“In the 1800s we had a bubble in railroads, and almost every one of them went bankrupt,” said “Downtown” Josh Brown, CEO of Ritholtz Wealth Management. “But what was left behind in the wake of that financial wreckage were the tracks, and the trains, and the stations, and the expertise to build more.”

That’s the analogy Brown sees with the bitcoin bubble of 2017, as explained in a recent episode of Bitcoin Macro, a pop-up podcast series featuring speakers from CoinDesk’s upcoming Invest: NYC conference on Tuesday, Nov. 12.

“Eventually the technology [railroads] found a way to be profitable, useful, and became woven into the fabric of our society,” Brown said. “So it’s possible that the crypto investments people made in 2017 were stupid, but that they had the right idea.”

The last six months have seen a growing dialogue between the bitcoin industry and leaders in global finance. No longer written off as some ignorable niche, increasingly people are asking: Is bitcoin a macro asset? Is it a safe-haven asset? How will it perform in the next recession?

Brown is a regular contributor to CNBC. In this episode of Bitcoin Macro, CoinDesk’s head of strategy, Nolan Bauerle, talks with Brown about:

• Why bitcoin feels like a protest asset but doesn’t see huge amounts of capital flowing into it from turbulent regions.
• Why U.S. dollars and assets like Manhattan real estate are still the top options for moving wealth out of countries.
• Why it’s impossible to know how bitcoin will react in a recession given the unique set of circumstances surrounding the market’s past 11 years.
• Why the bitcoin and crypto spaces have veered back and forth between overly optimistic and overly pessimistic.
• Why true technology disruptions tend to happen long after their earliest promoters have left the stage.
• Why the impact of bitcoin may be something very different than the macro, non-sovereign money narrative in favor today.

Listen to the podcast here or read the whole transcript below.

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Nolan Bauerle: (00:09)

Welcome to Bitcoin macro, a Pop-up podcast produced as part of the CoinDesk Invest New York conference in November. I’m your host, Nolan Bauerly. Both the podcast and the event explore the intersection of bitcoin and the global macroeconomy with perspectives from some of the leading thinkers in finance, crypto and beyond.

Nolan Bauerle: (00:34)

Welcome to the latest edition of our pop-up podcast around bitcoin. This podcast, in particular, is designed to shed light on some of the content that you’re going to hear about at Consensus: Invest on November 12th, here in New York City. Today we have a veteran speaker of our series and a crossover star, Josh Brown, who certainly is known for his role in mainstream financial news, a regular on CNBC, various other networks. Josh Brown has been with us at Invest since it launched in 2017. He gave terrific advice to the original attendees of that conference and was our final keynote fireside chat with Howard Lindzon, his good friend.

Nolan Bauerle: (01:23)

Last year he came back to let the audience know what asset managers are really concerned about when it comes to cryptocurrencies in general. And this year he’s going to involve himself as our master of ceremonies, and we’ll introduce all of our great panelists, and we’re happy to have him. So crossover star, I think, is a good way to describe you. A lot of people know you over crypto, but you’re certainly well known for your mainstream financial news.

Josh Brown: (01:48)

Hi Nolan, it’s great to be with you.

Nolan Bauerle: (01:50)

Great to have you aboard. So we’re going to jump right in. This podcast is really all about bitcoin. And the first question is about bitcoin behaving as a macro asset. So you’ve seen a lot of what’s going on in the world today. You’re pretty plugged in. How do you see bitcoin fitting in here? Is it an actual asset that you can see as a way to hedge macroeconomic changes? Or is it sort of still in the wings waiting to be built up and mature a little more before it’s really in the major leagues of macro assets?

Josh Brown: (02:24)

As I said to you just prior to recording, I see myself as more of a student than a teacher in this realm, but I’m an apt pupil, and I try to pay attention to various opinions and, of course, look at charts and price action. And I try my best to understand what’s happening. To answer that question directly, I would say I do not believe that bitcoin behaves in any way like a macro asset. And the only reason I’m saying that is because we have no evidence that it’s correlated with any other macro development. In other words, I wish I could say when … Think about gold. When people are worried about inflation, and I’m not saying gold is a great inflation hedge, but when people are worried about it, there are trades where you can see flows go into that asset class. It’s demonstrative.

Josh Brown: (03:21)

So you could say whether or not you think gold is an inflation hedge, you know that other people do, and it acts that way. Think about utility stocks. All year long, the story has been the federal reserve about to lower rates, now they’re lowering rates. Maybe they’re going to lower rates more. And as that process has happened, you’ve seen money flow into utility stocks, which are prized for their high yields. So if you’re not getting yields in bonds, what’s the next best thing or the next, next best thing? It’s high yielding equities, and utilities are considered to be among the safest high yielding stocks. So you could say that, that’s a macro asset. What can we say about bitcoin that’s even close to being comparable? In the month of October, I think it’s a world record of people around the world involved in various protests, whether we’re talking about Santiago, or we’re talking about what’s going on in Hong Kong. All over the world, there are millions and millions of people taking to the streets.

Josh Brown: (04:20)

Why isn’t bitcoin up 50% if in fact it’s a protest asset? Well, it isn’t, so I don’t know. If we’re worried about disinflation and we say that maybe people, if they’re scared of their own currency, there’ll be this huge rush into bitcoin. Well, where is that happening? It isn’t. So I would love to be able to answer in the affirmative and say, “Yes, bitcoin has now taken its place among the Pantheon of asset classes that people can use to express a macro view.” But it just isn’t, there’s no evidence for that. So my answer to you is no it isn’t, but maybe that’ll change at some point.

Nolan Bauerle: (04:57)

Yeah. And that you’re focusing on the behavior I think is the important part here. A lot of people get caught up with what they want it to be and they sort of will fall into kind of a bubble, where they see it behaving in ways that maybe it isn’t actually, given the facts, and that you underlined here that the behavior of it, given all these conditions is pretty clear. It looks like a speculative asset that people are interested in making some money on, and certainly there needs to be a high risk tolerance to get exposure even to this day.

Josh Brown: (05:29)

If we’re saying that bitcoin’s most obvious use case is the ability to get out of a fiat currency and move money out of a country, or … it’s got huge competition. US dollars are what people want all over the world. In Asia, maybe they want the yen when they fear for the safety of the currency, or the capital markets, or the economy in which they live. This is a fact, and then if we’re saying, “Well, people are going to use bitcoin when they want to get out of the denomination of whatever their country is”, or the jurisdiction. They want to, I don’t want to use the word hide money, but they want to literally move money where it can’t be touched. Well, real estate has been a much, much more prominent way to do that. Look at Vancouver, half the buildings are Chinese money.

Josh Brown: (06:21)

Look at the towers they’re putting up in New York. They just put the capstone, I think it’s called, or whatever. They just put the cap on something called Central Park tower. I think it’s 1400 feet high. It’s the tallest residential building in the Western hemisphere. It’s only going to have 70 something apartments. So who’s buying those apartments? Well, it’s not like a guy who’s a lawyer in New York City. These are $7, $10, $20, $50 million apartments. You could think about these as safe deposit boxes for Russians, Indians, Chinese, people that are trying to have assets outside of the country. Nobody’s even going to live in half these apartments. And that’s just one tower of five that I could reference off the top of my head.

Nolan Bauerle: (07:10)

The one they built on Lexington, the skinnier one that went up earlier, I can’t remember the name right now, but you can see the windows are empty. The lights are off every single night.

Josh Brown: (07:19)

Of course. You want to laugh? When they built 437 Park, which I think was the largest until this new one, the tallest, they did something for New York City called a traffic study. So if you want to build something of size, you have to spend millions of dollars and a couple of years studying what the impact will be on local traffic. And the joke is there ain’t going to be no fucking traffic, because no one’s going to live there. So that is the way you’re seeing foreign nationals move money out of their currency, or out of their government’s jurisdiction and into what they consider to be a safer place. And you’re just not seeing those dollar flows into bitcoin to the same extent. So it’s hard to make the case that functionally that’s what’s really happening there.

Nolan Bauerle: (08:05)

And you mentioned something that I hadn’t really heard before. We call it a safe-haven asset, but you called it a protest asset as well. And I think that’s a really interesting label, and that its behavior really hasn’t mimicked what you’d expect from a protest asset. Now I saw it traded at a premium when the Hong Kong protests began, it traded about a $100 premium. And that was really because people were worried about using their Oyster cards, their Metro cards to get home back to China if they’re going to the mainland, because they were going to get tracked, and basically just really worried about local dollars being tracked. But we haven’t really seen that premium stick, and we haven’t really seen that sort of flow towards using this so that you’re not surveyed and you’re not spied on so they know where your simple consumption dollars had gone.

Josh Brown: (08:52)

Somebody was telling me about Venezuela, and I’m aware of what’s going on in the economy there, and it’s been going on for years. And hyperinflation, the collapse of institutions, people starving. It’s a horrible, horrible situation. Now, if you were to tell me 30% of all Venezuelans have moved their money from the local currency into bitcoin, then I would shut my mouth and I would say, “Okay, there’s something substantial here.” But I don’t think that’s the case, do you?

Nolan Bauerle: (09:24)

No, I mean, and we’ve seen Turkey, for example, has seen a lot of users, let’s say buyer [inaudible 00:09:32].

Josh Brown: (09:32)

Yeah. Great example. Another inflationary situation where people for political reasons want assets out of that country, and the local currency and economy is collapsing.

Nolan Bauerle: (09:44)

Yeah. But, like you’re saying, we just haven’t seen that kind of use.

Josh Brown: (09:48)

Yeah. Where is it, where is it? When does it start? So I’m not saying it can’t, I’m just saying I’m not seeing it.

Nolan Bauerle: (09:54)

Now moving onto a recession. A lot of rumors of recessions, we’re still doing pretty well here in the United States, but it’s certainly crept in, in other jurisdictions. So we’ve seen this sort of cheap money around the world for a long time, and it looks like even from high risk tolerance from the VC side of things, because money, it’s just available and it looks like every idea out there is funded and the risk tolerance has grown to a certain extent here. Now, if that changes, if a recession does cause some kind of liquidity crunch, or some inability to get access to this cheap money again, how do you think bitcoin behaves?

Josh Brown: (10:34)

I guess we have no … in the United States, we have no prior history of it, so we’ll say we’ve been in expansion for 11 years, so it’s the longest expansion ever. So I don’t know the answer.

Nolan Bauerle: (10:49)

Yeah, well they’re-

Josh Brown: (10:50)

We’ll find out.

Nolan Bauerle: (10:53)

And my final question for you, and really this is sort of tapping on your exposure to mainstream media, mainstream financial world. Bitcoin really popped in everyone’s consciousness in 2017 when I met you at that great dinner that we had down near Chinatown. And you wrote a beautiful blog post. I thought it was … I really realized what a fantastic writer you were.

Josh Brown: (11:16)

Ah, thank you.

Nolan Bauerle: (11:17)

I think it was something into [inaudible 00:11:18], and it was great.

Josh Brown: (11:19)

Yeah. Yeah.

Nolan Bauerle: (11:21)

So here it is. It popped into world consciousness in 2017. Everyone started talking about it, and it’s already mutated a few times in people’s minds since then. In the last six months though, what have you seen that’s changed, or if anything, is it just the same old story?

Josh Brown: (11:35)

So when I was a keynote speaker in the closing panel of Consensus: Invest 2017 the first year, the audience was filled with young people, primarily, mostly dudes, and they had made a lot of money. I think the price of bitcoin at that time was $15,000 or $16,000, and my message to that audience at that time was, “calm down.” It’s okay to feel like you’re missing out. You don’t have to do something just because everyone else is doing it and they seem to be getting rich. And of course, it would only take a couple of weeks for that to look like really good advice. But that is always good advice. Maybe now we’re in the polar opposite situation, where instead of fear of missing out, there’s this just incredible amount of pessimism that everything that people thought would be true about digital currencies, and cryptography, and blockchain is now like a joke in the mainstream financial media, or at least it’s being derided on a daily basis.

Josh Brown: (12:47)

And so maybe now things have gotten too pessimistic. And the only other example of this kind of thing that I could think of for my own career and experience, I remember my formative years in the industry we were doing the dot com bubble, and everything came apart relatively quickly. It only took from March of 2000 to, let’s say, the end of 2001 for people to just be completely wiped out, not just in financial terms, although they were, but emotionally, and mentally. And just nobody wanted to hear anything about technology ever again. And in the ashes of that experience, Google was born. In the ashes of that experience very quietly with very little fanfare Steve jobs rejoined Apple as the CEO. The seeds for the technology boom that we’ve now been living through over the last, let’s call it 12 years or 15 years, were born in the ashes of that prior mania.

Josh Brown: (13:52)

So I think statistically, spiritually, any way you want to look at it, there was absolutely a bubble in anything related to crypto going into the end of the year of 2017. I don’t think anyone would deny that it was insane just as the internet mania, but the thing is all of the predictions that were made about the transformative power of the internet actually ended up coming true. It just took longer than what people expected, and the companies involved were very different. If you think about the original dot com bubble, we were worshiping at the altar of fiber optic plays like JDS Uniphase and Nortel. And we were buying up stocks like AOL, and Excite, and Lycos and Yahoo. None of which are particularly relevant anymore. But all the predictions, we’re going to buy groceries on the internet. It happens. We’re going to buy pet food on the internet, it happened.

Josh Brown: (14:51)

Toys, books. We’re going to communicate all day long. All of those predictions came true. It’s just the investments weren’t right. So if there is a crypto future and there is a blockchain future, it’s highly possible that the early entrants, who came along in 2015, ’16, ’17, ’18, aren’t going to be a part of it. And a lot of the investments that have been made will turn out to be zeros. But it doesn’t mean that the future is written. So if I could maybe flip the script and this year offer that, I know it’s not that hopeful, but it’s somewhat hopeful to the audience. Then I’ll feel as though I’ve said something that’s somewhat meaningful.

Nolan Bauerle: (15:33)

What you’re basically saying is the world today is recognizable to the entrepreneurs and visionaries of 25 years ago. They would recognize what we’re doing today as the thing they predicted, but as you said, maybe coming at it from a different angle, with different names, on a different platform. The specifics are perhaps different, but the overall outline of it is pretty much in line with what those folks had envisioned.

Josh Brown: (16:00)

You know, this predates what I just talked about. In the 1800s we had a bubble in railroads, and almost every one of them went bankrupt. But what was left behind in the wake of that financial wreckage were the tracks, and the trains, and the stations, and the expertise to build more. And I mean we have trains to this day, and we had bullet trains. And what they’re building to connect … I was just down in Orlando, and I saw all the facilities that they’ve built for the bullet train that’s going to take people from Miami to Orlando in 15 minutes.

Nolan Bauerle: (16:37)

Jeez.

Josh Brown: (16:37)

But that system that they’re building is a descendant of money that was lost to overambitious investment all the way back in the 1840s. So I know people don’t have that much patience to wait 160 years to see their dreams come true, but I’m just pointing out, after the railroad bubble, there were probably a lot of people running around saying, “You see, it’s all stupid.” No, it wasn’t all stupid. And we had functional railroads from the civil war on. So eventually the technology found a way to be profitable, useful, and became woven into the fabric of our society. So it’s possible that the crypto investments people made in 2017 were stupid, but that they had the right idea. And that in the wreckage of the bubble having burst, new companies, new ideas, new entrepreneurs, new uses come about, and the whole thing rebuilds itself.

Josh Brown: (17:34)

And all of a sudden there are people with profitable investments. And just as a Coda to that, I took the long Island railroad into Manhattan today from long Island. And in every car, there are advertisement posters. And in a car I happened to have been riding in today were posters for the Genesis crypto exchange. And I know that’s Tyler and Cameron [Winklevoss] and I would imagine they spent a ton of money on this, but everyone riding that train car was surrounded by posters for this new monetary exchange or brokerage or whatever you want to call it. And most of the people looking at this poster were like, “What the hell does that mean?” But some people know. And I just find it interesting that there were still people willing to invest, and advertise, and market new products. And as long as that continues, maybe there is a future that’s more in the near term than what I think now for these types of technologies.

Nolan Bauerle: (18:32)

So like you’re saying, the tracks were laid to bring you from Miami to the happiest place in the world in such a short amount of time. And perhaps the tracks are still there to bring bitcoin to the moon and realize everyone’s-

Josh Brown: (18:48)

When moon.

Nolan Bauerle: (18:48)

When moon, when moon.

Josh Brown: (18:49)

Well, look, I think we could separate what we think the price of the thing does versus what we think the utility will be. That’s where I’ve been since December of 2018. We wrote a blog post basically saying, I’m done speculating on the price of bitcoin. I think it’s a mania. However, I’m open-minded to the possibility that blockchain will become a transformative technology. The caveat is that it might be very unsexy. It might show up in the income statement of a company that managed to save a few million dollars, by going from database to a blockchain. I don’t know that that implies that the price of a digital coin will go up, but I’m trying to stay open-minded.

Nolan Bauerle: (19:34)

It’s not the romance of pamphleteering around the French Revolution or the American Revolution that everyone was sort of-

Josh Brown: (19:42)

No, right, it could just be corporate cost savings. And again, that is a sort of revolution. It just won’t involve people waving flags and storming the barriers.

Nolan Bauerle: (19:54)

Well, Josh, thanks for your time today.

Josh Brown: (19:56)

Did I bring everybody down? I don’t want to do that.

Nolan Bauerle: (19:59)

No, no. It was fantastic and we’re looking forward to hearing more in just over a week now. So thanks for your time and see you soon.

Josh Brown: (20:07)

All right, Nolan. Thank you.

Nolan Bauerle: (20:08)

Bye, Josh.

Nolan Bauerle: (20:14)

Enjoyed this episode? I’d like to personally invite you to come to Invest: New York in November. The event features not only the speaker you just heard, but an array of other amazing thinkers. Visit coindesk.com and click events, or simply follow the link in the description. Thanks for listening, and see you in New York City.

Josh Brown image via CoinDesk archives