The Breakdown - Billionaire Hedge Fund Manager Paul Tudor Jones: A Bet on Bitcoin Is a Bet on Human Ingenuity

Episode Date: October 24, 2020

On this week’s Breakdown weekly recap, NLW looks at: The initial price action that started the week Debates about whether BTC was thriving at the expense of alts and DeFi The PayPal news News of more public companies putting treasury reserves into BTC Paul Tudor Jones’ optimistic take on the human ingenuity driving bitcoin’s success

It's not that we're rooting for chaos and disaster. It's that the entire history of humanity shows that there's always some element of chaos and disaster lurking. Bitcoin is a fundamentally long freedom technology that can help people who have the tools to use it avoid some of the pain of those situations. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the BigPypillar. picture power shifts remaking our world.

The breakdown is sponsored by crypto.com, nexo.io, and elliptic, and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, October 24th, and that means it's time for the weekly recap. And this has been a hell of a week, so let's do a true weekly recap, shall we? We started the week with the first mini Bitcoin breakout in a while. We kick things off on Monday around 11,400 per Bitcoin and quickly saw a nudge up to 11,800. Tuesday all day, we were rooting for another price move up to 12,000.

And interestingly, there were a couple discussions happening. The first was if we did break 12,000, how strong would that movement be? On Tuesday, I did a show about how there was a wall of sell orders right around 12,000, and it seemed like we might have our momentum stall out around that point. But the second and even probably more relevant question was where the new gains were coming from. And in specific, was this just a move to recycle gains from the last couple months, particularly from defy, back into the granddaddy itself of Bitcoin? In other words, was this basically just the total market cap of crypto recalibrating to the

base layer reserve asset of Bitcoin away from the Alt and Defy. People like Sue from Three Arrow's Capital pointed out that when Bitcoin rises slow and steady, it's good for everything, but sometimes when Bitcoin rises fast, it can just suck that liquidity and value away from the other cryptos in the space. By Wednesday morning in the U.S., we had impressively stayed right near that 12,000 number, but things really heated up when news dropped around eight or nine in the morning that PayPal was getting into the crypto space. I did a full show about this if you haven't heard it, but long story short, PayPal is going to be offering crypto buying and selling and eventually shopping via their merchant network

for their huge network of users. Now, we had had rumours for the last couple months that PayPal was on the verge of getting into the space, but they were still unconfirmed and We weren't sure either if it was going to happen and if it was when it was going to happen. As you might expect, the cryptosphere blew up when this news dropped. And sitting back a few days later, it's clear what a big deal this is. It's a big deal because of the number of their members, 346 million, although that is everyone globally. And right now or at first, it's not going to be rolled out anywhere but the U.S., but still,

that's such a huge number of potential installs sitting right there. It's a big deal because of PayPal's sorted track record in history with Bitcoin. PayPal was one of the first services that people tried to make Bitcoin work with in 2012, 2013, 2014, and PayPal hasn't always been kind to Bitcoin. So the fact that they are now getting into it, they see it as a necessity from a business perspective, is really important. which is another part of why this is a big deal. It's a big deal that it feels like a me-to feature that PayPal might have felt some pressure from competitors like Squares Cash app who have been

doing such a good job of expanding the Bitcoin audience and getting more people to buy. The fact that PayPal felt this pressure is a sign of just how much the space is maturing. It's a big deal because of this merchant network. We can talk all day about why it makes more sense to hoddle Bitcoin over the long term, but still the fact that it gives people just a ton of places where if they have to, they can use their Bitcoin and other cryptos is, I think, meaningful. It's a big deal because PayPal's announcement about this connected the dots explicitly with a new digital banking era. It's clear that in addition to feeling pressure from competitors like Square, PayPal also wants to be in a strong position going into the era of central bank digital currencies.

It's a big deal because it means that likely every other bank out there is now hustling to try to figure out what their Bitcoin and Crypto strategy is. Now, all that said, I did a show right after it was announced, and we were just still figuring out what the potential backlash was coming in. It was coming in hot and heavy, we didn't have all the information. A couple days later, it's very clear that the biggest critique that people have is the not your keys, not your coins critique. Specifically, the fact that it does not appear that PayPal is going to allow people to withdraw their Bitcoin

or send it to a separate wallet. This was almost universally poo-poohed with some people arguing that it's not even really Bitcoin when you can't self-custody the asset. I think this is a really good thing to be the critique. It's really important that Bitcoiners keep talking about this. I think in terms of how bullish it makes us on the announcement, there are just a couple questions, though. One is we need to know, is this the plan forever or is this a shortcut at the beginning? It's not inconceivable that there is an intention to expand the ecosystem or open it up,

but PayPal is playing this way to get it out faster. I don't think they necessarily deserve the benefit of our doubt there, but it's worth noting. The second is more of a question of how high we want to keep the barriers to entry for people to participate. When I said that this is a good critique, what I mean is that as people walk through this door of Bitcoin because of PayPal or because of other things like it, they're going to start to have this body of people who are enfranchised Bitcoiners in this space talking to them about why they might want to move to a different ecosystem where they can actually control their own keys. You have to remember, this most likely isn't really a product for enfranchised bitcoins. It's a product that reduces the barriers to entry for

newbies. And so I think the question for all of us is what are the tradeoffs that we're willing to compromise on in the short term in that context. This episode is brought to you by crypto.com, the crypto super app that lets you buy, earn, and spend crypto all in one place and earn up to 8.5% per year on your Bitcoin. Download the crypto.com app now to see the interest rates you could be earning on BTC and more than 20 other coins. Once in the app, you can apply for the crypto.com which pays you up to 8% cashback instantly on all purchases. Reserve yours in the crypto.com app today. In this crisis, many investors aim to keep and grow their digital assets.

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And by the way, it's the weekend now. Let's pour one out for them on the timing of their announcement. I'm sure they were so excited for this. And then all of a sudden, PayPal storms in and just sucks all the oxygen out of the room. But either way, mode global holdings, which is listed on the London Stock Exchange, is putting up to 10% of its cash into crypto, quote, as part of a long-term strategy to protect investor assets from currency debasement. Here's the quote from Jonathan Rowland, the executive chairman at Mode. He said, this decision to allocate part of our cash reserves to Bitcoin is a further step in our

mission to build a truly digital financial services business, combining the best of digital assets, payments, loyalty, and investment. We truly believe that Bitcoin is a vehicle for financial empowerment and through mode, investors can gain exposure to this highly attractive asset class through a listed and fully compliant company. Faced with the challenges of COVID and the UK interest rates at the lowest level in the Bank of England's 326 year history, our confidence in the long-term value of Bitcoin has only increased. Today's allocation is executed through a modern, forward-looking, but prudent treasury management strategy. So as this is all happening, we're seeing exactly what we wanted to which is Bitcoin's pricing racing racing up again all the way to 13,000.

And the cool thing is, it actually held there. Then on Thursday morning, Paul Tudor Jones himself went back on CNBC. You'll remember earlier in the year when this billionaire hedge funder, a legend in his space, announced his thesis around the great monetary inflation. In many ways, this thesis was just a compact explanation of what so many others are feeling that inevitably at some point all of this money printing has to turn into a credible threat of inflation. But as part of it, Paul Tudor Jones also explained how his firm came to the conclusion that Bitcoin was a very powerful hedge. He basically open-sourced his work, which made it

all the more influential. So now with that reminder context, let's listen to Jones on CNBC from Thursday. Bitcoin has a lot of the characteristics of being an early investor in a tech company. And I didn't realize it until after, unfortunately, I came on your show and got besieged by God knows how many different people on Bitcoin. And again, I've got a small, single-digit investment in Bitcoin. That's it. I'm not a Bitcoin flag bear. But what I learned was and what I was so surprised by is that Bitcoin has this enormous contention of really, really smart and sophisticated people who believe in it. And now when I think of the menu of the inflation hedges, the thing that Bitcoin has, again, it's like investing with Steve Jobs and Apple are investing in Google early. You've got this group that's, by the way, crowd sourced all over the world that are dedicated to seeing Bitcoin succeed in it becoming a commonplace store of value and transactional to boot at a very basic level.

And so I've never had an inflation hedge where you have a kicker that you also have great intellectual capital behind it. So that makes me even more constructive on it. If you think about it, if you're long, two-thirties, right, you're effectively short the bond market. That's your inflation hedge. You're really betting on the fallacy of mankind rather than it's ingenuity and entrepreneurialism. So I like Bitcoin even more now than I did then. I think we're in the first inning of Bitcoin.

So here you have Paul Tudor Jones saying first that this is just the beginning for Bitcoin. But you also have this other piece that I think is really powerful. The idea that Bitcoin as a hedge is a bet on human ingenuity. Hasu called this out on Twitter really nicely. He said, PTJ just said something incredible on CNBC. I've never seen a store of value where you also have such great intellectual capital behind it. When you short the bond market as an inflation hedge, you're really betting on the fallacy of mankind rather than its ingenuity. PtJ says other inflation hedges are fundamentally

bearish humanity, whereas Bitcoin is bullish humanity. That is an incredible statement that I've never seen expressed so clearly before. I can't get over this. Unironically think it's one of the most bullish statements ever made about Bitcoin. This is so powerful to me, because you're because one of the things that critics of Bitcoin constantly point out is that it would be only needed in the context of things going to total hell. Basically, that we shouldn't root for Bitcoin because implicitly it means hoping for a world in disarray. The counter argument is, of course, that it is an example of human ingenuity, creativity, and the power of networks unleashed to help people get out of the real disarray that they sometimes unfortunately will face in the real world as it exists.

It's not that we're rooting for chaos and disaster, it's that the entire history of humanity shows that there's always some element of chaos and disaster lurking. Bitcoin is a fundamentally long freedom technology that can help people who have the tools to use it avoid some of the pain of those situations. This, by the way, is a theme we're going to return to next week as we discuss Bitcoin in Nigeria in the context of the N-SARs protests. I'm really looking forward to that conversation, so I hope you are too. But for now, I think it was an amazing week. I'm glad you're hanging out and listening. And until tomorrow, guys, be safe and take care of each other.

Peace.