$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.

Money of the future

One aspect that fascinates me of bitcoin and the crypto industry is to have many young founders and visionaries that are very approachable. You can just hit them up at meet-ups and they might even respond on Twitter. Singapore has a vibrant ecosystem and in the few months that I’m watching the space, I’ve already had the chance to chat with two of them - Binance’s Changpeng Zhao (CZ) and Bitcoin Cash evangelist Roger Ver. Every industry has its charismatic leaders and especially the emergence of a new technology, the great disruptions that come with it, are creating fascinating stories.

Finn Brunton’s Digital Cash is a book that tells the story of the anarchists, utopists and technologists behind the creation of bitcoin. The reader gets to know libertarians and “extropians”, a culture absorbed by science fiction fantasies and “west coast hedonic optimism”, but always with a deep-rooted scepticism of government. Back in the 80s, a loosely organised circle called the “Cypherpunks” formed a mailing list to discuss encryption, digital pseudonyms, black markets, psychedelics, experimental fiction and the collapse of governments, among other topics. Eric Hughes created the first anonymous remailer, Tim May wrote the crypto anarchist manifesto, Jude Milhon penned articles for the cyberpunk magazine Mondo 2000.

Electronic money and credit card usage had been on the rise for more than a decade and the group swiftly pointed out the surveillance problem that comes with it. States will be able to access these central payment networks and thereby control entire societies. Individuals can be profiled and cut off the system with ease. Personal privacy will soon be a thing of the past. “The real choice is between a total state and crypto anarchy,” declared Tim May.

David Chaum had a desire to preserve individual privacy and he even wanted to work together with the existing banking system. Chaum presented his ecash in 1983, as a tool for banks to turn existing currency into digital cash. Banks can create money on a physical card or in a digital wallet that can be emailed. When the account holder spends his money, public key cryptography will blind the transaction to both bank and merchant, although they can still check that the cash hasn’t been spent before. Chaum was running a pilot with Deutsche Bank in the 90s, but his company DigiCash folded at the end of the decade.

There was Phil Salin, a big fan of Austrian School economist Friedrich Hayek. Salin created the American Information Exchange, a marketplace for the free circulation of information and money, for people to trade intellectual property, patents, surveys, analysis. Xanadu, a sister project that was later acquired by the company Autodesk, had the ambition to digitise all human knowledge and to “monetise thought”. It was a network based on property and ownership, with royalties to be paid on every byte transmitted. Salin died of cancer in 1991 and was one of the first to have his head cryogenically frozen, to be revived when science would allow it. How to move money forward in time, to be able to use it in the future? That was one of the questions the Cypherpunks discussed. 

Another participant in the list was Wikileaks-founder Julian Assange, conducting his first experiments with anonymised networks. In 1993, Tim May invented the “BlackNet”, a purpose-built “non-place” where operators won’t know their users and users won’t know who runs it. It deemed nation states and national security considerations as relics of the pre-cyberspace era. John Perry Barlow later published his Declaration of Independence of Cyberspace, telling the world elites in Davos that they are not welcome. In their tradition, Ross Ulbricht created the marketplace Silk Road, to be shut down by the US government in 2013. That was when many of us heard about bitcoin for the first time.

Several ideas contributed to its foundation. Adam Back’s Hashcash and the partial hash collision algorithm, the “proof-of-work” or processing time that miners have to contribute in order to earn bitcoin. Hal Finney further developed the idea into reusable proof-of-work, effectively creating token money. Nick Szabo came up with the concept of BitGold. He was the first to suggest decentral “smart contracts” in order to solve the double-spending problem. Wei Dai’s b-money incorporated most of these ideas, a decade before the actual Bitcoin was released. Satoshi Nakamoto’s white paper was quoting Beck, Dai and Ralph Merkle, the inventor of cryptographic hashing. Eventually, on 11 January 2009, Hal Finney tweeted “Running bitcoin”. And utopia suddenly became a reality.

Finn Brunton: Digital Cash. Published by Princeton University Press, 2019.

Into the roaring 20s

And so another decade ends. First of all, the euro made it through and ‘old media’ continued to decline (two things that concerned me back in the days). Big tech has had a great run since then and is now dominating the media and entertainment space. Smartphones raised personal productivity and brought us ridesharing as well as mobile banking. Social networks have in general facilitated global communication and news flow, but Facebook and Co. were also being instrumentalised by rogue states and populists attacking our democratic system and personal freedom, enabling Trump and Brexit. Also, the ‘millennial lifestyle’ has become ubiquitous. Co-working spaces popped up across cities where people are consuming protein bowls, smoothies (not me, I still prefer espressos) and tons of avocados.

Predicting the future is foolish. But awareness of trends can help to stay ahead of the curve. A few things I’ll be looking at...

Financial Markets and Central Banks

Overall it has been a pleasant decade in the markets, one just had to put the money into standard ETFs and sit out the trend. Coming out of the great financial crisis of 2008 (which is still haunting many folks), prudence has been front and centre for investors, companies, bankers and governments. It feels like those in charge are doing everything to let us not even come close to another downturn. The economic cycle appears orchestrated and engineered, interest rates artificially kept low (so the narrative), markets maintained alive by permanent stimulus and money printing. Other less discussed factors might also keep inflation low, like technological progress. But the blame is generally on the FED and the other global central banks (and their governments behind) who chimed in entering a competitive run to the bottom and below. Are we seeing a ‘new normal’ (unlikely) or will the tide be turning at some point? How will it play out? I’ll have the popcorn ready! 

Bitcoin

Or the digital gold. I never got the goldbugs. Projecting value on shiny stones that you dig out of the ground and then hide in your bedroom. They say it’s scarce (cannot be inflated), has proven to be a store of value over centuries (other than paper money) and can be anonymous, protecting one’s privacy. Attributes that are also claimed by Bitcoin advocates. Well, the protocol only exists for ten years so far, but it worked without major hiccups. Bitcoin is a predictable piece of software that guarantees a fixed, decreasing supply (as an answer to the inflating government money) and the privacy of its users is warranted. Bitcoiners also highlight its ‘unconfiscability’. They tell the story of the Cyprus banking crisis of 2013 when the country’s largest bank was forced to close under pressure from the European ‘Troika’ and the IMF, seizing part of the account holder’s money to repay its debt. Bitcoin still has some ‘PR issues’ to respond to, the high volatility and assumed use by criminals. Although the latter might still mostly utilize cash given that Bitcoin transactions are recorded on the blockchain and can theoretically be traced back. Time plays in Bitcoin's favour, as younger generations will likely prefer a sound computer programme rather than an old fashioned and greedy banker when depositing their savings or making a money transfer. Central Banks and private companies (Facebook’s Libra) are jumping on the trend and  test their (centralised) versions of digital money, which obviously won’t be anonymous. 

Globalisation - what next?

Is de-globalisation the big deal in the years to come? Nationalism and protectionism are on the rise, trade barriers rising and populists are pushing back globalists. It might just be the final hurrah of the boomer generation. Millennials and Gen Z are already mobilising their peers, protest movements are popping up around the planet to fight global warming, inequality and the erosion of personal freedom. The protests are those of true globalists, people who are used to freedom of movement and the ability to communicate openly, having grown up with the internet. The speedy advance of technology has a lot of momentum and won’t be stopped. But technology also led governments to become more assertive propping up its surveillance apparatus. China has become the poster child leading the world in the facial recognition space and monitoring of money flow through their tech behemoths, feeding all this data into their social credit system. Privacy is under attack!

The future of news

The disruption of the traditional news industry became a serious thing at the beginning of the last decade. The first response was attack. At Dow Jones, which I left last year, we created several local language editions for the Wall Street Journal, adding blogs and video services. We integrated news and data into a single product to take on Bloomberg. By the end of the decade, the local editions have shut down, and so has the print production of the paper, with exception of the US. Data products continue to serve some niche audiences. Digital subscriptions for the WSJ are thriving, but mostly in the home market. Last fall, the Journal partnered with Facebook to feed some content into their news aggregation product. Other brands are surviving with the help of billionaire investors or after being trimmed by private equity. Thomson Reuters will end up under the roof of the London Stock Exchange which aims to become a data provider. As mentioned initially, the likes of Google and Facebook are wielding significant influence and power, to an extent that they could be broken up. On their platforms, new species like the social media influencer or video channel publisher have sprung into existence. A new wave of (to say it with Taleb) ‘artisan’ content producers have become proper businesses, broadcasting directly to millions of followers. They’ll certainly be here for some time, co-existing with the smaller established media brands. Interesting times ahead!

The power behind the news

A new beauty contest in today's Wall Street Journal Asia - the list of the most powerful CEO's in India, as measured by appearance in the news. We collect this data for the New Delhi bureau who comments on the top events involving the executives. The interactive online graphic can be found here. There is also a Japanese and Chinese version of the Power List which are already live for some time.

Media sentiment predicts eurozone collapse

Some recent findings regarding media sentiment. As I already pointed out earlier in our Dow Jones PR blog, there are astonishing parallels between the media talking about a possible eurozone break-up and the Spanish yield curves.
We searched for the terms euro/eurozone break-up/collapse and related words. The result was a peak in early December 2011, prior to a critical EU summit in Brussels. The outcome of the meeting (and the ECB) were calming the markets in the following weeks, but now it appears that the fear about the euro is back.
It's visible on today's spike in the Spanish bond yields - most-watched as the battle for Spain likely decides the fate of the single currency.
Mentions of "Euro Break-up" were already raising to a new year high in the last week. 683 documents referred to it, according to data collected from Factiva. And it seems to be just the beginning.