The Breakdown - Visa's CEO on Crypto: "This Is a Space We Are Leaning Into in a Very, Very Big Way"

Starting point is 00:00:00 What's happening is that more or less every central bank in the world is walking down the CBDC path. That means a total retrofitting of the financial piping. This will be for a company like Visa, the single biggest and most important transition in the company's life. They either win and carve out their place in the new regime, or they'll be relegated to the past. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the BigPymp. picture power shifts remaking our world. The breakdown is sponsored by nexo.io and neir.org and produced and distributed by CoinDesk.

Starting point is 00:00:40 What's going on, guys? It is Wednesday, April 28th, and today we are talking about recent comments from Visa's CEO on crypto. But first, let's do the brief. First up on the brief today, Elon pumps Doge again. Okay, okay, Elon, we get it. You like Doge. You think it would be hilarious. if Doge became the reserve currency of the Intergalactic Federation because nature loves irony, we understand. But you can still choose to stop. Early this morning, Elon tweeted the Doge father, S&L, May 8th. Now, you would think at this point the ability for something like this to pump the price

Starting point is 00:01:18 of this meme coin would be nil, but oh no, that is not the case. The thing is, it doesn't matter that many other parts of the crypto industry now have prices that go up or down more or less based on things like broad trajectories, macro narratives, and market structure-based reasons, Doge is pure play money on a meme. That means that the relevant game isn't what should happen. It's what do you expect other people think will happen. Right now, Elon tweeting about Doge sending Doge's price up is the easiest reflexive memetic bet in the market, and it just keeps working. Doge was up 20% to over 31 cents per coin. and as an aside, apparently Dogecoin mining revenue is up like 4,500% this year as well.

Starting point is 00:02:03 So, anyways, one other Elon-related thing. Yesterday's episode was all about alternative takes on Tesla's Bitcoin selling. Well, I read another great one yesterday evening from Arceras, who describes themselves as an IP-clatured attorney who recently became a Bitcoin maxi. It's a quick thread, so I'm going to just actually read it right here. A short thread on Tesla selling 10% of their BTC. The sale, in order to demonstrate liquidity, is a totally legitimate action on their part. It looks as if this move may have been premeditated by Elon Musk to defang shareholder derivative

Starting point is 00:02:37 lawsuits. Master had the ability to announce their intention before buying and give their shareholders time to be bought out at a premium. This worked for Michael Saylor since their initial announcement was unlikely to move Bitcoin much. Their shareholders were a much smaller group than Tesla, and at the time, they were a lower profile company than Tesla. If Tesla were to pre-announce like Master did, media hype would not only move the Bitcoin price in advance of their purchase, but that alone could be seen by some investors as a breach itself, since it would clearly move the price against Tesla. Of course, Tesla could have hoddled, but given the negative attitudes still present towards BTC, anything that could be done to weaken the case for a shareholder lawsuit would be worth

Starting point is 00:03:15 it. By demonstrating that BTC has sufficient liquidity to freely trade like USD, they have weakened one of the biggest arguments that could be used against Tesla. It would not be surprising if this was part of their initial plan and was priced into their initial purchase. One could also consider that by taking this action, Tesla has done a great service to all future companies that put BTC on their balance sheet. I could be wrong, but were I to be in the position that I'm trying to minimize lawsuit routes on the score? This is how I'd play it. Next up on the brief today, we've got the details of Biden's plan, that is, his $1.8 trillion American family's plan. It includes $1 trillion in spending, plus $800 billion in tax cuts and credits for middle and lower income families. It would make pre-K and community college

Starting point is 00:03:58 free across the country. It would extend a child tax credit. On the other side are, of course, the wealthy. And in case it wasn't clear that this was the central rhetorical device of the Biden administration, here's a quote from a memo obtained by Bloomberg by a White House senior advisor this morning. The president has been clear that our tax system is broken when a hedge fund manager making hundreds of millions of dollars is paying taxes at a lower rate than the janitor working in his office or the housekeeper at his mansion. And he's going to take steps, steps which are supported by the American public, to address the fairness in the tax code. The big part of this, of course, would be making capital gains more akin to wage income,

Starting point is 00:04:35 raising the top rate to nearly 40%. And this is where the big fight's going to be. The chief opponents are actually not just going to be Republicans, but are going to be moderate or conservative Democrats like Joe Manchin of West Virginia, who has been opposed to most tax increases favoring, in his words, to focus on closing loopholes in the instead. One note, the plan does not include an expansion of the estate tax, so get ready to hear about this a lot more in the months to come. Finally, speaking of governments, let's do a little mini-regulatory roundup for this third section of the brief. Two stories from the U.S. The first is that the SEC has pushed a decision on the Vanek Bitcoin ETF to June at the earliest. This surprised

Starting point is 00:05:15 precisely no one. The SEC can take up to 240 days to decide, and most think it will exercise that full window no matter where it's leaning. Next, Square is buffing up their regulatory game. They've added a Bitcoin policy lead in Julie Stitzel, who was formerly at the U.S. Chamber of Commerce. In their announcement, they gave a pretty generic description. Julie will advise teams within Cash App on the evolving Bitcoin policy sphere, will help Square advance our strategic and long-term thinking on crypto issues, yada, yada, yada, it's clear what's here is more anticipated regulatory discussion on the way. Two more from abroad before we wrap this brief. First, Iran will be allowing financial institutions in the country to use Bitcoin mine from

Starting point is 00:05:55 minors they approve in paying for imports. This is, on the one hand, basically an acknowledgement of Bitcoin as a currency, or at least a settlement currency, by a national government. It is also, on the other hand, the type of thing most likely to trigger animosity from the U.S. government and give fuel to those who say that Bitcoin is just a tool for evading U.S. sanctions and control of the global economic system. The second global regulatory story comes from Turkey, and Turkey has just been supremely weird when it comes to crypto. Two exchanges are currently being investigated, one with the CEO that's missing.

Starting point is 00:06:26 The central bank promised to ban crypto as a payment method starting in a couple days, but then had some weird walking it back on state TV. And now they're actually discussing creating a central bank crypto custodian to eliminate counterparty risk. In other words, a central bank actually holding crypto. This is a pretty amazing evolution and something that I'm going to keep my eye on closely. 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.

Starting point is 00:07:15 Did you know nearly $338 million worth of NFTs were sent last year? And in 2021, that number is growing faster than ever. Looking to make your first NFT? Check out NEAR's fast, scalable, low-cost, open-source platform. Learn why NEAR is the infrastructure for innovation at NEAR.org. That's N-E-A-R-O-R-G to learn more today. With that, let's shift to our main discussion. It is earnings call season, and of course, earlier this week, it was an earnings call where we learned

Starting point is 00:07:54 about Tesla's sale, about 10% of its Bitcoin. Yesterday on their earnings call, Visa Chairman and CEO Al Kelly discussed crypto, and where it got really interesting was in the Q&A section. Dan Dahliv from Mizzuho Securities asked, you spoke a little bit about Bitcoin earlier and about the use case for crypto and Bitcoin on cross-border transactions. Can you talk a little bit more about that and the kind of progress you're making on settlement and stable coins and the steps you've taken on Ethereum? I think there's a lot of interest out there and what you guys are doing there and how it's positioned.

Starting point is 00:08:23 Al Kelly positively jumped out of his seat to answer that question. And interestingly, it wasn't your standard couple of lines. This was a full framework. So let's go through to see how they actually see this market. First of all, they split the market into two broad segments. The first is Bitcoin. They say primarily assets held by people, not use much in payments. We think of them as digital gold.

Starting point is 00:08:46 The second are what they consider digital currencies, which interestingly, they include within both CBDCs and stable coins, basically anything directly backed by existing fiat currencies. It's clear that Visa, as a payments company, is a little more focused on the second area. Indeed, Kelly said that this area is, quote, definitely emerging as a payment option, and they're running a public blockchain, which is really, in essence, an additional network much like an RTP or ACH might be. Kelly then goes on to articulate five different opportunities they see in the space. The first is super simple. Enable customers to make a purchase of these currencies or Bitcoin. They said they're working with wallets and exchanges to make sure they're facilitating acceptance

Starting point is 00:09:24 in people's ability to use their Visa cards to buy. The second opportunity is, quote, enabling digital currency cashouts to Fiat, and this to me is really interesting. The idea here is converting digital currency to Fiat on a Visa credential, which, quote, then makes those funds available for shopping at any one of the 70 million visa merchants and gives immediate utility to the digital currency. This is akin to PayPal's work to make crypto viable for its network of 29 million merchants. There is a race to make crypto payment accessible to merchants, but this time it's an automatic in the background thing. What's more, it's clear positioning for the CBDC era, and more on that in just a little bit. Now, Kelly also mentioned that more than 35 digital

Starting point is 00:10:06 currency platforms and wallets have chosen to work with them, including Coinbase, Crypto.com, block five, fold, Bitpanda, and more. The third operational. that Kelly mentions is the fruit of the regulatory changes at the OCC last year. I've said a bunch of times that one of the big battles this year is going to be for who gets to provide the underlying infrastructure for traditional financial companies to offer crypto services to their end users. Here's how Kelly describes their third opportunity. Quote, enabling financial institutions and fintech partners to be able to have a crypto option for their customers. He discussed how they created APIs for financial institutions to purchase

Starting point is 00:10:44 custody or even trade digital currencies, and also mentioned their partnership with Anchorage as the first federally chartered digital asset bank on this area. They talk about their first rollout with First Boulevard, which is, as Kelly puts it, a digital neobank focused on building generational wealth for the black community. I don't know about you guys, but I'm pretty excited to see a company no less than Visa connecting the dots between crypto and building generational wealth for the black community. The fourth opportunity area is around settlement, and again, this is another something that I've previously reported here. They've upgraded their infrastructure at Visa to allow financial institutions to settle with digital currency stable coins starting with USDC.

Starting point is 00:11:24 Now, Visa transacts in 160 currencies every day and settles every evening in 25. USDC is now among them. In his comments, Kelly said that it's similar to settling in USD, but obviously with some new integration work required with custodians and other partners. Last on the opportunities list is central banks. Central Bank. Central Bank digital currencies specifically in, this is the silver tuna. So let's just read his full comment. Quote, central bank digital currency is being explored in many nations, and I think it could end up proving to be quite valuable in countries where the infrastructure to distribute cash is either unavailable or limited. And it's one of those factors that hinders these 1.7 billion people

Starting point is 00:12:04 I referred to in my remarks that are outside the financial mainstream for being in the financial mainstream. So we're talking to central banks about the criticality, though, of public-private partnerships, and in particular, the criticality of acceptance, because for these central bank digital currencies to have value, they're going to have to be secure in the minds of consumers. This is, I think, in many ways, driving all of the rest of this. The last time there was a battle for crypto payments, it was 2011, 2012, 2013, and it was just about Bitcoin. There really wasn't much merchant demand, and early hodlers didn't super want to part with

Starting point is 00:12:39 their Bitcoin either, which is why that faded away. What has changed? Are there really more people who are desperate to pay with their crypto? Not really. What's happening is that more or less every central bank in the world is walking down the CBDC path. That means a total retrofitting of the financial piping. This will be for a company like Visa, the single biggest and most important transition in the company's life. They either win and carve out their place in the new regime, or they'll be relegated to the past.

Starting point is 00:13:08 It sounds bombastic to say that, but I would 100% believe it to be true. The advantages that digital currencies offer in terms of things like settlement time and assurances are simply going to be too big for them to be anything but totally ascendant. Now, Visa naturally has a lead right now, right? It's a brand that people already trust. There is a world in which everything transfers over to a central bank digital currency system, but the end user experience remains largely the same. That will work if and only if companies like Visa lead the charge. If they don't do it, however, if they don't rebuild their rails to accommodate crypto and digital currencies and in the process position themselves to be part of the bold

Starting point is 00:13:46 new future, someone else will. This is the key fintech arms race of the next decade. And it's going to do nothing but get louder from here. Anyways, guys, I appreciate you listening. I hope you're having a great week. Until tomorrow, be safe and take care of each other. Peace. We're witnessing the greatest paradigm shift in finance in modern history. Join thousands of newsmakers and influencers talking the future of money at Consensus by CoinDesk. A live virtual experience of leaders, change makers, virtual reality meetups, keynotes from Ray Dalio, Gary Vaynerchuk, and much more. Get an up-close look at the boom in crypto, the surge in institutional investment in Bitcoin,

Starting point is 00:14:26 the NFT mania, the breakneck innovation and decentralized finance, and the coming disruption from central bank digital currencies. The breakdown listeners can visit events.coindex.com and use the promo code breakdown to save $25 today. Join us, May 24th through May 27th for Consensus by CoinDesk, and register today at events. coindes.com because ticket prices go up at the end of this month. Thanks for listening and we'll see you there.

The Breakdown - Visa's CEO on Crypto: "This Is a Space We Are Leaning Into in a Very, Very Big Way"

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