A pile of coins representing Bitcoin cryptocurrency sit grouped together in the U.K. (Photographer: Chris Ratcliffe/Bloomberg)

Keep Your Bitcoins in the Bank

(Bloomberg Opinion) -- Crypto receipts!

This is the most perfect thing I have ever read about the blockchain:

Citi has developed an instrument it is calling a digital asset receipt. It works much like an American depositary receipt, which have been around for decades to give US investors a way to own foreign stocks that don’t otherwise trade on US exchanges. The foreign stock is held by a bank, which then issues the depositary receipt.

In this case, the cryptocurrency would be held by a custodian, with the so-called DAR issued by Citigroup, the people said. The bank would alert the Depository Trust & Clearing Corp., a Wall Street middleman that provides clearing and settlement services, that it issued a receipt, one of the people said. That lends an important layer of legitimacy and gives investors a way to track the investment within a system that they’re already familiar with, the person added.

I want to cry. I want to give those paragraphs a hug. I have written, more than once, about the complexities and inefficiencies of having pretty much all U.S. stocks held by DTCC. “It’s enough to make you wish for a blockchain,” I once wrote. A secure, open, permissionless, immutable record of who owns what, one that doesn’t require investors to trust either a bank or a central Wall Street intermediary or to rely on those intermediaries’ old-fashioned systems: That is a core dream of the blockchain, a central appeal of cryptocurrencies.

And then here is Citigroup Inc. looking at investor demand and concluding: Yes, sure, Bitcoin is great, but what Bitcoin investors really want is to hold Bitcoins in the form of receipts issued by a giant bank and registered at DTCC. That’s where the real innovation is! That’s what the people want! “Take this blockchain away from me,” they cry, “and give me the old system that I know!” 

A claim that you sometimes hear is that the blockchain will revolutionize back-office processes—settlement, custody, etc.—in the financial system. But look at the actual experience of cryptocurrency custody. The main story of institutional investment in cryptocurrency these days is a story of custody, broadly speaking: Large institutional investors want to get access to Bitcoin, but they do not want to own actual Bitcoins, themselves, on the actual Bitcoin blockchain. They want Bitcoin exchange-traded funds, or Bitcoin futures, or Bitcoins held in custody by regulated crypto exchanges or traditional big banks, or, sure, crypto depository receipts, why not. Everywhere there is a blockchain, a trusted central intermediary—often a bank or other old-school Wall Street middleman!—springs up to make it useful. Does that tell you anything about the prospects for blockchains to replace central intermediaries? 

I confess, though, that it goes the other way too: “Two financial technology companies won New York state approval to issue cryptocurrencies pegged to the U.S. dollar,” the Gemini dollar and the Paxos Standard, “creating more regulated and transparent competitors to Tether and other so-called stable coins,” which are in turn competitors to … the dollar. If you want to hold your Bitcoins through a bank, you can, but on the other hand if you want to hold your dollars through a blockchain, you can do that too. 


A few months ago, a special committee of the board of directors of CBS Corp. sued to try to get rid of the company’s controlling shareholder, Shari Redstone’s National Amusements Inc. The committee was worried that Redstone would try to push through a merger between CBS and Viacom, another company she controlled. So it decided to dilute away her controlling stake by just giving a bunch more voting shares to all the other shareholders. That is not really a thing it can do! What is the point of being the controlling shareholder of a company, after all, if the directors of the company can just take away your control at any time? If you control a company, surely one aspect of that control should be controlling when you lose control. It was all a bit nutty, but in line with the nutty overblown threat-and-response of difficult merger negotiations. I figured it was mostly a bluff, and wrote:

Presumably the special committee has hauled out this bazooka to try to force a negotiated solution that it really wants—something along the lines of a standstill on the Viacom deal and some guarantees of board independence. 

Today CBS and National Amusements announced that settlement. CBS dropped its plan to dilute National Amusements. Some directors resigned, but they will be replaced with new independent directors, “in keeping with CBS’ and NAI’s commitment to Board independence.” There’s a standstill: “NAI confirmed that it has no plans to propose a merger of CBS and Viacom and has agreed that it will make no such proposal for at least two years.” It also “reaffirmed that it will give good faith consideration to any business combination transaction or other strategic alternative that the independent directors believe are in the best interests of the Company and its stockholders”—that is, if the board decides to do a deal with someone other than Viacom, National Amusements has agreed to at least think about it. (“If there were ever a time for an acquirer to swoop in for CBS, it’s now,” writes my Bloomberg Opinion colleague Tara Lachapelle.) It is a pretty normal and expected ending to a pretty weird corporate drama.

Except of course that, in the interim, CBS Chief Executive Officer Leslie Moonves, who led the anti-Redstone faction on the board, has been hit with a dozen allegations of serious sexual misconduct, which have rather overshadowed the already pretty nutty shareholder-governance-rights drama at CBS. And as part of todays settlement, Moonves will step down. He was in line to receive a gigantic pile of severance pay that, under the circumstances, CBS couldn’t really pay him, and they won’t: 

Moonves and CBS will donate $20 million to one or more organizations that support the #MeToo movement and equality for women in the workplace. The donation, which will be made immediately, has been deducted from any severance benefits that may be due Moonves following the Board’s ongoing independent investigation led by Covington & Burling and Debevoise & Plimpton. Moonves will not receive any severance benefits at this time (other than certain fully accrued and vested compensation and benefits); any payments to be made in the future will depend upon the results of the independent investigation and subsequent Board evaluation.

You do not see that every day. In general, when powerful executives are forced out for even egregious business failure or personal misconduct, they tend to get their severance; otherwise, the worry is, they’ll probably sue, and create a lot of distraction, risk and bad publicity for the company. Better to spend some money to make them go quietly. The fact that that’s not happening here suggests either that CBS doesn’t expect Moonves to fight for his severance—though Moonves denies the allegations and says they are “part of a concerted effort by others to destroy my name, my reputation, and my career”—or that it figures that the distraction and bad PR of paying the money is worse than the distraction of fighting over it.

Also this, from Ronan Farrow’s most recent reporting about Moonves, seems bad:

Sources familiar with the CBS board’s activities said that Moonves was informed of Golden-Gottlieb’s complaint to the Los Angeles police in the fall. He did not disclose the existence of the criminal investigation to a number of CBS board members until several months later. The full board was not informed, and Moonves was allowed to continue running the company. 

Everything, I often say, is securities fraud, but the specific mechanism by which sex crimes transform into securities fraud is when the CEO accused of the crimes doesn’t tell board members about the criminal investigation, and when those board members don’t tell the full board, and when the board doesn’t tell the shareholders or do anything about it. 

Hipster antitrust.

One thing that we occasionally talk about around here is the notion that some basic, popular, deeply embedded feature of modern capitalism is in fact a violation of antitrust law. Recently there was an argument that advertising is an antitrust violation, and of course we talk frequently about the idea that index funds (or mutual funds, or institutional investors generally) are illegally anticompetitive. And here is a New York Times story about Lina Khan, a recent Yale Law School graduate who has become famous for arguing that Amazon.com—another basic, popular, deeply embedded feature of modern capitalism—is an antitrust violation. 

There is a first-blush intuitive appeal to this: Amazon is really big, I buy all my stuff from it, its bigness drives competitors out of business, etc. The problem is that modern antitrust law tends not to care about those things. In modern antitrust theory, the central aim of antitrust law is to protect consumers by fostering price competition; a company that becomes very big just by out-competing other companies and offering lower prices and better selection is not an antitrust problem but rather exactly what antitrust is supposed to achieve.

Khan argues, though, that this modern turn in antitrust law is wrong, and that the law should return to its Progressive Era roots, when it was driven—to overstate matters a bit—less by economic theory and more by a general distrust of the concentration of power in large businesses, and by worries about what that power could mean for consumers but also for competing businesses and workers and political life. This theory sometimes goes by the pleasing name “hipster antitrust,” because of its appeal to nostalgia for old-fashioned antitrust enforcement. 

A toy story that you could tell about “late capitalism” is that the modern world has entered into a consumer paradise: If you want a thing, you can get it delivered to your house today, and it will be pretty cheap. The point of free-market competition is to bring consumers the largest possible variety of goods at the lowest possible price, and that has been accomplished, and Amazon has accomplished it. And that, from a standard antitrust perspective, is good, is indeed exactly the goal of the law, which has now been achieved. 

But now that we are in that paradise, it turns out that there are things to dislike about it. Even once you have perfected the consumer experience, it turns out that you still care about the experience of working at a job, or being able to start a business, or being able to participate in political life. If maximizing consumer surplus makes those things worse, then perhaps antitrust should have other goals.

This is again reminiscent of the index-funds thing. I once wrote:

I like the index-fund conspiracy theorists because their claims are so bold. They claim -- outrageously (for law and business school professors!) -- that modern corporate capitalism is bad for the economy, but not for any sort of agency cost reasons. Rather, it's bad in its best form. Managers aren't acting against shareholders' interests, and shareholders aren't excessively focused on the short term. Managers are loyally and correctly maximizing the value of their shareholders' portfolios. And those shareholders are investing rationally and correctly in diversified portfolios that maximize risk-adjusted return. Everything about the system is working perfectly. And it's still bad.

That is: The perfection of financial capitalism might be bad for consumer welfare. Hipster antitrust goes one step further: The perfection of consumer welfare might still be bad for the economy.

Also don’t miss this pretty solid antitrust joke from Khan’s husband:

“Amazon is a monopoly, and I worry that it monopolizes Lina,” said her husband, Dr. Ali. “I learn about what she is doing from looking at her Twitter feed.”

Ah, but her tweets are free, so it’s okay that they monopolize her time.

Going private.

A simple model that you could have of modern financial markets is that public companies, as a class, are timid and short-term-oriented, and that whenever they make money, rather than invest it in bold new projects to create long-term growth, they just shrug and hand the money back to their shareholders. Meanwhile private companies are where the action is: They raise billions of dollars from investors and use that money to build innovative new businesses 

This is a very popular model, and you see versions of it from public-company executives and big investors and politicians and academics and even the chairman of the Securities and Exchange Commission. If that is your model and you are the chairman of the SEC, it is not entirely obvious what you should do about it: Encourage more private companies to go public? Encourage more already-public companies to take a longer-term focus? Allow more small investors to invest in private companies? Nothing? There are advantages and problems to all of these approaches.

On the other hand, if this is your model and you are a gigantic investor, then what you should do about it is actually fairly straightforward: You should take the money that boring timid public companies keep giving you in the form of share buybacks and dividends, and invest it in exciting fast-growing long-term-oriented private companies. So BlackRock Inc.’s Larry Fink has been a leading advocate of the theory that public companies are too short-termist and do too many buybacks, and now BlackRock is putting its money where his mouth is:

BlackRock plans to ramp up its private investment activities, concerned that the US stock market is being shrunk by the surge in buybacks and a dearth of new listings but also enticed by the growing opportunities in the private debt market.

Mark Wiseman, global head of active equities at BlackRock and chairman of the asset manager’s “alternative” investing business — such as private equity, real estate and hedge funds — told the Financial Times that expanding its private investment capabilities had become an “increasingly big priority” for the $6tn investment group.

“I think it’s one of the most exciting things happening in BlackRock today,” Mr Wiseman said. “I think that most investors are heading in that direction. In part they’re heading in that direction . . . [because] the liquid public markets are shrinking.”

In generic terms, if that’s your diagnosis, then this seems like exactly the right response, but the complexity is in who exactly “you” are. BlackRock can try to focus more on high-growth private markets, but BlackRock’s, say, equity index funds can’t. 

Things happen.

Beijing summons top Wall Street bankers for tariff talks. D.E. Shaw Partner Fights Back After Firing. Crypto Wipeout Deepens to $640 Billion as Ether Leads Declines. Volkswagen Trial Offers Hedge Funds a Chance to Settle Old Scores. Trade war fears scupper Volvo Cars initial public offering. Jack Ma to Hand Alibaba's Helm to CEO Daniel Zhang Next Year. EU seeks new powers for money laundering crackdown. Why Do Firms Go Public Through Debt Instead of Equity? Frozen Dinners Make a Comeback. Museum Boss Fears Philly Insect Heist Was an Inside Job. Boathouses and Houseboats.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Matt Levine is a Bloomberg Opinion columnist covering finance. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the U.S. Court of Appeals for the 3rd Circuit.

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