Rio Tinto and Glencore Said to Discuss Merger, The State of Crypto Regulation
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Bloomberg Audio Studios. Podcasts, radio, news. Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. On today's episode, we'll be taking a look at the regulatory landscape for crypto in both Asia and the U.S. ahead of Donald Trump's inauguration next week. I'll be speaking with Catherine Dowling. She is the chief compliance officer at Bitwise Asset Management.

But we begin with one of our top stories. Mining giants Rio Tinto Group and Glencore have been discussing combining their businesses. If successful, a merger of this sort would rank as the largest mining deal ever. It also stands to create a rival to industry leader BHP Group. For more on the story, we go to Sydney and we are joined by Paul Allen, Bloomberg Australia correspondent.

It's been such a long time to have the chance to visit with you. I'm glad we have the opportunity. Paul, what do we know about what's happening for a potential Rio Tinto-Glenn Corps merger? Yeah, well, look, it's always great to be here. And let's get the disclaimers out of the way first. This story comes from sources, people familiar with the matter. They don't want to be identified because obviously all of this information is confidential. And the other thing is it's not clear if the talks are still live or not. And

Both Rio Tinto and Glencore are not really doing much to clear that up. They're offering no official comment at the moment. So the story itself is still alive. You say that if this is true, as you point out, this would be a behemoth. This is the big one. Rio Tinto's got a market cap of about $103 billion. Glencore's worth about $55 billion. If you put those two together, yeah, you'd get an entity that

surpasses the world's biggest miner, BHP. So this would be a huge, huge deal, the biggest ever in the mining space if it goes ahead. So I'm curious about not only what analysts are saying, but the way the market is reacting to this.

Yeah, we saw some interesting market reaction when news of this broke on Bloomberg. Glencore ADRs in the US popped 4%. Rio Tinto ADRs, meanwhile, slumped about 2.6%. And that was a trend that we saw continue when Rio stock opened here in Australia. Not long after that, the shares did decline, although it's off session lows. Now, the reason for that is everybody's been getting

Getting to the getting to the gate with their analysis on this, Bloomberg Intelligence saw that, look, at first blush, this deal did seem to favor Glencore over Rio Tinto. Glencore's production, for example, is stagnant, according to Bloomberg Intelligence. Rio Tinto, meanwhile, among the world leaders. And if you put these two entities together, you'd still have a company where iron ore accounts for just over half of the earnings.

And Rio Tinto, the bulk of its earnings come from iron ore as well. And obviously, iron ore is very closely linked to the fortunes of China, which has had its construction boom sort of starting to peter out. So does it really address the problems there? No.

perhaps not. BI says the merits of the tie-up for Rio, not so obvious. Then we had Goldman Sachs cut its price target for Rio by 1% on the news, although at $146 Australian dollars, still well above where we are now. RBC Capital Markets also weighed in, saying look, the motivation for Rio, not really clear here, but for Glencore,

It's a really great exit strategy for some of those major shareholders. Yes, and the fundamentals of the industry seem to argue for a little bit of consolidation. You mentioned the China story and the weak recovery that's going on there, and we know...

the Chinese industries that rely on things like steelmaking are heavily reliant on a lot of what these miners produce. Absolutely. And, you know, the price for iron ore is coming under pressure. Price for copper, meanwhile, well, that's a different story. You know, it's all about copper at the moment as the world starts to move towards decarbonization.

So that's really where the action is at the moment. And we saw that reflected just the day before this news broke, because Rio Tinto was out with its third quarter production numbers. And we saw iron ore shipments slipping by 1%, copper shipments, though, up 26%. So it just

underscores how copper is the metal of the moment, if you like. Glencore produces a million tons a year. Rio Tinto produces about 800,000 tons a year. They've both got quality mines all over the world. And if you put these two together, you've got an entity that controls 7% of the global copper supply. So that's perhaps the strongest synergy that we see in this deal. But there's other parts of the deal that

We'll raise a few questions, really. So if what we are hearing is accurate, isn't this the second time that Rio Tinto and Glencore tried to get together? It is. Your history is very good. We have been here before. I believe it was 2014 this last came up, and it was iron ore that was at the core of it then. It was the former CEO, Ivan Glazenberg, who spearheaded the approach 10 years ago now.

And it's kind of interesting that Glazenberg still owns about 10% of Glencore. So, look, we don't know, but you can't help but wonder that maybe his hand is in all of this as well. So before I let you go, I know you're obviously in Sydney, and I'm curious to get your take on what this may mean for the Australian economy.

Yeah, that's an interesting question as well. And the local media here has been weighing in on that also, because iron ore and coal have been so, so important for the Australian economy. Well, ever since that I've been working here in 2023, those two commodities combined brought in 150 billion US dollars in revenue for the country. So

really, really important businesses. But as I mentioned, they're sort of on the outer now. Rio Tinto has, in fact, exited all of its coal holdings. Glencore's still got a huge amount of coal holdings, so that's another question.

what would happen to those coal assets if these two were to be tied up. But in terms of Australia, let's take a look at the locations of some of the copper mines. I mean, there's a couple here, but the really big ones for Glencore, South America, Democratic Republic of Congo, Rio Tinto's big mines are in Mongolia and Utah as well. So it's like you start to think, well, where does Australia fit into this picture?

A lot of that revenue looks like it might be drying up and fingers are getting pointed at the government's

along the lines of, didn't you see this coming? Surely we need to do something to make sure that the golden goose keeps on laying those eggs. Right. Paul, thank you so much for helping us understand this story. Mining giants Rio Tinto and Glencore have been discussing a merger. We are told these talks are at the early stage. They've been held, yes, although it's not clear whether they're still live. Paul, always a pleasure. Thanks so much. Paul Allen there, Bloomberg Australia correspondent, joining us on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. Donald Trump is just days away from being sworn in as the 47th U.S. president, and his agenda will include elevating crypto as a policy priority. We are told Trump will issue an executive order to guide government agencies to work with the crypto industry and to give industry insiders a voice in

within the administration. Now, the order could also include the creation of a national Bitcoin stockpile. To help us understand the current state of affairs in the crypto landscape, I'm joined by Catherine Dowling. She is Chief Compliance Officer at Bitwise Asset Management.

Catherine, thank you for making time to chat with me. We'll get to the Trump story in a moment, but I'd like to begin in Asia so we can have a little bit of context. I know you're recently back from a trip to the APAC region. What are your takeaways?

Yeah, I'm back from a trip and I'm headed there again shortly in the end of February. There's a ton of energy, a ton of interest, and I think really good participation, right? The last time I was there and upcoming, looking at setting up meetings,

There's a lot of benchmarking going on with what's happening in the rest of the country, which I think is so important because it's a global asset. So I think that putting that energy behind having dialogues with other folks and other governments is actually a big positive because it's

Each of the different nations are trying to arrive at the right structure. And I think no one's really fully solved that mousetrap. So the more you can look to what others are doing, what's working, what's not working, and use it as an example for your own is very helpful, which is actually something we did before the U.S. had the spot Bitcoin initiative.

ETF and the Spot ETH ETF that we launched last year in January and July respectively, we did a lot of benchmarking to other countries that already had these products.

to be able to show, hey, they're working and here's how they're working and here are the mechanics behind it. And that was actually a really important part of the dialogue behind getting these products to be approved in the U.S., both with the regulators and with members of Congress in terms of explaining how they work. Having it work abroad and be successful actually brings it from the academic into the reality. So it's super helpful to see if other products

So if you had to weight the influence of the U.S. in the regulatory regime from crypto markets in Asia, would you have to say that it's extremely influential? I think especially in the US, because I think it's extremely influential.

especially now because of, you know, Trump coming onto the scene being, you know, the self-labeled first crypto president. So I think all eyes really are on what's happening right now and with the new administration coming in.

because I think the expectation is that there will be a sea change in how crypto has been treated, how it's been dialogued with, how the industry members have been dialogued with by members of the Biden administration.

I think with that sea change, we're looking at a scenario where a lot of eyes are on the U.S. market and what's going to happen here for what's going to happen with next steps. When I think about crypto markets in Asia, I think immediately of Hong Kong. What is happening there that we should understand?

I think there's a lot of development. I think what I would really like to see more of is a little bit more of more transparency. I think it's happening a little on the sidelines. I think the folks from Hong Kong tend to be very active participants in the global conferences, which I think is really good. I think they're out there talking to different folks who are in the industry and collecting information. I just think that the more we can foster that and share the information,

the better. In terms of new regulation, is there anything that you would favor right now that you would think would do a lot to create a more robust regulatory structure that would protect people who want to put money to work in the crypto market?

Yes, absolutely. There's lots of steps. Many steps have been taken, but there are a couple items that we haven't been able to get quite over the finish line. And some of those are on the pure regulatory side. Some of those are on the legislative side.

The first thing I'd like to see is some legislative action. And we've gotten pretty close and we've gotten bipartisan energy and movement on a number of bills, but we need to push that further. And I think that's what a lot of the eyes will be on, what legislative movement we can get specifically with regard to what we call market structure legislation, where we will then

have a definition for different digital assets and the definition of the digital assets in terms of whether they are dubbed a security or dubbed a commodity or dubbed some combination of definition that changes over time based on the centralization or the decentralization of that asset. That will be completely helpful towards how we view which of the regulators will have jurisdiction over these assets.

That's been some of the noise around for businesses. Different companies will come in and say, I'd like to launch this product. And you get stopped at the gates right at the outset because of this lack of foundational definition for these digital assets. So the hope is that there's some forward motion on this market structure side that will put those pen to paper, get that finalized,

And then there will be less gray area around what has to be done from a regulatory standpoint and who your regulator is. And we're also hoping to see a little more dialogue between the regulators as well. So the outgoing chair of the SEC, Gary Gensler, was not a friend of the industry. I think that's fair to say. I mean, he was very critical of a lot of what was being done and the need for greater regulation.

Are you of the view that this is not something that the SEC should be involved in? And if that is the case, what would you prefer in terms of another regulator? Who would you prefer to see in charge? No, I'm definitely not of the view that the SEC should not be involved. I think that there's a healthy divide depending on the particular asset that's being looked at or the product.

or the mix of assets that would be in a product. I think what has happened or what happened under Gensler's SEC is that it was far too weighted to one side. It was a hammer nail approach. It was everything's a security and there was no willingness to even think further on the definition. Everything was pushed back to a pretty dated case

involving orange groves from the 40s, where everything under this SEC was, it's an investment contract, look at this Howey case. And that was the end of the dialogue. And there wasn't any desire to have a more kind of future forward dialogue about it. And that put a lot of people into a tremendous amount of gray area. Because if you actually look at the SEC's own guidelines for

about the Howey test, there were probably about 60 plus factors you have to look through and work through in order to place one of these assets in the category or out of a category. So it's very complex. You had a situation where law firms weren't even willing to legally opine on this.

because they didn't want to be wrong and no one knew if they were wrong or right based on the direction or lack of direction that was being provided. And that's why you saw a lot of the regulation by enforcement that you would hear about from that SEC. It was just not a collaborative approach and there wasn't an openness to dialogue with the industry. And when people did dialogue, oftentimes what they would then report is that they then got slapped with some sort of action.

So, the goal is not to get rid of the SEC or to deregulate. That's definitely not the goal. The goal is to bring the facts out in the clear light of day, talk about them, get the legislative side of the House in order, work on some rules within regulation, allow for some of the sandboxes that some of the other commissioners were and have been behind, like Commissioner Peirce and Ueda.

And then also at the same time, work together to really create a pathway forward for the industry where they're not looking at shadows and trying to look at, OK, what's coming out of these enforcement actions that may or may not be relevant to me. Catherine, before I let you go, I'd like to get your take on what we are hearing may be an executive order from President-elect Trump once he is sworn in that he would create a

perhaps a national Bitcoin stockpile. How would you feel about that?

Yeah, I think it's actually a great idea. I think we probably will see that executive order. I think in the last administration, Trump had a number of executive orders. So this does not surprise me. It's something that we've already heard some push for from some senators as well. So I think it's an excellent idea. I think it's something we should do. It's something actually that companies are already doing. I think we have over...

70 companies that own Bitcoin, the biggest of which is MicroStrategy that has about 45 billion of Bitcoin on its books. So it's a strategy and I think it's an important one that we should also consider. So I would expect that that would be something that would there would be a push forward for that action. I expect we would see that executive order.

Catherine, thank you so much for being with us and helping us understand what's going on in the crypto space these days. Catherine Dowling is Chief Compliance Officer at Bitwise Asset Management, joining us here on the Daybreak Asia podcast.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the stories shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner, and this is Bloomberg.

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