Bitcoin, Card Networks, and Twitter

Bitcoin is absolutely going to $1 million. Mark my words (Ian Horne)

In a week where banks are finding novel ways to crumble and steal the headlines, Balaji Srinivasan has put a little spotlight back on crypto, placing two bets that Bitcoin will reach $1 million in 90 days. The wager is in response to a tweet made by James Medlock, who said:

“I’ll bet anyone $1 million dollars that the US does not enter hyperinflation.”

The former Coinbase CTO wasted little time replying and has since sent $1 million to a custodian, with Medlock buying one bitcoin to honour his end of the bargain. In a surprise cameo appearance, CZ from Binance offered to be the custodian but stepped away amicably, after only being asked to escrow a quarter of the bet. Balaji, as touched upon earlier, has doubled down on his bet by offering it to one other willing participant.

Why does Balaji believe that bitcoin’s value will shoot through the roof? As evidenced by the hyperinflation tweet, he's speaking to the devaluation of the US currency rather than bitcoin’s inherent properties and market value. The dollar has been devalued by the Fed, he argues, and is months away from reaching parity with second-hand toilet roll. The money printer has gone brrrrr one time too many.

Twitter did not miss a beat with this one. Bloomberg’s Matt Levine was quick to point out that the smart play here, if bitcoin is really going to $1 million, would simply be to buy bitcoin. The next logical step was to consider how much Balaji would make if the price of bitcoin were to shoot up in response to his claims. Various calculations have been made to show how much the price would need to rise for the losses to be covered, and seeing as Balaji is said to possess a very significant holding in bitcoin, there is a believable narrative that he could seriously rake it in regardless of the outcome of the bet.

Balaji is publicly denying that his actions are financially motivated, saying on Twitter Spaces that: “I’m doing it to ring a fire alarm,” adding:

“I do love many things about this current world, and I was born in the US, I love many Americans, and I think they are being defrauded by the government on this.”

Considering his influence on crypto markets, this anti-government line will probably serve him far better than taking the legally naive stance of saying he’s done it to make a profit. How much this wager inflates the value of bitcoin, however, still remains to be seen, but it’s being made at a time where fear is in the air and ‘TradFi’ is scrambling. It is very plausible that people will buy bitcoin in response to this, which is exactly what he says they should do.

What do we take from this? If Balaji is to win his bet, then Americans should enjoy their answer to the last days of Rome. And if he isn’t, which seems a surefire thing, then we can at least enjoy another few months of subtle, nuanced, and thoughtful insight on social media. Remember, if the posts aren’t full of capital letters, they probably aren’t very serious.

And if we treat any claim here with more than surface level sincerity, it might be the one made by Medlock in a tweet made two days after his initial tongue-in-cheek wager:

‘Is this the most profitable shitpost in history?’

It possibly is, James. But pending an official review on Balaji’s response, you might have been usurped as quickly as you claimed the throne.

The Card Network’s No Good, Very Bad Day (perhaps year) (Nick Holland)

There are a number of things that retailers care about when it comes to digital payments… how fast do transactions go through? Will I be liable for fraud? Can I be sure that the majority of my customers can use this technology? Can I collect loyalty points? But, none is as important to retailers as how much will a transaction cost me?

While all eyes have been on the volatility of regional banks in the past couple of weeks, a rather overlooked piece of news was regarding a long awaited settlement in the case of some 12 million retailers versus the card network titans Visa and MasterCard.

On Wednesday 15th March, a federal appeals court upheld a $5.6 billion antitrust class-action settlement that accused Visa and MasterCard of improperly fixing credit and debit card fees for retailer transactions. The settlement resolved claims that Visa and MasterCard overcharged retailers on interchange fees when shoppers used credit or debit cards, and barred retailers from directing customers toward cheaper means of payment.

The 2nd U.S. Circuit Court of Appeals in Manhattan rejected claims that a class action should not have been certified because of confusion over who deserved compensation, and that the $523 million of legal fees awarded to the retailers' lawyers was too high.

This may portend a rather uncomfortable time for the card networks. The Durbin Regulation II ruling will come into effect this July which will force issuers to provide routing choice of at least two unaffiliated networks for card-not-present (CNP) debit transactions where previously they were only expected to do so for card-present (CP) debit transactions.

However, the card networks have been anticipating this for some considerable time and, as Nikil Konduru points out in his rather excellent blog, the major network’s tokenization strategy has been a pretty successful foil to retailers implementing “least cost routing”. Thus far. Regulation II is likely to be yet another technological arms race as retailers and networks find ways to entangle and detangle from each other.

Networks and Retailers. The Itchy and Scratchy of Fintech…

Twitter: The Next Battleground for Financial Regulation (Micky Tesfaye)

Regulators have been forced to act at an unprecedented pace over the last two weeks to steady market jitters. In the US authorities guaranteed all deposits at Silicon Valley Bank and Signature Bank just 48 hours after their collapse. After Credit Suisse's share price plunged, the Swiss central bank immediately stepped in with a $54 billion loan before arranging and presiding over a shotgun wedding when that failed.

Bank runs maybe as old as the institution itself. It is the breakneck speed with which authorities reacted that is new, and more so the events that precipitated it. An altogether modern phenomena that we might call he bank sprint. In years gone by runs were the culmination of months or at least weeks of rumours around a bank’s health and solvency. In the age of Twitter and WhatsApp, the fear and frenzy of depositors losing their savings can steamroll a bank in a matter of hours.

Managing misinformation has been one of the fundamental challenges in modern policy making. Now we have to ask, how vulnerable are financial institutions to future social media induced panic? And how do we ensure the psychology behind what we’ve just witnessed isn’t used by nefarious actors to create chaos in our financial system?

As, and when, the dust begins to settle, I suspect we’ll be talking less about Twitter disrupting fintech, and more about how we protect financial services from the systemic threats posed by social media.