Week 39: A Platinum Coin, Winner Takes All & Crypto Volumes

Briefing:

• The Treasury may issue a single $1 Trillion platinum coin to avoid the debt ceiling political circus and government shutdown.
• “Google” is the most popular search term on the Bing search engine, highlighting the winner-take-all nature of scalable technology businesses.
• Crypto exchange Binance processes over $50B in crypto derivatives transactions per day and may raise new financing at a $300B valuation – yet another signal that crypto is here to stay.

$1 Trillion Coin

You may have seen by now that the Treasury is considering minting a single $1 Trillion platinum coin through a loophole in Treasury law. For the legally inclined, you can read the relevant laws here. The goal is for the Treasury to mint the coin and use it to buy $1 Trillion of debt from the Federal Reserve and then retire the debt to create room under the debt ceiling. Why now? According to Janet Yellen, on October 18th, the US gov’t will run out of borrowing capacity, which would lead to a government shutdown. The last time the government shutdown was December 22nd, for 35 days – the longest shutdown in US history.

Under traditional rules, we wait until Congress approves raising the debt ceiling to allow “normal” borrowing activities to resume. If you go back in time to June when the Biden budget was released, you can see that increased debt is part of the US’s short, medium, and long-term financial strategy. You can read about this in our article here: Population, The Biden Budget and Bailouts. Therefore it’s not a surprise that we are in this situation again. The problem is the lack of a functioning political system primarily due to special interest infighting among democrats and republicans.

This proposed $1 Trillion coin allows everyone to save wasted time and energy by circumventing the congressional circus related to raising the debt ceiling. There is no limit on the coin’s value. It could easily be a $2 Trillion coin. The optics of this decision would not be great. Some are calling it a meme-coin. A large denomination currency is typically associated with a failed currency (see the $100 Trillion Zimbabwe note). Before your mind jumps to runaway hyperinflation, know that this situation could not be more different than Zimbabwe’s.

No one with real authority has issued any formal public statements about the coin just yet. Many argue that this strange opportunity is the best path forward. Don’t be surprised if the single $1 Trillion coin is issued this year.

Winner-Take-All

We’ve discussed in past articles that internet-based businesses often experience winner-take-all outcomes. Chrome is 70% of the browser market, Android is 80% of the mobile computing market, Facebook is 70% of the social media market and WordPress powers 42% of all websites. Within crypto, Bitcoin is 42% of the crypto market (although down from 85%).

Google’s dominance as a winner-take-all search engine was recently on display during an anti-trust case against it in the EU. It was revealed during the hearing that “Google” is the top search term in the Microsoft Bing search engine.“ Ouch! That’s the nature of technology and scalable internet-based businesses. These winners can keep on winning so long as their finances, management and culture remain healthy.

Crypto Volumes and Valuations

One of the fun parts of crypto is the accessibility and transparency of data. Crypto exchanges today produce truly incredible volumes. If you want to understand the true activity of an exchange you have to look at the derivatives activity as derivative markets are much more active than spot markets. In other words, the volume of futures, options, and swaps contracts are multiples higher than the volume of the underlying positions in Apple, Bitcoin or S&P 500 ETFs. The crypto exchange Binance is the largest crypto derivative market with volumes north of $50B per 24 hr period (the crypto market is 24/7). Based on this success, there are some indications that Binance is trying to raise capital at a $300B valuation. If Binance can achieve that valuation, they would be larger than most global banks including Goldman Sachs and Morgan Stanley.