"Let's get this straight," says Meltem Demirors, CoinShares Strategy Director. "Bitcoin represents three different things."

In this episode of Bitcoin Macro, one of the most prolific voices in the space talks with Nolan Bauerle, CoinDesk's strategy manager, about bitcoin as software, as a "network of supranational global communication "and as an asset.

"For traditional investors, it's a difficult paradigm when these three elements come together," said Demirors.

The conversation takes place before Demirors appears at the CoinDesk Invest: NYC conference on Tuesday, November 12th. The Popcup Macro Bitcoin podcast series features speakers and event themes, exploring the current role of Bitcoin in the global financial system.

On the podcast, Demirors talks with Bauerle about:

  • Why does crypto encompass everyone in space, but barely records for most investors.
  • Why Libra is in many ways the antithesis of Bitcoin.
  • Why is the US dollar still the most sought-after asset in regions in crisis and why education is the key to Bitcoin playing this role one day.
  • Why speculation is a gateway for deeper engagement with Bitcoin.
  • How the global "hunt for performance" shapes the story into bitcoins.
  • The era of the "future fetish" of blockchain development.
  • Why the idea of ​​bitcoin as "unregulated" is not quite right.
  • New battles around the digital currencies of the central bank.
  • Why the most interesting metric in cryptographic space is the percentage of bitcoins held by third-party institutions.

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


"Let's get this straight," says Meltem Demirors, CoinShares Strategy Director. "Bitcoin represents three different things."

In this episode of Bitcoin Macro, one of the most prolific voices in the space talks with Nolan Bauerle, CoinDesk's strategy manager, about bitcoin as software, as a "network of supranational global communication "and as an asset.

"For traditional investors, it's a difficult paradigm when these three elements come together," said Demirors.

The conversation takes place before Demirors appears at the CoinDesk Invest: NYC conference on Tuesday, November 12th. The Popcup Macro Bitcoin podcast series features speakers and event themes, exploring the current role of Bitcoin in the global financial system.

On the podcast, Demirors talks with Bauerle about:

  • Why does crypto encompass everyone in space, but barely records for most investors.
  • Why Libra is in many ways the antithesis of Bitcoin.
  • Why is the US dollar still the most sought-after asset in regions in crisis and why education is the key to Bitcoin playing this role one day.
  • Why speculation is a gateway for deeper engagement with Bitcoin.
  • How the global "hunt for performance" shapes the story into bitcoins.
  • The era of the "future fetish" of blockchain development.
  • Why the idea of ​​bitcoin as "unregulated" is not quite right.
  • New battles around the digital currencies of the central bank.
  • Why the most interesting metric in cryptographic space is the percentage of bitcoins held by third-party institutions.

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


Nolan Bauerle: (00:09)

Welcome to Bitcoin Macro, an in-depth podcast produced as part of the CoinDesk: Invest New York conference in November. I am your host, Nolan Bauerle. The podcast and the event explore the intersection of Bitcoin and the global macroeconomy with the perspectives of some of the leading thinkers in the fields of finance, crypto and beyond.

Nolan Bauerle: (00:29)

I am delighted to be joined today by Meltem Demirors, one of the most famous characters of crypto, that's for sure. Meltem has been around for a long time, but gained international notoriety with its astonishing testimony before a congressional committee last summer on the overall Libra offer. People who have been working in crypto-currencies for a long time have always been aware of the genius of Meltem and she was kind enough to join us for today's podcast.

Nolan Bauerle: (01:05)

This podcast really tries to situate Bitcoin's place in today's world and gives an insight into the type of content we will be focusing on in New York on November 12th at Invest. So Meltem, thank you for joining me.

Meltem Demirors: (01:21)

Thank you very much for inviting me, Nolan. It was such a beautiful intro. I feel like I would like you to introduce me all the time.

Nolan Bauerle: (01:32)

(inaudible 00:01:32) I have the chance to know you for a good while now.

Meltem Demirors: (01:35)

I know. We met a long time ago.

Nolan Bauerle: (01:37)

And seeing you gather all this ability to let your ideas shine on the world stage has been a real treat, and I'm happy to have even met you on the train back from Washington that day.

Meltem Demirors: (01:49)

That's true. I think I enjoyed a Bud Light.

Nolan Bauerle: (01:57)

You have well deserved it. You have well deserved it. So let's talk right. We are talking about bitcoin in today's world, and my first question is really whether or not you see bitcoin as a real macro asset. It's here? Is it in the main stage? Is it somewhere in the side scene? Is it in the wings? Or is it really something that can be considered the macro today?

Meltem Demirors: (02:19)

I think for most people in the world at the moment, especially in the world of investment and finance, bitcoin and cryptographic assets are not yet an asset that they think . It's a very small asset class. It's about 200 to 250 billion right now. That's very little, so for most investors looking to allocate transferred capital between $ 5 million and $ 10 million, the price movement is very important, and there is no really effective way to do that. So that's a concern in my opinion.

Meltem Demirors: (02:55)

The other thing to consider at the macro level is that macroeconomic investors define the world in the context of specific market assets. So I think that as an investor, you're looking at sovereign debt. Debt in general as an asset class, corporate debt funds, you look at the stock, and then a lot of people like to group cryptography into the category of alternatives. Alternatives is sort of a growing part of the investment world, and I think it's difficult for many investors, even in alternative space, to really try to find out where Bitcoin is.

Meltem Demirors: (03:38)

And so, I think the big challenge is the people in our sector. We love to talk about bitcoin as an asset class because we live, breathe, eat, sleep encrypted all day, and certainly in our little corner of the world. Bitcoin is a major asset, but I frankly think of most investors. Bitcoin is not really on their conscience, and if it's much too early, and if something of this place is exposed if by their personal or personal account, certainly not by their company, or their fund, and I do not think not that it will change in the near future, and we can talk more about it too.

Nolan Bauerle: (04:20)

So in practice, you say it's not quite there yet. If it were in this type of macro the characteristics that would define it, the aspect that would make it progress, I think we can even find some of your testimony in Washington in July. In this testimony, I think what we saw was that you had Facebook, which was almost threatening, but not a nation-state, but that took some powers. It's assuming some of the responsibilities that would normally be prescribed to a nation-state, saying that we were going to pay that private money, which, of course, helped everyone.

Nolan Bauerle: (04:58)

I think one of the great things about your testimony is that you've shown that Bitcoin does not offer the same challenges, but that it creates coherently what is at the same time a digital jurisdiction, and that it is to be at the base of this process. type of macroeconomic asset to come, basis of what could constitute a large money supply, a money supply.

Meltem Demirors: (05:25)

Let us unravel a little. So, I think that what is difficult when we talk about bitcoin is different from debt or stock. Bitcoin represents three different things. Bitcoin is a technology in the context of the bitcoin protocol, which is open source code, and open source software has been part of our world for a long time, and open source is starting, I think, to become more and more recognized as an investment category in the world of risk and beyond. Thus, the Bitcoin protocol is at the heart of Bitcoin.

Meltem Demirors: (05:56)

Bitcoin is a network and what is interesting here is Bitcoin, a supranational global communications network. There are tens of thousands of devices in the world, whether they are miners or complete nodes. This network calculates the devices that manage the bitcoin register and initiate disabling transactions, as well as the integrity of the registry, so the bitcoin network is physical in nature.

Meltem Demirors: (06:26)

And then, finally, you have bitcoin the asset. What is interesting here is that, for traditional investors, it is a difficult paradigm when these three elements come together. So when you see bitcoins, they talk about bitcoins in the context of the software infrastructure. You'll hear people talking about bitcoin in the context of a commodity, because it digitally produces in its mind the same way we think about producing and extracting materials like mineral supply, like gold and oil, in theory .

Meltem Demirors: (06:57)

And then, there are people who talk about it in the context of currency, hard money. What's interesting about Libra is that Libra presents itself as a cryptocurrency, but what I was trying to say in Congress is that anyone can call anything crypto but it does not do the same. What's interesting with Bitcoin is not a commodity or an obligation, unlike an action. Bitcoin is packaged only by demand.

Meltem Demirors: (07:25)

And so, it's a bit unique in this respect. There is no physical attack, which I think is part of the larger debate about the evolution of the physical to the digital activity. It's hard to understand for people. This does not necessarily fit into the concepts we have for the assets of our world, even the dematerialized assets are part of the securities that are trading, you know, they still have a physical action certificate somewhere.

Meltem Demirors: (07:53)

And then, I think the other thing that's interesting is that when we look at what Libra is and what it proposes to do, it's really a pooled investment vehicle where the interest for the costs goes to the association. And so, I think it's an interesting series of choices made by Facebook. I do not really understand why they felt that it was the best approach, but I think that if you look at Libra's intention, it's a reservoir of capital. You take money from people who buy the chips, put it in foreign currency and interest-bearing instruments, and keep it, and then distribute it in addition to the transaction fees to the people who participate. to this private transaction. sort of closed group called Balance Association.

Meltem Demirors: (08:37)

For me, it's kind of the antithesis of bitcoin. My testimony was therefore intended only to clarify that bitcoin is not Libra, that it is distinct and distinct from all other crypto-currencies and that it has characteristics that make it incredibly unique. And Libra, and many other things, are not crypto-currencies. There is a lot of ambiguity in the language but it is increasingly important to clarify how we use these terms, especially for regulators, decision makers, who are trying to understand what is happening, but sometimes The translation they get is not particularly helpful, and in fact can be more confusing than not.

Nolan Bauerle: (09:19)

So I would like to come back to two things you said, and you said that Libra, of course, that investment in pool, so that the incentives of all these parties are clearly for protective fees, but you also mentioned only because the bitcoin is only supported by the user 's request that it can actually exist as an uncorrelated asset, because Libra would theoretically be involved in all the ups and downs. a typical economy, because the value of bitcoin is only based on the demand of the users and the users who concern it. . Can he behave like a safe haven?

Meltem Demirors: (09:59)

I think the idea of ​​a shelter is an interesting conversation. I think the way people generally think about this is this risk-based asset. And I think the challenge with safe havens is again relative, so if I live in the US and I have US dollars, I have a driver's license, I have a bank account and a debit card, I probably do not consider bitcoins as safe havens, because the dollar is safe enough for me and I'm able to do anything I want. In times of crisis, I do not necessarily think the dollar depreciates rapidly. The parody, my PP, remains 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 I come from Turkey personally, I was there and talking to people about bitcoin, I think that within the bitcoin community, this idea that people who live in diets or areas of the world where their purchasing power is parodic, or their ability to buy the same basket of goods fluctuates a lot, because of fluctuations and the value of their local currency. I think in our community we like to think they're going to be bitcoining, going out and holding bitcoin.

Meltem Demirors: (11:17)

What's really funny is that if you go out and talk to people who do not want to hold bitcoins, they want money. So it is there that I think the challenge is to explain a new class of assets and really understand some of the macroeconomic changes going on in our world. We live in a dollar world today and at the end of the day you still can not afford your rent, taxes, employees or bitcoin purchases. I think that one day you will be able to, and there are certainly a number of companies in which I have invested, and with whom I work, and support that allows people to do it, but still once, I think of the average person who lives in a part of the world where she does not do it. I think that they do not necessarily think of Bitcoin as a solution, it may be part of the solution.

Meltem Demirors: (12:12)

I think they are more interested in the dollar right now, and unfortunately, I think the world will take a while to get to the point where bitcoin will reach that status in a broader way. I think in the bitcoin community, we certainly like to pontificate about what hyper bitcoinization will look like and what a world will be like if people started to think of bitcoin as a safe haven, but I do not think that this global story has already reached its goal, and I think part of the challenge is to communicate something so new, and many people are wondering who Bitcoin's CEO is, what stops him, and so explain that it's really fundamental. change in the mental model and how people think. It's a change of trust instead of trusting an institution, a company or a brand, you trust an idea and a set of principles.

Meltem Demirors: (13:11)

And so, in my opinion, it will take a while, and it will take the technology under development, it will take the ramps of development and access being developed, that will take the l '. user experience to make it a little easier, But most importantly, our community will have to work hard to translate many of the topics we are talking about into topics that people actually think about everyday.

Nolan Bauerle: (13:36)

And so, your recent experience in Turkey reinforced your idea that it was not quite there yet, but there was this work to be done, or did it really get you out of a state? Let's say disconnected and sitting in one of those bitcoin ivory towers saying: here's what bitcoinization will look like, and all that stuff, or is it just that you've already seen enough of it, you've got it? have seen in this context, and you know that people are just not ready, and even though we are seeing an increase in trade flows from Turkey to local bitcoins, there are still isolated individuals and it's not enough of a wave to really push the needle?

Meltem Demirors: (14:13)

So let's talk about that. I think, first and foremost, that I feel like I'm constantly trying to get out of the bitcoin world and interact with people who come from a totally different point of view, from a totally different point of view. I think the context is really important, especially when one of your functions serves as a translator. I sometimes feel that my role is to translate between two very different worlds. So we have these crazy bitcoiners here, and I'm certainly part of that community, but at the same time I'm communicating with a very different audience that has the potential to actually shape and influence the trajectory of bitcoin as a technology, infrastructure, and as an asset in a very material way, so I think it's very important for me to be aware of all the different points of view in order to be an effective translator, and I would like us to do more.

Meltem Demirors: (15:12)

I hope it starts, but we'll see. In Turkey, it's interesting because the ING bank publishes this study every year, it's the second year. They just published it in October of this year. They examine the adoption rates of digital currency in different parts of the world and Turkey ranks first. And so, a lot of people are like oh yeah the Turks want to keep the bitcoin because the read is unstable, and it's an appealing story, but the reality is that Turkey is a place where people are already used to exchanging FOREX.

Meltem Demirors: (15:50)

People like speculative trading. I am Turkish myself, so we have this cultural acceptance for speculation. And so, FOREX trading, currency trading, is something that many people commit to. You already have a population accustomed to digital banking, because when banking arrived in Turkey, they kind of jumped into the 80s and 90s directly to digital. And then you have a large population of young people who are really interested in technology, and what they do is they speculate on Bitcoin.

Meltem Demirors: (16:26)

And I think it's certainly exciting, but I think the narrative that people have not, oh, I want to protect myself from the price fluctuations of the read, and certainly if you look at their experience from last year even though the lira has depreciated dramatically, if they had bought bitcoins at that time or before, they would have lost more bitcoins. That's why I think it's important to be careful with these stories, because it's very easy to over-generalize, and I do not think we're at this point yet.

Nolan Bauerle: (16:56)

So you say the simple argument is, they just want to make money like everyone else.

Meltem Demirors: (17:01)

And look, I think that through this process, I really think speculation is one of the main drivers of bitcoin adoption, because as people start to speculate and people start to interact with bitcoin, they begin to appreciate certain social principles and values. that represents, and I think it's pushing people to keep bitcoin longer and see it more and more in the context of a form of digital sound currency, but I think we're a little too excited about stories that are not really fully supported by the evidence yet.

Meltem Demirors: (17:38)

The good thing is that I think the bitcoin community is doing more diligent research. Cambridge UK publishes its annual study on the adoption of bitcoin and blockchain. ING, which is a world bank, is preparing its report. Coverage and research methodology continue to improve. And in the cryptographic space, there are also a number of new research companies that are starting to analyze the data in different ways to try to analyze, provide more context and insight into the actual growth indicators. Traveling around the world and interacting with people all over the world this story is just not there.

Nolan Bauerle: (18:16)

So, back to what you mentioned about bitcoin that presents these opportunities to people to learn and that says, tell them about their worldview, a test I've had for a long time about the worldview of Someone is the precision with which he can predict the future. Many people in Bitcoin have said that we are anticipating a global recession because of sovereign debt and all these other factors. When we look at the world today, we certainly see some of the things that people have been practicing bitcoin for as long as you predict it. What we do not see, for example, recently in the United States, is not a recession, but we found that we had to talk about the liquidity crisis in the news of repo transactions.

Nolan Bauerle: (19:00)

But bitcoin does not have the behavior that most people have predicted based on these stories, these stories that somehow said that if we proceed to a new wave of quantitative easing in America, the demand for bitcoin would be very strong. America. The bigger question is, what happens to Bitcoin during a recession? Will it be this asset that you can use to get out of these little ups and downs in the world, as many people have been predicting for years, or will it become more and more correlated and the demand will go down simply because there is not so much cash in general?

Meltem Demirors: (19:35)

I think this is an interesting topic and it is certainly very tempting for people to join the recession narrative. After all, we are in the longest period of market growth. We are not ten years old and three months later. And look, I think the fact is that the financial system is changing. We have long believed in how markets should work and investments, and we do not see many of those beliefs that have proven to be wrong.

Meltem Demirors: (20:11)

You only look at the huge volume of negative return debt. I mean, it's a bit staggering. The numbers just do not make sense. You look at what happens in passive investing. When you look at the challenges facing many hedge funds, and generating significant alpha, through active management. Financial markets and investors face many problems, but I do not think that indicates naturally that we are in a recession because, in the end, capital continues to flow. continue to see people continue to evolve on the risk curve by investing in high risk investments as more and more capital is deployed.

Meltem Demirors: (20:57)

Alternatives continue to grow as an asset class. So I think the story of a recession ahead is tempting, but I think it's a difficult scenario to predict. I'm not really busy reading teal leaves if you want. What I think is more interesting to think about, and one thing we've never seen in how bitcoin behaves during a recession, is it? Because Bitcoin was introduced to the world in 2009 after the 2008 financial crisis, the Bitcoin network was launched and we have never seen it in an environment like a recession.

Meltem Demirors: (21:32)

And so, I think there is a lot of what I like to call unknown strangers about what will happen when we get into this new era. And I think once again that the forces shaping our world and those shaping the financial system are known unknowns, but then I have the impression that many of the investors I talk to face many unknown unknowns , and many open questions about what the world will look like in this new era. We feel like we are at a new stage of the financial markets. Some call it late capitalism. Some people see Japan as an example of what might happen.

Meltem Demirors: (22:11)

But again, I think my job really is to focus on what it means for bitcoin and manage the ups and downs of what's happening with bitcoin and crypto assets, and put that in place. context for investors who look at the world. I felt very confused, looking at bitcoin saying nothing, that's too much, there are so many things happening in my world that I do not need to add more risk, nor d & # 39; Add as much uncertainty by adding a very volatile factor and misunderstood asset, which I basically do not get yet.

Nolan Bauerle: (22:45)

Yeah, so it's basically that we may be living in an era of unlimited leverage right now, where everything is funded, including bitcoin, all OICs and all crazy projects. What will happen if this funding is simply not there anymore? Is bitcoin still autonomous or is it a product offering all this free money around the world that just looks for risk? As you mentioned, risk appetites increase simply because there is so much weight that you can draw from them.

Meltem Demirors: (23:16)

The hunt for yield, no? There is a hunt for returns because at the end of the day, what we rely on in the United States and many other western developed countries, our population is retiring and pensions are underfunded. All of these social liabilities have to be paid for, and historically we pay them by the composition of the interest and the return, and when that stops working, the only alternative is to extract them somehow. of society through taxation or inflation, no?

Meltem Demirors: (23:51)

And we are seeing this effect around the world. You look at what's happening in Chile, you look at what's happening in Argentina, you look at what's happening in Hong Kong, you look at what's happening in the UK. There are only a few things you can extract from a system. So I think there are a lot of fundamental existential questions about the relevance of nation states, the relevance of currencies in general and what seems to me so interesting about bitcoin if we leave out the price of bitcoin, and these arguments around bitcoin as solid money, and these things that are very exciting, I think what is even more interesting are the questions that bitcoin introduced into the conversation.

Meltem Demirors: (24:33)

So, when people discover bitcoin for the first time, I think it opens up to them the idea that there is a different choice, because we have never really considered a world in which I could hold anything other than the currency issued by the government. the most interesting and profound question, and of course now, China announcing the digital renminbi with many US companies, including Facebook, which plans to get involved in the game of currencies in different ways, in the game of cryptocurrency or other versions of the scanned version. dollar, or digitized store value, I think it's starting to get really interesting.

Nolan Bauerle: (25:12)

Meltem, you have always enjoyed a breathtaking view of the industry from your time with DCG and now with CoinShares. You are really someone who can not only be in touch with the basic type of the sector, but also with the more sophisticated investors, the buyers, all these people. Have you seen any change in their point of view over the last six months with regards to bitcoin in what they are looking for, the questions they ask and what interests them?

Meltem Demirors: (25:43)

Yeah. Absolutely. I think people are definitely getting smarter faster. Je pense qu'une partie de ce qui est tellement incroyable à propos de la communauté bitcoin est juste le niveau extrêmement élevé de contenu de qualité qui est produit, qui est produit par des membres de la communauté, gratuitement, est facilement disponible en ligne, sur Twitter, sur les sites Web des personnes, sur les blogs. et podcasts. Il y a juste une vraie richesse d'informations sur le contenu, de connaissances à partager, à diffuser, à développer, ce qui est vraiment passionnant, et les gens réagissent à cela, et les gens lisent et réagissent certainement.

Meltem Demirors: (26:23)

Et donc, je pense que les gens commencent à mieux comprendre et comprendre Bitcoin et les crypto-monnaies, mais en même temps, je pense qu'il y a aussi plus de confusion que jamais, et malheureusement, beaucoup de gens se tournent vers Le succès de Bitcoin et son utilisation comme moyen de justifier son projet, et nous en avons vu beaucoup avec les ICO de 2017 et 2018. Tout le monde voulait construire un bitcoin meilleur, plus écologique, plus rapide et plus évolutif, nommez votre favori. fonctionnalité ici. J'aime appeler cela l'ère du futur fétiche dans les blockchains.

Meltem Demirors: (27:01)

Mais je pense qu'il y a tellement de choses sur le bitcoin qui ne peuvent pas être reproduites, mais ce que vous obtenez est que vous avez un tas de gens sur le marché qui diffusent leurs propres récits autour de ce qu'est le bitcoin et pourquoi leur actif ou leur projet est différent. Ou mieux, et je pense que la confusion du marché se reflète maintenant au niveau gouvernemental, où nous voyons beaucoup de discussions autour de la monnaie numérique émise par la banque centrale, beaucoup de malentendus fondamentaux sur le fonctionnement du bitcoin, même au Congrès américain. Je pense que certains membres du Congrès et membres du Congrès ont eu l'impression que le bitcoin n'était pas réglementé, et je pense encore une fois que la confusion règne, en tant que protocole, il n'y a pas de réglementation concernant le bitcoin, mais si vous exploitez une entreprise de bitcoin et que vous êtes domicilié aux États-Unis, ou si vous touchez un client américain qui est soumis aux règles et réglementations de ce pays, et il existe de nombreuses règles et réglementations émanant de toutes les agences allant de la CFTC à l'IRS, en passant par FinCEN.

Meltem Demirors: (27:59)

Donc, cette sorte de notion que le bitcoin n'est pas réglementé est, à mon avis, un malentendu, et je pense que les médias ont également joué un rôle important dans ce processus, en perpétuant le sensationnalisme de ce qui se passe ici, et donc, malheureusement, il y a cette série de récits qui ont défini bitcoin au cours des 10 dernières années de son existence. Je pense qu’ils commencent à faiblir un peu, mais je pense que c’est une très grande inertie que nous, la communauté des bitcoins, devons surmonter.

Meltem Demirors: (28:32)

Et malheureusement, nous n’avons pas fait un très bon travail en matière de narration et de compréhension du pourquoi. On a toujours l'impression d'être coincé dans une chambre d'écho, et j'espère vraiment qu'à mesure que de plus en plus de gens commenceront à comprendre le bitcoin, commenceront à s'intéresser au bitcoin et aux monnaies numériques, puis s'en iront et ils se renseignent, que ce soit à travers des événements tels que Consensus: Invest, ou bien en écoutant des podcasts ou en lisant des blogs qu'ils vont commencer à reconstituer leur propre vision du monde, mais je suppose que c'est l'un des défis de ne pas avoir de leader, de coordinateur essentiel et pas d’organisme de marketing pour Bitcoin.

Nolan Bauerle: (29:12)

J'aime le commentaire que vous avez fait à propos de ce futur fétiche, car certains d'entre eux sont soulevés. Les gens vont bien dire s’il ya un meilleur bitcoin? Eh bien, ce n’est pas Nintendo. Ce n’est pas de l’électronique grand public. C'est quelque chose de différent. C’est une cryptographie qui se développe à un rythme différent de celui de Nintendo ou des jeux vidéo. Le fait que quelque chose soit plus récent ne signifie pas qu’elle est plus utile et se vendra à un prix forfaitaire.

Meltem Demirors: (29:34)

Droite.

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. It’s 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, it’s 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 it’s 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 it’s less and less about technical features, but it’s more about some of the unique aspects of bitcoin’s design that are impossible to replicate. And at the end of the day, we’ve 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 bitcoin’s 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 there’s 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 you’re mentioning right now, this sort of a choice of the foundation that you’re going to create some of these super and national institutions out of, or even just ideas that link us together. Maybe they’re not institutions at all, or maybe they’re 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 you’re 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 that’s really important, one graph that’s really important, I thought to keep in mind is the percent of the total bitcoin supply that’s 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 world’s 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? I’m not really sure.

Meltem Demirors: (34:06)

And so, one metric I’m 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. It’s close to 20%, and so that’s just an interesting thing to keep in mind. And then, the next thing I’m looking at … So that’s sort of relates to systemic risk we’re creating, and in my view if we’re just recreating the same financial system, if we’re recreating banks, and institutions, and governments because they’re the people who hold the coins ultimately, and control who can access them then that doesn’t really accomplish much of the end state of bitcoin, which I think is interesting, and sort of intellectually challenging to think about. It’s important to stay intellectually honest as we look at these things.

Meltem Demirors: (34:55)

And then, the second thing I think about that’s really more relevant on the macro scale is the balance of accounts and trade flows between countries. I think one of the big questions that’s 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 planet’s 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 it’s interesting to see just over the weekend Rosneft, which is Russia’s 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 industry’s a huge part of the global economy.

Meltem Demirors: (36:24)

And I think the other thing that’s really interesting here is the narrative around China’s 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 there’s an increasing awareness on the importance of the base currency that’s used to sort of shape economic activity around the world, and that’s an area I think is really fascinating, because again some of the aspects of bitcoin that make it unique, the fact that it’s 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 it’ll just be very interesting to see how different nation-states attempt to capture that narrative, an attempt to use certain aspects of what we’ve learned from the growth and rise of bitcoin, and other digital currencies to shape their own place in the world’s financial system.

Nolan Bauerle: (37:32)

Fascinating stuff, Meltem. We’re coming up at the end of our time here. So you’re going to be leading off Consensus: Invest. You’re our first keynote speaker out of the block’s 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. CoinShares’ research continues to be a reliable resource for myself. Thank you a ton for your time.

Meltem Demirors: (38:08)

Thank you. I’ll see you soon, Nolan.

Nolan Bauerle: (38:16)

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

Meltem Demirors image via CoinDesk archives

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