The Breakdown - PayPal Opens Crypto Payments for Millions of Merchants

Episode Date: March 31, 2021

Today on the Brief: BTC micro futures coming to CME Michael Jordan is now an NFT investor Bitcoin doesn’t care about Treasury yields Our main discussion: PayPal has begun rolling out its crypto checkout tools to millions of merchants. NLW breaks down: Why payments for day-to-day items have been historically deprioritized for Bitcoin and Ethereum  Why the PayPal checkout tools are unlikely to shift the primary use case from store of value style functions to medium of exchange Why the liquidity and utility PayPal crypto checkout creates still adds significant value to these crypto assets -- 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

Even believing that these things are not the core reasons that these assets have and will have value, I believe that the ease of liquid conversion into the normal economy does increase marginally their value. Think about it like this. Imagine you could effectively sell a part of your house to be able to buy something important right now with no delays. Would that increase the value of your house? Yes, I believe it would. Because it's not just value in the abstract or in the long term. It's not just the equity.

It's the liquidity and utility of that value that can matter in the short term. term. 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 nexo.io and Casper and produced and distributed by CoinDesk. What's going on, guys? It is Tuesday, March 30th, and today we are talking about PayPal opening crypto payments for millions of merchants. First up, however, let's do the brief. First on the brief today, micro-bitcoin futures are coming to the CME. The CME has been in the Bitcoin futures game a long time. In fact, their launch of the Bitcoin futures product almost perfectly timed the market top in 2017. However, of course, this product is relatively limited now

to the people who can play with whole Bitcoins at a time. This has gotten trickier as the price of Bitcoin is nearly $60,000 again. Today, the CME is announcing new contracts launching May 3rd that are cash settled and sized at one-tenth of one Bitcoin. So why does this matter? To me, part of what makes Bitcoin great is the democratization of participation that it enables. Buying Bitcoin at spot is permissionless. And what's more, you can trade in Satoshi's, not in full Bitcoin. This does remain one of the biggest misconceptions and one of the biggest reasons new people to crypto find themselves turning away from Bitcoin is not realizing that you can buy less than one full Bitcoin that you can buy fractions of Bitcoins. Regardless, the financialization of Bitcoin

could threaten this democratization in many ways by only allowing much bigger players to play the game. Futures contracts that are smaller sized could, one, allow for a different category of investor to participate in Bitcoin derivatives, two, to allow more diverse types of bets within that space, and three, reinforce this notion so important as I just mentioned that you don't have to buy a whole Bitcoin. Now you also don't have to bet on the future of Bitcoin with whole Bitcoins. Next up on the brief today, Michael Jordan is now an NFT investor. I mentioned yesterday that one of the reasons that I think we have to separate top signal, bubbly feeling things like the SNL NFT sketch from the actual underlying question of

whether the types of digital collectibles NFTs enable are going to be a meaningful part of the cultural landscape is that the number one biggest NFT market has not been crypto punks or anything like that, it's been NBA Topshot. The people who engage with Topshot and who have spent $500 million with Topshot don't even necessarily know what an NFT is. What they know is that there's a claim of different types of rarities for these very cool digital artifacts that have real liveliness in the markets around them and a real connection to a sport and a game that people love. Topshots shows no signs of slowing down and is now in a position to build even bigger.

Dapper Labs, the company behind Top Shot, has raised a $305 million investment at a $2.6 billion post-money valuation. The round was led by Coatou, but featured around 30 athlete investors, including Kevin Durant and Michael Jordan, plus rapper two chains for good measure. Indeed, the round's composition, also including Will Smith's VC, Supermusic Manager Gio Series sound ventures, shows how much the interest is cultural versus just tech. Now, the obvious question for dapper is when new NFT experiences from other IPs come online. Right now, they're making bank on the NBA, but included in this round of investment are athletes

from the NFL and Major League Baseball. What's more, they intimate that things are coming with partners like Warner Media Group and UFC. UFC champ, Khabib, just released a set of unique NFTs as well, so it's very clear that these unassuming little digital collectible tokens are infiltrating a huge part. of the sports and entertainment market. Third and finally on the brief today, Bitcoin doesn't care about the treasury market. In traditional markets, it's a bit of a treading water moment. Traders are waiting to understand whether there will be more consequences from the

total implosion of Archegos Capital Management. And by the way, if this is something you're interested in, let me know so I can cover it. We're also waiting to hear more about the potential for more stimulus. Biden is related to talk on Wednesday and present his big grand vision. So this is another factor that could shape how markets think about what they do next. As that happens, Treasury yields are hitting a 14-month high. The dollar is strengthened for a second day in a row. As part of that, gold has slipped below 1700 and tech is down as well.

Bitcoin, DG-AF. Last month, it seemed at the end of the month like Bitcoin was responding perhaps to rising yields, but it turns out that may have been less of a macro correlation and simply about less institutional money coming in. Fund flows are currently at their lowest since October. Whatever the case, Bitcoin is actually up on the day as everything else is down. Scott Melker tweeted, I am not happy that the dollar is showing continued strength. I am very happy that Bitcoin continues to show strength regardless of dollar action. Joe Wisenthal tweeted the relative strength of Bitcoin at a time when so much other momentum and spec stuff has been getting smashed cannot

be ignored. With that, let's shift to our main discussion of PayPal. an opening crypto for its millions of merchants. One of the most common critiques you hear from high-level policymakers on cryptocurrencies is that they're not actually very good at being currencies. The reason? Well, it's mostly around their volatility. They're so good the logic goes as a speculative asset, that that use case hampers their viability as an actual payment mechanism. Now, many in the crypto space, particularly Bitcoin, don't actually really disagree

that normal day-to-day transactions aren't really the point. This is particularly the case with Bitcoin, as I said. Bitcoin's digital gold use case actually strongly disincentivized buying things with it. If you believe the asset is going to go up, 2x over the course of a year, 10x over the course of the next 5 to 10, you want to acquire more of it, not trade it for consumption expenses. This is why many see and consider Bitcoin a savings technology. Still, we have to acknowledge how long the fud around this area has persisted. I honestly think Dan Held might have an aneurysm if he has to tweet one more time

that it doesn't fucking matter if you can buy a cup of coffee with Bitcoin. Looking for the best way to unlock your crypto's liquidity, nexo.io is exactly what you need. Borrow against your digital assets at just 5.9% APR. Earn passive income with yields of up to 12% and swap between more than 75 market pairs with the instant nexo exchange. Try the NXO wallet app to get the whole 360 degrees of crypto banking. Get started at nexo.io.

Until now, blockchain technology has been a series of compromises. No layer one protocol exists in the market that supports everything enterprises, developers, and consumers need from decentralized applications. Mead Casper. Casper provides the blockchain ecosystem with a solution that makes no compromises around decentralization, security, or performance. Learn more at casper.network. There have been a couple major events over the last few years, which are making Bitcoin in particular

and cryptocurrency in general more applicable not only as a speculative investment, but as a tool for payments. The first came when Elon Musk announced last week that Tesla would be accepting Bitcoin for purchases of their vehicles. This was actually promised when Tesla first announced their big $1.5 billion Bitcoin buy. It was rolled out just to the U.S. first, but the rest of the world is coming. For many, the most important part of that announcement, was actually that Tesla would be hoddling the BTC that came in rather than converting it. When snarky Twitter asked why, if Bitcoin was such a good investment bound to go up, would people actually buy things like a Tesla?

Nick Carter responded, and I'm paraphrasing, because humans aren't immortal and want to buy things now too. Which brings us to the second news, which is honestly a much bigger deal for Bitcoin and crypto's acceptance as a means of exchange. When PayPal announced crypto buying and selling late last year, many suggested that the biggest part of the announcement was that the company also claimed that in 2021, they would make crypto payments available across their entire network of more than 29 million global merchants. That is a sort of zero to 100 scale that only a massive intermediary like PayPal can do.

And this wouldn't be the sort of thing where one by one they enabled merchants to choose and opt in to accept crypto. Instead, it would be a feature that was built natively into the PayPal checkout experience. meaning PayPal would do the crypto to fiat conversion and send merchants the fiat they expected. This would abstract away any complexity and make it a functionally seamless experience for both merchant who want to be paid in fiat and customer who wanted to pay with crypto. Well, today, PayPal is actually opening up those crypto checkout features. Users who hold Bitcoin, Bitcoin Cash, Ether or Litecoin will be able to use it at millions of merchants with the full network of 29 million rolling out later.

this year. Here's what PayPal CEO Dan Schumann had to say about it. Quote, we think it is a transitional point where cryptocurrencies move from being predominantly an asset class that you buy, hold, or sell, to now becoming a legitimate funding source to make transactions in the real world at millions of merchants. Three thoughts from me on this. First, I am not convinced, even despite this PayPal news, that this is the use case that matters to people. Ultimately, these assets are going to be shaped by the role they play. When it comes to Bitcoin, specifically, Specifically, the use cases that make the most sense to me include long-term hedges in stable monetary regimes in the West, short-term hedges in floundering monetary regimes like Turkey, censorship-resistant

money in the context of autocratic rule. In other words, to me, people buying things on Etsy with Bitcoin is just not in the top two or three reasons to have Bitcoin. When it comes to Ethereum, I suppose maybe there is more of a chance. I mean, Ethereum is a de facto medium of exchange for NFTs. But even I think that gets abstracted away. Look at NBA Topshot. Most of the people who interact with NBA Topshot just use their credit cards like normal thanks to payment rails that include USDC and Circle Center consortium and a bunch of other things that sit underneath, making it so that the people who buy it don't really know that they have to interact with crypto at all. In the long term, to me, it feels like the main question in Ether's value proposition is to what

extent it accrues value from Ethereum the blockchain being a new financial rail. But again, that's not really going to be shaped by small transactions either. So like I said, there is less emphasis in Ethereum on sound money, digital gold type things. There is more transaction behavior, at least through NFTs. But still, it feels to me like ether's whole play is to be the native currency of an entirely new set of financial rails. And that, again, is not buying coffee or Etsy with your PayPal account. Then there's be cash and light coin. And anyway, moving on. So that's thought number one. I'm not convinced that this is the use case that matters to people, even though it's available. Number two, I think tax questions are perhaps the biggest constraint. Every sale of crypto is a taxable

event. In the U.S., crypto is considered a commodity. It's considered a property. That means that when you sell it, your tax based on how much its price has changed since you actually bought that crypto asset. The idea that every time you buy something with your PayPal account with crypto, it's a taxable event, does not make it particularly appealing. And by the way, this is reaffirmed PayPal in its terms and conditions, which say sales of crypto assets via checkout with crypto are taxable just like all other sale of crypto assets. PayPal will provide consumers with a 1099 form and says it's their job to figure out what they have to pay taxes on. Now, this isn't PayPal's fault. It's not their thing to solve, but I do believe it's a major barrier to adoption of crypto

as a payments mechanism. But now for my third thought, all of that being said, even believing that these things are not the core reasons that these assets have and will have value. I believe that the ease of liquid conversion into the normal economy does increase marginally their value. Think about it like this. Imagine you could use other financial assets you had like cash if you really needed to. Imagine you could effectively sell a part of your house to be able to buy something important right now with no delays. Would that increase the value of your house? Yes, I believe it would. Because it's not just value in the abstract or in the long term. It's not just the equity. It's the liquidity and utility of that value that can matter in the short term. I do believe that there are scenarios where people will decide

to take the tax hit and do the thing with crypto because it's worth it to them. And that makes holding that crypto easier and more viable for the way that someone wants to live their life. So while I don't think that this medium of exchange use case is about to supplant store value in terms of the primary driver for the value of these crypto assets, I still think that this PayPal news is a massively bullish moment. It creates more opportunities. It creates more awareness for merchants. It creates more exposure. It creates more utility to the assets. And so it is a good, strong, bullish signal for the industry as a whole. Lastly, I got to say, I think a trickle of these sorts of things, especially the one-offs like Tesla, become a flood over the course of this

bull market. Case in point, the Oakland Athletics. The cost of a full-season luxury viewing suite was previously $64,800. A couple weeks ago, they decided to say, screw it and offer it for one flat Bitcoin. Dave Kavall, the president of the team, told Bloomberg this week, we heard from our fans that they're interested in paying in crypto. So we said, hey, let's take one of our products, our suites, and put it on sale for one Bitcoin and see if we get any takers. What happens if they do and they get that Bitcoin? Well, Kavall says they plan to hold it. The simple fact of the matter is that as much as we call this a financial asset, as much as we understand these use cases, the reality is it has the liquidity properties, the exchange properties of a currency as well.

And people are going to want sometimes, despite our disbelief, to use it as such. The more that it is able to be used as such, the greater it increases the utility of the asset, the more I believe it adds value to that asset. So no, this will not change what we use Bitcoin and Ethereum primarily for, but yes, I do believe it increases the value of those assets, and so is a good thing. Anyways, guys, I appreciate you listening. Let me know what you think about PayPal. And if you're liking the show,

please consider going and giving it a rating and review on Apple Podcasts. It makes a big difference in how people discover the show. Until tomorrow, guys, be safe and take care of each other. Peace.