Is Bitcoin an Investable Asset for Every Portfolio? (#41)

It’s gone from zero to a trillion dollars from scratch. Then maybe beyond, you’re not going to get there in a linear way. I can’t imagine any other way it would’ve gotten here, which is to say an extremely volatile and bubbly manner.

Full transcript:

Ben: [00:01:29] Welcome everybody to this 4X4 Virtual Salon, where we’re going to be discussing whether Bitcoin is now an investible asset for every portfolio. We’re going to kick off with our first topic, what’s the business case for Bitcoin? And I’m going to come to you first, Izabella, and I want to ask you, is Bitcoin the new gold?

Izabella: [00:01:49] The new gold? I thought you said ‘God’ for a second! Yeah, I don’t know if it is the new gold. I mean, it has gold-like properties, but in terms of like the pure investment case I see it in the spirit of this new phenomenon of ESG – which is about investing in stuff that is ideologically significant, not just investments that are going to deliver a profit or a return for your clients or investors, but something that is an impact investing in that sense, where Prince Harry is now a chief impact investor type.

The reason I say that is because there comes an argument where Bitcoin becomes so big that you can’t ignore it anymore. If you’re managing a portfolio, you are obliged to have a fiduciary duty to maximize the returns aside from your ESG mandates. If you don’t have the explicit ESG mandate, you also are inclined to move into Bitcoin for those reasons.

I think there’s both of those aspects in play. In that sense, you can maybe think of Bitcoin as, for the ESG side of things, a kind of divestment from Fiat; for those who don’t believe in the ideological controls that surround it and the kind of political framework of that system or one perhaps that is becoming unstuck by inflationary pressures, if you believe that thing.

And the other case is just simply portfolio management. The same way as we had the big commodities boom. Around 2014, 2015, we were having very similar debates about commodities. Or even the VIX, or something like that. Is our commodities an asset class? And many people would have said: no, it’s not an asset class because it has no yield and the pension funds have no business in only commodities. But the interesting thing about Bitcoin is that you don’t have to own derivatives to get exposure to Bitcoin. That whole physical conundrum goes out the window. Over time you may even be able to synthesize yield through the so-called re-hypothecation or lending of the Bitcoin to the capital markets. That’s how I frame it at the moment.

Ben: [00:04:13] Nic, you’ve written about this a lot. It seems an obvious follow up question, which is, can Bitcoin be an ESG investment when it’s so environmentally damaging?

Nic: [00:04:21] There’s plenty of commodities that costs energy to extract and recycle and so on, and Bitcoin is no exception. I don’t really hear a lot of chatter about gold ESG. Maybe that’s just because I’m not listening to the right places. But it seems to me that the ESG focus on Bitcoin is primarily driving from people that are trying to find critiques of Bitcoin or reasons why it should be banned or so on. But it’s pretty selective focus, generally. I don’t hear that being applied to aluminum smelting or idle devices that are sucking on electricity. Seems generally pretty selective with Bitcoin. But yeah, certainly I expect the government to use all the tools in their arsenal to suppress investment into Bitcoin in the long-term, and clearly capital is becoming extremely politicized through the mechanism of ESG and mandates in terms of what you can invest in.

I’m sure that will be used against Bitcoin in the same way that gold ownership was banned or restricted in previous episodes where various governments had an incentive or were trying to stop people divesting from treasuries or from the local sovereign currency. Certainly, I expect governments to use all the tools at their disposal, and ESG looks like a pretty convenient one.

Ben: [00:05:43] Seamus, this is a question for you, which is: inherent to this idea that Bitcoin is the new gold is the idea that Bitcoin is finite. I think something like 21 million Bitcoins can ever be mined. But the counter argument that a lot of people use is that it’s not finite, because you can have 0.00000 Bitcoins and so on. What’s the response to people that say it’s not finite because it’s infinitely divisible?

Seamus: [00:06:10] It makes me laugh, because it’s kind of a clueless statement. I mean, it’s a very specious argument, you’re saying it’s divisible. You’re not saying the total amount changes. Bitcoin indeed, it has eight decimals right now. The smallest unit is a sat, which means a hundred million sats make a Bitcoin.

It’s great. When you think about money, one of the USP’s basically is that it should be divisible, and indeed Bitcoin is. people can look at it and say: well, it’s very expensive around 50,000, but that’s not the unit you have to buy in. You can buy in a sat. But the total amount is still 21 million, and I think it’s one of the only assets that’s probably finite. I mean, we’ve been talked a little bit about gold, and gold’s relatively finite at a certain price level. But as the price goes up, more becomes economically viable to dig it out of the ground. That previous was to store wealth, and that was a big attribute that gold supply only grows a couple of percent a year. Because unless the price goes higher, nobody really invests to mine more, and it’s not necessarily economically viable.

Now you have this new, let’s say Gold 2.0, and it is specifically limited at a total amount of 21 million. It is unquestionably finite, no matter how divisible that amount is.

Ben: [00:07:23] Preston, I wanted to ask you a question because the time that people started to talk about Bitcoin as the new gold, or as Seamus said, Gold 2.0, that was about the same time as people realized that it wasn’t a very good payment mechanism. My question to you is: to what extent do you think Bitcoin is the new gold is kind of convenient post-rationalization of the fact that Bitcoin is not a brilliant global currency or payment mechanism?

Preston: [00:07:50] Bitcoin isn’t really amenable to easy description, right? People have described it as different things, but Bitcoin isn’t sentient and it wasn’t created for a particular purpose and it really has a life of its own. That’s the first part of that.

I think the second is that it’s a technology, and as such, technologies change and evolve. we’re seeing that with Bitcoin and in particular with scaling solutions such as Layer Two and the Lightning Network – which is basically an off-chain solution that ties into the chain but allows people to send large numbers of transactions without leaving a large transactional footprint on the blockchain itself.

I would expect – and this is relevant I think for investors who are investing into this space – are they investing into the potential future where money is no longer in the hands of the state and is instead fully automated and digital and based on distributed consensus, or are they investing because they think Bitcoin is the one true money that is going to deliver all those solutions?

I mean, Bitcoin, certainly is a contender for that. But I think that as a technology, we have to look at it and understand we’re still in the first or second ending of the game here, given the fact that it’s so experimental and it’s so lightly used in terms of the percentage of the population. It’s very early days.

Ben: [00:09:11] Then maybe one for you, Nic, why would Bitcoin suddenly become a substitute for gold if it doesn’t behave anything like gold? You would expect gold to be, I guess, countercyclical, right? Whereas Bitcoin hasn’t behaved like that.

Nic: [00:09:26] Well there’s the properties of the asset, and then there’s the financial performance, and those are pretty distinct. The reason people compare Bitcoin to gold is because of its inherent properties. It has some monetary hardness. In fact, it’s much harder than gold. Gold has a supply reaction when the price of gold goes up or down. You have a countercyclical effect there in terms of the reaction function. Bitcoin of course, has this defined supply schedule, so it doesn’t really react to this. There’s no alteration to the schedule in response to demand shocks.

The other thing is that people tend to use Bitcoin as this pristine collateral asset. A lot of people imagine that Bitcoin will eventually be used as this high-powered collateral within a banking system. We’ll see if that materializes or not; it’s reminiscent of the way gold used to be used with banks issuing notes against gold and things like that. Of course, Bitcoin is about 5,000 years younger than gold as a monetary commodity, so we’re still figuring out what it is and that uncertainty is expressed in volatility.

It’s naturally much more volatile than gold. Young, newly monetizing, synthetic monetary commodity that’s gone from zero to a trillion dollars from scratch. then maybe beyond, you’re not going to get there in a linear way. I can’t imagine any other way it would’ve gotten here, which is to say an extremely volatile and bubbly manner.

Ben: [00:11:03] The point you made there about gold adapting on the supply side, how is that not also true for Bitcoin? Because as the price of Bitcoin rises, there is more value to be made from mining, right?

Nic: [00:11:12] Yeah, but the miners can’t accelerate the rate of production. That’s the magic of Bitcoin. That’s the thing that it does that’s different. It’s perfectly inelastic in terms of supply.

Ben: [00:11:25] Two more questions. The first one is: Izabella, you wrote here that ESG is more than just environment, right? How does Bitcoin score on social and corporate governance?

Izabella: [00:11:36] I think that’s the issue, isn’t it? ESG is fairly subjective and that’s why it’s quite controversial. Not many people agree on all this stuff. You have very loose ideas about what qualifies as a green bond or as a green investment. That’s why it’s a competing system of values, and Bitcoin just is another ideologically-minded movement out there that is saying that we want to encourage investment into a system that is going to protect privacy, that is going to keep people to account because we’re going to take out the middleman. It’s basically another ideological offering on the table.

That does make it an ESG investment because the metrics that you’re judging about are not just about whether investing in Bitcoin is purely profitable, there are other societal impacts. Like, okay, great, you make loads of money, but is it worth it if you’re living in an authoritarian nightmare? That’s why I frame it in that sense, because I think the environmental question is a worthwhile question, obviously it has a huge footprint, but the real value proposition to the capital markets isn’t so much about whether it’s a new gold or whether it’s a payment system. It’s about anchoring, creating a level playing field for buck for value, because that’s really what we’ve been lacking.

One of the reasons gold doesn’t work is because it’s bulky and you have to own it, physically store it. There are all sorts of shenanigans that can go on in terms of warehousing it. There are many storage facilities that turned out to have not gold, and you just have to watch Goldfinger as well. But with Bitcoin or any other digital asset of its kind, the opportunity on the table is to anchor all those competing value systems into a single thing that nobody can manipulate.

My concern isn’t whether domestic systems should be centralized or not. I think within homogenous societies, it’s okay to have trusted systems that are quite centralized for efficiency purposes, because we have that embedded trust in our society. We share certain norms and legislation and culture. But it’s about operating on a global marketplace where you don’t have those similar norms, and you’d have like, say the Chinese central bank continuously de-valuing the currency on a unilateral basis, and then you end up with currency wars and all that stuff. Bitcoin regulates that, and it allows for lots of different competing systems, some of which can be centralized and some of them might not be centralized, to compete against each other. In the end, the best one, we will know from the free market, so to speak, which one will win out. But it’s not necessarily the case it will be a crypto one. But I’m interested in the collateral proposition of how it anchors everything together.

Ben: [00:14:37] Preston, is Bitcoin compatible with central bank digital currencies, and is it a matter of time before central banks try to scupper Bitcoin in favor of their own CBDCs? We’re going to get you first Preston, if that’s okay.

Preston: [00:14:46] I mean, it’s not really a question of compatibility. Bitcoin in most countries isn’t illegal, and so people are entitled to use it. If central banks want to have their own digital currencies, which run on their own databases, where they’re backed, I mean, most ‘Fiat’ currencies or just state backed money is backed by the fact that people have to use it to pay taxes. That is the primary demand for Fiat currency in most jurisdictions.

There’s not really any essential conflict between Bitcoin and something like that, in that Bitcoin is at least ostensibly subject. Even if enforcement is difficult, it’s ostensibly subject to the tax regimes of the countries in which its holders and people who transact in it reside and transact. There’s no central conflict there. Bitcoin is just like any other financial asset; you can account for your gains and your losses, and then at the end of the year, you’ve got to tally it all up and you’ll have a big bill for the revenue that you got. I don’t see any conflict there.

Whereas the central banks might decide that it presents so much of a challenge to their money that they’ll ban it, but we haven’t seen any moves like that, at least in the Western world.

Ben: [00:16:04] What do you think the likelihood of that is happening? Anybody can answer that.

Izabella: [00:16:03] I think there is a massive misconception about the legality of money and whether or not a government can force you to use their money. The answer is they can. it’s certainly here in the UK, there is no legal tender per se. It’s all opt-in, but it’s just so happens that we do opt into it because it’s useful and it’s nice to use something that everyone has a common interest in. I don’t know about other jurisdictions, but certainly here in the UK it is not legal tender in the sense that the government forces you to use it. You can use any currency you want.

Nic: [00:16:41] I’ll just add to that. I mean, the government can encourage you to use a certain monetary medium, and the dollar has certain privileges in the US. Like, if the value of the dollar appreciates, you don’t have to pay capital gains on that. You know, treasuries are sold for dollars and you need dollars to kind of participate in our securities markets and things like that. taxes, you have to suppress those liabilities in dollars.

They can encourage its usage, but you’re not going to mandate that someone completes the transaction dollars to the point of a gun. Money is just the most saleable commodity. Clearly Bitcoin has carved out a niche in its own kind of jurisdiction, which is initially the crypto landscape, the digital realm, roughly a hundred million people worldwide. I just think of that as its own separate jurisdiction, where Bitcoin is effectively the reserve currency.

Preston: [00:17:40] It’s not really the effectively the reserve currency, right? Because the way that governments discourage people from using Bitcoin is twofold, and it’s mostly through the tax code. One way is the Bitcoin when received in exchange for goods and services as taxes, income, and then you have a second tax hit when you’re disposing of it or a loss, depending on what happens. But assuming the direction is going to move and you dispose of it at a profit, you have another tax set on your capital gains, which would be short-term in one year, and long-term if it’s longer than a year.

Bitcoin is not really great money because the more you use it, the more complicated your tax affairs become. I suspect we’ll probably see aggressive tax enforcement being the mode through which governments discourage its use if they decided it’s a threat, rather than an outright ban

Seamus: [00:18:23] If I would just make one anecdotal comment on that with regards to Switzerland, Switzerland is interesting because you have the Swiss national government and you have Cantonal governments. There’s obviously a big community in places like Zug, the Crypto Valley, and the state government there allows you to pay your taxes in crypto now. I think to Preston’s point around capital gains, fortunately Switzerland is also a country where we don’t have capital gains. It could work here. That’s an interesting point, I think from the Swiss perspective.

Nic: [00:18:49] In the same way as Seamus notes, tax policy can be used to attempt to suppress Bitcoin or crypto usage, it can also be used to encourage it. We’ve seen a number of countries adopting pretty favorable tax approaches to crypto. In the same way that behavior at the state level is heterogeneous, and there is no single international order, certainly not one that the US controls, not anymore, I think you’ll just see a diverse set of reactions to crypto.

Some central banks will adopt Bitcoin in their foreign exchange reserves the same way they adopted gold. If you look at gold, that’s something that’s ostensibly hostile to monetary discretion in a bunch of countries, because gold isn’t something that you can inflate at will. Yet it has been adopted in foreign exchange reserves. Many central banks hold gold. I don’t see why it would be any different for a novel monetary commodity.

Seamus: [00:19:50] What’s funny is that Swiss national bank, although they don’t explicitly own Bitcoin, they have holdings in MicroStrategy, Square and Tesla. Indirectly they’re there.

Izabella: [00:19:59] With respect to central bank reserves, what’s interesting is that if and when like big corporations, MicroStrategy, Tesla, the investment managers, the private sector basically does accumulate a lot of Bitcoin; then the only way they can influence the market is not by actually owning Bitcoin, but by managing the shorts, because there has to be a relative shorts to offset the longs in the private sector. You might see them selling AKA borrowing Bitcoin from the private sector and selling it into the market much like they do in gold. Like if you believe in the conspiracies from gold shorting, there’s a purposeful reason for that, which is that there is an interest rate curve that encourages the Fiat monopolist to effectively short stuff to offset the longs.

Ben: [00:20:52] I wanted to move onto the second topic, which is the question of whether we’re in a bubble. Nic, I’m going to come to you first, because 71% of the people that have filled in the poll think that Bitcoin will be worth a hundred thousand dollars by the end of 2021. My question is: how would one determine what’s a fair price for Bitcoin? Is it the mining costs that should give us the best proxy for the underlying value? How does one determine the value of Bitcoin?

Nic: [00:21:21] I mean, it’s like any other commodity; you can’t construct evaluation with a DCF model, right? And we see these wall street sale side desks frantically trying to build a valuation, like JPM the commodities desk always does this. With the mining costs, it doesn’t make any sense because miners react to the price. They don’t set the price. Miners don’t have any privileged information about where Bitcoin is going to go. There’s nothing special about being a miner. They’re not valuing Bitcoin for us and then we’re inferring their valuation then trying to guide price to the valuation they’ve set.

Miner behavior is just a function of hash rate, electricity costs, basic costs really, and market prices. Hash rate is laggy, it follows price, basically. If you look at the 2017 bubble, there’s a huge hash rate spike 12 months after that. Miner behavior follows price. So, miners don’t set the price of Bitcoin at all. The price of Bitcoin is just a function of the supply, which is completely known. Then the world’s appetite for Bitcoin and the world’s expectations of the future adoption cycle of Bitcoin, which are constantly being revalued, those probabilities are changing all the time. The optimism is changing constantly and you get this unbelievable volatility.

I think it’s just about assessing where you think the world’s ultimate appetite for Bitcoin is going to settle in the long-term. You know, right now it’s roughly 10% of gold; slightly below that if you account for the free float of Bitcoin.

Do I think Bitcoin is going to be more influential than gold in the future? I certainly do. Do I know when that’s going to happen? Absolutely not.

Ben: [00:23:14] Seamus, I’m going to come to you next. Bitcoin is up 600% in the last 12 months. Listening to Nic, it’s simply a function of demand and supply, right? And this is blaze is relatively fixed or largely fixed, and so is the demand that’s changing.

The question is: how much of that demand do you think is speculative, and is there a possibility as 25% of the people that filled in the poll suggests that this is a repeat of 2017 and we’re in a really big speculative bubble? What do you say to that?

Seamus: [00:23:48] Repeat of 2017-2018? Yes, I think there’s clearly signs that there’s speculative force in the market. I mean, just this week, I think we had one of the crypto exchanges buy naming rights from the Miami Heat, over a hundred million dollars to put their company name on the stadium. Look at crypto on Twitter, people are talking about the Lambos (Lamborghini’s) and their Aston Martin’s again.

There is a lot of speculative euphoria in the market, but I think you need to look beyond just Bitcoin. I mean, we see this broadly across many assets now, whether it’s equities, real estate – just about everything seems to be, you know, profoundly exhibiting the same frothiness or bubbly characteristics.

I think the whole issue is how we measure these things. What’s the denominator, what do we re measuring this against? And I think the real question is why all these assets in that case? I think a lot of this can be correlated back to what we’ve seen in the growth in central bank balance sheets. Since the global credit crisis in 2007 to 2009, we’ve seen central banks absolutely explode their balance sheets. They’ve gone from somewhere around 5 trillion, if you look at the major central banks like The Fed, ECB, BOJ, and PVOC, it’s gone from about 5 trillion to almost 30 trillion in February of this year. That last 10 trillion, had a 50% jump basically in since 2020.

We’ve really seen a huge growth from these extraordinary monetary policy reactions we’ve had from central banks. I think what we’ve seen is reaction asset markets. All asset markets are probably to some degree in a bubble denominated dollars. I think the answer is yes.

Now, where we go from here is I think it’s very different than 2017/2018, where you had an asset specific spike. It was all retail as kind of a natural stage of, we see hype cycle around new technologies. We saw that on the internet, you had a huge run-up in 1998 to 2000, and then it crashed, and we’ve come out of that and kind of much more sustainable trend in technology. I think crypto is the same thing – we had a huge bubble and retail driven bubble that was on a lot of hype and little substance in 2017/2018. Crashed, and now without all the institutional infrastructure, the on-ramps, the large adoption by the financial incumbents, I think we see a long-term solid structural, sustainable trajectory now for crypto.

Will it have up and downs? Yes. Will it blow off tops? Yes. But I think it’s very different than 2017/2018.

Preston: [00:26:20] I’ve got to disagree with you there. Normally I’m skeptical about this stuff. I mean, if you look at the trajectory of Bitcoin and crypto adoption versus other types of software and technology adoption in the past, it’s abundantly clear that Bitcoin is still only in the very, very beginning of the adoption curve and hasn’t even made its inflection point. There are a lot of holders of Bitcoin balances on Coinbase, right. But at the same token, there are only 11,000 nodes. If this does what other software usually does, by the time they get some usability improvements and then they get things like Layer Two working well and have a decent UX, the potential for this technology is just like stratospheric. Where it’s 10,000 nodes now, it could easily a 100X or 1000X from there without really breaking a sweat. At that point, Bitcoin would be a very, very serious technology indeed, which just couldn’t be more.

But we’re still at that very nascent and early phase, wherever we recognize we have a very powerful tech on the other hand, but it still hasn’t been made usable enough for ordinary people to use it. That’s certainly coming.

Ben: [00:27:29] Preston, just to dig into that a bit more, are you saying that it’s potentially still undervalued because it’s still got so much potential, or you’re saying that it’s potentially overvalued because people got too excited versus where it really is at the moment on the maturity?

Preston: [00:27:44] It’s dramatically undervalued. If we think about how many Facebook users there are or how many web servers there are or email servers there are, that might be a better number to understand how big the cryptocurrency space is going to get. At the moment, if we look at most of the big cryptocurrencies, the number of nodes, full nodes – so that’s the people who have a complete copy of the blockchain on a computer or a server and are actively relaying transactions as part of the network – Bitcoin and Ethereum are the two biggest ones with about, I think Ethereum is 8,000 or 9,000 and Bitcoin has 10,000. If we 1000X that, it would mean that Bitcoin had 10 million instances being run or active software users all over the world. Facebook has two billion.

If we think that this is going to be something like Facebook or on the level of Facebook, it might in the short term be overvalued. It might retrace, it might have a dramatic 50% drop in the next couple of months, but I’m now fairly convinced that the way that this is going is going to look a lot more like Facebook, the adoption of Facebook and email. Just looking at how many people are running the software, it’s clear that that hasn’t happened yet. But there are people with tons of Bitcoin balances, right? They are nominally Bitcoin users, but they’re not maximizing their big point of use in the way that I think small businesses and others will be able to do it in a way that would be potentially capable of bumping off big payment processors live Visa and MasterCard. The reason they’re not there is because the tech isn’t there. But it’s going to get there because that’s what technology does.

Seamus: [00:29:23] I’ll just interject. I totally agree with you. Hopefully I didn’t come across saying this is over. I think it’s just very early days. I very much agree with your thesis.

Ben: [00:29:31] Izabella, I wanted to come see you next. We’ve already alluded to the MicroStrategy and Tesla putting so much of their treasury cash, separate treasury cash into Bitcoin. Based on the discussion we’ve just had, that would seem to be a logical move, right?

Because these companies are generating lots of cash and they’re able to raise lots of cash, and then they’re then putting that into an asset that should, based on everything we’ve said, be a pretty good inflation hedge, if we believe that the inflation is coming down the road. Where do you stand on the logic of MicroStrategy and Tesla and others starting to use Bitcoin as a treasury asset?

Izabella: [00:30:14] I am quite cynical, generally speaking. But Tesla has cash flow issues of its own, like in terms of just conventional Fiat flows. For Ilan, there are other incentives in like messing with people’s heads and divesting into Bitcoin, notably because they probably will confuse lots of analysts and they won’t really understand the cash reserve position of Tesla. That obviously skates some of the numbers and potentially it could have a cash flow impact in that sense. He’s now obviously also said that he will be selling Teslas for Bitcoin. It will have to retrain a lot of bank analysts and valuation type people in how they assess.

 I mean, you could just conceivably use it as any FX. Obviously, corporations have FX exposure across the entire world, but they are valued in that home currency.

I’m cynical, but at the same time there is some underlying logic if you think that Bitcoin is going to become an international asset that is going to be increasingly a stable source of value on the reserve books. I mean, hard to say.

For MicroStrategy, from what I understand, there was also this weird play where they are a listed stock. You know, the other incentive for putting your treasury cash into Bitcoin is that you then galvanize people to buy your stock because you’re a proxy for owning Bitcoin. In terms of like, whatever, there are lots of different investment strategies out there, different mandates. You might not be able to own Bitcoin now right, but if you buy MicroStrategy, you’re getting an exposure to Bitcoin. It expands the pool of potential investors for your own stock.

There are other factors that play. Whether it becomes a trend, there was a big rumor that Oracle were going to do it as well, but it didn’t materialize, I think it’s early days. You’ve got to imagine the treasury positions of the big, huge corporations like Google. Google’s got such a massive cash reserve position that they have active traders putting it into treasuries or cash equivalents is almost a missed opportunity. These big mega corporates have to actively manage those portfolios and manage the risk around them. They’re also operating, like many hedge funds in some ways, on an internal basis and maybe that’s another incentive. If you can make a nice return from speculative position in Bitcoin, it can bolster your PNL in other ways.

Ben: [00:32:51] Nic, what would happen to the price of Bitcoin when you have quite a lot of CBDC’s in circulation? Do you think that has a downward effect on the price of Bitcoin?

Nic: [00:33:04] I think people get hung up on the digital currency part of CBDC’s. I mean, if you look at it, most dollars are digital. The majority of dollars are digital, they’re not analog. We already have CBDC’s on it.

Izabella: [00:33:22] I totally agree with that. It really frustrates me when people kind of market it as a big innovation.  

Nic: [00:33:28] It is odd. Maybe CBDC involves giving regular people accounts at the fed. I don’t think that’s going to happen, maybe we’re going to have some hybrid model. Then the question is: okay, well, how is that different from our current model at all? Maybe fintechs will get accounts with the central bank directly instead of just banks. Doesn’t seem like a huge change to me at the end of the day.

Izabella: [00:33:58] It is a big pain. I just don’t think they’re going to do it if they really think about it, because what’s CBDC sees, it’s a euphemism for state banking. Conventionally, we don’t think state banking is a good idea – state banking to the extent that central banks are still under the supervisory mandate of a state. They’re supposed to be independent, of course. But either way, it’s either state banking or monopolistic banking, and that is not supposed to be a good thing.

The reason that becomes the case is because if everyone can just hold accounts at the central bank that will defund all the kind of respective banking competition out, the conventional licensed banks, who will be starved of deposits and we’ll have potentially a massive liquidity issue to the point that the central bank will instead attract all those deposits and be forced to reinvest them in assets.

People only think of the liability side of the balance sheet, but it’s really important to remember that if everyone puts their money into the central bank, they’re going to have to do something with that money. Do you really want the central banks to be deciding who to give loans to? Isn’t it better to have a distributed competing network? That’s my key point.

Nic: [00:35:09] Point very much taken on that. Just to maybe get to the intuition behind the question, I think people ask it because they think that CBDC will give you this maybe great transactional experience, such that you don’t need cryptocurrency. But as far as I can tell, it’s giving you a very different experience from Bitcoin or stable coins even for that matter.

If you look at the Chinese style CBDC, the DCEP, it includes a whole bunch of surveillance and you don’t get a lot of transactional freedom or autonomy with that. I haven’t really seen a central bank commit to creating strong privacy assurances in their digital cash products if they are able to create them.

Izabella: [00:35:56] Well, there’s a massive conflict. They’re faced with a massive conflict; Preston might have a view on this. They all charged with ensuring all their licensed operators comply with AML and KYC. If they then issue digital currency themselves and don’t apply the same criteria to their own accounts that they force on all the other banks, well, that’s a bit of a paradox.

There’s a massive paradigm to the hurt of private central bank money. I don’t see how they can overcome it personally, unless they could totally abandon KYC and AML rules or have an exception for themselves. But then, why would you use their currency?

Nic: [00:36:34] They’re not going to. I mean, what government creates a tool that could potentially increase their power and then walks away from that additional capability? You know, people like Bitcoin because it lets you opt out of the discretion involved in central banking. It gives you more transactional, autonomy, freedom, etc.

CBDC is growing the power of government in the central bank, as far as I can tell, if they do create them. To me, they seem like completely diametrically opposed concepts. people will get confused because they think Bitcoin is a digital currency and CBDC has digital currency and the names for their competitive products. I don’t really see them as giving you the same currencies at all.

Ben: [00:37:25] We’re going to move now to topic three, because we need to discuss this central point of whether we think Bitcoin is now an investible asset for every portfolio. Our audience is pretty clear on this, right? The ATA think that a small allocation of Bitcoin in every portfolio makes sense. But I’m going to come to you Seamus and ask whether it’s really suitable for say risk averse pension funds given its volatility. What do you think?

Seamus: [00:37:52] I think the investment market is really a broad spectrum of different risk profiles. Some of the first adopters, like the hedge funds, Paul Tudor Jones and these type of guys get in the market, and they have a strong thesis around that. They’re very agile. They have a central process around decision making. Whereas if you look in the pension space, they have advisors, they’ve got committees, processes take a long time to change risk and allocations.

Bitcoin takes a while to get into there. One of the biggest impediments to Bitcoin is obviously the size of the market. Until recently it was very small. You described the returns – we were looking at a couple of hundred-million-dollar asset class just last year. That’s something that should definitely be ignored. Now, it gets quite a bit different at a trillion dollars and rising. The size itself is not probably enough, but what I was referring to before, the extreme monetary policy we’ve had from central banks, its intent is to drive investors at the risk curve. I think to a large degree, the measure of we have in the market is broken near negative yields. It’s really broken the cost of money.

You had pension funds, I guess 2012 was a good example. You had some of the, let’s say, Texas teachers and some of the other Texas pension funds investing in physical gold in their response to kind of post the credit crisis. The monetary policy reaction to, they set the way to opt out. Nic referenced the Bitcoin takes physical delivery of gold. That obviously took a few years for them to go from the global credit crisis to doing that.

You probably have a similar lag here, but the growth trajectory of asset class is getting to a point where it can be considered. I know I’ve had some dialogues with those types of organizations that they are looking at. It’s very early. I mean, people like Grayscale say pensions are looking at it, I think it’s probably the very small pension so far. But I think if this continues and we continue to have – I mean, globally as a February 27% of fixed income was still negative yielding – fixed income no longer serves its purpose, basically. I think you’re looking at very long duration risks as rates go up, basically and cryptos or Bitcoins potentially are an alternative as well in a portfolio.

Now, obviously a good question is, how much? But I think those discussions looking at that asset class from the most conservative investors is starting now.

Ben: [00:40:10] If anybody wants to volunteer an answer to that, about what might be a sensible allocation? Because based on what you said and based on the performance and so on, and leaving aside the volatility, it does seem like it’s sensible to have some exposure to this because it’s such a high performing asset class. Preston thinks it’s super, super in its infancy still.

Why would you not allocate something to it? You know, say 2%? Preston? Also Nic?

Nic: [00:40:40] Sorry to cut in line. I mean, if you think current expectations of the future growth or Bitcoin are already expressed in the price, and so there’ve definitely been bad times to buy Bitcoin historically. Could be the one we’re in one right now.

Ben: [00:40:57] You would simply say it’s the timing.

Nic: [00:41:00] It’s a matter of determining where you are in the mini cycle. Then obviously we have a much longer-term secular movement towards monetizing the SASA class. But if you have a constraint in your portfolio or your mandate, and you can’t tolerate the volatility, then you really have to manage your position size accordingly.

Ben: [00:41:20] But wouldn’t that just be reflected in the size of the position. In the same way that people say don’t ever try to time equities, but if you are very risk averse you have a very small allocation to equities?

Nic: [00:41:29] The question is the risk of getting washed out of your position if you can’t deal with the downside volatility. I think if you don’t have a firm understanding of Bitcoin and a conviction in the asset, that’s probably guaranteed to happen, because we’re dealing with something that’s 80 to a 100% annual volatility.

Ben: [00:41:48] Preston, do you have a view on that? Because we’re facing this up-pension time bond, because we’re sitting on population pyramid that doesn’t support pensions, pension funds are not yielding what they need to be. Make the case for not making a, say 1 or 2% allocation of pension funds to Bitcoin, other than the timing.

Preston: [00:42:12] I don’t think there is. I mean, 1 or 2%, I would maybe go up. If you’re really hyper cautious, then go on the low side, 0.5%, 025%, I don’t know. But I think ignoring the asset class at this point is a mistake. I think what would be a greater mistake and what clearly some people are starting to do is they look at coin market cap and they see what the top 10 are, and there’s a new flavor of the week that bolted up the top because it’s the new thing. But then when you dust it off, and it’s like, okay, what is it? But it’s just some other, you know, repackaging of basically Ripple by another company with another entrepreneur.

There are very few things in the crypto space which are capable of rendering the current way of doing things, which is proven to work in the Bitcoin and the style of Bitcoin, obsolete as a superior mode of reaching decentralized or distributed consensus on transactions on a block-by-block basis.

I think a lot of people will wind up making mistakes, saying: well, look, there’s this one; it’s green. Of course, there are big problems with that. But yeah, I think that people, basically, the biggest mistake they would make is putting too many eggs in one basket. If they’re really interested, I think weigh heavily. This is not investment advice, I’m an attorney, but I’m watched for a really long time and I’ve seen what’s worked and what hasn’t. There’s always some flavor of the week, that doesn’t stick around very long because it’s just been pumped up by some algo trader with a large position. Most people who are new to this space don’t recognize when it’s happening.

Izabella: [00:43:50] It’s really important to remember that a lot of things that happen in capital markets are born out of convention and from organic adoption. There are obviously regulators saying you have to do this and that, but there’s many different investing norms that have been born out of just first mover advantage and the ‘QWERTY keyboard issue’. Like Libel was very much just an industry thing that came about it. It wasn’t perfect, as we later found out, but it became a trillion-dollar benchmarking system or more.

Bitcoin, the fact that it was the first one to the market in this space gives it a huge advantage over anything else, and that mustn’t be overlooked because it’s really hard to wean the market off a convention that has been organically sprung upon them.

You can also look at other concepts like credit rating agencies. Again, theoretically there’s no limit to how many people can give a stock or a security a rating. I mean, I could start Izabella Kaminski ratings tomorrow, but no one would listen to me because of the power and the influence of the first movers into that market. I just think that’s an important point to also consider.

Ben: [00:45:10] I’m going to read to you a very, very short quote, which I think was from as recently as last month, from Janet Yellen, where she said: cryptocurrencies are used, at least in a transaction sense, mainly for elicit financing.

Is that even true anymore? If it’s not true, why do you think that she said it? Does it come back to that point we’ve made early where a lot of central banks and government bodies are still quite uncomfortable with cryptocurrencies? Or is it still just this kind of legacy image that is still used by criminals? I don’t know if anybody who wants to come in on that first.

Preston: [00:45:48] I’ll do that. No, it’s because boomers don’t understand what they’re doing in this space. This is not their tactics. No offense, but the fact is that what we’re seeing Bitcoin being, yes, it is used for illicit purposes without a doubt. But law enforcement has top-notch surveillance capabilities because Bitcoin is unencrypted, right? The transaction history is publicly viewable for anyone to see.

If you commit a big enough crime with Bitcoin, you’re going to be on the radar and getting those coins out. We will see, actually we see wire fraud prosecutions and money laundering prosecutions being brought years after the fact, because someone who took some funds in Bitcoin related to a list of transactions then decides that it’s been enough time, so they then go and spend it to Coinbase, withdraw it, and try to get the money out. Boom, FBI looks at it and goes and searched in Coinbase, finds out who had the transaction. They’re all over.

Izabella: [00:47:00] But Preston, don’t you think that’s like not a feature. I find that if you’re like interested in privacy, isn’t that like one of the problems in that it is so transparent. Isn’t the issue also that Bitcoin has now become so regulated, there’s almost no differentiation from the core fiat markets with it. All the advantages it used to have gone out the window, and in that case, what really is the advantage of me using Bitcoin over PayPal? In the marketplace, I don’t see what the advantage is, especially given there are some user non-friendly issues with Bitcoin versus PayPal.

Preston: [00:47:22] That’s a great point. I think the answer is that what we’re seeing increasingly in American society is businesses effecting censorship on behalf of pressure groups that are unable to do it through the government, because the constitution stands in their way.

 Most spectacularly we saw that with the extraordinary de-platforming of a sitting president from virtually the entire internet on January 6th, in relation to the events where a group of individuals decided to trespass the Capitol and he was assigned blame for that and was de-platformed essentially for the entire internet. We’ve also seen that with large numbers of conservatives being de-platformed from the internet. They’re also being de-platformed from banks and payment process. Bitcoin for a lot of these people has operated as a real lifeline, in order for them to get in communication with their supporters and receive funds from their supporters and continue operating when the banks really have been hijacked by a partisan, hard life political agenda, or at least, the hardest left person and with the bluest hair dye in their risk department is calling the shots for the entire organization.

That’s the kind of universe that we’re moving towards and Bitcoin is an ordinary utility. If you want to be a political dissonance and spend money to someone who’s controversial, you’re still free to do that. You know our society. people are doing it right.

Izabella: [00:48:47] Preston, but are you free? Because, quite frankly, if you make donations to some terrorist group theoretically, it will be tracked on the blockchain and you will be arrested.

Preston: [00:48:59] No, you’re not free to go, someone got dinged for that, for going in North Korea.

Izabella: [00:49:05] The point here is that what you’re saying to me is what is classified as a terrorist is a fairly subjective perspective. Because for one part of society all you Republicans are terrorists now, so there’s a fine line between what constitutes a terrorist or not.  

Preston: [00:49:25] But those people who say that, you know, 74 million Americans are terrorists, those folks fortunately are not in charge of the judiciary. They’re just opinionated jerks on Twitter, and I think they’re probably a very small minority of opinionated jerks.

Izabella: [00:49:40] Yeah, but they do influence corporate culture, and we’re living in an environment where you get cultural audits, right? A bank cannot be seen lending to someone that public opinion deems a terrorist. Then you get frozen out and de-platformed and unbanked.

And I don’t see how the way Bitcoin has evolved, it has been co-opted. That’s my main criticism of Bitcoin, is that I feel it has just adapted and evolved in line with the conventional system and is not really a challenger anymore.

Preston: [00:50:16] Maybe. I see Bitcoin as basically a giant middle finger to people who would tell me where I can’t spend my money.

Izabella: [00:50:25] Sorry to monopolize, I just really want to know, how can you maintain that liberty with Bitcoin in the current regulated space where Coinbase has to deliver the names of anyone who the IRS wants or whatever police summons them to do?

Nic: [00:50:43] Can I address this? I love this tack from Izabella, I love that you’re extremely thoughtful about Bitcoin. It’s very refreshing, honestly. I think you’re right. I mean, when Bitcoiners insists that Bitcoin is fully surveilled and transparent, it’s kind of a cell phone. If you look at the facts, yeah. My firm does chain analysis, so I know how easy it is. You basically can infer with very limited effort the fraction of Bitcoin that’s being used in dark net marketplaces and things like that. Chain analysis estimates 1 to 2% a year of Bitcoin is used for illicit finance. But it’s a definitional question because any transactional activity the government doesn’t like, they can call illicit.

In one sense, Janet Yellen is wrong on the facts. But in another very real sense she’s right because she can just call everything to do with Bitcoin illicit if she wants, and people will listen to her. FinCEN will listen to her.

I mean, we have to prepare for a world where Bitcoin is 100% considered illicit by the state. What the implications of that are, because we know that they’re going to return to this world where capital flows and the financial system is wholly politicized, 100% politicized. We’re already there. We’re already there. Operation Chokepoint is being revived, you know, all capitals exposed to these political tests.

The question is: can Bitcoin resist that? I think ultimately even as an intermediate asset, something that you might use via Coinbase or Gemini or Crack or whatever, you still do have that ultimate discretion to take physical delivery of the asset.

Izabella: [00:52:30] Right. But then when they start forcing you and Coinbase to screen all incoming transactions into Coinbase from dark wallets or whatever they’re called, because that’s in the fiat space that they’re obliged to not just know who you are on the receiver and on the sender, but the sender of the sender. Then what?

I don’t see that picture improving. One of the great ironies of Donald Trump being de-platformed from Facebook, I thought, was the fact that Facebook had just so recently tried to create Libra, which was supposed to be the technology that was going to solve the unbanking problem. That’s the irony. They think they’re solving financial inclusion, at the same time they’re unbanking the president, potentially.

Nic: [00:53:21] Yeah. I think a political change will have to occur, where people become fed up with a small cartel of Silicon Valley oligarchs basically controlling who can use the internet. But I think Bitcoin is a ray of light and it it’s a potentially a way out of this. Yes, many people use Bitcoin in an intermediate fashion, but many people also use it directly. No, no one is currently censoring Bitcoin.

Izabella: [00:53:47] Are you saying there’s going to be a bifurcation of the market. You’ve got BTC and BCH and all these others, but there’s also another schism within Bitcoin, which is people who use it for the regulated space and those who use it outside of the regulated space, and will the two be able to co-interact with each other in the years to come?

Nic: [00:54:09] I think it’s a question of state capacity. If you’re China, you can probably enforce very oppressive monetary rules. If they wanted to step it up, they could. In the US there’s ultimately constitutional constraints against, seizing people’s funds and expropriation. At the end of the day, the tools that the government would use to push through the complete politicization of capital, those are pretty extreme tools. Once you start to employ them, you reveal yourself as weak.

I think Bitcoin and the Bitcoiner values will eventually prevail in the US. In certain authoritarian states they won’t, but that’s just the way it goes.

Ben: [00:54:56] Is there a better Bitcoin? Because I think most people approach this topic from the point of view of: is there a Bitcoin alternative that doesn’t use as much energy for example, or is a better payments mechanism, whatever? But we can also maybe ask it from the vantage point that Izabella’s asking, which is, is there still a cryptocurrency that protects the privacy better than Bitcoin?

Is that where it may be vulnerable? Not through energy use or any other normal arguments that people raise?

Preston: [00:55:27] Yes. The way to find this out is by reviewing court filings and seeing where the FBI describe a seizure of a particular type of asset either in a search warrant or an indictment or something like that.

We’ve seen indictments where they say: we seized X number of Bitcoin, Y number of Ethereum, and an unknown quantity of Monero. In the court filing they really can’t find it out, because otherwise they’d have to say so. I think there are some privacy focused cryptocurrencies. They’re having trouble getting those on exchanges because of the KYC implications. There is a bit of an operation choke point style cutting off those cryptocurrencies from the mainstream financial ecosystem. But I think what we’re going to see is that people will find ways to get into those assets by going to some offshore exchange that doesn’t have KYC, which is very, very bad that they don’t do that.

The fact is these utilities are there, offshore exchanges do this, and that’s the way that people can take Bitcoin, which is regulated and supervised, into something which is much more difficult if you track it.

Ben: [00:56:33] What about the other arguments, I think we had a question early on about Cardano, whether that might be a better Bitcoin because it’s proof of stake and therefore doesn’t have such a large environmental footprint.

Izabella: [00:56:47] Can I lean into the environmental question and propose the proposition that maybe it’s not an issue. First of all, it’s a question of relativity. I was super critical about Bitcoin’s energy from back in the day, but I have been thinking about it and I’ve decided that maybe it’s a feature, not a bug. On the basis that this whole ESG framing that the price of carbon like has to effectively collapsed to make us a substitute into other better systems is very wrongheaded, because you want the price of carbon and oil to go up. At the moment, we’re synthesizing the price going up by making anyone who is a polluter have to also buy carbon offsets. But this isn’t changing the underlying cost of the energy. The energy is separate, and it’s not every single jurisdiction that has to subscribe to offsets. On the black market you can still buy cheap energy, and that market will always exist.

Whereas in Bitcoin, it’s a much purer system. That the energy is costly, and therefore there is a better incentive to create technologies that create efficiencies around energy. If we lose those incentives, maybe we end up pushing technology in the wrong way. Certainly solar, wind, none of these new renewables that we’re pushing ahead with, they haven’t solved the energy problem. In fact, in many ways they consume more energy overall than they have to consume their energy upfront. In the short term, you’re spending more carbon, not less.

I’m not convinced that the energy problem is a bad one. It might be a feature. Also, it brings to mind the sheer energy costs of the internet in general. Because people are worried about pollution and not using plastic bottles and all sorts of like energy saving light bulbs, blah, blah, blah, but they don’t think about the fact that their selfies, their internet presence, all of this has a massive internet carbon footprint in fact. I think the entire ICT sector is now in terms of carbon emissions contributing more than the airline sector. It’s growing much more quickly than airlines, especially post pandemic.

By putting this into people’s minds, you’re putting pressure, not just on Bitcoin, but also on Google and all the other service supported businesses that haven’t solved these problems either.

Preston: [00:59:21] I think the reason that I mentioned earlier that people should be careful about investing into the latest all-point is because you’ve asked that question about Cardano, which has managed to somehow find its way into the top 10 cryptocurrencies in the last couple of weeks. I’ve seen perfectly reasonable people who have known for a really long time, who happened to be early members of the Cardano community, getting very excited about the increase in the points of market capitalization for the relatively low amount of flippening Ethereum.

Flippening, for those of you who are listening, is Bitcoin use, or what happens when something becomes more valuable than something else.

In any event, the thing with Cardano is it’s very much the same as everything that’s come forward. So proof of stake, maybe ‘more environmental friendly’. But if you dust that off and see what the claim means, it means that there’s no actual work being put into securing the network. From the standpoint of looking at this as a global transactional system, I would look at that and say: all right, well, what function does proof of work serve?

One, it ensures that you have some skin in the game so that when you’re providing a security network, there’s something in the real world which limits your ability to go and fake the consensus, right? Which is not the case of the proof of stake system, which is judged with a balance of points in the wallet. You could have someone sitting there and control 80% of the coins and basically playing decentralization theater, which is what a lot of these schemes do.

The second one is that proof of work is a point distribution metric, which proof of stake coins also do. The only way to get into a group of stakes system is by purchasing it from somebody else. The way that you get into a proof of work system is by performing useful work and then the coins get issued to you direct – which from at least my standpoint means that you are creating a valuable asset outside of the confines of the traditional financial system. The only thing, they would have to cut you off at the ISP level in order to prevent you from mining Bitcoin, whereas it’s very easy if you’re highly dependent on these staking systems. They just turn around and say: we’re going to deem this unlawful money transmission, or we’re going to turn around and apply some pressure on the exchanges, or we’re going to call the staking mechanism an unregistered security, which is certainly something which is within the realm of possibility, at least in the United States.

Stuff like that. When we hear there’s a new coin, it’s in the top 10, it just appeared there, there are a lot of new people around and they’re not really doing particularly in-depth thinking about why things are the way they are, or they don’t have the context of understanding who’s running them, how long they’ve been running them, what the history of these people are, and where they come from and whether their ideas are new or not.

In the case of Cardano, Charles Hoskinson, perfectly nice fellow, very intelligent guy. But I think with Cardano, he’s building 20, 15 techs today, which is a smart contract and Naval blockchain that uses proof of stake. There are, you know, 15-20 of those in the top 50, at least that you can point to. I don’t think there’s anything particularly special about that.

Nic: [01:02:23] Preston is absolutely right. I mean, proof of work is the interesting thing here. That’s what permits decentralized leaderless consensus to emerge between a set of mutually untrusting nodes, where people that make transactions with that system trust they’re not going to be censored. That’s the purpose of Bitcoin, is to make transactions that institutional power says you can’t otherwise make.

Proof of stake, people consider it an alternative to proof of work, which is completely false. Proof of stake is just a fancy word for a consortium of entities that control the chain.

Izabella: [01:03:01] I’m not a technical person, but intuitively I’ve always thought that proof of stake seems just like a replication of the standing banking system.

Nic: [01:03:11] Precisely. It’s not a novel thing. People think they have this artificial progression in their mind where we had the federal reserve and then we had proof of work, and now we have proof of stake, which is somehow even more decentralized and better for consensus. It’s just not. Proof of stake just means a cartel chain. We’ve seen these things fail. Like, you just have to look at the example of EOS or Steemit. We have seen them get taken over by cartels. That is the guaranteed fate of any proof of stake chain, because what happens is all the coins settle with the exchanges and then the exchanges make all the political decisions on behalf of the chain. The disconnect between reality and perceptions here is absolutely colossal.

Ben: [01:03:56] Does anybody want to make the case that there might be a better Bitcoin, even if it’s in a hypothetical case? Or, do you think Bitcoin for all of its imperfections is the better.

Izabella: [01:04:12] I was the biggest critic of Bitcoin that you could have found. I’ve really stressed test it on every single angle that I’ve analyzed and tried to critique it. My conclusion this year or last year was, it’s not perfect, definitely not perfect, but it’s the best of the bunch and in an ugly contest it’s the one that makes a lot of sense.

As I always say, I wouldn’t claw back any of my criticism, I think all the points I’ve always made have been valid. What I underestimated is that the conventional system – I had more trust in the conventional system, and I just thought it wasn’t worth it. I’ve always likened Bitcoin to a bit of a luxury product, which is suitable for like paranoid people who want to overspend on effectively payment security. But that becomes worthwhile when you see that maybe they weren’t so paranoid, right?

In hindsight, because certain things that have happened in the last year have made me more skeptical about whether democracy is still functioning on an accountability perspective. I’m worried about the authoritarianism that has creeped in through pandemic measures and things like that. I think in that context, Bitcoin, I’m glad some people speculated on it. I’m glad it’s there. The world is better off for it being there, is my point.

Is there a better Bitcoin? Not one that’s going to be able to overcome the first mover advantage that Bitcoin had. I think it would be very hard to retrofit anything to something else.

Preston: [01:06:02] It’s like the classical test for obscenity, right? Is there a better Bitcoin? I can’t describe what that would look like, but I’m going to know it when I see it.  And right now there isn’t right. Bitcoin is currently, in my opinion, the most effective at achieving de-centralization, as that term is almost impossible to define, but however we define it, if it’s to happen, I think Bitcoin does it pretty well. It’s the most effective at generating coins, which are distributed not to early holders or to exchanges, but by people who go and install some racks and put some mining hardware, and have some skin in the game, which is an important element of decentralization – it’s distributing coins.

Whatever’s better than that will be better at getting coins into people’s hands outside of the context of regulated exchanges. it will do everything Bitcoin does, but it’ll do it a little bit better. I call it alien proof of work because it doesn’t exist yet. Or at least, if it does exist, we don’t know about it. maybe that’s coming next year. Maybe when it’s invented it will be adopted by Bitcoin. We don’t know what’s going to happen on that front, but for now I think Bitcoin is the big, bad boy on the block.

Nic: [01:07:14] If you could invent a proof of work where there weren’t economies of scale basically, and everyone could participate in consensus, and it wasn’t possible to find optimizations such that there were large pools of hash power that developed, that would be better. But yeah, there’s unique circumstances of Bitcoin’s birth that simply cannot be replicated today.  And I can go into detail, but that’d be kind of a longer conversation. Suffice to say, you couldn’t possibly launch Bitcoin again today.

Ben: [01:07:43] We’re out of time, and I think that’s a good point to leave us at. I’m not going to attempt to summarize the whole discussion because it wouldn’t be impossible. Even if we had enough time, it’d be impossible. But basically, I think we said that there is a strong investment case for Bitcoin. It’s probably possibly in a bubble, but not. If it is, it’s not a very big one. It’s ready for the mainstream, and there isn’t a better Bitcoin.

With that, I’d just like to thank our four panelists. Thanks again for everybody who listens. Our next four by four is on the environment. Izabella, we might be coming to you to ask you back. You’d be game! Thanks again to everybody!