The Breakdown - Will Mayor Suarez's Miami Be the First Major City to Buy Bitcoin?

Episode Date: January 16, 2021

Today on the Brief: Initial jobless claims grow the most since March Biden unveils emergency relief plan Fed Chair Powell discusses CBDCs and stablecoins Our main discussion: Is Miami about to put 1% of its treasury into bitcoin?  Since December 2020 there has been a lot of conversation about whether Miami could become the next Silicon Valley, or at least recruit a big swath of entrepreneurial talent to set up shop.  In this episode, NLW looks at how that discussion moved into the crypto realm and led to Mayor Suarez’s recent discussions about moving Miami’s treasury into bitcoin. He argues that the story is about the larger shifts in how cities and geographic regions compete for supremacy in the social media, remote work era. -- 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

It feels to me very likely that Mayor Suarez is actually going to push for this Bitcoin thing to happen. The headlines are just too massive not to. I mean, just the possibility of it has national TV appearances happening. Should that go through, it opens up yet a new category of demand in the form of municipal budgets. And the tail ones are there for him. Let's go back to what he said. If he did it last year, he'd have looked like a genius. 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 produced and distributed by CoinDesk. What's going on, guys? It is Friday, January 15th, and today we're talking about Miami and whether it will be the first major city to buy Bitcoin.

First up, however, let's do the brief. First on the brief today, a big jump for jobless claims this week. Initial jobless claims rose 181,000 to 965,000. We're almost back at that million number. It's the biggest gain since the pandemic hit, and is kind of easy to explain, although really frustrating. Consumer spending during holidays was retreating, but even that wasn't a huge boom. Retail sales actually fell 0.7% in December. People effectively are nervous again. The coronavirus case load is rising. The vaccine is rolling out, but we're seeing all these reports of delays and inefficiencies. And so people are naturally retreating into themselves. They're spending less. They're trying to be more resilient. And so that's all combining to create

this not very good situation. Which leads, of course, to our second point, Biden's new relief plan. It was speculated that this could top the scales at $3 trillion, but was actually $1.9 trillion. direct checks are $1,400 in this plan, and the Progressive Wing has vowed to fight for that full round 2000 that the meme and the political promise had focused on for the last month or so. All of the major stock indexes are down about a percent on the news, and it seems not so much like Wall Street is outright rejecting this, more just that they weren't impressed. Which brings us to our third point on the brief, which was Jerome Powell's comments yesterday. Fed Chair Jerome Powell spoke at an event hosted by Princeton University. He reinforced when it comes to

the macro economy that policies are staying the same and that were far away from full employment. He also spoke, however, about CBDCs and stable coins. On central bank digital currencies, he said, quote, we don't feel an urge or need to be first. Effectively, we already have a first mover advantage because the U.S. dollar is the reserve currency. He also said that it would be years rather than months before there was any sort of US CBDC, but they're investing heavily in understanding. Not so much new, but an acknowledgement that the place of the US dollar as the reserve currency does make them feel like they have more time to figure it out. Now on stable coins, his big point was that they need better regulatory answers.

Quote, they could become systemically important overnight. We don't begin to have our arms around the potential risks and how to manage those risks. The public will expect that we do and has every right to expect that. So that's something we've been working with our colleagues on around the world. Finally, an interesting little tidbit. He basically admitted that it was the rise of Bitcoin that got them to pay attention to private monies at all. So with that, let's turn our attention to the next step in the rise of Bitcoin.

Will Mayor Suarez's Miami be the first major city to buy Bitcoin? This is one of my favorite types of shows. nominally, it's about this one thing, which is, of course, Miami buying Bitcoin reserves, but really it's about an interconnected set of megatrends converging to show how the world is changing. To start this story, I'm actually going to go all the way back to Silicon Valley after World War II. Silicon Valley is the story of offline networks of human capital that invented and created the online world, which is, as we'll see, the ultimate mechanism for its own destruction. This is a classic story, the incumbent giving birth to the mechanism for their own disruption. So to go

briefly back to that history, you had an incredible post-war boom in education. Stanford University appointed Frederick Termin, dean of the School of Engineering, and he had a huge impact there. He spearheaded the creation of the Stanford Industrial Park, now the Stanford Research Park, where the university actually leased parts of its property to high-tech firms. Among his students were Bill Hewlett and David Packard. So Stanford created as a part of our story, both an ecosystem of knowledge and people, but also real estate places to put the companies that they might build. But that's not the only side to the story. After leaving Bell Labs, in 1956, William Shockley, who was the co-inventor of the first transistor, moved from

New Jersey to Mountain View. Interestingly enough, it was to be closer to his mother who was sick. Shockley set up a company to build and commercialize this transistor technology, however, he was terrible at managing it. And because of that, eight engineers left to start Fairchild's semiconductor. Two of those founders, Robert Noyes and Gordon Moore, would go on to found Intel. Fairchild and Intel were the companies at the very center of the first computer chips and microprocessors. They effectively began the computing age. Keep in mind, this is the only place in the world at this point where these conversations are happening. So people meet people, and they start hanging out and having more conversations, and it's not just inside the walls of these companies.

There were informal groups as well, and one such informal group was the Homebrew Computer Club. It was a group that started meeting in a garage in March 1975, and in fact, that first meeting was credited by Steve Jobs and Steve Wozniak as giving them the inspiration to design the Apple One and the Apple II. In fact, the first preview of the Apple One was actually given at a Home Brew Computer Club meeting. So you have all these people, right? It's a knowledge hub unlike anywhere else in the world when it comes to computing. What's more, you have plentiful real estate up and down the peninsula where companies can form and grow for relatively low costs. But what about capital? Around this same time, you have the very beginnings of the venture capital industry. Kleiner Perkins and Sequoia Capital both started in 1972, and when Apple went public with a $1.3 billion IPO in December of 1980, venture capital as a class exploded.

all of a sudden then a self-reinforcing positive feedback loop is created. People make a bunch of money as engineers or leaders of a company. They then leave to start their own companies, and they're able to access capital from both the venture capital establishment, as well as others like them who have made money in similar ways. They also probably have relationships with those investors, so there's a layer of trust. The point here is that these are all geographic and physical networks that reinforce the supremacy of a specific real-world place.

And as each generation goes on, the centrality of that place grows. This pattern continues for more than three decades. Each successive generation of technology entrepreneurs be getting the next, both by creating a context for them to learn and network in their companies as employees, as well as by providing access to the capital for them to build, as they make new sets of people rich by growing and going public. Many investors want to be a part of the next bull run. Others seek to build their dream home, finally launch that startup,

or fund their education. Try Nexos instant crypto credit lines and borrow against any major cryptocurrency with no minimum or maximum withdrawal amounts, no fees whatsoever, no credit checks, and flexible repayment. Not to mention the APR starts at just 5.9%. Stay on top of your investment game with nexo.io. And remember, it's your crypto, your credit, your choice. Get started at nexo.io. Let's fast forward to the social technology era. At this point, real estate state is not only plentiful, it's insanely expensive. The battle for top engineering talent leads to incredibly high prices, and while Silicon Valley Capital remains dominant, there are plenty of other places with extra money sloshing around as well. Indeed, one of the key byproducts of low

interest rates since the great financial crisis is that it's forced more different types of people farther and farther out onto the risk curve, which means more money moving from public to private markets, which means more money chasing startups, which means higher valuations. As this all happened, there were some who started to say, hey, maybe we shouldn't be constrained to Silicon Valley. We could, you know, use all this technology we've built to set up our companies to work remotely. I lived in Silicon Valley in San Francisco from 2009 to 2017, and I was in technology the whole time. And for years, the entire time that I was there, the blocker for this move to something like a remote company was the VCs. There were lots of reasons for that.

this, of course. One was a concentration or a theoretical concentration of top engineering talent. Another one was just the networking value of being there, which obviously is someone who decided to move there, I appreciate. But still, economically, and from an actual productivity standpoint, there was something happening, there was something emerging where it seemed inevitable that a different model, the rest of the world becoming Silicon Valley, was going to intrude on the supremacy of the way companies had been organized for the last 40 years. COVID-19 exploded the paradigm. I watched VCs who had been against remote forever, virtually abandoned Silicon Valley overnight. Now, of course, there is a dimension of it that has to do with the growing tension between

tech libertarians and tech utopians and the traditionalist progressives that run the city of San Francisco. But whatever the case, there is an incredible pattern of group-think in VC, ironic for a group that often refers to themselves as contrarians, and once the Sions decided that remote companies and new cities were in, everyone was saying the same thing. Now, zoom up over the last six months, and all of a sudden, one of the big questions becomes, where are founders going to go next? While there's still a new openness to building remote-first companies, there's also an appreciation that continues for the in-person networking value when it comes to building trust, particularly around capital allocation. So if there are going to be some Silicon Valley satellites where founders can go as they build their remote companies,

there have been a few early contender cities. Austin, for example, has long been a favorite second city for Silicon Valley, I think in part because there's so much familiarity because of the annual pilgrimage to South by Southwest that's been happening for a decade now. But then on December 4th, an interesting thing happened. Delianna Sparajov, a principal at Founders Fund, tweeted, okay, guys, hear me out. What if we move Silicon Valley to Miami? The mayor of Miami, Francis Suarez, responded to the tweet effectively saying, what would it take to make this happen? All of a sudden, there was a massive flurry of discussion. Some Silicon Valley expats like Keith Rabe and Shervin Pischvar chimed in basically saying

they were already here and yes, this should happen. Mayor Suarez started doing calls and meetings with any tech person who would have them trying to figure out what the key blockers might be. It got so loud that some people started getting annoyed, sub-tweeting the whole thing, saying nobody cares where you live. But many recognized quickly that this was a bigger deal than just a switch from San Francisco. It was about a new paradigm where geographic polities can actively compete for human resources and talent, and they can do so by taking advantage of new in-public technologies to amplify the process. Bologi Shrinivasaun tweeted,

The point isn't about moving from SF to Austin to Miami per se. The point is the ability to move as individuals or as a group when the state fails. Actually, Balaji went off on this theme, so let's read a sample of his thread. Mayor Suarez has single-handedly reformed politics Twitter. First, politicians around the world now understand they can recruit constituents with their tweets. Second, they now understand they can lose constituents with their tweets. What Francis Suarez has done is being studied by cities and countries around the world. After years where Twitter showed us the worst of politics, we have a glimpse of what it can be at its best.

With one tweet, he helped launch a new era of economic development. Mayor Suarez shows a new path for a startup politician. You can now make an international impact without waiting years to pay your dues and work your way up. You support technology progressive policies and recruit talent online. Now you can build your city with every tweet. Of course, for Bology, part of this larger reorientation of what the physical world means and how we interact with it is the Bitcoin crypto and blockchain infrastructure that might help the shift happen. You know it was inevitable that Bitcoin would come into the conversation.

On December 18th, Pomp tweeted a picture of him and his wife, Polina, who, if you don't know her publication in the profile, you should absolutely go check it out. Anyways, he posted a picture with them and Francis Suarez and said that if the tweet got 10,000 favorites, they would move to Miami. It didn't. It only got a measly 5,700, but they still announced they'd be spending the first few months of 2021 down there. On December 29th, Pomp tweeted, retweet this if you would move to Miami if Mayor Francis

Suarez put 1% of the city's treasury reserves into Bitcoin. Mayor Suarez almost immediately responded, definitely open to exploring it. Fast forward a couple more weeks to this week on January 12th, Mayor Suarez posted video with Tyler and Cameron Winkelvoss discussing Bitcoin, Crypto, Gemini building a Latin American HQ in Miami. And two days later, he was on Fox business, and honestly, let's just listen to the clip. Sir, welcome back to the show. You're putting government money into a very volatile crypto currency. You want to explain why you're doing that? Sure. If I would have done it last year, I would have made 200 plus percent, so I would have looked like a genius. We want to be one of the

most crypto-forward and technological cities in the country. So we're looking at, number one, creating a regulatory framework that makes us the easiest place in the United States to do business if you're doing it in cryptocurrencies. We're looking at laws from Wyoming, Wisconsin, and New York, a regulatory environment. And we have a tremendous amount of interest in right now. So we're looking at a variety of things from being able to make payments in crypto, in Bitcoin in particular, being able to pay your taxes, being able to pay fees to the city. And then, yes, we are looking at the possibility of diversifying our investment portfolio and having and holding a percentage of our investments in Bitcoin.

Is this all part of your move to bring high-tech companies, big tech companies, to Miami? I know you've got good weather. I know you've got low taxes. Are you using a business? Bitcoin investment as a further inducement? It is. You know, the world is watching and the world is always seeing all the things that cities do. If you're inviting, that's something that cities are benefiting from like we are. I want the creative and the innovative class to come here and create high-paying jobs for my residents. And certainly there is an enormously large crypto and Bitcoin community, particularly on social media. And they are carefully watching as these assets become

more and more mainstream. The more that organizations like the city of Miami and others mainstream Bitcoin, there's only one direction that the prices are going to go because we know that the supply of money is limited. It's only going to go up. So there is a lot to unpack here. First, Suarez articulates this idea of just how important it is to compete for entrepreneurial talent and to provide economic prosperity and new opportunities for residents. When it comes to Bitcoin, he understands that cities like his are not just me-toos, but that by driving significant demand, and again, this is a city that spends about $2 billion a year annually, they could have a major seat at the table. He also made clear he understands

that because of the constrained supply, the mainstreaming and legitimacy that something like this would provide to Bitcoin makes it likely a really good investment. In short, he understands that being the first X, being the first public company like MicroSailor, being the first mayor like Francis Suarez, to buy Bitcoin, is a smart move. and in part it's because he clearly understands that this particular community way out punches its weight class on social media. This is going to be a fun situation to watch, but to sum up my perspective, it feels to me very likely that Mayor Suarez is actually going to push for this Bitcoin thing to happen. The headlines are just too massive not to. I mean, just the possibility

of it has national TV appearances happening. Should that go through, it opens up yet a new category of demand in the form of municipal budgets. And the tail ones are there for him. Let's go back to what he said. If he did it last year, he'd have looked like a genius. The story, of course, has implications for Bitcoin, but it's not just that. It also has implications for the way we think about global talent and economic flows. I am personally absolutely rooting for Mayor Suarez and Miami and think it's going to be fantastically interesting to see how this plays out. For now, guys, I appreciate you listening. I hope you enjoyed this little memory and history. trip to Silicon Valley and what the future might be. Until tomorrow, be safe and take care of each other.

Peace.