The Breakdown - Wall Street’s Bitcoin Isn’t Your Bitcoin

Episode Date: May 2, 2021

Ben Hunt is the author of the wildly popular and always provocative “Epsilon Theory.” In his recent essay “In Praise of Bitcoin,” he calls on bitcoiners to rise up and recognize that the “bitcoin” being adopted by Wall Street is an abstraction that comes with unacceptable compromises.    -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- 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 produced and distributed by CoinDesk.com

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 and neared.org and produced and distributed by CoinDes. What's going on, guys? It is Sunday, May 2nd, and that means it's time for Long Read Sunday. And this week, we have a real treat. Friend of the show, Ben Hunt, has been on an intellectual journey. with Bitcoin over the last year. Really longer, but he's been especially forced to be because we're jerks and we talk to him all the time about it on Twitter and so he kind of had to be. But he's written

a new provocative piece called In Praise of Bitcoin and rather than give it a bunch of intro, I'm just going to dive in. Thanks Ben for allowing us to read this on today's show and I'll be back in a few minutes to discuss. In Praise of Bitcoin. One evening a few weeks ago, I was on a Zoom call with a bunch of academic think tank and Fed economists for a Bitcoin discussion. A lot of names you'd know if you're familiar with those circles, the most famous one being Paul Krugman, who, by the way, I found to be charming, genuinely open-minded, and surprisingly humble about the entire enterprise of academic economics. I had been invited to be on the anti-Bitcoin side of the discussion, but they needn't have bothered, because there was no pro-Bitcoin side. Krogman led with a simple

question. What's the use case for Bitcoin? Not a theoretical thing, but an actual use of Bitcoin to solve a problem in the real world, which led to an hour-long, extremely earnest and altogether unsatisfying conversation about financial transfers out of Venezuela, trade settlement and securitization on the blockchain, and Taylor's responsibility to control the scalper resale market for her concert tickets, all of which are real things, all of which are interesting things, all of which are good things, but none of which are what got 20 busy people on a Zoom call at 8 p.m. on a Thursday night, none of which are Bitcoin. Now, to be fair, there were no old-school Bitcoin maximalists on the call, or if they were, they were too intimidated to make an Austrian economics, hard money, neo-goldbug,

Bitcoin is the inevitable global reserve currency argument in front of Paul Krugman. Lull. But I finally couldn't take it anymore. Is this really why we got on the phone tonight? To talk about a novel form of digital rights management? To talk about payment transfers out of authoritarian third-world countries? Are these really our questions about Bitcoin? Answer, of course not.

What got these academic, think tank, and government economists on the phone that night was Bitcoin trading at 50,000. The question that everyone truly cared about, but a question that everyone danced around for the better part of an hour was this. Is there any there there in the price of Bitcoin? To which everyone, including the supposedly pro-Bitcoin contingent, said no. Not just no, but no, no, no, no, no price of Bitcoin was an illusion. The price of Bitcoin was the madness of crowds. The price of Bitcoin had no connection to any fundamental economic activity, just like gold had no connection to any fundamental economic activity,

and thus, to this audience, could have no inherent value by definition. I think this is very wrong, and I'll tell you, like I told the Zoom call, why I think there is a lot of inherent value in Bitcoin. Because Bitcoin is good art. Or better yet, because Bitcoin is elegant and beautiful fashion, sitting at the intersection of art and commerce. Most importantly, because owning Bitcoin has been an authentic expression of identity, an extremely positive identity of autonomy, entrepreneurialism, and resistance to the nudging state and the nudging oligarchy. I've been saying that Bitcoin is art for more than six years, and it's been a frustrating place to be. Frustrating because public stances on Bitcoin are almost immediately

turned into cartoons. Either you're the grumpy-grandpa Bitcoin is worthless cartoon, or you're the laser-eyed cultist Bitcoin will be the world's reserve currency cartoon, with no room in between. The value deniers, like the Zoom crowd the other night, think I'm agreeing with them when I say Bitcoin is art. I'm not. The true believers think I'm trolling them when I say that Bitcoin is art. I'm not. The creation of good art is, in my opinion, what we are put on this earth to do. It is our highest calling. It is my highest praise. There is lasting value in good art because it is a very scarce thing and it never gets used up. Bitcoin is itself an NFT, a unique digital artwork instantiated on a blockchain. It's the most valuable NFT in the world. I don't mean a Bitcoin,

obviously that's a fungible thing. I mean the Bitcoin, the 21 million bitcoins that make up the Bitcoin project. The notion that Bitcoin would ever, quote, go to zero is ludicrous. Good art is always worth something. But how do we measure that something? How do we measure that something? How do we do we put a price on the value of good art at this particular moment in time? It's a really tough question. There are no cash flows to art. There are no fundamentals to art. There's no use case to art. There's only story. There is only narrative. There is only common knowledge, what everyone knows that everyone knows, about the value of art, common knowledge that emerges from our social interaction with story and narrative. In every respect that matters, Bitcoin is epsilon theory. So yes, I've been saying that

Bitcoin is art for a long time now. But what I haven't been saying, or at least not as loudly, is that bit about identity. And that's the part that needs to be shouted today. So here it is, again, this time a little louder. Most importantly, owning Bitcoin has been an authentic expression of identity, an extremely positive identity of autonomy, entrepreneurialism, and resistance to the nudging state and the nudging oligarchy. This two is Epsilon theory. Why am I shouting about identity? Because the artistic Bitcoin identity I admire, and value has been subverted by the neutering machine of Wall Street and the regulatory penopticon of the U.S. Treasury Department, because what made Bitcoin special in the first place

is nearly lost, and what remains is a false and constructed narrative that exists in service to Wall Street and Washington rather than in resistance. Yes, the nudging state and the nudging oligarchy strike back. They always do when it comes to money, not with imperial stormtroopers or legislative sanction, but with golden handcuffs and administrative surveillance. It's not that the state and the status quo institutionalization of capital, call it Wall Street for short, have any desire to ban Bitcoin. Why would they do that? No, far better to accommodate and swallow Bitcoin, like they have every other financial innovation for the past 1,000 years. Far better to neuter the censorship-resistant and anonymity-preserving aspects of Bitcoin, and turn it into another

gaming table in the Wall Street casino. In my dystopian vision, Bitcoin isn't banned or criminalized. That's a rookie weak-state move. No, I see a future where everyone buys Bitcoin. where you are encouraged to buy Bitcoin, where Bitcoin is sold to you morning, noon, and night, where Normie economists get on conference calls late at night because they're Bitcoin price curious. Except it's not really Bitcoin. Instead, it's Bitcoin exclamation, TM,

a cartoon version of the OG Bitcoin, either a Wall Street abstracted representation of the price of Bitcoin, or a government-painted version of Bitcoin in Dayglow Orange. Either way, abstracted or painted, your Bitcoin TM is trackable and traceable, fully K-YC and AML, and F-Barr and Swift, and every other U.S. Treasury acronym compliant.

Either way, your Bitcoin TM has all the revolutionary potential of a bumper sticker and all the identity signaling power of a small tattoo on your upper arm. Bitcoin TM doesn't stick it to the man. Bitcoin TM is the man. Welcome to the 2021 Hunger Games. The abstracted version of Bitcoin TM is a Wall Street specialty. What is Bitcoin TM in abstracted form? It's a securitization or representation of Bitcoin ownership

that promises the price appreciation of Bitcoin without the hassle of Bitcoin ownership. It's a casino chip that represents the price of Bitcoin. Michael Saylor, for example, is only too happy to sell you a micro-strategy casino chip. Or maybe you'd prefer to play on the Canadian crypto ETF felt, or try your luck at the wheel of a Morgan Stanley private fund. Why does Wall Street love abstracted forms? Because there are no fundamental limits to how many of these Bitcoin-Tam casino chips Wall Street can sell. It doesn't matter if all the OG Bitcoin hodlers keep on hoddling. It doesn't matter if the vast majority of all the Bitcoins, ever mind, never get caught up in the Wall Street neutering machine.

There are an infinite number of games that can be created around the price of Bitcoin as a reference point, just like there are an infinite number of bets that can be made on a football game. There are an infinite number of re-hypothications and derivative representations that can be made off the millions of margin Bitcoins that have already been captured by Wall Street custodied accounts. The only limiting factor on how many of these Bitcoin TM casino chips Wall Street can sell is the effectiveness of the narrative that they've created around Bitcoin itself, that Bitcoin is a hedge against inflation and a store of value that is uniquely positioned to protect your portfolio against dollar debasement because it is hard money immune to money printer

go burr. It's rather artistic in and of itself, right? Selling an unlimited number of Bitcoin T.M. Casino chips off a meme slamming unlimited Fiat money printing, creating an unlimited number of entertaining market games and venues where we can all use our Bitcoin TM casino chips. If these narratives and casino games sound familiar, it's because it's the exact same process of abstraction, securitization, and leverage that Wall Street has been using for the past 20 years with precious metals. What is the GLD ETF? It's gold, exclamation TM. What is a unit in an ETF basket of gold miner stocks? It's gold TM. They and their many canter securitizations of gold ownership that promise the price appreciation of gold without the hassle of gold ownership.

They are casino chips that represent the price of gold. I'm old enough to remember when people bought and sold gold coins in private transactions. I guess we'd call that peer-to-peer today. I'm old enough to remember when well-meaning people would have earnest conversations about gold as a reserve currency, just like well-meaning people today have those earnest conversations about Bitcoin. I'm old enough to remember how quickly those conversations died out after State Street launched GLD in 2004 and took in a billion dollars in a few days. Turns out people didn't really want the grumpy grandpa identity of owning physical gold in some Mad Max world as much as they wanted gold TM in their financial portfolios as an abstracted

insurance policy against central bank error. It's exactly the same with Bitcoin TM today. You think institutional adoption is driven by a spirit of personal autonomy, entrepreneurialism, and resistance to the nudging state and nudging oligarchy? You think Paul Tudor Jones and Mike Novagrants want to burn it the fuck down? Lull. The only difference to Wall Street between gold and Bitcoin is that gold TM is tired. Bitcoin TM is wired.

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Ash said about the chest-bursting xenomorph and alien. you may not admire the creature itself, but you got to admire its purity, unclouded by conscious remorse or delusions of morality. Yep, that's Wall Street. Ditto the U.S. Treasury. If there's a Western governmental institution that is more unclouded by conscience, remorse, or delusions of morality than the U.S. Treasury, I am unaware of what that institution might be.

But unlike Wall Street, which is motivated by flow, the U.S. Treasury has an entirely different but highly compatible goal. The goal of the U.S. Treasury is to see all of the money in the world. That's really all it is. That's what anti-money laundering regulations are all about. That's what know-your-client regulations are all about. That's what report of foreign bank and financial accounts regulations are all about. That's what the Treasury-led society for worldwide intramank financial telecommunications is all about. That's what the Bank Secrecy Act is all about. None of these programs are really about taxes. None of these programs are really about catching crooks or fighting

terrorists. All of these programs are really about information for information's sake regarding the greatest source of power in the world, and the raise on debt of every government on earth, money. The U.S. Treasury is the eye of Sauron, a gigantic panopticon tower that sweeps the world with its unblinking gaze, seeking out the owners of power, i.e. money. The U.S. Treasury can't see Bitcoin. It can, however, see Bitcoin, TM. The giant all-seeing eye of the U.S. Treasury is primarily built on two regulatory structures. The Bank Secrecy Act, compel transparency and reporting by financial institutions on their clients and themselves, and the report on foreign bank and financial accounts F-Barr system to compel transparency in reporting by individuals on their

financial institutions and themselves. There are a dozen more acronyms and programs involved here all overseen by the Treasury's Financial Crimes Enforcement Network, FinCEN, but to keep things simple, I'm going to refer to all of this as the BSA-F-BAR regulatory penopticon. Everything in plain text in the next two paragraphs is regulatory policy as it currently stands with the BSA and F-BAR. Everything in bold italics is, the new policy proposed in the past few months, and expected to go into effect shortly. Taken together, I think it will be clear how Treasury uses the combined BSA and F-BAR instruments to mark your Bitcoin with a day-glow-orange fluorescent paint and create their highly visible

version of Bitcoin. BSA. If you're in the business of money in any way, shape, or form, what Treasury calls a money transmitter, and you do any of that business in the U.S., then you are subject to the Bank's Secrecy Act. Note that this money transmitter designation in BSA jurisdiction explicitly includes peer-to-peer exchanges that work with self-hosted wallets. If you are subject to the BSA, then is your affirmative obligation to collect complete identifying information regarding clients who transmit or receive

more than 3,000 over your systems, and to collect and immediately report to Treasury complete identifying information regarding clients who transmit or receive more than 10,000 over your systems, including any cryptocurrency transmitted to or from a self-hosted wallet. F-bar. If you are a U.S. entity and you have any sort of account, banking, securities, custodial, etc., with any non-U.S. money transmitter anywhere in the world, and at any time during the course of the year, you have in the aggregate across all accounts more than 10,000 in value in those accounts, including the value of any cryptocurrency holdings in those accounts, then it is your affirmative obligation to report complete identifying information regarding each of those accounts to the IRS and a report

of foreign bank and financial accounts. I think the intent here is crystal clear. Whatever rules were in place yesterday regarding transfers of dollars or rubles, or pesos through U.S. touching money transmitters or by U.S. entities? Well, now those exact same rules are going to apply to Bitcoin. As soon as your virtual currency holdings land in any financial institution that cooperates with or does business in or is regulated by the United States, bam, your Bitcoin is painted dayglow orange and becomes the Treasury preferred form of Bitcoin TM. When these regulations go into full effect, as I understand them, the only remaining safe harbor for keeping your Bitcoin hidden from the BSA F bar I of Sauron will be to maintain a self-hosted

wallet that never connects with a money transmitter that does business in the U.S. That's a safe harbor for the moment, but ultimately, nothing is safe from the eye of Sauron. While 2019 guidance explicitly states that a person conducting a transaction through an unhosted wallet to purchase goods or services on their own behalf is not a money transmitter, and so is not subject to the Bank Secrecy Act directly, the December 2020 proposed rulemaking doc also included this doozy of a comment. Quote, the Treasury Department has noted that anonymity in transaction and fund transfers is the main risk that facilitates money laundering.

The Financial Action Task Force FATF has similarly observed that the extent to which anonymous peer-to-peer permit transactions via unhosted wallets, without involvement of a virtual asset service provider or a financial institution, is a key potential AML-CFT risk in some CBC systems. FATF members have specifically observed that unregulated peer-to-peer transactions could present a leak in tracing illicit flows of virtual assets, particularly if one or more blockchain-based CVC networks were to reach global scale. importantly, as explained below, while data contained on some blockchains are open to public inspection

and can be used by authorities to attempt to trace illicit activity, FinCEN believes that this data does not sufficiently mitigate the risks of unhosted and otherwise covered. The last paragraph doesn't mince words. Even if a blockchain facilitating a cryptocurrency allows for authorities to trace transactions, the risk of unhosted and otherwise covered, i.e. hidden from the eye of sauron wallets, are too great to let stand. Lull, I think we all see where this is going. The response I get from the Bitcoin and larger crypto community to what seems to me to be the clear intent and path of Treasury regulations is always this. Well, good luck enforcing that. Unfortunately,

that's the evil artistry of penopticons like the Eye of Sauron or Treasury's BSA F-BAR regulatory structure. We are driven to willingly enforce their discipline on ourselves. A penopticon is an institutional structure that creates a permanent feeling of being watched. Maybe you are, and maybe you aren't at any given moment. But you're never sure that you're not being watched. and if you are being watched, then you better fess up and cooperate before your head gets stuck on an orx pike. Did I mention that the penalty for a willful failure to make an F-bar report was the greater of 100,000 or 50% of the unreported foreign assets? Moreover, a panopticon structure allows you to see the behavior of others and they of you. If the disciplined imposed

by the watcher includes obligations to snitch, and that's exactly what the Treasury requires here, with obligations on money transmitters to report on clients and obligations on clients to report on money transmitters, a panopticon sets up a classic prisoner's dilemma game, where the only equilibrium is for both the money transmitter and the client to volunteer information about the other. Once you start looking for panopticons in our modern world, you will find them everywhere. You're not opposed to transparency, are you? Why would you be opposed to transparency unless you have something to hide? You're not a terrorist lover, are you? No, I didn't think so. It's not just that Wall Street and the U.S. Treasury

dominate policy. Far more perniciously, they also also dominate narrative. And that's why I'm writing this note. Frankly, I doubt that the policy battle can be won. This has been my view since I started writing about Bitcoin, and nothing has happened to change my mind. On the contrary, Treasury's move to make crypto-visible and controllable have happened faster than I thought they would. I mean, I'm hopeful that we are at least at some point of policy equilibrium with the proposed rule changes to BSA and F-BAR, an equilibrium that will at least allow self-hosted crypto wallets to exist in peace. But hope, unfortunately, is not a strategy. No, I don't think I can help much in the policy battle, but I think I can help a lot in the narrative

battle, or rather the narrative machine can help. The Bitcoin narrative must be renewed. Bitcoin has been an authentic expression of identity, a positive identity of autonomy, entrepreneurialism, and resistance to the nudging state and the nudging oligarchy. It can be again. Wall Street and Treasury are running a sci-op with their creation of Bitcoin TM, and it's necessary to think about Bitcoin in those sci-op narrative terms. if the goal is to preserve an active community with an identity of autonomy, entrepreneurialism, and resistance to the nudging state and the nudging oligarchy in the context of Bitcoin specifically and crypto more generally.

That's my goal anyway. I'm not in this for Bitcoin as global reserve currency. I'm not in this for number go up. I'm not in this for store value against the gosh darn dollar debasement. I'm not in this for flow. I'm not opposed to any of those things, and I don't think you're a bad person if those are your things. They're just not my things.

I'm in this for Bitcoin as good art and the inspiration it provides to a community that shares my values and goals for making a better world. Phase one of this anti-Sciop campaign is to identify shelling points, game solutions that people arrive at by default in the absence of direct communications, also called focal points, so that people who share this goal of community organization and narrative reclamation can find each other. I think that one of these shelling points is maintaining a self-hosted wallet and the capacity for peer-to-peer transactions away from the eye of Sauron. Starting today, Epsilon Theory will accept Bitcoin as payment for all annual subscriptions through our BTC pay server.

It's a plain vanilla Raspberry Pi setup. We're not holding ourselves out as Crypto-mavens. We're signaling an identity of autonomy, entrepreneurialism, and resistance to the nudging state and the nudging oligarchy in the context of Bitcoin. Phase two of this anti-Syop campaign is to use the narrative machine to measure and visualize the narrative archetypes and story arcs of Bitcoin TM, in exactly the same way that there are only, say, a dozen archetypal scripts for every TV sitcom episode ever filmed, or in exactly the same way that there are three acts in every modern movie screenplay. So is there an underlying structure and a finite number of underlying archetypes to the media coverage of every market entity. We believe that we can measure these narrative structures and archetypes

as they apply to Bitcoin TM and match those structural dynamics to market behaviors. Seeing is believing, and I think there is no better way to prove the existence of Bitcoin TM in both its Wall Street abstracted and its treasury-painted form than to show the SIOP in action. I think this sort of analysis and visualization will get a lot of people who would otherwise be quick to dismiss our claims to take a fresh look at the way in which we have been nudged. Phase three of this anti-Syop campaign is simply to call things by their proper names. That starts with locating the value of Bitcoin in its elegant art and its ability, like all ethical art, to inspire great things away from the art itself. Yes, great things away from Bitcoin itself, so that even if Bitcoin TM dominates

financial markets, which it will, the story arc of Bitcoin doesn't end there, but generates a thousand new initiatives to improve our world. We don't have to tell a story of price. We don't have to tell a story of apocalypse. We don't have to scold or educate. We can tell an old story of autonomy of mind and generosity of spirit within a new context of Bitcoin and crypto. You know, a couple of thousand years ago, a really smart guy, the most subversive revolutionary guy you can imagine, had a good line, render under Caesar what is Caesar's. Bitcoin TM definitely belongs to Caesar. It's part of his game, but Bitcoin doesn't have to. It can be a part of our game, still, again, and that will change everything.

There is so much to unpack there that I'm actually not going to. Instead, I'm going to say that this is an open line of conversation for the breakdown going forward. I think it's safe to say at this point that the institutionalization of Bitcoin is well underway. It's happening, and it is an unstoppable force. It seems highly unlikely to me that a price decrease in Bitcoin would do anything other than make it now the time that other institutions would want to get in. Given that, no matter how much you believe in Ben's differentiation of Bitcoin versus Bitcoin TM, I think it's a worthy question to ask what the implications of a world where Bitcoin is owned primarily by institutions, where Bitcoin's price is moved primarily by institutions,

where Bitcoin's regulatory structure concerns primarily institutions. There are many out there who have been beating down this drum for years. Caitlin Long, no fan of Bitcoin's Wall Street overlap due to concerns about re-hypothication. Tyrone Ross, a surprising critic of Bitcoin ETFs. Meltem Demir's, a constant voice against the institutional suckup of Bitcoiners. These are going to be increasingly important voices as we all figure out what the new Bitcoin world that we're moving into looks like. And I'm certainly excited for this to be a forum where we can explore that together.

For now, guys, I hope you're having a great weekend. Until tomorrow, be safe and take care of each other. Peace. We're witnessing the greatest paradigm shift in finance in Monaster, history. Join thousands of newsmakers and influencers talking the future of money at Consensus by CoinDesk, a live virtual experience of leaders, change makers, virtual reality meetups, keynotes from Ray Dalio, Gary Vaynerchuk, and much more. Get an up-close look at the boom in crypto, the surge and institutional investment in Bitcoin, the NFT mania, the breakneck innovation

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