The Breakdown - Did Bitcoin Just Become Legal Tender in Switzerland?

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io, Arculus, and FtX, and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, March 5th, and that means it's time for the weekly recap. However, before we dive into that conversation, if you are enjoying the breakdown, please go subscribe to it. Give it five stars, give it a rating, or if you want to dive deeper into the conversation, come join the Breakers Discord. There's obviously a lot to discuss in the world right now, crypto and beyond, and we'd love to have you.

Starting point is 00:00:47 You can find a link to the Breakers Discord in the show notes or go to bit.combe, or go to Bit.combeckdown Pod. Also, a disclosure, as always, in addition to them being a sponsor of the show, I also work with FTX. Finally, one special sponsor this week, just in time for tax time, is CoinTeli. Cointelli is here to make crypto tax reporting stress-free for both individuals and accountants. Designed by CPAs, Cointeli supports hundreds of crypto platforms and provides accurate calculations so you don't pay any extra on your taxes. Cointelli also charges no added fees for up to 100,000 transactions and offers 24-7

Starting point is 00:01:27 customer support from tax advisors. Check them out. at cointeli.com. That's coin t-E-E-L-L-I.com. Thanks to CoinTeli for joining as a sponsor of the breakdown this week. So what we're going to do for this weekly recap is go through a whole slew of key Bitcoin crypto and economic narratives and see where they stand. And we're going to start with the Bitcoin as institutional narrative. Unless you are just joining us for the first time in the last couple years, you'll be pretty well acquainted with this. This was the narrative that really drove the late 2020, early 2021 bull market, that a big part of the new demand was coming from institutions who were finally getting over their fear, getting over their skepticism, getting over their antipathy, and getting into the crypto space.

Starting point is 00:02:16 Now, there were a lot of parts of the institutional narrative. There was Paul Tudor Jones' great monetary inflation thesis. There was Michael Saylor and Micro Strategies Treasury bet. But all of these things amounted to, like I said, institutions finally after years of flirting coming to the crypto space. Now, this narrative never went away exactly. It was, however, challenged in the back half of 2021 by the geopolitical narrative and geopolitical headwinds that push crypto off of its all-time highs. However, even as we've been focused on other things, there has been a slow, steady drip of institutions coming into the space to say nothing of the professionals who are flooding into the space from their traditional finance positions. This week, the big update on the institutional narrative was that Ken Griffin said that he was wrong.

Starting point is 00:03:05 Ken Griffin is famously the leader of Citadel, one of the biggest market-making firms in the world. And he hasn't always had the most positive interactions with the DGens. He's big enemy number one in many ways for the GME Wall Street Betts crowd, because of the sort of front-running possible with payment for order flow business models like Robin Hood has. And he did nothing to endear himself to the crypto kids when he outbid the Constitution Dow for that early version of the U.S. Constitution. However, this week in an interview with David Rubinstein, he said that he had been wrong on crypto and that the market had proved him wrong and that we would see Citadel Market

Starting point is 00:03:41 making in the space in the months to come. This is yet another signal to the wider traditional finance world that this is an unignorable sector. KPMG in Canada followed up their balance sheet purchase of Bitcoin and Ethereum. from last month with a purchase from the world of women NFT collection. They did it to give themselves experience so that they could help their corporate clients figure out their corporate NFT strategies. Finally, Schwab Asset Management is preparing to release its first crypto product, what they're

Starting point is 00:04:10 calling their Schwab Crypto Economy ETF. Now, this is a vehicle that doesn't track tokens or anything like that, but instead tracks equities that are engaged in the world of digital assets. It is a baby step, but I think surrounding it, you can see, there's a conversion going on among those 33 million clients. In Schwab's most recent retail client sentiment survey of their customers, 20% said that they'd invested in crypto in the last three months, and 16% said they planned to do so again in the next three. A year ago, that was 10% who had invested and 7% who said that they planned to.

Starting point is 00:04:45 The point here, which is kind of the big point about institutional narratives in general, is that even when they get less pronounced, they have their own inertia. And while it can take a long time for these big monolithic entities to finally come to the space, it's really a slow and steady wins the race situation. But let's move now to Bitcoin as geopolitical. And this has obviously been front and center for us for the last couple weeks surrounding Ukraine and Russia. So what's going on? Well, there really are two sides to this conversation right now.

Starting point is 00:05:15 There's the Bitcoin and Crypto as Freedom Money. And I think the best example or demonstration of this is the massive quantitative. of donations from the crypto community. There has been more than 56 million from more than 100,000 transactions donated to Ukraine so far. If you're interested in a discussion of the ethics of those types of donations

Starting point is 00:05:37 and why it's such a monumental moment in human history to have citizens of one country fund war involving two different countries, go listen to my last couple episodes. However, that's only one side of the Bitcoin geopolitics conversation right now. The other is, of course, sanctions. We've had, on the one hand, the Treasury Department and the people who are actually

Starting point is 00:05:57 in charge of sanctions, not being particularly concerned about the ability for crypto to help Russia out of this situation, while on the other, there are many senators who are using this as a moment to confirm their priors. But here's my hot take. My thesis on almost everything, when it comes to regulatory discussions, can be summed up the more talking and the more education, the better. I would bet that the average politician today, on this day, when you're first listening to this, knows meaningfully more about the relationship of crypto to sanctions than they did last week. And given how much it is likely that the average politician had a negative perspective on crypto and sanctions at the beginning of that less informed time, knowing more probably means them being closer to

Starting point is 00:06:43 actually understanding the relationship between crypto and sanctions. In fact, I wouldn't be surprised if you have the beginning of a sort of centrist position which might be in line with Treasury, which is that, yeah, of course we should keep an eye on whether Russia is able to use this technology to get around sanctions, but they're not particularly concerned in this case that it's going to actually help them in a meaningful way. That's really, really important. Now, still, outside of all of that, the discussion that I've seen that I've liked the most this week is what seems to be playing out where Bitcoin and crypto are particularly good at helping individuals in these places, preserve their wealth,

Starting point is 00:07:20 transport their wealth, and stay outside of the machinations of leaders who have nothing to do with them other than accidents of where they happen to be born. But at the same time, crypto not being so easy to use on a sovereign level. That's a really interesting and powerful space for this new technology and this new type of money to play. Nexo is the go-to platform for all things crypto. Invest in the hottest coins out there and start earning risk-free interest of up to 20% APR, paid out daily. Need cash ASAP but don't want to sell? Use your crypto as collateral and receive a credit line at premium rates. Open your NXO account by March 31st and receive up to a $100 welcome bonus.

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Starting point is 00:09:43 in particular in Fura, which is owned by consensus, which is a centralized company, doesn't pretend to be anything different. However, the risk has always been that because that key infrastructure is run on centralized rails, those centralized companies may one day have to de-platform people from places that run afoul of the country, in this case the U.S., that that infrastructure is regulated within. That happened this week. We saw it with Infura, Metamask, and OpenC. Users from places like Iran and Venezuela were de-platformed as part of standard policy, according to these platforms. Now, we obviously can understand where those centralized platforms are coming from,

Starting point is 00:10:22 but it comes to a shock as those who didn't imagine that they would be caught up in a sort of sanctions dragnet. It's a reminder that any ecosystem, any protocol is only as decentralized as its least decentralized point of failure. And of course, there are lots of uses for defy as it's currently constructed that don't need that level of censorship resistance. But if you're in a place that the U.S. has deemed no bueno, you're kind of stuck right now. All right, next narrative, Bitcoin as un-correlated asset. This one always bobs in and out of the discussion, particularly around markets. And frankly, Bitcoin has been in one of its most correlated periods when it comes to equities. When markets discover that the Fed was likely to start quantitative tightening in 2022,

Starting point is 00:11:07 Bitcoin and crypto moved right alongside the rest of the market. I've given my standard spiel a bunch of times about why I think that Bitcoin acts as both risk on and risk off asset at the same time, and that what matters is really the duration in which someone is making a specific type of decision. Whatever the case, last weekend and throughout most of the week, we saw a fairly significant decoupling between Bitcoin and crypto and equities. Was that driven by people actually trying to adopt this technology as a hedge against the sanctions and other economic volatility that was coming their way? Was it other people making a bet that that narrative would drive the price up in that context?

Starting point is 00:11:45 Whatever the case, we seem to be back in some sort of alignment as the weekends, but it's still going to be interesting to watch over the course of the next few weeks as this highly volatile situation in Russia and Ukraine continues to evolve. All right, a few more key economic narratives. Dollar as neutral. Nope, that one has been firmly blown out of the water with these sanctions. In fact, tomorrow's Longreed Sunday is going to be all about whether we are headed into some sort of post-dollar hegemony type of era.

Starting point is 00:12:16 Next narrative. Inflation as transitory. That's an extra big note from Me Dog. Now, this one had already been pretty firmly slammed by the persistence of inflation and supply chain problems, but with this conflict, it's only going to get worse. And of course, really what the Fed was always saying when they said inflation is transitory, was that the reason for inflation had specific reasons that we could rationally point to that would work themselves out, kinks in the economy, kinks in supply chains coming out of pandemic

Starting point is 00:12:46 shutdowns. Turns out it doesn't take all that much for those understandable and transitory factors to be stickier, thornier, more persistent than we imagine. And you throw a war that cuts a major supplier of everything from wheat to heavy metals to energy off from the rest of the world, and inflation is going to get worse. But let's wrap with one that got a bunch of conversational in and around the larger discussions of Ukraine and Russia, and that's the idea of Bitcoin as legal tender. Obviously, the grand example of this is El Salvador, and people have been wondering where the next places to adopt Bitcoin as legal tender might come from. There was a lot of chatter this week that Lugano, Switzerland looked like that next place. Alex Gladstein tweeted Bitcoin

Starting point is 00:13:33 and Tether apparently to become legal tender in Lugano, Switzerland. Looking forward to learning more about the details, implications, and ripple effects of BTC becoming legal tender in a prominent city in the heart of Europe. Other people sort of lost their minds at this characterization. Satz Tonight said, no, they are not. There's no actual legal tender law, but they're just promoting tether and Bitcoin to local businesses. I fucking hate the reporting in this space. So what actually is going on? Well, basically, the way that it's working is that Bitcoin Tether and a city token that is pegged to Swiss francs will be able to use for everything from personal and corporate municipal taxes, public services, parking fines, dog taxes, sewage fees,

Starting point is 00:14:11 market site fees, ID and passport issuance fees, naturalization fees, boat talking fees, garbage, access charges, cemetery taxes, basically all sorts of different things. Plus, they will be used by 200-plus businesses and shops. The initiative is called Plan B, and here's a quick thread from Staticus on what it actually is going to consist of. The Swiss city of Lugano's Plan B is a bold initiative despite the many buzzwords. It makes Bitcoin Tether and the city's loyalty token, LVGA, quote, de facto legal tender, so not legal, so you can pay all taxes with these coins, but there's much more. Private businesses are encouraged to accept these coins on a voluntary basis as well. It's remarkable that Lightning is mentioned explicitly. I think that's in line with Bitcoin's ethos,

Starting point is 00:14:54 supporting voluntary adoption by removing technical and legal concerns. Lugano will also explore mining initiatives. Palo Arduino from Tether has been, quote, discussing to find the right location to install mining equipment and start mining Bitcoin with 100% green energy, mentioning that the rewards can be kept in the city's treasury. While this is very vague still, it's a welcome demonstration pushing back against the Bitcoin will boil the ocean's fud. Paolo says the goal is also to provide a positive effect on the power grid by using surplus energy, giving local power demand priority.

Starting point is 00:15:23 Lugano is also building a startup hub at the city's center, a prime location with high visibility. The city will provide $3 million-plus USD direct investment into practical grassroots blockchain projects, and to become the blockchain hub of Europe, there's up to 100 million USD available to encourage startups to relocate their headquarters, including employees to Lugano. To provide specialists to emerging companies, the initiative includes 500 plus student grants across the city's three universities. A special curriculum for education in Bitcoin and decentralized technologies will be launched. And finally, there's the announcement of the modestly named Bitcoin World Forum this fall, in the Palazzo de Congresi in Lugano.

Starting point is 00:15:58 My takeaway, Lugano, a beautiful city in the Italian-speaking south of Switzerland, embraces new technologies Bitcoin included. So just briefly to wrap this all up, this is not a legal tender law, but it is formal adoption by a city, which, as Staticus points out, might be more in line with Bitcoin ethos than it being mandated to be accepted as we're seeing in places like El Salvador. Whatever the case, the point is, it's completely rad on its own terms, and to the extent that we can, we should stop overselling things that are already cool. Either way, I hope you guys are having a great weekend. I want to say thanks again, to my sponsors, nexo.io, Arculus, FTX, and Coyntelli. And thanks to you guys for listening.

Starting point is 00:16:39 Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Did Bitcoin Just Become Legal Tender in Switzerland?

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