The Wolf Of All Streets - 50% Of His Students Own Bitcoin | This Finance Professor Has Taught Crypto Since 2014 | David Yermack, NYU Stern

Episode Date: December 7, 2021

After discovering Bitcoin in 2011 and realizing its potential, my guest became the first professor to start teaching crypto as a university course in 2014 with only 33 students. Today he has hundreds of students who study Bitcoin, blockchain, DeFi and NFTs and are defining the shape of the crypto industry. Meet David L. Yermack, Professor of Finance and Business Transformation at New York University Stern School of Business and Chairman of the Finance Department. -- Amber Group: Amber Group is an integrated digital asset platform serving retail and institutional clients by providing deep liquidity, attractive yields, and sophisticated portfolio management tools. With 12 offices on three continents, and nearly a trillion dollars in volume traded, Amber Group offers clients personalized, compliant, and secure service across dozens of digital assets. Find out more at https://thewolfofallstreets.link/ambergroup  -- HBAR Foundation: Fund your project quickly and easily with the HBAR Foundation. Apply for a grant and be put on the fast track to success at https://thewolfofallstreets.link/hbar  -- Horizen: Horizen is the zero-knowledge enabled network of blockchains powered by the largest node system with scalability and flexibility unmatched by others. Blockchains built on Horizen are enhanced by zk-SNARK privacy tech and provide massive throughput without compromising decentralization. Horizen can support up to 10,000 independent blockchains running in parallel and issue an unlimited amount of tokens.  More at https://thewolfofallstreets.link/horizen -- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by Blockworks. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworks.co ーーー Join the Wolf Den newsletter: ►►https://www.getrevue.co/profile/TheWolfDen/members

This episode is sponsored by Amber Group, Horizon, and the HBAR Foundation. Stay tuned for more information on all three of them later in the episode. What's up, everybody? I'm Scott Melkert. I'm here with a very special guest today, David Diermack, who's a professor of finance and business transformation at the Leonard Stern School of Business at NYU, and of course, teaches Bitcoin and cryptocurrency. David, thank you so much for taking the time to chat with me today. Thanks for the invitation. So how did you end up as a teacher teaching Bitcoin and cryptocurrency at NYU?

It's an unusual story. I was a finance professor for many years and was very much in the mainstream, but began to notice Bitcoin maybe 2011, 2012 in the early years when it was basically being covered by the news media as an underground project. And it reminded me of a course I'd taken in high school on protest literature, where there is a novel by Thomas Pynchon called The Crying of Lot 49. It's about a secret underground post office that is rebelling against government control. And when I read the narrative about who had started Bitcoin and who was behind it and how it worked, it sounded just like this novel from high school, except rather than being a post office, it was a bank. And I was just intrigued by the libertarian impulse. And then the fact that

it was stable, that it had reached some type of equilibrium with the mining and the incentives for people to use it and to queue up and spend it and with different priorities and waiting times and so forth. I thought it was extremely well thought out, was really surprised that it didn't just blow up and go to some type of corner solution. So I resolved to learn more about it. And it took some time. But once I understood the blockchain and the potential to improve financial record keeping, I thought that this thing was here for the long term and would likely spill over into the regular financial system, become a threat to the banks and clearing houses and so forth.

And that is very much where we are. So I, you know, after looking at it in some detail, I thought this is something we need to start studying and teaching at the university. So it was your idea to bring it to the university and start teaching the courses? Very much so. I have a colleague at NYU Law School, Jeff Miller, who teaches banking law, and he had been covering a little bit of Bitcoin just as an alternative form of money. And I went to Jeff and I said, you know, we should take a long look at this. And there's all kinds of potential regulatory questions that are going to come up. And we have an opportunity to start a course and be the agenda setters. We can train the first batch of students and send them out into the legal profession, the banking

profession, and have an impact on behalf of the university for how people begin to use this and think about it. And so we were very entrepreneurial. And the first year we taught was in 2014. It's now seven years ago. We had, I think, 33 students. And we were the first real university course in the world that had a school of any stature. And it's grown, as you might guess, exponentially. We have hundreds of students now taking multiple sections a year,

not just of this course on cryptocurrency, but other fintech courses as well. Bitcoin was nascent in 2014. You could still argue that it's nascent, of course, in 2021. But we have seen the Metcalfe's Law hockey stick adoption curve go absolutely flying in the last year. Why do you think it is that now we are reaching the point where those things that you sort of predicted seven years ago could be possible are actually happening? One of the obvious explanations is the change in monetary policy around the world during the pandemic. You've seen now for the second time in about 12 years, central banks really violate the accepted norms of money creation.

And in the case of the pandemic, just on very short notice, began to print trillions of dollars. That makes people a little concerned about the stability of the currency. So there is a clientele of people who look at Bitcoin as an alternative to fiat currency. It's controlled, of course, by cryptography and mathematics as opposed to the judgment of central bankers. And with central banks going into uncharted territory, I think there has been a latent demand for Bitcoin that has really exploded beginning in early April of 2020 and without really ever reversing itself. But at the same time, you have seen a lot of the well-known institutions begin to look at it just on a historical risk and return basis as really a new asset class that includes not just Bitcoin,

but many thousands of other tokens, NFTs. And this is something that just in an efficient portfolio, where you try to own a little bit of everything, crypto has grown big enough that it probably deserves at least a little bit of the asset allocations from the big houses on Wall Street. And you're beginning to see many of them just on a very classical risk and return basis think that we need to be invested in this as well. You mentioned before that eventually it would become a threat to the banks. And we're talking about risk reward and risk return. There's still obviously huge regulatory risk here. And we're starting to see some pushback from both houses of Congress, the Congress and the Senate, as well as Gary Densler and the SEC. So do you think that Wall

Street is waiting for that clarity to really push their money in? Is it an ETF that's the instrument that they're waiting for? And do you think that regulation is going to be a major threat to the industry? I think it's going to be difficult to regulate a decentralized network that is not run by any people. There's a lot of people thumping their chests and making pronouncements in Washington about how we're going to take jurisdiction over this. We're going to regulate that. I'm not sure how they think they're going to do this. There's no Bitcoin sheriff. There's no way to freeze an account. There's no leadership of Bitcoin. And this is true of many of the cryptos, which is that no matter what laws are passed, what judgments

are entered, it's not so easy to get enforcement against people. So I think people in Washington are still badly uninformed, very naive about the potential of the government to control this one way or the other. And I think really they're years behind the curve, that they're having conversations that should have been had five years ago. There's a real reluctance to meet the technology on its own terms. There's a belief that you can take laws off the shelf that we already have and just apply them to crypto. Crypto is designed very differently than classical financial assets. And it's going to need a completely different regulatory approach if it can be regulated at all. And that's far from obvious at this point.

I think it has many challenges, both to the government itself and to many of the legacy organizations, the banks and stock exchanges and so forth. They may end up going out of business or playing a much reduced role in the markets much more quickly than they are imagining. There's a lot of overconfidence, a lot of very naive behavior on the part of politicians at the moment. Sure. I mean, it's sort of going to be adopt or die or be blockbuster while crypto is the next confidence, a lot of very naive behavior on the part of politicians at the moment. Sure. I mean, it's sort of going to be adopt or die or be blockbuster while crypto is the next Netflix, right? And it does sort of seem that way that the dinosaurs are in big trouble. But as you said, you can't regulate away crypto, you can't ban Bitcoin, but you can certainly make it very difficult for your average citizen to get their money in and out, you know, by regulating the on and off ramps.

And you can certainly crush innovation in the space in this country. And those, I think, are the bigger threats at the moment. Fortunately, there's a lot of other countries and many of them are much more farsighted in the way they've attempted to regulate this. I think the choice for the US, and we've seen this in many areas of finance, is that you might regulate this to address some problems that you see in your own backyard. But if you over-regulate it, it will just flee the jurisdiction

and put down roots somewhere else. The future of cryptocurrency is a multi-chain world, and you can't have a multi-chain world without Horizon, who allows these chains to be interoperable. Horizon is the zero-knowledge-enabled network of blockchains powered by the largest node system, larger than either Bitcoin or Ethereum, with scalability and flexibility unmatched by others. Blockchains built on Horizon are enhanced by ZK-SNARK privacy tech and provide massive throughput without compromising decentralization. Horizon can support up to 10,000 independent blockchains running in parallel and issue an unlimited amount of tokens. That's why huge projects that you love like Celsius, Dash, IOTA, GameStation, Hero Engine, and LTO Network are all building their blockchains with Horizon. Anyone can build on Horizon using their platform Zendu,

and Horizon is going to issue their own first token on Zendu this year, ZeniToken. If you're not familiar with all the amazing things that this project is doing, check them out at the wolfofallstreets.link slash Horizon. That's H-O-R-I-Z-E-N. Do it now. One of the most frequent complaints we hear about platforms in the digital asset space is that they're not reliable and trustworthy. That's why I'm so excited to tell you guys about Amber Group. If you don't know about them already, Amber Group is an integrated digital asset platform that serves both retail and institutional clients by providing deep liquidity, attractive yield, and sophisticated portfolio management tools. I talked about them being trustworthy. Well, they have 12 offices on

three continents and nearly a trillion dollars in volume traded. Their leadership team has extensive finance experience from firms like Morgan Stanley, Goldman Sachs, Citadel, and Bloomberg, and their investors are huge names like Tiger Global, DCM, Paradigm, Pantera, and Coinbase Ventures. They've made heavy investments in cybersecurity, crypto security, and operational security across the firm with regular audits and penetration testing. They're proactively committed to regulatory compliance in the 100 countries that Amber serves. If you're looking for a platform where you can trade, earn yield, find deep liquidity, and manage your portfolio, look no further than Amber. You can check them out at thewolfofallstreets.link slash Amber Group.

That's thewolfofallstreets.link slash Amber Group. Everybody in cryptocurrency already knows about Hedera Hashgraph. It's one of the fastest, most secure and trusted networks on the planet. But what they might not know about is the HBAR Foundation. With a budget of $2.5 billion already. They are funding entrepreneurs and projects that want to build on their blockchain and build within the ecosystem. Absolutely incredible.

And they're not only giving them funding, they're actually helping them to develop it and then to get the word out as well. You guys should check out the HBAR Foundation and what Hedera Hashgraph is doing. You can do all of that at thewolfofallstreets.link slash HBAR. That is the wolf of all streets dot link slash HBAR. Do it now. How about what's happening in China then? I mean, the United States is behind, but China is going all in on obviously shutting down the space as much as possible,

which one could argue is a huge missed opportunity for them considering how much adoption there already was in China. It's hard to understand what's happening in China. It's a very opaque government that they have. And I think everyone who follows the area knows that the Chinese have banned crypto at least a dozen times and then reversed themselves a couple of weeks later. So there's always the question about how seriously do you want to take this? But I think what the Chinese have come to realize is that essentially this is a channel of capital flight, that there were people essentially using the Bitcoin that were mined in China as a way to get money out of the country due to the weakness of the financial

system. And my own belief is that the recent banning of Bitcoin in China was because they knew that there was a $300 billion real estate bankruptcy about to go live. So I think that they saw some urgency to essentially closing off the routes of escape to try to head off some sort of banking panic that looks like it very possibly could happen in China. Some people are calling this the Lehman moment for China, the moment of meltdown, the great fall of China. And so I think their banning of crypto is partly precautionary to just keep people from being able to get money out of the country in a way that they probably would wish to. I would also think that

a lot of the political elite were using Bitcoin. And that this, you know, again, is part of the crackdown by Chairman Xi. But if he overplays his hand, he risks throwing the baby out with the bathwater. I think the Chinese are walking a very fine line and have a first order problem with this real estate bankruptcy that has led them to reconsider a lot of financial infrastructure issues, including Bitcoin mining and Bitcoin trading. I think he's overplayed his head. I think you went all in with a pair of pocket sevens or something, to be quite honest,, one of the greatest fears and arguments against Bitcoin was the centralization in China. Right. I mean, people were fearful that there were so many miners in

China that so much hash rate was controlled there. Now it goes the other way. And apparently that's bad news. So it's always interesting to see how it's interpreted. But I think we can all agree that less centralization in China is probably a good thing for the future of the Bitcoin. It never made sense for so many miners to be in China, because just in terms of geography, you don't have the renewable energy and the cool weather that you might get in a place like Iceland or Norway. And it seemed obvious to me for years that the miners were still in China because there was some sort of domestic demand for the newly mined Bitcoin that they were probably able to sell them locally at a premium. And they wouldn't have been able to do this without the implicit blessing of the political leadership.

But I think now that there's a looming financial crisis in China, the whole calculus looks very different for the political class, which is not to say that they might not have miners back in China six months from now. You know, I wouldn't rule it out. But I do think the geography, you know, is they maybe never should have been there in the first place. And right. Yeah, I agree that you can't rule it out. But I do think that once they start destroying their actual ASICs or moving them internationally,

that it's a lot harder for them to come back this time. Yeah, I think they'll find the mining is more attractive than many other venues. The place you'd really want to mine crypto is in Siberia. But you've got Putin ready to confiscate all your assets if you go there. So I think the Nordic countries and certain areas of North America seem to be where the industry is recreating itself. But I would imagine that it will be an industry that tends to relocate. And over time, Bitcoin mining will be, you know, there'll be competition from other coins, from ether mining, from, you know, the many, many others that will grow in size and begin to have more parity with Bitcoin

in terms of the market share. I agree. Speaking of efficient mining, how about geothermal mining from volcanoes in El Salvador where they've adopted Bitcoin as legal tender? What are your thoughts on the El Salvador situation? To me, it's very, very interesting because obviously we cheer a sovereign nation adopting Bitcoin as legal tender. But nobody, in my estimation, really talks about the risk of that failing. Right. Maybe the people don't adopt it. The IMF or the World Bank come out against it. I'm obviously for it. But to me, because everybody's aware of the bottlenecks that Bitcoin has in terms of how many people can use it per second, per minute. And even a tiny country like El Salvador would overwhelm the blockchain.

So what they've really done is invite third party providers to do off-chain transactions. And not surprisingly, there were huge hardware and infrastructure problems at the launch of this. And given the unreliability of the energy grid and the lack of human capital in the country, I'm not optimistic that this is going to stick in El Salvador. It's not the country I would have chosen to roll this out. I think the issues are mainly of, you know, infrastructure and technical nature, but they are very, very serious ones. And if you wanted to launch this in a small country, you'd probably think about Singapore or, you know, Liechtenstein or, you know, a place like that, where there's savvy regulators and financial. Yeah, certainly. But I guess the beauty of Bitcoin is as far as infrastructure, as you said, but also some that have come to light. Who holds the private keys of El Salvador's Bitcoin? Who

decides when to buy the dip? There's a lot of questions. Yeah. In El Salvador, it may just be a play to get out from under the US dollar, which is the other currency there. And rather than an endorsement of Bitcoin, it's an attempt for the government to get a little more autonomy over monetary policy. But who knows? I think rather than being led by organic demand from the bottom up, this is something that was simply declared very unexpectedly by a maverick politician. And it's just not clear that there's a lot of public interest in this or that it's going to stick. I have a sense that even if it fails in El Salvador, people won't really attribute very

much to this one way or the other. It's, again, a very small economy, very unusual circumstances. It's great publicity for Bitcoin, but I don't think it's going to affect the long-term profile of crypto. So high hopes and low expectations. Yeah. Fair assessment. And a lot of people have argued that what's happening in China is a result of the adoption of their own central bank digital currency, of course. I think that it's related, but not the main driver personally. But I do believe, obviously, that technology is unstoppable, that money will continue to become digital. Do you believe that central bank digital currencies are a threat to Bitcoin?

Do you think that they'll drive more people towards Bitcoin because of the lack of privacy with CBDCs? What do you think the context is with CBDCs in the future? You know, I would actually bring in a third group, which are the media companies. I believe you're going to see digital currency from three sources, from the central banks, the autonomous independent ones that we have in the form of Bitcoin and others, but especially the Facebooks, Googles, Amazons of the world are likely to begin minting money the way that you've already seen in China with WeChat and Alipay. They have many advantages in terms of the size of the customer base and the customer's loyalty

and engagement with the platforms and so forth. And especially in the case of Amazon, where they already have a huge retail presence. If they start an Amazon coin and give people half a percent discount, if they pay on Amazon with it, it would very quickly become a rival to the US dollar. And I'm not sure there's a lot that the politicians can do about this one way or the other, short of amending the federal constitution. But these are likely to go across borders and become global currencies. And I think the central banks may find that they're very much bystanders 10 years from now, when your money may be issued, as it already is in China, by media platforms that have much more control over the economy, ultimately, than the government itself. And I'm not sure if this is going to be good or bad,

but it will be very different. And you would be extremely ignorant to turn a blind eye to this and not see it coming. Everyone should be looking in that direction, I think. And the Facebook project now renamed Diem is set to relaunch. And Amazon and Google are advertising for crypto executives to come in. And it's very clear what's going on. I only giggle because of the Diem rebrand after Libra received so much regulatory pushback from the government, was absolutely shut down immediately. But that goes to show you exactly what you're talking about, makes your point. Yeah, I think with Facebook, it's complicated because you can regulate their other businesses and indirectly pressure them that way. And Facebook, of course, is in a lot

of hot water about its involvement in politics and so forth. Not so obvious that with Amazon, for instance, that the government has the same kind of leverage that it does over Facebook. And it will be interesting to see what the government decides to do about this and whether countries cooperate on a common policy or if these companies are able to create money more easily in, say, the European Union than they are in the U.S. or in the Far East. I think this is going to be one of the most interesting things to watch over the next 10 years or so. And, you know, a lot of the pieces are already being lined up on the battlefield very quietly for, you know, a complete reconsideration of the nature are already being lined up on the battlefield very quietly for a complete

reconsideration of the nature of money, I think. Satoshi really started a bonfire that has spread out of control. And I think even Satoshi, whomever that might be, would probably be stunned to see how rapidly this has been moving just 12 years after its creation to see sovereign countries adopting it and the central banks reconsidering whether they should be minting money in the form of Bitcoin. You know, it just blows your mind how much influence that this has had. And it seems to be growing exponentially at this point. Do you believe million dollar Bitcoin predictions or multiple six-figure Bitcoin predictions are possible? Or do you think that that's a bit hyperbolic in just sort of the

nature of the community? I have always been very reluctant to make price predictions, not only about crypto, but stocks and any financial assets. But there are some realities that one needs to point out, which is that Bitcoin has grown something like 250% a year since inception. And since last April, as you pointed out, it has risen as much as 10, 16 fold in price, whatever it is. But nothing can grow that quickly for very long. You know, that the entire investable wealth in the world is something like $160 billion, which means that Bitcoin simply got 80 times bigger than it is today. It would be only Bitcoin. It would be the only thing that we had. And I don't think we're ever going to get to that point where all other forms of wealth in the world retreat to make room for Bitcoin. But think about how much money they could print to add to that number, right?

You know, if you had millions of dollars of Bitcoin- 30 or 40% every year, then maybe that becomes 1.8 trillion instead of 180 billion that's investable. But yes, it's a two point- It becomes illogical pretty quickly. And I think a lot of folks who make these outlandish predictions don't think through even the very simple implications of what they're saying might happen. Yeah, when you start comparing it, dwarfing the GDP of all countries in the world combined, yes, then certainly the market cap

starts to look a bit extensive at those levels. Unlikely, yeah. So you said that you've expanded from having 33 students in 2014 or something like that in the 30s to having hundreds of students in multiple classes. Do you find that your students and in general, the college population is adopting cryptocurrency, extremely interested. Do you think that this is their core focus of their investment portfolios? We ask at the start of every semester for a show of hands of how many people have ever owned crypto. And every term, it's more and more. And I think we passed 50 percent this semester and I think it's obvious to us as instructors that many students in the room know much more than we do oh because young

people engage with this technology very easily and a lot of them are specialists in one area and they're maybe taking our course to fill in some of the gaps of stuff that they don't know maybe about its history or, you know, possible extensions. But we, you know, without any shame, we'll call on students to, you know, tell about the companies they're working in, the experiences they've had as investors. And this is one of the nice things about teaching in a university like this, because you really do have people who have firsthand knowledge, who are eager to learn about this. And this technology changes almost by the week in a way that it's very hard to keep up with. And so the students, you can kind of crowdsource this, like who knows about this? And there's probably three or four people who were, you know, doing

something at their job just in the last week or two connected to this. So NFTs and DeFi right now. Yeah. We were barely teaching that a year ago and now it's a big part of our course, but students are working in these jobs. And again, they know more than we do very often, but we're not embarrassed about that. Throw the boots on the ground. I was going to say, you've got your NFT guys, your DeFi guys, now your gaming guys, your Solana guy, your Avalanche guy, your Ethereum guy, right? But that is interesting that they're coming sort of now to get a more rounded, well-rounded approach to around their existing knowledge. Then what is this thing? I just want

to learn about it, right? Yeah. Now, one of the things we do is get some of the classics out. I was playing videos of Milton Friedman in class yesterday, and we talk about Hayek and some of the 18th century attitudes about money, all the way back to Aristotle. And a lot of the students have no idea about the context and the history. And once they learn this, it gives not only a sense of perspective, but it allows them to see what this technology really was responding to, what the people who developed it were trying to address, what problems they were trying to solve. Many of these problems are timeless. They've been around for hundreds and hundreds of years. And I think to understand that would help almost any student

reconsider what their company should be doing or what kind of business could meet the needs that have been in finance for a long, long time, whether they're related to liquidity or access to payments or what have you. But Bitcoin really revisits many very old questions. And one of the things we do in our course is to try to put those front and center. Why have people been talking about this for 300

years? And why is Satoshi's answer so different? Superior. Well, yeah. In my opinion, it's the best answer there's ever been, but you never know what is to come. There's a lot of innovation. And I don't think Bitcoin is necessarily going to lead the parade forever. People will develop better and better products. I tell the students that Bitcoin will be of historical interest, but whether it's really going to dominate the crypto rankings indefinitely, I wouldn't be so sure. Technology has a very short half-life in some of these areas. Sure. I think that it may not dominate the rankings, but it really depends on the metric by which you define it. Listen, I go very far down the risk curve. I'm notoriously not a Bitcoin

maximalist. I love Ethereum. I love investing and exploring all of these projects. But even if the market cap flipped, I don't think anything flips Bitcoin at its core value proposition as a store of value. I don't think that we see something else replace it there. But I do think that we see innovation far and away beyond Bitcoin, you know, in the future and that it does not, it will not remain the largest asset in the class. Yeah, on this, I think we agree. Well, you know, there's a lot of people who take major offense to that you know that i know we have speakers in class and but uh that does not fit my profile i guess well thank you so much where can everybody keep up with you after this conversation well i'm

not really on social media but i do pop up on a lot of blogs and interviews. And I think just Googling me is probably the quickest way to find out what I'm up to. But I'm teaching every semester at NYU. We offer the course both fall and spring. And I teach in Europe and in Australia when we're allowed to travel to those places as a visitor. So I do meet students from other countries in those destinations as well. Well, I appreciate you taking the time to do this and very impressive that you were so early and that you really were the first. It's quite a statement and that you're open-minded enough to say that my students are really smart and maybe they know more about some of these things that I do. Oh yeah. The professor always learns more than anyone.

That's one of the things about teaching is you learn even more than the students. Well, I joke the same about doing podcasts and interviews. I say it's like a free college education where I can get the most world renowned people to talk to me and answer my questions.