The Breakdown - Visa Buys a Punk as Bitcoin Returns to $50K

Episode Date: August 24, 2021

Late Sunday evening, bitcoin pushed above $50,000 for the first time in three months. Overall BTC is up 46% in the last 30 days. NLW explores arguments that this move has been spot driven and connected to institutions and whales. He also looks at the potential implications of the Federal Reserve’s Jackson Hole meeting later this week.  In the second part of the show, he looks at the news that has Crypto Twitter on fire: Visa bought a CryptoPunk. The purchase, executed for around $150,000, is being maligned by some as a marketing stunt, while others see it as heralding a new era of institutional purchases of non-fungible tokens. NLW looks at both sides and ultimately argues that neither is exactly correct. Instead, it seems to be about inserting Visa’s business into a new digital market.  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 written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: Alexi Rosenfeld/Getty Images Entertainment, modified by CoinDesk.

Visa wants to be in the middle of transactions across a long tail of businesses, and it seems to me that part of what they're seeing is a new category of digital commerce that they want to be in the middle of. In other words, it's less about treasury reserves and stores of value, and more about figuring out how to make money in a new economic market category. 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 Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Monday, August 23rd, and it is an exciting little Monday morning we got here.

First up, as I discussed on Saturday's weekly recap, Bitcoin had just made a nice little punch-up heading into the weekend. Last night, on Sunday, Bitcoin lifted its head above 50,000, where it remained until about an hour ago at the time of this recording. Some have called this last month the short squeeze rally, referring to the fact that it was started as Bitcoin held above $30,000 in the face of numerous short positions that forced those short sellers to buy more at higher prices to keep their positions open, bada bing, bada boom, short squeeze. Whatever the cause, over the last 30 days, Bitcoin is up around 46%. And Bitcoin's peak in the last 24 hours around 50,200 is a three-month high. Bitcoin has now recorded gains for five consecutive weeks.

which is its longest winning streak since September of last year. Matthew Dibb, the co-founder and COO at Stack Funds, said that this rally, unlike some of our previous frenetic moves up, hasn't been driven by derivatives bets, but instead by spot-buying. Quote, looking at funding in the options market, this rally still appears to be spot-driven. Our expectation is that this break of psychological resistance will likely result in a rotation back to Bitcoin in the coming weeks, with the next target of $60,000. This idea of a lot of spot-buying driving things seems to be affirmed by data from into the block, which shows that institutions in Wales appear to have been accumulating

alongside price growth. They tweeted, institutions in Wales getting increasingly bullish on Bitcoin as prices have climbed over the past few weeks. The volume and addresses with at least 1,000 Bitcoin are showing a positive correlation with Bitcoin's price of 0.75 in Q3. So let's talk about macro factors for a second. Is there anything currently on the horizon that could put wind in Bitcoin's sales or shift momentum in the opposite direction? A Coin desk article points to the Federal Reserve's annual Jackson Hole Symposium.

So every year, the Kansas City Fed hosts a big old meeting they call the Jackson Hole Economic Symposium. Think TED, except for central bankers, traditional finance CEOs, finance ministers, etc. It's often a pretty good space to get a bigger macro picture about where the traditional financial elite see the land's shifting. A couple of years ago, outgoing Bank of England governor responded to Facebook's Libra with his own proposal for a new global reserve currency, something he called a synthetic hegemonic currency that would be run by central bankers but outside the purview of any one country. It wasn't such a different idea than Keen's originally proposed at Bretton Woods for a bankor that would allow the world to have a reserve currency standard not tied to any one nation's currency.

As an aside, it's quite clear to me that Mark Carney was not in the marketing in branding business, as the word hegemonic is probably not the word you want to describe, much less be in the name of, a type of thing that people's main concern with is increasing government power too much. But that's neither here nor there. Anywho, Jackson Hole is coming up at the end of this weekend. Right now, the most likely betting is that the comments we get there from people like Jay Powell and others will reinforce the market's belief that new questions around the Delta and other variants of COVID are going to put a pause to any tapering discussions. Basically, before the Delta variant started raising hospitalization rates all over

the U.S. and getting new mask mandates and other closure policies and yada yada, the market was heating up, and so it seemed like the Fed would be heading in the direction of peeling back their Dovish monetary policy. Indeed, Jackson Hole was discussed by some as a place where we could see that meta-level signal shift. Now, the opposite is expected, with Jackson Hole serving as venue to confirm that the insecurity around COVID changes means that from a monetary policy standpoint, nothing is changing for some time. Should that be the case, the 2020 playbook trade of selling dollars and buying everything denominated in dollars is likely on like Donkey Kong. That almost certainly would be bullish for Bitcoin.

The breakdown is sponsored by NIDIG, the institutional grade platform for Bitcoin. As longtime listeners know, NIDIG is a major force in the Bitcoin space, and they're now making it possible for thousands of banks who have trusted relationships. relationships with hundreds of millions of customers to offer Bitcoin. That mainstream access is critical for all of us, and you can learn more about it at nydig.com slash nLW. That's nydig.com forward slash nLW. Let's shift over to the thing that has crypto Twitter buzzing its face off this morning. Visa has bought a crypto punk. For those who aren't familiar,

crypto punks are one of the OG art NFTs. 10,000 punks were minted and they have become one of the most valued and most expensive NFT collections out there. The floor on punks right now is around 69 eth and the ceiling is, well, extremely high. In May, a collection of nine punks that were among the first 1,000 minted was sold for nearly $17 million in an auction held by Christie's. This morning, Visa announced that they had bought a punk. Cryptopunks 76 tend to be specific, one of 3,840 female punks. The purchase price was around $150,000, but what's more interesting was Visa's commentary around it. They published a little interview on their website with Kai Sheffield, who runs the company's crypto strategy. The pieces titled NFTs mark a new chapter for

digital commerce, and I want to go through some of the key ideas. First, why NFTs? Kai says, quote, the practice of making and maintaining collections is as old as civilization itself. It makes sense that this drive to collect and display items of meaning would follow us into the virtual world, where we're interacting with friends, co-workers, and other internet communities. Why punks specifically, though? Kai again, says what began as an early artistic experiment has quickly become a cultural icon for the crypto community. In fact, to recognize the role that Cryptopunks have played as a historic NFT project

bridging culture and commerce, Visa has decided to purchase Cryptopunks 7610. But why do this at all? Kai says, quote, we think NFTs will play an important role in the future of retail, social media, entertainment and commerce. To help our clients and partners participate, we need a firsthand understanding of the infrastructure requirements for a global brand to purchase store and leverage in NFT. Having worked with Anchorage Digital to complete this process,

we're better positioned to help our partners navigate the process. We also want to signal our support for the creators, collectors, and artists driving the future of NFT commerce. Enabling buyers and sellers is what we do, whether it's helping small and micro-business owners get online, or making it easier for companies to pay their partners across borders. We're excited to work with this growing community to make NFTs usable and accessible in a variety of contexts. Lastly, we wanted to collect an NFT that symbolizes the excitement and opportunity of this particular cultural moment.

We're a company steeped in the history of commerce and payments, but with our eyes on the future. With our crypto-punk purchase, we're jumping in feet first. Now, zooming out again, much of the discussion on Twitter right now is whether this is, one, the beginning of institutional involvement in NFTs, or two, a marketing stunt. On the marketing front, Adam Singer tweeted, Visa spending $150K for a wave of free PR is one of the cheapest stunts in history. Back in my agency days, smaller brands spent 10x this for half the press and social awareness. You all flip out, but their team is actually really smart here. None of this actually has to mean anything.

Crypto Cobain, meanwhile, went a different direction, pointing out some hype hypocrisy and also suggesting that it was more marketing than substance. He tweets, Visa, days after censoring financial transactions for pornographic content and killing only fans have signaled their support of decentralized uncensurable money by spending 0.000000 1% of their daily revenue on a floor punk. Finally, Doug Bonaparte wrote, Visa just spent $150,000 on an NFT to have you talking about them nonstop.

Brilliant. All right, so what about possibility number one, that this is the beginning of institutional involvement in NFTs? Well, Danny, aka Seed phrase, tweets, Cryptopunks are a. the store value narrative from Bitcoin. If you think Visa is the last company to add a crypto punk to their balance sheet, think again. This is the beginning of a digital paradigm shift, and I'm in possession of the Mona Lisa. So let's talk marketing first. I don't think that the team at Visa that deals with crypto led by Kai Sheffield was looking to just score some marketing

chatter points. However, they certainly might have gotten other people on the Visa team, who don't really give a crap about all of this, on board, by pointing out just how much chatter there was likely to be. In other words, one can see how the marketing stunt nature of this would be appealing even to a non-cynical team. What about the Cryptopunks are a new store of value thesis? There is a massive difference between I want this as a long-term reserve asset, and this is a great investment. I tend to think that the institutions who are sniffing around this are going to be more in that latter camp. To be clear, NFT communities at this point are strong enough and well-capitalized enough that in the same way that larger market changes can't really kill Bitcoin because there are

just too many holders who will buy all of it all the way down, certain NFT sets like the punks are likely to have a price floor set by the community that keeps them attractive even through market cycles. Ultimately, institutions are in the business of making money. They're eventually going to try anything that can make them money and while a lot of the random also rands that get minted in the interim will go to zero, some could stick around as long duration assets through sheer force of will of the community. Still, I don't super think that Visa buying a punk represents the first domino to fall in an institutional rush to get into NFTs. Instead, there's something different going on that I think Kai's comments point out. Visa wants to be in the middle of transactions

across a long tale of businesses, and it seems to me that part of what they're seeing is a new category of digital commerce that they want to be in the middle of. In other words, it's less about treasury reserves and stores of value, and more about figuring out how to make money in the in a new economic market category. One more quote from this piece from Kai Sheffield. NFTs have the potential to become a powerful accelerator of the creator economy and lower the barrier to entry for individual creatives to earn a living through digital commerce. NFTs are starting to usher in a new form of social commerce that empowers both creators

and collectors. NFTs could also fuel small and medium-sized businesses in powerful new ways. The rise of e-commerce has made it possible for small and medium-sized businesses to sell online and reach customers around the globe. But they still have to produce and ship physical goods, which can have high upfront costs. NFTs give small businesses an opportunity to harness public blockchains for producing digital goods, which can be delivered instantly to a crypto wallet. We can envision a future in which your crypto address becomes as important as your mailing

address. NFTs are rapidly gaining traction and we expect continued growth. For example, there has already been $1 billion in payment volume in August alone, up from less than $100 million in all of 2020. Enabling secure commerce is what we do, where the network working for everyone, and that extends to new forms of digital commerce that unlock access. So it's not surprising that we're thinking deeply about this space and how we can apply our expertise in enabling seamless and secure digital payments to make NFT commerce accessible and usable for buyers and sellers.

End quote. Basically, this feels to me like a situation where we should listen to what the company is actually saying. They're telling us that what matters is the real. role that NFTs can play for small businesses, for the creator economy. It's about economic modalities, not just some store of value treasury reserve play. If you're into NFTs, that should seem a lot more exciting in many ways. But also, yeah, if it was for marketing, damn did it work, and kudos to the team. One last note on institutionalization and digital assets. Deloitte published their 2021 global blockchain survey, and the numbers are pretty wild. This is a survey of nearly 300 senior executives and practitioners. It was conducted between the end of March and the beginning of April.

One third were based in the U.S. with the rest in Brazil, China, Germany, Hong Kong, Japan, Singapore, South Africa, the UAE and the UK. Of those almost 1,300 executives, 76% think digital assets will be a, quote, strong alternative or replacement for Fiat in the next five to 10 years. Seventy-eight percent also said that digital assets would be important to their industry in the next two years. So, broadly speaking, the survey shows that digital assets, assets as a category are getting significantly more normalized. And whether that means that every corporation is going to eventually buy a punk is a whole different question. But the broader trajectory is clear. All right, guys, lots of other things happening this week. USDC says it's moving

to 100% cash and US treasury backing. There's rumors of a big old finance fundraise. Lots and lots of good stuff. For now, I appreciate you listening. And until tomorrow, be safe and take care of each other. Peace.