Crypto adoption has reached monumental levels this past year. Payment processing firms like PayPal Holdings, Inc. (Nasdaq: PYPL) and Square Inc. (NYSE: SQ) have announced they will be accepting Bitcoin (BTC, Tech/Adoption Grade “A-”), and credit card giant Visa Inc. (NYSE: V) revealed its plans to accept stablecoins as payment.
While these businesses are crypto-enabled, they aren’t crypto-exclusive.
Weiss crypto analyst Alex Benfield explains the difference in this week’s Weiss Crypto Sunday Special. You can watch the video here, or read on for the full transcript:
Chris Coney:
All right. Hi there, everyone. And welcome to this edition of the Wise Crypto Sunday Special with me, your host, Chris Coney. My guest analyst today is Alex Benfield from Weiss Crypto Alert.
Alex, how are you doing today, mate?
Alex Benfield:
I am doing well. How are you?
Chris:
I’m doing excellent. So, the macro topic we’re going to discuss today are the different ways that businesses can engage with crypto. Whether that be crypto-only, crypto-enabled or virtual businesses.
This was inspired by one of Anthony Pompliano’s newsletters where he talks about this company called Metromile Inc. (Nasdaq: MILE). He says this is an insurance-based fintech company that uses data science and machine learning. They’ve just announced that they will be allowing their customers to pay their insurance premiums and accept insurance claim payouts in Bitcoin,but not exclusively.
That’s the first example of a crypto-enabled business, right? They’ve added crypto on. And you and I were just talking about the difference between a crypto-enabled business and a crypto-only business. Let’s pick it up there. Can we think of any crypto-only businesses, and is that even possible?
Alex:
So, a crypto-only business is a business that’s solely operating on the basis of a cryptocurrency as opposed to running their bottom line and reserve currency, like the U.S. dollar.
You have bills to pay: Most companies pay their bills in their local currency. I don’t think the infrastructure is really there for a company to run on only crypto right now. I think there may be some places where it’s more possible than others, but there are expenses that you don’t really think of right off the bat that you need a local fiat currency for in order to operate.
Let’s say paying taxes; you can pay taxes with crypto in some areas.
Chris:
Right.
Alex:
But that’s not really that common. Not to mention you have rent to pay, you have office supplies. I’m sure you could probably find a crypto-enabled business that would allow you to pay.
Chris:
We could call it the supply chain. Let’s go with that.
Alex:
Right. The supply chain.
Chris:
In your supply chain, it’s going to break at some point. There’s going to be a point where you interact with a supplier, employee or someone that you want to pay that doesn’t accept crypto. And we’re in the middle of that right now.
People complain about adoption, but I think it’s a silly objection because you can’t have adoption before you have adoption. And the only way you get adoption is by getting adoption, and that’s going to be when it starts. Eventually, it’s going to be total adoption. So, we’re in this transitional period in the supply chain.
Alex:
I think you need infrastructure adoption first. You need the ability to be a crypto-only business. How does that start? Well, it starts with crypto-enabled businesses. You have to start out with the option to pay in fiat currency or cryptocurrency. Once you have a supply chain that’s heavily crypto-enabled, it’s going to open up the door for some businesses to try out the crypto-only model.
Chris:
That’s very true. Same with consumers as well, right?
Alex:
Right. If you wanted to run a crypto-only business, you’d have to make sure that you can build out your organization with a team full of people that are willing and able to operate off of cryptocurrency-based salaries.
Chris:
Exactly.
Alex:
I think there are plenty of teams that are for partial cryptocurrency payments, but I don’t know how many would be to 100% cryptocurrency-only salaries. So first, you have to get over that hurdle. But then, as I said, you’re running into things like office supplies, rent and taxes. Those are going to be a little bit harder to get by with just cryptocurrency payments.
Chris:
Absolutely. The individual is part of the supply chain as well. So, say you managed to get all your suppliers on a business-to-business level to accept crypto. All your employees might take 100% of their salary in crypto, but then they can’t pay their rent in crypto. And there’s the break, right? So, unless you got a closed system ...
Alex:
Right. There’s the break. I think from an employee’s perspective now, the only way I’m going to take a cryptocurrency-only salary is if I have enough money already to just go ahead and pay my lifestyle with my existing fiat. And I think there are some employees like that who just want to maximize their exposure to cryptocurrency. But they’re few and far between right now.
Chris:
There’s a good one, actually. So, think about that as an individual. There are a lot of NFL players now that are taking part of their salaries in Bitcoin, right?
Alex:
Right.
Chris:
Well, it depends on what you think Bitcoin is. If you take the store-of-value case ... It’s almost like salary sacrifice.
Alex:
Right.
And not everybody is operating off of an NFL player’s income basis. A lot of those players are taking all their game date paychecks in cryptocurrency, but they’re also making money on the side through sponsorships and partnerships. They have other revenue streams. And those revenue streams are what they’re using to pay for their lifestyle.
Chris:
I’m with you. The amounts to me don’t matter, though, because it’s just basic financial management. If you have 100% of your income, whether that’s a million dollars a year or $10,000 a year, if you decide to take a portion of it — 5% to 10% — and invest it, that’s the same as getting paid the $10,000 and investing $1,000 in Bitcoin.
It’s the same as saying, “Hey, Mr. Employer, pay me the $9,000 in fiat and maybe the other $1,000 in Bitcoin.” It’s the same at the end of the day. You’re sacrificing 10% of your salary to invest in crypto.
That moves it over to businesses: You start with 100% of your sales coming in fiat payment, and then that percentage starts, however quick that happens, changing: 1% of it is coming in crypto and, eventually, maybe it’s 50%. What do you think about that?
Alex:
I think maybe that’ll help speed along this shift from crypto-enabled to crypto-only if employers are willing to pay partial cryptocurrency-based salaries. Like you said earlier, it’s a step-by-step process. And I think there are a lot of steps in between where we are now and where we’ll be when we have the correct environment for crypto-only businesses. There’s a lot of things that have to happen between now and then.
Chris:
And, ultimately, taxes are the one, right? That’s sort of the last best deal where you would have to convert your Bitcoin into fiat to pay your tax bill. And it depends on how crypto is taxed. In the U.K. right now, if I receive payment in Bitcoin for something, I have to account for the income in British pounds at the moment it hits my wallet, whether I sell it or not. It doesn’t matter if I receive a thousand pounds worth of Bitcoin — that’s a thousand pounds of income, no matter what I do with it.
Chris:
So, going on to the adoption thing, there’s a quote here from the director of Metromile, the insurance company that started to take and pay premiums in Bitcoin. It says, “We’ve considered Bitcoin as a payment option for years and, finally, the technology and the consumer adoption of Bitcoin and cryptocurrencies have caught up.”
This isn’t just a marketing move. I’m sure there are some businesses out there going, “Oh, we’re going to take crypto just because it gets us in the headlines.” But he’s specifically saying that is not the case here.
Alex:
Right. I think there are some marketing benefits from accepting crypto as payments. That being said, I don’t think making that move is worth it for anybody who’s just doing it for the marketing aspect. First of all, you’ll get some good exposure to crypto’s friendly community by accepting crypto as payments. But I think you’re probably going to get plenty of negative feedback as well from traditional investors and people who don’t support crypto. So, if you’re doing it just for marketing basis, I think perhaps you’re a bit misaligned.
Chris:
Well, that’s a good point, actually. There are two camps, aren’t there? There are people who aren’t in crypto yet; they’re against it for whatever reason. Then, there are people who have crypto and want more ways to use it.
So, going back to Anthony Pompliano here, he says, “If individual citizens are putting a high percentage of their net worth into digital assets, the businesses they interface with will have to become more favorable towards those assets.” That’s interesting because the demand is coming from the crypto investors who want to do something with that money.
Alex:
Right.
Chris:
The market exists based off the demands coming from the customer side. So, if people want to buy their insurance with Bitcoin, then yeah, take the payments in Bitcoin.
Alex:
Right. At the end of the day, the people that are pushing back against accepting cryptocurrencies, they’re the old guard. And they’re eventually going to capitulate to cryptocurrency as most people believe it’s the system of the future.
The companies that are willing to take that step earlier and become early adopters — accept crypto as payments now, try to make that move into a crypto-enabled business, etc. — they’re going to receive positive feedback from the cryptocurrency community. Not only that, they’re going to be seen as thought leaders — people that are willing to take that step earlier than the rest of the industry. I think that at some point, people are going to look back and respect these companies for taking that move before it’s seen as an industry standard.
Chris:
And then it won’t make the headlines anymore, will it? Even if it’s just the cost of entry or it’s just accepted, it will look silly. Like today, if you make an announcement that you’re accepting Visa Inc. (NYSE: V) as payment, everyone would be like, “So what?” Everyone accepts Visa.” If it gets to that point, we know we’ve arrived at full adoption.
Alex:
Right. It is a little silly that every time that a company buys into crypto right now, it makes headlines. It reminds me of a couple of years ago when big-time traditional investors would get into this space and buy Bitcoin — that would make headlines. It was big news because now this traditional investor is realizing the value of cryptocurrencies, and they want to enter the space. And in the last few months, those announcements aren’t really making headlines any longer.
Now, people are paying attention to when companies get into this space. And I think, maybe in a couple of years, we’ll look back and laugh at how silly it is that we were celebrating every single company that finally capitulates into crypto. As adoption picks up, you won’t need to celebrate every little milestone as much as we’re doing right now.
Chris:
Absolutely. I don’t know if you saw the spot on CNBC with Stan Druckenmiller where he states, “Five or six years ago, I was saying that crypto was a solution looking for a problem.” I’ve never agreed with that, per se, but now he’s saying that he expects the U.S. dollar to lose its status as the world’s reserve currency.
Now, that does link back into the topic of today’s episode with regards to crypto-only vs. crypto-enabled businesses. Let’s just use Bitcoin: If Bitcoin became the new reserve currency and was the currency of international trade, everyone would have to become crypto-enabled just to trade in global commodities. What do you think of that?
Alex:
I mean, absolutely. You’re right. If somehow Bitcoin becomes a global reserve currency, everybody’s going to have to accept it. Most likely other cryptocurrencies, as well. I did see that Stanley Druckenmiller piece and thought it was pretty interesting. His original quote from five or six years ago about Bitcoin being a solution to a problem that doesn’t exist is a little bit silly, but I think he’s finally figured out what problem Bitcoin is a solution for — the current monetary system.
It’s interesting it took him five or six years to get to that point, whereas most traditional crypto believers have kind of always realized that that was the whole purpose of Bitcoin — of cryptocurrencies as a whole. But hey, it’s good.
Like I said, now you’ve got another traditional investor that’s kind of starting to realize that ethos of the space. Not only have they adopted cryptocurrencies, but they’re understanding the ethos of crypto investing. And hopefully, that helps other traditional investors and corporations to change their perspective on cryptocurrencies.
Chris:
So, that actually leads us on to governments. That’s actually the next link in the chain here. If the dollar loses its world reserve currency status, and if BTC takes over that crown, then governments must become crypto-enabled as well. I don’t think many people think that’s ideal. It’s idealistic and probably not the way it’s going to go. I don’t even think Saifedean Ammous, the author of the “Bitcoin Standard,” thinks that will happen. Because I’m reading the “Fiat Standard” that he’s writing right now, and he does elaborate on the fiat’s standard and fiat payment rails. They do have some benefits.
It’s probably going to still be around — the U.S. dollar, I mean. Fiat currency isn’t going away entirely, but it will be alongside the digital asset system we have now.
So, does that mean that governments will end up having a dual currency? They’ll have cryptos, and then they’ll have fiats of their own making.
Alex:
I guess whether or not governments become crypto-only is subjective to how you would classify a central bank digital currency (CBDC).
Chris:
Very true.
Alex:
So, is that crypto or is that fiat?
Chris:
That’s a very good point.
Alex:
Because I do think that paper money is probably on its way out. Even if you’re just throwing cryptocurrencies out of the picture here, I think, after 2020 and the coronavirus, use of paper money has already drastically dropped. Not that many people are really using cash. Most people pay with cards anywhere they go. So, I think paper money is kind of on its way out.
However, there is an entire payment system based around paper money. Perhaps you’re not going to have cashiers with hundreds of dollars in paper bills at every counter that you go to. I personally think that governments are already making moves towards that digital currency space. Like I said, the big deal is whether or not you classify CBDCs as crypto. I struggled to see the difference between a fiat and a CBDC. I think CBDC is essentially just digital fiat.
Chris:
I just wrote that down. The question is, are stablecoins fiat currency? I say yes.
Alex:
Exactly, like Tether (USDT) or USD Coin (USDC). I just had this argument yesterday. It’s essentially already a central bank digital currency. It’s just not controlled by the central bank. Central Bank doesn’t control the issuance of the CBDC.
Chris:
Very good call.
Alex:
But when the government prints $2 trillion or $4 trillion, they do somewhat water down the supply of Tether and USDC.
Chris:
That’s true. I believe Tether admits in its terms of service that it’s not fully backed by U.S. dollars; some of it’s backed by debt. Every USD token is worth $1 of assets. So, we know how fractional reserve banking works. Well, this is just fractionalizing dollars even further into the crypto space, right?
Alex:
Right.
Chris:
It’s not exactly that the federal reserve increases the supply of USDT, but they do dilute the purchasing power of it by creating more underlying dollars.
Alex:
Right. Now, stablecoins are kind of necessary in order to onboard people and money from traditional banks and into the crypto space. Who knows? Perhaps crypto-enabled companies and crypto-based salaries might help reduce our need for stablecoins and CBDCs.
Chris:
Absolutely.
So, skipping back to the using crypto as a payment/crypto-enabled businesses thing … there’s Tesla, Inc. (Nasdaq: TSLA), which announced it was accepting crypto as payment for its cars and using it on the balance sheet as a Treasury asset.
And then, while keeping Bitcoin on its balance sheet, Tesla decides to no longer accept Bitcoin as payment. And this is a change of mind that took place within a month. So, what are they up to?
Alex:
I don’t know. It’s interesting news, though. They have announced that they’re not accepting crypto as payment for Tesla cars, but they never sold one single Tesla for Bitcoin. And they did mention that they’re keeping all of Bitcoin on their balance sheet and don’t plan to sell right now. So again, it’s another interesting development.
The reason they’re doing this is for environmental reasons — basically just saying that crypto mining is bad for the environment. This is a bit ironic considering [Space X’s] use of energy. I’m not sure if Bitcoin mining is any worse for the environment than rocket fuel.
Not to mention the fact that most crypto mining is powered by renewable energy. I think the statistic is something like 70% of crypto mining uses renewable energy. I think in such a new industry like cryptocurrency, most of the people are already environmentally focused. They want to reduce dependence on fossil fuels. They’re already looking for renewable energy sources. So, I think cryptocurrency is already a forward-thinking industry as far as energy dependence. This whole argument against Bitcoin and cryptocurrencies because of their use of energy is a bit misguided.
Chris:
What does it mean? What sense does this make? The logic is that Bitcoin is too environmentally unfriendly to be accepted as payment, but it’s all right for it to be used as the Treasury reserve asset? That makes absolutely no sense to me whatsoever.
Alex:
Something tells me that there were some investors or board members on Tesla that just were not happy with the company’s adoption of Bitcoin. And this is Elon Musk’s half-hearted attempt to please those partners. I’m not too sure, but yeah, they didn’t really take a hard line on it. If you’re keeping Bitcoin on your balance sheet, it means you have some belief in Bitcoin.
Chris:
Right. You just said that they didn’t actually sell any cars to customers who paid in Bitcoin. Now, that’s interesting. If that’s true, why didn’t they make the announcement on that basis and say, “Well, we tried it for a month, and no one’s actually paid us in Bitcoin. So, we’re pulling it.” Right? Maybe it was a virtue signal at the same time.
Alex:
Well, that’s just kind of how I’m leaning towards it. I think it’s an announcement that doesn’t really carry a whole lot of weight.
Chris:
Understood.
Alex:
And interestingly enough, a lot of people think that announcement has moved the markets. Markets dropped about 10% after that announcement. I’m not too sure if those things are correlated. Or rather, I guess they’re correlated, but I’m not entirely sure the market drop was caused by this announcement.
Chris:
In response to this whole thing, many people on both sides are upset. The crypto people and the non-crypto people. Most people were unhappy about [Musk’s] flip-flopping attitude towards Bitcoin. One minute he’s seen supporting it, and then the next minute, he seems to be damaging it. People are like, “Well, what was his intention? Does he have his heart in the right place?”
That sort of brings us on to people who were more consistent, like Michael Saylor. How does he contrast against Elon Musk in this space?
Alex:
Right. Michael Saylor, CEO of MicroStrategy, Inc. (Nasdaq: MSTR), made his announcement of adopting Bitcoin earlier … I believe it was late 2020, and he’s just kind of been constantly buying Bitcoin since that point in time.
He came out with a strong statement of why he believed Bitcoin was the currency of the future and why the company was adopting Bitcoin. And he stuck to that point up until now. Not only that, but he’s also tried to educate other industry leaders and bring other companies into the space. He’s doing his share and spreading Bitcoin adoption.
We need more people like Michael Saylor and companies like MicroStrategy, and fewer individuals, such as Elon Musk and Charlie Munger, who are just spreading misinformation about cryptocurrencies — especially in light of Elon Musk and Tesla’s announcement here. Honestly, it seems more of a marketing or publicity stunt. I don’t believe that they ever truly believed in Bitcoin. They certainly had a different approach to it than MicroStrategy.
Alex:
You either believe in cryptocurrencies as a company and you’re going to make a commitment to accept them as payments and do your best to fill your balance sheet with as much crypto as possible ... or you don’t really believe in cryptocurrencies and are just virtue signaling. I don’t think we need any of that. We need companies that are either for or against cryptocurrencies.
I think when people are looking back 50 years from now, they’re going to be looking at the companies that were accepting cryptocurrencies early on with a better light, as opposed to investors in these companies that are kind of turning an ignorant, blind eye to it.
Chris:
Absolutely. Actually, that leads me on to the individual approaches people have to investing in general. I’ve noticed a lot of Gen Z people have an investing strategy that leans much more towards investing in what they believe in. It’s always been the case in financial markets that whatever you philosophically think or believe, you put your money where your mouth is and let it play out. And that’s why there’s a lot of criticism and debates online about having Bitcoin or not having Bitcoin. There’s no point just talking about it. If you believe in it, put your money where your mouth is.
Alex:
And if you don’t, short it.
Chris:
Exactly. That’s the kind of putting your money where your mouth is in the opposite direction. At least you’ve got something at stake. And if you’re not willing to put something at stake, you might have to question how much conviction you have in your belief.
So, there we go. I think that’s a really nice place to end it, Alex. Thanks very much for joining us today. Anything you got to say before we go?
Alex:
No, just thank you for having me today.
Chris:
You’re very welcome, sir. Well, that’s all for this week’s edition of the Weiss Crypto Sunday Special. Great insights from Alex there. I look forward to when he’s on next time. Keep an eye on your inbox for the next episode of the Weiss Crypto Sunday Special. Until then, it’s me, Chris Coney, saying bye for now.
