These are signs the disruptor is winning.

At Asymmetric Investing, I tend to buy companies that are disrupting the status quo in one way or another. Some companies are introducing new technology, others are creating new business models.

The common theme is I want to own companies playing offense, not defense.

But defense does have its advantages in business, and this week, we saw how regulatory capture can be used to delay, if not prevent, disruptive businesses.

Coinbase $COIN ( ▼ 6.51% ) saw just how powerful the banking lobby is and Hims & Hers $HIMS ( ▼ 6.71% ) sees opportunities blocked by the economics and incentives of regulatory capture.

This dynamic isn’t new in business. Tesla $TSLA ( ▼ 3.24% ) had to get laws changed to operate in most states and Uber $UBER ( ▼ 2.14% ) operated illegally in some instances, blocked by a legal monopoly taxis held.

What’s interesting about playing the regulatory capture card is that it’s a sign of desperation. It’s telling the market you know you can’t win on the merits, so you have to win by blocking competition through political power. But political power comes and goes and isn’t often a sustainable advantage for businesses.

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The reason Coinbase is in the Asymmetric Portfolio isn’t because of crypto trading, it’s because the blockchain is fundamentally a disruptive force in finance.

It’s more efficient to move money from Point A to Point B on the blockchain (ex. Solana and Base) than it is through credit card rails. If you’ve ever owned a business, you know how expensive these fees can be.

What’s already notable is how payment processors are showing just how much more efficient stablecoin payments can be on the blockchain. Look at Stripe’s fee schedule below. A credit card transaction is 2.9% plus $0.30, while a stablecoin transaction is just 1.5%. And settlement can be done in seconds rather than days.

But the benefits don’t end there.

With stablecoins, the token itself is backed 1:1 with cash (or equiv.). Banks only hold a fraction of deposits in reserve. The rest is lent out. This is known as fractional reserve banking, and it’s why there can be a “run on a bank” if customers demand their deposits back en masse.

The theory is franctional reserve banking stimulates the economy because it gives banks an incentive to lend.

This theory is what the modern financial industry is built on, and it’s seeing a threat from the blockchain and stablecoins. As the theory goes, the benefit for the economy is more lending. The benefit for the depositor is that their deposits are safe (FDIC insured) and can earn interest on those deposits.

But that social contract, on which fractional reserve banking is built, hasn’t been a reality for consumers. I’ll show below that banks pay essentially zero interest, and the days of deposits being used to fund your neighbor’s mortgage are long gone.

And banks are seeing stablecoins that pay high yields as a threat to their cheap deposit base.

That’s why this week, Congress added a provision in the Clarity Act to prevent stablecoin and crypto companies from sharing “rewards” with holders because those rewards look like interest from a bank account.

Banks see the threat, and they went to regulators to fix the problem.

On a podcast on Wednesday, my friend Lou Whiteman (correctly) argued that deposits in banks are a raw deal for customers, but they need to be protected because they’re key to the current economic system.

What Lou laid out here is regulatory capture. It’s saying the alternative may be better, but the establishment is too big and important to care about the disruptor.

Long-term, I don’t think that wins.

Stablecoins are digital native money, and most payments today are…digital. Stablecoins could win because they’re a more efficient method of payment.

And with rewards, they’re a better place to store money than a bank account. I looked up what the current interest rate is on a savings account at Wells Fargo, and it’s essentially nothing.

JPMorgan Chase is the same.

If you’re a bank getting to use customer deposits for free, of course, you pull out all the stops to argue that deposits need to be incentivized. They’re your lifeblood.

Coinbase's offering 3.5% rewards for just holding USDC in a Coinbase account is a real threat.

The answer from banks and credit cards isn’t to lower fees or offer higher interest rates on deposits. It’s to make the new, disruptive product illegal.

I don’t think this will ultimately win the day, but it’s impacting stocks like Coinbase and Circle this week. Regulatory capture is a powerful drug for big banks, and it’s a sign that the opportunity ahead for the blockchain is really big.

When it comes to medicine, there’s a tendency to lean on experts and regulators as knowing everything.

We did this during COVID to varying degrees of success. But we do it in much more implicit ways every day, and it impacts what products are available to us and what aren’t.

Last week, I wrote about peptides as a potentially 1,000x market for Hims & Hers because peptides are largely unpatented, they’re inexpensive, there are low risks of side effects, and they’ve been observed to have incredible impacts on health.

The reaction from the healthcare community hasn’t been, “great, let’s collect more data and see what works,” it’s the opposite. The industry wants to make small modifications (this is what the Novo Nordisk lawsuit against Hims & Hers was about) so they can get patent protection and charge high prices for years to come. Commodity-like products are bad for business!

The peptide discussion on TBPN was one example, but Martin Shkreli argued peptide that haven’t gone through the FDA approval process should be allowed. And they should be treated like illegal drugs.

What you’re seeing here is another form of regulatory capture.

“Trust me, I’m the expert. The government gave me a certification that says so.”

The problem with this logic is that the government also makes the rules that say what experts can and can’t do, and the hoops the government has setup for FDA approval are incredibly expensive.

There’s no incentive for the pharmaceutical industry to do a clinical trial on BPC-157 or Thymosin Alpha-1 because there’s no money in it!

As a result, there’s an incentive to create products that are patented, can generate large amounts of revenue, and go through the FDA approval process. Patents and the FDA are double regulatory protection.

A cheap, unpatentable pharmaceutical wouldn’t go through the FDA approval process because who’s going to spend $10 million+ to go through a trial?

I think these incentives are why the U.S. has an obesity problem that stems from what we eat (just look at how much more natural food is in Europe or even Canada) and an increasingly sedentary lifestyle. But the solution is to patent a GLP-1, not fix the food ecosystem.

When looking at the risk/reward of these new treatments, we should also consider the history of medicine. The first question is, are there risks? For the most part, the answer is “no” for peptides because they’re just chains of amino acids that occur naturally in the body.

The next question is, are there benefits? We don’t have FDA-approval yet, but that doesn’t mean we should block any experimentation.

Doctors are also given wide leeway to use their judgment and available data to write prescriptions. Substances on the 503A Category 1 list (peptides are now Category 2, but may be moved down to Category 1) include Aloe Vera, Creatine Monohydrate, Melatonin, and Tea Tree Oil.

Viagra wasn’t approved for ED until doctors found this was a common side effect of its FDA-approved use as a heart medication, which only then led to the studies that led to FDA approval for ED.

Ozempic wasn’t originally approved for weight loss. It was approved for diabetes, and weight loss was a side effect. Only THEN did the FDA approval for weight loss come.

I’m not saying I should make the rules or that peptides are the answer for everything. I’m simply pointing out that we need to understand the incentives and strategies every player in an industry has as investors.

If big pharma is playing the “you’re not FDA approved, so you’re bad” card it shows they’re not arguing on the merits, they’re arguing for regulatory capture. Even experts have to prove their point, and being FDA-approved isn’t the end-all, be-all.

Add in the economic incentives in pharma, and you can see why I’m curious about what’s being overlooked by pharma, doctors, and pharmacies because there’s no money involved.

Non-patented treatments can be great for the consumer. Now, we just need someone to pay for the clinical trials without getting an economic benefit.