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The Macro Brief – The A to Z of crypto
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Daragh Maher, Head of Digital Assets Research, demystifies the world of cryptocurrencies and looks at how digital assets could move from niche to mainstream.
Disclaimer: https://www.research.hsbc.com/R/101/JHXvCjK
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Transcript
Introduction
00:00:01
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
00:00:24
Speaker
This podcast was recorded for publication on the 26th of June, 2025 by HSBC Global Research. All the disclosures and disclaimers associated with it must be viewed on the link attached to your media player.
Overview of Financial Market Issues
00:00:35
Speaker
And don't forget to like and subscribe to The Macrobrief wherever you get your podcasts.
00:00:43
Speaker
Hello, I'm P.S. Bartlett in London, and this is The Macrobrief. where we look at the issues driving financial markets across the globe.
Digital Assets and Crypto Market Analysis
00:00:50
Speaker
Now here at HGPC Global Investment Research, we of course cover traditional financial assets like currencies, stocks and bonds.
00:00:57
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However, we've recently launched our own research into digital assets. So whether you're crypto curious, crypto skeptical, or you don't know your Bitcoin from your stable coin, today's podcast is for you.
00:01:11
Speaker
I'm joined in the studio by Dara Ma, head of digital assets research, to discuss this fast growing era of finance and find out why we think it could go from niche to mainstream.
00:01:22
Speaker
Dara, it's good to have you back on the podcast. Yeah, thank you, Piers. So great report. i really enjoyed reading it. To get it started, can you give us some numbers to illustrate the scale that cryptocurrencies have already achieved?
00:01:33
Speaker
Sure. Now, look, it's a funny market, right? the you know If we look at the market cap of cryptocurrencies, right, so your Bitcoins, ETHs, stablecoins, all those things you say, some people don't know the a from B. That's 3.5 trillion, which is you know it's a chunky number. and We look at turnover in those markets in 24.
00:01:50
Speaker
There was like 18, 19 trillion dollars and ETFs linked to Bitcoin. Again, a market is growing very quickly, 100 billion or more. So these are all on the face of the big numbers until you start comparing them to traditional financial markets and then. They look kind small, frankly.
Regulation and Investor Confidence
00:02:08
Speaker
I look at currencies as well, you know, fiat currencies. That's a two trillion a day turnover just in spot, right? And I've just described cryptocurrencies as doing 18 trillion a year, right? So you look at portfolios, maybe 1%, 2%, 3% held in cryptocurrencies of a multi-asset portfolio. So small, but small and growing. And I think that's the significance here for investors.
00:02:33
Speaker
So in in terms of that growth, What's holding it back? ah Well, my theory, and actually, to be honest, not unique in this, is that regulation is the problem. Hang on. Let me let me just interrupt you here, OK? Yeah. i'm I'm a bit skeptical, and I know you said this in your report.
00:02:49
Speaker
You're going to have to convince me on that one ah that that the regulation is a thing. Yeah,
Stablecoins Explained
00:02:55
Speaker
OK. And, in fact, that you're excited about regulation. sure I will. I'm sure I'll be very convincing. But first, can we do some jargon busting or demystifying? So Bitcoin and Ether grab all the headlines, but according to you, the real action is in stablecoins. So what are stablecoins?
00:03:10
Speaker
And forgive me, but it's not that long ago that stablecoins weren't that stable. that That is true. and Like Mike Stomach, we have had some wobbles recently. um But the the issue here is that stablecoins are the dominant player, right? they And stablecoins, to define them, are digital money pegged to a real world asset. Now, it could be the euro, could be gold, it could be treasuries, but almost all the time they're pegged to the US dollar. 99% of the time they're pegged to the US dollar.
00:03:39
Speaker
And essentially what they do is they give you a a low volatility way of transacting in the digital asset space. They're kind of a frictionless payment method. and And, you know, they are absolutely the the dominant player, more so than ah Bitcoin in terms of transacting in digital assets.
00:03:57
Speaker
And it's interesting is because you kind of think, well, they're a bit boring and nobody you don't have like crypto bros going on about stable coins. But for institutional investors, for um for corporates wondering about, you know, how do we move money about the globe on these digital pay rails?
00:04:11
Speaker
it's It's really stable coins. That's the dominant part of the conversation. But what's the point of stablecoins? I mean, after all, we've all now got apps that we pay with without using actual credit cards and what have you. That seems pretty frictionless to me. why Why do we have stablecoins? What's the need for that relative, say, to the dollar?
00:04:27
Speaker
Yeah, look, you you can hold cash, right? um Perhaps if you and I went to a British pub, right? I'm having a pint. You're having a glass of expensive wine. and and And I could just tap my card on the machine yeah um and and you're done, right? Or I could have hand over, well, were you buying wine, it'll be a £30 or £40 I'll have to hand over.
00:04:48
Speaker
and And that takes time, right? The barman takes it away, he comes back of your change, he tuts at you and the person behind you in the queue tuts at you. So that's not a frictionless way of paying. And in the digital asset space, you can, of course, bring your fiat currency, translate into a digital asset, but it's a bit more cumbersome. If you're operating through stable coins and and frankly, through any other digital currency, so Bitcoin through Ether,
00:05:13
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and that becomes a frictionless transaction. and And if you're staying within the digital asset space, of course, then you you really want to have that opportunity to to remain in in digital currencies.
00:05:24
Speaker
And stable coins are those, but without the volatility, the price volatility of Bitcoin and Ether and and some of the other non-pegged digital currencies.
Risks and Challenges of Stablecoins
00:05:34
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Now, I'm going to prove to you that I read the whole report because ok at the end of the report, there's a little section that talks about the good, the bad and the ugly about stablecoins. So maybe i'll illustrate that. So look, my earlier theory, that was only my wife who read to the very end. um It was clearly you was that one hit.
00:05:50
Speaker
um Yeah, look, there there is the good, the bad and the ugly. I mean, I think I've explained perhaps some of the good in the context of low volatility and frictionless payments. and The bad is that in a way that these stable coins are not without the risks, right? You run the credit risk of whichever institution has launched the stable coin. Do they hold enough reserves?
00:06:11
Speaker
such that if you want to change your stablecoin back to a US dollar, they've got the dollars ready for you. Does the institution itself that issues them, are they going to remain solvent or where they're holding the reserves, does that institution remain solvent? so you've got that counterparty risk as well. So these are some of the things you have to be mindful of. And I should add here that you would not face with a central bank digital currency, which of course is something we don't really go into in a great deal of detail in this report, but we have done in the past.
00:06:38
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and You don't run that kind of risk with CBDCs. So that's the bad. The ugly is crime, right? and the The problem being fashionable for good transactions is you also become fashionable for illicit transactions.
00:06:53
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um And bit Bitcoin used be the dominant player there as recently as 2020. But in 2024, it's stable coins that were the dominant player in illicit activity on in digital assets. So that is a point of concern, um obviously, and if you like, the ugly aspect of stable coins. Can I ask a really basic question here? Probably reveals my ignorance about digital assets. But if it's all on the blockchain, aren't all these criminal transactions traceable?
00:07:20
Speaker
Yeah, the key there is you said the word transactions, right? The transactions are traceable. Who's doing them? Less so. and And I guess for most of the...
00:07:31
Speaker
you the kind of the tracing of crime, what you're looking at is the on-ramp into the digital world and the off-ramp from the digital world to try and track identities and link identities to those transactions.
00:07:42
Speaker
Then, of course, even if you spot the person, they may not be in your jurisdiction, right? and then So there are complications, but it is a peculiarity that I guess we thought this was entirely anonymous, which it's not. It's pseudo-anonymous in that the transactions and are visible to all, but you need to be kind of clever if you want to be able to track down who is the personality attached to them.
00:08:04
Speaker
Okay, so now it's the time to get excited about regulation.
Regulation and Safety in Crypto Markets
00:08:09
Speaker
there So in your report, you you say that in designing a crypto capital, which is what the US is is aiming to do, ah we should think about how an actual city is being built. So let me be provocative.
00:08:24
Speaker
Are you really saying that I should be excited about sewage? You mean you're not? Look, I'm sure you live in a lovely house. If the sewage wasn't working, you'd move out, right? Yeah, I think this is... It's all about the piping, is what you're saying. It it is. And when you think about living in general, right, of course, you like your fancy restaurants, right? You do, Piers.
00:08:43
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um And we like our big signature buildings and all of that in the city. and I saw it expressed this and I really quite like the analogy. um and And for regulation, that is, if you like, the piping, right? It's what makes it livable, what makes you free or feel safe that your your risk of being so a victim of crime is minimized and other elements that you're going to be treated fairly by the market that won't be front running. All these kind of elements that we've become accustomed to legislating for in traditional finance, you need those guardrails as well around the digital assets.
00:09:14
Speaker
But that's a big task, right? and But if you get it right, you're living in a lovely city, a lovely house, and and you know you can flush the toilet with confidence. I'm glad to hear that. So how time-wise? i mean, regulation can take years to sort of fine-tune or a lot of different interested parties. Some people not so keen on regulation.
00:09:33
Speaker
What's your sense of how that sort of plays out? I think we'll be done by Tuesday. LAUGHTER I'm just not sure which Tuesday. um the Look, it is. It's massively complicated. i saw a speech by um the SEC, so the Securities Exchange Commission in the U.S., where she kind of posed questions about what needed addressing. There 120 question marks in just that one kind of speech, right?
00:09:59
Speaker
and And that's just the SEC. You've got everyone else involved in the mix on crime and ah other elements as well. So it's massively complex, lots of people involved. That takes time, right?
00:10:09
Speaker
But um it's not to say you shouldn't begin. And and I think the U.S. has stepped up and the pace at which it's trying to you know drive regulatory reform and come up with a sensible framework. So they're to be commended for
US Position in Global Crypto
00:10:21
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that.
00:10:21
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and And I think the U.S., is in a good position, right? I think it is in a good position. it wants to be crypto-capped to the world, at least President Trump suggests U.S. should be crypto-capped the world, and it is pretty well placed to do that.
00:10:33
Speaker
So who else is competing relative to the U.S.? Is it just El Salvador who's... yeah well they're there right they they're they're the only one that have bitcoin as a legal uh tender right which means you have to accept it in for for a coffee right that's it um but there are other nations that i would say are further along the route of laying claim to being kind of a crypto center and you know you i could i could list singapore united arab emirates um you know i don't admit
00:11:03
Speaker
There are others out there. there're There are two prominent ones. um The question is, will they have the scale? I mean, EU does have the scale, and they've recently introduced a comprehensive regulatory framework as well.
00:11:15
Speaker
um But the US does have some unique attributes, a huge institutional investor base, a big venture capital industry, lots of tech expertise, that if you get the regulation right, you can foster innovation, foster investment, and then really you create kind of a critical mass for crypto, four and I should use the word digital assets more broadly in your economy, in your country.
00:11:38
Speaker
So, and yes, others are maybe a little bit further down the road than America, ah but the U.S. does have some, I think, inherent advantages to play catch up. One of the things that's got people are very excited and focused on what the United States is doing is the creation of U.S. strategic reserve in bitcoins. I mean, as you say, the crypto bros, I think, are particularly excited by that. um Is that the equivalent of a digital Fort Knox?
00:12:04
Speaker
And are we going to have to rename the famous James Bond movie Digital Goldfinger? It doesn't quite have the same ring, does it? No, it doesn't. It's I think it was well, to be honest, when it landed, the the the market was slightly underwhelmed. I think what they were hoping for when when President Trump announced that we would be looking to having a Bitcoin reserve was that the U.S. government would suddenly be buying a chunk more of Bitcoin.
00:12:30
Speaker
And in reality, what they did was they took Bitcoin they'd seized from criminals and more or less rebranded it as ah strategic reserve. um And you may be aware the US has many strategic reserves. You just have a raisin reserve, right, which love.
00:12:45
Speaker
Right, so they have this strategic reserve, but they're not actively buying Bitcoin to fill it. Now, I think in future, they may look at that. I mean, it is part of the remit to find what they call budget neutral ways to to build that reserve.
00:12:58
Speaker
But even aside from that, it's significant, right? It means a big economy like U.S., with the greatest respect to El Salvador, a big economy like the U.S. is saying, hey, a Bitcoin could be a credible reserve assets. Others may disagree. I'm sure many people in the U.S. disagree.
00:13:13
Speaker
But that was, I think, an important signaling angle that, you know, if we talk about moving from niche to mainstream, maybe that was just another step in that direction.
Future Regulations and Conclusion
00:13:23
Speaker
So just to finish on any sort of big milestones that you are now looking to in terms of judging the pace of change, judging the pace of of regulation?
00:13:33
Speaker
Yeah, I think one near term one and we we should see it over the next month or so is when ah President Trump's working group on on digital assets comes back with its recommendations for what the approach should be to regulatory reform. There's been lots of reach out by regulators in the US, s lots of discussion with the industry and with investors.
00:13:52
Speaker
So I'll be curious to see what comes of that. that That is critical. and But, you know, this sector is innovating so rapidly. and It's going to be a challenge for regulators to keep up, right? and But ever, ever the way between poacher, you know, and and ah gamekeeper. So this is just a ah digital example.
00:14:11
Speaker
So I think that's all we've got time for, Dara. But well done on this fantastic initiation report. I'm sure we'll be hearing lots more on digital assets in the near future. Thanks, Pearson. Thanks for reading the whole thing. Yes, thank you.
00:14:26
Speaker
Daria Mar there on the rise of digital assets. If you want to hear more about digital assets, check out the interview I did at our GIS conference in March with John O'Neill, HSBC's Group Head of Digital Assets and Currencies, and Lucy Gassmerarian, founder and managing partner of TokenBay Capital.
00:14:45
Speaker
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00:14:59
Speaker
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00:15:17
Speaker
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00:15:45
Speaker
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