The Breakdown - Oslo Freedom Forum and Why Bitcoin Matters

Starting point is 00:00:00 Years ago, when I got into Bitcoin, it was driven by imagining what it would have been like for the Sudanese refugees I was working with back in Cairo in 2004 to have Bitcoin as a tool as they fled their country due to conflict. So many years later, it's really exciting to see that both advocates for freedom generally, as well as just people who have been put in untenable circumstances, are actually finding Bitcoin valuable in exactly those ways. 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 nexo.io, near NFTX, and produced and distributed by CoinDesk.

Starting point is 00:00:44 What's going on, guys? It is Tuesday, May 24th, and today we are talking about all sorts of things in the crypto space. But before we dive into all of these topics, a quick housekeeping note. There are two ways to listen to the Breakdown podcast. You can hear it on the Coin Desk podcast network, which features the breakdown alongside other great coin desk shows, or you can listen on the breakdown only feed, which comes out the same day just a few hours later in the evening. Wherever you listen to the show, I would so appreciate it if you take a moment to give it a rating or a review.

Starting point is 00:01:20 It makes a big difference in helping people discover the show. Lastly, a disclosure as always, in addition to them being a sponsor of the show, I also work with FTX. So today is a bit of a hop, skip and a jump around topics both in the crypto space as well as the wider economy, capped with some notes from that other big event going on this week, the Oslo Freedom Forum. First up, some interesting notes from the Federal Reserve on crypto in America. The Fed released its annual economic well-being report, and in it focused significant energy on for the first time. According to the report, last year in 2021, 12% of surveyed adults had either held or used crypto. It was definitely the case that more people were using it as an investment

Starting point is 00:02:05 tool rather than something transactional. Only 2% of adults had used it for purchases and only 1% to send money to friends or family. Of those folks who were using it for transactional purposes, a lot of them came from lower income backgrounds. 13% of those who used crypto for that type transaction did not have a traditional bank account and 27% of them did not have a credit card. Just under 60% of adults who used crypto transactionally had an income of less than 50,000, and only 24% had an income of 100,000. On the other end of the spectrum, those who used crypto as an investment were, quote, disproportionately high income, almost always had a traditional banking relationship, and typically had other retirement savings. 46% had an income of 100,000 or more,

Starting point is 00:02:52 while only 29% had an income under 50,000. A key takeaway seems to be that while the number of people using crypto as a utility is small, the people who need it to be a utility are using it as a utility. It shows that, again, while it's only a tiny percentage of the unbanked and underbanked in America that are currently tapping crypto, to some it is becoming an option. Now, the timing of this is also interesting to note. The survey was taken pre-Omicron surge and pre-Fed shift tightening mode. So obviously a lot of things could have changed between now and then. That is the Fed survey on economic well-being. And speaking of the Fed and the potential that they might one day release a central bank digital currency, Wall Street banking lobbyists are getting nervous about that

Starting point is 00:03:38 possibility and what it might mean for traditional banking. Greg Bayer, who runs the Bank Policy Institute, which is a Wall Street lobbying firm in Washington, says, current research overwhelmingly undermines the purported benefits of a CBDC, and instead indicates that a CBDC would seriously disrupt the financial system, significantly harming consumers and businesses. Another banking group, the American Bankers Association, published a letter that said a digital dollar would mean, quote, deposits accounting for 71% of bank funding are at risk of moving to the Federal Reserve. So where is the fear coming from? Right now, the average American citizen who has a bank account, keeps their deposits with commercial banks who then loan that money out.

Starting point is 00:04:21 This is the basis of our entire system and where loans come from and all that sort of stuff. Commercial banks are worried that if the Fed launched a CBDC that allowed people to keep their money directly with the Fed, aka some sort of Fed account, it would completely upend that system. Basically, if consumers are choosing banks that they think are safe for keeping their money at, why wouldn't they choose the theoretically safest of all the Federal Reserve? Now, the Fed for its part has previously said that any CBDC would not include direct accounts and would instead work through existing commercial bank infrastructure, but some folks are skeptical. Matt Gubba, the CEO at BizBriton, says people need to understand that the term CBDC is just a fancy PR name designed to dress up and obfuscate the issue.

Starting point is 00:05:07 CBDCs are just retail accounts with central banks. This setup would give central banks and governments direct control of your money and how it's spent. In simple terms, your day-to-day bank account would be held directly with your central bank, not with a commercial bank. This removal of the buffer between you and the central bankers will be great for them, but disastrous for your privacy and freedom. Richard Werner, who's the author of Princes of the Yan, tweeted, it's high time for private sector bankers to realize that the concept of retail central bank digital currency is going to destroy banks and usher in the era of Soviet-style monobanking, only the central planners will survive. Time to mobilize against CBDC. Clearly, some are now

Starting point is 00:05:48 heeding that call. Now, I think that the CBDC Convo has barely started, and to some extent the sides are just defining their terms in where they're going to stand. Many folks in the Bitcoin space are understandably concerned about what the privacy implications of a central bank digital currency are. Indeed, even folks who are not interested in Bitcoin, or cryptocurrencies in general, are stating loudly their demands that CBDCs have cash-like privacy assurances. It would not surprise me to see in the coming months and years some weird alliances between the traditional banking lobby and Bitcoiners here. And while that might be the right move in the short run,

Starting point is 00:06:28 it's also worth, of course, always being a bit skeptical about where those interests might once again diverge. Looking for ways to step up your crypto game? Then go with Nexo. For starters, you get free, crypto for each purchase or swap. How about earning guaranteed yields? Up to 17% paid out daily. Ideal for you hardcore hodlers. You don't even need to sell. Instead, borrow instant cash against your assets. Get the most out of your crypto with nexo at nexo.io. That's nexo.io. This episode is

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Starting point is 00:08:03 NFTs. When you trade NFTs on FTCS, you pay no gas fees. Download the FTCX app today and use referral code Breakdown to support the show. Staying on the theme of central bankers, but bringing them back to their takes on crypto. Yesterday we discussed the European Central Bank coming hard at crypto, and today we got yet another report from them on the topic. It's called decrypting financial stability risks in crypto asset markets. The overview reads, the stellar growth, volatility, and financial innovation currently seen in the crypto asset ecosystem, as well as the rising involvement of institutional investors, show how important it is to gain a better understanding of the potential risks that crypto assets could pose to financial stability if trends continue

Starting point is 00:08:49 on this trajectory. Systemic risk increases in line with the level of interconnectedness between crypto assets in the traditional financial sector. The use of leverage and lending activity. It is important to close regulatory and data gaps in the crypto asset ecosystem to mitigate such systemic risks. So far, all fine, right? Like, of course, the interconnectedness increases the risk that issues flow from one area to another. That's part of why we see so much more correlation now between Bitcoin and other types of risk assets. Speaking of that correlation, one of the claims the report makes is that in fact that correlation makes crypto no longer useful as a portfolio diversifier. But what's more relevant for me now is their conclusions. They write,

Starting point is 00:09:29 The relevant authorities have ascertained that crypto assets pose risks from an investor protection and market integrity perspective. Nothing really new there. The significant volatility of crypto assets in recent months has not resulted in contagion or any notable defaults by financial institutions, but the risks of these are increasing. Still pretty generally descriptive, glad they're being explicit about crypto volatility not having created undue problem so far. But then we get to conclusion three. If current growth and market integration trends persist, then crypto assets will pose a risk to financial stability. They write going on, while interconnectedness between unbacked crypto assets in the traditional financial sector has

Starting point is 00:10:08 grown considerably, interconnections and other contagion channels have so far remained sufficiently small. investors have been able to handle the $1.3 trillion fall in the market capitalization of unbacked crypto assets since November 2021, without any financial stability risks being incurred. However, at this rate, a point will be reached where unbacked crypto assets represent a risk to financial stability. Ultimately, this is all an argument for getting regulations sooner rather than later. Frankly, it's nothing really new. The real question will not be what arguments get regulators to start having the conversation, but how the conversation ultimately goes, and what regulators figure out, hopefully, in consultation with the industry, the right types of guardrails for these systemic risk issues

Starting point is 00:10:52 actually are. As you might imagine, that report also has a lot of discussion of institutions in crypto. So speaking of institutions in crypto, what's actually happening with fund flows? Last week saw the year's second largest fund outflows from institutional investors. 143 million left the system. Edward Moya, a senior market analyst at trading platform Awanda, said, confidence in crypto has been flailing given both retail and institutional investors that got into crypto over the past year are deeply in the red. Bitcoin-focused funds had the biggest outflows this week with 154 million.

Starting point is 00:11:28 But it's been volatile out there. The week before, there were $299 million in inflows largely based on investors thinking that the Terra implosion had driven prices down too far. But of course, as listeners of the breakdown will know, Bitcoin is not just about price or even primarily about price, and it's certainly not about institutional fund inflows and outflows in the long run. Bitcoin is instead about freedom. Yesterday, we talked about one of the two big events happening in Europe this week, the World Economic Forum. But there is another event that has been attracting a lot more Bitcoiner attention, and that is the Oslo Freedom Forum. The Oslo

Starting point is 00:12:06 Freedom Forum describes itself as a global conference series produced by the Human Rights Foundation that brings together the world's most engaging human rights advocates, journalists, artists, tech entrepreneurs, and world leaders to share their stories and brainstorm ways to expand freedom and unleash human potential across the globe. You might recognize the Human Rights Foundation from Alex Gladstein, its chief strategy officer, who is often quoted here on the breakdown. The Human Rights Foundation has also been deeply involved with Bitcoin, and while by no means was this a Bitcoin conference, the intersection is clear. Light Rider 5 writes, main takeaway from Oslo Freedom Forum. If you work on Bitcoin, you also work on human rights. Paula Ardwino of Tether

Starting point is 00:12:47 who spoke there says Oslo Freedom Forum is just different. Just a bunch of amazing people, sharing their life experiences, their efforts in respective countries. No booths, no shilling, just freedom stuff. Irai Adirino-Kun of Nigeria said in her discussion with Paulo, stable coins have been a good alternative to people in Nigeria. Dollar denominated accounts are not accessible to anyone, and you might wake up one day to realize the government has converted all your dollars to Naira. By the way, if you're wondering about where stable coins versus dollar assets fit in, this was a question that someone just answered on Twitter. Rodrigo Lozano said, I'm Argentinian, and personally I use local currency for everyday purchases,

Starting point is 00:13:27 holding it for a month means losing 6%. Stable coins for savings I may need within some months a or two, Bitcoin for savings I won't need in at least three to five years. Going back to the Oslo Forum, however, Leonid Volkov, the chief of staff for Alexei Navalny, Putin's biggest political opponent in Russia, said at the conference, we can use Bitcoin to support our friends and families in Russia because otherwise they would be receiving money from terrorists as we've been labeled in Russia. Mauricio, the Cryptanomista, on Twitter, says the Oslo Freedom Forum was the most inspiring event I've been a part of. It was surreal to listen to people's stories from all corners of the world and how Bitcoin is making an impact in the fight for freedom. Flying home

Starting point is 00:14:07 supercharged with energy and new friends. Still, I think the tweet and the threat of the event belong to Lynn Alden, who is also a speaker. Quote, people from Nigeria, Ethiopia, Senegal, Togo, Venezuela, and Afghanistan keep telling me here in person how they use Bitcoin to deal with authoritarian bank control or persistent inflation that continually wrecks their savings, while Westerners say it's useless. She goes on to cite a few examples, including the feminist coalition in Nigeria, who had their bank accounts frozen for protesting police violence and used Bitcoin to continue on, how activists in Togo use Bitcoin in lieu of smuggling physical cash, which they used to, and to how in general people in so many of these countries don't use

Starting point is 00:14:50 bank accounts because of how they've been seized or frozen in the past. Lin concludes, basically Bitcoin is a tool, like how a VPN can make it easier to send and receive information information in hostile computer networks, Bitcoin can make it easier to send, receive, or store value in hostile financial networks. Some people need and understand these tools more than others. It's like having money in the cloud, except even the cloud provider can't close the account, because the cloud provider is decentralized. So anyone with internet access can memorize a seed phrase, travel globally, and be able to access their coins or transfer them to others. years ago when I got into Bitcoin, it was driven by imagining what it would have been like

Starting point is 00:15:29 for the Sudanese refugees I was working with back in Cairo in 2004 to have Bitcoin as a tool as they fled their country due to conflict. So many years later, it's really exciting to see that both advocates for freedom generally, as well as just people who have been put in untenable circumstances, are actually finding Bitcoin valuable in exactly those ways. Pretty inspiring if you ask me. For now, I want to say thanks again to my sponsors, nexo.io, near NFTX. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other.

Starting point is 00:16:03 Peace. Hey, breakdown listeners, come join CoinDesk's Consensus 2020, the festival for the decentralized world this June 9th through the 12th in Austin, Texas. This is the only festival showcasing and celebrating all sides of blockchurches. chain, crypto ecosystems, Web3, and the Metaverse, and is designed for crypto newbies, investors, entrepreneurs, developers, and creators. Use code breakdown to get 15% off your pass at coindesk.com slash consensus 2022.

The Breakdown - Oslo Freedom Forum and Why Bitcoin Matters

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