspect of this platform, I'd pointed out, is that it was focused on only one part of a trade, the post part. I spent a little time talking about a crypto startup called INX that never took off but had a good idea: an exchange that would host every part of a trade, all the way from stock formation through the offer, sale and custody.

Lo and behold, it didn't take long to come across a firm that is working on the other end, and it's Citi. As Penny reported on Monday, Citi launched a capital-raising service that connects private companies looking to raise capital to Citi's wealth and institutional clients via a tokenized offer and trading platform. The ledger is run by SIX Securities Depository, a Swiss equivalent of the DTCC, and Citi acts as the custodian. Citi says the service, called Digital Depository Receipts, is a way for private companies to raise capital. It will offer more transparency and less friction.

Investors will track their holdings through this new service right in their portfolio alongside their holdings in public companies. This isn't just tokenized versions of existing stocks or pre-IPO shares. This is a fundamentally new way of moving capital. This is one to keep an eye on.

Old money, and new money
If you think of money as a product, it is a very commoditized product. The cash dispensed at an ATM, the credit borrowed in a loan, is exactly the same from bank to bank. The terms under which that money changes hands will be different, but the thing itself, the money, is exactly the same. Fungible, in the parlance of our times.

Is digital money really any different? Certainly the crypto companies have been arguing it is. Bitcoiners repeat "hardest money ever" like a mantra. Stablecoin issuers act like they've perfected alchemy. But while digital money may move differently, its actual utility relies on the exact same foundation as plain, old, analog money: how many people use it, how ubiquitous it is. And the problem for the crypto companies is that their version of money is not particularly ubiquitous at all. Outside of trading crypto, in fact, it has virtually no utility. I have not seen a single business advertise that it accepts bitcoin, or tether, or any cryptocurrency. El Salvador made a big, big show of trying to make bitcoin its national currency, and it failed miserably. Nobody wanted to use it. 

I say this all as prelude to my real point: the banks have much, much less to fear from the crypto companies than you'd think if your only point of reference was the fight over the crypto legislation winding through Congress right now. There is a pitched battle, as you've surely heard, over the issue of whether stablecoin issuers can pay interest on deposits. Of course, it isn't being called interest on deposits, which is why there is a fight over it.

But from where I stand it seems the crypto companies need the yield option far more than the banks need to block it, for the simple reason that outside of trading crypto, nobody has any use for crypto. The only way to goad people into holding crypto is in essence to pay them to hold it. But even that probably isn't going to be very successful. Sure, some people will take advantage of that, but not many. 

Moreover, most bank depositors are lazy. I don't mean that pejoratively; at least, not unduly so. The reality is that more than half of all bank depositors are "sleepy" depositors, a Harvard study concluded recently. Meaning they don't shop around and look for the best interest rate, they don't move money between accounts, they're not thinking about how to maximize their money. They just want a place to park it.

What the banks are hoping, of course, is that the crypto companies don't wake up those sleepy depositors. But the problem for the crypto companies is they're not offering enough. Yield is nice, but ubiquity is king. And they don't have it to offer, but you know who will? The tradfi banks like Citi and DTCC and others who are meshing old money with digital networks.