Stablecoins, Argentina, Gemini

Stablecoins & Regulation

The sentiment surrounding crypto in the US is still quite negative for several reasons. Many people are too embarrassed by proxy to be associated. The FTX implosion is still in recent memory, and CZ from Binance was just sentenced to four months in jail. The only positive growth for crypto in the US has been the launch of the Bitcoin ETF. As a quick primer, a stablecoin is a cryptocurrency blockchain asset backed by a real currency. It allows someone to hold US dollars on global crypto networks.

Global crypto adoption is correlated with unstable governments. A sour attitude towards crypto in the US is turning out to be a bit of a luxury attitude given that we have native access to the US dollar and the richest economy in the world. Chainalysis’s annual report shows that in the last 12 months, stablecoin purchases in Turkey were equivalent to over 4% of their GDP, the highest of any country. Turkey’s inflation rate has averaged over 50% annually for many years. In plain English, locals in Turkey are actively using stablecoins like USDC to convert their wealth into US dollars to preserve purchasing power. Stablecoins allow Turkish citizens to trade their Lira for US dollars without involving a bank. That’s not interesting for a US citizen but it is really interesting when your country’s currency is failing.

If you are deeply interested in this topic, Nic Carter from Castle Island Ventures published a stablecoin article this week, and two points stood out to me:

• Stablecoins can be represented by any currency, but nearly all stablecoins are US dollar-denominated. This is a pure representation of demand because any currency can be turned into a stablecoin. International participants prefer US dollars.
• As stablecoins grow, they become larger buyers of government debt. Stablecoins like USDC function like money market funds, holding treasuries and paying out interest to their holders. Stablecoins hold about 50bps (.50%) of government debt or $160B. Compare that to the table of foreign government holders of US treasuries, and you’ll see that stablecoins are the 16th largest global holder.

The big question here is when stablecoins will become a top ten holder of US treasuries and what will happen to crypto regulation attitudes when that happens. The election year can mean a change in SEC leadership that can open the door for the next phase of growth and adoption. Europe has fallen behind in the AI race because it spends more time on regulation than innovation, and we do not want to do the same in the US when it comes to blockchain technology.

Javier Milei Argentina Update

Javier Milei was elected president of Argentina in November 2023 in a risky, bold and necessary experiment to apply classic Austrian economic philosophy to Argentina’s economy. Argentina was extremely wealthy in the early 1900s, a popular phrase at the time was “Rich like an Argentinian.” At that time Argentina’s GDP represented half of Latin America GDP, today it’s 10%. They have also famously defaulted on their government debt many times in the past few decades.

Inflation in Argentina is now slowing, down from 25% in December to 11% in March. Milei has aggressively cut government spending, including cutting social security by 35%, and flipped the budget from a deficit to a 3% surplus. This draws attention from investors, especially influential names like Druckenmiller, who said on CNBC this week that, “the only free market leader in the world right now, bizarrely, is in Argentina of all places.” Javier Milei’s vision appears to be working in the early stages. Druckenmiller added, “I hate to see Argentina out-capitalizing America, and that’s kind of where we’re going with this.

Gemini in Chrome

Google’s AI product Gemini is now native to the Google Chrome browser. You can write LLM prompts right into the website search bar via “@gemini”, reducing friction and making access easier. I’m curious to see how other LLMs will compete for real estate. Chrome is the most popular browser in the world with 65% market share or 3.5B users.

Google pays Apple $20B per year to be the default search engine. I wonder if Google will also end up paying Apple as the default LLM. I have high confidence in Google’s power and potential but unfortunately, I persistently get weak answers from Gemini. It’s far too cautious and often doesn’t even try to answer the question. I asked my four favorite LLMs about Argentina’s latest economic updates, and ChatGPT, Perplexity and TryRogo (a paid finance LLM) gave me pretty decent answers while Gemini replied with, “I’m still learning how to answer that question, in the meantime, try Google Search.”