Wall Street Banks Embrace Blockchain and Decline Cryptocurrencies

Luke Vargas: The US warns Turkish businesses against working with sanctioned Russians. Plus the search for EV battery metals goes deep sea. And why Wall Street banks are betting on blockchain despite the crypto slump.

Paul Vigna: It offers potentially a benefit to their business. It makes things cheaper to run. It makes transactions and trades and financing more transparent.

Luke Vargas: It's Tuesday, August 23rd. I'm Luke Vargas with The Wall Street Journal. And here's the A.M.

We are exclusively reporting that the Biden Administration has warned Turkish businesses that they could face US sanctions if they work with sanctioned Russian institutions and individuals. Journal Middle East correspondent, Jared Malsin, says the warning which was contained in a treasury department letter to the American Chamber of Commerce in Turkey and viewed by The Wall Street Journal signals intensifying US pressure on a NATO ally that has maintained a strong relationship with Russia during its invasion of Ukraine.

Jared Malsin: Turkey has kept its economy open to Russia and to inflows of Russian money, including from oligarchs, some of whom have parked their assets like yachts here on Turkey's Mediterranean coast. The Biden Administration has said that it's moving into a new phase of its sanction strategy and trying to actually get those sanctions to bite now, trying to close loopholes and get third countries to really comply with the US and EU-led sanctions regime on Russia.

Luke Vargas: The Turkish foreign ministry didn't immediately respond to questions about the letter. In Malaysia, former Prime Minister Najib Razak is due to spend 12 years in prison after losing his final appeal of corruption convictions related to one of the world's largest financial scandals involving state investment firm 1MDB. Najib who has denied wrongdoing faces dozens of other criminal charges that are still before the courts. Shifting to the United States voters in Florida and New York will cast their ballots in primary elections today. In Florida's Democratic Primary for Governor representative and former governor Charlie Crist and Agriculture Commissioner, Nikki Fried will be competing to face incumbent Ron DeSantis, a rising Republican star. Crist and Fried have been debating who would be the most effective advocate for abortion rights. Abortion is also taking center stage in a special House election in upstate New York that will test Democrats' efforts to use abortion access, to motivate their base. Elon Musk's lawyers have sent a subpoena to Twitter co-founder and former chief executive Jack Dorsey. It is the first indication that Dorsey will be officially involved in Musk's legal fight over his stalled $44 billion Twitter takeover deal. Musk is seeking documents from Dorsey relating to the effect of false or spam accounts on the social media platform's business and Twitter's use of monetizable daily active users.
Musk's attorneys declined to comment and a spokesman for Twitter also declined to comment. And US natural gas futures have hit fresh 14-year highs on the back of Russia's announcement that it would shut down one of Europe's main fuel arteries for a few days at the end of the month. Yesterday futures for delivery in November, December, and January, each topped $10 per million BTU. That is the highest price since 2008 before the shale drilling boom flooded US markets with cheap gas. Those futures for peak heating season are now at double last year's price. Within the next year, companies could start mining the ocean floor for metals used to make electric vehicle batteries. The International Seabed Authority, a United Nations observer organization that regulates deep sea mining in international waters will permit seabed mining by July 2023.

hat development has sparked broad concerns about the environmental impact of deep-sea mining. Wall Street Journal reporter Yusuf Khan joins us now with more on this. Yusuf, thanks for being with us.

Yusuf Khan: No problem. I'm happy to be here.

Luke Vargas: Give me the blue sky vision here for deep-sea mining. What's the plan? How could this actually unfold if it really does progress?

Yusuf Khan: So really it's a new infant technology and maybe not an infant idea, but it's something that's moving really fast at the moment. The big picture idea is that essentially there's these massive deposits of deep-sea minerals in the deep ocean, so the Pacific Ocean.

And they're going to be really crucial to the energy transition. And what there is essentially in the deep ocean is lots of these sort of polymetallic nodules, which are essentially these big rocks and that contain lots of these battery metals. And the idea is that we could mine these and pick these up from the bottom of the ocean, refine it and turn it into batteries.

Luke Vargas: Who is leading the charge on this? Is it those countries in the Pacific or mining companies or both?

Yusuf Khan: So it's a bit of both. So Pacific island states are sponsoring a lot of these companies to go in. A lot of Chinese metal companies are trying to look into this because everyone are sort of racing for these materials. So the Cook Islands, it's an island chain essentially and most of their income came from tourism, at least two-thirds pretty much came from tourism. And so they're kind of seeing deep sea mining as a really good option to diversify their GDP and their economic income because essentially they've got a lot of these resources within their territorial waters. And they could essentially try and mine these resources and give themselves basic almost an equal amount of income to what tourism already provides.

Luke Vargas: And let's look at a gray sky scenario, if you will, for the deep-sea mining industry, this nascent industry, we should add what could complicate its development.

Yusuf Khan: Well, firstly, there's a lot of opposition to it. And one of the things is that nonprofits like Green Peace, they're calling for a moratorium and deep sea mining. A lot of these nonprofits don't want it to happen because of the environmental effects. And so major names like BMW, Volkswagen, Renault, they've signed up to this moratorium saying, we're not going to buy these battery metals that come from deep-sea mining. So realistically, the question is there going to be a marketplace because if major names are turning their back, then who's really going to be buying it? And then secondly, as you mentioned, Luke, it's nascent technologies. There's some pilot schemes that are going out there looking at whether we can do this and whether we can do this safely. And so a lot of the debate is one, whether we should do this, and two if we do it, how do we do it safely and how do we minimize the impact on the environment?

Yusuf Khan: No worries. Cheers.

Luke Vargas: Coming up, crypto may be slumping, but the blockchain technology behind it, well, some Wall Street Banks are just as interested as ever. More on that story after the break.

But now many are quietly working to integrate the blockchain technology behind crypto into trading platforms and other businesses. Joining us now with more on this trend is Wall Street Journal reporter, Paul Vigna. Paul, thanks for the time.

Paul Vigna: I'm always happy to make time for you guys.

Luke Vargas: Okay. So why are banks working on integrating blockchain into their operations?

Paul Vigna: Well, I think what's interesting is that it's actually not a why are they doing this now, it's more sort of a why are they still doing it? They've actually been on this path for several years now. They've been experimenting with blockchains, with the technology and the concepts that are behind Bitcoin and other cryptocurrencies. The main reason they're doing this is because it offer potentially a benefit to their business. It makes things cheaper to run. It makes transactions and trades and financing more transparent. It is basically faster and cheaper than the existing system. But what most people don't realize is that after you say yes on those transactions, there is an entire infrastructure of banks and custodians and counterparties that have to actually process those transactions. The idea behind blockchain is that you are essentially automating all of that onto one sort of master program that everybody is operating off of. And the banks have been experimenting with this for years. And the reason I did the story now is because what you're really starting to see is this stuff go into production. That was what was kind of interesting to me is that you're seeing this go into production now, as the crypto markets are blowing up and everybody is saying, "Oh, crypto stinks." And meanwhile, you have Wall Street banks over here on the other side, just quietly, steadily integrating these technologies and concepts and practices into their businesses. And I thought that was really interesting and I just wanted to write that.

Luke Vargas: So Paul, which banks, in particular, are getting into this and how exactly are they using blockchain?

Paul Vigna: Sure. Well, the bank I focused on the most was Goldman Sachs. But beyond Goldman, J.P. Morgan, they're involved in it, Fidelity is involved in it. But most of the major banks and major financial institutions have some kind of digital asset group in there working on figuring out how to use this technology. J.P. Morgan has a platform that is based on blockchain concepts called Onyx, that they've been running for a couple of years now. And they have a small repo desk that is doing actual trades. And they said that desk has processed about 350 billion worth of these transactions already. Goldman has been doing some bond financing, debt issuances that they did for blockchain. It was big, it was 200 million with the European Investment Bank. So you're starting to see it in trading, in financing. And what I think really is that over the next couple of years, five years, 10 years over sort of a really long timeframe, you are going to see more and more of this. And I'm not the only person who thinks this. In the story, I quoted the former President of New York Stock Exchange, who said this. He said that blockchain is going to rewire the financial markets. And I think I really do think that is going to happen.

Luke Vargas: Though I guess we should point out there have been parties that have tried and failed to integrate blockchains. Is there a reason it could work for banks here, even though it hasn't for others?

Paul Vigna: Yeah. Look, there's also a reason that it may ultimately not work at all. So make a prediction and you beg to be proven wrong. There are a lot of logistical steps that will have to be taken before this happens. And I had talked about a group of insurers that mostly over in Europe that had gotten together several years ago and tried to implement the blockchain in insurance. And that group folded up this summer. They folded up basically because they couldn't raise money because there wasn't enough interest in it. So first off you have to have people who see the potential, see the benefits, and want to explore that and want to put money behind that. That's the first thing. Then you need to have your clients understand it and want to do it and ask for it. That's another thing. So even if you get that, you still have other logistical hurdles. And a big one for banks is going to be doing this at scale. But the issue of privacy is going to be huge because no bank wants a situation where all of their trading positions are known to all of their competitors. So the issue of privacy of having a system where the details about the trades and the transactions and the assets are all common and shared, but that the details about the players themselves are kept private. That's going to be and I'm not saying it's insurmountable, but that's going to be a really big issue in the financial markets. Regulation is going to be another huge issue, especially when you're talking about global financial markets. So obviously, these things are not going to launch unless regulators in different countries that manage the financial markets are comfortable with them and allow them. And certainly, in the US you're going to have some laws passed that will govern how these things operate. So that's just a really big, long, slow logistical challenge. And you think about having to do that across 100, 150 different countries. It's just going to be a big, big-time-consuming issue. So those are some of the big broad hurdles.

Luke Vargas: That was wall street journal reporter, Paul Vigna, joining us today from New York. Paul, thanks so much.

Paul Vigna: Yep, absolutely. Thank you.

Luke Vargas: And finally, you might think that you've tried everything in order to stop snoring, but have you tried mouth taping? It is exactly what it sounds like and involves putting a strip of surgical tape, definitely not duct tape across your lips while sleeping in order to reroute your breath through your nose. But the trick is riding a wave of popularity, partly thanks to the pop science book, Breath. As well as videos of young mouth tapers that have gone viral on TikTok alongside a lot of comments calling the practice ridiculous. Journal reporter, Stu Woo says that experts are also divided.

Stu Woo: I talked to the medical director of the Tufts Sleep Medicine Center and she said this is not a good idea, this is risky. Imagine you have acid reflux or you might vomit in your sleep for whatever reason. She says, having tape over your mouth might be a bad idea. And she also says, there's not a whole lot of scientific evidence behind this right now. On the other side, there's a lot of doctors who say, "Well, these mainstream doctors are way too conservative. Why don't you give it a shot? If it works for you, great. And if it doesn't work, look in the worst-case scenario, you'd probably just wake up and tape the tape off your mouth."

We'll be back tonight with a new show. I'm Luke Vargas with The Wall Street Journal. Thanks for listening.