The Breakdown - Why KPMG's Bitcoin Buy May Be a Bigger Deal Long Term Than Tesla's

Episode Date: February 9, 2022

This episode is sponsored by Nexo, Arculus, FTX US and MELD.com. KPMG Canada announced Monday it added BTC and ETH to its balance sheet, as well as buying carbon credits to offset its new environmental impact. On today’s episode, NLW explores how the market and crypto community are reacting to the news, and why it may actually be more significant in the long term than Tesla’s buy from a similar time last year.  - Nexo is a powerful, all-in-one crypto platform where you can securely store your crypto. Invest, borrow, exchange and earn up to 18% APR on Bitcoin and 20+ other top coins. Insured for $375M. Audited in real-time by Armanino. Rated excellent on Trustpilot. Get started today at nexo.io. - Arculus™ is the next-gen cold storage wallet for your crypto. The sleek, metal Arculus Key™ Card authenticates with the Arculus Wallet™ App, providing a simpler, safer, and more secure solution to store, send, receive, buy, and swap your crypto. Buy now at getarculus.com. - FTX US is the safe, regulated way to buy Bitcoin, ETH, SOL and other digital assets. Trade crypto with up to 85% lower fees than top competitors and trade ETH and SOL NFTs with no gas fees and subsidized gas on withdrawals. Sign up at FTX.US today. - MELD is building the first-ever decentralized, non-custodial crypto to fiat lending and borrowing solution that will allow its users to lend and borrow both crypto and fiat currencies seamlessly. Users can stake MELD directly on the MELDapp, which will allow for governance voting for new protocol improvements, insuring the protocol, and earning up to 15% APY in MELD rewards. Start using MELD today at app.meld.com. - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell, research by Scott Hill 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 “Vision” by OBOY. Image credit: Miguel Pereira/Getty Images News, modified by CoinDesk. Join the discussion at discord.gg/VrKRrfKCz8.

This type of adoption announcement matters not just in terms of the firm that's adopting crypto, but in terms of how it normalizes this type of engagement with crypto for others. KPMG is setting up a template or model for how other firms that want to add proof-of-work assets to their balance sheet can while staying within an ESG paradigm. 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, Arculus, and FTX, and produced and distributed by CoinDesk. What's going on, guys? It is Tuesday, February 8th, and today we're discussing why KPMG's Bitcoin buy may be a bigger deal long-term than Tesla's.

First, however, if you are enjoying the breakdown, please go subscribe, give it a rating, give it a review, or if you want to dig deeper into the conversation, join the Discord. You can find the link in the show notes or go to bit.com slash breakdown pod. Also, as always a disclosure. In addition to them being a sponsor, I also work with FTX. And one more thing before we get into today's show. This week, as I announced yesterday, I am thrilled to have a special sponsor in Meld. If you have ever wondered how the rich are able to spend their money and still stay rich, it's because they borrow against their assets. Meld is creating a protocol that can be used by anyone and which offers that exact service, but in a decentralized way.

Users of Meld's protocols will be able to borrow dollars, euros, and other fiat currencies against their cryptocurrencies. If you want to learn more about the first defy non-custodial banking protocol today, go check out Meld.com. That's M-E-L-D dot com. And thanks again to Meld for sponsoring the show. Now, let's zoom back to a year ago. The big narrative was balance sheets, right?

It started with Michael Saylor, of course, and this was in the end of 2020. We had just gone through the beginning of the first wave of COVID-19 with shutdowns and tons of stimulus that came after. And this was a moment where many started to reevaluate how they thought about the world around them. And that was particularly true in the business context. This is the period in which we got Paul Tudor Jones' great monetary inflation thesis, where the famous hedge funder started to look to Bitcoin as a possible hedge against what he

anticipated would be generationally high inflation. Another person in the business world who was having similar thoughts was Michael Saylor, the CEO of Micro Strategy. He famously described his feelings with a visual metaphor, looking at all this cash that the company had on its balance sheet as a big melting ice cube. In September of 2020, Micro Strategy finalized their first Bitcoin buy, and many wondered if it would be a trigger for other companies to follow. Not long after, Square joined micro strategy and adding an allocation of Bitcoin to its balance sheet. But the big one coming into 2021 was, of course,

Tesla. In February, Tesla announced a Bitcoin buy, and it was a big deal. I mean, it was the rocket fuel that led to the new all-time high up over $60,000. We'd find out later that SpaceX also put Bitcoin on its balance sheet, but at that time it was all about Tesla, it was all about Musk. Remember that famous tweet? In retrospect, it was inevitable. People guessed even then that that was about Bitcoin and it seemed to be confirmed when that Tesla buy happened. Now, of course, a couple months later, Elon would absolutely break our fucking hearts. When Tesla announced that it was no longer going to accept Bitcoin for its vehicles because of concerns around its environmental impact, Tesla did not sell their Bitcoin holdings then, although they would sell a little bit later on,

but this move brought a ton of questions and consternation. Questions like how was it that a company and a person as smart as Elon didn't realize that there were environmental concerns that they should have during their previous due diligence process when they put Bitcoin on the balance sheet in the first place, and consternation because in many ways something that had seemed like it would be a net ally of the Bitcoin environmental narrative. words, Tesla, a green electric vehicle company getting in bed with Bitcoin being very positive for the way that the world viewed Bitcoin in terms of environmental impact, well, all of that

was turned around in a dash. And all of a sudden, Tesla was the main critic of Bitcoin's energy consumption. Of course, subsequently, there was a ton of discussion and debate and speculation around what sort of internal and external pressure Elon and Tesla faced after making that announcement, how much it had to do with ETFs that were potentially threatened. to delist Tesla, etc., etc. But the point was that, functionally speaking, it pretty well destroyed the corporate balance sheet narrative. Indeed, in the rest of 2021, it never really came back. China banned Bitcoin, El Salvador happened, things moved in a distinctly geopolitical realm. And of course, as I discussed yesterday, that shift to the geopolitical is definitely a narrative

right now that's picking up steam. There are a lot more discussions around the censorship-resistant properties of Bitcoin and other cryptocurrencies as we head into 2022. But oh, hold on to your horses because yesterday, KPMG Canada announced that it was adding Bitcoin and ETH to its balance sheet. The company tweeted, we have just completed an allocation of crypto assets to our corporate treasury, our firm's first of its kind investment in the asset class. This includes Bitcoin and Ethereum tokens and carbon offsets to maintain a net zero carbon transaction. In a press release, Karim Sadek, who is an advisory partner around crypto assets and blockchain services at the company, said, quote, we've invested in a strong crypto assets practice and we will continue to enhance

and build on our capabilities across decentralized finance, non-fungible tokens, and the metaverse, to name a few. A spokesperson told CoinDess, quote, KPMG in Canada is bullish on crypto assets. We believe they are here to stay and will consider other innovative investment opportunities in the future. Benji Thomas, who's the Canadian managing partner for advisory services, said crypto assets are a maturing asset class. Investors such as hedge funds and family offices to large insurers and pension funds are increasingly gaining exposure to crypto assets, and traditional financial services such as banks, financial advisors, and brokerages are exploring offering products and services involving crypto assets. This investment reflects

our belief that institutional adoption of crypto assets and blockchain technology will continue to grow and become a regular part of the asset mix. Nexto 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 18% 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 seasoned pro, get the most of your crypto today.

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Buy now at getarkilus.com. That's G-E-T-A-R-C-U-L-S.com. The breakdown is sponsored by F-TX-U-S. F-T-X-U-S is the safe, regulated way to buy and sell Bitcoin and other digital assets with up to 85% lower fees than competitors. There are no fixed minimum fees, no A-C-H transaction fees, and no withdrawal fees. One of the largest exchanges in the U.S. F-T-X-U-S is also the only leading exchange that supports both Ethereum,

and Solana NFTs. When you trade NFTs on FTX, you pay no gas fees. Download the FTX app today and use referral code breakdown to support the show. KPMG are one of the big four accounting firms, alongside Deloitte, Ernst & Young, and PWC, formerly priced Waterhouse Coopers. Around the globe, KPMG is a $32 billion revenue company with 236,000 employees worldwide. KPMG Canada is, of course, just a small slice of that, with revenue of just under 2 billion Canadian last year. So a first question that many had was, of course, how much did they actually buy? And KPMG declined to say, which led some to think that it could be pretty low and this, in fact,

might just be marketing. Jay Sloan tweeted without disclosure of the amount involved, and further context to its private balance sheet, it sounds like a marketing move to support and promote its practice area. Clever. Alex Venevick tweeted KPMG bought one Bitcoin and got free marketing worth millions. I don't actually know how many they bought. please don't sue me. Honestly, I think it's genius. They just became the default choice among the big four for crypto folks. We're going to talk about this a little bit more in a bit, but I sort of do

think that that response tells a bit of its own story. If it is now officially good marketing for big corporate accounting firms to talk about putting Bitcoin and Eth on their balance sheets, that's its own type of W. Other people liken this to previous buys from historically conservative sectors, such as the mass mutual buy a couple years ago. Grant Melson wrote, APMG adding Bitcoin and Ethereum is bigger news than Tesla adding BTC, no matter the relative size of allocation. KPMG is a big for accounting firm. People go to them for advice on exactly this kind of stuff. Tax, accounting, consulting, huge, bigger than Tesla. Everyone expects Tesla to do something crazy. Easier to dismiss than KPMG adding Bitcoin.

Macroscope rights of all the institutions and high-profile investors to go public on owning Bitcoin in recent years, KPMG's announcement today is right at the top in terms of importance and credibility. Hard to overstate this one. Brent Donnelly wrote, This is a big deal. KPMG is well respected in Canada, and this is not lunatic fringe or tech gigacad. This is a conservative slow organization

with strong finance tax and audit background. The all you can use it for is crime-hater narrative is dead. Zen Trades writes, massive news, KPMG equipping themselves with Bitcoin and ETH corporate treasury capability. They will monetize by selling the service to clients. KPMG clients are the world's biggest corporate companies. Have you considered a Bitcoin and Ethereum strategy? We can help.

Dmitri Kofenis, host of the most excellent Hidden Forces podcast, writes, I think it's become clear to TradFi investors that having zero exposure to crypto is no longer a viable strategy, and they will use dips in the market to accumulate. KPMG is just the latest example. So a few things that I want to discuss. One, as I intimated, I actually think the marketing thing is significant. It functions in two ways. First, as an advertisement to crypto companies that they should consider working with

KPMG, and second, as an advertisement to others dabbling in crypto that KPMG knows this space and can help them around their crypto strategy. It's also useful for us to note that in either of those cases being a priority for KPMG, the fact that they think it's worth the risk trying to get marketing value from this. Remember, getting involved with crypto is not a zero-risk strategy. The vitriol for this industry is incredibly high, especially relative to other sectors of the market, so that means you have to kind of have high conviction that this is a good move. Speaking of vitriol towards this market, I saw almost no commentary on the carbon credits that KPMG bought to offset their proof-of-work allocation.

Now, to crypto people, this is obviously a quite secondary part of the news, and I also think that there may be a fair amount of skepticism in this space around carbon credits and carbon markets. However, that's not the piece that I want to focus on. What I want to focus on is the precedent for other firms. This type of adoption announcement matters not just in terms of the firm that's adopting crypto, but in terms of how it normalizes this type of engagement with crypto for others. KPMG is setting up a template or model for how other firms that want to add proof of work assets to their balance sheet can while staying within an ESG paradigm.

Now, of course, ESG investors could reject this as insufficient. However, what matters, my guess, is whether it appears to be a credible and good faith effort that others can model on, and I think that's likely the case. It's certainly a lot better than Tesla's pretend not to notice environmental concerns than backpedal two months later, completely screwing up the narrative for at least a year approach. Which gets me to the title of this piece, why it may be a bigger long-term deal than Tesla. Let's talk about where Tesla's Bitcoin buy has the edge. Tesla obviously has more power to drive headlines. It's a massively larger company, which means structurally its investment is bigger, no doubt, and the decisions it makes in the future

are likely to have bigger impacts. Then there's the Elon factor. No one can drive attention like he does, although, of course, as we quickly learned, that's a double-edged sword. Now, what about the KPMG deal? What does it have in its column of significance? It reboots a narrative that was gone,

rather than what Tesla did, which is, again, confirming and then completely torpedoing that narrative. It also shifts that narrative to a more boring and imitatable version. Elon and Tesla's exceptionalism cut both ways. They are easier to get headlines, but also easier to dismiss is something that other businesses will likely do. Where KPMG sits is more relevant for a wider cross-section of company. In other words, accounting and tax advice are applicable to everyone.

These are firms that are speaking to and working with an incredibly wide cross-section of the public and private business landscape, and so there's more opportunity, presumably, for this type of thinking to find its way into those clients and partners. There is, of course, also the Ethereum piece. It's one of the more interesting and relevant conversations out there about the extent to which ETH is shifting into a comfortable place as a store of value competitor. There's been a growing bit of conversation around this,

thanks to, I think, the twin forces of last year's EIP-1559, which burns part of the gas fee with each transaction, making ETH in the long run into a likely deflationary currency, as well as the high gas fees that have made ETH very difficult to use for many transactions over the course of the last year. Now, tons of my dot ETH friends out there will probably have very different perspectives on this, and there's also a lot here to discuss decentralization and censorship resistance, if that is indeed a big part of the narrative this year. However, I think it's very likely to be

a bigger subject of discussion going into 2022, and so the fact that KPMG is putting ETH on its balance sheet as well is pretty notable. Ultimately, however, to be clear, it doesn't really matter which is a bigger deal. That's the type of thing that is good title fodder for a podcast and also hopefully a good organizing dialectic for this episode, but in truth, each bit of adoption matters in its own way, to different people and for different reasons. Speaking of which, have to give one more focus on adoption. Cash App tweeted yesterday, the Lightning Network is now available on Cash App. It's the fastest free way to pay anyone in Bitcoin.

Buy tacos, tip your favorite Twitter comedian, or send a friend money abroad, anywhere that accepts Lightning. Udi Wertheimer, of all people, said pretty cool that Cash App launches Lightning Network support for all users today. Easy to be cynical and write this off, but truth is we've come a long way and three years ago this would have been unimaginable. Derek Ross said last year, Cash App had 70 million users transacting with their app.

They just onboarded all of them to the Bitcoin Lightning Network. Wild. In the same day, we have two very different adoption stories. We have a corporate adoption with a path to more corporate adoption, and we have a ground-up user adoption. And as I said, they're both significant in different ways. These are the types of stories, I think, much more than any short-term price action

that should help you shape your perspective on how bullish or bearish you are about this space as a whole. For now, I want to say thanks again to my sponsors, nexo.io, arculus-tX and meld.com, and thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.