The Breakdown - The Big Numbers from Ark's Big Ideas Report

Starting point is 00:00:00 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, Abra, and FtX, and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, January 30th, and that means it's time for Long Reads Sunday. And today we're doing something a little bit different, instead of reading an op-ed or even, a couple of Twitter threads. I'm going to go through the latest report from ARC invest. This is their annual Big Ideas report, and so what we're going to do today is the big numbers from the Big Ideas report. Before we get into that, though, if you are enjoying the breakdown, please go subscribe

Starting point is 00:00:51 to it, give it five stars, leave a review, or join the Discord. The Breakers Discord is where I discuss everything going on with the show or in markets or what's new in news and have a ton of awesome people to have that conversation with. You can find a link in the show notes or you can go to bit.ly slash breakdown pod. Finally, a quick disclosure. In addition to them being a sponsor, I also work with FTX. Now, ARC's Big Ideas Report. As you guys probably know, I've had Kathy Wood from ARC on the show a couple times. I've called her the world's best innovation investor. Kathy was one of, if not the earliest, died in the wool wall wall streeter who came to Bitcoin. She has been a long-term Tesla bull, and she's the type of person that has conviction even when the markets

Starting point is 00:01:38 think that she's wrong. What's more, she's investing on a long horizon timeline. So although the rise in inflation and the corresponding shift in the Fed's tone has hurt ARC's performance, she is not changing her tune on the long term for innovation. So what I'm going to do is go through and grab some of the key highlights from this report, especially around blockchain, crypto, Bitcoin, etc. Now, I've heard from a bunch of you that you don't always love having a ton of stats in your podcast, and I understand and appreciate that, but this is going to be kind of a numbers-heavy show. Be forewarned, but I still think it's going to be a lot of fun. So let's dive in, and let's start with frame setting.

Starting point is 00:02:17 Just so you understand where arc's coming from, their bet is that there are five key innovation platforms that will generate huge equity market returns over the long term. The five that they focus on are gene sequencing, robotics, blockchain, battery technology, and AI. Between 2020 and 2030, they're predicting a compound annual growth rate of 26% for AI, 35% for battery technology, 40% for gene sequencing, 43% for blockchain, and 51% for robotics. Overall, they see blockchain and crypto going from about $1.4 trillion in market cap in 2020 to $49 trillion by 2030, almost $50 trillion. They split that up into

Starting point is 00:03:04 $40 trillion for blockchain and $9 trillion for digital wallets. On blockchain, they say all money and contracts could migrate to open source protocols that enable and verify digital scarcity and proof of ownership. The financial ecosystem could be forced to reconfigure and take advantage

Starting point is 00:03:20 of the capabilities these technologies afford, potentially leading to more transparency, fewer capital and regulatory controls, and significantly lower contract execution costs. More of everything could become money-like, fungible, liquid, quantifiable, every corporate entity and consumer will have to adapt. Corporate structures might be called into question. Every sector could be impacted. Now, in digital wallets, they are including not only what we think of as crypto wallets or web three wallets or whatever, but actually also sort of neobank style wallets, so cash app, PayPal, Venmo,

Starting point is 00:03:53 etc. They say digital wallet to allow anyone with a connected device to transact money instantly transforming commercial and financial experiences and say that traditional financial service institutions could be at risk. Nexo is a trusted and easy to use crypto platform where you can buy cryptocurrencies at the touch of a button and start earning up to 17% annual interest that is paid out daily. They support all of the major assets on the market and even allow you to swap one asset for another or borrow cash against your crypto without selling it. Nearly 3 million people in over 200 countries trust Nexo with their digital assets. So whether you're just getting started or you're a season pro,

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Starting point is 00:05:17 The breakdown is sponsored by FTX. FTX is the safe, regulated way to buy and sell Bitcoin and other digital assets. Trade crypto with up to 85% lower fees than top competitors. FtXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. You can trade NFTs with no gas on FTXUS, and gas is subsidized when you withdraw off the platform. Help support the breakdown and visit FtX.us today. That's FtX.us. For ARC, part of the background scenario for these trends is this dramatic shift in that ratio of the time we spend offline versus the time we spend online.

Starting point is 00:06:02 The report estimates that on average in 2021, internet users spend 38% of their free time online and 62% offline. By 2030, they expect those averages to flip with user spending 52% of free time online and 48% offline. It's not hard if you have that thesis to see how things like crypto and the Metaverse might come into play. Now, let's get into some of the numbers around the digital wallet and blockchain area, and we'll start with digital wallets. One of their highlight statistics is that the number of digital wallet users has surpassed the number of deposit account holders at one of the largest U.S. banks. J.P. Morgan, the biggest bank in the U.S. has 60 million deposit account holders, while Cash App has 74 million, and PayPal's Venmo has 82 million annual active users. ARC believes that U.S. digital wallets could scale 69% annually from more than 400 billion last year to 5.7 trillion in 2026. When it comes to public blockchains now, ARC is extremely bullish, saying that they could, quote,

Starting point is 00:07:05 transform every traditional asset class from cryptocurrencies to crypto equities to crypto commodities, crypto-cumodities, crypto-art, DAOs, and so on. One of the things that I find really fascinating about the report is the way they break down different quote-unquote revolutions. They say public blockchains are stirring several revolutions. They categorize them as the money revolution, the financial revolution, and the internet revolution. For shorthand, they say that's Bitcoin, Defi, and Web 3. The Money Revolution is the coordination of value transfer and property rights outside the purview of centralized authorities, governments, and top-down control, from fiat currencies and central banking to global

Starting point is 00:07:42 decentralized non-state money. The financial revolution is the coordination of financial services and contracts outside the purview of traditional financial institutions, traditional finance to decentralized finance. The internet revolution is the coordination of identity, reputation, and data outside the purview of traditional media conglomerates and big tech, from corporate-owned platforms to interoperable user-owned web. Importantly, they say that each of these revolutions involves a different level of trust. The money revolution is the furthest on decentralized trust, while the financial and internet revolution sits somewhere between decentralized and centralized trust, and of course you have the status quo over on the far side, which is represented by

Starting point is 00:08:20 centralized trust. not going to try to describe it here, but they lay out Bitcoin, Ethereum, Solana, Avalanche, Terra, Binance smart chain, and then on the far extreme of centralized trust, Visa, Amazon, FedWire, etc. On this spectrum, with Bitcoin being the farthest on the decentralized trust side, and Visa Amazon Fedwire being the farthest on the centralized trust side. I'll include a link in the show notes because it's worth going and checking out the way that they subdivide this industry. To Bitcoin for a minute, they point out that Bitcoin is taking significant market share as a global settlements network. Bitcoin's cumulative transfer volume

Starting point is 00:08:54 increased by 463% last year, and its annual settlement volume has surpassed Visa's payments volume. Last year, Bitcoin settled $13.1 trillion. Bitcoin is also, ARC says, attracting institutional holders. As of November 2021, exchange traded products, countries and corporations held 8% of Bitcoin supply. The largest of those holders include the grayscale Bitcoin Trust, the balance sheets of Block 1 Micro Strategy Tesla and the Tezos Foundation, and other ETPs like CoinShares-XBT provider, purpose Bitcoin ETF, and Galaxy Digital. They, of course, discuss in this report El Salvador as the first nation state to adopt Bitcoin as legal tender, and point out that in El Salvador now, more people have Bitcoin wallets than

Starting point is 00:09:40 traditional bank accounts, and it's not close. They're estimated to be 1.9 Salvadoran citizens with traditional bank account. versus 3.8 Chivo Wallet users. ARC believes that Bitcoin's market cap could scale more than 25.9x in the next decade for a total market cap of $28.5 trillion. And that gets them to the probably most quoted number of this entire report, which is that the price of one Bitcoin they believe could exceed $1 million by 2030. Now, fascinatingly, they break out what they see as Bitcoin use cases,

Starting point is 00:10:14 remittance network, emerging market currency, economic settlement network, nation-state treasury, seizure-resistant asset, institutional investment, corporate treasury, and digital gold. And to each of these numbers, they ascribe a value. For example, for emerging market currency, they assume that Bitcoin could represent 10% of M2 excluding the top four countries. As an economic settlement network, they imagine that Bitcoin could represent 25% of U.S. bank settlement volumes. Nation state treasuries, 1% of total reserves.

Starting point is 00:10:44 seizure-resistant asset, 5% of global high net worth wealth, and so on and so forth. And that's how they come up with that Bitcoin could exceed $1 million by 2030 number. Let's move to Ethereum. Arc believes that Ether's market cap could exceed $20 trillion in the next 10 years, quote, displacing many traditional financial services and competing as global money. They see a potential for a 56x growth in the total market cap of Ethereum on the back of its use as the reference asset in Defi. When it comes to NFTs,

Starting point is 00:11:18 ARC is focused on true ownership of digital assets, saying non-fungible tokens serve as smart contracts that verify the ownership of digital assets on public blockchains. They usurp the power of centralized platforms to house, control, and verify assets. In 2021, NFTs generated $21 billion in sales as the number of monthly unique buyers sword nearly eightfold to more than 700,000. Now, maybe the most interesting thing they say, though,

Starting point is 00:11:45 about NFTs is their notion that NFTs will, quote, blur the line between consumption and investment. NFTs offer a liquid marketplace in which consumers can invest in different digital assets and engage in peer-to-peer transactions. NFT buyers and sellers determine market clearing prices on blockchains instead of data aggregation platforms, creating new forms of asset monetization. On this slide, they use the example of digital clothing to show how this line between consumption and investment gets blurred. You buy some digital clothing items, some Gucci Pete Davidson, Beeple collaboration that hasn't happened yet to use in the sandbox or Decentraland or wherever you're using it. But then in addition to that, you could lend or stake it, you could collateralize it, you could fractionalize it. And so you've taken something that would have just been a consumption expense and shifted it into also an investment.

Starting point is 00:12:36 There's obviously still a lot to be determined about how consumption and investment even happens in the Metaverse. But I do think this idea of blurring the line between consumption and investment gives us a lot to chew on. Anyways, guys, I'll wrap there. There's a ton more info in this report. I highly recommend checking it out. I obviously didn't get into any of the technologies outside of blockchain and digital

Starting point is 00:13:00 wallets. And there's a lot more in there. Like I said, I'll throw a link at the show notes to give you a chance to look for yourself, but hopefully this was fun to listen to. I want to again thank my sponsors nexo.io, Abra and FTX, and thank you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - The Big Numbers from Ark's Big Ideas Report

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