The Breakdown - Bitcoin and the New Non-Governmental Monetary Reality

Episode Date: April 25, 2021

For this week’s “Long Reads Sunday,” NLW reads Nik Bhatia’s latest piece: “Asset Managers, Owning Bitcoin Is Now Your Fiduciary Duty.” He also provides more thoughts on the notion of bitcoin as a non-sovereign money and what that might mean in terms of global balances of power.  -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, April 25th, and that means it's time for Long Read Sunday. Today, I'm excited to be reading another piece from Nick Batia. Nick has been on the show. He did a great history of months. money, and I've read previously his case for $1 million Bitcoin. Today, I'm reading his piece, Asset Managers Owning Bitcoin is now your fiduciary duty, in which he argues that the failure

to own Bitcoin for a financial advisor is akin to the failure to correctly identify monetary reality. The asset management industry is now bifurcated. On one side, forward-thinking researchers have reached the conclusion that Bitcoin has changed monetary technology as we know it. On the other is everybody else, whether ardently dismissing Bitcoin or merely sitting on the sidelines. Let's be honest, naysayers are having a tough go of it in 2021. Tired arguments equating Bitcoin to Tulip Mania are obsolete. And even the most seasoned investment professionals who previously brushed off cryptocurrency are either getting involved or admitting they might have missed something.

This is causing investment managers who simply don't yet own Bitcoin for clients, the sideline crowd, to feel extremely nervous right now. and it comes down to fiduciary duty. A fiduciary is someone who has a legal obligation to take care of money on behalf of clients. The only remaining defendable excuse for an investment manager not yet allocating to Bitcoin is price volatility. A fiduciary, including Bitcoin in a portfolio, would launch the range of expected returns excessively wider than what was originally promised. A small 5% position in Bitcoin could be extremely fruitful in a year like 2021, but caused massive underperformance in a year like 2018.

In this thinking, the fiduciary has a duty to exclude Bitcoin because of the potential negative impact on investment returns. But price volatility doesn't necessarily equate to outright risk, and herein lies the complexity. Feduciaries have a duty to exclude Bitcoin from portfolios due to price volatility, but they are actually taking on an entirely separate risk hidden in plain sight, the failure to correctly identify monetary reality. The dollar might not cease to be the world's most popular currency denomination in the near future, But the stampede of 100 million people converting at least part of their savings and their mental

denomination to BTC is shaking the ground of every landmass on the planet. Those earthquakes resonate with a belief in Bitcoin as a consensus mechanism used to determine what is money or what is real. Now, saying that a fiduciary's job is to identify an existential shift in monetary reality sounds like a stretch. However, fiduciaries focused on growth should recognize an asset that completed a decade of 200% compound annual growth. And if they haven't, chances are they've started to underperform their peers. The underperformance should lead a diligent investor to ask questions about Bitcoin and the

technological and geopolitical shifts associated with an internet-based non-government currency. What does your fiduciary duty require of you? Can you afford to be entirely without ownership of what a growing percentage of the world's population consider an alternative, fully digital, and stateless monetary regime? When looked at from that perspective, it might be your fiduciary duty to own Bitcoin for your clients despite its price volatility. Here's the correct thesis for investment managers asking these important questions in 2021. It's time to own some Bitcoin for clients. The base assumption for fiduciaries can no longer be a dollar-only future. The monetary and cryptography sciences have officially merged, and Bitcoin has already achieved global reserve

currency status. Not owning Bitcoin is now the unhedged position. In an era of financial instability, an unhaged position is ripe for disaster. Owning some Bitcoin, even if in the smallest nominal amount, allows fiduciaries to demonstrate an understanding that the world's denomination is slowly changing, not away from the dollar to the Raminbi or Euro, but away from a dependence on government issued currencies. The change is subtle, especially with the global economy entirely reliant on the current monetary infrastructure. But those willing to read between the lines have already purchased Bitcoin for their client, whether they call it a hedge, a speculative bet, or a monetary revolution. Looking for the best way to unlock your crypto's liquidity? Nexo.io is exactly what you need.

Borrow against your digital assets at just 5.9% APR. Earn passive income with yields of up to 12%, and swap between more than 75 market pairs with the instant nexo exchange. Try the Nexo wallet app to get the whole 360 degrees of crypto banking. Get started at nexo.io. There's one final component to the argument for fiduciaries to allocate the Bitcoin. And that is human freedom. In the West, it's incredibly easy to ignore Bitcoin's potential as a tool for financial empowerment. Bitcoin receives demand from those looking to make a political statement against the monetary policy of the Federal Reserve and the European Central Bank. But we live in a world with serious problems plaguing our planet, such as environmental destruction, human trafficking,

and politically caused inflation. Today, so many fiduciaries are not only responsible for investment performance, but also for advancing corporate responsibility and positively influencing societal change. Financial Index publisher MCSI now provides ESG, Environmental, Social and Governance ratings, for over 14,000 corporate issuers as sustainable investing is transforming the entire approach to investment management. With Bitcoin acting as an alternative in inflation-raverage countries such as Venezuela, Argentina, and Nigeria, it has the potential to alleviate human strife. Maybe after reading this article, fiduciaries might say, suppress their own fears of crypto volatility to simultaneously pursue superior investment returns

and social impact. So back to NLW this time, and this one is a little bit shorter as my long read Sunday go. I feel like the last few have been like 35-minute beasts, of course, because they've been Nick Carter-Tomes. But the thing that I love about this piece and that I wanted to hone in on is this concept right here. An understanding that the world's denomination is slowly changing, not away from the dollar to the RMB or euro, but away from a dependence on government-issued currencies. To me, one of the most remarkable, perhaps the central remarkable thing about Bitcoin, is in exactly this. It creates, for the first time in modern history, a non-state alternative to state-issued currencies. It offers indeed an entirely parallel financial

system that while plugged into the state-run system is ultimately independent and of itself. This is why we can say with a straight face that governments can't ban Bitcoin. It's not that they can't make it extraordinarily difficult, even outright criminal, for their citizens to interact with Bitcoin. The functional reality is that a government taking that position is actually just banning their citizens from interacting with the Bitcoin network. They are damning them to get farther behind in a world in which interacting with Bitcoin is increasingly important. Part of the biggest difference between the way that Bitcoiners see the future and the way that non-Bitcoiners see the future has to do with presumptions about the continuance of state power. Bitcoiners on this

question fall in a full, huge range of different opinions, from those who believe and even want, a future in which states are extremely reduced in their power, to those who simply believe that in an internet world, in which people are constantly connecting with people from other places, other regions, other jurisdictions, from anywhere, working from anywhere, are not just more convenient, but fundamentally normalized, creates a very different relationship to people and geography. In other words, the state is inherently a geography-based construction, its power is based on its geography. To the extent that we live in internet world, in which geography is less important than ever, state power will necessarily decrease over time, even if not in some big dramatic fashion.

Now, of course, there are other countervailing forces. To read Peter Zeon, you might come away thinking that we've actually reached peak geography not mattering and are moving back into a world where geography matters very much, in his theory that has to do with the U.S. leaving the role that it is occupied for the last 50 years of being the world's policeman. Whatever the case, it's hard for me not to believe that the internet world, the world that exists outside of convenient state borders, is going to do anything but gets stronger. We haven't even really yet seen the true impact of virtual reality and what it will do to the way

that people choose to live their lives. In those worlds, not just the fully virtual worlds of virtual reality, but simply the internet world where people's connections and work are based on strangers they interact with on the internet but not in real life, internet native currencies are likely to make more and more sense. And internet native power sources are likely to claim away some of the power once held by the state. Now, that's a pretty deep conversation starting from the point of asset managers have a duty to hold Bitcoin, but I think that that's the conversation that Nick invited, and I'm here for it. Anyways, guys, I hope you're having a great weekend. I appreciate you listening. Until tomorrow, be safe and take care of each other. Peace. We're witnessing the

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