Super Bowl Sunday goes Crypto with Alex Tapscott

Crypto advertising was everywhere during Super Bowl 56. But was it a winning night for the
technology? Ninepoint’s Alex Tapscott tells Hainsworthtv it’s a sign the asset class has a
strong future, even if Larry David thinks it’s just as big a fad as “the wheel”. Listen to the full podcast.

Part of Ninepoint’s Alt Thinking Podcast Series. Available at Google, Apple, and Spotify Podcasts.

Michael Hainsworth:

All right. So, Crypto was everywhere during the Super Bowl. LeBron James promoting crypto.com. Larry David comparing missing out on crypto, to thinking the wheel as a fad and even Budweiser promoted NFTs. Coinbase offered free Bitcoin for customers who sign up in 20 million hits to the website, and the first 60 seconds crashed the app. What do you think?

Alex Tapscott:

Well, obviously it worked. The App Store downloads for Coinbase and these other apps, shot up. I think all of them at one point were in the top 10. Whether it was money well spent or not, I think that we can say it was probably a good investment. I think, what's more interesting is, what does it mean or what does it signal to the world? Don't forget that in 1999 and 2000, the Super Bowl was full of ads for internet companies who-

Michael Hainsworth:

You remember the sock dog from Pets.com!??

Alex Tapscott:

Yeah, exactly. Sock puppets, talking about pets.com. I don't even know what.

Pet Owner:

Okay, Dino, I gotta go to a lot of stores to get what you like. I’ll be back.

Sock Dog:

If you leave me now, you’ll take away the biggest part of me. Ooh, no, baby, please don’t go.

Alex Tapscott:

A lot of those companies ended up going bankrupt. Critics were quick to point out that often, new industries promote their wares at Super Bowls, right at the very top of the market. Putting that aside, who knows how that will play out. I did think it was interesting to see just how far this industry has come. It's worth from remembering that 12 years ago, there was no such thing as a crypto currency or digital asset. Now you're seeing the airwaves full of ads for crypto platforms, but also as you point out some of these larger brands, adopting this technology. I think that's pretty good evidence that this is for real. 1999 and 2000, we can laugh about sock puppets, but the internet turned out to be a pretty big deal as well, I heard. I think that this was maybe the coming out moment for Digital Assets that a lot of people were waiting for.

Michael Hainsworth:

For that coming out moment, was there a particular Super Bowl ad that you liked more than another?

Alex Tapscott:

I definitely liked the FTX ad with Larry David, I thought that was absolutely brilliant. The one you're describing, basically, Larry David always kind of going against the grain, kind of skeptical. They played into that beautifully with him questioning the worth of all of these important inventions over time, and then doing the same thing for crypto.

Inventor:

I call it… the wheel!

Larry David:

Meh. I don’t think so. What does it do?

Inventor:

It rolls!

Larry David:

Yah, so does a bagel, okay? A bagel you can eat! One of the worst ideas I’ve ever heard.

Alex Tapscott:

I thought that was great. Some of the other ones were okay. I was just relieved that none of them were cringe worthy. There's always a risk that it's going to reflect badly on the industry, in this case that we didn't have to worry about that.

Michael Hainsworth:

What does the flood of crypto ads at Super Bowl 56 really tell you about where crypto is today? Let's extend that analogy that you had to the.com boom of ‘99, 2000.

Alex Tapscott:

Yeah. Well, I think it's a sign of mainstream interest and mainstream adoption. The fact that the website for Coinbase crashed, because of an influx of new signups and new users, I think is a pretty strong case for that. You pointed out Budweiser and NFTs. I think that the past year or so has been a real watershed or a very important period for this whole industry. I think, actually, NFTs are largely responsible for making digital assets relevant to lots of people. Not everyone is interested in financial products or new financial technology or ways to move money or store money, or anything like that. I think a lot of people are interested in culture, in art, in music and so forth. NFTs have become this digital medium for cultural assets, whether it's collectables or whether it's music or whether it's something else. I think that, that cultural currency of NFTs has helped to drive mainstream understanding and adoption. Two years ago, if there was an ad for crypto company, everyone would've said, "Well, what's crypto?" Now, I think everyone understands what it is and they can disagree about what it is or how big they think it's going to be, but everyone knows it's for real.

Michael Hainsworth:

All right. The NFT side of the conversation though, I fear that there is still a reputational risk associated with it. There is quite a mixed bag of NFT opportunities out there and not all are made equal.

Alex Tapscott:

Well, that's for sure. I think that the NFT space is at once, very interesting, to a lot of people. The idea of creative digital scarcity for digital art or digital music or whatever. At the same time, it's easy to question why things are worth what they are. I, for one, count myself amongst the skeptics of certain NFT projects. I'm humble enough to know that there's things I can't and don't understand, right? I think people need to appreciate that whenever there's a new technology paradigm.

At the same time, you can also say, the fact that certain rare or collectable digital NFTs or worth millions of dollars, seems unusual. From our perspective at Ninepoint, we're certainly would never provide investment advice around NFTs and honestly wouldn't even think to create an investment product that would even own a portfolio of NFTs. Simply because, it's beyond the scope of what we know and what we do and we're only going to do stuff that we're comfortable with. I would just extend that same word of caution to any individual, person or investor, that's looking to get into the space, as well. It's much more akin to the market for artwork, than it is for investments like stocks and bonds and unless you're an expert in those areas, I would say, be cautious.

Michael Hainsworth:

Meantime, we're looking at crypto companies engaging in a bit of an evolution. What stage are we at in the industry where we see, or at least it seems to be, that all these crypto companies are becoming fintechs?

Alex Tapscott:

There seems to be a convergence occurring right now between crypto traditional, what would be called traditional crypto companies. Exchanges, custodians, things like that, FinTech companies and even banks and other really traditional financial firms. Traditional fintechs companies like say PayPal or Square, or Stripe or Robin hood or Wealthsimple, companies that in are engaged in the business of making finance easier. Faster, more digitally native, are all investing heavily into crypto trading or payments or some of these other areas of growth. At the same time, we're also seeing crypto companies getting into, what would be normally traditional finTech lines of business. An example of this would be FTX, the company that did the Larry David ad for the Super Bowl, just announced in the US, that they're going to be enabling stock trade. If you've got an FTX app, you'll be able to buy and sell crypto assets and move money between people, from your app.

Then you'll also be able to engage in trading of more traditional kinds of financial assets. That, in many respects, mirrors the path of companies like Robin Hood in the US that offer equity trading, but also offer crypto trading. We're definitely seeing this convergence where the lines between fintech and crypto, are blurring. There's this third stallion in the race that I think people don't get fully appreciate and that's the rule for DeFi or decentralized finance. Ultimately, most finTech innovation, is just digital wallpaper. It's a new veneer, or new coat of paint that helps to conceal or to obfuscate what's really going on beneath the surface, which is that you're engaging with banks and other traditional intermediaries. It gives it sort of fresh perspective, Fundamentally, that's still what's happening. What DeFi is trying to do is reimagine financial services from first principles.

Not, "How do we make it easier to get a bank account?" But "How do we rethink what a bank account is?" In other words, how do we rethink how we move money, how we store money, how we access credit, how we trade assets, how we get access to grow of capital and so on and so forth, without the need for any traditional intermediary, whether it's a crypto company or whether it's a traditional fintech or whether it's a bank. Today, the market for traditional fintech or crypto companies is still probably bigger than the world of decentralized finance. DeFi today, has maybe $250 billion of money that is currently being deployed in those kinds of applications. That seems like a big number, but in comparison to the assets under management of many large asset managers or banks, it's still relatively small.

We're still at the early growth stage of that and DeFi has maybe five or 6 million users, which would be smaller than say, Venmo one single app in the US. It's worth keeping this all in perspective, but you are seeing that convergence and I think that, how it's all going to play out is going to be really, really interesting, for sure.

Michael Hainsworth:

I wonder if decentralized finances sort of taking this next step. When we look at the fact that the US National Retail Federation's latest study showed, two out of three Americans will save their tax refund. What do you think of the strategy at Coinbase teaming up with TurboTax, offering customers, the ability to have their tax returns auto magically deposited into Coinbase, converted into crypto?

Alex Tapscott:

I love that word auto magically. That is a great word. I don't know if you just created that, but I want to start using auto magically to describe a number of things. Is that something that Coinbase did with TurboTax?

Michael Hainsworth:

Can you believe that?

Alex Tapscott:

Wow, I actually wasn't aware of that and I think it's really brilliant. Well, I mean, not to get into like a whole poly side discussion here but, household debt levels are at the lowest that they have been has historically in the United States. People have got extra money in their pocket from these fiscal policies that were implemented by Joe Biden. They don't necessarily need the 3K they spend on paying down debt and they maybe don't want to spend it on goods that have inflated by 7% or more, this past year. Maybe, they are looking to invest that money. I think that also broadly reflects a bigger trend of investors, really taking control of their own financial destiny. There's been this push towards self-directed or self-driven investment for decades. I think it's really hitting its Zenith right now. Wouldn't surprise me to see that tax refund helped to fuel... I don't know, investment in a number of different assets, potentially. Digital assets being no exception to that.

Michael Hainsworth:

I've looked it up by the way. Apparently, according to the Oxford dictionary, auto magically had its first use in the 1940s.

Alex Tapscott:

Oh, there you go. It sounded sort of like old timey, sort of Newsies. The news reels.

Michael Hainsworth:

Exactly. What though, does the evolution of the crypto company into one introducing these types of FinTech services, tell us about the age of the market, the maturity of the market?

Alex Tapscott:

Well, there's maybe two ways to look at that. One is, they're not seeing enough growth in crypto, so they want to diversify. That's a sign that the market itself is still nascent, and so they need to offer other services in other asset classes. That's one interpretation. The other is that these are companies that are big and growing so quickly, that they see an opportunity to become what are called neobanks, basically, to offer all the services of a bank. Crypto is acting as sort of the Trojan horse or the lure to attract customer into this platform where they can be offered a much wider range of financial services. I think it's probably the latter. These kinds of companies are run by the smartest people in the world, honestly, and the investors that they have in FTX's case, the SoftBank Vision fund, [inaudible 00:13:12], the Singapore, the Sovereign Wealth Fund.

In many instances, there's big financial backers like Goldman Sachs and KKR, like in the case of Anchorage. These companies are investing in these platforms because they see them as potentially cannibalizing the existing financial services industry. They've reasoned to believe that the growth of platforms like FTX has been otherworldly. It's internet growth for financial services and that's something that I think scares a lot of incumbents because, it can become a threat to what they do.

Michael Hainsworth:

I can imagine, particularly when you look at how, sure, maybe fintech companies are getting into crypto, but crypto companies are getting into FinTech. The simple example, I suppose, could be PayPal, where you can use the PayPal app for Bitcoin, Ethereum, Litecoin, Bitcoin cash, that sort of thing.

Alex Tapscott:

Yeah, exactly. I think maybe in PayPal's case they missed their most recent quarters. Maybe there pushing to crypto the past year and a half, has been to make up for sagging growth in other parts of the business, right.

I think overall it's just the general sort of macro trend of the digitization of assets and of financial services. That's manifesting in a number of different ways, whether it's through traditional centralized fintechs or it's through DeFi or it's through crypto companies. In the same way that the internet transformed how we consume information, how we access content, how we read the news, how we communicate, and so on and so forth. Blockchain Digital Assets transforms how we move in store money, how we access credit, how we trade, how we insure, how we organize financial information. I think other technologies too, have helped contribute to that. This convergence, if you will, of all these different companies on this idea of digital finance, is not surprising when you understand that context.

Michael Hainsworth:

Yeah. It sounds to me like with crypto companies getting into fintech and fintech companies getting into crypto, that this is the thin edge of the wedge. The prize open crypto to the non geeks, to your mom, that sort of thing.

Alex Tapscott:

Yeah, potentially. It's probably more, how do you onboard mainstream users between the ages of 18 and 50? It's people who are the people who are entering their peak earning years, who are entering peak savings years, spending years and so on and so forth. People like me, who used to be young and now are entering middle age, are the target market.

Not me specifically, because I've been in this space for a while, but there are the millennial generation, is the largest cohort of people in human history, even bigger than the baby boom. They call it the baby boom echo, but the echo was actually larger than the baby boom. You've got a hundred million people in north America, who grew up digitally native or used to using technology as sort of second nature and having access to digital assets and these tools, I think, it comes naturally to them. I think until recently though, the user your experience has been a bit clunky and that's a problem that's now being overcome by a lot of these smart people running these big companies. I would expect that you'll see that adoption increase.

Michael Hainsworth:

What I'm also expecting is, because we're seeing this remarkable transfer of wealth, one that we haven't seen in all of human history. I think it's, what, 2 trillion is the boomers die and they pass on their wealth to their children, that we need to target that younger generation that will feel more comfortable with things like crypto and decentralized finance. You get them now before they've got the wealth and once they've got the wealth, that's how they deploy it.

Alex Tapscott:

Completely agree with you. I actually think the figure is much higher than that. I think it's in the many trillions of dollars.

Michael Hainsworth:

Is it?

Alex Tapscott:

Yeah. The biggest transfer of wealth in human history is happening, not only because boomers are dying off, but because they're advancing money to their kids, while they're still retired. I-

Michael Hainsworth:

I just looked it up, it's 35 trillion, according to the US federal reserve.

Alex Tapscott:

That's a big number. That's a hard number to wrap your head around. That's almost twice the debt of the United States. It must be very big if it's that big, but... Yeah. I think you're right. Kids and young people are using these tools today and when they have money, they're not going to stop using them. They're going to continue to use them. I, for one. Would be very scared if I were in an incumbent institution used to traditional ways of doing things, because I think this generation's going to surprise us all.

Michael Hainsworth:

Yeah. $35 trillion is about $14 trillion more dollars than the entire nominal GDP of the United States.

Alex Tapscott:

Yeah, it's a big number.

Michael Hainsworth:

You've written in the Ninepoint Digital Asset Digest weekly newsletter, that Blockchain is a national security issue. Why so?

Alex Tapscott:

Well, thanks for mentioning the newsletter. I would encourage all listeners to check that out. You can subscribe on our website, digital.ninepoint.com. By the way, new website, tons of great content there for you to explore. It's a matter of national security, because this is the beginning of a new era of technological progress. It's now being described as this thing called Web3. We talk about crypto and digital assets and Bitcoin, and there's all these different words that collectively are part of this much bigger theme and much bigger trend that's going on called Web3. Web3 is an evolution of the internet. It's an idea of the internet where we can own and control our own digital identities and where we can own and control our own digital goods online. That's a very different model from the model we have today, where large platforms like Facebook or Google or Amazon, act as the third party providers of services and therefore, the ones who capture all the value.

If you believe like I do, that Web3 is going to have as great, if not, a greater impact on the world than the first era of the internet, and the second era of the internet, Web1 and Web2. Then you want to ask yourself, "Where's the Silicon valley of the future going to be built? Where is all this innovation going to occur? Where are the companies going to happen? Where's the talent going to want to go? Where's the capital formation going to occur," and so on and so forth. The reason that this national security question is so interesting, is because the Biden administration is expected to announce soon that they are going to regulate crypto assets, digital assets, as a matter of national security. I think that most people fear, that means that they're going to overregulate and maybe stifle growth. I'm not sure what's going to come about from this proposal from the white house.

What I do know is that if you want to maintain your economic lead and you want to maintain a dynamic economy, and you want to create a lot of value, then this is a matter of national security, because it's in their national interest to be a leader. I think that this time is very different. In the past, during the early internet era, the US was the leader by default because it had all the internet connections and it had all the computers and it had all the VCs and it had all the tech companies and it had the software industry in Silicon Valley back when they used to make chips in California.

Nowadays, that's not the case. It's not that the US doesn't have all those things, it's that everybody else has them as well. There's not obvious that the US is going to be the leader in this Web3 era. It means actually that, there's big opportunities for countries like Canada to be a leader, because we can create the conditions for capital and for people to come to this country, to do business here. I'm not sure we're doing that right now, but that's something that we can do, to make sure that we have a place at the table.

Michael Hainsworth:

How do we create those conditions? You know, Blockchain we understand is expected to be a key technology underpinning web 3.0. If nobody owned web 1.0 and America owned Web 2.0 with Facebook, Twitter, YouTube, how does Canada grab a hold of the brass ring for Web 3.0?

Alex Tapscott:

You've got to make it attractive to do business in this country. The problem with tokens, is that they look kind of like some a sense. They kind of look, sometimes they kind of look like a currency or a commodity or maybe even a security or loyalty point, but fundamentally there's something new. You need to acknowledge that, you need to understand that in some instances you can't apply the way the old rules work, to way that technology functions today. A lot of rules around money transmission, were drafted back when the primary mode of moving money around was for some buggy that didn't even contemplate, wire transfers, let alone the internet, let alone Blockchain. So you need to update the rules and regulations and make it clear how they'll be applied. By creating clarity, I think you're going to see a lot of new businesses be drawn to the country.

You know, what does they say, nature of pours a vacuum? Well, I think that enterprise or capitalism that pours a regulatory vacuum. People think, oh, "The wild west just out there and unfettered capitalism." Well, actually it's much easier when they're clear and understandable rules and that you can follow them and they're applied equally. And then that creates confidence and that allows industry to grow.

I think that's one thing that we can do. I think government shouldn't be a model user of this technology, blockchain and web three tools can be used for everything from digital health records to how central banks do policy. I think Canada can and should build out a central bank digital currency that is complimentary to its current monetary scheme. I think that there's many other things that we can do. I think that our banking system, which is made up of six banks, not 600 banks, has an opportunity to lead by example. I don't think they've done that. I think they've relied on their natural monopoly in the country, not innovate much to the detriment of consumers. I think that there's lots that can be done. There's are things that can be done at the government level, at the business level and at the entrepreneurial level, which can give us a head start.

Michael Hainsworth:

What are you looking forward to next? What's on your radar screen in the world of DeFi and crypto?

Alex Tapscott:

I'm really interested in this idea of institutional DeFi. So far I think most of participants in the DeFi space are individuals, but there's lots of opportunity for banks, asset managers and other institutions to get more involved. But to do that, as I just pointed out, there needs to be some level of regulatory clarity, because DeFi exists right now in this gray area. I think what we're going to begin to see are regulatory compliant, DeFi pools.

Basically, within DeFi, there being like a sandbox where it's okay for banks and asset managers to play around and to innovate and to develop and make money and so forth. I think that's going to be something that helps us to accelerate the growth of that industry even more. We're already seeing some early signs of that coming from bigger institutions.

Michael Hainsworth:

Alex, always great speaking with you. Thank you for your time and insight.

Alex Tapscott:

My pleasure. Thanks, Michael.

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Part of Ninepoint’s Alt Thinking Podcast Series. Available at Google, Apple, and Spotify Podcasts.