Peter McCormack: Good morning Joe, how are you doing?
Joe Weisenthal: Good morning, thank you for having me.
Peter McCormack: No problem! So you’ve been pissing off the Bitcoiners?
Joe Weisenthal: I don’t know why I have been! They’ve been really angry with me, but they’ve always been angry with me and I can never figure out exactly what it is that I do to bother them so much, because they seem to get annoyed.
Peter McCormack: Because you’re an idiot Bitcoin hater!
Joe Weisenthal: That’s right, because I work for the man and so obviously I’m a Bitcoin hater and I’m trying to destroy them because I love the Fed and QE and I want them to all submit.
Peter McCormack: And you ask questions!
Joe Weisenthal: Well I try to be provocative, I try to poke holes! I don’t know why that’s hate, but that’s all right.
Peter McCormack: I do the same, I get shit all the time! I’ve had it this week, I think it’s good to poke holes. I think it’s good to challenge! If we can break it by poking holes on Twitter, it’s fucked.
Joe Weisenthal: Yes, that’s a really good point. If you’re worried about a tweet, if you’re worried I’m going to raise some question about whether a Bitcoin ETF makes sense, if that’s a big problem or if that’s a concern, then perhaps there are deeper problems that are being left unspoken about.
Peter McCormack: I actually thought with the thing you were saying about anonymity, you actually made a really good fucking point.
Joe Weisenthal: Thank you!
Peter McCormack: I know I’m not the only one. I know Nic Carter also thought you made a good point. I think we’ll get into that.
Joe Weisenthal: I love that guy, he’s one of the few people that ever sticks up for me!
Peter McCormack: Yeah, because he also will challenge at times. He will put out things that challenge people and challenge their thinking and I think too often people just get very defensive. It’s like “why are you attacking? Why are you doing this? Why are you questioning this?”
My big issue with most of them, I did a tweet this morning just saying that there’s a huge gulf in understanding between Bitcoiners and non-Bitcoiners and they just expect everyone to suddenly understand things. My biggest gripe at the moment is this expectation that once a mother has gone into labor and had a baby, that baby will come into the world as a maximalist and instantly understand why Bitcoin is King and everything else is a scam.
Joe Weisenthal: Well, the funny thing to me, is I would also flip it around, which is Bitcoiners look at people, especially those of us who are in sort of legacy traditional media, they say like, “oh, you don’t understand anything about Bitcoin and you spread all this FUD and you have no idea what you’re talking about” and that is not entirely wrong all the time, but ask a Bitcoiner about how the repo market works.
They never feel uncomfortable pining about the Fed or the repo market or how interbank transfers work and have they really put in the work to understand that or are they just going based on some five minutes’ worth of research, if that! There might be a little bit of introspection.
I get the criticism, but I do find it frustrating because I’m interested in Bitcoin and I see people making criticisms of it that I regard as off the mark and there’s a lot of discussion that’s like, “oh, this is really uninformed” or “this issue I thought was settled in 2013 and the fact that you’re just coming around to it now, I think sort of demonstrates a certain lack of intellectual curiosity.”
So I get the frustration, but on the other hand, there’s so much nonsense among Bitcoiners about non-Bitcoin things, that maybe they should just have a little more sort of self-awareness when they criticize others for not getting it.
Peter McCormack: Yeah! You’re going into a world where I’ve struggled with some people. The non-Bitcoin topics, it’s almost like Bitcoin’s become so political that a lot of Bitcoiners align around similar kind of views on certain subjects, whether it’s global warming, gun rights, blah, blah, blah. But I also feel like there’s just this lack of compassionate or understanding of people coming in.
I get it, like they’ve had three years of debating block size and people are tired of having it, but Bitcoin is still very small and if somebody discovers cryptocurrencies this week and they come in, they’re going to see Bitcoin, Bitcoin Cash and Bitcoin SV, it’s like, “well what’s the difference?” It’s like, “well one’s on chain, one’s off chain.” So at that moment they still have to decipher what it all means.
Joe Weisenthal: It would be virtually impossible for someone just coming in to have an intuitive understanding of the differences and to realize that a cryptocurrency, and this is I think a really tough one, but that a cryptocurrency is more than just the sum total of its technical specifications. So that even if you were to make an argument that say, a larger block size made sense, that that wouldn’t necessarily mean that Bitcoin Cash or Bitcoin SV is the superior project.
That I think is a really hard thing to understand because we come from a world I think in technology or most people apply this sort of traditional technological lens to understanding things, where you hold up two things, you hold up an iPhone and you hold up an Android phone and you’re like, “which is the better one? Well which one has the better camera?
Which one has the better battery life? Which one has the better audio quality? Which one lets you do this?” Then you check a bunch of pluses and minuses and whichever one is the best is the better one and I don’t think that that frame works for the cryptocurrency world in the same way, or at least that the specifications upon which you would use to judge them, are what we think they are.
So you might theoretically have a chain, which from some technical explanation just like, “oh this is the better one”, but only through a sort of deeper understanding and sort of watching the space for a long time, did the limitations start to emerge.
Peter McCormack: Well I think it’s very easy for someone to be sold on any cryptocurrency once they hear the arguments from someone who’s passionate about it. So I think it’s very easy to be sucked into Bitcoin and understand the goals, the objectives that people have for Bitcoin, whether it’s censorship resistant money or whether it’s separating money and state, like these ideological goals I think are amazing.
At the same time, if somebody tries to sell you an on-chain scaling solution and they say, “well the problem is if you look at the block size, it fills up and on-chain fees went to $50, you don’t want that, do you? We can do 3 cent fees.”
It’s like, “oh yeah, that makes sense.” I can see how somebody has sold it and it takes time. I know now that all on-chain scaling solutions are fucking nonsense. I’ve spoken to the computer scientists, but it took me a year to two years!
Joe Weisenthal: I completely agree and I think obviously those of us who were paying attention in summer 2017, during that whole battle over the block size and SegWit2x and so forth, realized too that block size aside, that the whole Bitcoin project I believe probably would have ended, had the side of the miners and the exchanges won, because it would essentially have disproven the entire premise of the project, which is that it couldn’t be co-opted by large businesses.
So even if you could have made the argument that on-chain scaling was superior and that it made a lot of sense for all kinds of reasons for the block size to go up, even if you could have made that argument and convince people, it still would’ve been problematic because had that side won, you would have said, “well that really just blows up the entire argument about decentralization and in the end it means it’s a doomed project.”
Peter McCormack: But what a great test!
Joe Weisenthal: It was a great test! But I also think that everyone who paid attention to that, got an incredible education.
Peter McCormack: But I look at that as just part of Bitcoin’s immune system, it’s just going to make it stronger and all these things will make it stronger. But I don’t agree with all Bitcoiners, I don’t! Actually, most of the time when I see them being difficult, I want to challenge, I want to poke at them, I want to find the holes because I care more about the kind of people who don’t understand Bitcoin, who want to get into it, who want to understand it.
I don’t really care about the hardcore Bitcoiners who’ve been here for 10 years, who’ve got thousands of Bitcoin and who’ve lived through every single… I was out last night with a bunch of them and they were explaining a bug that’s coming in the future. They’re all technical experts and explaining this bug that’s going to be coming in like 2036 or something, something to do with a hard fork and I couldn’t get my head around it.
Six of them were explaining it to me and they had to give up. I was like, “why am I even trying to understand this? I don’t understand how my iPhone works.” I don’t care and I think 99.9% of people won’t care in this hyperbitcoinization world they talk about, I just don’t think people will care.
Joe Weisenthal: Yeah and I think it’s the kind of thing where you would need for the project to work and as you say, it’s small and it’s young and it’s unproven and as much as I’d like to say that it’s a done deal that it’s going to be the end all and be all of money, the honest ones will say “look this is experimental technology in its very earliest stages and it is good that there are some people that are insanely zealous about it, both from a technical standpoint I guess and obviously it’s crucial that you have so many people who are zealous about evangelizing it.
Peter McCormack: All right, so I just want to dig back a bit before we get into some of these things, because I think it’s helpful for people to understand your background, your pre-Bitcoin world and that you’re not a Bitcoiner you’re a markets guy.
Joe Weisenthal: I’m just interested in financial markets of all sorts.
Peter McCormack: Has that been your career ever since you left college?
Joe Weisenthal: Pretty much, I sort of dabbled around a few different things. I’d always been interested in financial markets actually, since high school because my senior year was when the dot-com bubble really started going, so it just became fascinating to me learning about how the markets worked. I got interested and I had a friend whose family had a small portfolio management company that I did a little work for, so I just got very interested in financial markets, but I didn’t study them in college or anything like that.
I studied political science and international relations, didn’t know what I wanted to do and just through a series of… I got into blogging like a bunch of people, in 2004, 2005 or so and then that led to some writing jobs and I eventually combined my interest in journalism and blogging and markets together and now I’m at Bloomberg covering all of them.
So crypto is part of that, I think it’s really fascinating. I was kind of like everyone else and I was super dismissive of it at first, I was like, “oh this is a complete nonsense” or “is it just a pure bubble?” I’ve since become more open minded I would say, but still a critic.
Peter McCormack: Okay, so that’s quite interesting because you’re obviously mixing with a bunch of people who are from traditional markets. What is it that the Bitcoiners don’t understand about how other people look at their world?
Joe Weisenthal: That’s a really interesting question, but here’s what I would say and it goes back to what I was saying about Bitcoiners complain that other people don’t get Bitcoin, but people who are into Bitcoin, don’t get a lot about how the actual financial world works, particularly things like the Federal Reserve or taxation and things like that.
So if you make a case for Bitcoin to someone in the legacy financial world and you start going on about how like, “oh the banking system is in crisis because the Fed had to make this adjustment the repo system a few weeks ago” and then someone who actually understand would look at you like, “well, this person is an idiot!
Then furthermore, not only is this person an idiot, but then obviously Bitcoin must be flawed because if the whole premise of Bitcoin is that it’s somehow going to solve banking or solve some made up problem in banking, then the whole thing is silly.” So I think there is this certain like mantra in the arguments that Bitcoiners make, which are effective in a certain sense of like building up this community and sort of creating this meme of inevitability and I get that that’s part of it.
But on the other hand, people who actually know their stuff look at it and go, “these people have no idea what they’re talking about. So the thing that they’re evangelizing must be stupid too.”
Peter McCormack: Okay, because I try not to attach myself too strictly to any particular subject because I want to move around like water, I want to understand everything I can, to be as objective as possible because it’s not that important to me.
So I follow some of the things that Bitcoiners say and for example, a lot of them talk about Austrian economics, which is obviously very closely tied to libertarianism and then I spoke to the libertarians who are very much into free markets, deregulated markets and no government, etc. I love the idea, but I struggle to see it working practically.
Joe Weisenthal: Right, so here’s what my bigger picture view on all these things and these are like areas where I tend to get into a lot of fights, which is that Bitcoiners and I’m sure if they were being honest a lot of them would agree with what I’m about to say, Bitcoiners goldbugs, libertarians, diehard advocates of Austrian economics, a lot of them tend to be misanthropes.
A lot of them tend to be angry, a lot of them tend to resent the certain normal societal order that people accept and I’m not saying that they’re wrong or right, I’m not even making a judgment here. But from a sort of like pure, strip away ideology, strip away belief, just sort of introspection in terms of one’s personality, sort of the core makeup.
There is a thing there, there is a sort of consistent misanthropic thread that feeds across and I think this is really important… And it’s a good and bad thing actually, because the bad aspect of it is pretty obvious, it can be extremely alienating people, it repels people obviously, but there’s a good thing about it which is that people who reject or don’t have the inclination to fit in or the need to fit in, I believe will be among the first to discover a new thing and that I think is a really powerful thing.
So if something in your genetics, and I use the term genetics loosely, if something in your internal makeup does not compel you to fit in and to sort of adopt the dominant ideology, adopt the dominant approach to social communication, there is actually a reasonable chance that you will be among the first to come across some completely new idea, because if you had that gene, if you felt that need to always fit in and accept the status quo, then you wouldn’t have been out there looking for some new thing in the first place.
Peter McCormack: I think that’s a fair observation.
Joe Weisenthal: So I think it’s like this sort of paradox where a new thing will necessarily attract some of the least pleasant people in the world, not all of them are unpleasant, but the new thing which then creates the effect of both repelling people, but also they’re on to something new that no one else had seen and I think that’s kind of like the framework that I apply to a lot of these things.
Peter McCormack: I completely agree. Look at me, I’m covered in tattoos, I’ve usually got a Metallica shirt on, I don’t normally ever fit in and I’m here doing a Bitcoin show, I get it and I think you’re essentially right. Okay, so let’s start with the good stuff. So obviously you said you were dismissive at first of cryptocurrencies, now you’re a little bit more accepting. I’d rather stick more towards Bitcoin than the other bullshit to talk about. What is it about it that you like? What is it that you agree with Bitcoiners on?
Joe Weisenthal: So I think that the critics of Bitcoin definitely fail to appreciate… Well I think the biggest sort of conceptual flaw that they have, is they look at Bitcoin versus the traditional system of payment and it’s like, Bitcoin is clearly, by many measures, clearly inferior. It’s slower, it’s more costly, it’s much easier to get stolen or hacked, it’s far more volatile, there’s no real imminent prospect of it becoming less volatile anytime soon, despite the protestations of many Bitcoiners, it’s incredibly volatile and that’s does not seem to be going away anytime soon.
So you look at the dollar, which has been very stable against any what you need to buy. Yes, I know there’s a little inflation, but by and large it’s a very stable currency. It’s cheap to use, I just went and bought a coffee, it was incredibly simple, I didn’t have to have some fancy software, I paid cash, but I could’ve swiped my phone, it was very easy. It would have been far more difficult to do using Bitcoin.
But there’s a blind spot here and this gets to some of the things we’ll talk about a little bit relating to anonymity is that, if we’re just comparing the sort of transaction sets that most people engage in most of the time, it’s extremely hard to make an argument that Bitcoin is a better money. What I think the critics don’t really get, is that there’s a series of transactions out there, for which Bitcoin is a superior money because the traditional payment options are not available.
So the first time I sort of had this revelation, I think I wrote a post at my old publication Business Insider when I used to be there, when I started talking about changing my mind and I was thinking about like, “okay, what if I had a lot of money in China and I wanted to get it out? What are the different ways to get money out of China?”
You can do it, but it’s costly and it’s complicated. So one popular way to do it, is if you have a lot of money, you could take a trip to Macau and you can pay a junket operator a certain amount of Chinese yuen and they’ll take you on a trip to Macau and they’ll give you chips at the casinos in Macau and you sit there and you play Baccarat for several hours.
Then when you’re done, you have probably lost a lot of money playing Baccarat, but it’s one of the games where you don’t lose too much if you know what you’re doing and then you cash out your chips and then you get the Macau currency and then you can convert the Macau currency into dollars. So you’ve paid the junket operator, you’ve spent the time and money to go to Macau, you’ve gambled, lost the house rate, and then you’ve converted your Chinese yuen into dollars through a series of four extremely costly and time consuming steps.
Another way you could get money out of China is buying gems and put them in your sock and hope that you could fly to Australia or somewhere else and then sell the gems. But then you could get caught and gems are illiquid, you don’t really know what you’re going to get for them. There’s ways to do it, but it’s costly and it’s cumbersome.
Or, and this is when I had the revelation, you could buy Bitcoin from someone in China, transfer the Bitcoin to a wallet to someone who had access to the Western banking system, sell the Bitcoin, and that is massively more efficient than any of the previous steps that I just described.
Peter McCormack: It comes with its own trade-offs, right? So you have to protect your private keys…
Joe Weisenthal: Oh there’s definitely certain trade-offs.
Peter McCormack: But buying gems is an easy transaction and you’re not going to lose your gems. With this, it’s slightly different.
Joe Weisenthal: But you could get stopped at the airport, when you take off your shoes and then all your gems fall out of your shoe.
Peter McCormack: But for some people, like for example, if this was my father and you put him in China with those three options, he’s not going to do the Bitcoin one. It’s just far beyond his abilities.
Joe Weisenthal: And that’s why it’s even still, despite the theoretical capabilities…
Peter McCormack: But what I’m saying is there’s trade-offs and this is a good third option.
Joe Weisenthal: Yes.
Peter McCormack: So one of the things that then suddenly becomes very important with Bitcoin is global liquidity, because without liquidity, that becomes impossible. Therefore that’s probably one of the most important things going for Bitcoin versus every other cryptocurrency right now.
Joe Weisenthal: Yes and this is what got me in trouble with a bunch of Bitcoiners the other day, is because obviously there’s a lot of… Everyone who has Bitcoin and wants to make a lot of money, would love there to be a Bitcoin ETF because that would be an extremely easy way for people who just want to speculate on the price of Bitcoin, to just go in their normal brokerage account, buy some of the Bitcoin ETF and it’s not implausible that that would send the price higher.
But if we think of those transaction sets as some combination, it’s not buying coffee, we all agree with that. Even Bitcoiners will say it’s not for buying coffee, but it’s like some range of things and some of them are outright criminal and we can all agree that they’re immoral.
Peter McCormack: It depends which ones.
Joe Weisenthal: Well, okay. So for example, what prompted it was that there was a bust of a child pornography ring. There is no-one who will defend that, it’s criminal and it should be criminal and virtually no-one would say that this is government overreach, right?
Peter McCormack: I’m with you on that one.
Joe Weisenthal: But then there’s another class of transactions, we’ll just say like buying marijuana, in which case it is also criminal, but there is a significant number of people who make a very good argument that this is outrageous, that the government banned this and this is immoral and it’s not immoral to flout the law. It’s illegal, but not immoral.
Peter McCormack: So there’s another interesting one that I’m toying with at the moment now, which is state level censorship resistant trading, in that Bitcoin can be used to get around the sanctions. At that point I’m like, “is this immoral? Are these sanctions right, because America says they’re right?” Who knows! Should Iran be sanctioned at the moment? I don’t know.
When you get to the depths of it, America has nuclear weapons, Russia has nuclear weapons, China, Britain, Israel, Iran wants to develop them, so they have sanctions, just because they once said they want to blow Israel off the face of the map or something. My point being is like, is that immoral?
Joe Weisenthal: I’ll leave this to other people about the morality of sanctions. I would just say that in the end though, there is this spectrum of transactions, some of which are illegal and blatantly immoral, some of them are illegal and grey area immoral, some things are illegal and shouldn’t be illegal and I think a lot of people would say there’s nothing immoral about these transactions, they’re merely illegal.
Some transactions going back to Chinese capital controls, are somewhere in the middle and then some things aren’t even illegal, they’re just considered to be odious. So for example, payment companies deciding several years ago they weren’t going to work with WikiLeaks. So they got cut off from the traditional payment system, not because of the law specifically, although of course they angered people of the law, but the payment systems didn’t want to work with them.
You see other groups like this too. So for example, one of the defenses of Bitcoin is that say, like online sex workers can accept payment in Bitcoin, because the traditional online payment companies are like, “we just don’t want to work with them.” That could be an example of something that’s not illegal at all, just some people find it odious or some people find it uncomfortable to deal with.
So there’s this transaction set available at the far end of the spectrum and the other end of the spectrum and for all of those things, a payment in Bitcoin may be a superior form of money than the alternative, which is not cash, because you can’t use cash for those things and it’s not Venmo, VISA, MasterCard or PayPal because those are unavailable. It’s those other options. So I think going back to what the mainstream critics get wrong, is not seeing that it’s this sort of second best alternative in many situations.
Peter McCormack: So can we get into the crux of the problem with the ETF though? So what was your main gripe with it?
Joe Weisenthal: So I don’t have any grip with anything. I’m just asking questions, I’m just a journalist! People can do whatever they want, but this is my issue. If we start from the premise that we just talked about, which is that Bitcoin is a transactional money for the transactions that either the state or maybe big government doesn’t want people to do, if we accept that premise, B, as you yourself stated, these transactions only work if there’s liquidity.
You and I could trade Bitcoins all day long, but if there’s no actual money in it, if there’s no one actually willing to pay fiat dollars for them at the end of the day, we could be trading napkins with each other, it’s just what it is. The napkins aren’t going to cover your bills to fly to New York, like at some level you need to live in society.
If you’re going to accept a Bitcoin payment at some level, you’re going to need to have some confidence that there is someone willing to pay fiat dollars for them at the end or for some fiat currency. So we start from the premise that largely Bitcoin transactions are for the things that makes the state uncomfortable, some for good reasons, some for bad reason.
Liquidity needs to exist and an ETF would be an incredible liquidity on-ramp for speculative money, the likes of which we haven’t seen. If a regulatory body approves an ETF, then you are in this inherent paradox in which one arm of the government has just approved a massive liquidity on-ramp that will inevitably enable the transactions that another arm of the government doesn’t want to see.
This is a fact and we’ve just laid it out here, why this is so. I’m not saying there should be a Bitcoin ETF or there shouldn’t be, but there is a clear contradiction because every government is going to have laws, every government is going to have some things that they want to allow and some don’t. So the existence of this new robust liquidity on-ramp would essentially be making it easier to do the transactions that another arm of the government doesn’t want people to do and I just think that regulators should think these things through.
Peter McCormack: Do you think Bitcoiners want an ETF to happen for any other reason other than for their Bitcoin to be worth more money?
Joe Weisenthal: No.
Peter McCormack: Exactly! It’s not very cypherpunk.
Joe Weisenthal: No, it’s not. It’s not at all.
Peter McCormack: I used to care, but now I don’t. I just don’t care, I’m much more interested in other issues. Okay fair enough, I think that’s fair enough.
Joe Weisenthal: But I will make one modest defense, scaling Bitcoin is very important. The most important aspect of scaling is higher price and I think that actually this gets lost in a lot of the debates, so that people are like, “oh should we change the block size? Should we have layer two solutions?” Whatever it is. None of those are actually as important as the price going up and the price going up theoretically reduces volatility, but also price going up allows a transaction to be made without dramatically increasing the price
So for example, if you imagine, let’s go back to the old days and the total value of all Bitcoin was $100,000. What if you wanted to make a million dollar transaction, you couldn’t do it. Today, I don’t know what Bitcoin is, $70 billion or something like that. If you want to make a million dollar transaction, it’s relatively simple.
So I will grant, you could make the argument that it’s not pure greed that Bitcoiners would like to see more robust fiat on-ramps, because I do believe that the Bitcoin transactional economy works better at higher prices of the currency.
Peter McCormack: Yeah okay, so you’ve rationalized it, which is great.
Joe Weisenthal: That would be one rationalization.
Peter McCormack: All right, so a bigger issue that kicked off last week was with regard to anonymity, that was a very interesting area. What triggered it for you? I’ll tell you what it read like to me, and it was very different because I’m used to following your tweets and listening to you, you felt a bit pissed off with this one. This kind of really got to you and you were very spiky in your tweets and it was unusual for you.
Joe Weisenthal: So it was actually… After the news that this online child pornography ring had been busted and that there was Bitcoin involved or that that was the payment and someone said something like, “oh it’s good that they used Bitcoin because this is how they were able to track them.” So it was a Bitcoin advocate who said that this is a good thing about Bitcoin, in that regulators were able to crack down on them.
I have to say, I found that to be disingenuous. It’s really good that authorities were able to bust these people, but I think that there is a certain amount of dishonesty, when people say like, “oh no-one ever said that Bitcoin is anonymous because everyone knows it’s a public ledger and everyone can see every transaction.” The problem I have with that is that you do get into this situation, in which if you apply that too far extreme, then suddenly the transactions that make sense, no longer make sense.
So for example, if there’s not some level of like… Maybe there’s never going to be pure anonymity, but if there’s not some level of ability to transact on the network without it being easy to discover who you are, then all of the things that we just described become more or less impossible.
So if you’re in China and you want to move money out of the system, but in the end, if it were to be that it’s not that hard to figure out who did the transaction, then you could say, “oh well I sent the money to someone else”, but then if the authorities come to your house and arrest you, was it really a censorship free transaction? Not really. Maybe you were able to transfer the Bitcoin to someone else, but if you can be discovered ex post facto and sent to jail, then you haven’t really gotten anywhere.
Peter McCormack: It depends on the country as well, right?
Joe Weisenthal: Of course there’s all kinds of context dependent and it depends on how seriously authorities want to crack down and how aggressive they want to be. But the point stands that bragging about the openness of the network kind of undermines many of the attributes, that in other contexts people are very proud of.
Peter McCormack: So it depends on who that individual was as well, because I personally wouldn’t brag about the openness of the open ledger. I think personally, the only good thing about the open ledger is the fact that we can verify the 21 million coins. That’s the only thing we need. Other people have talked about where you can hold companies accountable and you can see their balances and such and maybe with the exchanges we want to have proof of it, but I don’t buy all that.
Firstly, I think it’s about the 21 million coins and the only reason we don’t have on chain privacy is because we don’t want to have an unknown inflation bug, which potentially happened with Zcash and may happen with Monero. I think that’s the only good thing about it. I think you can achieve certain levels of privacy, I just think it’s technically beyond a lot of people as well.
Joe Weisenthal: Well look, I think that with all… One thing that’s definitely true is that the debate about the sort of goodness of anonymity or the goodness of secrecy, long proceeds Bitcoin and they’ll say like, “this is like cryptography itself!” As soon as the technology existed that allowed anyone to say, send encrypted messaging, now we know that it’s like a cornerstone of how the internet works.
There’s always been this trade off and I think that Bitcoiners should be more honest about the trade-offs in terms of, it can allow people to do good things and allow people to do bad things and if there were a Bitcoin that existed that didn’t allow people to do bad things, then there wouldn’t be a Bitcoin that allowed people to do good things.
They kind of go with each other and people should be sort of honest, that this is an ethical quagmire. If it’s going to work for the freedom to transact with someone in a sanctioned country, you don’t believe in the sanctions or you don’t believe that you should be prevented from donating money to WikiLeaks, those can all be like legitimate, righteous stances, but then understand that that same technology and that same system that allowed you to do that, is going to allow someone to do something that you might find extremely odious.
Peter McCormack: Yeah, I think it comes down to that point, do you want the government to stop you doing things, because some other bad person might? So for example, in the UK at the moment, they’re looking at censorship of adult content online because they’re worried about children accessing it. I don’t support that. Originally I thought, “well that’s a great idea. I don’t want my son stumbling across some of the most brutal hardcore pornography that you can find.” But then I was like, “well no, that’s my responsibility.”
So I think people are always going to do bad things. I just don’t personally want the government telling me what I can do just because other people are bad. If you look at the Bank Secrecy Act, I’ve talked to Caitlin Long about it, I don’t have the stats, but the volume of transactions and money that is used for terrorism and crime, it was something ridiculous like 0.002%.
I don’t know what it was, whatever it was, it was so low. But because of that, we were all encumbered with these laws. I don’t know if it’s chicken or egg, I don’t know whether because the laws exist, that it stops people, I don’t know! Sometimes I feel like… I want a little bit less government.
Joe Weisenthal: Yeah, I get that and I think that’s exactly right, there is an embedded politics of Bitcoin, there’s no question. There is an embedded rebellion and this is what I said, I said it’s not even against governments per se, I mean a lot of it is just against large businesses and the choices that large businesses or large banks are going to make about what kind of clients they have, this is embedded.
But this is why I find the ETF question so interesting because I think Bitcoiners want it both ways, because they want the rebellion, they want the embedded politics, they want this like, “no, I want to make the decision to transact with whomever I want to transact with, even if the government doesn’t want me to. But I want this other arm of the government to create this new investment vehicle that’ll pump up the price of it.” So all I was trying to point out is that I believe this is a real contradiction.
Peter McCormack: Yeah, I think you’re right, but you do run into that with Bitcoiners. I’ve run into that all the time because I’m like you, I poke the fire, I ask questions. I think you’re right about Bitcoiners not always being honest about it, but I also think they contradict themselves, it’s very interesting! So as an outside observer, where do you think Bitcoin is right now, like in terms of its progress? Do you feel that it has a regulatory threat?
Joe Weisenthal: Not yet. So it’s interesting, one of the things I find funny is that Bitcoiners are super into just these mantras that they just repeat all the time, like “Bitcoin fixes this” or whatever it is. Bitcoin Twitter especially can get incredibly repetitive and you frequently can go for a long time without anyone saying anything new. I think there’s actually a positive reason for that, which is that to some extent I believe that Bitcoin was more or less a finished product on day one.
Now there were a few technical things that didn’t quite work and some sort of security aspects that need to be changed, but on some level, if Lightning never existed, if there were never a layer two solution, whatever it was, the core sort of reason for its existence, as this sort of like censorship free money, was more or less a complete project.
I think this is really different than say the other coins, whereas if you look at say a coin like Ethereum or something, there’s a clear difference, which is that Ethereum aspires to be something, it’s not there yet. It may one day, theoretically, I don’t know, I’m kind of skeptical of it getting to be like this sort of world computer, all these decentralized apps, whatever the meme of the day is, decentralized finance. It may get there, but it certainly is not there and it doesn’t work right now as promised.
Whereas I think you could make a very good argument that Bitcoin more or less worked as promised almost from the very beginning. There are some further enhancements, as I say, layer two technologies, other things that can be layered into it in terms of maybe enhanced privacy, whatever it is, people talk about multisig stuff security that’s above my head and I understand people have more things, but none of that was required to make it work.
But on the other hand and the flip side is, I think that Bitcoiners severely overestimate the current robustness of the network and think that, “oh, we’ve already sort of achieved this escape velocity where governments couldn’t stop it if they tried.” I actually think governments have been shockingly permissive of it and that if they wanted to seriously hamper it, they could probably kill it and I don’t think it’d be that hard.
For example, what if the Fed came out and said, “in the US, banks aren’t allowed to transfer money to Bitcoin exchanges.” What would happen to the price? It would get destroyed, we all know that. It would get absolutely obliterated if a few different governments said that and if it was like the US, the UK, a few major ones in Europe who had said “banks are no longer allowed to do business with Bitcoin exchanges.”
We all know the price would absolutely crater, mining capacity would collapse, someone in the government could then buy up all the miners, rewrite the chain, screw it up and that would be the end of the project.
Peter McCormack: Why do you think that hasn’t happened though?
Joe Weisenthal: I think it hasn’t happened because, my honest belief is there is an ignorance, there is this fear and this pretty good storytelling about, “oh, we don’t want to stifle innovation” and “Blockchain is the future” and “we want to have an open mind and then we’ll come up with like a regulatory framework. So far it’s not like Bitcoin has proven to be a major threat or anything. It’s small, it’s tiny.”
I know what people think, but it’s still very tiny, which is kind of a bullish thing in a sense, as it could get a lot bigger, “but it’s tiny and it hasn’t been used for that much bad stuff” and actually a number of criminal busts have been made because of it. So I don’t think anyone has really… There’s only so many people worrying at the Federal Reserve, they have other things to worry about like banks that are a thousand times bigger than Bitcoin and making sure they’re stable.
But I do think there is some naivety, like if they were like, “alright, how could we kill it?” This idea that it can’t be killed, that’s nonsense. I actually think it could be killed and that it would not be particularly hard at this point. It’s just that no one is really sort of thinking that it’s like a real threat yet.
Peter McCormack: Yeah, I actually think it’d be quite an interesting scenario to see it play out, because I don’t think it would kill it. I think it would highly damage it, but it’s still going to exist in some countries and it will go underground. There will still be people mining it in America, secretly transacting and it’d be kind of cool as well.
Joe Weisenthal: Yeah, I agree with that and you could sort of imagine a world in which, people meet on the street corner and pass someone their Ledger or whatever it is, and hand it off that way. It would be a very Neal Stephenson cyberpunk world, in which maybe that’s the future of it.
Peter McCormack: Yes, it’s kind of interesting. I also think there’s a lot of stupidity in the government, but also I’ve noticed… I always follow the US government, you know when Mark Zuckerberg was in Congress and when David Marcus was in Congress, I actually believe there are some people in the government who actually… Because not everyone’s power hungry, right? I think some people actually say, “hey, this could make a better world” and I don’t believe everybody and every politician is like, “I want power, I want to destroy everyone!”
Joe Weisenthal: Yeah, I agree, it’s a mix. I think that there’s always got to be like some mix out there of rules and freedoms and that a government that tries to regulate every transaction is going to fail at governing. There’s never really been a government I guess that has had a completely permissive attitude towards everything, but there’s always just sort of going to be this inherent tension, that’s like the sort of push/pull of a democratic government.
Peter McCormack: All right, well listen look, another thing I want to cover with you because while you’re here, it’s useful to have your perspective. The world is very fucking weird at the moment, lots of very weird things are happening in the financial markets. I’m not a financial analyst, but I look at something like negative yields and I keep reading about negative interest rates and I’m like, “that can’t be good.”
Joe Weisenthal: It’s weird and it’s not good!
Peter McCormack: Yeah and I look at what’s happening in the repo market, somebody explained to me and I’m like, “okay, that doesn’t seem good.” So everything seems to be getting very weird now. It feels to me as like a casual observer, that I would say pretty much America, Europe, and China are fighting as hard as they can to fight off a recession, but it feels like an inevitability and because they’re fighting so hard to fight it off, when it does happen, it feels like it could be a really deep recession.
Joe Weisenthal: So here’s my sort of take on what’s going on right now. I’m not worried about another financial crisis per se.
Peter McCormack: Because?
Joe Weisenthal: Financial crises largely originate out of private sector debt typically, because unlike governments, private sector can’t create its own money and so you can get into a situation in which entities just run out of money. It’s much harder for a government to just straight up run out of money. Leaving that aside, that’s usually the sort of like…
Peter McCormack: Well they can print more.
Joe Weisenthal: Yeah, because they create it, it’s theirs.
Peter McCormack: We’ve gone back to why we like Bitcoin!
Joe Weisenthal: But typically a financial crisis will originate because someday the banks whatever, they just run out of money and someone owes money and then the value of that loan that they held on their books that they thoughts was going to get paid back, doesn’t and then the person they owe money to, starts freaking out and then you get this panic and there’s a run and so forth.
I think what we’re seeing right now and negative rates are part of it, some of the stress that we’re seeing in the repo market is part of it, is not about this imminent crisis per se, it’s about the fact that government policies, and we could debate and I have my opinion and other people have their opinions about why this is so, but government policies post-crisis have done a poor job of generating robust, sustainable growth.
Some people would take a more libertarian free market reason, regulation, whatever. I would take a more sort of like standard Keynesian view of, it’s crazy how Germany, one of the richest countries in the world, is so focused on balanced budgets and so forth, but I don’t care to have that debate. That’s my view, but in the absence of robust growth, people reach for the safest, most stable assets that there are in the world and those tend to be government bonds.
So if everyone’s driving up government bonds, then eventually you could have the yields go to zero and one of the most stable assets in the world, our reserves at the Federal Reserve and if everyone wants to hold money at the Federal Reserve, then you could have a shortage of those reserves, because the Federal Reserve currently caps the size of how much money can be held there.
Then you could have a situation like in the repo crisis, in which all these people want to hold safe assets at the Federal Reserve, there’s only so much available and then the price of accessing them surges, as it briefly did and so the Fed was forced to expand supply.
So my view is not that we’re per se headed to some crisis, more that central banks and fiscal authorities around the world have truly done a terrible job of instituting policies post-crisis that have created robust growth and with robust growth comes assets that throw off yield and pay good cashflow or get dividends and so forth and we see a shortage of those assets.
We see a bid to the extreme high level of bid to the assets that exist, that do pay off some yield and do have some modicum of safety and hence the yield goes down even further. That is sort of the story I would tell. So it’s not crisis, but it’s not all things good either.
Peter McCormack: Right okay. So your critical therefore of central banks?
Joe Weisenthal: Yeah, well what I would say is that… Well here’s what I’m critical of, I’m critical of a macro-economic regime that leans entirely on central banks cutting rates to generate growth.
I do think that that has been a project that… You could go back for a long time and there’s this new book that’s out, I’ve only read a little bit of it, mostly excerpts from Binyamin Appelbaum at the New York Times, that sort of talks about the emergence of this system in the early 80s, in which the goal is like, “let’s handcuff politicians, because we can’t trust politicians for whatever reason and let’s just have the project of economic management be solely held at the central banks.”
This has led us to this situation, in which the only game in town, the only force that can try stimulate the economy when growth is bad, is the central bank by cutting rates lower and lower and lower until they hit zero or go negative and it’s a bad system. Not because central banks are bad, not because cutting rates are per se bad, but because it shouldn’t be the only tool in the toolbox. The upshot of having that be the only tool in the toolbox is mediocre growth, asset bubbles and all kinds of other things that people don’t like.
Peter McCormack: What other tools should there be though? What is missing?
Joe Weisenthal: The big one I would say would be direct government spending and direct government investment into the economy. This is where I know like the Austrians would also hate that, but nonetheless this in my view, which is that there is tremendous more scope on the part of wealthy, developed market governments, US, UK, Germany to actually invest in the public.
Peter McCormack: Are you on about like public infrastructure projects?
Joe Weisenthal: Yeah, public infrastructure project, public health, all kinds of things like that, absolutely. Hospitals, whatever it is.
Peter McCormack: That stimulates the economy because it creates jobs?
Joe Weisenthal: It does a few things. It directly puts money in people’s pockets, it creates jobs, if done right and I believe it can be, be productivity enhancing because a road isn’t just the jobs that are created by the people working on the road, but theoretically by the towns that are connected and then they can trade with each other more easily. A hospital isn’t just the job, but also the improved health of the people in the area where the hospital is, whatever it is.
If you look at Germany, it’s well known and many people have argued that they’ve let their infrastructure degrade over time to the point where it’s surprisingly, for a rich country, actually becoming a subpar and for a country that prizes itself on its Autobahn, there are opportunities to both put people to work, put money in people’s pockets and increase or enhance the productivity of the nation, by a better infrastructure.
I believe that all of this should be part of this sort of macro-economic toolkit that governments have and largely… Look, governments spend money, I’m not naive, it’s not like they’re not. But when you look at interest rates that are essentially zero, what the market is telling them, is their capacity to spend is far beyond what they’re making the choice to.
Politics has got in the way, there’s been this call to balance budgets or just call to deficit reduction, “let’s just do it, let’s just let the central bank do it just by stimulating lending” and lending is important.
Lending and credit are the lifeblood of the economy, but if you only do it by the credit side, if your only tool for improving the economy is to increase the amount of debt out there or to increase the ease with which one can acquire debt, then you end up in this situation, in which you have a build-up of private sector debt, that increases private sector precarity and it also leads to asset bubbles.
Peter McCormack: Okay. Some of that government spending has to be careful, because I’m assuming it’s better for the government to be spending money on investing in private infrastructure products, rather than the expansion of government?
Joe Weisenthal: Well, I would agree. Governments can certainly spend their money badly. Here’s the thing, so people will say, “look at Venezuela, this is what happens when the government does X.” It’s like, “no, Venezuela is an example of when you have a murderous dictator thug run the government.” That’s the problem with Venezuela, it’s not that like, “oh they exceeded their balanced budget targets by 2%”
So I think there’s no shades of grey and so people say, “oh well Venezuela printed all this money.” If you look at like the really backwards countries, or if you look at the countries that have hyperinflation and anywhere they are, there’s some consistent themes. They get into wars, they’re corrupt on a scale that’s unimaginable, they usually have dictatorial systems, it’s not because like their central bank intervened in the repo market.
You see what I’m saying? If you look at the countries in which they’ve just obliterated the currency, it’s not because they did QE, it’s because the governments there have destroyed any semblance of trust in the system and therefore the money which comes down from the system.
Peter McCormack: Okay all right, fair enough. Listen, one thing final I want to talk with you, because I would be really interested to hear your point on this, because people are very mixed on this. Libra.
Joe Weisenthal: So I tweeted the day they announced it and I was like, “I wonder if this is ever even going to launch”. I was kind of skeptical.
Peter McCormack: I actually think Zuckerberg did a really good job this week. I think for some of the fucking stupid questions they were fielding him!
Joe Weisenthal: Yeah, I know. This is my thing of what Libra could be. The analogy that I’ve come up with, and I don’t really think it’s even worth thinking of it as like a cryptocurrency, because it’s not really. I think it could have the potential to be the Android of money. By that I mean that there’s all these payment systems around the world, right? So in China they use, WeChat or Ali-pay, in Europe there’s different payment systems, here we have PayPal, Venmo and Square and none of them really talk to each other.
If I’m on Venmo and you’re on WeChat, I can’t send you money and vice versa, so that’s kind of problematic. You could imagine a situation in which there is essentially a global operating system that anyone could build a wallet for and they’re providing the rails, they’re providing the underlying, sort of like fiat backing of the system, but if anyone could build a wallet for it, then it sort of becomes this like global interoperable payment operating system upon which anyone could build.
I think that the closest analogy would be something like Android, which was a Google thing, but anyone could build an Android device. You can build an Android tablet, you can build an Android phone, you could build Android into a TV, whatever it is and so it sort of becomes this open source layer for all these things.
I doubt it’s going to happen, because I think that the regulatory challenge of proving to all these countries that they’re going to safeguard the underlying fiat money that 1 Libra is supposed to represent, I think it’s just too much and it’s too complicated.
All it will take is a few regulators and a few important countries just saying, “no we’re not going to let the banks hold your money.” But on some level, a project like that has some logic to it and then I just think that Facebook is just the worst company to do it, because of how much anxiety there already is about how much they know about us and there is no ring fencing Libra as much as they want. They could set up a Foundation in Switzerland or whatever, but I think on some level, there is just no way where it could truly separate itself.
Peter McCormack: Is there any company you think could do it? Like Apple? I mean, I trust Apple, certainly more than Facebook.
Joe Weisenthal: Not really. It probably can’t be done, but not because of the company per se, but just because, I just can’t see enough regulators around the world getting comfortable with anyone doing that.
Peter McCormack: What will be interesting though is to see how much Ali-pay and WeChat expands because I had it on a Finnair flight from Hong Kong to Finland for purchasing the wifi and the three options were card, PayPal and Ali-pay and I was like, “whoa!”
Joe Weisenthal: Ali-pay is in US taxis now! So that’s a surprise.
Peter McCormack: Yeah and politically it feels like, when we’re living in this era and considering what’s going on in China, considering the Chinese censorship, considering the Belt and Road, considering the expansion of Chinese surveillance, that there is this essentially Chinese payment rail, which is essentially what Libra wants to be as well. So that’s been allowed to come into the US, but not allowing a US company to have a competitor, that’s what I find really odd.
Joe Weisenthal: It’s a fascinating space!
Peter McCormack: Well listen, this was great.
Joe Weisenthal: I really appreciate you having me on, it’s been great!
Peter McCormack: Any time man, thank you for having me on when you did. Listen, tell people to follow your work?
Joe Weisenthal: Yeah, check me out. My easiest way is my Twitter handle, @TheStalwart and send me a DM, say “hi” from there and catch my show on Bloomberg or whatever. Thanks for having me! Take care.
Peter McCormack: Thanks!