In today’s Exponential Investor

  • Change is afoot
  • 40 Days and 40 Nights
  • No con here, just the future

It’s a long weekend soon.

Hoorah. Four days off.

Hang on a second. Wasn’t I bemoaning the fact yesterday that Easter means everything shuts down?

Yes, I was. I also still strongly believe that global finance shouldn’t ever shut down. To restrict when and where people can utilise their money, their wealth is authoritarian.

It’s ridiculous.

But the traditional system isn’t going to change anytime soon. That much is clear. Or is it?

While the banks keep on with the status quo, while the central banks continue their merry monetary ways, change is afoot elsewhere…

Stuffy Morgan Stanley characters

Earlier this week I jumped into bed and was looking for something to watch on telly before falling asleep.

I flicked to the Comedy Central and found a movie was just starting.

It was the 2002 movie, 40 Days and 40 Nights. Funny movie. Quite an enjoyable movie. A movie that’s now 19 years old. Made me feel old just remembering the first time I saw it.

But I decided to watch it again. 2002 was freshly out the back of the dotcom bubble bursting and there was a bit of a stigma attached to those who were still involved in these “internet companies”.

In the movie there’s one particularly funny exchange between the protagonist and another bit-character. The protagonist works for an internet company while this other bit-character is high up at Morgan Stanley.

The Morgan Stanley executive casually dismisses the protagonist with large chunks of arrogance and pretentiousness.

I find that part funny because 19 years later it’s a similar story, except instead of internet companies, the dismissal and arrogance is directed towards crypto.

Over the last 19 years, those internet businesses from the early 2000s have become some of the most important companies on earth.

They’ve also become considerably worth more than the likes of Morgan Stanley, Citibank, JP Morgan, all the big investment banks.

No longer does the investment bank world look down their nose at “internet companies”. Instead they lose talent to them.

Now instead it’s fashionable to look down the nose at “crypto companies” or just crypto in general.

However, I see the same pattern repeating itself. Except it won’t take 19 years for them to realise the importance and growth potential of the crypto markets. At worst I think it’ll take five years.

$11 trillion in volume

You see the internet seemed to explode out of nowhere. The reality is that it took a few decades to reach a tipping point and then an explosion of activity.

It also had a giant bubble burst that was (in hindsight) a very necessary part of the progression and expansion of internet-based companies.

At the very core of the success of all these businesses however has been their ability to scale and reach broad audiences through the network effect.

The network effect is very simple. One person connects to another. We have a network. Then those two people connect to another each. We know have a bigger network, a network of four.

Those four connect to others, who connect back to others and reach new connections. Soon enough this multiplier is reaching such a speed of scale and connection that it hits an inflection point of exponential growth.

These are some of the very principles we talk to you about as to what Exponential Investor is all about.

When a network can reach such scale, by its very nature it becomes a valuable asset.

This is why Google is so valuable. It leveraged network effect to great success with search. Facebook leveraged network effect with social connections. Telecoms providers have been doing it for decades with communication.

The network effect is powerful. It’s also why a company like Visa is so entrenched and valuable. It’s leveraged network effect using payments.

Visa has issued over 3.3 billion payments cards worldwide. Its payment “rails” are accepted at over 46 million merchant locations. It reaches over 200 countries and territories, deal in over 160 currencies and process over $11 trillion in volume.

As it stands, Visa is one of the most important networks in the world. It’s also bigger than any current cryptocurrency.

However, Visa also recognises that in order to be relevant in the future, it needs to have a foot in the door of the future.

Which is why Visa announced earlier this week that it would be forging “new connections between digital and traditional currencies.”

Visa has selected the USDC crypto “stablecoin” to settle transactions on its massive global network. Typically, if people pay in cryptocurrency using Visa payment cards, the funds are instantly converted to fiat currency, adding a layer of complexity and difficulty.

Now, those transactions will be settled in USDC on the Ethereum blockchain.

That means a transaction can take place with Visa merchants in cryptocurrency, and the money never actually leave the cryptocurrency ecosystem.

This is massive because it connects the digital asset space to a traditional financial network like Visa, bridging the old world with the new. It also sets a standard where soon enough a whole supply chain could theoretically be transacted in with cryptocurrency.

For now it’s just USDC stablecoin. But it’s still all on the Ethereum blockchain, which will require ETH crypto to cover gas fees (transaction fees). In short, it’s a pretty bloody big deal for the scale and reach of Ethereum  – although most people will never know that’s what’s “under the hood”.

While plenty still turn up their nose at crypto – some colleagues even referring to it as a “con” – what they fail to see is forward-looking global giants looking to the future and making moves to be a part of it.

And those who ignore it and dismiss it will be the ones looking the fool when we’re all regularly transacting in crypto in our daily lives.


Sam Volkering
Editor, Exponential Investor