The Hotel is Holding Your Money Hostage
I've been going deep on financial infrastructure for months; talking to people at institutions, attending conferences, reading everything I can find on the infrastructure layer beneath capital markets.
And the more I dig, the more I realize that almost everyone is looking at the wrong thing.
The prize is something much bigger, exciting, and worth more money than most people can comprehend.
It all starts with that hotel hold on your credit card.
I just back from Nashville and when I checked in to the hotel, they put a hold on my card in the rare case I trash the place.
That money doesn't get charged, it just gets frozen. That's $1,000 less than I can spend during my stay. It sits there, idle, just in case I smash a TV or flood the bathroom.
You've probably never thought twice about it. It's a minor inconvenience. You check out, the hold drops, life goes on.
Now scale that up.
When two banks trade with each other, say Goldman sells a bond to JPMorgan, the trade doesn't settle instantly. It takes a day or sometimes two.
During that gap, both sides face a risk: what if the other side doesn't deliver? What if Goldman doesn't hand over the bond? What if JPMorgan doesn't send the cash? It almost never happens. But it can. And when you're dealing with billions of dollars, "almost never" isn't good enough.
So both sides are forced by law to set aside large amounts of money in case they go bankrupt in the time it takes for the transaction to land.
Now multiply that by every single trade in the world across every single asset class. Every single one of these transactions has a settlement window, and during that window, capital is held aside.
We're talking trillions of dollars in capital that is locked up at any given moment that is not invested, deployed, or earning returns; it's just sitting there as a buffer against catastrophe.
The opportunity cost of that trapped capital runs is estimated to be over $150 billion per year. That's money that could be lent, invested, or put to work but can't be, because the infrastructure takes days to do what should happen in seconds.
And it gets worse.
Because it's not just the capital that's trapped.
It's the entire apparatus that exists to manage that gap. Both sides of the trade have back-office teams making sure their records match against each other. That's thousands of people, billions in operational cost, entire departments that exist for one reason: the system doesn't settle fast enough.
This is what I call the hidden tax on humanity.
It's embedded in the cost of every financial product you touch. When your fund charges management fees, part of that fee is covering the cost of this settlement infrastructure. When a bank prices a trade, the spread reflects the cost of holding capital in reserve.
Everyone pays for it.
Almost nobody sees it.
That's why I've been pounding the table on the $100 trillion trade.
This is the reason why $100 trillion are about to change hands.
The SEC, the DTCC, and Wall Street themselves see the tidal wave coming to them and they are about to put $100 trillion of assets on to this new technology in just a month's time.
And when that happens, I think the companies behind this technology could get repriced significantly higher.
There's a team that's been building exactly this for over a decade. They didn't come from crypto. They came from Wall Street.
They've been heads down on this problem and ready to reap the rewards of this $100 trillion trade.
On Thursday I'll be outlining precisely why this is happening and what I'm doing to get positioned ahead of time before the DTCC puts $100 trillion onto this new technology.
I'll be live at 5pm ET on Thursday.
Cheers,
Louis Sykes
Senior Crypto Analyst, All Star Charts
