The Breakdown - Central Bankers Triumphantly Declare Fiat to Have Beaten Crypto

Starting point is 00:00:04 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 produced and distributed by CoinDes. What's going on, guys? It is Sunday, and that means it's time for Long Read Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly.

Starting point is 00:00:36 slash breakdown pot. All right, guys, well, today we have a fun little LRS for you. This week we are pulling entirely from Twitter, and we are discussing some big themes, Bitcoin versus Central banks and so much more. And indeed, that's where we're going to start with something that I ended a show on earlier this week. For a little bit of context, the Bank for International Settlements is sort of like the Central Banker's Central Bank. It might not surprise you then that they've never been all that keen on crypto. Well, you can tell just how much the narrative cycle has shifted in their minds, in that now they're not even just crapping on crypto, but dismissing it as irrelevant. BIS chief Augustin Carstens was on Bloomberg this week, and when asked about whether

Starting point is 00:01:24 crypto was a real alternative to fiat, he said, that battle has been won. A technology doesn't make for trusted money. Only the legal, historical infrastructure behind central banks can give great credibility to money. Now, with the caveat that just trying to be a competitor to money is not all that crypto assets are trying to do, still not everyone in crypto totally disagreed with Carston's point. Crypto hedge fund manager Travis Kling wrote a fairly bleak threat on this. He says, hot take, he's not entirely wrong. It remains to be seen what will happen in the future, but at present, I wouldn't characterize us as winning. Bitcoin hasn't acted like a store of value. It's acted like an unprofitable SaaS stock. This doesn't appear set to change any time soon.

Starting point is 00:02:10 Bitcoin will likely move about like an unprofitable SaaS stock in the future. It's basically the inverse of the Dixie, which proves Carston's point. Stable coins are far and away the use case for crypto that has gained the most traction, but that's not exactly a trophy for crypto over Fiat. It's crypto facilitating access to Fiat, specifically U.S.D. There appears to be strong demand for this avenue of access to Fiat. Bitcoin and Stables. Nothing else in crypto is competing to be money. ETH may be one day, but it's way too early to make that call here.

Starting point is 00:02:36 Nothing else on the horizon is even in the conversation. And none of it is trustless. Crypto as it currently exists has trust intertwined all through it. The Bitcoin Protocol is trustless, but we've wrapped all this trust around it, and that trust has been kicking our ass. If you honestly assess where the crypto market is today, I can see why he's feeling good about Fiat. Crypto has been crushed by fraud and bad actors.

Starting point is 00:02:58 Regulators have this thing completely by the balls, and we don't have the political goodwill in D.C. to effectively fight back. right now. Bitcoin's price is about the same as it was five years ago. And if you look at the totality of what's been accomplished in this ecosystem over those five years and where it boils down to today in 2023, doesn't look like we're barreling down the road to victory over Fiat, not even close. I don't mean to imply the current situation is hopeless, far from it. But we need to be honest with ourselves about how much of a positive impact crypto has actually had on the world to date and what that outlook is. And then act accordingly if you care about that sort of thing.

Starting point is 00:03:29 If we keep shooting ourselves in the foot with the same bullets cycle after cycle like we've been doing, Carson's is going to be making the same speech five years from now, and what an absolute shame that would be. So like I said, a fairly bleak or perhaps depending on your perspective, just brutally realistic thread from Travis. And yet, Travis's wasn't the only response making the rounds. Cosmo Crickster is a bitcoiner who has created something of a cottage genre in writing open letters to people who have recently critiqued or otherwise threatened

Starting point is 00:03:59 Bitcoin. Now, he does a recording of his most recent letter on his substack, which you should go check out to support him, but I just had to read it here as well. He writes, an open letter to Augustin Carstens, head of the Bank for International Settlements, February 22nd, 2023, Block 777-84-8. Dear Mr. Carstens, I am writing to you a day after your public comments about a central bank digital currency versus Bitcoin. When you said, that battle has been won, a technology doesn't make for trusted money. I have so many fun thoughts swimming around. in my head because of your comments. First, you gave away the game right away, didn't you? That's the silliest thing about what you said. It shows that literally everyone who is even

Starting point is 00:04:37 half aware of CBDCs knows that the entire reason for their existence is because you yearn to kill Bitcoin. It is said that every overreaching form of authoritarian control contains within it the seat of its own demise. Bitcoin was built specifically because the central banking systems of the world fail their people. Bitcoin was developed and deployed because Fiat currencies failed and continued to fail as technologies. Central banks pump the overall money supply. You inflate and degrade your currencies, and you fail anyone and everyone trying to save in those currencies. You do it again and again with every new war or emergency, regardless of who is in power. Sometimes, it even feels like you manufacture wars and emergencies just so you can inflate currencies.

Starting point is 00:05:20 And now, as you develop CBDCs, you integrate surveillance and currency manipulation technologies onto them in such a way that, to quote you, from a speech you made last year, a key difference with the CBDC is that central banks will have absolute control on rules and regulations that will determine the use of that expression of central bank liabilities, and that we will also have the technology to enforce that. Mr. Carstens, what a dastardly goal to strive for? Absolute control? Isn't the goal of a civil society to respect and exalt the freedom of individuals so they may have their lives in peace? No one wants to live with the fear of an all-seeing totalitarian eye watching their every act,

Starting point is 00:05:59 whether those acts are economic or not. On the one hand, we have the Bank for International Settlements Aspiration, central bank digital control money, a full integration of governmental domination, enforcement and surveillance technology all rolled into one, with a heavy dollop of degrading inflation on top. And then there's Bitcoin, a rules-based network without rulers,

Starting point is 00:06:19 with a fixed issuance, uninflatable, globally distributed, controlled by no one, usable by anyone. At this point, I'll indulge myself and quote to you from The Matrix, a truly prescient film. I know you're out there. I can feel you now. I know that you're afraid. You're afraid of us. You're afraid of change. I don't know the future. I didn't come here to tell you how this is going to end. I came here to tell you how it's going to begin. I'm going to hang up this phone, and then I'm going to show these people what you don't want them to see. I'm going to show them a world without you, a world without rules and controls, without borders or boundaries, a world where anything is

Starting point is 00:06:53 possible. Where we go from there is a choice I leave to you. Let's be clear. Bitcoin is anti-inflation and anti-totalitarian technology. You saying it has lost does not make it so. And I'll bet you one Satoshi that you know that and you already own some of your own. Because in your mind of minds, you know that fiat is failing. If I'm wrong, download a Bitcoin Lightning wallet, send me an invoice and I'll send you that Satoshi so you can start saving. Sincerely Cosmo Crookster, Bitcoiner. Obviously this is meant to be both real and fun at the same time, and I think it succeeds mightily. Join CoinDesk's Consensus 20203, the most important conversation in crypto and Web3, happening April 26th through 28th in Austin, Texas.

Starting point is 00:07:38 Consensus is the industry's only event bringing together all sides of crypto, Web3, and the Metaverse. Immerse yourself in all that blockchain technology has to offer creators, builders, founders, brand leaders, entrepreneurs, and more. Use code Breakdown to get 50. 15% off your pass. Visit consensus.coindex.com or check the link in the show notes. Now, since we are on this theme of central banks, I thought it would be interesting to tie this

Starting point is 00:08:10 back together now with a thread from Brendan Malone. Brendan Malone works in policy at Crypto Fund Paradigm and wrote a really interesting thread. He says, I'm a recovering central banker who now works in crypto. I have a lot of appreciation for U.S. policymakers worrying about risk in the financial system. Crypto gets tons of attention because it's an easy target, but the real problems are so much bigger, in my opinion. People want to hold USD money to store value and make payments. Most are familiar with cash and bank deposits, but there's actually a spectrum of assets of varying quality that act like money, Euro dollars, repo, commercial paper, etc. This is what people are

Starting point is 00:08:48 talking about when they reference the shadow banking system, money moving around the financial system outside of traditional banks, i.e., primarily in non-banks. some amount of shadow banking activity is good. It allows the money supply to be more reactive and expand and contract with economic activity, which helps fuel economic growth. At the same time, our regulatory and political apparatus, and the underlying tech systems weren't really designed for a system this large, opaque, and multidimensional. We saw this in 2008 and 2009, which was as much about shadow banking and financial plumbing as it was about subprime housing and complex derivatives. And the same in 2020 with COVID.

Starting point is 00:09:25 In times of crisis, people want to be able to freely convert whatever they are holding into something safer on the spectrum. Sadly, sometimes market liquidity isn't there, so the Fed comes to save the day and kicks the can down the road regarding the bigger problem. Core issue is that people want safe dollars in places they can't have them due to technical, institutional, or geopolitical reasons. So, sovereigns hold U.S. treasuries, hedge funds in HARTs use repo, the crypto economy has stables, etc. So where are we now? Since 2008 and 2009, Treasury market has gotten significantly larger, more fragile, and more complex. Banks have even more restrictions on creating deposits. Demand for safe assets keeps skyrocketing. On top of that, the geopolitical landscape has changed dramatically. U.S. sanctions and seizure of Russian USD assets, KSA and others reducing U.S.T. holdings,

Starting point is 00:10:17 etc. Others have written about these issues and are way more knowledgeable than I am, and would love to get everyone in a room to noodle on the problems and solutions because feels like we're sitting on a Tinder box here. And so much policymaker attention is fixated on crypto, which is, one, a small market overall, two, skeptical of credit, three, more transparent and predictable by design, and four, risky in part because people want safe dollars on chain, but they can't have them. Crypto is not perfect today, but every day it is getting better as people internalize lessons from past experiences and build in the open with regulatory clarity.

Starting point is 00:10:50 It's rocky sometimes, but the direction of travel is towards progress. Obviously, I'm simplifying a lot here, but would like to see the big issues in traditional financial geopolitics tackled with similar vigor, creativity, and openness as crypto. Most of all, we need clear strategic direction because it feels like we're grasping at straws. Now, this is a super interesting threat, right? If you want to just have a real quick TLDR on this, what Brandon is saying is that, yes, crypto is meaningful and important, but it's a response to an underlying, set of problems, which probably should be taking up a bigger portion of policymakers' time and energy

Starting point is 00:11:25 and attention. In a weird way, this is reminiscent of what Jamie Diamond has said or does say every time he gets asked about crypto, which is, guys, this is such a small percentage of the overall market. Why do you keep asking me about this? I think that to some extent, the reason that crypto looms so large, much larger than it might from a sheer size of market perspective, is that in its design, in its conception, in its application, it is actually cutting to the quick of a lot of these bigger questions. Or rather, it's saying in the absence of you guys, you guys being the power structures, whether it's on a national or international level, actually addressing this set of problems and this set of concerns,

Starting point is 00:12:12 we're just going to build our own solutions. That is at once what's threatening about cryptocurrencies and crypto assets, but also what's liberating about them to so many. There is a temptation in parts of the world where systems broadly work, when confronted with problems that are bigger than oneself but are on a national or global scale, to wait for someone else to solve the problem. There are at the same time, however, many parts of the world where simply waiting for someone else to solve the problem is not only unlikely to result in the problem getting solved, but in which the people who would be in the position to solve the problem are the ones creating the problem in the first place. That's the type of context

Starting point is 00:12:56 where novel technology-based solutions like crypto, like stablecoins, are so important and unsurprisingly finding their greatest traction. I agree with Brendan wholeheartedly that a lot of our discourse should be on the much more fundamental questions of the monetary system. And in the U.S. the fragility of past assumptions and their ability to predict what comes next. And yet, even as we do so, even if those conversations happen, I can guarantee you that the Bitcoin builders and the crypto builders and the stablecoin builders are going to just keep right on building. Because they're of the ilk of people that isn't going to sit around and wait for solutions

Starting point is 00:13:38 to be presented to them. Anyways, thanks to all of the folks who contributed content that I read today, Travis Kling, Cosmo Cricster and Brendan Malone. Super, super fun to dig into your work, and I appreciate each and every one of you. And of course, that goes for all of you guys listening as well. I hope you are having a great weekend. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Central Bankers Triumphantly Declare Fiat to Have Beaten Crypto

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