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Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.
Photo: Camilo Freedman/Bloomberg via Getty Images

El Salvador’s bitcoin gamble

​El Salvador's Nayib Bukele

Hello and welcome to Protocol | Fintech! The SEC is closed today for Juneteeth. This Friday: El Salvador gambles on bitcoin, the Wealthfront CEO praises Plaid, and Mark Cuban stumbles with a stablecoin.

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The Big Story

El Salvador's bitcoin gamble

El Salvador became a bitcoin trailblazer this month. But the Central American country's bid to become the first country where bitcoin is an accepted and legal way to pay bills, save and invest has gotten mixed reviews.

That's largely because it's not clear what President Nayib Bukele, who spearheaded the move to adopt bitcoin as legal tender, is trying to accomplish. It certainly didn't help that he made the move as his government has been taking heat for what critics call authoritarian tendencies.

"Every restaurant, every barber shop, every bank" must accept bitcoin, Bukele said as the Salvadoran legislature debated the bill he sponsored. The proposal passed easily last week, prompting one lawmaker to declare: "Bitcoiners of the world, the time has come."

  • Bukele has said the move would create jobs and "help provide financial inclusion" in the nation of nearly 6.5 million people, one of Central America's poorest countries.
  • In fact, some Salvadorans already use bitcoin for buying groceries and paying their bills, like the residents of El Zonte, a rural fishing village now also known as "Bitcoin Beach."
  • El Salvador's official currency has been the dollar since 2001. The Salvadoran colón still circulates at a fixed exchange rate. Dollarization has been a mixed bag, raising prices for ordinary consumers and making Salvadoran exports less competitive.
  • Bitcoin would also benefit overseas Salvadorans, including more than 2 million in the U.S., by helping them save on fees when they send money to their families back home, the government says.

Bukele has an even grander vision. In a recorded video, the flamboyant young leader who often sports a black leather jacket told attendees of a Miami bitcoin convention last week, "We hope that this small decision can help us push humanity at least a tiny bit into the right direction."

Bitcoin's new evangelist has an image problem. The bitcoin "victory" in Central American must wrestle with a painful truth: It is being spearheaded by a head of state described in Foreign Policy as as a "young, dynamic and impulsive" leader with "an erratic style of government."

  • Bukele has increasingly been portrayed as an autocratic leader. In February, he sent armed soldiers to occupy the country's legislative assembly to press lawmakers to approve a financing bill for his security plan.
  • A Miami Herald columnist called Bukele's bitcoin project a "distraction from his power grab."
  • Then there's bitcoin itself: The volatile currency is still viewed with suspicion verging on dread by some major institutions.
  • This was underscored this week when the World Bank said it had denied El Salvador's request for assistance in adopting bitcoin, saying: "This is not something the World Bank can support."

"This is likely to be a disaster." That's the prediction in Foreign Policy by author David Gerard, who called it a "stealth de-dollarization." That may be going too far. But given the country's other problems and the context in which El Salvador is embracing bitcoin, Bloomberg columnist Lionel Laurent may be more on point: "Right now, it looks like a gamble."

— Ben Pimentel

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How Shopify is "arming the rebels" against Amazon. A Shopify exec explains the ecommerce company's decision to give non-Shopify merchants access to its payments service.

Overheard

  • "Cryptocurrency is the future of how we shop, invest, and do business, but it can also be incredibly technical and intimidating. I prefer my transactions to be simple and to the point." Neil Patrick Harris, talking about crypto and his role as spokesperson for CoinFlip.
  • "I took a flyer and lost. But if you are looking for a lesson learned , the real question is the regulatory one." Mark Cuban, talking about losing money on a stablecoin called Iron Finance, whose initial spike in price may have been caused by a blog post he wrote that mentioned the stablecoin.
  • "We saw pretty major uptake. There were a lot of people where they took advantage of all the remote working that was going on last year to be able to move to be closer to their families, to somewhere they wanted to move previously." —John Collison, Stripe's co-founder and president, on employees taking a pay cut to move.

3 Questions With...

Jorge Sun, CEO, LendingFront

What fintech trend is most troubling for you?

What is considered fintech is getting more blurry by the day as behemoths like eBay, Amazon and Walmart entered the ecosystem or secured banking charters in order to offer more products and services to their customers. Who the dominant players are in financial services today is getting murkier. Jamie Dimon of JPMorgan said it best to his shareholders: "We should be scared shitless." The same is clearly true — and worse — for smaller financial institutions. Competition is coming from new places and they have very, very deep pockets.

What fintech company besides your own have you been most impressed with this past year?

I've been impressed by Plaid's journey over the past year or so. It's well-known that they were (almost) acquired by Visa, but that the deal fell apart due to antitrust concerns. Despite that roadblock, Plaid still managed to raise $425 million in a series D in April, and now has a $13.4 billion valuation. That's a success story by any stretch of the imagination.

What fintech sector or company is most underrated right now?

I'm going to give that prize to Community Development Financial Institutions. The Biden administration is thankfully elevating the importance of CDFIs as critical to the recovery of the economy — but a lot of people don't even understand what CDFIs are and the critical role that they play in their communities.

They are mission-driven, not shareholder-driven, and they're wholly dedicated to delivering responsible and affordable lending to help lower-income communities, just like the ones hit hardest by the pandemic. Although not a fintech sector per se, many of these CDFIs have started to partner with technology companies to make their lending processes more efficient. They're rapidly digitizing, and it's exciting to watch.

Need to Know

  • Cross River Bank launched a venture fund. The Fort Lee, New Jersey, bank had been investing informally in startups over the past 12 to 18 months.
  • Capital One introduced early direct deposit. It's the latest big bank to follow neobanks in making earned money available earlier to customers.
  • The SEC is investigating a former audit regulatory chair. William Duhnke, who oversaw accounting firms that audit U.S.-listed public companies, is under investigation.
  • Indonesia restricted the use of crypto. The Bank of Indonesia won't allow crypto as payments.

Making Moves

  • Anil Saboo, Google's head of fintech and financial services, is leaving. He's joining crypto company Bakkt. He's the second Google Cloud executive involved in financial services to leave recently: Derek White joined Galileo as its CEO this month.
  • Greg Weinberger, former head of M&A at Credit Suisse, jumped to Morgan Stanley. It's the latest departure in the aftermath of the Archegos meltdown.

Deal Flow

  • A former Barclays CEO's startup raised $187 million. Antony Jenkins's startup, 10x Future Technologies, helps banks move to the cloud.
  • Fox Corp. is launching a $100 million fund for NFTs. The fund part of its Blockchain Creative Labs will back digital creators.
  • Unit raised $51 million for banking-as-a-service. Accel led the series B for the startup, which says it is different from competitors because it offers an actual ledger.
  • Goldfinch got a16z's backing for decentralized loans. The $11 million series A will fund its crypto borrowing without crypto collateral.

A MESSAGE FROM FUNDRISE

Fundrise is a low-cost, tech-driven way to diversify your portfolio with private market real estate, an investment that has historically driven superior income streams and stability, without sacrificing return potential. They make investing in real estate simpler, smarter, and more effective than ever. Sign up for free today.

Learn more

Data point

$2.2 billion

That's the amount invested by big tech companies' venture arms in fintech in 2020, a 4% drop from 2019 — but spread across 52% more deals, according to CB Insights.

Thanks for reading — see you Tuesday!

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