The Great Unlock of Capital is About to Hit
- The greatest unlock of capital in decades is about to hit the U.S. markets in just over a month's time.
- The DTCC is moving the U.S. financial system onto a new database which could eliminate a process that burns billions.
- The companies building the infrastructure for this are about to become extremely valuable.
Earlier this week I got the biggest response to any newsletter I'd ever written in my entire career.
It was when I told you the DTCC is putting the American financial system on blockchain beginning in a little over a month.
Today I want to talk about the single biggest unlock that's about to hit the markets in decades and how a small number of companies are going to become extremely valuable because of it.
To explain, I need to tell you about the dumbest job in finance.
Somewhere in New York, someone is making six figures just by staring at two spreadsheets side by side and making sure the numbers match.
On the left: what JPMorgan thinks happened yesterday.
On the right: what Goldman Sachs thinks happened yesterday.
They should be the same.
They were the same trade.
But somehow, miraculously, the two records don't match.
So the spreadsheet checker spends days on the phone with other checkers and they go line by line figuring out where the discrepancy is.
These checkers are doing something called "reconciliation."
The entire financial industry employs an army these people to do this, and the end result is that it's a hidden tax of billions to every investor and company in the world.
Why does this happen?
It's like if you and four of your friends all went to dinner, and instead of splitting the bill at the table, everyone went home and independently wrote down what they think each person owes. Then the next morning, you all get on a call to argue about it.
It's because every single participant in the financial system keeps their own records.
Your broker needs to reconcile with the DTCC, then they reconcile with the custodian, then they reconcile with their own internal books, then the custodian reconciles with the DTCC separately again. The fund manager reconciles with the custodian, and the auditor reconciles all of the above.
And the only reason the system has been set up this way is because we never had the technology to do it a better way.
But now we do.
This is why I've been pounding the table on tokenization.
It's the single most important story in the markets you're not being told.
Every dollar spent on reconciliation is a dollar that comes out of the system. It's paid for by the banks and brokers, but ultimately it's embedded in the fees, spreads, and costs that you pay as an investor. It's invisible, but it's very real.
When that cost disappears, it's going to unlock the greatest amount of capital that the markets have seen in decades.
And the companies building the infrastructure that makes this possible are about to become extremely valuable.
I'm talking about the shared ledgers, the tokenization platforms, the compliance layers; they're about to create enormous value by eliminating an enormous waste.
This great unlock is about to happen in just a little over a month, so in the lead up I'll keep you updated with what you need to know.
Cheers,
Louis Sykes
Senior Crypto Analyst, All Star Charts
