By Brett Munster
PTJ and Druck are short bonds and long bitcoin
The reallocation of capital from bonds to bitcoin represents one of the most transformative shifts in modern finance. Over the years, I’ve argued that bitcoin’s “Store of Value” thesis extends far beyond the “digital gold” analogy. While I am confident that bitcoin will eventually surpass gold’s estimated $18 trillion market cap, it’s important to recognize that gold is not the only asset class serving as a store of value. Real estate, collectibles, and other commodities, such as diamonds, also fulfill this function, and bitcoin is poised to siphon off a portion of these markets. However, perhaps the most underappreciated shift is the movement of capital out of bonds and into cryptocurrencies—a transition that could be even more monumental than bitcoin’s role as digital gold.
Currently, the global bond market is valued at a staggering $133 trillion. A shift of even a small fraction of this market into crypto could dwarf the capital inflows from other asset classes. Traditionally, U.S. Treasuries have been the go-to for investors seeking safety, liquidity, and reliable, if modest, returns. They offer high liquidity, meaning they can be easily converted to cash without substantial price fluctuations, and they are considered some of the safest investments, backed by the full faith and credit of the U.S. government. For decades, Treasuries have been seen as a solid way to preserve capital while offering consistent, albeit low, yields.
The problem, however, is that bonds no longer offer the same “risk-free” appeal they once did. Yields have become far less attractive, and the mounting debt crisis in the U.S. has added significant risk to investing in Treasuries. While a U.S. government default seems unlikely in the near term, the financial outlook is undeniably worse than it was just a few years ago, and the situation will likely deteriorate further. In addition, when accounting for inflation and currency debasement, the real yield on most bonds is now negative. As mentioned in previous editions, the U.S. dollar supply has expanded at an average rate of 7% annually since 1960, while at their peak in recent decades, U.S. Treasuries only offered a 5.5% yield. With yields falling once again, bonds fail to preserve purchasing power—the core purpose of any store of value asset.
What’s striking is that some of the most brilliant financial minds are starting to catch on to this shift. Just in the past few weeks, two of the most renowned investors—Stanley Druckenmiller and Paul Tudor Jones—publicly declared their bearish stance on sovereign debt and bullish outlook on bitcoin. Druckenmiller, whose average annual returns of 30% over three decades surpassed even Warren Buffett’s, recently warned that bonds are no longer a good investment as inflation is likely here to stay. He’s now shorting U.S. Treasuries and has been an outspoken advocate of bitcoin in recent years.
Similarly, Paul Tudor Jones, another legendary hedge fund manager with a long track record of success, expressed serious concerns over the unsustainable growth of U.S. debt. In a recent CNBC interview, Jones emphasized that the U.S. will likely have to inflate its way out of its debt burden, a theme I’ve highlighted repeatedly in this newsletter. As Jones succinctly put it, “I think all roads lead to inflation. I’m long gold, long bitcoin. I own zero fixed income.” He even hinted at the possibility of shorting long-term bonds.
The fact that Druckenmiller and Jones—two of the most respected and successful investors of our time—are reallocating away from fixed income and toward bitcoin signals a broader rethinking of the traditional 60/40 portfolio strategy. While these are just two investors, their moves represent a shift in sentiment that will likely gain traction. More fund managers, registered investment advisors (RIAs), and institutional capital allocators are starting to recognize that bonds no longer offer the safety and returns they once did, and they are beginning to explore alternatives like bitcoin. A few years ago, the idea that mainstream financial professionals would favor crypto over bonds would have been considered outrageous. Today, it’s rapidly becoming a consensus view.
As this trend unfolds, we can expect a growing portion of the $133 trillion global bond market to flow out of traditional fixed income and into bitcoin, further solidifying its role as a premier store of value for the digital age.
BNY receives an exemption to SAB 121
In November last year, I wrote an in-depth analysis of SAB 121, a rule that effectively prevents banks and financial institutions from acting as custodians for crypto assets. The SEC illegally crafted this rule, then turned around and used the absence of major financial institutions in crypto custody as a rationale for why the industry was unsafe for consumers. This circular logic is disingenuous: the SEC created the problem, then blamed the crypto industry for the very issue it caused.
In May of this year, Congress repealed SAB 121 in both the House and Senate with overwhelming bipartisan support. However, the White House vetoed the repeal, allowing this problematic rule—implemented without Congressional approval and sustained despite broad opposition—to remain in effect.
Fast forward to September, and the SAB 121 saga took a surprising twist. The SEC granted Bank of New York Mellon (BNY), the world’s largest custodian bank by assets, an exemption from SAB 121. This allows BNY to custody digital assets without adhering to the restrictive balance sheet requirements of SAB 121, making crypto custody a viable business for them.
I have mixed feelings about this development. On the one hand, there are significant positives.
BNY’s entrance into the crypto custody space is a game changer. As one of the most trusted custodians in the traditional financial world, BNY’s involvement lowers the barrier to entry for institutions hesitant about adopting crypto. Many traditional financial players are likely to be more comfortable working with BNY, with whom they already have longstanding relationships, than with newer, crypto-native platforms like Coinbase. The familiarity and trust BNY brings will accelerate adoption, as institutions can onboard with a partner they know rather than starting from scratch with a new service provider.
Moreover, BNY’s crypto ambitions are not sudden or opportunistic. The bank has been working on its crypto custody service since as early as 2021, assuming—reasonably—that crypto assets would be treated like other asset classes. However, when SAB 121 was introduced, BNY had to put its plans on hold and even submitted a letter to the SEC arguing that the new rule made its crypto business unfeasible. BNY’s persistence, significant capital investment, and long-term commitment to building a sustainable crypto business are encouraging for the industry.
Additionally, BNY’s involvement provides much-needed diversification in the crypto custody space. For years, Coinbase was the dominant custodian for institutional investors, holding the majority of assets for Bitcoin and Ethereum ETFs (with the notable exception of Fidelity, which has its own custody solution). This level of concentration introduces significant risk, which is ironic given that the SEC claims to prioritize consumer protection. Allowing more trusted custodians like BNY into the space mitigates this risk, enhances competition, and reduces barriers to institutional adoption.
So yes, I applaud the SEC (words you probably never thought you would hear me say) for removing the ill-conceived balance sheet restrictions and allowing BNY to move forward with crypto custody. But my praise ends there. This exemption raises far more questions than it answers.
First and foremost, the SEC and Federal Reserve have long argued that digital assets pose a “systemic risk” to the financial system, despite providing little to no evidence. If the SEC truly believes this, then why permit BNY—labeled a “systemically important bank” by the SEC itself—to enter the crypto space? The inconsistency here is staggering.
Even more concerning, why is BNY the only custodian bank granted an exemption? The SEC has yet to clarify why BNY qualifies for special treatment. Is there something unique about BNY in the SEC’s eyes, or will other banks also be allowed exemptions? And if other institutions can meet the requirements for exemption, why isn’t the SEC simply abolishing SAB 121 altogether instead of offering selective, opaque exemptions?
The lack of transparency and disregard for proper procedure make it seem as though the SEC is overstepping its mandate. The SEC is supposed to be a disclosure-based regulator, ensuring companies provide adequate information to investors and then allowing the market to make informed decisions. Instead, the agency is acting as a merit-based regulator, picking winners and losers by granting special exemptions. This selective approach contradicts its mission to create a level playing field for all market participants.
Chairman Cyrus Western of Wyoming’s Select Committee on Blockchain highlighted this double standard from a state perspective. Companies like Custodia, Kraken, and BankWyse—firms that have played by the rules, contributed to the economy, and sought to be responsible corporate citizens—have been sidelined, while the SEC seems to favor larger, incumbent institutions. This kind of favoritism is not only unfair, but it stifles innovation and competition.
The frustration surrounding these double standards prompted 42 members of Congress to send a letter to the SEC demanding that the agency rescind SAB 121. The letter argues that the rule weakens consumer protections, stifles innovation, and violates the Administrative Procedure Act, as the SEC failed to engage in the required notice-and-comment rulemaking process when it issued SAB 121. Lawmakers also criticized the SEC for selectively granting exemptions to institutions like BNY while leaving smaller, state-chartered banks out in the cold. As the letter pointed out, “Instead of recognizing this failure and rescinding the guidance, the SEC has only caused further confusion, working with certain institutions to avoid the balance sheet reporting requirements. These consultations, completed on a case-by-case and confidential basis, do not provide the transparency or certainty needed to ensure SAB 121’s requirements are consistently applied across different institutions… Issuing staff guidance to impose policy changes is not appropriate and violates both the spirit and the letter of the Administrative Procedure Act.”
So, where do we go from here? It seems likely that other major banks, such as JP Morgan, Goldman Sachs, Citibank, and State Street, will follow BNY’s lead and seek their own exemptions. While it’s positive that mainstream financial institutions are embracing crypto, it’s also deeply frustrating to see smaller, crypto-native firms like Custodia blocked from competing despite their adherence to the rules.
This entire episode underscores the urgent need for a more open, transparent, and decentralized financial system—one that Bitcoin and crypto uniquely offer. Unlike the traditional financial sector, which is riddled with favoritism, opacity, and gatekeeping, the crypto ecosystem empowers individuals and institutions alike to operate on a truly level playing field, free from the control of entrenched incumbents and regulatory arbitrariness. It’s time to embrace the promise of a financial future where fairness, freedom, and innovation are accessible to everyone, not just the chosen few.
In Other News
Kamala Harris plans to back crypto regulation framework.
JP Morgan turns bullish on digital assets for 2025.
Crypto usage has reached record levels, according to venture capital firm Andreessen Horowitz (a16z) in its annual “State of Crypto” report.
Payments giant Stripe is reportedly acquiring stablecoin platform Bridge for $1 billion.
76% of Asian Private Wealth Funds hold crypto.
SEC clears CBOE and NYSE for BTC ETF options trading.
Pennsylvania’s House of Representatives passed a bill that protects the use and self-custody of digital assets.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital or Onramp Invest.
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