$250,000 bitcoin

A remarkable interview here with venture capital investor Tim Draper who has always been a major bitcoin bull. Draper went on CNBC last night, reiterating his price prediction of $250,000 for 2022 or early 2023. He sees bitcoin to become the currency of choice. While not as easy to move around right now, people will be looking for a currency that’s frictionless, open, transparent, global and not tied to any political force. “At some point people will make that switch and bitcoin is gonna be the big winner.”

“I’m just a believer”

It seems obvious for the investor that longer term, we will move to things that are better. 

“What merchant is going to want to pay that 2.5 to 4 percent to the banks and the credit card companies? I mean they are not gonna want to do that forever and at some point they gonna say, hey, this bitcoin, why don’t we accept bitcoin because we can now use OpenNode and the transaction happens instantly and it’s faster than a Visa network and we don’t have to pay these guys 2.5 to 4 percent. So this is kind of an interesting time.”

Draper went on explaining that the world will be much better off because of this decentralised movement, which is not just bitcoin, the decentralised currency, but a 'decentralised everything'.

“Some of the politicians are clinging to the past and clinging to their tribalism, but most of the best politicians are moving toward this new world that is global and open and transparent. I think it's gonna be a more beautiful, more loving and peaceful world, but you're gonna see a lot of tension on the way to getting to that world.”

The billionaire investor was then also asked for his take on Warren Buffett’s recent comment that cryptocurrencies had “basically no value”. Draper laughed it off. Buffett would keep half of his holdings in banks and insurance. “They are not be doing well in this decentralised economy, so of course, he’s not gonna like it.” He would not own a bank or insurance company right now, even if they paid him for it. “They are not in good shape, for the next 10 years things are gonna change very big.”

Draper disclosed that most of his money is now in crypto and bitcoin. According to Draper Associates’ website he’s invested in over 600 companies in 40 countries, among them heavy-weights like Coinbase, Ledger and Tezos. In Singapore, he’s an early backer of the crypto exchange Coinhako. Most recently, he acquired here the entrepreneur-focused hostel chain Tribe Theory.

Crypto goes mainstream

Cryptocurrencies are back in a bull market and the community is yelling booyah! again. The general public is also taking note, for the first time since October, when Mark Zuckerberg testified to Congress on Libra. Bitcoin insiders are now expecting the price to rise further, before the miner reward gets slashed in half in May. Rallies typically drive adoption for crypto, the industry has matured and it’s getting easier for the general public to buy in.

A different party is dabbling in digital money too. Central banks around the world are now openly discussing it and some go even further. The FT reported this week that the People’s Bank of China filed more than 80 patents with the objective to digitise the renminbi. That includes the idea to “algorithmically adjust the supply of a central bank digital currency based on certain triggers, such as loan interest rates.” Interbank settlement and clearing would be sped up behind the scenes. Customers receive digital tokens, while the real assets remain in a safe deposit at the bank.

MAS Chief Fintech Officer
Sopnendu Mohanty speaking at
an industry conference

In Singapore, a new Payment Services Act came into force at the end of January, with an explicit focus on digital payment tokens. The regulator MAS aims to control any payment system that is “crucial to financial stability”. Payment providers will need to apply for a licence and must demonstrate that systems and technology protect their clients’ funds, that AML regulations are followed. Crypto exchanges, brokers and custodians will have 6 months to apply for a payment institution licence.

Hardcore bitcoiners might argue that this defeats the purpose of crypto, which was created as privacy-protecting peer-to-peer money. Those who buy at a licensed institution will have to pass KYC clearance and won’t be able to move funds undetected. Yet the initial success of the coin attracted also many criminals and scammers, who scared away potential investors. The licensing process might add the needed trust factor for them to finally adopt the technology.

And it will likely persuade institutions who are still mostly on the sidelines. A local crypto exchange told me that banks and hedge funds are already knocking at the door and enquire, while waiting for more clarity. Singapore saw many Chinese exchanges setting up shop after a crypto crackdown at home. The new regulatory framework should provide an additional boost to the industry here. I just spoke to Elliptic, a London-based blockchain analysis company providing AML services to banks, who chose Singapore as a base to further expand in the region. The new PS Act might just have kickstarted a fresh upswing.

The Bitcoin Standard

Well, here’s another Bitcoin book. It’s probably the one that received the most attention in the past year, even beyond the crypto industry - Saifedean Ammous’ The Bitcoin Standard. Ammous is an Economics Professor at the Lebanese American University, disciple of the Austrian School and notably Friedrich Hayek and Ludwig von Mises.

Austrian Economics has a large fanbase in the Bitcoin community. Crypto-anarchists have been Austrians at heart, propagating individual freedom and despising any form of government intrusion. Bitcoin is a direct response to the mess that has been fabricated with the great financial crisis of 2008. The genesis block notably includes the London Times headline from 3rd January 2009 “Chancellor on brink of second bailout for banks.”

“The fundamental scam of modernity is the idea that government needs to manage the money supply,” claims the author. Every attempt had ended with economic disaster. Ammous mocks the two main ‘government-approved’ schools of economic thought, Keynesians and Monetarists. Notwithstanding their fundamentally opposed methodologies and analytical frameworks, they’d still agree on the fact that the government needs to expand money supply.

Before governments ruled monetary policy, the world had the ‘gold standard’, fixed exchange rates linked to the price of gold. The gold standard allowed “unprecedented global capital accumulation and trade by uniting the majority of the planet’s economy on one sound market-based choice of money.” Sound money is necessary for people to think long term and invest in the future, rather than giving rein to intemperate consumption in the present. Individuals would act rationally rather than impulsively, create capital goods, make production more sophisticated and technologically advanced, so goes the theory. 

The second half of the 19th century would be the “greatest period for human flourishing, innovation and achievement”. Until 1914, when the major economies went off the gold standard, to replace it with unsound government money. Thinking about how to finance their wars, the various regimes in charge could now easily inflate their currencies and tap into the wealth of their population.

For a short time the Bretton Woods system, orchestrated in 1944, would reinstate fixed exchange rates. The US dollar took over the role of a world reserve currency, backed by the large amount of gold reserves stored on US soil. When France and Germany started to buy back gold with their weakening US dollar funds, President Nixon ended the peg unilaterally in 1971. It was the start of an unprecedented expansion of monetary policy.

Enter Bitcoin. For Ammous, Satoshi Nakamoto was clearly influenced by Austrian theories when he was putting a hard cap on the total supply of bitcoins (21 million is the maximum number of coins that can be mined). “An asset that holds its value is preferable to an asset that loses value,” he lectures. Savers looking for a medium of exchange would gravitate towards assets that hold value over time.

Bitcoin is therefore solving the problems of salability (the ease with which a good can be sold), soundness and sovereignty. Bitcoin is sovereign, with own rules that are nearly impossible to modify for outsiders, including governments. That guarantees a high degree of economic freedom, as users don’t have to ask for permission to send money, and they can do so anonymously. But most importantly, the money cannot be confiscated. It’s a pure peer-to-peer system that cuts out third parties. (I tell you, most of those folks don’t really trust banks!)

The book is of course one-sided, reflecting the view of what is known as a “Bitcoin maximalist”, who only considers the original Bitcoin as the real thing. Ammous still makes a (small) effort to find value in other corners of the crypto space. His main point is a valid one though. With Satoshi gone, there is no owner of the bitcoin network, other than the users who are running the nodes. It’s the only truly decentralised currency. 

Saifedean Ammous: The Bitcoin Standard. Published by John Wiley & Sons, 2018.