Transcription
Oh my gosh, what a surprise. Citadel Securities is pissed. Well, of course they're pissed, 'cause they're going to lose a crapload of money. Big moment for stablecoins. The Security Exchange Commission is talking about potentially allowing stablecoins to trade stocks. We've got to talk about the implications of that because it's really good for one particular type of investment that we'll talk about in this segment. So, if you want to know what that is, just watch the segment.
First, let's listen to Eric Trump yap about the future of crypto and see if he has anything useful to add, other than "this is the dial-up of, we're at the dial-up stage of crypto," which is actually, you know, bullish to the extent that you believe Eric Trump. >> Press conference, Prime Minister of Israel. >> It's my buy-the-dip buddy, Charles Pay. >> Meanwhile, folks, a lot of focus now, particularly on Wall Street, but the world on the crypto space, it continues to expand and is attracting a whole lot of new players from Wall Street's biggest firms, who were once, of course, doubters, to Eric and Donald Trump Jr., whose companies. >> Well, the big doubters have realized they can make a whole lot of money. >> Cryptocurrency is going to replace traditional finance. Trad, it's, it's happening. >> Which is also ironic because, like, Circle is now looking at how to have, like, fraud protections of tradi, that you don't have in crypto. So, like, being able to have reversible transactions. You should look at it. You can look it up. Circle is looking into reversible transactions to give traditional finance fraud protections to crypto because, oh wow, like, there's actually some value to that. Now, that sort of messes with the whole immutability of the blockchain argument, but whatever. We'll get to stablecoins in just a moment on stocks, which I'm really excited about, and that is the real future of crypto, and I've been talking about it for a very, very long time, and we'll talk about who the beneficiaries of that are going to be. Uh, spoiler alert, they're companies that you already know about. >> Definitely in terms of stablecoins, 100%. I mean, in terms of Bitcoin, Bitcoin is digital gold, just as better, right? I mean, there's limited supply. You know, Charles, if, if gold ever goes to 10, 10,000 bucks an ounce, you know, you and I will bust down the the walls of the building you're in right now. We'll find gold in that concrete, right? You can always find more supply if the price goes up. And with Bitcoin, there will never be, you know, 21 million and one Bitcoin. There will be 21 million. We are on the one-yard line of cryptocurrency, and and we've got another whole field to run.
All right, got it. So, Eric Trump is really bullish crypto. It used to be we were at the dial-up stage of crypto. Now, we're at the one-yard line of crypto. Whatever. But what did the SEC just announce? The SEC just announced that they're looking into ways to enable exemptions ASAP that would allow stocks like Tesla or Nvidia to trade on the stablecoin market. Now, this is different, hopefully at least, from what Robinhood is doing in Europe. Remember how Robinhood in Europe was talking about, oh, hey, we're going to do stablecoins in Europe and we're going to have a special purpose entity that will just mirror the performance through options trading, but we won't actually hold the underlying stocks. I don't really like that. I feel like if we're going to do stablecoins enabling crypto purchases, they should be somewhat like the information is reporting here. The SEC is working on a plan to allow stocks to trade like cryptocurrencies on the blockchain. Basically, if the plans move forward, investors could buy tokens on crypto exchanges that represent shares of Tesla, Nvidia. Now, my hope is that this, the SEC actually registers those stablecoins as actual shares. So, it's like the same, one of those tokens should be the same as you holding a digital share certificate at Robinhood or you holding an actual physical paper certificate of the stock. When a new stablecoin is issued, Nvidia shows one more diluted share on their balance sheets. That's how it should be. And hopefully the SEC does this. But I'll tell you, there are some people really pissed about it. No, it's not Eric Trump. He's really happy. Citadel. Citadel is freaking out about the idea of tokenized securities.
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And I'll tell you why. They say that requests for exemptions for stablecoins are self-serving and that we shouldn't allow tokenized because we already have existing systems in place and we don't need self-serving preferences for tokenized securities. And so they have this long list here about how there should be a preference towards using efficient ETF markets. We shouldn't create investor and regulatory confusion. We should allow the investor surveillance that exists at exchanges now. And let me tell you, folks, as somebody who's really experienced with the financial regulatory authorities, such as FINRA, not only as somebody who's passed tests for the Series 27, which is what you need to have a market maker up and running, the Series 24, that's a compliance principle. Well, that's actually a general securities principle. Series 14, which I've also passed, which is a compliance principle. I've done all these tests. Series 7, Series 63, Series 65, you name it. I've gone through the tests with FINRA. I've gone to the FINRA advertising conferences to listen to them talk about how important it is that broker-dealers make sure their employees aren't using the rocket emoji, 'cause it could send the wrong signal to people. I, I kid you not. They have advertising conferences where rocket emojis come up. Okay. But guess what else I know? I know how the ETF structure works and I know how market makers make money. I know that market makers make a lot of money providing liquidity, and there are really rigid requirements to being a market maker. Now, you might get confused. You might say, "Oh, well, Kevin, the New York Stock Exchange, the NYSE says that market maker capital requirements are only $100,000 as a minimum net capital requirement, and that you need $2,500 for each security to be registered as a market maker." But this would only tell you half of the story because that sounds relatively basic. But the reality is, in order to be a registered market maker on NASDAQ or NYSE, you need to have the capital to constantly provide open bids for the securities you're market-making in. Which means you typically need billions of dollars of market or of capital available to constantly be able to provide buy and sell uh offers on each side of the market. And if you get, you know, one person buys you out and you're not available for the next person to fill the next person's order, you lose your preference as a market maker. Now, why do these businesses want preference as a market maker? Money. The New York Stock Exchange and NASDAQ and brokers like Robinhood give kickbacks to companies like Citadel for providing fast liquidity. So, in other words, because Citadel has a lot of money, and because they are registered with the exchanges, and because they're registered with FINRA, and because they have all of the licenses, they get to stand in line as a market maker. And because they get to stand in line as a market maker, because it's so arduous to become a market maker, they get the kickbacks and they get to pick up the spread on stock trades. And it's not just stock trades, it's option trades. That's where the big money is. But also in ETFs, which I think is really ironic. I have a lot of experience with ETFs. I understand how the game works. Why do you think, folks, why do you think that they're talking about the ETF market being highly efficient? Folks, I kid you not. I understand this system. And this is why I always think you should subscribe to this channel because you're going to get perspective you just don't get anywhere else. I'm going to try to explain this really simply. An ETF is a basket. Okay, imagine this cup. It's a basket. Well, right now it's a cup of coffee, but it's a basket of stuff. Here, hold on a sec. I'm going to help you. This analogy is worth it. Stick around. Mhm. I had to make room. All right. It's a basket. That's all an ETF is. Okay. This basket has a value. Let's say I put a $100 stock in it called this Sharpie pen. And then I put a $50 stock in it called this Sharpie pen. And I'll just do those two for now. Okay. The value of the basket is what? $150 because it's got a $100 stock and a $50 stock in it. Cool. How often does the market tell you the value of this cup for an ETF? Once a day. Once a day. That's it. An ETF adjusts to what's called net asset value just once a day. But wait a minute, Kevin. What happens if during the day this $150 basket, let's assume the components are still worth $150. The stocks aren't moving. Say it's like Nvidia and Apple, let's just say, okay, let's say they're not moving. The stocks like it's just the stable price, okay? But somebody comes in and buys the ETF like hardcore, and the value of the ETF goes up to 154. Well, Citadel is going to go, "That cup is trading for $154, but the components are only worth $150." So, if they market make in this ETF, they sell. They sell it, they break it, and they capture the $4 profit. The same happens in reverse. The bucket selling for 145. They're like, "Well, the components are worth 150." Sell the ETF, break the bucket, take the components out, and you have $150 that you bought for 145. They can do that all day long because the value of an ETF only resets to NAV or net asset value once a day, which means the market makers can make a shitload of money hand over fist trading ETF products that only trade when the market is open. So, not on weekends, not on nights. This is why you see major fluctuation in ETF prices in aftermarket hours or just low liquidity stocks. What do stablecoins potentially do? Stablecoins potentially give anyone the right to become a market maker. No serious 24, 14, 27, none of that bull crap. Technically, you don't have to do anything 'cause you're not registered with FINRA. You're not a broker-dealer, and you don't have to register with the exchanges. You might, no guarantees. We don't know exactly how this is all going to play out yet, but in a perfect world, in the stablecoin market, you don't end up having registered market makers. Anybody can be a market maker. Now, in some cases, you're still going to want market makers. Like, if you have a really low liquidity stock, you technically want market makers to help let somebody buy or sell. Because what happens if somebody's like, "I want to sell a stock." And then you just hear silence. Well, your Redfin app pinwheels and you don't go anywhere, and you're pissed. This is like, nobody's buying my stuff. That's what market makers do. So, they do fulfill a service, like they let you trade. This is why they'll probably just start doing stablecoins with big stocks like Nvidia or Tesla because there's plenty of free market liquidity for those that you don't need the market makers. So, the market makers get cut out. So, guess what? Oh my gosh, what a surprise. Citadel Securities is pissed. Well, of course they're pissed because they're going to lose a crapload of money.
By the way, if you want these kind of insights regularly on the market, make sure you join the Meek Kevin membership. This is what I do on a daily basis. It's over at mekevin.com. Use the coupon code daddy'sback. Okay. Now, now you understand that the market makers are pissed and they're losers in this. Who are the winners in stablecoins? Companies like Robinhood. Broker-dealers like Tastytrade, Interactive Brokers, Fidelity, Charles Schwab. It doesn't really matter which company you use. Uh, well, I mean, it kind of does because, like, for example, SoFi or um, M1 Finance, they use Apex, so I don't think that like, Apex is their broker-dealer, so their primary dealer. So, I don't really think they will benefit off of it. But the primary dealers like a Robinhood, like an Apex, they will probably save the most amount of money with stablecoins because you're going to kill, uh, fail to deliver, fail to receives, and the barriers that market makers put up, like the rebates and the rebate registration requirements, or the registration requirements to be eligible for the rebates. A lot of that gets killed. You know, market makers today can legally naked short sell. It's deemed to be part of a normal functioning of the market-making process, and so they're legally allowed to naked short sell, whereas typically you're not. So, it's very interesting. A lot of exemptions for market makers that are probably driven by the market makers, and they don't want anybody to know how this game works because they make a lot of money. Market. They say that the only trader that does not lose money is a market maker because they could pretty much know that they're making profit on every single trade. Kind of crazy. So anyway, that's what's going on with the SEC and stablecoins. That's why the market makers are pissed. And the big beneficiaries are going to be the broker-dealers, like frankly Robinhood, who are going to save a whole lot of money no longer giving kickbacks to market makers in the long term as these stablecoins take over, which I hope they do. Because this is what crypto is designed for. So, yeah, spoiler, it's not Bitcoin that goes up because stablecoins do well. Stablecoins, blockchain technology is phenomenal. I love it. Very transparent, fast, instantaneous, immutable, transparent, and lets you trade 24/7 without all the bull crap. So, it's pretty exciting. Exciting times, exciting technology. Knows about this. >> We'll, we'll try a little advertising and see how it goes. Congratulations, man. You have done so much. People love you. People look up to you. >> Kevin Praath there, financial analyst and YouTuber. Meet Kevin. Always great to get your take.