In episode 97 (title: “How Crypto and Blockchain Technology Could Change Financial Services”) of crypto journalist Laura Shin’s “Unchained” podcast, recorded at CME’s recent Global Financial Leadership Conference, Arthur Hayes, Co-Founder and CEO at crypto derivatives exchange BitMEX, said that “the jury is out on whether or not Bitcoin is actually secure over the long run.”
This was a special episode that also featured Dan O’Prey, the chief marketing officer of Digital Asset, and Alexis Ohanian, Co-Founder and Executive Chairman of Reddit (as well as Co-Founder and Managing Partner of Initialized Capital). However, for the sake of brevity, we will only be focusing on Arthur’s comments/answers.
Before we cover some of the main highlights from this episode, it should be noted that all three guests were expressing their own personal opinions and not the views of any past, present, or future employer, and that all the content in this episode (as is the usually case with all episodes of all podcasts) was purely for informational purposes and not constituting any form of financial advice.
How Will Blockchain Technlogy Change the World?
“I got involved in Bitcoin when I lost my job in 2013, and I started trading full-time for a job, and then I got into trading derivatives over that period of time, and what really struck me about Bitcoin, in the whole crypto industry, is for the first time you basically have direct market access for people who otherwise would not interact with financial markets, especially in North Asia, where I’ve spent the past ten years of my life. It’s really compelling to see you can open a smartphone, open up an account, and start trading pretty quickly in this new asset class, and I think 24/7 trading of all types of different assets is something that is going to be the future, and that will bleed into the other markets that we are all familiar with, you know, FX, fixed income, and equities.”
Do you See Private and Public Blockchains Working Together One Day?
“If you don’t need censorship resistance, why would you ever use a public blockchain. It’s extremely expensive; it’s extremely slow; and you have to have a totally different toolkit of engineering skills… But if you are just an enterprise and you want a better way of transferring data or a better database, then private, DLT-type blockchains are for you; you don’t need to interface with Bitcoin or some other public chain.”
Does Crypto Represent a New Asset Class?
“I think it’s sort of a blend. It’s still extremely small: market cap is what, $200 million. Apple has more cash in its balance sheet than the whole value of the industry that we’re talking about. So, it’s insignificant in terms of where it is today. Could it become a bona fide asset class in the next 10 years? Maybe. Still, the jury is out on whether or not Bitcoin is actually secure over the long run. It’s had a decade, which is pretty good, but it’s still an experiment. So, I say the jury is out, but looking like it could be a new way of raising capital and sending value around the world.”
What Will It Take for Institutions and People to Get Into Crypto?
“We’ve got to make money at the end of the day… Bitcoin or Bitcoin trading is probably the easiest thing for a financial services institution to look at. OK, can I make $5-10 for a seat, for a dude seating there or a woman trading? Most likely, probably, you will not make that amount of money, which is why you are seeing some of the banks backtrack their crypto desks or they have sort of put them on the backburner. So, it’s really about how much money you can make, what’s the volatility, what’s the volumes… We’ve sort of come off about 70% in terms of the price this year, volatility is down massively, exchanges are firing people. So, it’s a very volume-driven business, and there’s no volume, there’s no excitement, and [so] the institutions won’t get involved. But at the end of the day, it’s ‘can you make money trading it?’ and if the answer is ‘yes’, they’ll find a way to do it.”
Why Are We Seeing Traditional Financial Institutions Get Into Crypto Despite Bear Market and Lack of Real World Adoption?
“They probably started planning it last year, in the fall, when it went batshit crazy… and it takes a while to get it ramped up… and you launch into a massive bear market… I am sure if you had to poll these same executives today and say ‘please go to your board and approve a Bitcoin something or other right now’, they’d probably get shown the door… Luckily, they’ve gotten it through the committee they need to get it through, and we have new products addressing new markets that are coming online, but I don’t think that’s any verdict on Bitcoin being any better or worse right now.”
Decentralized Applications (DApps)
“I don’t think most of these things are actually decentralized. A lot of talk about decentralized whatever service is bullshit… I think a lot of this decentralized [talk] is just a way to get money from people who don’t know what they are talking about or what’s really going on behind the scenes. So, really, the only pseudo-decentralized asset out there is probably Bitcoin, and that’s not even that decentralized in and of itself. So, I think we have a long way to go before we get to this utopia of decentralized applications. We really have a lot of centralized moats in different parts of the ecosystem.”
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