On The Brink with Castle Island - Mitchell Nicholson (DACS Conduit) on leaving central banking for Bitcoin (EP.135)

Episode Date: October 7, 2020

Mitchell Nicholson is the founder of DACS Conduit and formerly an economist at the Bank of Canada. Mitchell's views are his own and not those of the Bank of Canada. In this episode: His path to joining the Bank of Canada Why he chose to start his career in central banking Mitchell's work on the Band of Canada Bitcoin awareness surveys Why the Bank of Canada put resources to the Bitcoin awareness surveys Mitchell's masters thesis on Bitcoin How covering Bitcoin was part of Mitchell's mandate at the Bank of Canada Their reaction to Quadriga How Crypto Twitter helped was useful to Mitchell during his time at the bank What it's like being a Bitcoin enthusiast working at a central bank Crypto penetration among Bank staff How Mitchell applied lessons from traditional finance to his analysis of Bitcoin Mitchell's thoughts on the legitimacy of Tether Comparing the risk profiles of single and multi collateral Dai Lessons that Bitcoiners can take from central banking Whether central banks should be concerned about crypto-dollarization The prospects for CBDCs Why the public sector may not be able to create a true digital cash with strong privacy assurances What a more restricted digital form of central bank money might look like Mitchell's view of the true killer app of the crypto industry Mitchell's new project now that he has left the BoC The one big gap Mitchell has identified in the crypto industry The likely effect of the rise of crypto markets on central banking Content mentioned in this episode:  The Bank of Canada's 2018 Bitcoin Omnibus Survey: Awareness and Usage Chainalysis' 2020 Global Crypto Adoption Report

Hello and welcome back to On the Brink with Castle Island. Today's guest is Mitchell Nicholson, who is a former economist at the Canadian Central Bank, the Bank of Canada. Now Mitchell has since left the bank. I first met Mitchell when I cold emailed him asking when the next edition of the Bitcoin Omnibus survey would come out. This is a survey that the Central Bank of Canada does every year to track the usage and awareness of Bitcoin in Canada. They have a really good sampling methodology, so it's a pretty reliable estimate of how many Canadians actually own Bitcoin, and I emailed him to ask him, when's the next one coming out because it's overdue. I got to know Mitchell, and he's since left the bank, and now he has

his own startup in the crypto industry. So I felt it would be an opportune time to get him on the podcast and have him share his views with us. This is such a fascinating episode. It's very rare to get the perspective of a former central banker as it pertains to the crypto industry. So we talk about what it's like being a Bitcoin enthusiast working at a central bank, what the crypto penetration is among bank staff, how Kodriga affected them, the prospects for CBDCs and whether digital cash will be produced by the private sector of the public sector. And lastly, we talk about Mitchell's view of what still needs to be built for the crypto industry to mature and how he's addressing that problem with this new startup. I couldn't be more excited to talk to a former central banker gone crypto,

and I'm very glad that we're part of Mitchell's coming out party. So let's dive right into it. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy

with a new round of Concentive Easing. You print a couple trillion dollars and all of a sudden, people start to worry. So out of this worry, we have something called a Bitcoin. Mitchell Nicholson, thank you for coming on the show. You're probably, to my knowledge, you are the first former central banker to appear on this esteemed show. So thank you for gracing us with your presence. Thank you for coming on. Thanks for having me, Nick.

It's really exciting to be here. And I just wanted to mention that everything I say in this podcast represents my own personal views and opinions and does not. represent the official views of the Bank of Canada. I think we have a lot of ground to cover. I wouldn't say you're a known quantity in the crypto industry, in the wider crypto industry, although if you look carefully, people would have known that you've already made contributions to the Bitcoin space. Something that I look at a lot are those benchmarking reports of the Bank of Canada does, which you were involved in, correct? Yeah, exactly. Yeah, that was like kind of my bread and butter work while it was at the bank. So to contextualize here, you formally at the Bank of Canada,

you've been there, you've now left, which is I guess why you're kind of free to do podcasts and so on. But you were an economist at the Bank of Canada. And prior to that, you were in academia. Is that correct? Yeah, yeah, exactly. So I finished my undergrad. I did math and economics. I went to the bank as a summer intern for three months. I was actually in Europe when I found out I got the offer. I had to leave hungry early to go there. But came back, went to the bank in Ottawa, did that for three months. I was already accepted at UBC in British Columbia.

I did my master's there. And then when I was at UBC, I did my master's thesis on Bitcoin and cryptocurrencies and price volatility. And around that time, I was also, well, actually, I applied to PhD programs, but it wasn't really successful. it didn't really work out. So I had an opportunity to go back to the bank. And initially, my plan was to kind of pursue PhDs again and apply that fall. But then I kind of got into central banking and crypto even more. And my career kind of shifted to just really working on crypto full time at the bank. And then from there, just kind of getting into crypto full time.

So you were actually into crypto before you joined the central bank. Is that kind of the appropriate timeline? the second time so it was 2017 when i the summer when i went to the bank the first time and then i in the fall of 2017 was the big rise and i was a graduate student so i didn't exactly have much expendable income so i didn't really i was a no-coiner at that point but i was a bit into it and then um i was like t a and saved a little bit of money got a bit of bitcoin in 2018 during the bare market uh and then that's when i really got into it and that helped me write the paper that summer that got me back to the bank that fall in 2018.

So, man, there's so much to talk about. When you were a kid, did you plan to become a central banker? Was it like, you know, you'd go around in class and be like, what do you want to do when you grow up and you thought yourself, yeah, like I want to, you know, set interest rates or whatever? So I was doing undergrad in economics at Western, and because I wanted to do a PhD, I knew I needed to do math at some point.

And I remember the turning point that got me into central banking, the governor at the time of the Bank of Canada, Stephen Polos, went to Western. He was a Western alumni, and he spoke at Western, and then there was like a four-story poster on the side of the Econ building. And I just remember leaving math, just totally beaten up every day, like real analysis and all this stuff. And at that point, I would just like look at the poster. I was like, okay, like there's at least some context of why I'm doing this. So I would say like mid midway through undergrad I got kind of into it and then I wrote a paper in undergrad on quantitative easing and looking at like just basically in the states with the Fed how quantitative easing affected the amount of excess reserves that are held by all the financial institutions and that kind of really got me into central banking. So then that summer when the internship came up in 2017, I jumped on it and then I was able to come back. after with UBC.

And when I came back, I came to the currency department instead of the dedicated research team or department. So because the currency department, they were doing the benchmarking surveys. And a colleague there who was going to help me get into PhDs, he helped me get on board with the bank at that time. So I'm going to post a link to the, you've done it three years now. Well, I guess not you personally all three years, but the Bank of Canada did benchmarking surveys for three years.

hopefully another one to come out soon. I think they're incredibly valuable because it's a systematic and, you know, kind of time series approach, asking the same questions every year, you know, how, trying to determine how many Canadians own Bitcoin or have owned Bitcoin and their attitudes towards Bitcoin. And the thing that cracked me up was even developing a Bitcoin kind of competency test if I were, remember correctly. Was that in that one or was that in the Fed one where there was a question to ascertain the respondent's familiarity with Bitcoin, but I asked them questions about Bitcoin. Yeah, yeah, that was in ours. I think we actually, there's a few colleagues at the Atlanta Fed and Boston Fed that we collaborate with periodically. And yeah, we have that. So the three

questions were, is Bitcoin backed by the government is the most obvious one that's false? Is the supply unlimited, and which is obviously true? And what was the last? Or sorry, is this supply limited? True or false? No, I have to remember how they phrase it because they phrase it in the negative. I think, yeah, I'm just pulling them up right now. But I will say this, that the, okay, here we go.

Is the total supply of Bitcoin fixed? True. Is it backed by the government false? And all Bitcoin transactions are recorded on a distributed ledger that's publicly accessible. That's a difficult question. Yeah, yeah. I mean, you know, like some Bitcoiners would say the supply can change. I mean, they would be heretics, but, you know, some Bitcoiners don't consider the supply cap to be that essential. Exactly. Yeah, that is a good point. And even like, given that we don't know

who Satoshi is, it's not necessarily the case that Bitcoin isn't backed by the government. So like, if you really get deep into it, yeah. But what is surprising, I will say is just that in Canada only yeah let me see if I can read this right yeah only 6% of Canadians that we sample or sorry yeah well only 6% of Canadians get it all three correct

isn't that kind of roughly the same number of of holders what was it maybe 8% as of the latest survey were admitted to holders of Bitcoin yeah yeah the last one was actually it was like 5 and a half percent yeah and it's basically spot on with that okay is that kind of in line with your

expectations? I mean, do you think that's that's kind of a reliable estimate? Well, I just want to say one thing, too, is we also condition on on adopters. So we compute the number that got all three corrected their proportion amongst the subset that have indicated they own crypto. And that's only 25%. Oh, really? So like, so yeah, so there's some intelligent, unformed, unformed crypto holders. And yeah, and some informed no corners as well, exactly. Oh, that's good. At least, uh, the knowledge is percolating. What I'd like to. about the three surveys overlaid one on top of the other is that the number number go up the penetration keeps growing every year although actually in the 2019 cash alternative survey which is like

another one we put out that I worked on but that one's a bit more general it's just looking at like cash like a like a digital alternative to cash so like CBDC and that one I think it actually started to go down when they sampled at the end of 2019 if I'm not mistaken Uh-oh. It's devastating. Is there another one coming out this year? Can we expect another one? Yeah, it actually dropped. It came out while I was still at the bank. And that one, well, there's two parts. That one was like a really quick one because it was mostly about what happened to cash during COVID. So there's nothing like that that one survey has information on crypto, but the part of the survey that's about crypto hasn't come out yet.

Okay. So we'll expect that one with bated breath. Yeah. What was the motivation, if you know, for conducting the survey? Because, I mean, nice surveys cost money, although I guess central banks can kind of print their own. But why dedicate resources to understanding the penetration of cryptocurrency in Canada? Yeah, so I think early on, well, the banks were working on e-money. Like it was initially what they called it like an e-money agenda back in like 2014 or 2015. And then it kind of expanded to crypto as it grew.

then I think the survey was just to ascertain or maybe just I guess I think the concern was a bit that like is crypto an alternative to cash or payments that like could be adopted by like a meaningful group of Canadians and so they started to run these surveys and they have actually some really strong talent in house when it comes to surveys because like the topic of crypto is is almost irrelevant it's just kind of like a hard to reach population and how you go about doing that is just kind of like standard across whatever question you ask. So we had this talent in house that they were able to do it. And then that was kind of like I didn't know about surveys or all this empirics. Like the one of the biggest aspect is actually a waiting methodology.

Right. So that's how we go from like sampling like 2,000 people to saying statements about the Canadian population is basically we can yeah, we can scale our. Depending on the sample, you need to figure out how to generalize that to the actual demographic composition of Canada. Exactly. So we have from our census, the Canadian, the census with statistics Canada, we know population targets for like observable demographics. So that could be like age, age, gender, income, where you're located in Canada.

There's like seven of them, Merrill status. And then what we can do is we, we ask those questions on our surveys. And then we can compute a set of weights that basically calibrates each response. to like scale up to the population. But so comparing the, I know there have been some other country level surveys, probably none as rigorous or sophisticated as your sample methodology, honestly, or waiting methodology. You wouldn't just presume that that 5% figure held globally in terms of Bitcoin penetration. I mean, there would be no reason to make that extrapolation, right?

Like with other countries? Yeah. So, I mean, you know, should Canada be a model for the rest of the world? Or is, you know, is Bitcoin penetration in Canada structurally higher for some reason? Well, so a couple of their surveys have been done in other countries like the Bank of England, I think, did one. I know the Fed has done a couple. Austria. We collaborated with, I can't pronounce an Austrian, but the Austrian National Bank. I think the Ricks Bank in Sweden also does some stuff too, Japan. man. But I think the way to think about it is like there could be some stuff in Canada. Like in one sense we had like the first ATMs. We also have, well, we also don't have exchanges. So maybe it's even higher. I don't know how to think about that actually. I know that our numbers are in line with other surveys, but I don't know that their methodologies are

necessarily the exact same as ours. Yeah. Have you seen that chain analysis report on global cryptocurrency adoption? they combine exchange data and on-chain data and exchange, yeah, just various exchanges. Mm-hmm, mm-hmm. It came up recently, like last week or something. Yeah, very recent. So they basically found certain hotspots where there was, you know, particularly high adoption per capita. Canada wasn't on there, which surprised me a little bit.

I mean, just looking at kind of geolocation stats from various websites that I have analytics for, I mean, I knew that Eastern Europe and Central Europe were popular. But in their view, the most popular countries are Ukraine, Russia, Venezuela, obviously, China, Kenya, Nigeria, Vietnam. So kind of Latin America, Eastern Europe, parts of Africa and Southeast Asia as the major hot spots. Wow, that's intriguing. Is that just like proportion? like they have the biggest 5% or is it like value adjusted they they generate like a systematic score but um my guess would be per capita although it's not clear but i think if we did it in absolute

terms the u.s would just dominate u.s and china probably would just dominate um that's what i was thinking but yeah i mean Canada has got to be at least middle of the pack because five percent adoption seems pretty high, honestly. I know people might not think that's high. Oh, actually, I knew I saw something else. There's this company called The Tie that does some crypto analytics. And I remember they did something about Twitter, like looking at like participation in crypto Twitter by country based on like the accounts that are like identified where they live, I guess. And I remember Canada was really high in that regard.

So I think it depends on how you look at the data. And kind of coming back to the surveys, like we calibrate on demographics. So we know we're unbiased on the demographics or sorry, the observable demographics. But there could be like unobservable stuff. Like maybe we're sampling people that are more have a higher propensity to like use digital stuff. Yeah. If we sample like through like an online methodology. And then like maybe we're biasing up our estimates of adoption because these people are more likely to be digital and into crypto.

than like if you mailed out survey things. So I think it's really sensitive. The estimates are to how you like produce those estimates. For sure. Yeah. So tell me about your master's thesis prior to rejoining the bank. Tell me about what your objective was there and what you found. Yeah.

Yeah. So basically I had a task in the summer to write a paper. and at the time I was getting super into crypto and I learned from the last year when I did the paper on QE is that obtaining data for these empirical projects was quite difficult so I knew crypto with all like the publicly available data that this was like the right way to go

because we had such a short time period so I was looking through various data sources and I found bid info charts which has the like a wealth distribution of like who are the richest hundred addresses and you can kind of keep going down to the next pages and stuff And so I basically scraped all this data and we had or I had all the major addresses. And then all we were trying to do is basically correlate now.

We have also a measure for price volatility. And then we had this regression framework where there was a dummy variable that equaled one on the subset of hours that an address was active. And so when you kind of estimate this model, you could think about what was the price volatility in the subset of hours that that specific address was active. So you could kind of try to tease out which addresses were most associated with high price volatility. And basically the motivation was that the whales are kind of moving around the price of Bitcoin. So this was kind of one approach that I thought we could do.

And it was kind of a very naive approach because I just threw out like all the exchanges, for example, who are like really active. And like the other problem was that you can only put in so many addresses because there's only a certain number of data points for each hour, for each year back until like beginning of 2017 when I did it. So that put like an upper bound on the number of addresses. So that's what I did basically at UBC. And then when I joined the bank, in my spare time there, we were continuing this project and I collaborated with a few other colleagues at the bank. It was like a data scientist and then another colleague who was super into finance and research.

And then we were doing something a little more sophisticated where it was like a two-step approach where we put a ton of addresses in and then used like a, it's called like a lasso, but basically use this technique where we could figure out who is the most important people. And that allowed us to put way more people in in the first stage. And then once we have the subset of people that are really important, then in the second stage, we can actually figure out, well, how associated are they with price volatility? So what was the conclusion that the will addresses move? they are active when price is volatile, but did you find that they, you know, led that volatility

or trailed it or they were coincident with it? Yeah, exactly. So we did some robustness, like if you look at the volatility in the hour before, they were active or afterwards. And in general, we found that the larger addresses tended to be associated with higher price volatility. But in general, our approach was probably like relatively naive from like an econometrics point of view. So we didn't really pursue this project too far because like right when we were doing

this was the fall winter 2018 into 2019. And like that's when Tether was breaking its peg and Quadriga was blowing up. And we were kind of like just kind of pivoted our attention to crypto exchanges and market structure. So that paper kind of like is in the graveyard of research. It hasn't really been pursued too much more. And it's also not it wasn't as obvious why it was relevant for the bank the way like understanding crypto market structure would be. Because that's kind of more informative for us for them. So was covering the crypto industry in Bitcoin, was that actually an explicit party mandated the bank or was that just kind of a hobby of yours? Yeah. So like as a researcher and like as an economist, I was able to, I had to do policy or

research that was relevant for the bank, but then I did have some time that I was eligible to do kind of what I was interested in, assuming that like it would pay off with research and like we were doing like meaningful research. And so that's, how it started. We were doing that. And then once those events happened with like Quadrigo, we kind of pivoted that time to focus, like the same group we focused on crypto exchanges. And so obviously Quadrigo was kind of an earth-shaking event in the history of the Canadian crypto industry. I mean, so many Canadians were directly affected by it too. What was the reaction to Quadrigo from the bank? I mean, there's no, you know, direct connection necessarily to central

banking, it seems more like a consumer protection issue. But did it change anything at the bank or change your attitudes towards the crypto industry? So I would say myself, it mattered a lot to me, but I would say that nothing really meaningfully happened from the senior leadership or anything. Like both tether breaking its peg, right? When tether broke its peg in November, but stable coins are still like $2 billion in market cap of four billion like they're pretty big it was surprised me that they weren't on the radar of central banks more or at least the bank of canada and then with quadrigo as well that was like more of a regulation thing like the securities uh regulators and then so i would say that to me it was clear that like

this wasn't really appreciated as much in that by them so this was like i was even more into understanding this stuff and being the guy that like when they became interested in it i had the answers or I knew where the answers were. So I would say like it motivated me a lot, but I don't think it propagated through the institution too much. And I guess from a research perspective, there's not a ton of good current academia that's ever really written on the crypto industry because it moves so fast. So what were your primary sources? And, you know, how did you convey those to your colleagues? Well, I didn't, with the tether stuff, I was still relatively new, so I wasn't looking into that too much, but there were some people on Twitter with Tether. But I would say the big one was like,

there's a bunch of people in Twitter and like telegram and stuff. So I was kind of like triaging through these channels as like an anonymous account. I still have my still use my anonymous Twitter now just because I haven't gone public yet. But yeah, so I would say Twitter, social media, like the standard crypto groups that people are all in right now. Was that something that, did you have to explain that to anyone when they asked you like how are you so up to date on the crypto industry. Did you have to explain what crypto Twitter was? I mean, yeah, I would kind of tell people that's where I was getting all my information from. But like, I don't know. The thing with the bank is like they understand that and like I don't want to embarrass the bank.

I didn't want to embarrass the bank. So I was like maintaining my privacy with like a burner account with like a fake email and proton mail and stuff. So like I was basically making it sure that it was safe and stuff. So it didn't really matter on that regard. And then yeah, I don't think. they really care as long as it's not coming back to them like it's public information yeah i mean neil kashkari has an active twitter account and he is frequently active on fin twit i don't think crypto twitter at all but you know it's not uncommon for some of the more uh you know hester peris at the cc is is always on twitter um you know responding to critiques of her safe harbor protocol so at least in the u.s i don't think it's that uncommon these days for for regulators and central bankers to be active on Twitter yeah but I think the one difference there is that both of those people are like spokespersons for their respective industries whereas like

me as like a middling economist like I'm not supposed to speak on behalf of the bank which is like why I waited till now to kind of reveal myself to crypto Twitter and to crypto in general like I've been into it for a while but I have this is the first public facing thing that I've ever done to crypto well we're very we're very we're very We're very glad to be the host of your crypto coming out party. So welcome to the scene. I expect that you'll be a familiar face here from now on. Tell us about what it's like being a crypto bull or a crypto enthusiast at a central bank.

I mean, did your colleagues just think you were totally crazy to be interested in this stuff? Or did they kind of tolerate it in the name of research? What was the reaction like? Mm-hmm. So I'll say like, this is probably super counterintuitive, but a lot of the more senior staff that like I looked up to and admire at the bank, they were into crypto long before I was. Like there's some that have lost coins from like they bought in 2016, 2015. There's one guy who was even mining Ethereum. And the reason why, they're not doing it for money necessarily, but to understand it. And like that was something I think, A, I really admire, but something I think that helped with the bank becoming kind of one of the leading central banks and just like digital payments. and CBDC and crypto was that like they really kind of put their money was their mouth word in terms of like understanding what it is they're analyzing so they're super into it I mean I think the point though is that none of them see the value from like early I don't want to say it none of them

but like like from an investment or that kind of stuff like it wasn't like that point of view but then like 2019 summer when it was going up a ton I remember like just tracking the price like on my computer just like kind of fall in the market so I'm at work and just like muttering under my breath like I'm rich and stuff and even though I didn't I didn't have much coins but just the fact of how much it was going up from like three and a half k all the way to like whatever it was 14k it was like every other day you look and it's like holy crap there's like a green candle it's up like double digit percent and it was just funny it got to a point where like some of the senior staff that were on my team like I would kind of like bug them and be like oh look equities

move 15 bips and hey we're up like 10 percent so yeah it was fun in that regard Little did we know at the time that a lot of that price action was due to a large Chinese Ponzi scheme with the benefit of hindsight. We know that now. Yeah, yeah. I think it's, I don't know if I give that full credence. I mean, I definitely think that played a role. But I feel like it's impossible for anyone to know kind of what's going on entirely in crypto. And I'd say that's one of the really interesting things to me is like there's so much room for you to kind of err for an individual to kind of carve out a niche and have a unique perspective.

on everything. And so I just think crypto is really cool in that regard. It is. And I mean, talk about the analysis you're doing with your masters. There's, I'm sure, a very rich analysis to do in terms of correlating the on-chain footprint of Plus token and, you know, other various Ponzi's on pyramid schemes to price action. But, I mean, in my view, nothing can gobble up 1% of the supply of Bitcoin without moving the price. But yeah, I agree. I mean, I don't think the whole rally was attributable to plus token. And like just as like a counterpoint, I'm like there was a huge group of people that were like correlating like the market or like the issuance of tether with like the increase and like

I don't think that's a complete answer at all either. So it's it is interesting to kind of hear each person's perspective. And I think like having like a bunch of different balance perspectives on Twitter or wherever you get your news is kind of a really it's a really good way to form your own view on what kind of is going on in the market. So does the Bank of Canada have an actual kind of stated position on Baycoin or the crypto industry? Or is it, its engagement is kind of purely academic in terms of just still trying to understand the phenomenon? Well, it's not like it regulates it or anything like that. But it's definitely, well, so there's some researchers that have gotten even progressively more into crypto, just like in their own personal research.

And I think in that regard, it's kind of like crypto's so new. There's a ton of data. and there's not many like top-tier academics working on this stuff. So it's way easier to like publish like a really novel paper with crypto data than like international trade or something like that. So in their personal time, definitely. Yeah, the data environment in crypto is fascinating because it is such a data rich environment, as you say. I mean, like we're talking about natively transparent ledgers here that you can pull data from. I mean, that's one of the things that really grab my attention.

something that I've been pretty much obsessed with for my entire course of my professional career in the crypto industry is trying to determine the relationship between the usage of the blockchains, which is evident from looking at them directly and the relationship between that and price action or valuation. And I think there's like price action and valuation, it's like the low-hanging fruit. But like I think the more like, well, not more interesting, but other stuff is like governance, the whole kind of defy stuff for the last few weeks and with like forks and whatnot and people kind of moving money around and liquidity providing.

I feel like there's going to be a ton of interesting academic research, but we're probably going to have to wait half a decade to read it. Was there anything that you took from your training academic and at the bank in terms of just learning about the plumbing of the financial system and just like macroeconomic principles? Was that a help in terms? of your ability to really understand the crypto markets or like an ideological blinder like how did that affect your ability to engage with these markets? Yeah, I would say a couple things.

Like so one thing that's awesome about working at the bank is like you you become friends with people and like I got buddies in like the international department, the domestic kind of Canadian economic analysis group like the financial markets, financial stability, all that kind of stuff. the group I was in or the department I was in before I left was also the funds management and banking, which is like the banker for the government. That's one of the responsibilities that central banks have. And so you meet these people and like it helps give me a different perspective. So like I would talk to someone who had a really close friend in the markets department.

And you can't really look at crypto in a vacuum. Like take COVID, for example, right, in March. So kind of having like a macroeconomic view on just like the economy and financial markets, I think that kind of provides context for crypto. But then I would also say specifically with the training is there are some really smart people that are involved with financial market infrastructure, which is like large value payment systems, clearinghouses for derivatives, security settlement systems, that kind of stuff. And so the paper we were writing on volatility while I was there at the bank, that kind of morphed into, or I guess just put on the sidelines, was understanding market structure for crypto exchanges and just the cryptocurrency industry more generally.

And a big section of that paper was contrasting it with traditional financial markets. So I think in that regard, it helped a lot. So a few commentators are fond of saying that, you know, crypto participants are just rebuilding legacy financial structures in a new domain or they're relearning the history of finance in an accelerated manner. you know, first of all, is that true or is what we're doing, you know, pretty novel and if so, in what ways would you consider it novel? And secondly, I mean, is there merit to that critique or is it still worth rebuilding, you know, financial market infrastructure in a totally new domain?

Yeah, that's a really interesting question. So I think there's like a couple ways I think about it. I mean, one is just that crypto is so open. Like, and it's all kind of caveat amputor buyer beware. So if I want to trade futures and options or these crazy products that may not be available as like a retail investor in traditional markets, you can do that in crypto. And I cut my teeth and learned. And like, sure, maybe I put a thousand bucks on BitMax and blew it all up. But I learned how to trade derivatives.

And I wouldn't have got that in traditional markets, definitely. or like in Robin Hood with just like a few options and stuff. Like it's much, there's much more you can do in crypto in terms of trading as a retail investor. And even things that I didn't, I don't necessarily agree with, but in traditional markets even, if you look at like returns that happen outside of like normal trading hours versus in the actual trading hours, like the vast majority happens outside of trading hours.

And as a retail investor, you don't access any of that. So it's like, oh, something happened over the weekend and now the markets are up a ton. Well, like, hey, that's awesome. But I couldn't add any positions. until it opens and it's already basically priced in. And so I think one thing that's cool with crypto is it's definitely more accessible. Things are more accessible to the average retail investor. But I guess like with that is like you hear the stories of people getting burned all the time with scams or the rugs pulled and stuff.

So I think it's if you're like able to manage that risk, it's really helpful. But then there is the potential that like people can get burned. And I understand why like regulators and stuff are a little apprehensive or going. after some of these people. But I would say the one other thing too is that it is fundamentally different to me. Because at the end of the day, traditional financial market infrastructure, it settles on a daily basis. Everything settles on the books of central banks and it's overlooked by central banks. And here you have like a playground for financial experiments in defy and everything's just on publicly like accessible open infrastructure that's like open source and audible and transparent.

And that to me is fundamental. And like that's one of the big. things that have gotten me into crypto, I would say. Mitchell, I think you might be kind of more of a crypto bowl than me. This is kind of blowing my mind right now. Yeah, well, I mean, I'm super into it. I started accumulating a little bit of coins when I was employed at the bank. I mean, I don't really own a ton of crypto, but, I mean, leaving the bank now and kind of getting into crypto full time, I've indexed my future crypto.

So in that regard, yeah, I'm definitely a huge bull. It's funny. I know people that are leaving crypto to work. at central banks in particular on CBDC pilots and so on. And then now I guess we've got a trickle in the other direction. Hopefully you can convince some more of your former colleagues said Defect as well. Yeah, I don't know if I'd use the word Defect. It's more like left on my own volition, though. I think CBDC and what Central Banks are working on now is super interesting and it's definitely it's novel. But I think that, I mean, just as an institution, like trust and reliability is

paramount with the central bank. And so out of necessity, they have to be cautious. And like as a 25 year old was seeing crypto and how disruptive it is, like I kind of want to just move fast and break things a little bit, like not within reason. So I think like going out on my own, it just it makes more sense now. So, you know, talking about trust, like the one of the biggest institutions in the crypto industry is tether. And tether is some preposterous float right now. It might be, I don't know, 15, 16 billion in its free float. And weirdly enough, traders really do trust it. You know, so every time it departs from its peg, but then subsequently regains the peg, that's an additional kind of notch on its belt where now traders are going to look back on

that historically and say, hey, yeah, well, you know, maybe Tethers trading at a slight discount right now, but all those other times it returned to the peg. So now I have confidence that that's going to happen again. Of course, you know, at some point maybe it won't happen again and they'll lose all their money. But I'm really curious to get your attitude and view on Tether, given the enormous kind of epistemic gulfs that exist there. I mean, people have radically different opinions of it, you know, both as like an institution and then from the perspective of someone who actually understands deeply financial plumbing, you know, can this thing actually work and be sustainable or is it got this sort of Damocles hanging over it and it's kind of destined to fail?

Yeah, that's an interesting question. So I'd say a couple things. One is I'm definitely skeptical of tether, but that's by design given their lack of transparency, right? Like I still remember that Dell tech signature they got and like it looked like a five-year-old drew with like a crayon and a piece of paper. Like, and no one's names underneath it, too. Yeah. So, like, in that regard, it's not, it doesn't bode well, but I mean, there's clearly strong demand. And if you talk to people on the OTC desks or you just even listen to the podcast, whether it was like Dan when he was at Circle and Cracken or if it was, like, I don't know, Sam Banking Fried's talked about this a lot with Alameda. Like, they're redeeming a ton of tether, or cash and whatnot. So I definitely think

it's, it's not as, like, phony as some of like the really hardcore people think it is. But I would say that my view is just that it's I think tether's systemic for crypto like tether as an institution and a stable coin like if if it broke its peg meaningfully the way it did in november 2018 because it hasn't really since that point um yeah i don't know i feel like a lot of like defy and stuff that's like related to it and some of these other protocols that rely on it or like if it's locked up for other assets like i think there could be like a daisy chain effect that's that could be pretty detrimental to crypto as an industry. Totally. I mean, and we're seeing contracts settled in Tether. We see exchanges quoting prices in Tether, derivatives exchanges, you know, using Tether as the

unit of account and the medium of exchange, a collateral type. Totally agreed on the systemic nature. I just wonder how big it can go before someone decides to intervene and says, hey, we've created, turns out you guys who created this crypto-euro dollar product, which is being used for unquestionlessly, globally, without encumbrance by, you know, tens of millions of people potentially. At what point do, you know, the central banks of the world or, I don't know, the various financial enforcement bodies decide to step in and say, okay, this thing is enormous. We need to kind of stop it or regulate it. Mm-hmm.

I mean, that's already happening to some extent. There's like, I think a global task force on stable coins with the G7 and like, I think, domestic regulators are definitely taking it really seriously. Like the New York DFS is still going after them as far as I'm aware. But I think that another angle that I haven't heard discussed much is like maybe there's just like a constraint on like the balance sheet of the banks it uses. Like I don't know where they're banking exactly, but like there's got to be an upper bound on how much cash these guys can just store in their banks without like more scrutiny

from their regulators or kind of somewhere along the way being like, hey, like there's $50 billion of cash supposedly sitting in. in their accounts. Yeah. I don't know. That could be a thing as well, I guess. And that's the other thing that I think Dan said on this podcast. Like, it's easier to put money into a bank that it is to get it out of it,

especially if you're redeeming enormous quantities, which was kind of the issue with, I think, maybe Deltech or Noble Bank. I don't remember exactly that adding Tether to the balance sheet was fine or adding, you know, dollars backing a teller. was fine, but then when there is this big spike of redemptions, you know, obviously redeeming billions of dollars from a bank all at once is going to kind of cause problems. And this kind of comes back to the point is like, what is backing tether, right? Like how liquid are the assets?

Is it literally like cash? Is it short-term treasuries? Is there something else? I mean, to some extent there's that loan with the Bifeneck stuff with crypto capital. Like what shares that? Yeah. So I don't know. Yeah, I think like you raise a good point, right? Like if it's not sufficiently liquid, whatever's backing it, then they could definitely run in redemption troubles aside from like

the structural frictions with trying to move like billions of dollars in wires or however you would do it across borders. I don't know. That's not my expertise, unfortunately. What do you make of the stable coins that purportedly track the return of the dollar based on a portfolio of risky crypto assets effectively that are kind of programmably derrised. Is that something that could be a replacement for the Fiat convertible stable coins or is that just kind of doomed to be a curiosity? So you're like talking about like multi-collateral dye kind of thing. Yeah, exactly.

There's one example. So I think, and correct me if I'm wrong, but in March when that die experienced a lot of trouble because ETH was crashing, that was still single collateral, if I'm not mistaken. Yeah, I think it might have just moved on to the new standard, but yeah, I think it was, it was pretty much ETH backing it. Yeah. So I would say in general, I guess, like, my intuition is that in some sense, Malti is probably better than just ETH, like, from like a user's point of view or something, but like from like a pure, like if there's like a left tail shock the way there was at March, like that stuff's way less liquid than ETH is. So I feel like the part of, uh, whatever

dye or another one that's backed by these less liquid stable coins. coins, like there's a risk that they are under collateralized. I would say that risk is much higher than using like high quality collateral, like the top stable or the top cryptocurrencies. But I think in general, it's just also really capital and efficient, right? Like you have to put, what, a dollar 50 worth of Eath for every dollar you get to die or something along those lines. And I even if you see in lending desks, right, like the cash lending desks in crypto, you're over collateralizing those as well, right?

Like I think loaned values are only like 70, 80% before you start. get margin calls and liquidations and whatnot. So I think, or I was just going to say, I just think there's a lot of room to be gained in terms of efficiency, but like not without, like efficiency without adding additional risk of liquidation. Yeah. So your point is that even if you are generating a better portfolio in the kind of Markowitz mean variance sense, you know, finding that efficient frontier in terms of kind of reducing the volatility. It's actually all things considered not necessarily better than having extremely liquid, but potentially slightly more volatile assets backing the token effectively. I would just say in general that like anything that's

been stress tested and gone through these kind of shocks and survived, to me, I hold not necessarily in a higher regard, but I think it's more. likely to be more of a permanent fixture of crypto than some of the stuff that's maybe more interesting or sophisticated than new, but hasn't been tested in like these crazy market conditions of crypto that can kind of happen. So I would say that like I would just put more faith in using like higher quality, more liquid collateral and backing something rather than kind of something that looks good in most situations, but then in those like small tail events totally breaks or could potentially break. I'm not sure. I don't think it will, but that's just my kind of concern.

So, Mitchell, you've been on both sides of the fence now, and it seems like you're going to be on our side for the foreseeable future. So I guess I would just ask you, you know, what lessons would you impart from, you know, the high church of central banking? What would you tell us crypto folks that we're not being mindful of right now? Because I'm sure there's a lot that we can learn from the actual institution of central banking, even if we kind of spurn it. or kind of, you know, think it's a really curious enterprise. What would be your guidance for the crypto industry? Yeah, that's a really good question. I'd say a couple things.

One is like at the end of day, like these people that like we call central bankers, like even like my past career and whatnot, like we're still human, right? Like, and like we can have different views. Like I was super into crypto while I was there. So I'd say one thing first off is like, and also like these people at central banks are super smart and open to like their views evolving. if there's enough evidence or reason to. So I would say first off,

I wouldn't consider these people as like different humans that are totally against crypto or something like that. That's like the first thing. But also like the big stuff that I took away that I was just super interested at the bank that now I'm kind of bringing to crypto is like two things. One is like systemic risk, kind of like thinking from like a financial stability point of view

that like someone's got to oversee all this stuff and kind of thinking that hey, like just like piling on a ton of leverage through derivatives on like this highly volatile and not super liquid asset with fragmented market structure, things could blow up. And like we saw that in March to some extent. And then I think more generally is that like the infrastructure does need to improve. And whether it's like you look at the CME survey with BitStamp or even Fidelity Survey,

like a lot of institutional investors that see the value in this. And I think they even see the value more so now with all like the fiscal and monetary stimulus kind of going on in the background. they're still on the sidelines to some extent because of the underdeveloped infrastructure. And don't get me wrong, I think we're way ahead of where we were in 2017, like on the custody front and like that kind of stuff. But I feel like there's still big problems when like the network gets bogged down and you can't even move funds between exchanges during periods of high volatility. So I would say like on the infrastructure and the kind of thinking about a big picture kind of systemic risk thing is the two I would highlight. The other thing I wanted to ask you was, you know, and I've heard this when I've interacted with central bankers, I talk about crypto financial infrastructure and how it's just, by its very nature, easier to get onboarded onto. You don't really need a bank. You just need a mobile wallet, you know, a smartphone, basically, which everybody worldwide effectively has access to now. They're always concerned about not necessarily Bitcoinization or hyper-Bitkenization. But I've definitely heard concern around, you know, crypto dollarization or and I think

Libra really brought this to the fore. Is this, you know, direct-to-consumer distribution of bank dollar substitutes globally to places with potentially high inflation and accelerating a currency substitution in a very difficult to suppress way? What do you make of the prospects for that? and whether, you know, some of these smaller, you know, sovereign currencies or central banks should be concerned. Yeah, exactly. And I think I have a pretty good perspective as, like, Canada, like, we're so close to America and, like, like, with similar cultures and stuff, and there's probably a lot of Americans in Canada that, like, if Libra is mostly backed in dollars, which is what I think the latest version is talking about, I don't know.

like it's a different problem whether or not the fed should allow or if they if they even can Libra issue these kind of tokens but then an extra layer is like if a lot of Canadians are using these tokens but they're backed in American dollars then there could they could like inhibit monetary policy or some other angle with like a meaningful share of Canadians using this stuff and I think like to me what makes sense is like you have I think Uber is still on the Libra Association. And like, I could see a world down the road if Libra exists where, like, you have a Libra wallet and I have my credit card on there with Apple Pay. And like, they're giving me 10% off if I choose with the Libra wallet. And like, I think if enough of these

type of institutions are getting involved in subsidized adoption at the outset, I could see how, and like if Facebook is also makes it really like integrated with their apps and stuff. And I think they just came out with Facebook financial, like their own kind of subsidiary. that's like a like almost like a pseudo bank or kind of like working to that direction as well. So I think what they do there, like how this all kind of plays out, I have no clue. But I think that's kind of the concern with central banks. And I'm just really intrigued. And I guess implicitly with revealed preference, you can see where I've made my bet.

In terms of the actual disruptive potential, I mean, do you think the crypto industry is just an interesting sandbox for experimentation? or do you think there are going to be kind of earth-shaking geopolitical consequences to the frictionless distribution of either dollars or non-sovereign assets? I mean, how significant do you think this is? I think Bitcoin's super powerful in crypto in general. Like the fact that it's censorship resistant and like just, I mean, I guess honestly, stable coins are showing that they're not as censorship resistant with like the blacklisting and stuff that's going on.

But the fact that like anyone anywhere can use Bitcoin and how open it is, I think it's remarkable. I think there's a lot of value there. So I see a lot of use cases in the future, especially in like a like if the geopolitical climate tenses further. I think the value of Bitcoin goes up as like a hedge against sovereign risk, political risk. Like I think the idea that it's like an uncorrelated asset, especially during like a sharp liquid. liquidity crunch, like mid-March, it's not going to perform there and shine. But like, hypothetically, if there was a lot of uncertainty around the upcoming election or other geopolitical tensions around the world and what have you, I think the value of

Bitcoin goes up in that regard. Changing tech a little bit. So the big enterprise buzzwordy trend of kind of 2015 through, I don't know, present maybe, was like the notion of the abstract blockchain, you know? It's like, I guess IBM is still caught on that idea. They think that, you know, blockchains can revolutionize strawberry picking or whatever. But then, like, mercifully, the successor to that, or I don't know if this is good or bad, was this idea of CBDCs, which have now kind of totally taken over the popular consciousness, both in Fintechville and among central banks. So tell us a little bit about your experience with the CBDC dialogue from within the bank and, you know, how?

How kind of legitimate the prospects are for CBDCs, especially in the more developed countries and what that actually means for regular folks? Sure, yeah. So when I came back first as an economist in the bank, I was in the currency department working on the surveys and benchmarking studies we discussed. And then in April and May,

I moved over to a brand new team within the funds management and banking group that specialized directly on CBDC. A group was called CBDC Fintech policy and research. It was like an acronym within an acronym. So I was right kind of in the center in some sense at the end before I left. And I mean, in general, the bank has been public in saying that they were doing contingency planning for CBDC so that they don't see a need to issue it, but that they want to be ready in case that happens.

And then the two conditions that would cause them at the time that they made this announcement in February of this year was either that cash like use fell below a certain threshold because the central bank, at least the bank of Canada, we have a mandate to provide like a safe, efficient payment method. So if cash disappears, then what payment method could Canadians use? Like say hypothetically, like if most merchants stop using cash. a lot of banks stopped distributing it, then there could be a marginalized group of Canadians that cannot have access to like a payment method. So that was the one aspect. And then the other one was if like a digital currency,

like a privately issued digital currency, made sufficient inroads in the Canadian economy. And that was kind of like the Libra Uber example I was talking about previously. And I think with something like a Libra, that was kind of the driving force there for the second condition. So I guess the, The taxonomy of yesterday was the retail versus wholesale CBDC.

But as we were saying before the call, the notion of a hybrid or wholesale CBDC is kind of totally incoherent because that's kind of how banks already work. You know, they have access to the Fed. And then it's through those banks that we receive mediated access to the Fed. Yeah. What's like the better taxonomy that you would use to? today. Yeah.

So I think the majority of what I discussed and what I've seen discussed in research and stuff this public and stuff too is that like it's really just now about like a retail CBDC and whether or not to issue it. And I guess what that means is like how would consumers have access to like a central bank asset that's digital that can be used for payments and like how will it be distributed to them, right? Like it's kind of a tiered model now with cash, right? like the central bank handles the, like the research and the security features, the production,

all of that kind of stuff. But then the actual distribution goes through the financial institutions. And so, like, how would that look in a CBDC world? That's like one kind of angle. The other thing, too, is this kind of notion of token and account based. So there, the idea is, like, hypothetically with COVID, if everyone had an account for CBDC, then they could have distributed the COVID payments much quicker. Right.

As like an example. Right. But then you lose the whole benefit of cash, which is privacy in some sense. Because there's no world in which in an account-based system, it has the same degree of privacy and anonymity as in cash. Yeah. And then like I think that like this isn't really discussed much. But like my most interesting idea I think of related to CBC is like they created cash,

Central Bank created cash whenever like 100 years ago. go, whatever. That was not made in the digital world now where data is like monitored and collected and used and kind of even abused by major firms. So I guess my point is that it's not clear that central banks want to be the provider of that much privacy and anonymity and payments like in a digital world or if they're the best suited to do that even. So I tweeted this October 9th, 2019. You heard this here first. The single biggest, most destructive technology that, that could come out of crypto, it's three parts. Decentralized, privacy focused, and a stable coin.

Like, I think that is the bread and butter of crypto. I don't think it obviously doesn't exist. But, like, if you have something that's truly decentralized, kind of like a dye that can't be, like, I don't know, pressured at the point of, like, the banks where, like, the cash goes in, but it's, like, really privacy focused, like, a Monaro Z cash or, like, coin join Bitcoin, something on that level where it's truly private. it but then it also has the stable value of like a stable coin that to me is like the best form of

cash and it's not clear at all that like any government institution would want to issue something that is as private cash but could be used digitally yeah so i don't know i that in that regard i think that could be like a really disruptive technology that's kind of like the crypto industry would kind of maybe push traditional firms to like change how they approach privacy and payments even. Yeah, I mean, I completely agree. I do think a, you know, a decentralized Chalmian e-cash with strong anonymity, strong privacy is effectively the holy grail here.

And it's kind of curious to me that this concept is so toxic whenever I've talked about it with central bankers or people in the kind of the policy establishment that, you know, obsessed with, you know, AML and CFT and all the other acronyms. Because cash itself is private and autonomous. And so then I wonder to myself, if cash was invented today, would it be illegal? You know, like would central banks permit people to make private, truly private, instantly settling transactions without notifying anyone? Or would it not?

Is it just a vestige of a prior era and a prior kind of? a set of values or on privacy. And, you know, like you, I'm not optimistic that any central bank product or central bank money could enshrine those values. Because even with, in the U.S. at least, with with digital transactions, there's very little privacy, but including cash transactions, the reporting thresholds for cash transactions get lower every year in the U.S. People talk about this a lot because that threshold is.

$10,000 and in real terms that threshold declines every single year. So we have very little transactional privacy, you know, either through electronic transactions or physical cash transactions today as compared with maybe 1970. Yeah. And I think the other element too, though, is like the data. Like people weren't collecting data the way they are now as well. So like the need for privacy and payments to me is. like as high as it's ever been.

I think part of the inspiration for the token-based CBDC is that it would look like cash in a digital context. But I guess what you're saying is you don't think that that's likely that a modern central bank actually creates that product. It's more so that like it'll have a strict upper bounds. And even China's DCEP project, I think I saw on Twitter that like the USD equivalent of like what you can transact in that thing that has like, well, I mean, it's from an even private to begin with, but the token-based model, like, there's going to be a strong upper bound.

I think theirs is like $350 a week or it's like $10,000 a year or something. So it's like, yeah, and also, it's just, I don't know. It's really interesting with, like, privacy and like, what about with cash? It has to be physical, so you have to, A, kind of know the person and there's like an element of trust maybe because, like, if you have a large amount of cash, it could be stolen and, like, there's no receipt and stuff. So I don't know. I just don't know how it could be implemented.

And then, like you said, with all the concern about AML and stuff and even just kind of like crypto's upbringing through the Silk Road and whatnot, I feel like there's like definitely a caution with how much you could transact truly privately in a digital world by using a product that's issued by a government. So I guess your point is that it's maybe more likely that something approximating the qualities of physical cash in a digital context is actually produced by the private sector. as opposed to the state. I just think that maybe not necessarily more likely because I don't know how they have their resources and how it would work and you still have to interact with the traditional financial sector at some point. But I think that with smart contracts and blockchains and all the kind of technology, like even like the zero knowledge proof on like the privacy side, I'm just going to put my foot down and say it.

I think that like a stable coin that's decentralized and private, it will exist. And whether or not it has more adoption is not my point, but that it will be better suited to provide privacy and, digital transactions. I'm willing to bet in 10 years that something in crypto with the technology we're at and the pace of innovation we're going. It something will exist for sure. We already have the stable coin element. I mean, with dye, if we can work on stuff that that makes it a little more capital efficient. And then you, you kind of use the composability with like some type of privacy element. And then the missing piece though is like decentralized. Like I feel like these like

anonymous dev types groups, they may also kind of. of need to be what's necessary in some sense for this stuff to even work. Yeah, I guess the issue is the nature of the stability. So, you know, obviously you can't have a decentralized model with Fiat backing with a connection to the financial system. Exactly. I mean, maybe you can do it using crypto, you know, liability-free crypto collateral at the base like Dai does or die used to at least.

I think it would be interesting to see it on Bitcoin. But you're right. There's a still missing piece in terms of adding privacy assurances, which, you're Which can maybe, yeah, maybe that's where your knowledge proofs come in. In terms of the prospects for CBDCs, I mean, what do you expect to see there? I mean, clearly it would benefit central bankers in terms of giving them more discretion over the money supply if the physical currency that circulates was eliminated because you can't really impose negative rates on cash, for instance. So you would just be able to more finely tune the money supply.

do you think that's actually it's a likely prospect that we get a CBDC in any of the developed nations in the near future? Well, so I guess two things. First about the monetary policy thing.

Some people say that it's kind of like what we were talking about earlier. Like everyone kind of has views like on Tether for example. And some people I think the monetary policy thing is like the transmission mechanism would be stronger with like a digital currency.

Actually a really smart colleague I worked with Walter. He argued against it a lot, actually. So I'm kind of in his camp. But I would say more generally that, so China is probably the furthest ahead and most likely. But then I would say Sweden. So the big difference, there's a paper that I worked or that kind of helped support that was a collaboration between the bank of Canada and Sweden, the Ricks Bank. And they were kind of comparing different aspects of like cash distribution, cash demand, all this kind of stuff to argue. why, or just to explain why Ken and Sweden are relatively similar, but Sweden and to some extent Norway are the like outliers in the major developed nations in terms of cash use.

Like their cash use by their consumers is falling and it's pretty close to zero. And for that reason, like remember the two conditions to issue CBC, like cash disappearing or privately issued digital currency taking over. The first one is a is more of a like a realization in a place like Sweden. Sweden or Norway than it is in a place like Canada. Yeah. So I would say in that regard, they're more likely than we are for that first condition. But then for the second condition, I think it's relatively universal, maybe with the exception

of the United States or whatever currency that is ultimately backing the like a Libra or some type of equivalent, right? Yeah. So we've gone for an hour now. some of our listeners will probably be wondering, well, if you're not at the Bank of Canada, what are you up to? So why don't you tell us what are you working on? So yeah, yeah, you bring up a good point. Basically, I was working on this paper that was looking at financial market infrastructure

and explaining the differences between crypto and traditional markets. And we got to a point basically, at least I got to a point where I realized that like central clearing infrastructure And I know there's that dreaded word in crypto central in that statement. But central clearing infrastructure to me, which exists in traditional markets, like a clearinghouse, so to speak, is missing in crypto and kind of addresses a lot of the problems that we saw in March. So basically, I did some soul searching throughout June and July. And I decided, you know what, I truly believe in what we found with this research. And I'm going to pursue it wholeheartedly. So I gave like five weeks notice in August at the end of July and then at the end of September I left the bank or sorry at the end of August beginning of September I left the bank and so now I'm actually pursuing a startup in the crypto space that's looking at bringing a clearing house or central central clearing infrastructure to crypto.

How bullish is that guys? I mean we're talking central bankers leaving the bank to start crypto startups. I mean, just like, what an amazing story. I don't need to tell you this, but I just wanted to say that out loud. I mean, it always is, it fascinates me the flow of talent out of, you know, call it traditional finance or any of these research organizations into the crypto industry. It's just a black hole sucks in, people that are curious and that are trying to experiment on new things, basically. Yeah, and the one other thing I would just add is like things move so far.

fast and it's so interesting and we're really like in the process of writing history in some sense. Like, and I truly believe crypto is disruptive and it may not even be Bitcoin. Like maybe Bitcoin actually just like gets hacked or Satoshi moves all his coins and it just blows up next week. And I could be totally fine with that even though I gave up my job two weeks ago. Like I think at its core like blockchain crypto, non-sovereign digital currency, it's here to stay in some capacity. like the Pandora is not going back in our box and I think that it really at the very least challenges like private companies and government to be more creative and to like be innovative like would we have had would we have central bank digital currency without staple coins in Libra potentially but probably

not in 2019 in 2020 yeah so I'm really excited in that regard last question for you so this was something I think I was talking about with Hasu recently who was great previously a long time ago, people used to debate monetary rules as a way to constrain monetary behavior, you know, and you've still got people like George Saldjan that advocate for like NGDP targeting. And if you go back and read some of that older literature, there's all these potential monetary rules that have been kicked around for alternatives ways to design, you know, effectively the money supply that aren't, you know, completely discretionary kind of the way we have it now. And, you know, I think there's like potentially, you know, the ability to reimpose that.

Obviously, Bitcoin has its own monetary rule, which is a little bit crude. All this is a preamble to my question. Do you think we're going to kind of eliminate the, let's say crypto, you know, really takes off, Bitcoin takes off, maybe other cryptocurrencies do as well. Does that eliminate the institution of central banking, or does that actually increase the number of central bankers in the world because now there's so much more scope for experimentation and creativity. Yeah, so I would say your question is kind of like analogous to some of the people who say that like AMMs and defy, like the automated market makers, are going to like

displace traditional like trading desks or even trading desks and crypto. And I don't think that's the case. I don't like, no, I don't agree with that that like it would like displace central banking entirely or anything like that. But whether it would add more people, I just feel like central bankers, and partly just it happened. It started in 2008 and then with COVID, it expanded. And they're kind of, with their approach to solving or I guess addressing like these shocks in like a post-QE world, like a lot of it is totally not well understood. And also it's, it has implications for like incentives and how people respond in the future, especially as central banks for a and other asset classes beyond just like bonds and even in 2008, like I guess mortgage securities.

So my point is that I think how central banks operate will continue to evolve as it has since 2008 and even before with inflation targeting in the 90s. But the pace it evolves and maybe the steps they have to take without the guidance of experience and history, it's probably going to get a lot higher and a lot quicker. So, and I think that crypto might, well, crypto will probably, I mean, you're seeing it with CBDC at least that it's pushing that even further, at least with them thinking about like this 100 year old product cash that's just kind of been there. Maybe they changed the design a little bit or now they went from polymer or to polymer.

But I think like to take the step to like a digital version, I think that that kind of stuff might happen more quickly with central bankers. But I don't think that central banks are going anywhere that like this kind of hyper-bitcoinization or even just crypto more generally. I don't think that that will displace traditional institutions entirely. If you had to make a guess how many sovereign, would you say there are 10 years from now, there'd be more or fewer sovereign currencies and would the dollar have a greater or a lesser share of global commerce?

Mm-hmm, mm-hmm. So I think, and Mark Carney, I think, kind of touched on this a little bit with digital currencies and homogene at the Jackson Hole last year. I think that there's going to be fewer sovereign currencies, kind of like we're seeing consolidation with the euro or we saw consolidation with the euro. And I think in Asia, something similar may happen at some point. And there's even been, I've seen some news that like that may be facilitated by a digital currency. But I would say fewer. And then your point about America being as central with the dollar. I mean, they're at the pinnacle or they were at least recently.

And I would say that if I had to guess in 10 years from now that the U.S. dollar will play less of a central role in global financial market infrastructure. And I think part of that will be driven by institutions. like Swift and kind of related institutions that are very, or even just the fact that trade is invoiced almost entirely in dollars, even with oil and whatnot, those kind of things that have been commonplace that kind of endow America with influence in the broader economy, those will probably be continually challenged. And I don't think that Bitcoin will be the biggest challenger there. But I think that it will also be challenged on the crypto front as well. Well, that's a good answer.

Mitchell, it's been an absolute pleasure. Thanks so much for coming on the show. Hey, I'm looking forward to the next time, Nick. Thanks for helping me go public in crypto. I really appreciate it. And I'm excited to hear the reception when this drops. And I open my Twitter up publicly. Okay, well, looking forward to what you produce here.

I think it'll be great. Thanks so much, Nick.