The Breakdown - Visa Just Supercharged Stablecoin Legitimacy

Episode Date: March 30, 2021

Today’s episode of “The Breakdown” is an extended brief with five different topics: NFTs make it to “SNL” “Green” bitcoin mining Square’s CFO thinks all companies should hold bitcoin in their treasuries Crypto M&A doubles in 2020 Visa announces USDC as settlement currency  Ultimately, he argues that while non-fungible tokens are showing up in pop culture, the Visa deal reinforces the notion that this crypto bull market is being driven by large-scale institutional engagement. -- 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

NFTs may be showing up on SNL, but it's the institutionalization of Bitcoin and now clearly stablecoins and Ethereum that is driving this bull market, and I see no signs of that changing. 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 Monday, March 29th, and today we are talking about how Visa might have just supercharged stable coin legitimacy. And this episode is one of the extended brief styles, five topics, each about a similar length, some a little bit shorter than others,

but there are just a lot of things that I wanted to touch on briefly. So without any further ado, let's dive in. First, let's discuss NFTs making it to SNL. I'm sure that you've seen it by now, but the Saturday Night Live cast led by Pete Davidson did a full song about NFTs to the tune of Eminems without me. Here's the setup. Janet Yellen is in a class talking to a group of econ students, and one of them, Pete Davidson, wants to ask about NFTs. A guy who looks suspiciously like Morpheus joins in, and then the janitor in the hall gives a cogent explanation delivered in rap form, of course, about unique digital scarcity. I did one of my Twitter surveys today asking about what you guys wanted covered on this show, and it is very clear you are done.

with NFTs for the moment. I respect it, so I just wanted to give my TLDR on my take about whether this is a top signal or a mainstream moment. To me, it all comes back to this thing that I've been saying, which is that we have to separate NFTs as a concept from, one, the price of NFTs right now, and two, the absolute schlock and BS those prices are attracting as people try to capitalize. I don't know when exactly the money top will be, whenever people stop buying literally anything that says NFT, assuming a greater fool will buy the next one, but it seems pretty clear that there is a there there conceptually. A part of why people are responding is that they like the new medium. I've talked about this from the music perspective where an artist like Justin Blow can find

the 50 fans that have the highest combination of passion for what they do and money and make the money that they would have for a full tour in one go. But the biggest evidence to me that it's not just fully a speculative market bubble is NBA Top Shot. They are the biggest NFTs by sales volume all time and it's not close. 4161 million in sales across 338,000 owners. The next closest is Cryptopunks with 184 million across just 2,000 owners. In other words, the thing that is the biggest in the NFT space is the one that completely abstracts away any notion of crypto. It's just about the end product. Of course, that end product is only possible because of the tech, but what people love is the NBA top shots themselves. Anyway, with that, let's move on to green Bitcoin mining.

As we've been discussing, post-Tether's settlement with the New York Attorney General and post-Tesla investment, the Bitcoin Environmental FUD has definitely ascended to the primary concern for this cycle. Last week, Fed Chair Jerome Powell referenced energy consumption as part of the reason he has skepticism around crypto, which isn't something I'd noticed before. Suggests to me that there is a growing behind-the-scenes narrative at the top levels of policy around Bitcoin Environmental Fudd as well. There are tons of answers to this, as we've explored extensively, but broadly I see them in three categories. The first is we get to decide what we value and what we spend energy on, with a subset of that being, let's compare it to the existing money system. A second response

is much more of Bitcoin is being produced by renewables than many critics think. And the third is that Bitcoin mining actually creates economic incentives and economic viability for otherwise unusable energy. Number three is by far my favorite, but I do think number two, much more is produced by renewables, is going to be important as well. Today, the UK-listed Argo blockchain, and Canada-based DMG blockchain solutions, announce that they are planning to launch TerraPool. Here's a quote from the release. TerraPool represents the first ever opportunity

for the creation of green Bitcoin. The initiative aims to expedite the shift from conventional power to clean energy and reduce the impact of Bitcoin mining on the environment. The mining pool will provide a platform for cryptocurrency miners to produce Bitcoin and other cryptocurrencies in a sustainable way. Adding onto that, the Argo CEO said,

addressing climate change is a priority for Argo and partnering with DMG to create the first green Bitcoin mining pool is an important step towards protecting our planet now and for generations to come. Now, I don't love the designation of green Bitcoin because it implies other Bitcoin isn't green and in that way validates and reinforces the narrative we're trying to combat. At the same time, we're dealing with a lot of politicians and pundits who need simple things to latch onto, which green Bitcoin could conceivably help. What's more, I like a hash power shift to better sources in terms of both renewables

and especially trapped sources, and so I'm glad to see that shift. It's also good because to the extent that the U.S. is home base for the environmental flood, Argo is expanding in the U.S. significantly. They purchased 320 acres in West Texas last month to open a 200-megawatt mining facility. Next, on this extended brief, let's discuss the Square CFO's comments on Bitcoin. When Square first announced its allocation to Bitcoin, some argued that even though it represented a much smaller percentage of the company's cash than, for example, what micro-strategy was doing, it might be even more influential

to other corporate officers. The reason, it was much easier to imitate. It's much easier for a CFO of another publicly listed company to take Squares' model of a small percentage of Treasury and make that argument to the board of directors and whoever else they need to get the approval of to actually make that allocation. This imitatability is why it's notable that Square's CFO has been an outspoken advocate for similar allocations. Fortune magazine's CFO newsletter this weekend featured an interview with Square CFO Amrita Ahuja. She said a few things. First, she and Square see Bitcoin and cryptocurrency in general as expanding access to financial services, especially when looking globally.

Second, she said that their investment represents about 5% of Squares cash now and that they intend to hold for the long term. Third, she said, quote, there's absolutely a case for every balance sheet to have Bitcoin on it. You can't be end. any clearer in your recommendation than that. 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%,

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Casper provides the blockchain ecosystem with a solution that makes no compromises around decentralization, security, or performance. Learn more at casper.network. Fourth on this extended brief, let's talk crypto, M&N. doubling in 2020. I've been following M&A in this sector here quite a bit, and we have some new data from Pricewaterhouse-C-C-cupers, or PWC, as they're now known, who released a report that said that M&A in the crypto industry more than doubled to $1.1 billion in 2020. The average deal size went from $19.2 million in 2019 to $52.7 million in 2020, with a greater share of that

taking place in Europe and Asia. M&A can tell a bunch of different stories. It can tell the story of a sector that is hurting. Coming off the end of a bull market, the companies with strong balance sheets can go discount shopping for audiences, technology, or any other asset they find desirable from companies with less ability to weather the coming storm. On the other hand, M&A can tell the story of a gearing up for big battles heading into a bull market. Exchanges, for example, picking up key pieces of the puzzle to compete in the landscape they see emerging. So over the last 12 months, defy and Dexes, NFTs, mobile applications. And indeed, you've seen, seen many crypto exchanges make these types of acquisitions. On the other other hand, assuming I guess

that you had three hands, M&A can tell the story of a shifting landscape of participants with new players from outside worlds coming in. That's what I believe a big part of the M&A's story of 2021 is going to be. Players like PayPal, Chase, Visa, big banks, etc., traditional finance, buying infrastructure to compete in a newly open landscape. In a world in which those big traditional financial financial institutions can and feel the pressure to go out and offer crypto and Bitcoin services to their customers, they're going to have to buy the capacity or at least partner with the capacity to do so because they don't have the time to build it from scratch. Indeed, Henry Arslanian, the global crypto leader for PWC, says that 2021 is, quote, already on track to significantly surpass

2020 from every single metric. Speaking of traditional finance and its relationship to the crypto industry, let's get to our main topic, Visa and USDC. Here's how Circle CEO Jeremy Aller put the news. Visa has become the first major payments network to support USDC as a native currency and settlement system on its network. This is massive news and marks a major turning point in mainstream adoption of crypto. What does this really mean? A customer who has USDC in a wallet and a card attached to their wallet, there are now dozens

of these, can spend at any Visa accepting money. merchant, and the USDC is used to settle the transaction with Visa instead of the legacy banking system. For Visa, this means they get the money as fast as a blockchain moves funds, without reversal risk, without the time delays and costs of Swift, ACH, etc. So we'll come back to exactly what that means, but a few more details. Visa is piloting this capability with Crypto.com. It's using the Ethereum network to settle the transactions, powered by Anchorage APIs, and it plans on offering USD settlement capability to Partners Beyond Crypto.com later this year. Interestingly, if you read the announcements, a lot of the emphasis is on how Visa can help the

crypto industry avoid touching fiat at all. From the Anchorage blog post about this, quote, the ability to quickly and securely settle transactions with a stable coin will effectively eliminate the need to involve fiat currency in crypto-to-cryptor transactions, laying the groundwork for much more widespread adoption of crypto as an asset class and the proliferation of stable coins as settlement tools. From the general press release, here's Jack Forstel, the chief product officer of Visa. Quote, the announcement today marks a major milestone in our ability to address the needs of fintechs managing their business in a stable coin or cryptocurrency, and it's really an extension of what we do every day, securely facilitating payments in all different countries all across the world.

Raj Parig, who works in crypto products at Visa tweeted, we gathered feedback from many crypto wallets and recognized that Visa's settlement process requires partners to settle their card transactions in traditional fiat currencies. This requirement adds treasury complexity for our crypto partners that are focused on enabling the power of digital currencies to their consumers. By enabling settlement in digital currencies, we're empowering crypto wallets to evaluate fundamentally new business models as they build their products and services with the foundation of public blockchains and digital currencies. Finally, here's how CoinDesk put it. Usually, crypto.com has to sell cryptocurrencies to cover its obligations to visa and cash, but this

new program will allow the company to pay in USC going forward. The pilot could be a bellwether for mainstream acceptance of crypto-native payment methods, as it marks the first time Visa has accepted a cryptocurrency payment in lieu of cash for its services. So again, as I said, a lot of this is about making it easier for these crypto companies to operate in the traditional system. However, there is another side to this as well, which is the potential benefit for Visa. Let's go back to what Jeremy Aller had to say about this. Quote, for Visa, this means they get the as fast as a blockchain moves funds without reversal risk, without the time delays and cost of swift and ACH. One of the major purported benefits to these new crypto-powered financial rails

is instantaneous final settlement, rather than the current settlement process which can take days, days that that means that capital isn't available for other purposes, and which can include costly chargebacks and disputes. In this new blockchain model, settlement happens almost immediately and it can't be reversed. That could be very powerful for a payment processor. It does bring up this interesting question, however, which is how much these new rails simply get absorbed into the old system. And are the people who are building these new rails okay with that, nervous about that, or genuinely enthusiastic about it? Now, when it comes to Twitter reactions, one of the more common reactions that I saw is that this is in some ways comparable to Bitcoin

Treasury adoption, because this sort of settlement transaction is a core tenet a core goal that Ethereum was built upon. I Am Nomad put this really crisply, saying, banks offering products for Bitcoin is incredible because they spent 10 years campaigning the world to ban it. Visa using USDC via ETH is amazing because that was always the benchmark. Quote, how do we get to Visa's size transactions per second? Turns out being able to reliably finalize is what was needed. Nick Carter responded to that tweet, putting it in meme form, saying, broke, becoming Visa scale at the base layer, woke, Visa literally becoming a layer two. Now, of course, there's also much skepticism, as you might imagine. Joe Wisenthal tweeted,

I strongly believe that this will go nowhere and I'd like to make a bet on this with someone. So in a sentence, here is my take on it. NFTs may be showing up on SNL, but it's the institutionalization of Bitcoin and now clearly stable coins and Ethereum that is driving this bull market, and I see no signs of that changing. Thanks for listening. I hope your week is off to a great start. Until tomorrow, guys. Be safe and take care of each other. Peace.