虛幣市值首破 2 兆美元！全球最大比特幣信託擬轉為 ETF

虛幣市值首破 2 兆美元！全球最大比特幣信託擬轉為 ETF

數位資產管理機構 Grayscale Investments 宣布，計畫將全球最大公開交易的比特幣基金「Grayscale 比特幣信託基金」（Grayscale Bitcoin Trust）轉換成 ETF，一切就等主管機關放行。值得注意的是，整體虛幣市值已首度突破 2 兆美元。

Grayscale 5 日透過官方部落格宣布，該公司 100% 承諾將 GBTC 轉換成 ETF。事實上，GBTC 乃世界上僅有的兩個已向美國證券交易委員會（SEC）完成註冊登記的虛幣基金之一，另一檔是「Grayscale 以太幣信託基金」（Grayscale Ethereum Trust）。

Grayscale 早在 2016 年就交出比特幣 ETF 申請書，2017 年不斷跟 SEC 來回溝通。Grayscale 最終撤銷了申請，主因數位資產的監管環境尚未到位，無法讓類似商品成功上市。

Grayscale 承諾會將 GBTC 轉為 ETF，但時間點得看監管環境的進展而定。等到 GBTC 轉換成 ETF 後，擁有公開交易持股的股東不需做出任何調整，但管理費可望因而下降。

GBTC 的資產管理規模（AUM）目前來到 340 億美元，若跟全球原物料 ETF 相比可以排上第二名，僅次於實體黃金儲備量最高的 ETF「SPDR Gold Trust（GLD）」。

Barron’s、CoinDesk 等外電 5 日報導，GBTC 的市場報價已超過 30 天低於淨資產價值（net asset value），為 2013 年 9 月公開上市以來首見。

美國主管機關尚未核准任何比特幣 ETF，對想透過股市增加比特幣曝險度的投資人來說，GBTC 是他們為數不多的選項之一。市場需求高漲、再加上 GBTC 股票供給有限，讓 GBTC 長期處於溢價狀態。近來 GBTC 罕見折價，暗示投資人決定拋出部位，準備迎接比特幣 ETF。比特幣 ETF 的管理費預料會遠低於 Grayscale 收取的2%。

北美第 1 檔比特幣 ETF 已於 2 月 18 日在加拿大掛牌。英國金融時報、ZeroHedge 等外電報導，多倫多證券交易所集團（TMX Group）的資料顯示，加拿大掛牌的比特幣 ETF「Purpose Bitcoin ETF」，首日成交量就接近 1,000 萬股，一舉擠入多倫多證券交易所（TSX）當日前 10 大交易最活絡的 ETF。BTCC 僅上市 2 個月，管理的資產規模就膨脹至 12 億美元。

目前還在向 SEC 申請比特幣 ETF 的業者包括富達投資（Fidelity Investments）、VanEck、WisdomTree Investments（WETF）、SkyBridge Capital、Valkyrie Digital Assets 以及 NYDIG Asset Management。

值得注意的是，明星經理人凱薩琳伍德（Cathie Wood）旗下的方舟投資（ARK Investments Management）早就已經持有 GBTC。包括摩根士丹利（Morgan Stanley）在內的大型金融機構，也都透過 GBTC 取得比特幣的間接曝險。若 GBTC 轉換成 ETF 後，費用、服務跟競爭產品差不多，這些機構應會繼續持有。

路透社報導，根據 CoinGecko、Blockfolio 追蹤的資料，虛幣市值已於 4 月 5 日突破 2兆美元關卡，刷新歷史新高紀錄。其中，比特幣市值已連續一週保持在 1 兆美元以上。分析人士直指，只要比特幣高於 53,000 美元，就可保住 1 兆美元市值。

（本文由 MoneyDJ新聞 授權轉載；首圖來源：Unsplash）

延伸閱讀：

多位名人為「比特幣之父」中本聰慶生，但數字 6102 究竟代表什麼？

包括推特的 CEO Jack Dorsey，以及許多名人，最近在推特上轉發了一篇文章，為中本聰 「慶生」。

「今天是中本聰 46 歲生日」這篇文章中，附有一張圖片，是一個比特幣符號的蛋糕，上面的數字 6102 映入眼簾。但是 「6102」到底是什麼意思呢？

6102可能有很多人會以為是2016的倒寫？錯，答案不是這個。

88 年前的今天，為了在大蕭條時期推動美國經濟復甦，當時美國總統羅斯福簽署並公佈了政府法案 6102（Executive Order 6102），規定公民私人擁有黃金是非法的。美國民眾迅速將其黃金以當時的官方價格 20.67 美元賣給政府，幫助美聯儲完成大規模採購黃金的計畫。

而 P2P 基礎論壇資料顯示，政府強制執行 6102 法案的當天，也就是那一年的4月5日，與中本聰（Satoshi Nakamoto）的註冊生日是同一天。除此之外，他還選擇了 1975 年作為註冊生日的年份，這一年是 6102 法案被廢除的年代。

因此，中本聰的註冊生日日期，或許代表了中本聰對政府貨幣政策的相關觀點，也許希望自己能終結政府對貨幣的控制，未來比特幣或許可以發揮這種效果。

Is there a future for bitcoin? An investor and a skeptic make their cases

Today’s episode of Decoder is about a very big idea: bitcoin. The Verge has been covering bitcoin since we launched in 2011. And since then I’ve heard many loud, powerful voices talking about how it’s going to be the future of… something. Everything. Maybe nothing at all.

To be honest, I’ve been a bitcoin skeptic: over the past 10 years we’ve seen the value of bitcoin skyrocket, but very few actual uses for what should be a revolutionary digital currency. But that value keeps going up, and it feels like we might be at an inflection point for the bitcoin story. And there doesn’t seem to be a lot of gray area between the people who think bitcoin is going to change everything and the people who think it’s nonsense.

For this episode, I had two conversations. First I spoke to a bitcoin investor. Then, a few days later, I spoke to a bitcoin skeptic. In each conversation, I tried to play the other role but without the usual yelling and chaos that seems to characterize bitcoin debates.

The investor is Nic Carter. He’s a general partner at Castle Island Ventures, which funds startups that are building on top of the bitcoin infrastructure to make payments more accessible. Basically, making sure bitcoin can function like a currency.

The skeptic is Steve Hanke. He is a professor of applied economics at the Johns Hopkins University and senior fellow and director of the Troubled Currencies Project at the Cato Institute. He has also advised other countries on how to deal with hyperinflation and how to stabilize currencies.

In the end, my biggest question about bitcoin is whether people are interested in it because it’s bitcoin or because it’s worth a lot of dollars.

Here we go.

This transcript has been lightly edited for clarity.

Nilay Patel: Nic Carter, you’re a general partner at Castle Island Ventures. Welcome to Decoder.

Nic Carter: Thanks for having me. I’m really excited for this.

NP: You have kind of an interesting history. You were the first crypto-analyst at Fidelity. Now you manage investments into the bitcoin ecosystem at Castle Island Ventures. I want to start at the very beginning. What drew you to bitcoin and crypto, generally?

NC: It wasn’t anything super dramatic. It wasn’t like my family had our wealth confiscated by some tyrannical government or anything. As much as I, weirdly enough, wish I had a great bitcoin origin story, I don’t, but I just was attracted to the playful community initially on Reddit, believe it or not. And I thought it was really cool to tip people through the internet and do P2P payments that weren’t being cleared through any traditional financial medium.

That was really interesting and exciting to me to have that instant, final settlement on internet payments. And then it was only with time — and it took me a long time — that I came to realize that there was actually a deeper, sort of philosophical underpinning behind the project, that it was a real monetary project, and it was tightly intertwined with some normative views on economics and the role of central banking in society.

NP: I want to pull back out of that. I’m really interested in your perspective on what the normative aspects of central banking are and how they might change with bitcoin. But just help me out from the very beginning. How would you define bitcoin at this moment in time?

NC: So the thing about bitcoin is that we have a bit of a definitional problem because the word bitcoin actually refers to a number of different things, and that causes confusion. So on the one hand, it’s a protocol.

It’s a set of rules that people opt into to send value through a communications medium in a final way so you get final settlement. And on the other hand, it’s also a financial asset, so bitcoin is the name of the monetary unit that circulates within the bitcoin protocol.

That doesn’t make a lot of sense to a lot of people, but the bitcoin network is such that, really, there’s only one native currency that is changing hands on the bitcoin network, and we call that bitcoin.

And as of today, all of the bitcoins are worth about a trillion dollars. So that’s our problem, is that we use the same word to refer to the network itself and to the actual medium of payment on the network.

NP: I think there’s a lot of focus on the dollar value of the outstanding bitcoin right now. But one thing that strikes me is there is the bitcoin network; there’s the Ethereum network; there’s Dogecoin, which Elon Musk just tweeted about, and it spiked in value.

There’s a wide variety of cryptocurrencies and now crypto assets, right? The NBA is selling highlight clips as non-fungible tokens, or NFTs, for a quarter of a million dollars, right?

So there’s all these crypto assets and crypto networks and cryptocurrencies. Bitcoin still seems like the center of that conversation. How do you think it relates to all of the others?

NC: Bitcoin is the alpha and the omega. I mean, it’s the originator of this whole thing. Bitcoin is the reason we have the word blockchain, right? Bitcoin kicked this whole thing off in 2009. It was the first public blockchain, the first cryptocurrency. It wasn’t the first digital cash project, but it was the first successful one; the first decentralized one; the first one that people realized, “Wow, we can actually transact outside of the purview of the state here. We don’t necessarily need financial intermediaries.”

And bitcoin has this great set of embedded values and this commitment to genuine decentralization, and genuine distribution of governance, such that no one individual or entity can co-opt or change the network. And it has this extreme resilience and robustness and this unwillingness to change or be changed by anyone.

That’s what gives it a lot of strength. That’s what a lot of the clones of bitcoin and the competitors and the alternative cryptocurrencies lack, fundamentally. Most of them are set up by corporations, venture investors, that try and own a huge percentage of the initial stake, things like that. And they have CEOs and foundations and leadership. Bitcoin is much more organic, which kind of explains its sticking power. It’s this real phenomenon that people can align with. And all of the competitors, there’s certainly some interesting technology out there. But it’s not surprising to me that bitcoin has endured in the way that it has because it’s kind of unique in terms of its own trajectory, its history.

And I think people really align with that. They align with the unique circumstances of its launch.

They like the fact that it’s pretty decentralized. I think, ultimately, bitcoin is our best shot to basically strip some of the power from governments, in the monetary context, and from large financial institutions for that matter.

NP: Why should we strip the power from governments in the monetary context?

NC: Because they misbehave. Because they mismanage their currencies, and in the US, things seem pretty much okay. Inflation’s not too bad. But the US experience, the experience of Americans, is not the typical experience for people globally, right? We’re only something like 4 percent of the population. Your average person on the planet Earth probably does not have a high degree of trust in their banking sector. They may be living under inflation or conditions of monetary repression.

They might have to deal with capital controls, which exist so that their government can manage exchange rates. So because central banks tend to misbehave, because they tend to plunder the currency of savers in order to achieve their own government aims, we have plenty of reason to be skeptical of monetary authorities.

And I would actually extend that to the Federal Reserve. I mean, the Fed is not behaving in a way that I think is consistent with good objectives for society. My interpretation of what they’re doing is that their actions are actually worsening inequality, but that’s a whole different conversation. I think the very fact that sovereign currencies do fail and you see hyperinflations, I think that justifies the existence of an alternative that’s not state-controlled.

And historically, gold has been that alternative. And it’s actually quite a good alternative, I would say, but bitcoin just improves upon gold’s qualities in some critical respects.

And I think it’s totally valid to propose one alternative which is not state-controlled because ultimately, that’s just a tool for freedom, and you can’t mandate that anyone use it. It’s a free choice to opt into it, but I think it’s really inspiring that probably around 100 million people worldwide have opted into the system so far.

So what does a Bitcoin critic think of this decentralizing potential, specifically in the context of places outside the U.S.?

Now is a good place to bring in Prof. Steve Hanke. As I said at the top, he is a professor of applied economics at the Johns Hopkins University and a senior fellow and director of the Troubled Currencies Project at the Cato Institute.

NP: Steve Hanke, Welcome to Decoder.

Steve Hanke: Great to be with you, Nilay.

I wanted to start the conversation addressing the big promise Bitcoin seems to be offering: that there can someday be a stateless or decentralized currency that can replace the US Dollar.

Right off the bat, Prof. Hanke tells me that: A) Bitcoin is not a currency; And B) Bitcoin is not really decentralized.

SH: Everybody says that bitcoin is decentralized. It is not decentralized. It’s heavily centralized; 99 percent of all the transactions occur on centralized exchanges, which we’ll get into that later, because that leads to all kinds of issues about potential vulnerability in terms of privacy.

According to Prof. Hanke, there are three criteria for something to be considered a currency: a reliable unit of account, a medium of exchange, and a store of value.

Listen to Decoder, a new show hosted by The Verge’s Nilay Patel about big ideas – and other problems. Subscribe here!

SH: And to become considered a currency, it has to be a reliable unit of account, a reliable measuring rod. And obviously, bitcoin has a problem in that area. It is highly volatile. Just in the last week, it’s shed about 25 percent of its value from its all-time high, so it’s very volatile and moves around. It’s not a very stable system, if you will, and it’s a yardstick that’s moving around all over the place. That means two things. It’s not used to price current transactions, and that’s what a unit of account is, something that’s used as a unit that can be assigned and used as a price, to price current things, or price inventories and things like that.

So unit of account is a very big thing. It’s a big bugaboo for bitcoin. It’s a big bugaboo, by the way, for many so-called currencies. Many national currencies produced by central banks are not used as reliable units of account.

And that’s why, if you look at transactions for commodities, for example, almost all the commodities in the world are traded in US dollars. That is the unit of account that’s used for corn, oil, soybeans, you name it. Most people don’t realize, it’s also used as an invoicing currency, the US dollar, for many manufactured goods. In other words, if you go to England, for example — this is a good example — we have British pounds sterling. And when you go to Germany, and what does Germany use now, they use the euro. But what is the invoicing currency for about 35 percent of the manufactured goods in England? It’s a US dollar.

So if you’re going to replace anything with bitcoin, it would be the US dollar, to put it into context. That’s what we’re talking about.

The second currency criteria is a medium of exchange, and bitcoin is not used as a medium of exchange. It’s not used because it’s very expensive. Transaction costs are very high, so about the only places that you find that are places experiencing hyperinflation like Venezuela, or very high inflation like Argentina, maybe Zimbabwe, these kinds of places. But it’s not used because it’s very expensive to use.

The third item in the currency criteria is a store of value, and the store of value, of course, it’s no good. It’s not safe. There have been a lot of infringements and lack of trust, and it’s extremely volatile. So on all those three criteria, basically, you can’t check the box, for bitcoin.

NP: Let’s take them in order. Unit of account is really interesting to me. You’re saying in most places around the world, you’re making a large transaction, you’re making a series of repeated transactions for commodities or manufacturing, you are working across currencies. The backstop is the dollar.

The argument here is, well, the reason the backstop is a dollar is because those currencies are unstable. They might be mismanaged by the central banks of those countries, there might be hyperinflation, there might be all kinds of shenanigans. The currencies might collapse. The dollar is stable because the United States does a good job, or a reasonably better job, maybe not even a good job.

Bitcoin solves the problem in those countries. It is decentralized, you can see it. It might flow in a volatile way against the dollar, but compared to a mismanaged currency in an unstable country, it might be a much better bet to clear some of those repeated transactions, to be more secure in terms of knowing who is making the transaction with who, preserving a ledger. There are lots of benefits of bitcoin as a currency compared to the unstable currencies that we currently backstop with the dollar.

SH: Well, I would argue, number one, in these countries where you do get some usage of bitcoin, they are not used as units of account in those countries, like Venezuela. The dollar is the unit of account. Everything will be priced in dollars, you pay for it in bitcoin. So bitcoin comes in and is used for transactional purposes there, but it’s very costly to do it. And people who are doing it are very inefficient. Let’s put it this way, they are really speculators, they’re not transacting.

It comes in, and it got started in these places due to the fact that the local unit of account, the Venezuelan bolívar, has completely disappeared. It’s not used. The unit of account used in Venezuela is a US dollar. And by the way, I have very good sources on the ground in Venezuela, and today as we speak, with inflation, as I measured, over 2,000 percent in Venezuela, about 80 percent of all the transactions are actually done in US dollars. And bitcoin, at most we’re talking about a fringe footnote that’s picked up by bloggers and bitcoin fanatics and that kind of stuff, but it’s peanuts. It’s really irrelevant. It doesn’t make any difference. Eighty percent, in Venezuela, of all transactions [are] in US dollars.

And the only reason you get other units being used, like the Venezuelan bolívar, it’s small change. Let’s say you have an $85 bill that’s invoiced to you. And to pay, you’ve got four $20 bills and you hand them over to whatever you bought. But you’ve got $5 left over, and there is a small change problem. There aren’t that many $1 bills running around in Venezuela. So the small change, what do they do? They use bolívars. For the $5 differential and residual in that transaction, they would use bolívars. And bitcoin is somewhere way off in the horizon someplace. It’s more or less kind of an academic footnote, but it is used to some extent. And it’s used because of hyperinflation, and its attractiveness for basically speculators, not people really doing transactions.

NP: I think my question there is, what you were describing with the dollar and the bolívar is a bad system for most Venezuelans, right? That’s not an ideal monetary system for the average citizen of Venezuela to participate in.

The opportunity to participate in a more decentralized system that is perhaps free of interference from the government, or free of actually having to have cash, like physical cash, and whatever elements around you. That seems like a better system. Why wouldn’t you want to transition to a better system from a broken financial system that relies on a weird exchange rate between the bolívar and the dollar, and the dollar isn’t even your currency?

SH: Well, the ideal system for someplace that’s hyper-inflating would be to do officially what spontaneously has already occurred. What spontaneously occurred is dollarization; Venezuela is dollarized at the tune of about 80 percent of all transactions. And savings, it’s even a bigger percentage. Of course, the savings are safe in Miami or someplace else, not in Caracas, but they’re in dollars. That’s what the big lumps of savings, or cash that’s held by corporations in Venezuela, it’s in US dollars.

So the ideal thing to do would be, Nilay, to officially dollarize and get rid of the bolívar completely. The day you would do that, hyperinflation would end immediately, and you’d end up someplace like Panama that’s officially dollarized, they use the US dollar. Ecuador is officially dollarized. El Salvador is officially dollarized. There are 37 countries around the world that are officially dollarized. They use some other currency rather than a home currency.

NP: I think this leads right into… In my previous conversations about bitcoin, you just quickly arrive at nationalism concerns. You quickly arrive at international relations concerns. If you are a country and your currency is unstable, giving up your monetary policy to the whims of the United States seems like a bad idea.

If you’re a citizen of one of those countries, you are 5,000 steps removed from the value of the currency that you hold. I just see the incentive to say, you know what, I’m going to go to the different decentralized system that does not have state actors on top of me, acting on a whim.

SH: Well, I was a state counselor in Montenegro in 1999, an adviser to the president, [Milo] Đukanović. And we had a hyper-inflating currency, it was called the Yugoslav dinar. Because in those days, Montenegro was still part of the rump Yugoslavia. Đukanović decided — and there was a strategic thing in this, and it was nationalistic — he wanted to exit Yugoslavia, and he also wanted to do so in a way that would be very popular with the population. So how do you do this? My advice was that you make the German mark legal tender.

And if you did that, you would stop hyperinflation immediately. It would be very popular. So we did this, it smashed inflation, and started the first step towards independence, actually. It wasn’t viewed as a dependency thing, it was viewed as a way to get out from the stranglehold of [Slobodan] Milošević in the rump Yugoslavia. And so that was that particular case.

Look at Panama. Panama is actually a big financial center, they’ve been dollarized for over 100 years. To put it back, Nilay, into your context, this is a problem politically. I completely agree with you. But if you adopt the US dollar, one argument has said, “Oh, gee, we don’t want to be dependent on the US government and so forth.” So that’s a negative. But it’s actually a positive: you’re telling me that these local central banks are more reliable than the US Federal Reserve? And why does everyone in the world use the US dollar as a unit of account? Well, right now it’s the best alternative. And by the way, if we go back 2,000 years and look at [the] history of currency, there’s always one dominant international currency. Always one.

And the US came into the picture after World War I. The dominant currency before World War I was the pound sterling, that was the international currency. They got into trouble because of financing requirements and burdens associated with World War I; sterling became very unstable. And as that started happening, that instability, the US dollar became a competitor, a challenger. And what you’re arguing here, your conjecture was, well a decentralized non-sovereign currency— I wouldn’t call it a currency because it isn’t … bitcoin isn’t a currency.

Recently, somebody said, “Well, what’s the fundamental value of bitcoin? Does it have a fundamental value?” And to have a fundamental value — not the market value; the market value is whatever the value in the price of bitcoin, that’s the market value. The fundamental value is zero. Because to have a fundamental value, you have to have an asset that generates some kind of free cash flow that can be discounted back into present value, and bitcoin doesn’t. Now, people say, well, other currencies don’t have a fundamental value. Well, if you look at money in the United States, broadly defined, the most broad measure is M4. M4 is computed and calculated reliably at the Center for Financial Stability.

“Eventually [bitcoin] will enter a death spiral and go towards zero, towards its fundamental value.”

That has 14 components, and a currency is only one, very small component at the one end. And at the other end of the 14 you’ve got Treasury bills. So in that sense, the US dollar has a fundamental value. It is comprised of 14 components, and 10 of them pay interest and four do not.

NP: I’m not going to do better at financial system regulation than you are, but let me push back on this from the perspective of a regular person. The interest rate in this country is very low; it has stayed low for a long time. If you have a dollar, the purchasing power of that dollar goes down over time. That is what most people experience. You put your money into a savings account, you’re making a tiny fraction of interest compared to just putting it into the stock market, in an index fund. If you put it into bitcoin, you have massive gains over time, right? It has just gone up because more people believe that it will become a challenger currency.

So the idea that the dollar — per your M4 definitions, generates value — from the perspective of a regular person, does not hold. It might hold in a larger financial ecosystem, because the Treasury would print more money. But from my perspective, I just have some dollars, the best thing I can do is spend them on something that might generate value. If I have some bitcoin, the best thing I can do is hold it because it will itself increase in value.

SH: Well, my conjecture is that I think eventually it will enter a death spiral and go towards zero, towards its fundamental value.

NP: Why do you think it will go into a death spiral?

SH: Oh, because there’ll be many superior alternatives in the crypto space that will move bitcoin out of the picture. And I know exactly how to design them, they aren’t there yet right now.

Picking up our conversation with Nic Carter, I wanted to know why anyone would spend bitcoin. It’s happening all the time but I just can’t figure out why if all it does is appreciate in value.

NP: Well, let me ask you this. I don’t have any bitcoin. For our ethics policy, we’re not allowed to own stock, and we extended that to cryptocurrency because we cover it, and we do have the ability to affect the prices. So I don’t have any.

But if I did have some bitcoin, why would I ever spend it at this point in time?

NC: At this point in time, you probably wouldn’t want to. And so it’s not really a widely offered or used or employed medium of exchange at this stage in its life cycle, and that’s okay. Right now, the focus is more on getting it up to speed as a large-scale monetary good. And then maybe once it is more mature, we can develop ways to spend it. But if you expect it to appreciate relative to the dollar — and I think we all do, or most bitcoiners do, rather — that’s a deflationary thing, and you don’t necessarily want to spend. I think that’s totally fine.

We expect this experiment to play out over the course of decades. It’s the same way that you don’t really spend gold, but gold is worth $10 trillion in the aggregate. The fact that it’s not used in a retail payments context, no one buys coffee with grains of gold, that doesn’t delegitimize gold as a monetary good. It just means that people are using it more as a way to store value over time, especially relative to sovereign currencies.

NP: But I think this brings you back to your core definitional problem. You’ve described bitcoin and gold as monetary goods. You’ve also described them as currencies. I think bitcoin’s initial philosophical underpinning was a new kind of currency, a replacement for cash, untraceable, free of government and corporate constraints. I cannot think of a reason to use it as a currency at this time. I can think of a reason to hold it as an asset. When do you think the shift to actually using it as a currency would arrive?

NC: Yeah, it’s a good point. And a lot of bitcoiners, we actually fought a civil war over this exact question, a largely bloodless civil war, thankfully.

NP: [Laughs] I hope so.

NC: Well, yeah.

NP: When you say largely, that implies there was some.

NC: Well, things get really heated on Reddit and the bitcoin talk forums and Twitter, but this was a great question that people in the bitcoin community struggled over, right? Because if you want to create a peer-to-peer digital cash, is that even compatible with the way the bitcoin network works?

And unfortunately, or for better or for worse, bitcoin can only throughput so much data per unit of time, right? Bitcoin’s divided up into blocks. We have about 144 blocks a day, or they max out at about three megabytes.

And because transactions carry a payload of a few hundred bytes, that means you can only squeeze so many transactions into a day’s worth of blocks, and that’s there for good reason. It’s because you don’t want to overwhelm the network with data, because then nobody would be able to run a node and participate in the network, right?

So there’s a physical constraint, which limits the transactional throughput of the network, right? We have to keep that in mind. Some people wanted to lift that constraint and embrace this vision that you promote here and some people would say the original vision of Satoshi.

I might contest that, but he’s not around to clarify what his vision was, which was to facilitate cheap, fast payments on the internet, especially for small-dollar transactions. And that tribe kind of lost the battle, I would say. And the tribe that won was one that said, “Look, we want to do that too. We just want to pursue it in a more measured way whereby we introduce layering into the system.”

And so that’s really the key concept to understand is, at the base layer, you have a fast-settling settlement network, which you might think of as equivalent to sending a wire transfer, right? You send a wire, it costs you $15. It’s kind of annoying, but once you’ve done it, that payment is totally final. There’s no reversing it. The money really settles between banks. Same thing with bitcoin. Once you’ve done it, it’s pretty much final within 30 minutes to an hour.

Then the way the payments system works in the real world is we introduce many, many other layers on top of that. So you have ACH [Automated Clearing House], and then obviously banks kind of sit on top of that, [the] Fedwire network. And then the banks themselves, you’ve got payment processors on top of them. And then you move up five rungs in the ladder, and you get to you making a Venmo or a PayPal payment to me, or you get to you making a credit payment with a merchant. That payment doesn’t really settle immediately. It takes some time to settle. A credit card payment might settle in 90 days, 120 days. The settlement is occurring on the base layer, but the financial messaging and the financial settlement are totally distinguished from each other, right?

So that’s the way bitcoiners really began to think about it too was, let’s distinguish payment and settlement. We can settle large transactions on the base layer. That’s suitable if you want to send a billion dollars from Mexico to the Philippines, and you want to have it settle within 30 minutes, and everybody can trust that it cleared. But if you’re buying groceries, you probably actually don’t need final settlement for that transaction. That’s a low stakes transaction. You don’t need to employ this powerful, utility-scale infrastructure to do that. So this was the alternative vision of bitcoin that emerged. And I grant that it’s complex. And it’s not that intuitive, and it doesn’t even sound that much like the way Satoshi [Nakamoto] described bitcoin.

That’s okay. Things evolve, right? We are discovering product market fit. How should this protocol actually interact with the real world, real constraints that exist in the world? And I think the way to do that is to mirror the layered approach of the payment system. And that’s kind of the way that people are thinking about it today.

It’s not mature yet. We don’t have these half dozen layers that I described that work in the payments stack. We do have some emerging second layer solutions, but that’s sort of the current thinking around this, is that not every transaction needs that final settlement. And so we’ll have more convenient payments networks that are built on top and that settle to bitcoin.

NP: One of the things that strikes me about that comparison is one, it does look an awful lot, or sound an awful lot, like the existing layers of the payment infrastructure that banks control, and second, you’re describing it as product market fit, which is language that as a tech product person I deeply understand.

Product market fit is not predictable for people. Slack started as a video game company and then they made Slack, and the investors were just along for the ride, and now they’re invested in a B2B software company that got bought by Salesforce. That was not what they thought they were doing when they sat down at Slack the first day. They thought they were making a video game.

NC: Totally.

NP: Banks and governments to some extent are far more predictable for consumers, and there’s a democratic process, that if you hate one president’s financial policy you can at least vote for the other guy. It’s very hard to participate in bitcoin governance, or even understand the fights between the tribes you are talking about.

It might be more democratic in that the decision-making is more decentralized, but in another way it just seems far more opaque, complicated, and unpredictable, and I just don’t know how to reconciles that initial vision of fast-clearing payments for regular people with the opaque chaos I sometimes hear about from the bitcoin community.

NC: No, that’s a fantastic point, and there’s this concept, “the tyranny of structurelessness.” Have you come across this?

NP: Yes.

NC: This characterizes decentralized communities, especially cryptocurrencies where governance is not codified. There is a lack of hierarchy, and it’s bewildering for people oftentimes when they try to determine who has power in bitcoin, how much power do the core developers have relative to the minors, and the economic node operators.

The answer you’ll get is, “Well, just read the bitcoin stock exchange, or subscribe to the mailing list.” It’s completely incomprehensible jargon. There have been efforts to reckon with that and identify the power structures, but there is a real structurelessness. I think it’s sort of beautiful in a chaotic way that it’s this organic, collaborative, open-source phenomenon. It sounds esoteric and difficult to penetrate when you’re hearing it from me, but the debates really do happen in the open. It’s just they don’t happen in a specific place. It’s just this constant low-grade warfare on Twitter, and mailing lists, and at conferences, and so on.

NP: Wait, let me stop you, if I was to say, where should I invest my money? And you say, one quality of the asset that you’re investing in is constant low-grade Twitter warfare, my instinct would just be to run the other way.

NC: Yeah, it’s not at a stage in its development where it’s that well understood by society, but I would say that’s where the opportunity is, right?

If you are early to an idea, which then becomes more widespread, there’s a risk premium in the uncertainty, and so that is where the financial return comes from. I think the thing to understand is bitcoin’s key features actually don’t change that often. The one change I referred to in 2017, where there’s this civil war, and the resolution of the civil war was we pursued the layered scaling approach. We made a change to bitcoin that made it easier to scale in a layered manner, called Segregated Witness, doesn’t really matter. That was the last change to the bitcoin core protocol.

That was in summer of 2017. That was a long time ago. We’re trying to push through a new change now. We — I say we, the bitcoin community — is contemplating a new change, right?

NP: What’s the change?

NC: We’re basically pulling out the guts of some of the cryptography and putting in a new cryptographic function called Schnorr, which should provide some incremental improvements to the privacy of the system, and to the scalability, basically, in short form, and that’s not even a controversial change, but we haven’t even agreed on how we want to push through that change. That’s the debate we’re having, a meta debate right now. How do we even agree on how to deploy the change? We don’t know.

It is chaotic, but the core bitcoin protocol doesn’t change much. That’s the point, and the rules are pretty explicit in the software; if you want this transaction to be valid you have to construct it in this way, which gives it this nice quality where you actually don’t need to pay any attention to that stuff to use the network. To use the network you just need to understand the nature of the protocol, and write, or use a wallet that is compatible with the protocol, and that gives it this good — Nick Szabo calls it social scalability — whereby people in any cultural milieu, or any political or economic space, can engage with bitcoin and trust that they’re not going to be defrauded by the protocol or anything.

It is interesting to track the turf wars, and the fights, and people that have conflicting visions of what the protocol is, or should be, but fundamentally the thing itself is pretty static I would say.

Nic Carter is talking about a use of bitcoin that hasn’t quite arrived but could, with more awareness and buy in. Professor Hanke doesn’t really see the point. He thinks there it’s possible to have better cryptocurrencies, which fundamentally would operate differently than Bitcoin. And, as he mentioned, he knows “exactly how to design them.”

NP: In many ways you are the mirror image of the pro bitcoin argument, right? You’re saying you could design a cryptocurrency that worked if it had some backing by a state currency, like the dollar. But the governance of the countries around the world might impose some regulatory regime that would just kill it.

The bitcoin community would say, “Well, that’s why bitcoin is the beginning and end of the story because the government can’t kill it.”

SH: I would simply say, “We’ll see.”

NP: I do think you could design an ideal system, but right now, what is happening is Coinbase, which is a cryptocurrency exchange startup, they filed their S1. Per that document, they generated $1.28 billion in revenue off of 2.8 million monthly transacting users. That’s their metric. So 2.8 million people transacted some cryptocurrency with Coinbase in 2020 that generated them one and a quarter billion dollars. I see that and I say, “Well, that’s the way it’s going. We’re not going to stop that train.” And most of that was bitcoin, right? That’s the dominant cryptocurrency.

And Coinbase’s future is not, there’s just going to be more speculators; it’s, they will build a financial infrastructure. Some of which looks like solving the transaction speed and privacy problems. Some of which looks like clearing the transactions later, the layers of banking that would otherwise exist in a regular financial system, just built on cryptocurrencies, primarily bitcoin. If you’re investing in Coinbase, it doesn’t feel like what you’re doing is wildly speculating. You’re saying, “Oh, this is a big business already. And it has a chance to be much bigger.”

SH: Well, I’m not arguing with that at all. I’m agreeing, without getting into the weeds on the thing, I’m agreeing with that thrust. Let’s say at 30,000 feet, I totally agree with what you just said.

So the question is, how do you do this to make it work? And that’s what I think I know how to do, and you have to do it with a currency board kind of structure. And you were talking about trust — [Kurt] Schuler and I have always said, “You do it under the laws in Switzerland and base it in Switzerland.” And what would that be? What is the currency board? The currency board is something that issues a liability currency. It’s backed 100 percent with assets in some anchor currency, and the currency board currency and the anchor currency trade at an absolutely fixed exchange rate and are freely convertible, and there is no bid-ask spread, even, and the transaction costs are de minimis.

Now, what would you have for an anchor that gets into, you said, “Well, with the currency board, you’d have some fiat currency issued by a sovereign.” And that’s possible. The wisest one to use, that would be most readily used, would be the US dollar right now.

However, I’ve also advocated for gold-backed currency boards, because gold does have the advantage of not being issued by a sovereign. It is not a liability of any sovereign. So in places like Turkey, and Iran, and Russia, they’re ideally suited for gold-backed currency boards or gold-backed cryptos, you see?

Those three countries that I just gave you, are actively trying to de-dollarize themselves and get away from the US and get away from the possibility of having financial sanctions placed on them and things like that.

Currency boards are a recurring theme for Prof Hankey. And of course, he was the architect for currency boards in 4 different countries.

Meanwhile, Nic Carter is funding companies to rebuild the current financial system on top of Bitcoin. I wanted to know where he saw the biggest growth and I just couldn’t help but wonder why all that effort was better than the system we have now with dollars. This whole conversation just keeps coming back to dollars.

NP: As you are making investments into the other layers, the bitcoin stack, where do you see the biggest opportunities?

NC: Right now, honestly, it’s in the brokerage and banking space, and I know there’s a lot of irony there, and you sort of pointed to that. Why would you rebuild the traditional financial system from scratch? My answer is always because the traditional financial system is groaning under its own weight in a certain way, and why not?

If you actually look at the technologies that banks run on, we’re talking about COBOL, which is a computer language from the ’70s. Basically, nobody knows that language anymore, so it’s very hard to find developers to maintain these old ancient systems. We’re talking about mainframe databases. This is just free market. We’re competing with the existing system, and proposing an alternative.

And the other thing that I would point to is unlike people that store their assets in banks, dollars, typically what is facilitated by the crypto financial system, as you could call it, where there is intermediation, where people do use custodians, and bitcoin banks and things like that, is the ability to cheaply withdraw your assets from that intermediated system should you choose to.

And now, not everyone chooses to do that, so people self-custody their bitcoin, and then some people custody it with a bitcoin bank, but if you suspect that bank is misbehaving, or you want to move to a competitor, it’s totally trivial to remove your assets, and to me that’s a strong corrective force, which is a good market mechanism to hold them accountable and ensure that it’s actually a more competitive system with a strong consumer surplus.

To me, that’s the ultimate merit of this system. Actually, it more resembles a free banking built on gold, but where in this case it’s really easy to withdraw the monetary unit, whereas with the dollar-based banking system there isn’t really a fundamental unit at the core of that. The banks aren’t holding your dollars. It’s hard to extricate your dollars from the banking system, right?

NP: One of the things you’ve described over, and over, and over again — quite well, I would add — is the things that we regulate into fiat currency are built structurally into bitcoin, so the relationship between the physical dollars in the world and the dollars in the financial system, that’s a regulated numerator. There’s a number, the Fed manages it. They might be doing a bad job, but they are regulating the banks constantly. They are regulating the investment system constantly, and that is just a group of politicians that you either love or hate.

On the bitcoin side, it’s built into the code. There’s forum warfare that sometimes adjusts the code, but it’s built into the nature of the currency itself. What I would push you on, and what I remain curious about, is a lot of the regulations that exist are there to ostensibly protect people.

The reason there are layers of transaction settlement is to protect from fraud, is to protect from criminals doing criminal stuff. There’s an endless list of reasons we have regulations. Perhaps we have too many, but there is an endless list of reasons we have regulations. How does the structure of bitcoin enable those fundamental regulatory protections that come up as new people try to do new unsavory things?

NC: Great question. As you suggest, bitcoin is regulated in a certain way in that the protocol regulates the monetary nature of the thing, so for instance, the issuance rate is highly regulated — I would say perfectly so — in that each block of bitcoins is only going to produce 6.25 new coins, and we can forecast that out. That has historically been the case. It’s followed the defined schedule. 50 bitcoins a block, and then 25, and then 12 and a half, and so on.

That part of it there is regulation by the protocol, but the protocol is a very thin layer. It doesn’t purport to speak for much. It doesn’t cover a lot. It covers: these are the rules for creating new bitcoins, these are the rules for constructing a valid spend of bitcoin, and these are some sort of primitive functions you can encode into that expenditure, so you can define basics, smart contracts, and that’s sort of it.

And then, you’ve got rules for auditing the supply of bitcoin, and so on. Bitcoin covers that monetary layer, and then it’s left to the bitcoin intermediaries to consider the other contexts of financial activity. And so, the protocol itself isn’t concerned with very much aside from the core nature of the money, and what’s a valid spend, and keeping the supply largely inflation-free, and ensuring that the network has uptime and so on. When it comes to the intermediaries that are present in the system, like I’m talking about the coin bases of the world, right?

The bitcoin banks, those are regulated by the state. They have a number of regulatory regimes that they fall under. They’re regulated by FinCEN, some money service businesses. They’re actually typically regulated on a state-by-state basis, those money transmitters. Whether or not you think that’s sufficient, or whether we need a federal regulation for crypto exchanges, that’s an interesting question for sure, and I would actually argue that the state-by-state MTL [money transmitter licensing] regime is not sufficient right now, but yeah, those intermediaries regulate it. They’re not exactly regulated the same way banks are, because banks obviously have FDIC protections, and if the bank goes bust, the government will guarantee your savings in that bank up to a certain threshold. I think it’s $250,000. That’s not the case with bitcoin banks because there’s no possibility to have that FDIC because there isn’t a lender of last resort beneath that system.

NP: The government can’t just make more money.

NC: That’s right. And that’s the requirement, that’s a necessary condition to institute something like FDIC or to be able to carry out bank bailouts and so on. So you have to take the bad with the good, basically. If you want to extricate the state from the money supply and you want them to not have that discretionary power to inflate it, then you’re also not going to be able to have depository insurance which is state-backed.

You might have private insurance, for sure, that exists. There are private insurers that insure crypto exchanges, 100 percent. But you’re not going to have that level of state insurance, that level of state guarantee. That’s a trade I’m willing to accept. The risk of transacting with bitcoin is real, but that’s a risk that I’m happy to incur in exchange for having access to the good qualities of bitcoin.

NP: So we have come to the, “Well, someone’s going to regulate this” portion of the conversation. So I have a quote here from Janet Yellen, who’s the treasury secretary of the United States. She says, “To the extent that bitcoin is used, I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.” I read that and I say, okay. There’s going to be a push to regulate bitcoin in some way. All she is saying is the negative qualities of bitcoin. What kind of regulation do you think is appropriate given this push, this interest to take some steps to constrain it?

NC: I think bitcoin is actually well-understood by the US government right now, and I will contend that it has been well-understood since about 2012. So the first regulators to contend with bitcoin were FinCEN, which manages issues of money laundering and so on, and the IRS. And the IRS decided that bitcoin was property and they would tax it as property, so you have to pay capital gains if you have a gain on your bitcoin on a sale. And FinCEN decided that bitcoin exchanges would be subject to their MSB [money services businesses] rules.

NP: Can you explain what an MSB rule is?

NC: Yeah, so exchanges are expected to conduct, “know your customer,” in anti-money laundering compliance efforts. So if you sign up at a crypto exchange, you have to basically prove that you are who you say you are, and they’ll look into suspiciously large transactions and things like that.

“It’s a mistake to think that bitcoin is this completely unregulated, Wild West-style asset. In fact, it’s already rather integrated into the US financial system.”

So the NADs that are the hubs of the network are regulated in a certain way. And then bitcoin as an asset is also regulated, or it’s taxed, rather. And then there’s other regulatory bodies, you know, the Office of the Comptroller of the Currency for instance, they regulate banks. And they said banks can custody bitcoin on behalf of their clients. That was a new thing that happened. So the regulatory approaches are evolving a little bit, and the Treasury is revisiting the obligations that exchanges have, so they’re deciding right now, actually, over the next few weeks, whether exchanges should have additional obligations in terms of reporting and information retention. So we’ll see what happens there.

But bitcoin has been something that, you know, I think it’s a mistake to think that bitcoin is this completely unregulated, Wild West-style asset. In fact, it’s already rather integrated into the US financial system. There are banks, and large financial institutions, and asset managers, places where I’ve worked, that appear on the bitcoin network. They are part of it. They use it directly. So Fidelity, where I used to work, they have Fidelity Digital Assets. They’re a custodian and a brokerage for bitcoin on behalf of their clients. So it’s already quite well-integrated into the financial system. Coinbase, the exchange I mentioned before, they’re going to IPO soon; tens of billions of dollars. That’s a highly anticipated IPO.

So you know, bitcoin is part of American capital markets at this point, and it’s been understood by regulators. And in fact, our new crop of financial regulators that are coming in in this new administration, as far as I can tell, all of them understand bitcoin very well. Gary Gensler, likely new chairman of the SEC, taught a class on bitcoin at MIT. So he’s totally a subject matter expert on it. So maybe it could change, the way that the government interfaces with bitcoin, but I feel like they already understand it quite well.

NP: Let me put that into contrast with where we started, which is: bitcoin has very appealing philosophical qualities that if you live in a country that is not stable, it might be better than that country’s currency and banking system. We’ve come all the way full circle to, I’m talking to an investor who is investing in second-layer bitcoin infrastructure that looks like the traditional banking system; that the regulators and government functionaries of the United States understand it at its core; Fidelity, one of the biggest investment houses, is a brokerage for bitcoin. It seems like all of that philosophy has been subsumed or re-created into the traditional banking system. So the risk-rewards that you are describing only work if you believe America is either going to fail, or you live outside of America.

NC: I just see bitcoin’s relevance as highly contextual. So if you’re American, it’s interesting to you as an inflation hedge and a financial asset. And that’s what it is. It has been financialized. People created a bunch of financial products that contain bitcoin that you can buy on your regular old brokerage. You don’t even need to use one of these exchanges if you don’t want to.

So that’s the role it basically plays in America today, and maybe in the future the financial system will break down or become more politicized, and then it’ll regain salience as an asset which gives you the ability to make transactions that the state or the banks don’t want you to make. But the way it’s happened is that in fact the state and the banks have actually embraced the asset in America.

However, as I said earlier, if those property rights and those assurances from the financial system are not present, then it’s quite relevant too as a payments medium and a storehold of wealth. And so what we see really is — and this is controversial in some quarters — we see the US exporting its property rights, its embrace of property rights. Because that’s what bitcoin does; it enshrines very, very strong property rights which are cryptographically enforced. As the US financial system embraces bitcoin, it exports those property rights abroad and it gives people abroad exposure or the ability to access this product, which in my view, aligns with core American values.

And I know, again, that might be a controversial thing to say, but that’s the way I see it, is that by financializing and rendering bitcoin highly liquid and portable, and by creating tools that allow people to interact with bitcoin in a safe way and store their wealth in a safe way — and we can get into the wallet technologies and how that’s going — the American Silicon Valley financial apparatus has rendered bitcoin into something that is really useful for people in countries with malfunctioning financial systems.

So I totally grant that it looks like there’s a total contradiction in what I’m saying, where bitcoin started off as this totally cyberpunk libertarian thing and eventually the Wall Street suits got their hands on it. But it is just used in a heterogeneous way, and it’s totally useful for dissidents and people trying to offshore their wealth from regimes with capital controls or hyperinflation, and at the same time it’s this asset that rich hedge fund guys are speculating on on Wall Street. So it contains multitudes.

NP: Again, I come back to you. It’s more like the dollar than not in that specific regard. Like the dollar has been the world’s reserve currency for a long time. It is used as a tool of American influence. I doubt when you came on this morning you thought you were going to be making the argument that bitcoin exports American cultural values.

NC: You’d be surprised. You’d be surprised.

NP: You were ready for it?

NC: Well, I’ve just thought that for a long time, and it’s a point that I’ve tried to express. Like what values, and this is what I was saying at the very beginning, what values are encoded into bitcoin? Autonomy. Individual liberty, right? The right to transact when others say that you can’t. To a certain degree, privacy. And monetary independence, too. Now I would argue that the way the Fed operates right now is not consistent with, if you look at what the founding fathers had to say about central banking, very different. And a total respect and a sanctioning of property rights.

And in bitcoin, you know this saying like possession is nine-tenths of the law? In bitcoin, possession is ten-tenths of the law, right? So you don’t need the law to determine who owns bitcoin. It’s a cryptographic procedure. You can prove that you own it. If you have it, if you have the keys to spend it, you are presumed to be the owner. So that is a very strong, and I would argue novel, form of property right, and a lot of those things are the values that this country was founded upon and that still power American governance, I would say. So yeah, I see them as consistent.

I think that’s why America’s actually well-suited to underwrite and embrace this technology, whereas China, for instance, would not be, because the Chinese regime does not respect individual liberty or the right to transact outside of surveillance, and they don’t respect property rights. That’s not me being controversial. In China, you can only control a certain amount of your wealth, and if you’re a billionaire in China, that’s sort of a dangerous position to be in. And you can’t offshore very much wealth from China. It’s hard to extricate your assets. So I think America’s actually uniquely positioned to support this technology. And that doesn’t mean co-opting it or capturing it or changing it in any way, but just to allow it to flourish, which is what’s happening.

NP: But how do you line that up with the initial argument of, bitcoin is great for you if you are in a state that’s mismanaging its currency, or has hyperinflation, or is otherwise failing? And what I hear from a lot of bitcoin proponents, maybe not you necessarily, that the American financial system is headed toward collapse, potentially America itself, and bitcoin is a hedge against that?

“If it were up to me, we would all talk about the price of bitcoin in ounces of gold or something that’s historically had a similar value throughout history, like fine men’s suits or heads of cattle.”

NC: Yeah. I mean I certainly believe that inflation is going to be much higher in the next decade in the US than it is today. And there’s plenty of macro variables that I could go into and talk about Dutch GDP and M1 [money] supply growth, which I think would be really tedious for anyone to hear. But I do happen to believe that it is likely that people who hold dollars are going to lose purchasing power at a faster rate than they’ve been losing purchasing power over the last few decades, and we’re likely to see a situation that is reminiscent of the ‘70s or the ‘40s in terms of the inflationary dynamics.

I don’t believe that the payment infrastructure or the dollar is going to collapse. And I don’t think that’s even necessary for you to believe in bitcoin. That’s not a necessary belief to hold. You just have to want to opt into a system that is different and more predictable in certain ways. But yeah, obviously America’s withdrawing from the world, and the dollar’s power seems to be on the wane, and maybe it’s not going to be the sole global reserve currency in 10 years’ time. That seems likely enough to me. But I’m not a collapsitarian, and I don’t think that’s necessarily part of the bitcoin thesis.

NP: Again, I mean I just keep coming back to, the regular people I talked to are mostly interested in bitcoin because of dollars. So even if the dollar experiences a more rapid inflation, the value of bitcoin for the average American consumer is still tied to that currency. That’s still how we measure the value of bitcoin.

NC: It’s priced in dollars, yeah, sure. But you could price it in units of gold. I do that, actually, because it’s a purer way to get a sense of bitcoin’s real purchasing power. Whereas if you’re pricing bitcoin in dollars, both the denominator and the numerator are changing, right? The value of the dollar is changing and the value of bitcoin’s changing, so it’s kind of this weird, impure metric. It’s hard to reason about. So yeah, if it were up to me, we would all talk about the price of bitcoin in ounces of gold or something that’s historically had a similar value throughout history, like fine men’s suits, or heads of cattle, or something like that.

Nic and I eventually kind of landed on the idea that Bitcoin still relies on the dollar. This, again, is also one of the gripes Professor Hanke has.

NP: So it feels like your argument here kind of comes down to bitcoin itself, as a currency, does not have any real value. It is being driven up in value by speculation. You could design a cryptocurrency that you would mostly transact in, that would be a more stable store of value, but it would have to be backed by something like gold. So somewhere you would have to have a vault full of gold to give the cryptocurrency a real value, that if everything fell apart, you could go back to that value.

SH: Yeah. Going back in terms of the history of these currencies, let’s say the last 2,000 years, which I’ve done, and gone through the dominant international currency that existed in all these periods of time until the US went off gold, there was always a safety factor involved. All these currencies, either they were gold or silver, or they were convertible into gold or silver. So all we’re doing is kind of going back before 1973 to a time when every international currency ever existing either was gold or silver, or was convertible into gold or silver.

NP: Well, let me ask you a very philosophical question, to come back to your point about how you define a currency. How much is gold worth?

SH: It has a fundamental value because there’s a gold lending market. So people get confused about that. They say, “Oh, gold, it doesn’t pay any interest.”

NP: Right.

SH: Well, no. I mean, it does. If you go to the gold banks in London and you see what the interest rate is that they’re paying on gold loans.

NP: But they’re paying that interest in currency. They’re not paying it in gold.

SH: They are paying it in currencies; it’s settled in a cash payment.

NP: So I guess my question, all the way at the bottom of that, is gold is valuable because we say it’s valuable. And you can design a market that pays you interest against your gold in currency. Well, bitcoin is valuable because we say it’s valuable, and you can design a market that pays interest in bitcoin itself, which feels superior.

SH: Yeah, not to confuse the thing, which I might have done. There’s a market value. The market value for gold is whatever gold is trading at today. The market value for bitcoin is whatever bitcoin is trading at today. The fundamental value — there are many ways to calculate this, but the simplest thing for people to get in their head — when I said bitcoin has zero fundamental value, of course I did that as a provocation, but I can back it up. And at the end of the line, to have a fundamental value, you have to be able to generate some kind of revenue. And money, broadly defined, does generate an interest rate. And so it has a fundamental value.

Bitcoin doesn’t generate an interest rate, and gold does have a market value. It has a fundamental value. And the fundamental value, not only it pays interest, but it’s also used in many commercial endeavors. So it’s different [than bitcoin] in that sense.

NP: You’re saying that the gold’s fundamental value comes in because it is also physical and can be used to do many other things rather than be a currency.

At the end of the day, the gold market collapses, you can sell it on the commodity market and still get some money back.

SH: Right. For a basic backstop, fundamental value, but gold has another value that is another way to define a fundamental value; the golden constant. And the golden constant, if we go back, we can go back even further than 2,000 years, with an ounce of gold, you could buy a constant basket of goods and services over time, for millennia. It has a fundamental purchasing power, and that’s the golden constant, that’s over a long period of time. You can always buy the same defined basket of goods with an ounce of gold that you could 1,000 years ago or 2,000 years ago.

NP: I want to unpack another provocative thing you said, which is, “There will be a bitcoin death spiral.” Walk me through that. What are steps one, two, and three that lead up to the spiral? And then what does a spiral itself look like?

SH: Well, as you probably have detected, underneath the critique of bitcoin, I’m a very pro-crypto, private currency kind of person, and with private competition. I’m very Hayekian — Friedrich von Hayek, Nobel laureate and a good family friend.

Hayek was a proponent of a competitive currency space, and he thought everyone should be free to use— He wasn’t thinking in terms of cryptos, by the way, obviously, maybe private currencies. He was thinking of the realm where you did have private currencies, and those private currencies can compete with themselves or with currencies issued by a sovereign.

So I think I’m all for competitive currencies. I think the way to do it, given the technology that we have today, is going to be digital crypto, if you will. And I hope that the currency space is opened up eventually for private currencies that are efficient, that do provide a good store value, low transaction costs, stable, they’re good units of account, or become widely used, and they will be competitive with sovereigns.

Now, when that happens, bitcoin will go as the Dodo bird went. I don’t know whether it will be very rapid. It probably will be somewhat rapid, as volatile as bitcoin is — but everyone will see all of a sudden, there’s some alternative in the crypto space that’s very superior to bitcoin, and then you will see even the speculators start walking away from this speculation. They will realize the waywardness of their ways, and they’ll start dumping bitcoin and it will go into a death spiral. It’ll go down very fast.

And I think it will approach its fundamental value, because even those engaging in illegal activities that like to use bitcoin will find that there are other alternatives that are more attractive and more stable and more usable and safer.

NP: So I hear that. There are currently multiple competitors to bitcoin. There are some stable coins pegged to the dollar and other currencies. There’s Ethereum, which is a very serious competitor to bitcoin, which allows all kinds of other things to happen on its network. Why haven’t those existing competitors to bitcoin started the cycle, the death spiral you’re talking about?

SH: Well, I mean, everyone is marching to the crypto drum, including a lot of speculators and entrepreneurs, forward-looking people, and they sense that this is a space that will be attractive to be in. And as with any innovation, you learn by doing. Every new thing that comes along, that an entrepreneur comes up with, was a startup. All of the startups don’t succeed. Some make it. Most of them fail. And the ones that make it, there’s generation one, there’s generation two.

And as you look at this, it’s a little bit like, I was reading an interesting piece on GPS; where did we get GPS from? Well, that actually was Doppler, an Austrian physicist, 1842, came up with this. So, it took a while for an application to click, and bang, the thing really took off. That’s GPS. This is not going to have that kind of time horizon, by the way. This is going to happen much more rapidly. And I think the big thing that will slow it down is a sovereign.

The sovereign is a jealous God. And if the sovereign is producing something that is very profitable for the sovereign and gives them prestige and all the rest of it, namely a national currency, they will be resistant to the challenger. And really, the thing that slows this process down will be the regulatory constraints that are put on it. That’s my view. But there will be a superior crypto. And we’re in the early stages of this crypto world, digital world, but that’s where we’re going. I’m on that train.

I think I’ve got my head around both Nic and Professor Hanke’s perspectives on where bitcoin is now. But to wrap this whole thing up, I had to ask Nick and Steve about the future of bitcoin.

Where does Nic Carter think the train is headed?

NC: It’s hard to say. What we’ve seen historically from bitcoin, we’re in the fifth cycle, I would say. You have these bubble-y appreciations that, you know, these melts up and then draw downs, and people get depressed, and then there’s a winter and no one cares about it for a while, and then the whole cycle happens again. So that’s actually happened, I would say, about five times. We’re in the fifth one right now. So I expect the same thing happens again.

Human psychology never changes. People want to plow into it when it is a sexy, glamorous asset and when they have extremely optimistic expectations of its future growth. And that tends to happen all at once. And then people also get disillusioned all at once and desert it all at the same time. So it seems likely to me that we’re going to have the same cyclical nature to it, but that we continue to find higher lows after each cycle. So you have a bubble and a collapse, it’s a higher low, and a bubble and a collapse and a higher low.

To me, that’s the circular process of monetization [of] bitcoin into this sort of asset that is actually globally useful, which we’re not really there yet. But at a trillion dollars, we’re kind of breaking into that upper echelon, I would say. We’re sort of almost there, we’re on the cusp. I don’t know where it’s going price-wise, but I think in five years’ time, bitcoin is going to be fully integrated into a lot of payments networks. That’s clear. You’re going to be able to hold it with your bank, most likely. You’re going to be able to buy spot bitcoin on any brokerage, whether it’s a crypto brokerage or a legacy brokerage. We’re going to have much better tools to transact with it, so you don’t have to use addresses, you don’t have to copy-paste addresses. That’s going to seem really antiquated. And we’re going to have much more sophisticated layers, such that you can transact on bitcoin with deferred settlement, and you can have different trade-offs in terms of transactional types on bitcoin.

So I think it’s just going to continue its process of integration with the financial system, becoming easier and more convenient to use, becoming understood as this global macro asset. And it’s something that will be normal for pension funds and endowments and mutual funds and other institutional allocators to own. So it will just continue its process of financial normalization. And one day, it’s going to be a boring old asset alongside everything else, and it won’t be an exciting, cool, or glamorous thing anymore. And that’s when we’ll know that we made it, when bitcoiners don’t get asked to talk on podcasts anymore because it’s not notable to be a bitcoiner, because it’ll just be anything else, like buying an index of equity, you know, buying the S&P 500 or something like that.

Of course I had to ask Steve Hanke the same question about the future.

SH: I think there is going to be more positive innovation in the crypto space. And that is a structural incremental change that will be taking place. And that’s why I will predict with, I think, great assurance, that eventually, we will see bitcoin ending up exactly where the Dodo bird is.

This has been a wild ride. I did not think that the bitcoin optimist would have gotten to ‘bitcoin exports American values’ and I really didn’t think my bitcoin pessimist thought the underlying idea of bitcoin was good, just flawed in its implementation.

My biggest question about bitcoin is still whether people like bitcoin, or whether they like dollars. After these two conversations, I think the answer is that people just like money — and whether bitcoin can become actual money is still an open question.