German Gov selling, Japan's Tourism Surge, & Wells Fargo's losses

View from the Arch #34 | June 21th

Author

Dhruv Patel
June 21, 2024

Wells Fargo has long been the butt of all jokes in the banking sector. It’s easy to see why when they’ve had scandals about employees scamming the company for free dinners. Wells Fargo continued to get heat this week in the tech world…

This Week in Crypto

We had a turn for the worst on the ETF front, with a whole week of red, by now we know this goes both ways.

  • In addition, the German government sold a couple hundred million dollars of seized BTC, with $3B left in the coffers, according to Arkham.

Farside Investors

Big Mike announced his buy that more or less offset the ETF flows; acquiring 11,931BTC for $786M at an average price of $65,883. Microstrategy now holds 226,331BTC (over 1% of all Bitcoin that will ever be created) at an average price of $36,798.

  • Interestingly, despite the negative price action for the corn, miners have been bid in equities markets with all the major names being green on the week.

On the Ethereum front, we have a preliminary date for ETF trading to go live on the 2nd of July.

  • The SEC also ended its probe into Consensus, clarifying that it does not recommend any enforcement action.

  • We’d expect this positive sentiment to translate into the ongoing Coinbase suit.

Altcoins have generally all been whacked in recent weeks, with a cacophony of nonsense happening in the space:

A few headlines that caught our eye:

This Week in TradFi

Yet again, US economic data points to another quarter of a slowing economy. The data continues to strengthen the odds of a September rate cut.

  • New housing construction dropped to its lowest level in nearly four years this past May.

  • The four-week average of unemployment claims, which smooths out weekly volatility, increased last week.

While the US continues to await for more economic data evidencing the decline of inflation, the Bank of England (BoE) and the People’s Bank of China (PBOC) decided to keep rates steady at 5.25% and 3.45%, respectively.

  • Even though inflation has fallen to its 2% target in England, the BoE is worried about a premature cut rebounding pricing.

  • China holding interest rates flat is very interesting considering the economy is struggling. This indicates that monetary policy may not be a lever they can flex to help restart the economy.

While much of the world is on the same beat of waiting for rate cuts, Japan has been raising rates and dealing with an increase in tourism. Driven by a weak Yen, Japan had its third straight month of more than 3 million visitors, a record pace for inbound tourism. All of this tourism activity and spending will benefit local merchants and the Japanese economy at large.

Amidst all the geo-political and economic uncertainty in the world as well as central bank buying pressures, Gold rallied 1% to a recent peak.

This Week in Tech

Tech had a flurry of activity this week, with fintech leading the charge. We started the week with a heavy glance into the economics of Bilt’s credit card.

Typically, credit cards earn fees from both interchange as well as interest from revolving balances. Given these revenue streams, credit card issuers are able to issue rewards in the form of points or cash back on spend. Bilt, a company that enables individuals to pay their rent via credit card with no fee and earn rewards for it, launched in 2021 and rapidly rose to a $3.1B valuation and $413M in total funding.

However, in this case, Bilt rewards doesn’t make interchange on the rent payments given it just pays the end merchants via ACH or check, so the economics of the company have always been unclear. A few details emerged here that provided clarity on the structure.

Essentially, Wells Fargo was betting on the Bilt card members to use it as their primary card and as a result they would make enough revenue from (1) interchange on non-rent spend, (2) interest from revolving balances, and (3) money from cross-selling mortgages to Bilt customers in order to offset the cost of funding the rewards program on the rental payments.

None of these assumptions have played out, and as a result, Wells Fargo is reportedly losing up to $10M per month on the partnership. However, Bilt does have a valuable upmarket customer base that Wells Fargo can benefit from. The two companies are committed to the partnership, and we’ll see how they can creatively work out a win-win situation, while still being attractive to consumers in an ever-competitive consumer credit card industry.

In other fintech news, Apple decided to scrap its own Buy Now, Pay Later (BNPL) product efforts and is partnering with Affirm instead. This is a huge win for Affirm as this partnership will likely drive a massive increase in volume. Apple has long had ambitions in financial services but has floundered here from their struggling partnership with Goldman Sachs to scrapping their internal BNPL product. This decision is a huge win for broader embedded fintech companies at large. Now, we’ll wait to see whether Affirm is able to keep up with Apple’s volume and do so with positive unit economics.

Lastly, it wouldn’t be a proper week without at least a mention of AI. This week, Ilya Sutskever, OpenAI co-founder, broke twitter as he announced his newest company, Safe Super Intelligence, Inc. While they haven’t disclosed any fundraises, the Arch team is taking bets on the over/under of a $1B valuation out of the gate. While OpenAI has had a lot of controversy and attrition, the number of mega AI companies that have come out of OpenAI is truly insane - Anthropic, xAI, Perplexity, SSI and many others!

As usual, below are some fundraising announcements, M&A, and tech personnel changes that caught our eye:

Arch is building a next-gen wealth management platform for individuals holding Alternative Assets. Our flagship product is the crypto-backed loan, which allows you to securely and affordably borrow against your crypto. We also offer access to bank-grade custody, trading and staking services, powered by BitGo.

Disclaimer: None of the above is financial advice, seriously.