Risky Business
Michael Green joins the podcast with some clear warnings about what cryptocurrency is and what it isn’t — and how that ought to guide users, investors, and regulators.
The following is a transcript of Cryptonite’s second episode, which aired on February 14, 2022. Subscribe to the podcast to listen to future episodes in real-time.
0:00:11.1 Richard Goldberg: And welcome back to another episode of Cryptonite. In our last episode, we spoke to Eric Budish from the Booth School of Business at the University of Chicago. We covered a lot of crypto basics and some high-level topics, 30,000-foot topics, if you will. If you didn't listen or you need a quick recap as we move forward, here were some main takeaways, at least my main takeaways from talking to Eric, which was a great conversation, make sure you check out episode one if you haven't already. Number one, crypto is supposed to be a more secure way to send money around, cutting out the middleman, so it's just you and me on the transaction. No Bank of America, no Venmo, no Zelle, just us. Pretty cool idea. The technology is super cool the way it's mined, but the idea of crypto as a replacement for dollars seems super iffy. Crypto transfers are supposed to be anonymous, but it sounds like maybe they're not exactly anonymous. The whole algorithm holding up crypto might collapse around the year 2140, yikes, but then again, maybe not so scary for people holding it in this lifetime. It takes a ton of computing power to mine crypto, but with the rise of supercomputers and quantum computing or with an existing state actor with dedicated computing power, they could launch an attack on crypto holdings and completely upend the system.
0:01:27.5 Richard Goldberg: The so-called 51% attack, I think we're gonna hear a lot more about it as we keep discussing crypto. Moving off the dollar to crypto could erode US power and influence, if the Fed rolls out a central bank digital currency, it might render other cryptos irrelevant. Okay, well, sounds gloomy, and yet people are still very excited about it all, and I think we're gonna talk to them in future episodes. There's gotta be more for us to uncover here in this debate, we're just scratching the surface, but before we talk to our next guest, let's do a quick scan of the headlines to give you a flavor of what else is going on in the wonderful wild west world of crypto currency. First up, the Justice Department announced it seized $3.6 billion worth of Bitcoin last week recovering about 94,000 of roughly 120,000 Bitcoins that were stolen in a 2016 hack of cryptocurrency exchange Bitfinex. The Feds also arrested a couple, they say tried to launder the pilfered Bitcoin worth about $70 billion when it was stolen, but only $4.5 billion now. The married couple was arrested in Manhattan, the couple combined "old-fashioned methods and very complex transactions" according to a prosecutor at a briefing.
0:02:42.2 Richard Goldberg: The funds were used to buy items such as gold or digital non-fungible tokens, NFTs, we're gonna talk about them in a future episode, according to US officials. From Reuters, North Korea continued to develop its nuclear and ballistic missile programs during the past year and cyber attacks on cryptocurrency exchanges were an important revenue source for Pyongyang, according to an excerpt of a confidential UN report seen on Saturday by Reuters.
0:03:09.3 Richard Goldberg: In the state of Florida, the State Senate Appropriation committee gave approval to a bill that defines how Bitcoin and other cryptocurrencies could be sold or traded by money services companies in Florida. This news article goes on, this will be an interesting take, we should look at in future episodes, we've talked a lot about the federal government right now, but states and local governments are looking at Bitcoin cryptocurrencies and how to regulate them as well, something to keep your eye on. El Salvador's initial $1 billion Bitcoin bond issue will take place between March 15th and March 20th. The bond will be launched on Liquid, a Bitcoin-based service created by Blockstream and come with a 6.5% coupon. I actually wanna ask our upcoming guest about this topic, this is quite an interesting thing to start having Bitcoin bonds sold by governments. Here's a headline in Barron's, Bitcoin isn't done falling, how it could drop to $10,000, and that's an encouraging headline. Over in The Guardian, quote with endorsements from celebrities and ads on TikTok, cryptocurrency has gone mainstream, but not everyone gets rich, Rob Davies reports on how crypto apps encourage addictive high-risk trading habits.
0:04:11.8 Richard Goldberg: Well, that sounds like an episode we'll have to look at. CNBC with a poll from Morning Consult reveals 24% of crypto owners are Hispanic versus 16% of all US adults, interesting step. The Washington National say they're going to allow crypto payments at the ballpark as early as the 2023 season, for you Nets fans out there with your cryptos. And New York City's pro-crypto Mayor Eric Adams comes out swinging against crypto mining, so he's for trading it, just not for mining it. And we will get into those reasons as well in future episodes. Every day, another headline screaming for another episode of Cryptonite, so we will continue to dive deeper, which is why we're very pleased to have our next guest with us to help grapple with some of the core issues involved in the crypto debate, building on our conversation last time with Eric Budish. Michael Green has been a student of markets for nearly 30 years with a particular focus on market structure, most recently he was a discretionary portfolio manager for Thiel Macro, the private office of Peter Thiel. Prior to joining Thiel, he was founder in Chief Investment Officer at ICE Farm Advisors, a discretionary macro fund seeded by Soros Fund Management.
0:05:19.0 Richard Goldberg: Prior to that, he was a managing director and portfolio manager at Canyon Capital Advisors, where he founded the New York office, growing it to over $2 billion in assets under management. Mr. Green holds a Chartered Financial Analyst designation and received a Bachelor of Science from The Wharton School, University of Pennsylvania. Michael, thanks for joining Cryptonite.
0:05:39.0 Michael Green: Thank you for having me.
0:05:39.7 Richard Goldberg: So you had a rather seminal piece, at least to me, as we started this journey into crypto-currency here on the podcast on Barry Weiss's sub-stack last year, Common Sense, the headline, The Case Against Bitcoin definitely going against the grain, certainly at the time. Give our listeners your opening statement, if you will, in your case against Bitcoin.
0:06:00.9 Michael Green: The critical point that I would make around Bitcoin is that it is a speculative asset, it is not a currency. It is being promoted as an alternate to having governments in charge of monetary policy, it was created as a "peer-to-peer", trust less peer-to-peer payment system, but that's just not what it's being used for. It's being used as a speculative asset, it's being treated as if it is a mechanism for controlling and forcing governments to respond, and it's just not that. It is no more so than a share of Apple stock or any other speculative asset. The key difference for Bitcoin is that its use case so far is largely around criminality, and I wanna emphasize that within criminality, that means actions against the interests of the state in which you reside. That can include "illegal money transfers for somebody in Lebanon who's trying to escape an abusive government or Syria or Turkey or anything else", and those are unquestionably positives, but those are tiny, tiny use cases in a much broader story that has buy and large captured the imagination and attention of a younger generation of Americans who are the primary target for the marketing, etcetera, and the story they're being sold is simply a bill of goods.
0:07:26.0 Richard Goldberg: So I wanna get to the criminality aspect, but just to start, you've been a very successful portfolio manager for many years, you've studied markets, and yet you see lots of funds announcing they're investing, you see big investors announcing major stakes in crypto, why are they doing that? And would you advise against a fund getting into crypto?
0:07:47.5 Michael Green: To be clear, I don't have an issue with crypto as a technology. I have a very particular issue with the narrative that we are being sold on Bitcoin, that it is money, that it is currency, that it is a superior monetary system, etcetera. It's just not that it's a speculative asset. From that standpoint, other people can come to different conclusions. I understand the mechanisms that people are highlighting for the appreciation of Bitcoin and other people can make a moral judgment that they want to participate in that. I personally think that it is a mistake for us as a society to celebrate this, and that's the point that I'm raising. I certainly don't think that it is against your right to invest in a speculative asset, I do think that it is actually illegal to market Bitcoin in the way that it has been marketed, and [chuckle] I think that's an entirely different discussion.
0:08:40.0 Michael Green: But my point is not that I think that individual fund managers necessarily are dumb or that they're making a terrible mistake, etcetera, I understand the rationale that people are making for the appreciation of Bitcoin, it is functionally a Ponzi-like dynamic where there is a finite quantity of Bitcoin as more people come in to buy Bitcoin, therefore the price of Bitcoin has to go higher, that's a very simple and straightforward story, and anyone who claims not to understand that is being willfully obtuse. My question continues to be one of why would anyone actually want to own this from a use case standpoint as a speculative asset as it's currently being presented and the stories that are being used to market it, in my opinion, they could become more popular. People could choose to adopt it and it could drive the price of Bitcoin higher, but I think that's a mistake from a societal standpoint.
0:09:32.6 Richard Goldberg: And you talk about this in your piece on the marketing of crypto, just to quote you a little bit, "The language of Bitcoin, not going to make it, or having funds staying poor, trying to intentionally design, to exploit this response, drive participation in a scheme that relies entirely on driving additional participation to generate gains for current participants", sounds like a Ponzi came to me the way you described it. If the government was going to put a warning sign on crypto, what should it read?
0:10:00.5 Michael Green: I think the easiest answer to it should be, this is not a registered and regulated security, that it contains significant risk of not only loss, but also evidence of significant quantities of fraud. It is different from a share of Apple stock in that I can choose to buy an Apple phone and I can choose to give my money, my hard-earned money over to Apple, which Apple can then return to shareholders, it can re-invest in its business, it can do anything else, right? But as an Apple shareholder, I'm participating in the growth of that underlying business venture. There is no mechanism for that with Bitcoin, it's purely a speculative token that potentially could be used for staking, although staking, meaning putting it at risk so that other people can borrow it and earn a return associated with lending it out, but that's a very different aspect than buying a share of TCP/IP, for example, the analogy that's used often times for the internet, etcetera. It's not the same thing at all. There is no mechanism for toll collection, effectively for-profit accumulation within the Bitcoin network.
0:11:13.7 Richard Goldberg: What you hear from the industry over the last several months as they've started to see this criticism is, "Please regulate us, regulate us, make us legit." We welcome something from the SEC from Chairman Gensler. We welcome potentially something from CFTC, which apparently is eyeing it's own oversight as well, the White House is thinking about an executive order. What would regulation need to look like in your mind to make this something that you're more comfortable with, or is there no amount of regulation that would really matter?
0:11:45.6 Michael Green: Again, my complaining as Bitcoin itself is just that I've evaluated it from a security perspective, and I don't see the investment case on a long-term basis. On a short-term speculative dynamic, it very clearly, as it attracts additional investors, the price can be forced higher if that demand is in excess of the supply like any other commodity that's out there. If it is going to become regulated, and the refrains are very high for this, everyone says, "Please regulate us." And yet, the largest transaction vehicles, things like Circle, the stablecoins, etcetera, are unable to produce a very simple audit. How is that possible? This is supposed to be the most transparent network, this is supposed to be completely rules-based, we should all be able to understand everything that happens on chain, etcetera, and we can't get an audit. We have companies like PayPal that engage in a very simple and understandable business, they are functionally like a credit card company in that they will extend payment services and credit and deposit taking services, etcetera, under a regulated framework, we know exactly how much money they make, etcetera, we know exactly where they're placing their investments. Money market funds do this on a daily basis, why are we unable to get that information from the next generation of technologies in a simple, transparent manner, if there's no excuse for it?
0:13:17.1 Richard Goldberg: What's the answer?
0:13:18.9 Michael Green: In my opinion, the answer is fraud.
0:13:22.4 Richard Goldberg: What would they say the answer is? They're just, they're working on it?
0:13:25.4 Michael Green: They'd say the difficulty in obtaining access to the banking system makes it very difficult for us to do these things, and we don't want to create the risk of our investments being front-run, and in the case of Tether has made claims like this. Right now, this is the simplest form they're supposed to be buying highly rated commercial paper and nobody has seen them transact, so what are they buying? What are they actually engaged in? If you're marketing it as it's backed one for one, then show us that it's backed one for one. In the case of Circle, how can you possibly be losing this much money when your core business is simply accumulating cash, and how is that a sustainable business, if that's 60 billion or whatever their current AUM is, they're not profitable. How are these good sustainable business models, they're just not. And again, the unique feature is that we keep talking about Bitcoin as if it is some form of a currency network, it's not. It's a speculative asset where the primary mechanism for exchange is against stablecoins like Circle and Tether, and we have no transparency in terms of where the actual liquidity to the system is coming from. The printing in terms of growth for Tether and USDC, dwarfs anything we've seen from the central banks. I think this is crazy.
0:14:50.0 Richard Goldberg: I want to come back to your earlier comment on the criminal use of cryptocurrency. Honestly, for years, obviously, I think for regular folks that heard about it, that's really all we associated it with, and it was back in the days of Second Life and weird people using crypto for mysterious illegal things. Advocates now will say, "Why are you worried? The blockchain gives us more tools than we've ever had to track down money launderers on the chain, and it's actually better than straight dollar transactions to be able to go after a criminal use of cryptocurrency." How do you respond to that industry argument that you often hear.
0:15:29.4 Michael Green: By and large, I actually agree with that, but the question is, who are they going after and where are they going after it? The primary use case is if you want to launder money from China or from Russia, you want to get money out by effectively taking advantage of state subsidized or bribed access to the power network in China or Russia, and you want to get that money out, Bitcoin is a fantastic tool. Great. Can the US authorities use blockchain to track down the criminals who have stolen money in a colonial pipeline dynamic or in a Bitfinex hack as we just saw with the $3.6 billion that was recovered. Absolutely, that's fantastic. Who cares, right? It's $3.6 billion and it took five, six, seven years to recover it. That's not really progress.
0:16:22.4 Richard Goldberg: Right, if a state actor wants to be using it for nefarious purposes against United States today, that's real-time, what are you going to do in five years from now after they've done something nefarious?
0:16:31.6 Michael Green: Correct.
0:16:33.1 Richard Goldberg: I'll actually want to pick up on that, we talked to Eric Budish in our first episode, he explained to our listeners about this concept of the 51% attack, you pick up on this as well in your piece. When you first start hearing about it, it sounds very abstract, mythical, something that could happen that's out there, but unlikely to happen, but you've written that the concern isn't so futuristic that China, as a great example, could weaponize against our cryptocurrency holdings. Tell us more about that.
0:17:00.0 Michael Green: Well, it's not just China, right? So I just want to emphasize, when I initially raised the issue around China, it was very clear that China dominated the mining. We've now seen regulations in place, again, very frustrating to the Bitcoin proponents who argued that all of China's electricity usage for Bitcoin was coming from excess renewable energy. Well, of course, that turned out not to be true and China has now banned cryptocurrency mining because of power shortages. We're seeing power shortages across many areas of the emerging markets, and of course the argument is now, "Oh, well, it's moving to the United States where it's going to contribute to the robustness of the power network", etcetera. One, the evidence for that is largely unclear whether it's true or not, should be very straightforward and clear, but because of the use of things like IP address concealment through VPN networks, we don't actually know where a lot of this stuff is occurring.
0:17:54.6 Michael Green: The Cambridge Center for Bitcoin Institute, I forget, CBCI, whatever the symbol stands for, they've come out with their latest report that says that there's zero mining in China. Well, we know that's not true. We know that a significant fraction of it continues to grow there, so again, the data is completely suspect, we have no underlying knowledge of it. Now, a 51% attack is designed to do something very specific. The way Bitcoin works is through a consensus around solution of what's referred to as elliptical math, it's effectively a curvature solving problem that is very hard to do it, similar to the processing that has to happen in a much more complicated way when any time you play a video game and they're solving for a number of pixels or a curve to get something looks like a smooth curve or a particular shape.
0:18:47.8 Michael Green: That was the original dynamic in terms of that elliptical math as a solution to those problems. Reaching consensus around was that problem solved correctly, is what needs to happen to create the next node in the block. So the transition... The transactions are contingent upon this idea of continuous mining with move towards a consensus solution being approved. A 51% attack is where a single entity or a group of entities operating in concert are able to effectively discard the voting dynamic and say, "Well, we control 51% of the votes, so the sky is... The color of the sky is now green, not blue." And you really don't have a mechanism for that. Now, many others, like Lemon Barrett have pointed out that you actually don't even need that, you just need a system that has firewalls in it. So to shut off China from the rest of the world, you can create an alternate fork and chain that creates confusion as to whether something actually happened or not, and it can be done at far less than 51%.
0:19:47.9 Michael Green: However many firewalls you have set up, you need 51% within a particular region, and then you need to figure out, how do you reconcile it. So the breaking of those systems, the rationale behind Bitcoin for why this would not happen is because it is against the economic interests of the participants. So if I am a miner, which is effectively the accounting system that is designed to go through and solve this math, it is in my economic interest to behave as a good actor. I can only earn rewards if I participate in the system and I solve the math problem fastest. The issue is, is that there are non-economic actors, and this is the point that I keep raising. Which is when you have non-economic actors, people who want to harm the system, the numbers that we're talking about, the security budget of Bitcoin, how much money is paid to the miners, to keep the system secure is actually remarkably low in the scale of geopolitical numbers. So the total quantity of Bitcoin being mined times... On a daily basis, etcetera, times the number of days in a year, times the dollar value the Bitcoin ultimately determines that security budget.
0:21:04.8 Michael Green: It's just not that much money. We're talking low, double digit billions in terms of the total security budget of Bitcoin, and you only need to exceed that by about 51... By that 51% willingness to engage a cost to attack a hostile system to a state costing 10 billion dollars a year is eminently feasible for the United States, China, etcetera. And that's the point that I'm raising. It sounds really impressive, "Oh my gosh, this system is really secure, everybody has an incentive to participate." To steal a line from Batman, "Some people just want to watch the world burn." Occasionally, a state actor will say, "You know what, we're going to blow this thing up."
0:21:44.6 Richard Goldberg: And you've talked about the context of other uses by state actors of cryptocurrency for nefarious purposes. Russia, Iran, taking steps potentially to get access to currency they can't otherwise get under sanctions. Some of the advocates of cryptocurrency response... Okay, authoritarian regimes like China, increasingly Russia, Iran, Venezuela, elsewhere, crypto could be a tool for good. Could we use it to get the freedom fighters and activists and small D democrats to actually organize and take down authoritarian regimes? Could it actually unlock this democratization of the world, as they say?
0:22:26.4 Michael Green: If you want to transfer funds to your cousin in Lebanon, or you want to transfer funds to somebody in Venezuela, or somebody in Venezuela is running a Raspberry Pi node and a processing unit for mining using ASICs tied to subsidize electricity costs in Venezuela because they're trying to keep costs low to mollify the public. Or you've bribed the government official, so that you can access a local power plant and steal power from the system, absolutely. We can also ship them M16s to help fight things. Do we celebrate the shipping of M16s? Well, some segments of our society do, and another segment of our society looks at it and says this is a terrible idea. Why would we become involved in that? And I would just say that this is very similar. Yes, there are absolutely use cases for solving the individual problems of a Venezuelan or somebody who's in Lebanon and doesn't have access to a banking system. But in the greater scheme of things, those are very, very minor and for greater utility is generated by Kim Jong-un-who is using his own population's resources to mine Bitcoin and effectively hacking operations to steal Bitcoin around the world so that he can fund his nuclear development regime.
0:23:44.0 Michael Green: Give me a trade-off between two, and I'm going to have to say I would prefer to send money through the Blue Cross or the United Nations, than I would through a Bitcoin network. I understand the utility of it. It is not the only, or necessarily the correct solution.
0:24:00.5 Richard Goldberg: US leadership in the world, you talk about this in your piece, and it's funny because the proponents of Bitcoin, of cryptocurrency, especially in congress. They say this is our opportunity to lead, this is our leadership opportunity that if we get cryptocurrency, if we embrace cryptocurrency. You hear state governors and big mayors saying, "We need to lead. This is about leadership." But obviously, as we talk to Eric last time, moving to cryptocurrency, off the dollar means diminishing US leadership and influence. So how do we square that? Why do we see people who are normally so vary into US leadership and dominance embracing cryptocurrency and under the banner of US leadership and dominance?
0:24:43.5 Michael Green: Again, this goes back to the way that it is being presented. So we are told that crypto is a technological innovation, and anyone who opposes it is a luddite who is against innovation. What Mayor of any American city wants to stand up and say, "I am against innovation." We take for granted the Pax Americana. We take for granted the dynamics of a reserve currency for the world, that by and large has been a force for good around the world versus alternatives. Certainly versus a Soviet empire. Certainly versus a Nazi empire. The impact of the United States on net has been positive. Has it been perfect? Absolutely not, and we live in an age of distinct cynicism where we can all point to claims that were made of, "We're doing this in your interest. We're doing this for the best possible reason. We're going into Iraq to deal with weapons of mass destruction." We're at a point where there's an incredible lack of faith in the institution of government, and by the way, I want to be very clear, I am not a proponent for big government with more involvement, and more intervention in our society. But what I am is for us not checking out and saying the solution is, get rid of government.
0:26:02.3 Michael Green: What we saw with the coronavirus pandemic was not the response of functional governments, what we say was the response of dysfunctional governments. And I don't think that we should have expected anything different, having spent basically the last 40 years telling anyone in government, "You can't actually do anything effective."
0:26:20.9 Richard Goldberg: I wanted to get to a couple of headlines that we saw over the past couple of weeks. We started the show, just reading some of the headlines off and a couple more, that I'd I love your take on. Because we talked about crypto in other countries. Some of the news talking about El Salvador going to issue crypto bonds potentially as soon as next month. I don't know if you're tracking that issue, but what's your take on it? Obviously just, there's an El Salvador-specific context, but the larger context as well, of issuing crypto bonds.
0:26:44.5 Michael Green: The market has clearly voted on Nayib Bukele and said, "Your bonds that have been issued by El Salvador are functionally, increasingly distressed and worthless." El Salvador has made a play to attract external capital, both in the form of Bitcoin mining with its volcano-powered Bitcoin mining activities and its attempt to attract external capital. But El Salvador is also a World center of money laundering activity and Nayib Bukele is effectively a puppet in the narco system, as far as we can tell. I don't see any difference between what he's doing and the celebration of Chavez in Venezuela that we saw throughout the early part of the 2000s where he was featured on 60 Minutes for having children learning how to play the violin and being in orchestras, and this was evidence of the success of Venezuela. It's just terrible policy. His bonds are collapsing, the idea that he's going to introduce it in crypto terms is simply a way of tapping into the crypto need to promote itself and effectively saying, "Will you lend us money because no one else will anymore."
0:27:56.4 Richard Goldberg: A piece out of Bloomberg, I just saw as we've talked about the energy drain, that the... The toll it takes on the energy grid, when you're mining crypto. Texas, obviously becoming this hub for crypto of late is grappling with its own grid issues right now. And crypto advocates down in Austin are trying to say that crypto is the solution. It sounds counter-intuitive and may in fact be counter-intuitive because it is. Are you tracking that issue at all? And how is a state like Texas or other states that are going to be increasingly under pressure for mining, going to handle their grid issues?
0:28:36.9 Michael Green: Well, so the core issue that you're facing in places like Texas just that there is excess capacity in the Texas power network, ERCOT has created a condition where Texas is isolated, and there's significant sources of stranded power in Texas from oil wells, etcetera, that is not being properly used. The advantage Bitcoin has is just that it has very limited transmission requirements. So I can put a Bitcoin mining facility in the middle of nowhere and effectively send a very small signal, it allows me to figure out what is the current state of the blockchain. It's a very low demand dynamic. Converting that flared power into electricity to mine Bitcoin is absolutely dealing with a stranded power issue, but that, that somehow is creating a solution to the grid is absurd, because once that Bitcoin mining has used that power, it's not being returned to the grid, you're not creating a transmission mechanism that says, "I can use either flared power or power from the grid, and if I don't happen to be a mining, I'm going to take the power that I'm generating from the flared power and turn it on to the grid." That's just not happening.
0:29:53.5 Michael Green: It's being used for a particular purpose. The second component is we could do the exact same thing for things like data centers, we can run them in those locations, the issue is that we don't have the communication lines, we don't own the fiber optic to that location, that allows the high bandwidth communication capacity that would actually allow that to turn into a productive use. So there's this claim that it feels this need, that it's creating demand for alternative energy solutions, etcetera. But it's very one-off and it's not actually creating a meaningful solution. And the last part that you're hearing is, by increasing the underlying demand and having the ability to turn it off basically within seconds, it's contributing to increase base load capacity with the ability to cut it when power prices rise. The problem with that is that it relies, again, on people behaving in a uneconomic fashion, so unless the price of electricity rises enough to make that Bitcoin mining uneconomic, when the prices began to increase or when the demand for that baseline power is there, and that requires literally the equivalent of Ford Motor Company shutting down its factory when prices go up. Yes, there's a lower start-up costs, yes, it's significantly more fluid from that standpoint. But it's relying on a self-policing aspect that I'd suggest that we've seen no evidence of from the crypto mining community.
0:31:18.9 Richard Goldberg: I'm going to turn to our listener mailbox for this episode. Is crypto a hedge against inflation, and similarly is crypto a hedge against energy crisis?
0:31:29.9 Michael Green: Okay. So to be very clear, when we talk about crypto as a hedge against inflation, I just want to be clear that we're actually talking about Bitcoin, so we're not talking about all the alternative forms of crypto, things like Solana or Ethereum, etcetera, that represent different protocols that can be used or tokens that can be speculated with. Some of those have really interesting use cases, many of them have not yet been fully developed, but it's fun to watch this development occur. Any asset that you pay dollars for, can be thought of as a hedge against inflation, because I'm paying current dollars with the expectation that future dollars are going to be worth less and therefore that asset will appreciate. Is crypto unique or is Bitcoin unique in that perspective, not meaningfully. What you're ultimately saying, "Is it a hedge against inflation?" Is as people go to buy it, does it exhibit a dramatic or a much more dramatic price increase relative to other assets? And that's absolutely true. That same mechanism can work in reverse as you try to take money out, so we've seen crypto prices collapse just as rapidly or fall from the 60,000 dollar plus level that Bitcoin hit, they've fallen just as quickly as people tried to take money back out.
0:32:48.6 Michael Green: So is it a hedge against inflation? I don't think the evidence is really strong, that it's anything other than a speculative asset that's gone up in price at this point. And sure, that protect your purchasing power, but there's also tons of coins that went up in price and then had rug pulls against them because their fraud was revealed, that functioned as a hedge for inflation until they didn't. I also want to emphasize, I'm not a gold bug, I'm not suggesting that everybody should keep all their money in US dollars or anything else. There is a role for speculation in these assets, I just want people to actually go in with their eyes open in terms of what's actually being told to them. And the lack of regulation within crypto creates conditions under which people assume broadly that they're being told the truth on stuff with no mechanism to challenge it critically.
0:33:39.1 Richard Goldberg: The Federal Reserve has put out a presentation in recent weeks about their thoughts generally on a Central Bank digital currency. This has been something that's been talked about a lot. What is your read on the Fed based on what they've laid out so far? And if that actually became reality, what would that mean for these other cryptocurrencies, including Bitcoin?
0:34:01.2 Michael Green: The developments with the Fed in terms of promoting a Fed sponsored Central Bank digital currency are very much in line with my expectations of what would happen in order to drive adoption of that. My guess is that they would make other forms of speculation far more difficult, so that the existing stable coins would be far more difficult. Again, I think that's part of the reason you see this rush to embrace regulation and it's effectively, "Please lock us into place. We want to preserve our status and we want to make sure that we remain legal." I don't know what is going to happen. I know that there is going to be outcry regardless. The Fed is universally reviled, the US government as an exceptionally low trust rating. I would argue governments around the world have exceptionally low trust ratings. We're even seeing this in places like New Zealand, where Jacinda Ardern was celebrated for his zero COVID policy and is now being viewed as a dictatorial nut case. So we... Around the world, we have low trust in institutions, and so regardless of what happens from here, my guess is there will be out cries. Whether it's people who are supportive of CBDCs, or upset because the government steps in and says, "Okay, we're going to treat this as a Mulligan and we'll buy out people's Bitcoin, or we'll do whatever."
0:35:17.3 Michael Green: Or whether it's because the government turns around and says, "No, Bitcoin has no role." And it slowly fades into oblivion, or whether they outright ban in favor of a CBDC. All of these will be viewed as attacks in one form or another. Long story short on what the Fed is proposing with CBDC is that this is inevitable. This is part of the reason why crypto is so compelling. The idea of digitally native securities, the idea of a system that is truly built with an electronic is overdue, I don't think there's any dispute around that. The question is, can you actually have private currencies without all of the attributes that historically are required for currencies, including the ability to levy taxation? The idea that I'm going to hand over taxation to effectively toll taking, to Facebook or Circle or to anybody else in this "private decentralized system", I just don't see it.
0:36:18.0 Richard Goldberg: That's it for the mailbox. I do want to ask about your mailbox before we get to the final lightning round. Especially after that Common Sense piece, some of your other writings from peers, from colleagues, from others around. Are you seeing fan mail or hate mail? [chuckle]
0:36:32.7 Michael Green: I'd say, I see both. There are a lot of people who are exceptionally angry about any form of criticism of Bitcoin. And again, that's embedded in that piece. I look at the narrative that exists around Bitcoin and the explicit statement of, "We must attack anyone who is against us, otherwise we allow seeds of doubt." That is cult-like behavior, there's no question I've seen components of that. At the same time, I would suggest that more broadly, people are happy to see a thoughtful criticism even if they don't agree with it. There is an awareness that the system has effectively jumped a shark in its narrative, and I find it very perverse that people are still paid attention to within the system after their calls for Bitcoin going to a million dollars or 300,000 by the end of 2021. When we're that far off, people should be dismissing them, but instead you have people showing up to participate in Bitcoin sermons on YouTube on Sunday mornings, replacing those institutions like religion that they've lost access to, and those people hate me. And candidly, it scares my wife in some ways, the vitriol that we occasionally receive, and I think it's really unfortunate. I think it's part of a society that is increasingly caustic in its interaction.
0:38:00.0 Richard Goldberg: I'll tell your wife, I'm very happy you came on the podcast so, no hate mail here. Alright, quick lightning round. And then I’m going to let you go. We're asking the same questions from every guest real fast, yes or nos, so to speak. Cryptocurrency future or future footnote?
0:38:17.9 Michael Green: Given in that form, I'm going to say future.
0:38:22.4 Richard Goldberg: Okay, wow. Opportunity or threat?
0:38:23.9 Michael Green: Both.
0:38:25.4 Richard Goldberg: Long, short or stay away?
0:38:27.9 Michael Green: For now, I would recommend stay away, but ultimately the technology is a long.
0:38:35.2 Richard Goldberg: More regulation or less? This one sounds obvious based on our conversation.
0:38:39.8 Michael Green: More regulation of crypto, less regulation overall.
0:38:45.9 Richard Goldberg: And of course, the easy one for you who is Satoshi?
0:38:48.9 Michael Green: My dog.
[laughter]
0:38:51.9 Michael Green: I would lean towards Hal Finney, although there are much more nefarious actors that have been declared as the likely Satoshi.
0:39:00.0 Richard Goldberg: There you have it. Michael Green. Thank you so much for joining us. This has been great, very helpful in our journey into crypto currency, and we appreciate your time.
0:39:07.7 Michael Green: Thank you very much.
0:39:09.1 Richard Goldberg: If Eric Budish blew you away, I'm sure you were blown away again by our great guest, Michael Green. A lot for us to think about a lot more questions raised, and we will continue to explore these issues with future guests. If you do want to make sure that your question is asked, either check us out on the Ricochet homepage or send me a tweet @Rich_Goldberg. And if you're excited about the podcast, want to help us get the word out, subscribe on your favorite podcast app, leave us a review on Apple podcast or Spotify. And most importantly, tell your friends, because that's the best recommendation we will ever get. Until next time, I'm Rich Goldberg. And this is Cryptonite.