The Breakdown - Why the CEO of New York Life Just Joined the Board of One of Bitcoin's Fastest-Growing Companies

Episode Date: March 11, 2021

Today on The Breakdown, NLW catches up on the news from the past few days, looking at: NFTs heating up – and capturing some negative attention in the process Infrastructure acquisitions and M&A heat up Eliminate Barriers to Innovation Act 2021 Coinbase’s $100B valuation NYDIG’s $200M round and new board member -- 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

This is a historically conservative industry coming into Bitcoin, and in so doing, creating an incredibly strong foundation for it. The size of the capital at stake with insurance general accounts, it's massive, by some counts bigger even than the balance sheets of Western Central Banks. It also continues to feel to me like we're in a tip of the iceberg moment, where these things that we're seeing actually represent more just under the surface. 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 CoinDes. What's going on, guys? It is Wednesday, March 10th. And today we are talking about why the CEO of an insurance giant has just joined the board of one of Bitcoin's fastest growing companies. If you've been listening along, you know that I have actually.

been out since the end of last week because of the new baby. We welcomed him on Sunday morning. He and Mama are doing great. His big sister is incredibly excited to be a big sister. And we're having fun with two under two and a half. Given all that, today is actually my first new episode since the end of last week. And so I wanted to do one of my sort of extended brief catch-ups where I look at a variety of topics with slightly more depth than a brief, but not quite as much as a normal full show. With that in mind, let's start with NFT mania. This thing is kicking into high gear. Since I've been gone, we had Jack sell his first tweet. We've had Taco Bell get into the NFT game. Grunkowski get into the NFT game. Jack's first tweet going up for sale via cent was

particularly divisive. You had some people asking why, Jack, why, especially those who feel that NFTs are just the second coming of ICOs. And then on the other hand, you had people like Justin's son who were bidding it into the millions of dollars. Now, in terms of that specific first tweet ever, Jack has said that he's going to donate all the proceeds through give directly, but it's really brought up a lot of questions. There are certainly the questions of why anyone would want to own tweets. But there are also questions of intellectual property and who has the ability to mint an NFT. Meltem DeMiris tweeted, here's a question. People keep tokenizing my tweets as NFTs? How does someone else monetizing my Twitter feed help me in any way as a creator?

Genuinely perplexed. Adding to this is the title acquisition by Square. So basically, Square announced that it was acquiring title, which is the musician's first streaming network, started by Jay-Z, among others. As part of the deal, Jay-Z was going to join the square board. Many speculated that, in fact, NFTs were a part of it. Lex Sulliken wrote a piece on CoinDesk arguing that, and I want to read a quick excerpt. Why does a mobile wallet want to own this property? In part, the customer acquisition strategy for cash app has been through influencers in the hip-hop community, including by giving out Bitcoin to followers. This is a massive leverage growth hack. Square is buying a unique go-to-market strategy, also getting a lot of artists as customers who are in essence running

small businesses. Being a small business banking alternative, Square is well positioned to, one, bank and monetize the creators, and two, then use the voice of the creators to grow adoption of square itself. Putting the royalty economics on chain and then turning those into a liquid market connected into decentralized finance is a pretty large paradigm shift. You could own the royalty stream. You could collateralize it to take out a loan. You could stake it as an object that allows you some governance rights. You could create a portfolio or basket of various creative objects and turn them into an index that generates dividends. You could lever up that index and buy downside protection and so on. So there continues to be a lot of interesting exploration. I've got a

slew of PR announcements about famous people doing NFTs in my inbox right now. And fascinatingly, the Boil the Ocean Fud crowd has now taken firm sight at NFTs, saying that they are basically evil and that anyone who does crypto art should be bullied on Twitter. This is not something that I would have anticipated, but certainly adds some intrigue to this whole space. Next up, however, I want to shift gears and talk about infrastructure acquisitions with specific focus on PayPal's acquisition of Curve. Last week, we discussed the rumor that PayPal was buying Curve, which is described as a provider of cloud-based infrastructure for digital asset security.

Said PayPal confirming the acquisition, the acquisition of Curve is part of our effort to invest in the talent and technology to realize our vision for a more inclusive financial system. Here's the key line to me from the Coin Desk piece about this acquisition. PayPal, which partnered with New York State regulated Paxos to offer buying and selling of cryptocurrency starting in October, was known to be on the hunt for a crypto custody acquisition. The payments giant was reported to have been in talks to buy BitGo for as much as $750 million, though the deal fell through.

Multi-party computation shops like Curve and Fireblocks are in short supply in Crypto Land. The latter is reportedly working on crypto custody with BNY Mellon. I've said it before, I'll say it again, this is going to be one of the biggest areas to watch in 2021. There is going to be an absolute M&A spree as traditional finance companies. companies race to be able to offer crypto services now that that has been cleared from a regulation perspective. And by the way, on that front, one of the questions coming into the Biden administration was whether they would immediately roll back the changes that Brian Brooks made at the Office of the Comptroller of the currency. Every week that they wait, it gets tougher and tougher because

more of these giant traditional finance institutions get in the game. And speaking of regulation, let's talk about the Eliminate Barriers to Innovation Act 2021. Some in Congress apparently feel there is a need for greater clarity around crypto regulation. And importantly, these aren't folks that have historically wanted to box crypto in or even ban it, but instead a group that has emerged as some of the strongest advocates for innovation. The co-sponsors of this bill are representatives Patrick McHenry, who is a Republican from North Carolina, Stephen Lynch, who is a Democrat from Massachusetts, Glenn Thompson, a Republican from Pennsylvania, Ted Bud, a Republican from North Carolina,

and Warren Davidson, a Republican from Ohio. The key goal of this bill is to create a working group effectively to figure out what sits with the SECC and what sits with the CFTC, what is a security, what is a commodity. Within 90 days of the bill's passage, they would put together a working group, including members of both of those offices, and then they would have a year to put together a report. The report would also include recommendations around custody, private key management, cybersecurity, security, fraud prevention, investor protection, but also recommendations around digital asset markets, including, quote, their fairness, orderliness, integrity, efficiency, transparency, availability, and efficacy.

I for one, am certainly very happy to see new bills around Bitcoin and crypto being introduced by people who want more rather than less innovation and who believe these technologies could be transformative around many of the goals that people on both sides of the aisle hold as of the highest order, such as the reduction of wealth and equality. 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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security, or performance. Learn more at casper.network. Let's move back over into the institutional world and talk about Coinbase's IPO valuation. As I mentioned previously, I think we're going to see an M&A bonanza. But we also could see more companies following Coinbase's lead to go public. And what you have together then is effectively a year of big liquidity for crypto companies. This makes sense, right? Companies that live through the last cycle have this notion that we sometimes seem to get one crazy bullish year for three rough ones.

So I'm not at all surprised to see these companies who are thinking about getting acquired or thinking about going public trying to strike while the iron is hot. Whatever the case, it is definitely a year of liquidity. And of the public listings that will or might occur, Coinbase is definitely the biggest. In February, shares were trading on secondary markets for around $303, implying a $70 billion overall market cap. Now they're trading at 350 plus suggesting more like $90 billion. These numbers are also less bullish than the traders on FTCs, which listed a Coinbase pre-IPO contract. On that site, they were trading at these 350 plus numbers about a month ago, while today the numbers are a full 25% or more higher in the $440 to $450 range, suggesting a

valuation well north of $100 billion. Who is right? Well, we'll have to wait and see on that. But keeping with the theme of public exposure to crypto markets, we also got some news out of J.P. Morgan, yes, famously crypto-sceptical J.P. Morgan. They're launching a debt-based instrument that is a cryptocurrency exposure basket with long positions in 11 companies that have crypto exposure or are themselves in the crypto industry. This includes companies like Micro Strategy, Square, Riot, NVIDIA, PayPal, the Intercontinental Exchange, which owns BACT, CME, and more. Sort of feels, frankly, tailor-made to be a vehicle providing exposure to Coinbase when it comes through. And it brings up to me an interesting debate. Will instruments like this JPMS,

instrument or like Coinbase more specifically. One, incentivize more people to actually start to get into the underlying asset, i.e. Bitcoin, because they're making the whole industry feel safer and more accessible. Or will it be the opposite, where the listing of Coinbase or this JP Morgan product will actually stem the flow into Bitcoin or other crypto assets because people feel like they have enough exposure already through these less risky, more traditional type of instruments. It feels to me like it could easily go both ways, but then again, that's what a market does. In an ideal world, markets are rich and full and complete enough to allow everyone at every

different part of the risk spectrum to find the right type of exposure for them. But speaking of risk and more specifically de-risking this space, let's move to our title topic around Nidig. These guys burst onto the scene last year. First, it was the announcement that they had helped their parent company Stone Ridge put a bunch of money into Bitcoin Treasury. Turns out, as you would have heard if you heard my interview with CEO Robbie Gutman, that this was just the unveiling of more than four or five years of work in the Bitcoin space. Now, this was followed a few months later by an announcement that they had

helped Mass Mutual buy $100 million in Bitcoin. Mass Mutual also put $5 million into Nidig as part of that relationship. The Mass Mutual Buy had even more resonance for some than the micro-stratory or square balance sheet purchases because of how historically conservative insurance companies are. Still, where Nidig really hit the public brain sphere was this year when the CEO of Stone Ridge, the parent company Ross Stevens, spoke at Michael Saylor's Bitcoin for corporations event. I actually read Stone Ridge's investor letter from last year, which had many of the same themes as that presentation for a previous Longreed Sunday. Well, on Monday, Nidig announced a massive new round of financing,

The number was $200 million, but the participants were even bigger news. Mass Mutual was back in the fund, but so too was Morgan Stanley, Soros Fund Management, and New York Life. The press release suggested that all of these investors were not just equity investors in Nidig, but were actively working on Bitcoin-related initiatives. In the press release, Robbie Gutman, the co-founder and CEO of Nidig, was quoted as saying, the firms participating in this round are more than investors. They are partners, each well known to us for years. NIDIG will be working with these firms on Bitcoin-related strategic initiative

spanning investment management, insurance, banking, clean energy, and philanthropy. In the months and quarters ahead, look out for an explosion of innovation in Bitcoin products and services delivered by Nidig in partnership with our new investors. If that feels like a slightly cryptic note to leave a press release on, we didn't have to wait long for more information. Today, they extended this news with another announcement that shows a clear doubling down from one of these partners on Nidig and Bitcoin as a whole. Nidig announced that Ted Mathis, the CEO of New York Life, was joining their board of directors. Mathis became CEO of New York Life in 2008 and was named chairman in 2009. New York Life is the nation's largest mutual

life insurer with more than $700 billion in assets. Mutual insurance companies are companies that are actually owned entirely by policyholders. So New York Life is the third biggest life insurance company overall and the largest mutual life insurer. In 2019, it had $44 billion in revenue, over 11,000 employees, was number 71 on the list of largest U.S. companies by revenue. And keep in mind, this is a company that was started in 1841. Mathis is also the chairman of the American Council of Life Insurers, which is a trade association that represents 280 member companies, which collectively represent more than 95% of the U.S. life insurance industry and over $7 trillion in assets. Why does this matter? Well, as we've discussed before, this is a historically

conservative industry coming into Bitcoin and in so doing creating an incredibly strong foundation for it. I had some comments from a listener who has Interaxis on Twitter, who has previously worked with mutual insurance companies, and he had this to say around that first investment, and obviously it still applies now to New York Life, given that New York. New York Life is, like Mass Mutual, a mutual insurance company. He said, quote, Mass Mutual investing in Bitcoin is different than MicroStrategy. First, Mass is an insurance company, which means they have their reserve requirements. This has to be in very low-risk assets, usually government debt. The idea is to have cash on hand to pay claims and to match short and long-term

income with actuarial data and potential claims in the future. Then, add to that fact that they are a mutual and there is not a profit motive like Micro Strategy. They aren't publicly held. owners of the company are the participating life insurance policy owners. Mass has to be even more conservative than most insurance companies. They have to offset potential future claims with current and future revenue and with income and growth of investments. However, much of their investment has to be conservative. Much of their competitive edge is in the ability to maintain a consistent dividend for their policyholders. With such low interest rates now and in the future, this becomes difficult. That makes the Bitcoin choice that much more interesting. To be fair, they have billions of dollars

and they chose to invest $100 million, so it doesn't really move the needle. However, they saw enough need to offset low interest rates and found the best place to invest that $100 million was in Bitcoin. That was written about mass mutual in the context of last fall, but I think it still applies to New York Life, given that it is as well a mutual insurance company. Now, there are a couple other reasons that this feels like a big deal to me. First, of course, is just the size of the capital at stake with insurance general accounts. It's massive.

by some counts bigger even than the balance sheets of Western Central Banks. It also continues to feel to me like we're in a tip of the iceberg moment where these things that we're seeing actually represent more just under the surface. Nick Batia, who was on the show a couple weeks ago, tweeted out, getting this feeling that Nidig is about to bring institutional adoption of Bitcoin to some next-level shit. Anyways, guys, there is so much more to discuss. We had a bunch of weird Twitter account suspensions last night,

so lots and lots going on. but I think we'll leave it here for now. As I mentioned at the top, we've got now a newborn and a toddler, so it's not impossible that I'll have to have some last-minute reschedulings, maybe a few more long-read-style episodes, if last-minute baby things come up. But more or less, we are back to our regularly scheduled program, and as the markets start to rocket,

and as all these crazy announcements keep coming in, I'm so glad to be back. Until tomorrow, guys, be safe and take care of each other. Peace.