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Chamath Palihapitiya says Visa and Mastercard will be the biggest business failures in 2022

  • Visa and Mastercard will lose out to Web3-based payment projects in 2022, Chamath Palihapitiya said.

  • Both companies are a "completely contrived duopoly that doesn't need to exist," he said.

  • He cited Amazon's decision to ban Visa credit cards in the UK due to high transaction fees as one reason for his view.

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Billionaire investor Chamath Palihapitya has boldly predicted that Visa and Mastercard, two of the biggest payment processors, will be overthrown by emerging blockchain and DeFi projects in 2022.

"My biggest business loser for 2022 is Visa and MasterCard and traditional payment rails and the entire ecosystem around it," he said in an episode of the "All-In Podcast" released Wednesday. To him, the long-standing payment systems used all over the world are a "completely contrived duopoly that doesn't need to exist."

Palihapitya, a former Facebook executive who runs the venture capital fund Social Capital, shared what he thinks will be the "most profitable spread trade" of his lifetime in the coming year.

"Be short these companies and anybody that basically lives off of this 2 or 3% (transaction) tax, and be long well-thought-out, Web3 crypto projects that are rebuilding payments infrastructure in a completely decentralized way," he said.

Without being specific, he predicted at the same time that "a lot of these scammy crypto projects will go to zero."

"If you read the whitepapers 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," he added.

A spread trade is a market order in which a trader simultaneously carries out a purchase of one security and sale of a related security in a single unit. Investors execute this trade to attempt to profit from the spread, or difference, between the buying and selling prices.

Palihapitya based his opinion on Amazon's decision to ban the usage of Visa credit cards in the UK, because of high transaction fees, last month.

"The canary in the coal mine here is pretty significant," he said. "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."

"There really is no need today for all these small businesses to sit on top of Visa, MasterCard, and AmEx rails. It's unnecessary."

He also predicted the first movers for the adoption of this emergent technology will be in the developing world.

"This is why I think focusing in markets like Nigeria to me are way more exciting than talking about these fading Western European countries. This is where this stuff will happen," he said.

"We'll look back in 10 years and (traditional payment processors) market caps will be materially lower."

Visa and Mastercard have been underperformers in 2021, with their stock prices roughly flat year-to-date, compared with a roughly 27% gain in the S&P 500.

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