The Breakdown - Venmo and Stripe Ramp Up on Crypto While Coinbase and Gemini Look Offshore

Episode Date: May 5, 2023

In this Friday edition of the Weekly Recap, NLW looks at the key events this week, including: Biden's DAME tax Coinbase and Gemini opening offshore derivatives exchanges  Court orders SEC to respond to Coinbase's lawsuit Venmo and Strip expand crypto offerings Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribeto the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW “The Breakdown” is written, produced and hosted by Nathaniel Whittemore aka NLW. Research is by Scott Hill. Editing is by Rob Mitchell and Kyle Barbour-Hoffman. Our theme music is “Countdown” by Neon Beach.

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. What's going on, guys? It is Friday, May 5th, and today we are catching up on all of the crypto-shenanigans this week. Before we dive into that, a couple quick notes. First of all, if you're enjoying the breakdown, I bet you would like Bitcoin Builders. It's my show all about the cool entrepreneurial energy that is swirling around Bitcoin in huge and growing way. This week we talked to Des Dickerson from Thunder Games, and I have another interview coming out in just a day or so as well. If you want to check it out, you can find a link

to the podcast at breakdown.network. Second, if you want to be talking about the big picture power shifts impacting our world, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, well, tomorrow we will have an interview on this show, an interview that I'm very excited about, a guest who I am talking about, the end of consensus reality with. So today we're kind of doing what I would have done on the weekly recap. And in that light, this was a fairly archetypal week for 2023, right? We had some crypto government intrigue. We had some crypto companies moving offshore. We had some great community debates. We had another bank fail. All in all, it was very crypto-ish. Let's start with the latest anti-government sentiment.

This, of course, came in the form of DAME. Now, Dame, for those of you who missed my show on it, was the digital asset mining excise tax, and it was announced by the Council of Economic Advisers for the White House on Tuesday. Their Twitter threat announcing it says, Crypto mining is a process for validating transactions among holders of crypto assets. While crypto assets are virtual, the energy used is very real and imposes substantial costs. For context, crypto mining in the U.S. is estimated to use more energy than all computers in the United States. Cryptominers tap large amounts of high polluting energy, even reviving

previously defunct fossil fuel facilities to power their operations. But even when miners use existing clean power, they're still less available for other uses, which in turn raises prices and increases overall reliance on dirtier sources of energy. Crypto miners' intense and volatile power consumption can also push up electricity prices and make local electrical grids riskier as a result of increased strain on equipment, service interruptions, and safety hazards, and there is little evidence of benefits to local communities in the form of employment or economic opportunity, and researchers found that minor increases in local tax revenue are more than offset by increased energy prices. Some states and localities are beginning to address the issue, but to ensure

that crypto mining is not simply pushed from one local community to another, there is also a role for national policy. Ultimately, the primary goal of the Dame tax is for crypto miners to pay their fair share of the costs imposed on local communities and the environment. So, as you can tell just from that announcement, this is a pretty aggressively positioned thing. And of course, Bitcoiners saw right through it. Many viewed this not as a serious policy attempt, given that it would have to go through the appropriations process in Congress, but just an attempt at extortion. BitPain writes, those of you confused about how the U.S. system of government works. They have no intention of banning Bitcoin mining. Mining is a nascent industry, growing fast. Congress wants its pound of flesh.

Threatened ban. Industry makes some fiscal promises to 2024 campaigns. By day, game? Now, another big theme of conversation was that this sets a very, very bad precedent, not just for Bitcoin and digital assets, but for any industry, which might be or become politically unfavored. Tom Mapes writes, the White House blog on the digital asset mining excise tax can be shortened to one sentence. If the government doesn't like how you use energy, you will be penalized. All industries should be keeping a close eye in opposing these tactics, because you could be next. Now, this also got a comment. from new presidential candidate Robert F. Kennedy Jr. He writes,

Cryptocurrencies led by Bitcoin along with other crypto technologies are a major innovation engine. It is a mistake for the U.S. government to hobble the industry and drive innovation elsewhere. Biden's proposed 30% tax on cryptocurrency mining is a bad idea. Yes, energy use is a concern, though somewhat overstated, but Bitcoin mining uses about the same as video games and no one is calling for a ban on those. The environmental argument is a selective pretext to suppress anything that threatens elite power structures. Bitcoin, for example. Some advocate tight control of cryptocurrencies to prevent their use by criminals, but it isn't just criminals who want privacy. So do dissidents

in ordinary citizens. Governments harass their enemies in crushed dissent by controlling bank accounts and payment platforms. Until we restore trust in government, a distant prospect, we need cash and crypto to ensure freedom. Just as a biodiverse ecosystem is a resilient ecosystem, so too will our economy be more resilient if it has a diverse ecology of currencies, not just a single centrally controlled one. We are seeing today how fragile our over-centralized system is. Now, obviously, this has put RFK Jr. quite on the map of Bitcoiners, but it also put him in the political crosshairs of Bitcoin opponents like Brad Sherman. Congressman Sherman yesterday tweeted the announcement from the Bitcoin Conference that Robert F. Kennedy Jr. would be

speaking at the event in a couple weeks. Sherman writes, 60 years ago, the late great Robert F. Kennedy went after tax evaders as U.S. Attorney General. Today, his son is slated to speak at a conference for tax evaders. Now, this some of you might have seen got a response from me. Obviously, Sherman is trolling. Obviously, he's trying to provoke a response. Obviously, he's using incendiary, inflammatory language accusing the entire population of Bitcoin users of being tax evaders. But I kind of went off because I think it represents a much more virulent and problematic strain in American political discourse that is far more concerned with affirming priors and scoring political points on the basis of cheap Twitter shots, than it isn't actually engaging with

any substantive issues. Now, it is one thing for people to study crypto closely and come to the conclusion they don't like it. This does, believe it or not, happen sometimes, and I disagree with them, but man, we can have a conversation. With that set of people, you can find common ground. I think of Associate Professor Rohan Gray, for example. He is no fan of cryptocurrencies, in fact, he's often arguing with bitcoins and other coiners on crypto Twitter. But Rohan shares a real concern about surveillance and CBDCs. And because his position is thoughtful and considered, we can find common ground in that. The Bradshawemans of the world, on the other hand, their entire worldview is dictated and defined by dismissal of anyone who doesn't think like

them. Their life is just an endless series of meaningless actions that take place between soundbites, and those soundbites, meanwhile, are just the most important thing in an endless series of meaningless events that take place between elections. It's no way to live, and it's certainly no way to run a country. But it doesn't matter. At the end of the day, Sherman is an ossified husk of the gerontocracy, and I genuinely believe dynamic, thoughtful debate will prevail. Now, climbing back down off my soapbox, let's talk about some other folks who also don't like ossified husks of gerontocracy. On Tuesday, Coinbase announced the opening of their international derivatives exchange simply called the Coinbase International Exchange. They tweeted,

Today, Coinbase launched Coinbase International Exchange and will begin by offering Bitcoin and ETH perpetual futures settled in USDC with up to 5x leverage to institutional clients in eligible jurisdictions outside of the U.S. As a global company, we're working hard to help update the financial system by building trusted products that expand the utility and adoption of crypto because we believe crypto and blockchain technology have the ability to increase economic freedom and opportunity around the world. Now, trading on the exchange has begun, and Coinbase's work.

welcoming institutional clients on board as long as they're not based in the U.S. Retail customers will not be granted access to the exchange, but Coinbase plans to expand their offering to, quote, non-U.S. professional investors and advanced retail users in eligible countries. Coinbase has pledged that external market makers will be providing liquidity, meaning Coinbase will not have a proprietary trading desk using the exchange to trade against customers. The exchange is based in Bermuda and regulated under the local crypto framework, which Coinbase says, quote, is known for a high level of transparency, compliance, and cooperation. Speaking to what this means for their commitment to the United States, Coinbase wrote,

Rest assured that Coinbase is committed to the U.S., but countries around the world are increasingly moving forward with responsible crypto-forward regulatory frameworks to strategically position themselves as crypto hubs. We would like to see the U.S. take a similar approach instead of regulation by enforcement, which has led to a disappointing trend for crypto development in the U.S. The Coinbase International Exchange is an expansion, bringing the safest, most trusted name in crypto to the global market. Cryptotrader Sam Price writes, It's a crying shame that innovative U.S. companies like Coinbase are being forced to release their new products exclusively to foreign customers. Shame on USC.

Now, not to be outdone, Gemini joined Coinbase in launching their international derivatives exchange on the same day, more imaginatively calling the exchange Gemini Foundation. The exchange will be available across 30 jurisdictions including Hong Kong, Singapore, and several popular homes for offshore finance like the British Virgin Islands and the Cayman Islands. The exchange will not be available to customers in the U.S., the U.S., the U.K., or the EU. The initial offering will be exclusively Bitcoin perpetual futures denominated in the Gemini white-label stablecoin GUSD. The exchange will offer up to 100x leverage and plans to launch an Ethereum Perpetual's

future contract within the coming weeks, alongside plans to offer dated futures and options. Unlike the Coinbase Exchange, Gemini appears to be open to accepting retail traders, but has excluded most jurisdictions with rules against retail traders accessing derivatives entirely. Gemini had applied for permission to operate a derivatives exchange in the U.S. in 2020, but were denied by the CFTC. One of the Winklevoss co-CEOs described the regulatory situation in the U.S. as a, quote, total logjam, and said, if we can't do this in the U.S. right now, dramatically grow our business and bring crypto to folks here, that's not going to stop us from bringing it globally. Now, Tyler Winklevoss emphasized, we're not leaning out of the U.S. We're just leaning into being a global

company. Bobby Ong from Coin Gecko says, Coinbase and Gemini announced that they are launching non-U.S. entities to kickstart their derivatives platforms. The U.S. regulatory environment has been hostile, and these exchanges have decided that they cannot wait any longer and chose to vote with their feet by launching offshore. The next few months should be interesting, as we observe how Coinbase and Gemini will challenge Binance in the offshore perpetual's market. Binance has been extremely dominant with over 60% market share, followed quite far behind by OKX and Bybit. Binance, having competed based on a regulatory arbitrage strategy, will now have two new strong competitors coming after their market share. More choices for end users

will result in more intense competition and bring about better products. Can't wait to see how this shapes up. Now one positive note for folks in the U.S. who are hoping to keep it safe for these exchanges here at home, the SEC has been ordered by the Third Circuit Court of Appeals to respond to Coinbase's lawsuit within 10 days, with a reply from Coinbase to seven days after that. Remember, last Monday, Coinbase sued the SEC, demanding that the regulator responded. to Coinbase's petition for rulemaking on crypto assets, which was filed last year in July and subsequently ignored. Coinbase argued that under the Administrative Procedure Act, the SEC had a duty to respond to petitions for rulemaking within a, quote, reasonable time. The Coinbase lawsuit was widely viewed

as Coinbase getting on the front foot after having been served with a Wells notice informing them of impending SEC enforcement action last month. While the SEC could still argue that the case should be dismissed, it's clearly promising that the case is progressing at a rapid pace rather than becoming bogged down in the court process. If nothing else, this lawsuit will force the SEC to present their rationale in court as to why no regulatory framework for defining crypto assets as securities has been published. That potentially grants Coinbase a useful legal argument that compliance with non-existent rules was impossible during forthcoming enforcement actions. Now, staying on the front of companies that are expanding in the U.S., Venmo had some interesting news. Speaking at Consensus last Friday,

PayPal's general manager of blockchain, crypto, and digital currencies Jose Fernandez-de-Pont said that the fintech platform will soon allow users to transfer crypto to any external wallet. Quote, You can buy a gift on Venmo and send it out. You can invite people and send it to another Venmo user. You can send it to a PayPal user. You can send it to an external wallet. You can set it to a hardware wallet, which we think is something fundamentally important.

Consumers have been asking for that for a while. PayPal accounts have been able to transfer crypto externally since August last year, so this brings Venmo up to parity with that. DePont also flagged an interest in getting involved with Web3 payments in crypto-powered gaming, saying the gaming industry is one we think is very ripe for the adoption of cryptocurrencies. Tree of Alpha writes, Am I mid-Ikewing if I think PayPal and Venmo crypto transfers between people into other wallets in the ecosystem sounds kind of huge for adoption?

Probably. Bankless host Ryan Adams says Venmo is now allowing its 60 million customers to withdraw directly to a non-custodial crypto wallet. Exit the banks and go bankless. FinTech has become a gateway to crypto. Crypto is quietly eating the world, just no one is noticing because it's a bare market. Along those same lines, FinTech Payments Company Stripe has opened up their Fiat to Crypto onramp services to all Web3 companies. The service has been offered since December to select

Stripe customers, but will now be available alongside their Fiat payment rails in both an embeddable code version as well as a new no-code payments portal. The on-ramp will include built-in fraud detection and identity verification methods to allow Web3 companies to ease compliance burdens. Stripe's head of engineering for crypto said in a statement, With our on-ramp options, Web3 companies can now outsource a bunch of the very important but tricky pieces to Stripe, things like conversion and off-optimization, identity verification, fraud prevention, and so on. This allows companies to focus on what's unique to their business and helps their customers start using Web3 services quickly and safely. End quote.

Stripe have introduced a range of crypto products in recent years, including a USDC settlement layer for merchants, but this launch will allow all Stripe customers to access full-featured crypto-onramps as part of their core service. Blockworks co-founder Jason Yanowitz writes, Today's Stripe launched a crypto-onramp. This is low-key, a huge deal. I've spoken with several Fortune 500s who have fully built crypto strategies, but haven't launched yet because they don't have a trusted brand to handle the on-ramp in the wallet. Stripe just solved the on-ramp.

Now, one more big company getting into crypto thing that remains in the realm of speculation, let's say. Rumors have swirled since January of a forthcoming NFT marketplace from Amazon. blockworks has reported extensively on it, but now some people are talking about a May 15th launch date. For now, nothing is confirmed, but a lot of folks in the Web 3 and NFT community are getting pretty excited about the possibility. Anyways, guys, that was the week behind us. Pretty middle of the range, lots of the same themes that we've seen all throughout this year. I hope that as you listen to this episode, you are heading into a wonderful, relaxing,

early summer weekend. So until tomorrow, be safe and take care of each other. Peace.