The Breakdown - Gradually, Then Suddenly: Mastercard, BNY Mellon, Amazon, Twitter Poised to Join the Bitcoin Party

Episode Date: February 12, 2021

On today’s episode of The Breakdown, NLW looks at a slew of news from corporates getting into the bitcoin and crypto space, including: Twitter CFO exploring bitcoin treasury holdings and payments to employees and vendors Mastercard announcing crypto coming to payment rails in 2021 Amazon revealing its digital currency plans in a series of job posts BNY Mellon, the world’s largest asset custodian, opening new digital asset business  Why Christine Lagarde says central banks won’t buy bitcoin anytime soon.   -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

BNY Mellon is the world's largest custodian bank. It holds for customers 41 trillion in assets. Today, it announced that it was rolling out a new digital custody unit focused on digital assets, including cryptos. If you had any doubt about whether banks were going to be falling over themselves to be the first in line to actually offer their customers' crypto services, I think that's now pretty well cleared up. Welcome back to The Breakdown with me, and I'll double. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io and produced and distributed by CoinDesk.

What's going on, guys? It is Thursday, February 11th, and today we are talking about MasterCart, BNY Mellon, Amazon, Twitter, all joining the Bitcoin party. So the big question after Elon and Tesla's Monday announcement about their $1.5 billion Bitcoin buy was what the follow-on impact would be. Would there be a wave of other CEOs racing to join in? Would there be calls from board members asking executives what their Bitcoin plan was? J.P. Morgan's strategist tried to throw a little cold water on this notion. A Bloomberg article from yesterday was titled J.P. Morgan sees Tesla Bitcoin bet as too bold for others to follow.

Importantly, their point wasn't about narrative. They acknowledged that this was a highly influential narrative. It was about real volatility and what volatility corporate officers were willing to deal with. Here's the way that Bloomberg put it. Corporate treasury portfolios are typically stuffed with bank deposits, money market funds, and short-dated, meaning that annualized volatility or the range of swings during the course of a year hovers around 1%. Adding a 1% Bitcoin allocation, quote, would cause a big increase in the

the volatility of the overall portfolio. Such an allocation could mean the portfolio's volatility rises to 8% due to Bitcoin's 80% annualized volatility, they said. Well, pour one out for those guys, because the news since then has been way more flood than trickle. First of all, let's talk about Twitter. Twitter CEO Ned Siegel was on Squawk Box on Wednesday morning and was asked by host Andrew Ross Sorkin about their Bitcoin plans.

Let's listen to what he had to say. We watch closely what other companies do to see what we can learn from them. And when we think about our balance sheet, we think about matching how it's invested and the currencies in which it's invested relative to how we might pay people, whether it's paying somebody who's providing a service to us or paying employees. So we've done a lot of the upfront thinking to consider how we might pay employees, should they ask to be paid in Bitcoin, how we might pay a vendor if they ask to be pay in Bitcoin, and whether we need to have Bitcoin on our balance sheet, should that happen.

It's something we continue to study and look at. We want to be thoughtful about over time, but we haven't made any changes yet. What would be the tipping point for you, though? I mean, what is it you think you're either looking for, waiting for, that would actually put that over the top for you to make that decision? Well, one of the key things we'd look at would be if people are asking to transact with us in Bitcoin, because then we might consider whether we would be transferring dollars to Bitcoin at the time of the transaction, or if we wanted Bitcoin on our balance sheet, ready to complete that transaction.

When we hedge currencies, when we do business in another country, when we think about all the different exposures that we have, we're really trying to match our assets and our liabilities. And we take the same approach to Bitcoin that we do to all the other types of risks that we have. So just to recap, they are, one, considering how they might pay employees and vendors in Bitcoin, and two, deciding if they want to have Bitcoin on their balance sheet in order. to do so. What's interesting to me is that they're not really discussing it here as an inflation hedge. They're discussing Bitcoin as something even more practical. On the one hand, this feels a little out of sync with some of the dominant narratives that we've been living within. On the other,

it sort of reifies a very different but also important idea, which is that there is a perception on their part that there is enough demand for Bitcoin as an alternative payment mechanism that they're seriously considering it. I have obviously no inside knowledge, but these don't strike me as the errant thoughts of a rogue CFO. It sounds instead like someone from an organization that is pretty far along a path and can't just fully confirm things yet. One more aside on the big tech company front,

the CEO of Uber was also on CNBC and was a little bit more clipped, saying that they would consider crypto as payments for rides but aren't interested in any sort of treasury allocation. Many investors want to be a part of the next bull run. Others seek to build their dream home, finally launch that startup or fund their education. Try Nexos instant crypto credit lines and borrow against any major cryptocurrency with no minimum or maximum withdrawal amounts, no fees whatsoever, no credit checks, and flexible repayment. Not to mention the APR starts at just 5.9%. Stay on top of your investment game with nexo.io.

And remember, it's your crypto, your credit, your choice. Get started at nexo.io. Let's jump over to MasterCard. On February 10th, MasterCard dropped a blog post called Why MasterCard is bringing crypto onto its network. Let's read just the first part of it. Whatever your opinions on cryptocurrencies, from a Died in the Wool fanatic to utter skeptic,

the fact remains that these digital assets are becoming a more important part of the payments world. We are seeing this fact play out on the MasterCard network, with people using cards to buy crypto assets, especially during Bitcoin's recent surge in value. We're also seeing users increasingly take advantage of crypto cards to access these assets and convert them to traditional currencies for spending. To be clear, this data is not of any individuals. It's anonymized in an aggregate, but the trend is unmistakable. We are preparing right now for the future of crypto and payments announcing that this year, MasterCard will start supporting select

cryptocurrencies directly on our network. This is a big change. that will require a lot of work. We will be very thoughtful about which assets we support based on our principles for digital currencies, which focus on consumer protections and compliance. Back to Nathaniel again now. So the really interesting thing here is that it seems to validate the same story

that we're getting from Twitter, which is about bottoms up demand. These companies aren't just responding to these top line narratives, but are recognizing a demand among the customers and constituencies they already serve. and interact with? Which assets is MasterCard going to support? It seems from what they're saying in this post that there's likely to be a focus on stable coins and specifically regulated stable coins like USC. Another quote, to be completely clear, not all of today's cryptocurrencies

will be supported in our network. While stable coins are more regulated and reliable than in the recent past, many of the hundreds of digital assets and circulation still need to tighten their compliance measures so they won't meet our requirements. expect consumers in the ecosystem as a whole will start to rally around the crypto assets that offer reliability and security. It's those very same stable coins that we expect to bring into our network. This post goes on to say that their criteria includes consumer protections, compliance in KYC, local regulatory compliance and stability. Frankly, if you had to push me on it, it feels like they're prepping us to say that it will not include Bitcoin. However, I could be wrong about that.

One last note, I've mentioned before that I think a big part of some of this activity from companies like PayPal and Visa, effectively the payment rails companies, is that they're all positioning themselves to become partners for central banks in the CBDC Central Bank Digital Currency era. Let's take a look lastly at the antipanultimate paragraph of the post to get a sense of how that's playing out here. Quote, added to this work, MasterCard is actively engaging with several major central banks around the world, as they review plans to launch new digital currencies dubbed CBDCs to offer their citizens a new way to pay. Last year, we created a test platform for these banks to use these currencies in a simulated

environment. Using our deep expertise in payments technology, we look forward to continuing these partnerships with governments and helping them explore the best way to develop these new currencies. In other words, give us that fat, juicy contract. Okay, okay, okay, now let's go over to yet another big announcement, although it really wasn't an announcement so much as a little leak, Amazon. One of my first thoughts when I saw Facebook launch Libra a couple years ago was how is it not Amazon doing this first? When you think of a company with world-scale ambition that is focused on commerce and could obviously benefit from controlling the payment rails too, Amazon just seems so obvious. Well, I guess it's better late than never. The information we have

so far comes not from a formal announcement, but from job posts. Apparently there is something at Amazon called the Digital and Emerging Payments Division, and the job description for a position with them said, quote, this product will enable customers to convert their cash into digital currency using which customers can enjoy online services, including shopping for goods and or services like Prime Video. They called it in effect a new payment product. Now, after the news broke, those descriptions actually were taken down, but it looks to me like this is about creating a closed-loop ecosystem for the prime community. The question then is, how much is this a supercharged version of airline loyalty points versus how much is it an actual currency? Based on the basically

no information we have, I wonder if the best approximate analogy might actually be exchange tokens. What I mean by that is that if you look at Binance's BNB, it's not trying to be a world-scale medium of exchange. It's a currency in the sense that you pay trading fees with it, but really it's about the ecosystem. It's about a benefit for the ecosystem, and it's also an asset that cuts you into the business as well. Maybe there's an element of that for this, where Amazon is going to allow you to put your otherwise open money into their closed ecosystem, and they're going to reward you with cheaper costs for it. I don't know that it'll have that same dimension of free-floating value like a BNB, but who knows? It's hard to say. This is certainly one that we're going to

have to watch until we get more information. That would be plenty to fill a normal daily breakdown, but we are not done yet. You'll notice that we actually haven't really been talking that much about Bitcoin with the exception of Twitter. Instead, we've been talking about the larger digital asset, stable coin and crypto ecosystem. Not so with this last one. BNY Mellon is the world's largest custodian bank. It holds for customers 41 trillion in assets. Today it announced that it was rolling out a new digital custody unit focused on digital assets including cryptos. This offering is being animated by partners, but they're not saying who yet. The New York State Department of Finance has clarified that a state chartered banking license

like BNY has doesn't require them to have a bit license. It seems like from what they've said so far that this is actually a larger offering where custody is just the first step. Quote, we are starting with the anchor in this space, which is custody. Then it comes down to what our clients need from us. So that's not just safekeeping of those assets. They want to leverage them for lending purposes. They want to leverage them for collateral.

Then we are also looking at issuing digital assets like tokenized securities and real assets. How about the competition for BNY? Their biggest competition in the U.S. are companies like J.P. Morgan, City, and Goldman. And obviously, they've beaten them all to the punch now. That said, Northern Trust, which has 10 trillion in assets, announced a partnership in December with Standard Chartered Bank to offer this. type of custody. If you had any doubt about whether banks were going to be falling over themselves to be the first in line to actually offer their customers' crypto services, I think that's now

pretty well cleared up. At this point, you might be listening and sitting and asking yourself, what's next? Well, one of the biggest lines of speculation in this space is that maybe we'll go from these sort of corporations holding Bitcoin to actual central banks putting it on their balance sheet. One prominent central banker doesn't think so. During a conference call with the economist, the ECB president, Christine Lagarde, was asked if central banks would hold Bitcoin soon, and she said, it's very unlikely. I would say it's out of the question. That is one, I guess, for some point farther out in the future. By way of wrapping up, there is an exceptional series of Bitcoin writing that started in 2019 by Parker Lewis called Gradually Then Suddenly.

The idea of gradually then suddenly is that the world is not linear progression, but is long moments of building followed by moments of what Stephen J. Gould called punctuated equilibrium. What the last few days show is that we are in absolutely the then-sudently part. It's going to be a wild ride, and I'm glad you're here with me for it. Until tomorrow, guys, be safe and take care of each other. Peace.