The Breakdown - Everything You Need to Know About Elon, Jack and Cathie’s Bitcoin Chat

Episode Date: July 23, 2021

On this episode of “The Breakdown,” host NLW dissects a highly-anticipated discussion between Cathie Wood, Jack Dorsey and Elon Musk at yesterday’s “The B Word” conference, including: Wood’s predictions of deflation rather than inflation Dorsey’s unwavering belief in bitcoin as the internet’s native money Musk reveals he, Tesla, and SpaceX all hold bitcoin Wood, one of the earliest Wall Street investors to get into crypto, has been through enough market cycles to have a nuanced understanding of the space. She revived one of her long-standing themes of Bitcoin’s rules-based monetary policy, especially relevant now as central banks operate on unbounded monetary policy. She also touched on recent inflationary concerns, specifically ARK’s belief that deflationary concerns are likely to emerge in the long-term. Twitter and Square CEO Dorsey has been a consistent ally to Bitcoin. Dorsey highlighted a few of his projects dedicated to a more decentralized future, including Square’s upcoming self-custody hardware wallet and Bluesky, a project to develop an open and decentralized social media platform.  The controversial Musk's contributions to the discussion garnered mixed reactions from the community. Most notably was his admission that outside of Tesla and SpaceX shares, bitcoin is his biggest investment. Additionally, his now-famous statement  “I pump but I don’t dump” was backed by his revelation that SpaceX, in addition to Tesla, held BTC. He affirmed the three have never sold their BTC holdings. While Wood recruits institutional investors and Dorsey builds tools to improve the space, what is Musk’s role in helping or hindering Bitcoin? -- 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 sponsored by NYDIG https://nydig.com/nlw/ The Breakdown is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Razor Red” by Sam Barsh. Image credit: Screenshot from The B Word, modified by CoinDesk.

Think about it this way. The audience watching, at least that intended audience, likely was only barely following the technical details of what he was saying anyway, from a substance standpoint. What they saw was a group of three highly influential people agreeing about the important role that Bitcoin could play in the future of money and the internet. That's the takeaway. 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 Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Thursday, July 22nd, and you know what we're talking about today.

The B Word was an event held by ARC that was meant to demystify Bitcoin, and specifically to demystify it for institutions that had perhaps gotten off track with Bitcoin and their relationship with Bitcoin during the absolute craziness of the first part of this year. To that end, yesterday saw sessions on energy and mining, courtesy of Nick Carter, sessions on the macro context with Lynn Alden, discussions of human rights in Bitcoin with Alex Gladstein. But there was absolutely no doubt that the most anticipated part of the show was the discussion between Jack Dorsey, Kathy Wood, and Elon Musk with Steve Lee from Square Crypto moderating. As I said yesterday on the show, the whole thing had come up theoretically spontaneously on Twitter with Elon making a joke on one of Jack's threads. At least that's what we were made to think. It seems far more likely to me that the whole thing was engineered by Wood herself, who was,

up until very recently, the connective link between Elon and the Bitcoin space. Whatever the provenance of the discussion, however, there is no doubt that the market had serious anticipation around what was going to be said. Bitcoin had rallied from under $30,000 on Tuesday to around $32,000 as the discussion began. the best way to highlight the event is to go person by person and give a little sense of the highlights of what they discussed. From there, I can provide a bit more of the shared sense of how the discussion proceeded. Let's start with Kathy Wood. Before there was Michael Saylor, who was noticeably absent yesterday, there was Kathy Wood. It will come as no surprise to any of

you listening who have heard either of my interviews with Kathy over the last year that I think she's one of, if not the best spokesperson Bitcoin has when it comes to the world of traditional finance. The biggest reason? She has credibility on both sides. I thought it was hilarious to read a few people on Twitter compliment her by saying things like, man, she really did her homework. Kathy started exploring Bitcoin in 2015, long before the vast, vast majority of people did. As you might imagine, that made her one of, if not the earliest Wall Street investor to be active in the space. It also means that she spent more than a half decade learning about and engaging with Bitcoin through a full range of market cycles. Chris Berniske of placeholder ventures got his start working

with Kathy at Arc. That's a position that Ysene Almondra now holds, and by the way, I'm sure that Yacin is going to do some baller shit whenever he decides that his tenure at Arc is up. Anyway, the point is that she's been paying attention to Bitcoin and investing in Bitcoin a lot longer than the average member of Bitcoin Twitter. And that's 100% no shade on anyone who joined more recently. I'm stoked for every Bitcoiner who joined the party, whether it's last year, last month, yesterday, or today, period, full stop. It's just to point out that Kathy has Bitcoin credibility. She also, though, has Wall Street credibility. Kathy is basically the definition of a high-conviction investor. She built her firm around a thesis of disruptive innovation that

never wavered regardless of market cycles, and many of her bets within that were similarly high conviction. She backed Elon, for example, when others on Wall Street were laughing at him. It wasn't until last year that Wall Street really started to get it, and ARC funds went from low billions in assets under management to the $50 billion plus allocated across the ARC family of ETFs today. That said, ARC is not immune to market cycles. The Bitcoin chart for the last few months looks pretty similar to ARC's flagship innovation ETF.

This is likely in part because many of the same larger forces, inflation concerns stoking fears of retreat from accommodated monetary policy that would impact valuations, would be equally applicable to both Bitcoin and an innovation ETF, but still, there is no denying Kathy's influence. So, what did she discuss? Well, frankly, Kathy hit many of her key longstanding themes. She lauded, for example, Bitcoin's rules-based monetary policy. That was a designation she attributed to her old mentor, Art Laffer, and I've heard her use numerous times. Rules-based monetary policy as a concept is particularly resonant in these days of unbounded monetary policy on the part of central banks. And for what it's worth, I think pointing out the difference in the

system itself, i.e. the way that the rules are set up, has some merits over pinning Bitcoin to a particular anticipated outcome of your critique of the system, like inflation. In other words, point out what the system does differently, i.e. a rules-based monetary policy versus a human-based monetary policy and let people come to their own conclusions about what the implications of that policy would be. Speaking of which, Kathy also reiterated that Arc believes that the inflation we have to worry about is an inflation, but in fact deflation. There are a variety of reasons for this, the relentless force of technology driving down cost for one, but there's also the particular long-term outcomes of monetary policy that they believe most likely. In ARC's estimation,

part of the byproduct of long-term sustained low-interest rates is that companies have levered up to buy back their own stock, thus increasing their share price, but at the expense of both truly growing productive capacity, as well as at the risk of more debt on the books. If this whole thing unwinds, there could be intense deflationary pressure as companies have to spend their resources servicing that debt instead of building new products, building new services. Now, fascinatingly, she and Arc argued that Bitcoin is still a great hedge even in that environment, despite the fact that we so often talk about it in the context of an inflationary environment. And that's for two reasons. First, she thinks that based on the global adoption of the dollar

as a reserve currency, a deflationary unwind in the U.S. could lead to hyperinflation elsewhere, in which case Bitcoin as a fixed supply asset would obviously be a valuable hedge. Second, one of the key risks in a deflationary moment is counterparty risk. Counterparty risk is, as Kathy pointed out, how failures during the great financial crisis became cascading and endemic across the system. And put simply, it's that someone owns the debt that you can no longer service. That's counterparty risk. Bitcoin Ark argues is a great hedge against counterparty risk, and this alone should have

corporate officers considering it for their balance sheets. By the way, this sort of deflationary spiral that might see endemic counterparty risk in developed markets, alongside hyperinflation in developing markets, is another part of the reason for wanting something neutral, like Bitcoin as a remittance currency. That question of why not just use stable coins as a remittance tool, especially given how high the demand for dollars around the world is, came up. The answer was sure that works now, but what about in these volatile long-term context, having something neutral makes sense. Now here, let's take a moment to remember who the stated audience for this show is. It was meant to give corporate officers and public market investors more information and tools

to evaluate Bitcoin. In that light, think about the value of giving an argument for Bitcoin in a deflationary environment. In other words, if Bitcoin advocates have tied Bitcoin's value exclusively to the context of inflation, what happens if that proves not to be a severe problem? But alas, Kathy did not monopolize the time during the presentation. In fact, a lot of the commentary I saw on Twitter was wishing that she had. One of the most important developments in this space is that community banks, regional banks, and credit unions can now start offering Bitcoin to their customers. That's right. Checking, saving, and now Bitcoin. It's all happening seamlessly thanks to a platform by NIDIG that offers institutional-grade custody and compliance. They're also the sponsor of The Breakdown.

And if you want to find out more, go to nidig.com slash nLW. That's nydig.com forward slash nlw. Jack Dorsey was his typical understated self. In the same way that Kathy reiterated her vision of Bitcoin as rules-based monetary policy, Jack reiterated his belief in Bitcoin as the Internet's native money. There were a few other interesting nuggets as well. Jack discussed again his belief that design is both one of the biggest challenges but also one of the biggest opportunities for improvement in Bitcoin,

especially around self-custody. I might summarize his position by saying that, yes, self-custody is indeed integral to the full unique benefit Bitcoin offers, but the solution can't just be educating or informing people about the importance of self-custody. It has to be about designs that make that easy. Square has obviously set out to do this with their new hardware wallet initiative, and Jack also called out some products he thought were on the right track. When asked about his biggest current focus, Jack talked about Blue Sky.

Blue Sky is an initiative to build a decentralized social media engine that would reimagine social networks without a centralized authority. This came up in the wake of Twitter banning Trump. Jack talked about both why they made the decision and why he thought it would be better if centralized platform authorities didn't have that sort of power going forward. The intention of Blue Sky is to build something that both Twitter and others can eventually use. Now, nothing new was revealed. I just thought it was notable that he listed it so highly among his priorities. Speaking of priorities, the crayon below his name listed TBD as his affiliation. TBD is Square's new business division focused on bringing decentralized financial services to Bitcoin.

One thing that stood out clearly is that Jack believed the implications of Bitcoin as an internet native money were fundamentally different business models for the internet. He argued, for example, that if Bitcoin had existed when Twitter started, they wouldn't have had to use advertising as the business model. One of the notable parts of the show came when Elon asked Jack if Twitter would accept Bitcoin as payment from advertisers. He sort of set it up to be a big announcement moment, but Jack demurred a bit, effectively saying that he was more interested in trying to shift the underlying model entirely, which is a very true answer, but also shows that Jack, God bless him, does not think in terms of flashy media moments. Finally, when asked

what his hope for Bitcoin was, Jack said that it was to bring about world peace. To be clear, this is not your 1960s Redux hippie world peace desire. Instead, it reflects a set of beliefs around Bitcoin including that, a sound money standard could reduce resources for making war, and that second, by breaking the state's monopoly on money, it makes the state's monopoly on violence less potent. More on that state monopoly on violence in just a minute. Now let's get to Elon. And first, I think it's worth asking why, why, after all of this, does the Bitcoin community still spend so much time courting Elon? I've thought a lot about this, and the cynical answer is, of course, that we want them to pump our bags. Citical doesn't mean wrong, and there is certainly some

truth to this loathe as we might be to admit it. But I think there's a larger thing going as well, which is that on a very fundamental level, Bitcoin is still in a phase of recruiting allies. Think about it. Bitcoin is moving to a larger place on the world stage. That larger significance is drawing more scrutiny from traditional power centers, be they media, corporate, finance, or governmental. How does the Bitcoin community fight that? Well, we could certainly go it alone, or we could recruit people who already hold places of esteem in those larger systems. This, I think, is why every politician who throws the laser eyes up on Twitter gets so embraced. It's because there is a sense of struggle and battles to come and a desire to have more people on Team BTC.

In that context, we can't necessarily just cast aside allies because they have some heterodox opinions or even do things that piss us off. So, if the pump our bags was the cynical take, this ally recruitment phase, is the problem. perhaps overly romanticized take. The truth is probably somewhere in between. Either way, it felt pretty clear to me watching this that a big part of its purpose was to be a detente between Elon and the Bitcoin community. Many Bitcoiners were furious that Jack and Kathy didn't push back on some of Elon's more out-there ideas and arguments around Bitcoin, particularly things like block-size debates that felt like such a rehash of previous arguments. Many others were frustrated by his continued focus on Doge, which he lauded not just for meme value, but also in the

the context of whether there were scaling opportunities at Layer 1 with Doge while there weren't with the base layer of other blockchains. As silly as a lot of that discussion was, I wasn't really bothered by it for a few reasons. First, as I said, I don't think the point of this was for Jack and Kathy to put Elon in his place. It was to establish that he is still an ally, particularly with regards to analysts from traditional finance watching. Second, we get to decide how we deploy Bitcoin's immunity system. By all means, push back hard. if Elon starts coming with real proposals for things that we find abhorrent and trying to explicitly rally the community around them, but that's not really what these things are. I don't even really

see them as test balloons with him wanting to implement these proposals. To me, it strikes me, and I could be naive about this, like Elon musing out loud about questions and thoughts. I don't think he has much of an inner monologue. And I think it would be a net negative in this setting to have bitten his head off for having those thoughts. Think about it this way. The audience watching, at least that intended audience, likely it was only barely following the technical details of what he was saying anyway, from a substance standpoint. What they saw was a group of three highly influential people agreeing about the important role that Bitcoin could play in the future of money and the internet. That's the takeaway.

The third reason I wasn't bothered by this, and I'm not even really bothered in general by Elon's bringing things that the community has solved already up, is that the nature of decentralized consensus-based systems is to constantly have to relitigate things over and over and over. That doesn't mean that we have to change our minds, but there is never and there will never be a done. Certain topics may be more haram than others, but I think we can fairly well expect almost everything to be brought up again at some point. And the point is not that I agree with any of those rehashings and reopening the block-sized debates or anything like that, just that we should probably recognize that we will be always and forever arguing about the fundamentals of the system. In fact, we should expect more arguments about the fundamentals of the system the bigger it gets.

Still, as I said, I do believe this was meant to be a detente and that was clear coming from Elon's side. He said clearly a number of times that he was a friend of Bitcoin and a supporter of Bitcoin. He said clearly that the price going down is negative for him because he holds Bitcoin. In fact, he revealed that outside of Tesla and SpaceX shares, Bitcoin is his biggest investment. Now, he also revealed that he owns Ethereum and Doge as well, but in smaller quantities. This, by the way, was the first time he said that he owns Ethereum, and he also even discussed decentralized finance a little bit. Perhaps the biggest reveal of the event was that SpaceX also has Bitcoin on its balance sheet. We don't know how much or when it was purchased, but they have it,

which is another significant piece of news. What's more, Elon went to pains to point out that despite Tesla pulling back on accepting Bitcoin as payment, they never sold any of their holdings, nor did Elon personally, nor did SpaceX. This led to the now famous line, I pump, but I don't dump. Now, speaking of Tesla, on the energy front, Elon acknowledged that the energy was trending positively in terms of renewable use. He also discussed the growth in coal usage in Bitcoin mining earlier this year as something that was understandably related to price. Basically, he said that it made sense to him that coal usage had gone up so much given how fast prices were rising. It would have been very difficult to bring an alternative energy source online that quickly. But the biggest

thing he said on this front, which is something that everyone was watching for, is that while he needed to do a little bit more due diligence, it was likely if these trends continued that Tesla would start accepting Bitcoin for payment again. Now, the area that the greatest number of Bitcoin's I saw genuinely liking what Elon had to say was when he was discussing governments. First, he talked about negative interest rates in Europe and how much it pisses him off to watch Tesla's money go down in their bank accounts because of that. He made a joke that all of that would be better in Bitcoin. He also talked about how people that hate corporations should really look at states, as states were just giant corporations without limits and with a monopoly on violence. This was a real

moment for many that these three panelists were talking about the state monopoly on violence so cogently and openly. As someone put it, they said the quiet part loud. So let's try to wrap and get an overall sense of this. There was still plenty to be disgruntled with Elon around. Dmitri Kofinas from Hidden Forces tweeted, I'm genuinely surprised to see Bitcoin's intelligentsia embrace Musk again so quickly. It's almost as if all that doge stuff never happened. And plenty of people were up in his comments being clear that they were not, in fact, embracing Musk again so quickly. However, there was another take as well.

This is the Keep in Mind Your Audience Take from Macroscope, who wrote, I think the BTC panel discussion today was good. Jaded Bitcoin guys may poo-poo it, but from an institutional manager, especially new ones' point of view, there were enough informational nuggets, and the general takeaway was sufficiently positive that it should help put a floor under the sector. There is also the, yo, let's put this in some proper historical context take. When I asked people on Twitter what was genuinely interesting to them about this,

the Bitcoin Shake said nothing from content was new info. Maybe focus on the context and how it's amazing to think that the CEO of Twitter, one of the world's top two or three richest and influential men, and perhaps the most influential woman in finance, maybe ever, livestreamed to talk about Bitcoin. Heavily armed clowns had something similar. The B-word talks are moving the Overton win. This is good for Bitcoin. Alex Gladstein also made this same point saying, zooming out,

it's just wild to see three of the most important people in the world talk about Bitcoin in such a focused way. Impossible even just two years ago. So I'm not going to lie, there were some weird vibes during the panel. Bitcoin clearly makes strange bedfellows. I'm also never going to argue that you have to like Elon or give a crap about anything he has to say. My concerns about him as pretty fundamentally capricious remain. But, fuck it. Bitcoin is still really nice. mason. And if people can get over themselves enough to have real conversations with people who think about the world a bit differently than them, I think we'll net out better than if we didn't have them in the first place. So with that, the day gets a thumbs up from me. Thanks to everyone at

Ark and Square who took the time to put it together. And thanks to you guys for hanging out to hear my recap of it. Until tomorrow, guys, be safe and take care of each other. Peace.