The Breakdown - Meltem Demirors on Government Digital Currencies and Why ‘The Halvening’ Gets Weird

Episode Date: December 24, 2019

One of CoinDesk’s ten most influential people of 2019, Melem Demirors is a crypto renaissance woman, known best for investing, operating as CSO of CoinShares, and for explaining ‘shitcoins’ to Congress. In this end of year Breakdown, Meltem argues explains why the entrance of governments to the digital asset game is the most significant story of 2019, as well as suggesting that the presence of an entirely new financial infrastructure around bitcoin means the halvening is likely to be unlike what anyone thinks. 

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDisc. Welcome back to the breakdowns' end-of-year extravaganza, and I am super excited today to share with you this interview with Meltem Demir's. Meltem needs almost no introduction at this point. She is the chief strategy officer at CoinShare. She's a prominent investor. And perhaps most notably this year, she introduced the word shit coin to the congressional record when she was asked to testify, basically on behalf of our entire community, during the Libra hearings. Perhaps that's why CoinDest named her one of the 10 most influential people in crypto this year. Either way, we get into a lot of what she was discussing or the significance of what she was discussing in those hearings, which is the emergence of governments and corporate actors into the digital money space, into the digital asset space. What does it mean that governments are doing their own tokens?

What does it look like for the future that corporations are able to bet on Bitcoin in new ways? How will that shape the having? All of these are kind of part and parcel of this interview. So I hope you enjoy it. And if you do, please subscribe so that you don't miss any of these end of year interviews. We'll be back on January 2nd with normal breakdown episodes. And until then, I hope you have a great time thinking all about what was 2019 and what might be in store for the year to come.

All right. Welcome back. We are joined by one of CoinDesk's most influential 2019. Melton, welcome. Thanks for hanging out. Oh, hey, Nathaniel. Thanks for having me. I love that you're doing this. Yeah, it should be really fun. You know, I like, I actually, you know, I geek out on end of year content. I think it's just a, I think it's super valuable, actually. I think like having these, this is the least reflective industry in some ways because it's so chaotic and there's always something new. Tell me about it. Any time there's like a week and a half or two weeks where people are like just a little more chill and can sit back and be like, okay, well,

what the hell did the last year mean then? You know, and what does that suggest for the future? I think it's really valuable. So I'm super excited to have you here. I really appreciate you taking the time. And I'm really interested to get your perspective on just, you know, what just happened and what happens next? Who knows?

I think one of the things I've been doing personally is journaling more. And I feel like my brain is like this weird, creepy filing cabinet where everything just makes together. And I've just been trying to get into the habit of putting things down on paper and then going back and actually reviewing what I've written. So this will be fun. Awesome.

Amazing. Well, so like I was just telling you, it's really just organized around two questions. And we can take it in whatever direction. And the first one is this, you know, what do you? you think when when we sit back and we kind of you know do our analyses of what different years meant for bitcoin or for the crypto industry more broadly what's going to be the story of 2019 oh i think the story of 2019 is going to be a central bank issued digital currencies cdddcds i always got the acronym i'm i just want to say cbd because i think cbd is hilarious

and i love it but it's cdbd central bank issued digital currency um and i think the big narrative here is really, you know, it's started with the Petro, an initial country offering as my podcast co-host, Jill Carlson and I like to say. Then it was Facebook's Libra that dominated the conversation, not to be outdone by Facebook. China then sort of announced their plans to issue a digital currency and then a wave of other countries did. Now Christine Lagarde, who is at the ECB, the European Central Bank. has announced their plans to explore Eurozone, DB, CDBD, gosh, we need a better acronym. So I think that was really the defining narrative is how do we take this idea that's completely

antithetical to Bitcoin, yet imbue it with some of the characteristics that make Bitcoin interesting and appealing to central bankers. Yeah, I couldn't agree more. In fact, I actually literally just as of today when we're recording this, I did a little article for CoinDesk for their year in review piece. And this is what I said. I was like, you know, there are a ton of narratives that were important to this year. I think you could point to defy as a great example. But for me, when I think when we look back, I just, I have a hard time believing it will be anything other than the year that like the stakes upleveled because

Libra happened and then China responded to Libra. And then everyone's racing to figure out how to respond to China, responding to Libra, and what it all means. And all of a sudden, we're having a real conversation about the future of digital currency and digital money. And, you know, it's gone beyond now just like, is Bitcoin terrorist money to, wait, what the hell is this? And what does the financial system look like in the future? And what do we think we know now that might change? So I couldn't agree more. Yeah, absolutely. Okay. So if that was 2019, let's jump forward. What? do you think or what's so you can take this in two ways either what does that suggest for 2020 on a

on a more general level or do you have any specific predictions right what do you think if you had to if you had to bet what 2020 is going to bring i think um 2020 is going to be the year that um we're going to see the market for bitcoin fundamentally change and i think what's going to be interesting so there's bitcoin happening coming up which is pretty exciting and every happening is always a weird event people are like oh it's priced in but then it's never priced in um but this is the first time we have directionality during a happening, meaning people, it's really easy for people to go short now, which didn't really exist before. And I think the introduction of cash settled and now crypto-settled derivatives into the market has been an interesting sort of shift.

And a lot of what we're seeing now, you know, a lot of the use case for Bitcoin and digital currencies is still financial speculation. So trading effectively, you know, it's firms who are looking to make money on betting on the price of Bitcoin. That's what traders do. And so what I think is going to be interesting is you don't actually need to be fundamentally long Bitcoin or believe in the underlying premise of Bitcoin in order to do that. And the products and services people are creating are really about capturing fees and flow from that activity. And so it would be interesting to see how the introduction of synthetic derivatives and actual crypto-back derivatives and a whole suite of financial services and products that we see in legacy capital markets, how that's going

to transform the sector. What I think about, what I did in my career before I got into this whole crypto thing is I was on the commodity side. If we look at the impact that derivatives and synthetic exposure, cash settled products had on the oil market and the gold market, it's pretty massive in the sense that the volume of trading increased, but it didn't necessarily increase the price. So I think it'll be really interesting to see what happens when more and more traders and trading firms start to trade Bitcoin products because there's volatility there and that's what they flop to. I think it's going to be happening unlike none we've seen before. So, curious. Yeah, interesting. Interesting. I think what this is, so one of the narratives that I do think

got pushed down the totem pole a little bit because of, because of things like the central bank digital currencies is just the mass emergence of derivative products and the shifts to a lot of the trading activity happening in the world today is stirratives, right? Because why trade the underlying when you trade and synthetic because it can scale infinitely. And so I think that's one of the biggest existential threats to this narrative around Bitcoin as the ultimate digital bearer asset is for people to speculate on Bitcoin. They don't actually need to hold the underlying and they don't even need to have exposure to the underlying, right?

All they need is a marketplace where they can create a synthetic contract that tracks the price of the underlying. And so I think that's going to be interesting to see. I think a lot of the narrative in Bitcoin is kind of nonsensical when it comes to people advocating for more derivatives and more companies that are creating structured products while also wanting to be fundamentally long Bitcoin. It's interesting. Yeah. Well, I think that for sure, the longer this goes, the more complex the ecosystem gets in a lot of ways. It feels like what I did before. Right. And I think we started with this idea. Like we started really with a

social movement. And then each successive wave since Bitcoin has brought in sort of different components. I think Ethereum brought in a lot of the Silicon Valley kind of tech crowd because of its expressiveness and to the ability to build more and iterate more rapidly than with Bitcoin. Then the ICO boom brought in a whole different wave of people. I won't comment on what types of people. Then we have corporate coins and these CDBDs are bringing in a whole different group of people. And then this whole financialization of the Bitcoin sector is bringing in a whole different slew of, you know, Wall Street veterans, people from capital markets.

And so I think, again, each successive wave gets us a little further away from where we started, which for me, it starts to feel a lot like where I came from. And so it's interesting that, you know, I left that world and I find myself having the same conversations just with a different asset shoved in. Yeah. Well, always, always fascinated to hear your perspective. I can't wait to look back in six months in a year and see what is transpired. Yeah, thanks for doing this. I look forward to listening to everyone's predictions. Thanks, Nathaniel, you too. All right. Have a good holiday. Thank you.