Billionaire investor Chamath Palihapitiya says that the old guard of the traditional payments system is likely to be dethroned by emerging blockchain and decentralized finance (DeFi) technologies.
In a new discussion on the All-In Podcast, the CEO of venture capital firm Social Capital tells the YouTube channel’s 134,000 subscribers that he plans to bet against industry titans Visa and Mastercard in favor of Web 3.0 trailblazers.
“My biggest business loser for 2022 is Visa and Mastercard and traditional payment rails and the entire ecosystem around it.
I think that this is the year you can put on what probably will be the most profitable spread trade of my lifetime, which is to be short these companies and anybody that basically lives off of this two or three percent [transaction] tax and be long well-thought-out Web3 crypto projects that are rebuilding payments infrastructure in a completely decentralized way…
If you read the white papers of these crypto projects and you systematically put together a framework, I think you can be long those and you can be short Visa/Mastercard because I think this is their peak market cap.”
A spread trade involves the simultaneous purchase and sale of two related securities as part of a single unit. Investors seek to profit off of price differences between each security, rather than the rise or fall in the value of a single security.
Palihapitiya cites online shopping giant Amazon’s decision to stop accepting Visa credit card transactions in the United Kingdom as a bellwether event.
The CEO says,
“The canary in the coalmine here is pretty significant.
The most important thing is Amazon earlier in the year just decided to shut Visa off in the UK.
Amazon is not going to do something like that in my opinion unless it’s a test of what they can do all around the world.”
Palihapitiya says he’s looking toward nations in the developing world to adopt emerging technologies over the coming decade.
“There really is no need today for all of these small businesses to sit on top of Visa, Mastercard, and [American Express] rails. It’s unnecessary.
It’ll probably get developed in the developing world first, this is why I think focusing on markets like Nigeria are way more exciting than talking about these fading Western European countries. This is where this stuff will happen…
We’ll look back in 10 years and [traditional payment processor] market caps will be materially lower.
Anybody in those traditional infrastructures and rails versus anybody in this new infrastructure and rails, it will look like a no-brainer.”
Palihapitiya concludes by discussing the “buy now, pay later” model of the credit card system.
“Buy now, pay later is a rate arbitrage…
It starts to habituate the consumer experience to, ‘I don’t need to pay these usurious rates to these three credit card companies to facilitate a transaction of money that I already have or money that I’m good for.’
That’s the big idea, and when you translate that into Web3 in a good project or a good series of projects, you’re not going to need these companies.
I think it’s going to eviscerate trillions of dollars of market cap.”
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