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Saturday

16 November 2019

PODCAST: Meltem Demirors on the 3 Things Bitcoin Represents

PODCAST: Meltem Demirors on the 3 Things Bitcoin Represents


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We’re talking about bitcoin in the world today, and the first question I have really is around whether or not you see bitcoin as a true macro asset?

I think for most people in the world right now, particularly in the world of investing and finance, bitcoin and crypto assets are not yet an asset they think about.

I think the other piece to think about just on a macro level that’s really relevant is macro investors sort of define the world in the context of specific assets in markets, and so I think as an investor you look at sovereign debt, and you look at debt generally as an asset class, corporate debt funds, you look at equities, and then a lot of people like to lump crypto under the alternatives category.

Alternatives is sort of a growing part of the investment world, and I think it’s challenging for a lot of investors, even in the alternative space, to really try to figure out where bitcoin fits in.

And so, I think the big challenge is to people in our industry, we like to talk about bitcoin as an asset class, because we live, breath, eat, sleep crypto all day every day, and certainly in our little part of the world bitcoin feels like the big asset, but I think frankly to most investors bitcoin’s not really on their consciousness, and if it is it’s far too early, and if anything the place are getting exposure if through their PA or personal account, certainly not through their firm, or their fund, and I don’t think that’s going to change in the near future, and we can talk about that more as well.

I think one of the things that was remarkable about your testimony is you showed that bitcoin didn’t propose these same challenges, yet it is coherently creating what amounts to a digital jurisdiction at the same time, and is perhaps is at the foundation for this type of macro asset going forward, the foundation for what could amount to an important money supply, a hard money supply.

Bitcoin is a network and what’s interesting here is bitcoin is kind of a supranational global communication network, and so there are tens of thousands of devices around the world, whether people are running minors, or people are just running full nodes there’s this network of computational devices that are maintaining the bitcoin ledger, and engaging the invalidating transactions, and maintaining the integrity of the ledger, and so the bitcoin network is physical in nature.

And so, what I think is interesting here is for traditional investors it’s sort of a challenging paradigm when these three things are wrapped together, so when you see people look at bitcoin they’ll talk about bitcoins in the context of software infrastructure.

You’ll hear people talking about bitcoin in the context of a commodity because it’s produced in its mind digitally in the way that we sort of think about producing and mining things like gold, and oil, that are limited in supply theoretically.

What I think is interesting about Libra is Libra styles itself as a cryptocurrency, but really the point I was trying to make in Congress is anyone can call anything a cryptocurrency but that does not make it so.

So I want to pick up on two things that you said, and you said that Libra’s, of course, this pool investment, so the incentives of all these parties are definitely for protection fees, but you also mentioned that because bitcoin is only backed by the demand of the user that it really can exist as an uncorrelated asset, because Libra would theoretically be involved in all the ups and downs of a typical economy because the value of bitcoin is only really based on the demand that users and people have for it.

Now, conversely if I live in a part of the world where there is a lot of instability, and volatility, now I’m from Turkey personally, I was just there, and speaking to people about bitcoin, I think within the bitcoin community there’s this idea that people who live in regimes or parts of the world where their purchasing power parody, or their ability to buy the same basket of goods fluctuates a lot, because of the fluctuations and the value of their local currency.

We live in a dollar-denominated world today, and at the end of the day you can’t yet pay your rent, or your taxes, or your employees, or for your groceries in bitcoin, and I think someday you’ll be able to, and there’s certainly a number of companies I’ve invested in, and worked with, and support that are enabling people to do that, but I think again for your average person who’s living in a part of the world where they don’t have stability in their currency I think they’re not necessarily thinking of bitcoin as the solution, it’s maybe one part of the solution.

I think right now they’re looking more at things like the dollar, and unfortunately, I think it’s going to take some time for the world to get to a point where bitcoin achieves that status in a larger sort of way.

I think to us in the bitcoin community we certainly like to pontificate about what hyper bitcoinization will look like, and what a world will look like if people start holding bitcoin as a safe haven asset, but I just don’t think that narrative on a global scale has gotten there yet, and I think again part of the challenge there is how you communicate something that is so new, and a lot of people ask who’s the CEO of bitcoin, what’s stopping bitcoin, and so explaining this it’s really a fundamental shift in mental model and how people think?

And so, your recent experience in Turkey did it strengthen your idea what it wasn’t quite there yet, but there was this work to do, or did it actually bring you out of a state of let’s say being disconnected, and sitting in one of these bitcoin ivory towers saying this is what bitcoinization is going to look like, and all that stuff, or was this just you’ve been enough times, you’ve seen it in this context, and you know that people just aren’t ready, and even if we are seeing some increased trade flows out of Turkey on local bitcoins it really is still isolated individuals and it’s not enough of a wave to really push the needle.

I sometimes feel like my role is I’m a translator between two very different worlds, and so we have these crazy bitcoiners over here, and I’m certainly a part of that community, but at the same time I’m also communicating with a very different audience who has the potential to really shape and influence the trajectory of bitcoin as a technology, as an infrastructure, and as an asset in very material ways, and so I think it’s very important for me to be aware of all of the different perspectives and viewpoints in order to be an effective translator, and I do wish we did that more.

And then, you have a high population of young people who are really interested in the technology, and what they’re doing is they’re speculating on bitcoin.

And I think that’s certainly exciting, but I think the narrative that people have isn’t, oh, I want to protect myself from price fluctuation in the lira, and certainly if you look at their experience over the last year even though the lira depreciated dramatically had they bought bitcoin when that happened, or before that happened, they would’ve lost more holding bitcoin.

And look, I think through that process I actually think speculation is one of the great drivers of bitcoin adoption, because as people start to speculate, and as people start to interact with bitcoin they start to appreciate some of the principles and social values, what it represents, and I think that leads to people holding bitcoin longer, and viewing it more and more in the context of a form of sound digital money, but I do think we get a little bit overly excited about narratives that aren’t really quite supported by the evidence yet.

And within the crypto space there’s also a number of new research firms that are starting to parse data in different ways to try to analyze, and provide more context, and insight as to what the actual growth metrics might look like, but I think as I travel around the world and interact with people all over the world that story just isn’t there yet.

And so, going back to what you had mentioned about bitcoin presenting these opportunities for people to learn, and let’s say inform their worldview, one sort of test that I’ve had for a long time about someone’s world view is how accurately it can predict the future.

When we look around the world today we certainly see some of the things that people who have been in bitcoin as long as yourself have been predicting for some time?

Is it going to be this asset that you can use to get out of these little ups and downs around the world as many people have predicted for years now, or is it going to become more and more correlated and the demand will go down just because there isn’t as much liquidity in general.

They’re just a lot of challenges that the financial markets are facing, that investors are facing, but I don’t think that points naturally to we are in for a recession, because at the end of the day capital continues to flow, we are continuing to see people continuing to move out on the risk curve investing in high-risk venture investing, more and more capital being deployed there.

What I think is more interesting to think about, and one thing we’ve never seen in how bitcoin behaves in a recession, right.

And so, I think there are a lot of what I like to call unknown unknowns about what will happen when we enter that new time.

And I think again the forces shaping our world and the forces shaping the financial system there are some known unknowns, but then I feel like a lot of investors I talk to feel like they’re facing a lot of unknown unknowns, and so there are a lot of open questions about what the world will look like in this new era.

But again, I think my job really is trying to focus on what this means for bitcoin, and really trying to manage the ups and downs of what’s happening with bitcoin and crypto assets, and put it in context for investors who are looking at the world feeling very confused, looking at bitcoin saying no way, this is too much, there’s so much other stuff going on in my world that I don’t need to add more risk, and add so much uncertainty by adding a highly volatile, poorly understood asset, that I just fundamentally don’t get yet?

There’s only so much you can squeeze that out of a system, so I think there’re a lot of fundamental existential questions about the relevance of nation-states, the relevance of currencies generally, and what I think is so interesting about bitcoin if we leave aside sort of the price of bitcoin, and these arguments around bitcoin as sound money, and these things that are very exciting, I think what’s even more interesting is the questions that bitcoin introduces to the conversation.

So when people first learn about bitcoin I think it opens their mind to the idea that there is a different choice, because we’ve never really contemplated a world where I could hold something other than government-issued currency, and so that to me is the more interesting, and more profound question, and now of course with China announcing the digital renminbi with a lot of US corporations including Facebook looking at getting involved in the currency game in different ways, or in the cryptocurrency game, or other versions of digitized dollar, or digitized store value, I think it starts to get really interesting?

But I think there are so many things about bitcoin that can’t be replicated, but what you get is you get a bunch of people in the market who are spreading their own narratives around what bitcoin is and why their asset or their project is different, or better, and I think that market confusion is now being reflected at the government level where we see a lot of conversation around central bank-issued digital currency, a lot of fundamental misunderstandings about how bitcoin works, even in US Congress.

So this sort of notion that bitcoin’s unregulated I think is just a misunderstanding, and I think the media’s also played a big part in that, in perpetuating some of the sensationalism of what’s happening here, and so, unfortunately, there are these series of narratives that have defined bitcoin for the last 10 years of its existence.

It still feels like it’s stuck in a bit of an echo chamber, and so I’m really hopeful that as more, and more people start to understand bitcoin, start to get interested in bitcoin, and in digital currencies, and they go out there, and they educate themselves whether it’s going through events, like Consensus: Invest, or whether it’s listening to podcasts, or reading blogs that they’ll start to piece together their own view of the world, but I guess that’s one of the challenges of having no leader, and essential coordinator, and no marketing body for bitcoin.

But at the end of the day I think bitcoin more than anything else represents a social movement and a set of ideas, and I know that sounds very esoteric, and a bit philosophical, but I think what a lot of people are starting to grasp as they go down the proverbial bitcoin rabbit hole, and I love that we call it a rabbit hole, because it’s such a strong reference to the movie The Matrix.

I think as people start to learn more and more about bitcoin they understand that it’s less and less about technical features, but it’s more about some of the unique aspects of bitcoin’s design that are impossible to replicate.

And bitcoin’s sort of birth and creation, and the myth of Satoshi Nakamoto, and how bitcoin was launched and released into the world I think has some of those characteristics of other social movements that sort of emerged that are leaderless that become really powerful.

And it is complex and multidisciplinary and multifaceted, so in order to have that conversation, I think it just takes time for people to understand these multiple components that are working together to imbue bitcoin with some of the really unique characteristics that it has?

So once again mentioning the reference to your Twitter thread and graph, or chart, or particular visual insight you have to offer the audience that can really sort of capture what you’re thinking right now with bitcoin in the world.

But there is a fundamental question I have that if we institutionalize and financialize bitcoin, and we take 50% of the world’s bitcoin supply, lock it up somewhere with the GTCC, and we start trading paper certificates that represent an underlying bitcoin, and sort of dematerialize bitcoin markets, and detach them from the underlying, what does that really do for us other than to create a new tool for speculation.

And then, the next thing I’m looking at … So that’s sort of relates to systemic risk we’re creating, and in my view if we’re just recreating the same financial system, if we’re recreating banks, and institutions, and governments because they’re the people who hold the coins ultimately, and control who can access them then that doesn’t really accomplish much of the end state of bitcoin, which I think is interesting, and sort of intellectually challenging to think about.

I think one of the big questions that’s emerging now US economic, political, military hegemony has been a reality for the last 100 years almost, and as we start to see geopolitics shift and get reshaped, and as we start seeing increasing anger, and social frustration in the world about wealth inequality, and income inequality, and the unequal consumption of our planet’s resources, and what the implications are I do think we are starting to see nation-states, and people kind of waking up, and saying, well, wait a minute.

And I think the other thing that’s really interesting here is the narrative around China’s adoption of blockchain technology, and the recent statements made by the government there that they fully intend to create a digitized currency that is going to be used by commercial banks to start, and what do commercial banks do.

And so, I do think there’s an increasing awareness on the importance of the base currency that’s used to sort of shape economic activity around the world, and that’s an area I think is really fascinating, because again some of the aspects of bitcoin that make it unique, the fact that it’s leaderless, and not controlled by any one entity, and some of these things could potentially also position bitcoin well to be a neutral sort of means of a value transfer.

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