âLetâs untangle that a bit,â says Meltem Demirors, the chief strategy officer of CoinShares. âBitcoin represents three different things.â
In this episode of Bitcoin Macro, one of the most prolific voices in the space speaks with CoinDeskâs head of strategy, Nolan Bauerle, about bitcoin as software, as a âsupranational global communication networkâ and as an asset.
âFor traditional investors, itâs sort of a challenging paradigm when these three things are wrapped together,â Demirors explained.
The conversation takes place ahead of Demirorsâ appearance at CoinDeskâs Invest: NYC conference on Tuesday, Nov. 12. The Bitcoin Macro pop-up podcast series features speakers and themes from the event, which explores bitcoinâs current role in the global financial system.
On the podcast, Demirors talks with Bauerle about:
Listen to the podcast here or read the whole transcript below.
Nolan Bauerle: (00:09)
Welcome to Bitcoin Macro, a pop-up podcast produced as part of the CoinDesk: Invest New York conference in November. Iâm your host Nolan Bauerle. Both the podcast and the event explore the intersection of bitcoin and the global macroeconomy with perspectives from some of the leaders thinkers in finance, crypto, and beyond.
Nolan Bauerle: (00:29)
Iâm delighted to be joined today by Meltem Demirors, one of the most famous people in crypto, thatâs for sure. Meltem has been around for a long time, but really sprung to international prominence with her amazing testimony in a Congress Committee this past summer on the whole Libra offering. The people who have been working in cryptocurrencies for a long time have always been aware of Meltemâs brilliance, and sheâs been kind enough to join us for todayâs podcast.
Nolan Bauerle: (01:05)
This podcast is really trying to look at bitcoinâs place in the world today, and is a taste of the type of content that weâre going to be focusing on in New York City on November the 12th at Invest. So Meltem, thank you for joining me.
Meltem Demirors: (01:21)
Thank you so much for having me, Nolan. That was such a beautiful intro. I feel like Iâd love to have you intro me all the time.
Nolan Bauerle: (01:32)
[inaudible 00:01:32]. I have had the good fortune of knowing you for quite a while now.
Meltem Demirors: (01:35)
I know. We met a long time ago.
Nolan Bauerle: (01:37)
And watching you gather up all this ability to sort of let your ideas shine on the global stage has been a real treat, and Iâm happy to have even met you on the train back from Washington that day.
Meltem Demirors: (01:49)
Thatâs right. I think I was enjoying a Bud Light.
Nolan Bauerle: (01:57)
You definitely earned it. You definitely earned it. So letâs jump right in. Weâre talking about bitcoin in the world today, and the first question I have really is around whether or not you see bitcoin as a true macro asset? Is it there? Is it in the main stage? Is it in the side stage somewhere? Is it in the wings? Or is this really something that can be thought of as the macro today?
Meltem Demirors: (02:19)
I think for most people in the world right now, particularly in the world of investing and finance, bitcoin and crypto assets are not yet an asset they think about. Itâs a very small asset class. Itâs around 200 to 250 billion right now. Thatâs very small, and so for most investors looking to allocate capital moving even 5 to 10 million dollars into the coin creates a lot of price movement, and there are not really efficient ways to do that today. So thatâs one concern I think certainly.
Meltem Demirors: (02:55)
I think the other piece to think about just on a macro level thatâs really relevant is macro investors sort of define the world in the context of specific assets in markets, and so I think as an investor you look at sovereign debt, and you look at debt generally as an asset class, corporate debt funds, you look at equities, and then a lot of people like to lump crypto under the alternatives category. Alternatives is sort of a growing part of the investment world, and I think itâs challenging for a lot of investors, even in the alternative space, to really try to figure out where bitcoin fits in.
Meltem Demirors: (03:38)
And so, I think the big challenge is to people in our industry, we like to talk about bitcoin as an asset class, because we live, breath, eat, sleep crypto all day every day, and certainly in our little part of the world bitcoin feels like the big asset, but I think frankly to most investors bitcoinâs not really on their consciousness, and if it is itâs far too early, and if anything the place are getting exposure if through their PA or personal account, certainly not through their firm, or their fund, and I donât think thatâs going to change in the near future, and we can talk about that more as well.
Nolan Bauerle: (04:20)
So in practice what youâre saying is itâs not quite there yet. If it was in this sort of macro level the features that would define it, the aspect of it that would sort of propel it forward, I think we can even trace to some of your testimony back in Washington in July. In that testimony, I think what we saw was you had Facebook, which was almost threatening, not a nation-state, but it was taking on certain powers. It was taking on certain responsibilities that we would normally prescribe to a nation-state, and it was saying weâre going to issue this private money, that, of course, got everyoneâs back up.
Nolan Bauerle: (04:58)
I think one of the things that was remarkable about your testimony is you showed that bitcoin didnât propose these same challenges, yet it is coherently creating what amounts to a digital jurisdiction at the same time, and is perhaps is at the foundation for this type of macro asset going forward, the foundation for what could amount to an important money supply, a hard money supply.
Meltem Demirors: (05:25)
Letâs untangle that a bit. So I think whatâs challenging when we talk about bitcoin is unlike debt or equities bitcoin represents three different things. Bitcoin is technology in the context of the bitcoin protocol, which is open-source code, and open-source software has been a part of our world for a long time, and open source is I think starting to gain acceptance as an investible category in the venture world and beyond. And so, bitcoin at its core is the bitcoin protocol.
Meltem Demirors: (05:56)
Bitcoin is a network and whatâs interesting here is bitcoin is kind of a supranational global communication network, and so there are tens of thousands of devices around the world, whether people are running minors, or people are just running full nodes thereâs this network of computational devices that are maintaining the bitcoin ledger, and engaging the invalidating transactions, and maintaining the integrity of the ledger, and so the bitcoin network is physical in nature.
Meltem Demirors: (06:26)
And then, lastly, you have bitcoin the asset. And so, what I think is interesting here is for traditional investors itâs sort of a challenging paradigm when these three things are wrapped together, so when you see people look at bitcoin theyâll talk about bitcoins in the context of software infrastructure. Youâll hear people talking about bitcoin in the context of a commodity because itâs produced in its mind digitally in the way that we sort of think about producing and mining things like gold, and oil, that are limited in supply theoretically.
Meltem Demirors: (06:57)
And then, you have people talking about it in the context of currency, of hard money. What I think is interesting about Libra is Libra styles itself as a cryptocurrency, but really the point I was trying to make in Congress is anyone can call anything a cryptocurrency but that does not make it so. Whatâs interesting about bitcoin is unlike a commodity, unlike a bond, unlike an equity bitcoin is packed by nothing but the demand for it.
Meltem Demirors: (07:25)
And so, itâs a little bit unique in that regard. It has no physicality, which I think is part of the larger conversation about the evolution from highly physical to where we increasingly engage digitally. So thatâs difficult for people to grasp. It doesnât necessarily fit into the constructs we have for assets in our world, even assets that have been dematerialized part in like stocks that trade, you know, they still have a physical share certificate thatâs somewhere.
Meltem Demirors: (07:53)
And then, I think the other component thatâs interesting is when we look at what Libra is comprised of, and what it proposes to do, itâs really just a pooled investment vehicle where the interest in the fees accrue to the association. And so, I think itâs an interesting series of choices made by Facebook. Iâm not really clear as to why they felt this was the best approach, but I think if you look at the intent of Libra itâs a pool of capital. Youâre taking money from people who purchase the tokens, youâre putting it into currencies, and interest-bearing instruments, and weâre holding it, and then weâre distributing that plus transaction fees to people who participate in this private closed sort of group called the Libra Association.
Meltem Demirors: (08:37)
And so, to me, thatâs sort of the antithesis of bitcoin. So my only goal really in the testimony was to help clarify that bitcoin is not Libra, bitcoin is separate and distinct from every other cryptocurrency and it has features that make it incredibly unique. And Libra, and many things, are in fact not cryptocurrencies. Thereâs a lot of ambiguity in language but certainly having specificity in how we use these terms is starting to become more and more important, particularly for regulators, policy makers, who are trying to understand whatâs happening, but sometimes the translation theyâre getting isnât particularly helpful, and in fact can be more confusing than not.
Nolan Bauerle: (09:19)
So I want to pick up on two things that you said, and you said that Libraâs, of course, this pool investment, so the incentives of all these parties are definitely for protection fees, but you also mentioned that because bitcoin is only backed by the demand of the user that it really can exist as an uncorrelated asset, because Libra would theoretically be involved in all the ups and downs of a typical economy because the value of bitcoin is only really based on the demand that users and people have for it. Can it behave as a safe-haven asset?
Meltem Demirors: (09:59)
I think the idea of a safe haven is an interesting conversation. I think the way people typically frame this is this risk-on or risk-off asset. And I think the challenge with safe haven is again everythingâs relative, so if I live in the United States, and I have US dollars, and I have a driverâs license, and I have a bank account, and a debit card I probably donât view bitcoin as a safe haven asset, because the dollarâs pretty safe for me, and Iâm able to do everything I want, and I donât necessarily in times of crisis feel that the dollar depreciates rapidly, and so my purchasing power parody, my PP, stays intact.
Meltem Demirors: (10:42)
Now, conversely if I live in a part of the world where there is a lot of instability, and volatility, now Iâm from Turkey personally, I was just there, and speaking to people about bitcoin, I think within the bitcoin community thereâs this idea that people who live in regimes or parts of the world where their purchasing power parody, or their ability to buy the same basket of goods fluctuates a lot, because of the fluctuations and the value of their local currency. I think in our community we like to believe that theyâre just going to rush to adopt bitcoin, and go out, and hold bitcoin.
Meltem Demirors: (11:17)
Whatâs really funny is if you actually go out and talk to people they donât want to hold bitcoin they want US dollars. And so, this is where I think some of the challenge emerges in explaining a new asset class, and also really understanding some of the macroeconomic shifts happening in our world. We live in a dollar-denominated world today, and at the end of the day you canât yet pay your rent, or your taxes, or your employees, or for your groceries in bitcoin, and I think someday youâll be able to, and thereâs certainly a number of companies Iâve invested in, and worked with, and support that are enabling people to do that, but I think again for your average person whoâs living in a part of the world where they donât have stability in their currency I think theyâre not necessarily thinking of bitcoin as the solution, itâs maybe one part of the solution.
Meltem Demirors: (12:12)
I think right now theyâre looking more at things like the dollar, and unfortunately, I think itâs going to take some time for the world to get to a point where bitcoin achieves that status in a larger sort of way. I think to us in the bitcoin community we certainly like to pontificate about what hyper bitcoinization will look like, and what a world will look like if people start holding bitcoin as a safe haven asset, but I just donât think that narrative on a global scale has gotten there yet, and I think again part of the challenge there is how you communicate something that is so new, and a lot of people ask whoâs the CEO of bitcoin, whatâs stopping bitcoin, and so explaining this itâs really a fundamental shift in mental model and how people think. Itâs a shift in trust instead of trusting an institution, or company, or a brand, youâre trusting an idea, and a set of principles.
Meltem Demirors: (13:11)
And so, that in my view is going to take some time, and itâs going to take the technology being developed, itâs going to take the on and off-ramps being developed, itâs going to take the user experience putting it a little easier, but most importantly itâs going to take some hard work from our community to translate a lot of the topics we talk about into things that people are actually thinking about on a day-to-day basis.
Nolan Bauerle: (13:36)
And so, your recent experience in Turkey did it strengthen your idea what it wasnât quite there yet, but there was this work to do, or did it actually bring you out of a state of letâs say being disconnected, and sitting in one of these bitcoin ivory towers saying this is what bitcoinization is going to look like, and all that stuff, or was this just youâve been enough times, youâve seen it in this context, and you know that people just arenât ready, and even if we are seeing some increased trade flows out of Turkey on local bitcoins it really is still isolated individuals and itâs not enough of a wave to really push the needle?
Meltem Demirors: (14:13)
So letâs talk about that. I think first and foremost I feel like Iâve tried to constantly force myself to step outside the bitcoin world, and interact with people who come from a totally different perspective, totally different viewpoint. I think the context is really important, especially when one of your functions is serving as a translator. I sometimes feel like my role is Iâm a translator between two very different worlds, and so we have these crazy bitcoiners over here, and Iâm certainly a part of that community, but at the same time Iâm also communicating with a very different audience who has the potential to really shape and influence the trajectory of bitcoin as a technology, as an infrastructure, and as an asset in very material ways, and so I think itâs very important for me to be aware of all of the different perspectives and viewpoints in order to be an effective translator, and I do wish we did that more.
Meltem Demirors: (15:12)
I think hopefully thatâs starting, but weâll see. When it comes to Turkey, so Turkeyâs interesting because ING the bank releases this study every year, this is the second year theyâre done it. They just released it in October of this year, and what they look at is rates of digital currency adoption in different parts of the world, and Turkey ranks number one. And so, a lot of people are like oh yeah people in Turkey want to hold bitcoin because the lira is unstable, and thatâs an attractive narrative, but the reality actually is that Turkey is a place where people are already accustomed to trading FOREX.
Meltem Demirors: (15:50)
People like speculative trading. Iâm a Turk myself so we have that cultural acceptance for speculation. And so, FOREX trading, currency trading, is something a lot of people engage in. You have a population thatâs already accustomed to digital banking because when banking services came to Turkey they kind of leapfrogged the â80s and â90s and it sort of went direct to digital. And then, you have a high population of young people who are really interested in the technology, and what theyâre doing is theyâre speculating on bitcoin.
Meltem Demirors: (16:26)
And I think thatâs certainly exciting, but I think the narrative that people have isnât, oh, I want to protect myself from price fluctuation in the lira, and certainly if you look at their experience over the last year even though the lira depreciated dramatically had they bought bitcoin when that happened, or before that happened, they wouldâve lost more holding bitcoin. And so, I think again itâs important to be careful with these narratives because itâs very easy to overgeneralize, and I donât think weâre quite at that point yet.
Nolan Bauerle: (16:56)
So youâre saying the simple argument holds, they just want to make money like anybody else.
Meltem Demirors: (17:01)
And look, I think through that process I actually think speculation is one of the great drivers of bitcoin adoption, because as people start to speculate, and as people start to interact with bitcoin they start to appreciate some of the principles and social values, what it represents, and I think that leads to people holding bitcoin longer, and viewing it more and more in the context of a form of sound digital money, but I do think we get a little bit overly excited about narratives that arenât really quite supported by the evidence yet.
Meltem Demirors: (17:38)
Now, the good thing is I do think the bitcoin communityâs doing more diligent research. Cambridge in the UK releases their annual study on bitcoin and blockchain adoption. ING, which is a global bank, is now doing their report. The coverage and the research methodology keeps getting better and better. And within the crypto space thereâs also a number of new research firms that are starting to parse data in different ways to try to analyze, and provide more context, and insight as to what the actual growth metrics might look like, but I think as I travel around the world and interact with people all over the world that story just isnât there yet.
Nolan Bauerle: (18:16)
And so, going back to what you had mentioned about bitcoin presenting these opportunities for people to learn, and letâs say inform their worldview, one sort of test that Iâve had for a long time about someoneâs world view is how accurately it can predict the future. A lot of bitcoin people have been saying we anticipate a global recession because of sovereign debt, and all these other factors. When we look around the world today we certainly see some of the things that people who have been in bitcoin as long as yourself have been predicting for some time. What weâre not seeing, for example, recently in the United States not a recession, but we have seen letâs say liquidity crunch with the repo news.
Nolan Bauerle: (19:00)
But bitcoin hasnât behaved in the way that most people had predicted according to these narratives, these narratives that sort of said if we have another round of quantitative easing in America youâre going to see a lot of demand for bitcoin in America. The wider question being the following, what happens to bitcoin in a recession? Is it going to be this asset that you can use to get out of these little ups and downs around the world as many people have predicted for years now, or is it going to become more and more correlated and the demand will go down just because there isnât as much liquidity in general?
Meltem Demirors: (19:35)
I think this topic is an interesting one, and certainly, itâs very tempting for people to buy into the recession narrative. After all, we are in the longest bull run in market history. Weâre not at 10 years and three months, and counting. And look, I think the fact of the matter is the financial system is changing. Thereâre certain beliefs weâre had for a long time about how markets should work, and how investing should work, and weâre not seeing a lot of those beliefs we had being proven false.
Meltem Demirors: (20:11)
You look at just the sheer volume of negative-yielding debt. I mean, thatâs a bit mind-boggling. The numbers just donât make sense. You look at whatâs happening in the passive investing space. When you look at the challenges that many hedge funds are facing, and generating meaningful alpha, through active management. Theyâre just a lot of challenges that the financial markets are facing, that investors are facing, but I donât think that points naturally to we are in for a recession, because at the end of the day capital continues to flow, we are continuing to see people continuing to move out on the risk curve investing in high-risk venture investing, more and more capital being deployed there.
Meltem Demirors: (20:57)
Alternatives continue to grow as an asset class. So I think this narrative of a recession is coming is a tempting one, but I think itâs one thatâs sort of difficult to predict. Iâm not really in the business of reading teal leaves if you will. What I think is more interesting to think about, and one thing weâve never seen in how bitcoin behaves in a recession, right? Because bitcoin was introduced to the world in 2009 after the 2008 financial crisis, the bitcoin network launch, and so weâve never seen it in an environment like a recession.
Meltem Demirors: (21:32)
And so, I think there are a lot of what I like to call unknown unknowns about what will happen when we enter that new time. And I think again the forces shaping our world and the forces shaping the financial system there are some known unknowns, but then I feel like a lot of investors I talk to feel like theyâre facing a lot of unknown unknowns, and so there are a lot of open questions about what the world will look like in this new era. It does feel like weâre in a new stage of financial markets. Some people call this late-stage capitalism. Some people look to Japan as an example of what might happen.
Meltem Demirors: (22:11)
But again, I think my job really is trying to focus on what this means for bitcoin, and really trying to manage the ups and downs of whatâs happening with bitcoin and crypto assets, and put it in context for investors who are looking at the world feeling very confused, looking at bitcoin saying no way, this is too much, thereâs so much other stuff going on in my world that I donât need to add more risk, and add so much uncertainty by adding a highly volatile, poorly understood asset, that I just fundamentally donât get yet.
Nolan Bauerle: (22:45)
Yeah, so itâs basically that perhaps weâre living in an era of unlimited leverage for now, which makes basically everything funded including bitcoin, and all the ICOs, and all the crazy projects. What happens if that funding just isnât there anymore? Does bitcoin still stand up on its own, or is it a product all this free money all around the world thatâs just looking for risk? As you mentioned, appetites for risk are growing just because there is so much leverage out there that you can take in going.
Meltem Demirors: (23:16)
The hunt for yield, right? There is a hunt for yield because ultimately what weâre relying on here in the US, and in many other Western developed economies, we have a population that is retiring, and pensions are underfunded. There are all of these social liabilities that need to get paid for, and historically the way weâre paid for them is through the compounding of interest, and through yield, and when that stops working the only other alternatives is to extract it sort of from society through taxation, or through inflation, right?
Meltem Demirors: (23:51)
And weâre seeing that effect around the world. You look at whatâs happening in Chile, you look at whatâs happening in Argentina, you look at whatâs happening in Hong Kong, you look at whatâs happening in the UK. Thereâs only so much you can squeeze that out of a system, so I think thereâre a lot of fundamental existential questions about the relevance of nation-states, the relevance of currencies generally, and what I think is so interesting about bitcoin if we leave aside sort of the price of bitcoin, and these arguments around bitcoin as sound money, and these things that are very exciting, I think whatâs even more interesting is the questions that bitcoin introduces to the conversation.
Meltem Demirors: (24:33)
So when people first learn about bitcoin I think it opens their mind to the idea that there is a different choice, because weâve never really contemplated a world where I could hold something other than government-issued currency, and so that to me is the more interesting, and more profound question, and now of course with China announcing the digital renminbi with a lot of US corporations including Facebook looking at getting involved in the currency game in different ways, or in the cryptocurrency game, or other versions of digitized dollar, or digitized store value, I think it starts to get really interesting.
Nolan Bauerle: (25:12)
Meltem, youâve always enjoyed a real tremendous birdâs eye view of the industry in your time with DCG and now with CoinShares. Youâre really someone whoâs able to not just be in touch with the sort of grassroots of the industry but also the more sophisticated investors, buyers, all of those folks. Have you seen a change from their perspective in the last six months around bitcoin in what theyâre looking for, the questions theyâre asking, and what theyâre interested in?
Meltem Demirors: (25:43)
Yeah. Absolutely. I think people are certainly getting smarter faster. I think a part of whatâs so amazing about the bitcoin community is just the extremely high level of quality content thatâs out there, thatâs produced by members of the community, for free, is easily available online, on Twitter, on peopleâs websites, on blogs, and podcasts. Thereâs just a real wealth of content information, knowledge being created to share, disseminated, expanded on, which I think is really exciting, and people are responding to that, and people are certainly reading that, and reacting to it.
Meltem Demirors: (26:23)
And so, I think people are starting to gain more of an appreciation for, an understanding, of bitcoin and cryptocurrencies, but at the same time I think thereâs also more confusion than ever, and unfortunately thereâre a lot of people who look to bitcoinâs success and attempt to use it as a way to substantiate whatever their project is, and we saw a lot of this with the ICOs of 2017 and 2018. Everyone wanted to build a better, greener, faster, more scalable bitcoin, name your favorite feature here. I like to call this the era of future fetish in blockchains.
Meltem Demirors: (27:01)
But I think there are so many things about bitcoin that canât be replicated, but what you get is you get a bunch of people in the market who are spreading their own narratives around what bitcoin is and why their asset or their project is different, or better, and I think that market confusion is now being reflected at the government level where we see a lot of conversation around central bank-issued digital currency, a lot of fundamental misunderstandings about how bitcoin works, even in US Congress. I think there was this perception from some of our congressman and congresswoman that bitcoin was unregulated, and I think again the confusion there is yes as a protocol there is no regulation around bitcoin, but if you operate a bitcoin company, and youâre domiciled in the US, or you touch a US customers your subject to the rules and regulations of this nation, and there are a lot of rules and regulations from every agency out there going from the CFTC, to the IRS, to FinCEN.
Meltem Demirors: (27:59)
So this sort of notion that bitcoinâs unregulated I think is just a misunderstanding, and I think the mediaâs also played a big part in that, in perpetuating some of the sensationalism of whatâs happening here, and so, unfortunately, there are these series of narratives that have defined bitcoin for the last 10 years of its existence. I think theyâre starting to die down and fade a bit, but I think thatâs just a really strong inertia that we as the bitcoin community need to overcome.
Meltem Demirors: (28:32)
And unfortunately, we have not done a very good job with storytelling, and with grasping the why. It still feels like itâs stuck in a bit of an echo chamber, and so Iâm really hopeful that as more, and more people start to understand bitcoin, start to get interested in bitcoin, and in digital currencies, and they go out there, and they educate themselves whether itâs going through events, like Consensus: Invest, or whether itâs listening to podcasts, or reading blogs that theyâll start to piece together their own view of the world, but I guess thatâs one of the challenges of having no leader, and essential coordinator, and no marketing body for bitcoin.
Nolan Bauerle: (29:12)
I like the comment you made about that future fetish, because some of it comes up. People will say well what if thereâs a better bitcoin? Well, this isnât Nintendo. Itâs not consumer electronics. This is something different. This is cryptography and it develops at a different pace than Nintendo or video games. Just because something is newer doesnât mean itâs more useful, and will sell at a fixed sum feature.
Meltem Demirors: (29:34)
Right.
Nolan Bauerle: (29:34)
The very idea that people have accepted demand for this secure network that in many ways is already the most secure network in the world, depending on your basis, or your metrics, you know, here it is. Itâs about the buy-in, you know? Not the same as consumer technology.
Meltem Demirors: (29:54)
Yeah, and I think when people talk about features a lot of the common complaints you hear about bitcoin are either around technical features, or certain aspects of bitcoin, and I think it sort of misses the point. Yes, bitcoin is technology. Yes, bitcoin is infrastructure, itâs communication infrastructure, but we communicate about value, and we can also communicate other types of information. And yes, bitcoin is about money. But at the end of the day I think bitcoin more than anything else represents a social movement and a set of ideas, and I know that sounds very esoteric, and a bit philosophical, but I think what a lot of people are starting to grasp as they go down the proverbial bitcoin rabbit hole, and I love that we call it a rabbit hole, because itâs such a strong reference to the movie The Matrix.
Meltem Demirors: (30:47)
I think as people start to learn more and more about bitcoin they understand that itâs less and less about technical features, but itâs more about some of the unique aspects of bitcoinâs design that are impossible to replicate. And at the end of the day, weâve seen this time and time again if you have a company that has paid employees, you have a known founder, you have entities that are set up that hold funds that were raised, that creates points of failure that governments can go after.
Meltem Demirors: (31:17)
And bitcoinâs sort of birth and creation, and the myth of Satoshi Nakamoto, and how bitcoin was launched and released into the world I think has some of those characteristics of other social movements that sort of emerged that are leaderless that become really powerful. And by the way throughout history, a lot of revolutions have been started by pseudonymous or anonymous creators, writers who have hidden or obfuscated their names. And so, I think thereâs this interesting sort of tension there where a lot of people try to reduce or simplify bitcoin to just technology, or to just money, or to just one thing.
Meltem Demirors: (31:57)
And it is complex and multidisciplinary and multifaceted, so in order to have that conversation, I think it just takes time for people to understand these multiple components that are working together to imbue bitcoin with some of the really unique characteristics that it has.
Nolan Bauerle: (32:12)
And I did notice your reference to The Matrix on Twitter recently where you did that great Twitter thread sort of linking what it really meant for the pills, and I think that speaks to what youâre mentioning right now, this sort of a choice of the foundation that youâre going to create some of these super and national institutions out of, or even just ideas that link us together. Maybe theyâre not institutions at all, or maybe theyâre just the type of tissue that goes between us all, so that we can transact, and have these types of relationships without the sort of pieces in the wall that were necessary to make it happen before.
Nolan Bauerle: (32:50)
So once again mentioning the reference to your Twitter thread and graph, or chart, or particular visual insight you have to offer the audience that can really sort of capture what youâre thinking right now with bitcoin in the world?
Meltem Demirors: (33:07)
Yeah, absolutely. I think just going back to that thread one of the points I was trying to make was the point around systemic risk, and SIFIs, or systemically important financial institutions, and what that means for systems. So I think one chart thatâs really important, one graph thatâs really important, I thought to keep in mind is the percent of the total bitcoin supply thatâs held in third-party custody, and there is this ongoing sort of meme in the bitcoin community around not your keys, not your coin.
Meltem Demirors: (33:40)
But there is a fundamental question I have that if we institutionalize and financialize bitcoin, and we take 50% of the worldâs bitcoin supply, lock it up somewhere with the GTCC, and we start trading paper certificates that represent an underlying bitcoin, and sort of dematerialize bitcoin markets, and detach them from the underlying, what does that really do for us other than to create a new tool for speculation? Iâm not really sure.
Meltem Demirors: (34:06)
And so, one metric Iâm tracking closely is the number of bitcoin in third-party custody according to our latest research, which is linked in the thread, and also on our CoinShares website. Itâs close to 20%, and so thatâs just an interesting thing to keep in mind. And then, the next thing Iâm looking at ⦠So thatâs sort of relates to systemic risk weâre creating, and in my view if weâre just recreating the same financial system, if weâre recreating banks, and institutions, and governments because theyâre the people who hold the coins ultimately, and control who can access them then that doesnât really accomplish much of the end state of bitcoin, which I think is interesting, and sort of intellectually challenging to think about. Itâs important to stay intellectually honest as we look at these things.
Meltem Demirors: (34:55)
And then, the second thing I think about thatâs really more relevant on the macro scale is the balance of accounts and trade flows between countries. I think one of the big questions thatâs emerging now US economic, political, military hegemony has been a reality for the last 100 years almost, and as we start to see geopolitics shift and get reshaped, and as we start seeing increasing anger, and social frustration in the world about wealth inequality, and income inequality, and the unequal consumption of our planetâs resources, and what the implications are I do think we are starting to see nation-states, and people kind of waking up, and saying, well, wait a minute. Why are we living in a dollar-defined world?
Meltem Demirors: (35:49)
And itâs interesting to see just over the weekend Rosneft, which is Russiaâs largest energy exporter, said that they were going to start taking steps to minimize their use of the US dollar with the plan to eliminate it completely. And so, they could use euros, maybe they use digital renminbi, maybe they create their own digital currencies as means for payment and settlement, but that I think is really material because the petro dollar, the dollar defines 90% of the trade flows in the energy industry, and the energy industryâs a huge part of the global economy.
Meltem Demirors: (36:24)
And I think the other thing thatâs really interesting here is the narrative around Chinaâs adoption of blockchain technology, and the recent statements made by the government there that they fully intend to create a digitized currency that is going to be used by commercial banks to start, and what do commercial banks do? They finance trade flows.
Meltem Demirors: (36:44)
And so, I do think thereâs an increasing awareness on the importance of the base currency thatâs used to sort of shape economic activity around the world, and thatâs an area I think is really fascinating, because again some of the aspects of bitcoin that make it unique, the fact that itâs leaderless, and not controlled by any one entity, and some of these things could potentially also position bitcoin well to be a neutral sort of means of a value transfer.
Meltem Demirors: (37:14)
And so, I think itâll just be very interesting to see how different nation-states attempt to capture that narrative, an attempt to use certain aspects of what weâve learned from the growth and rise of bitcoin, and other digital currencies to shape their own place in the worldâs financial system.
Nolan Bauerle: (37:32)
Fascinating stuff, Meltem. Weâre coming up at the end of our time here. So youâre going to be leading off Consensus: Invest. Youâre our first keynote speaker out of the blockâs that morning.
Meltem Demirors: (37:44)
Right.
Nolan Bauerle: (37:44)
So excited to have you there, excited to hear what you have in store, the research that you guys have been working on at CoinShares. I still use your Mining Profitability document that you guys created a year ago to really test, or to quantify mining profitability, through that whole big one, so keep up the good work. CoinSharesâ research continues to be a reliable resource for myself. Thank you a ton for your time.
Meltem Demirors: (38:08)
Thank you. Iâll see you soon, Nolan.
Nolan Bauerle: (38:16)
Enjoyed this episode? Iâd 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.
Meltem Demirors image via CoinDesk archives
