The Breakdown - Central Banks Gone Wild! Feat. Bill Barhydt

Episode Date: December 27, 2020

Bill Baryhdt is the CEO of Abra, a mobile crypto banking app. In this discussion with NLW, Bill talks about the year in bitcoin and why the mass expansion of central bank balance sheets was the most important economic story of the year. Find our guest online: @billbarhydt The Breakdown is produced and distributed by CoinDesk.com

There are so many examples now of countries whose currencies have failed where the population intuitively gets the idea of having an asset that's not backed by nothing, or at least not backed by scarcity the way Bitcoin is. That is, I think, the narrative that we're going to see evolve dramatically in the coming year as the institutions really push this idea of Bitcoin being a better gold. And I'm pretty excited about that because that's going to create competition to this government-driven monopolistic idea that that's the only money that exists and it's just obviously not true.

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 crypto.com and nexo.io and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, December 26th, and today on the breakdown's end of year extravaganza. I am joined by Bill Barhitt, the founder and CEO of Abra, a mobile crypto bank. Bill has some of the absolutely most interesting life experiences of anyone in this space and brings a ton of real world perspective to his thinking about Bitcoin and the markets. This was a great conversation. I know you're going to enjoy it. Let's dive in. All right, Bill, welcome to The Breakdown.

This is a long time coming. I'm really excited to have you on the show. Oh, thanks for having me. I'm excited. All right. So let's start easy and as big as it gets. What is the most important economic story of 2020? I think that the most important story is actually a kind of a tale of two narratives. On the one hand, we've got this now very clear tale of two economies because of COVID, where it's like digital versus everything else. And if you're not in a digital business, you are suffering. in a physical business, if you're in retail, travel, anything related to either of those, you're clearly suffering. If you're in a digital business that was doing well before,

your business might have started to accelerate. Certainly everything related to remote services, banking, et cetera, et cetera, has all done well during COVID. The other part of this kind of tale of two stories is where we are in the debt cycle. And I think that this is something that people really aren't paying enough attention to. I think it's been exacerbated by COVID, but it was already happening. And I think we saw this in the kind of rise of populism, which started really with Trump, but also had its own kind of versions in other countries. And this kind of rise in populism allows people like him, like him or not, to basically create any insane narrative that he wants And as long as it has a populace bent to it, someone is going to believe it.

And so I think the fact that we're very late in the debt cycle, as many smarter people have laid out than I, has really accelerated this idea that populism is back. And it's starting to scare me. But I think those are the two most important economic stories for me in 2020. Super interesting. You actually anticipated my next question, which was going to be, what is the most important economic story that people didn't pay enough attention to? And it sounds like the relationship of where we are in this long-term structural debt cycle to political realities was kind of your answer to that. Absolutely. And I think I'd break that down in two ways as it relates. I'll focus on the U.S. though, because it's more acute.

The first is clearly there's a failure within U.S. cities right now. whether it's SF, Seattle, Portland, San Jose. We need some kind of either technological revolution in our cities, but something that starts to work for everyone. I think we need to rethink U.S. cities, almost like city states, with their own requirements and try to keep them out of national politics, right? And just rethink and look at what works. Success leaves clues.

What's working in other countries that have survived COVID, for example, and where COVID didn't necessarily expose all of the structural issues in the cities the way they did in the U.S. And I am really scared about what's happening right now as a parallel to the 1930s. I think that we're at a point where monetary and fiscal policy are probably unlikely to work at all within 20 years. In other words, they're just not going to address systemic imbalances, whether it's our debts or other issues that you've probably talked about many times on the show, that can either lead to hyperinflation, some type of default, some type of depression, or some combination of the three. And if we don't start paying attention to the fact that this is looking more and more like the 1930s, the political implications of this

are going to be even worse than the economic implications of this. I think it's super salient. I mean, it's definitely something that I think about all the time and talk about on the show is just the, you know, on the one hand, we try to look at what's happening on a macroeconomic level, kind of regardless of politics, but you really have to include, like, these decisions, these discussions are inherently political, whether we want them to be or not, you know, and it doesn't mean they have to fall along party lines, but I do think that we need to be comfortable with discussing political implications as a part of them, for sure. So next question is, what is an economic story?

the inverse. What's something that people paid more attention to than they should of this year? Maybe an overstated narrative. Well, obviously, everybody in economics wanted to talk about the rally in stocks, especially during the second half of the year. I think the fact that we printed $4 trillion on dead trees to generate the rally in order to prop up consumer spending and line the pockets of the already wealthy was really the important story. And it really relates to the last question for me. And this is a structural imbalance that I don't think that fiscal and monetary policy is going to be able to fix. But everybody has been focused on stocks. And it's just, it's very unfortunate that we're missing kind of the forest through the trees, I guess, you might say.

I completely agree. There's also a very acute way of putting it. I guess this is kind of along those lines. Do you think that this past year represented a fundamental or paradigm shift or an acceleration of shifts already happening? I think that it probably accelerated this acceptance that the digital world is the new world and there's no going back. And any business that isn't digital is becoming digital or is in some way dying and there's probably not much you can do to keep it from from dying. I don't know if that's related to your question. I don't know if that's like fundamental in terms of like a new world or paradigm shift, but it's clear that if your business isn't in some way digital right now, you're suffering.

And that all not only relates to business, but in most aspects of our life, whether it's how we eat, how we learn, how we educate our kids, how we work in terms of our home office and our home life. It's changed how we think about cities. I live near San Francisco, and I'm every day I'm talking, and I'm not exaggerating, literally every day I'm talking to someone who's leaving to go either to suburbs or a smaller city or to a place like Tahoe or something like that because there's no point in staying in San Francisco. So I think that that acceptance, at least for the near term, is crystal clear that it's not going to change anytime soon. As a 10-year resident and ultimately refugee of San Francisco, I definitely feel that.

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flexible repayment. Not to mention, the APR starts at just 5.9%. Stay on top of your investment game with nexo.io. And remember, it's your crypto, your credit, your choice. Get started at nexo.io. Let's shift over into crypto for a few minutes, I guess. And again, we'll start big. When all was said and done, what were the biggest crypto stories of the year?

The obvious crypto stories for me are institutional interest in Bitcoin as an asset class. And because of the idea that Bitcoin is becoming a digital gold for people that traditionally would use gold as a safe haven in these type of cycles that we're in now, most are still buying gold, but many more are starting to look at Bitcoin as potentially, a better returning asset class. And then, of course, there's the corporate treasury aspect of this where we have companies that have put a piece of their treasury into Bitcoin. And I think that's going, that story is going to accelerate into next year as well. I think a lot of these kind of, let's call them early adopters of this idea are probably considered crazy by a lot of other, you know, corporate treasury management types who don't really understand what's going on and why.

because they haven't paid attention. The second story for me is the Defi story and the fact that we basically went from a standstill to effectively a really big market, still nascent by big finance standards, but to a relatively big market within a few months. And I don't think there's any going back now. The genie's out of the bottle and I think you're going to see a lot more use cases for DFI prop up over the next year. And I'm really excited about it. I think there's a long way to go. I think there's a lack of understanding of the regulatory landscape. I think the D in DFI is misunderstood. And that's going to lead to some regulatory pain. But I think the value propositions there are interesting enough that these things will be worked out. And I'm pretty excited about it.

That's interesting. I was going to, one of my next questions was about DFI and perception of significance of that as a part of the kind of larger crypto narrative. Yeah, I think it's huge. I think the idea that you can replace decades-old systems with systems that in theory don't have an off switch or at least don't have a single corporate off-switch is very compelling. The fact that you, or the idea that you can have markets that are open 24-7-365 because they're completely decentralized versus, you know, we just came out of a Thanksgiving holiday where basically nothing happens that wasn't crypto for four and a half days, right?

So the idea that the crypto markets were completely functioning and open and doing exactly what they needed to do during that time frame speaks volumes to how those systems work versus how our archaic, arcane monolithic financial systems of old work and how they're likely to be replaced. And it can't come fast enough as far as I'm concerned. and it just leads to more competition in ideas, in technology, in platforms, and that's good. It's only going to help in the long term. So speaking of competition and advancement, what is an unheralded advance in this space over the last year?

Or underheralded, maybe is a better way to put it. Underheralded. That's an interesting question. I think, wow, I mean, everything gets covered so much now. I mean, it's like, I'll say that the public, I don't know if this is exactly the intent of your question, but I think that there's a bubble that's formed around crypto. There used to be a bubble around Silicon Valley, and I guess there still is, but there's a separate bubble around the idea of being in the crypto space that you're either in or you're not in. And the way we talk about it from the inside as kind of a fecumplea in terms of how it's going to evolve, how it's going to change everything is so foreign to the people outside the bubble that when they hear us talk about, you know, collapsing currencies and, you know, the dollar going away and via hyperinflation and other failed currencies, it just doesn't resonate, you know. And I'm not saying that it's not, that doesn't mean it's not true.

I'm just saying that we've basically created this bubble of people that feel like they're in the no on the inside. And this bubble of people who are, or I guess not bubble, but everyone else. And everyone else is way bigger than the group that's in the bubble. And I don't know that that's healthy or even useful unless, of course, your goal is to just make money. But if your goal is to basically, is to change the world, then the bubble is not helpful. And so at some point, we have to figure out how to leverage this technology in a totally inclusive way. And I think that the stable coin narrative is one aspect of this that I find particularly interesting because I think that stable coins were created out of a need for

almost regulatory arbitrage for trading. But I think their future is much, much bigger than that in areas of lending and supply chain and money transfer that people aren't even talking about yet. And so I think that could be the application of crypto that pierces the bubble over the next couple of years, and time will tell. You know, I mean, once you start to see stable coins as a digital version of the Eurodollar system, which, you know, dwarfs kind of the system above the sea, you know, if this is an iceberg analogy, it's not hard to start to walk down that path. It also explains a lot why you see people like Christine Lagarde coming so aggressively at stable coins, even as she's starting to tout a digital euro. Well, yeah, although I saw that and I was a little surprised because

that's a little bit of the wag the dog nonsense because, look, the fact that the petro dollar is done and basically is dead men walking for the next couple of decades and then people will realize it and it'll be written about in history books is going to happen regardless of whether there's a central bank digital currency in any given country or whether stable coins become popular. It doesn't change. There's nothing about stable coins that changes the government's ability to do government-driven stimulus or central bank's ability to do fiscal stimulus, right? And so, in other words, any stupid thing that they could do before stable coins, they can do

after stable coins, and they will. And so I don't think that her comment matters in any way to be able. honest, because they're going to do whatever they're going to do regardless. The properties of stable coins are more or less the same as the properties of paper with the exception of the fact that, you know, there's no dead trees. In other words, I can still print as many as I want. And as long as I can do that, and they're not backed by anything, eventually you're going to hyperinflate your way into non-existence, which is where this is headed. I guess actually related to that is how big a deal do you think this rise in discussion of central bank digital currencies are?

I think it's useful because there's certain things that governments couldn't do before we fail, right, in terms of moving money around, dealing with tax refunds and stimulus payments, places, especially in developing markets where paper money carries disease. I spent a lot of time in Haiti. and during the cholera epidemic, people really were afraid of handling paper money because they didn't know what they were getting when they touched it. And so that's part of the narrative that we don't hear very much about paper money. But there's a lot of applications of central bank digital currencies that make it useful for a few years. But it doesn't change this idea that there's no savior for fiscal and monetary policy.

outside of moving away from these assets that are backed by nothing, but that doesn't address what you do with the problem you've created in the meantime. And so there's nothing that a central bank digital currency is going to do to fix any of that. Let's talk about the biggest risk to Bitcoin in the years to come. And same question for crypto, because the answer might be different, depending on how you choose to define your terms. Yeah. I think there are a few risks that I see in the Bitcoin world.

I think that there's broad acceptance that Bitcoin is a settlement network, at least at the core technology of Bitcoin, and it will not be useful for payments because it will not scale for that. And we will rely on layer two technologies like Lightning, which I'm very bullish on to scale. But those technologies have not scaled yet, and we need them to. And so I'm hopeful, but I want to see that happen soon, soon being like in the next few years. And I think Abra, my company will have a role to play in that, and I hope it works. But I think there's a tech risk there that we haven't really dealt with yet because, again, the narrative right now is digital gold, and that's perfectly fine. I mean, Bitcoin is playing out kind of the Austrian economics rulebook to the letter, right?

It's supposed to be hoarded as a deflationary asset until its value is just too great to be hoarded anymore, and that's what's happening. So that's good. I would say that the second issue that concerns me is, I think, going to start to see at some point there's going to be this discussion of what are my rights as somebody holding a wallet on my own, right? Nobody argues with the idea that an ABRA or a Coinbase or somebody that actually holds your digital currency is some type of regulated entity. But what are my rights as somebody who's actually holding my own Bitcoin in a wallet on my own computer or on a piece

a paper with a key on it. And all of a sudden now, from nowhere, we're hearing these stories that the government wants to, may want to force people to register their own Bitcoin wallet. It's almost like you would have to register your drone, right, that you're your toy drone. And this is a really scary idea, to put it mildly, right? Not only has the Supreme Court in the United States come out and make clear that, you know, personal ones and zeros are protected free speech. In other words, any software or digital files you're holding is protected free speech. But the, you know, the kind of dystopian and an Orwellian path that you're going down, I mean, there's no going back from that once you start down that path. And I don't think it's going to happen. I think we have a

Supreme Court now that's conservative enough where they're always going to err on the side of free speech, at least for the next decade. But just the fact that we're going to be having that conversation is very worrisome because you have a lot of ignorant people who don't understand the technology who are going to be opining on this because that's what politicians do. And that is disconcerting. I mean, this is definitely a thing that is coming up more and more as a different dividing line in terms of how people think this industry will adapt and adopt. Will it be totally co-opted by both big money and big power? Or will it be able to retain this sort of freedom piece. And it sounds like you have both some fear but also some hopefulness on that front.

That is exactly right. I don't see governments winning in terms of inadvertently creating a dystopian model out of Bitcoin because we have enough prior art in the law to prevent that from happening. But that will not prevent the conversations. And a lot of ignorant people can do a lot of damage in the meantime and also create a lot of fud with people. who aren't as technologically savvy as we are to know the difference between software's free speech and something that could be a terrorist tool, for example. What's the most important Bitcoin or crypto narrative for the coming year? Obviously, price is going to be one of them, which is a little boring, but I do think we're headed

towards 100,000. I think it's the digital gold narrative. I think that's the digital gold narrative. I think the other piece of this as the world starts to reopen, and I think that's probably the most important narrative, you know, transcending crypto is the reopening of planet Earth in 2021. But I think that there's going to be a renaissance of retail interest in cryptocurrencies for lots of reasons. And this kind of fear of what's happening with governments is going to be a part of it. and I think that's going to create just a huge groundswell of global interest. And a lot of this is going to be outside the U.S. I think there's a lot of countries that understand this narrative way better than we do.

We always use Argentina as one of the examples because they've gone through, you know, hyperinflation cycles so many times. But there are so many examples now of countries whose currencies have failed where the population intuitively gets the idea of having an asset that's not backed by nothing, or at least not backed by scarcity the way Bitcoin is. And so that is, I think, the narrative that we're going to see evolved dramatically in the coming year as the institutions really push this idea of Bitcoin being a better gold. And I'm pretty excited about that because that's going to create competition to this government-driven monopolistic idea that that's the only money that exists.

And it's just obviously not true. All right. Awesome answer. And last question, what's one prediction only you have, or at least it feels sometimes like only you have? I think we are going to have lots of successful cryptocurrency projects over time. I think most will fail. I think most having lots of cryptocurrency projects is a good thing

because the technology competition that we get as a result is necessary to propel the space forward. It's very difficult to modify Bitcoin now. As it's almost $300 billion asset class, you don't want to be effing with the code on a regular basis if you don't have to be, but we can create all these alternative currencies

that test all of these new technologies. Most may die, but a few of them may break through and end up solving really big problems for us. And I think that we're going to see lots of new and exciting projects that kind of transcend the Bitcoin and Ethereum narrative over the next 18 months. Awesome, Bill. Thank you so much for hanging out today. Always great to chat.

And I can't wait to have you back on the show. Anytime. Thanks, Nathaniel. I really appreciate it.