In early April 2023, Elon Musk replaced Twitter’s logo with the Doge coin crypto symbol. It seems that dogs can now fly and birds can now bark.
There were many who criticized him for spending $40bn to acquire Twitter, which was not really profitable, had too many bots, and was bloated in terms of employee count.[1] Musk has addressed this with massive layoffs and the introduction of fees for verified users. William Shatner and The New York Times have been some of those who have balked at the $7 fee for the blue checkmark.[2]
The writing is now on the wall. Musk plans to convert this social media giant into a payments company and integrate it into the social media features of Twitter like how China’s WeChat does it. According to Elon Musk, most money outside of coins and currency only actually exists as ledger entries in discrete bank mainframes that still run COBOL. Technologies from the Seventies and Eighties like SWIFT, Fed Wire, ACH, are no longer appropriate and will break down in the future. So even a large part of present day money only exists as records in ledgers around the world.
According to an April 2023 Wall Street Journal article, “In November, the company (Twitter) took one of the first steps toward becoming a payments processor, filing paperwork with the U.S. Treasury. It now has to register for a license in each state where it plans to do business.” Musk, according to the same WSJ article, said “I’m going to execute the X.com game plan from 22 years ago with some improvements.” [3]
The hardest part is not the technology, which is already available. Technically speaking, using Twitter to send crypto payments from User A to User B has been done. All they need to do is give each Twitter user a built in digital wallet. Checkout @HeyWallet. @HeyWallet is already using Twitter to send crypto from one user to another.[4]
The hardest part is growing the user base. But Twitter already has 260M global users, and it is quite easy to open an account. So they are already starting from a position of strength. It’s a brilliant pivot, if you ask me.
He has also been long interested in Doge coin, believing that its low cost and popularity with the masses is ideal for payments. If the cost of a token is low, people won’t think twice about spending it as opposed to investment grade cryptos like Bitcoin and Ethereum which cost several thousand dollars each. Dallas Mavericks owner Mark Cuban feels the same way about Doge.
People are starting to worry about traditional finance and banks. Data from the US Federal Reserve shows that commercial deposits are starting to go down for the first time.[5] People are afraid and are looking for other ways to keep, invest, and send their money. Maybe this is one that some people will welcome as a breath of fresh air.
Before people start to panic that the sky is falling though, take note that the US banking system may shrink and consolidate, but it won’t totally fail. Government will likely step in for more bailouts, and bigger well capitalized banks will acquire smaller distressed ones. If ever, the previous 2008 subprime mortgage crisis has made our financial systems stronger.
But make no mistake about it, there are real problems. Real estate for example is in a real slump because credit/debt is extremely tight. Many banks and even insurance companies now have duration risk because they are holding older bonds whose yields are less than the yields of current bonds.
Elon Musk recognizes those problems. You need to look at who Elon Musk is in order to arrive at the hypothesis that he is trying to turn Twitter into a payment system, since it already has around 260M users globally. If you remember, Musk is the co-founder of Paypal, a very popular global e-payment system, through an earlier startup he had formed called X.com. He is very familiar with e-money and finance, not only because he runs top corporations, but because he has also been involved in developing payment systems.
Someone like Elon Musk loves to solve problems. One problem we have with payment systems right now is that they charge too much, they leave too many poor people unbanked, and the bank wires take too long. Musk, with his Paypal/X.com experience, can build a better payment system that solves what we all take for granted.
Looking at the Twitter acquisition this way, it doesn’t appear that it was a foolish decision on Musk’s part. It’s harder to grow a payment system from zero. Now he doesn’t need to do that. With the headstart that Twitter has as a social media giant, pivoting into a payment system is a master stroke.
NOTES:
[2] Twitter pulls check mark from main New York Times account – ABC News (go.com)
[4] Hey Wallet! (@hey_wallet) / Twitter
[5] Deposits, All Commercial Banks (DPSACBM027NBOG) | FRED | St. Louis Fed (stlouisfed.org)