The Bloomberg Ideas series gathered together five panelists and an equally qualified moderator, for a talk entitled “Is Crypto Welcome Here?” – the “here” referring to capital markets, or the global financial system broadly defined. The talk revolved around how cryptoassets and distributed consensus technology would or could – or could not – fit into that system.
Topics covered included bitcoin as an investment case; the irony of bitcoin being difficult for institutions to buy, given its liberal nature; blockchain’s utility or lack thereof to the securities industry and its inverse role of forcing efficiency innovations in traditional actors; the case of stablecoins; the spectre of privacy coins; and the path ahead to SEC and other regulation, just to name a few.
A notable “irony” the panel identified was the divergent trajectory occurring in different parts of institutional finance. Matt Levine, Bloomberg columnist and industry veteran, commented that “it’s weird that bitcoin, which naturally lives on a blockchain – institutional investors are trying to tame it by moving it to non-blockchain settlement mechanisms […] at the same time that people in banks are saying, well we’re gonna use blockchain to settle stocks.”
Levine also declared an undying skepticism that blockchain will revolutionize the securities industry, as is often being profesized these days, essentially because those so-called securities blockchains will just be centralized databases – not markedly different from their current forms.
He instead proposed that the threat of blockchain could spur faster innovation in these legacy industries.
Legality, a-legality and governance
The moderator, Bloomberg columnist and Harvard professor Noah Feldman, considered whether the objective of regulating cryptos (or markets in general) was to “protect widows and orphans,” or rather to “produce a public good, which is trust in the markets.”
Elaine Ou, a San Francisco-based blockchain engineer, went further by proposing the cynical possibility that regulation only serves to protect vested interests. “That’s a whole branch of economics!” Feldman assented in response.
When speaking on the legal status of cryptoassets – that is, both illegality and a-legality (when no legal status exists for a given subject) – Feldman emphasized how much domestic legal systems “abhor a-legality.” Levine however speculated on the timeline of possible regulations, using historical examples to propose that “It’s possible that you need to have decades of scammy markets, in order to […] build the […] critical mass, to have [crypto markets] be worth regulating.”
Cowen, a George Mason University Economics Professor, reminded the group that, in his experience, “the number [of regulators] that, even in a rudimentary sense, understand crypto is tiny, tiny, tiny.”
He went on to speculate that the blockchain-introduced concept of forking is “a major innovation in how we think of governance,” in that “it’s a way of resolving disagreements, and it may be a way of resolving disagreements in a way that we use a great deal in the future.”
Cowen also hazarded to give odds on the future prospects of cryptoassets:
I think there's a 40% chance [that crypto] will be a niche thing for initially a-legal applications, a fifteen percent chance that blockchain really takes off and is a next big thing, because it organizes all different features of the economy as a new kind of governance; and then the rest of the probability is that it just dwindles and becomes a hobby.