Leading economist on why Bitcoin’s biggest risk isn’t regulation, with Garrick Hileman

0:00 [upbeat music] Welcome to another episode of FiftyOn Insights, today with Garrick Hileman. Garrick- Thank you... welcome to the show. It's a pleasure, Marc. Thanks for having me. Yeah, likewise.

0:15 It's a pleasure to have you, Garrick. You were ranked as one of the hundred most influential economists in the UK and Ireland. You're best known for your cryptocurrency and blockchain research.

0:27 You're the author of the first University of Cambridge Global Crypto Benchmarking Study in 2017, so very, very early.

0:35 You were previously the head of research at Blockchain.com, and you were also a visiting fellow at the University of Cambridge and London School of Economics.

0:44 Currently, you're the adjunct professor and you're researching topics across cryptocurrency, AI, and also the rise and fall of empires.

0:52 [chuckles] And I'm very excited today to have you here, Garrick, to talk all about crypto, macro, and what's going on in the global economy.

1:02 My first question to you is, given the current global macro environment, what is top of mind for you, and what metrics are you looking at? Yeah.

1:14 [clears throat] So, uh, thank you, Marc, for that, uh, very kind introduction. Um, just one thing I'll mention also, I, I worked at CoinDesk.

1:23 Uh, I got my first job in crypto all the way back in 2013, and, uh, but I was, I was a bit stealthy about that work because my PhD supervisors at the time warned me, "Do not try to do anything outside of your PhD."

1:36 So I, I wasn't publishing the State of Bitcoin, uh, in 2013, 2014 under my own name. It was kind of pseudonymous in true crypto style. But, uh, that's my earliest industry work that I would just add to my background.

1:49 Great, great opening question on the macro environment and where crypto sits. I, you know, came to crypto, you know, from the generation that experienced the 2008 financial crisis.

2:00 That's what led me to wanna go get a PhD in economic history, study under Niall Ferguson and Albrecht Ritschl.

2:06 And, uh, and, and what I learned early on is, you know, the central banks, which really, you know, made a huge effort to get the global economy back up and running after 2008, they, like all of us, have a boss.

2:22 All right? Everybody's got a boss, and the central bank has a boss, and the boss that can tell the central bank, in essence, what to do is this devil known as inflation.

2:31 And when inflation is tame, the central bank really has a lot of levers, uh, to pull on, a lot of dials to tune the economy to bail out sectors or even the whole, the whole system.

2:43 But when we start to get into environments like today where there's steady, again, upward price pressure, not as much as we saw a few years ago coming out of the COVID stimulus, you know, central banks start to get a little more constrained.

2:56 And I think that's a really interesting kind of like situation today for crypto to sit in this space where, you know, central banks might be more constrained with their loose monetary policy and ability to stimulate asset markets, which is not always what they try to do, but that's a knock-on effect, than they were last year even.

3:19 And, and so what does that mean for crypto? Well, it could be, in the short run, not so great.

3:24 And I think s- in some ways, crypto markets right now, the prices are reflecting this uncertainty around how much the central banks can really pump the gas to juice markets and the economy. Mm-hmm.

3:38 And you mentioned that you were very early, so 2013. In 2013, there was literally nothing except Bitcoin. Today, we have a whole crypto economy.

3:50 If you look back at 2013 and you look at what's happening today, where is crypto at? Oh, man. What's the state of crypto? Yeah.

4:01 I mean, you know people, you know, who were around that early, you know, I spoke at the Bitcoin San Jose conference in 2013. That was my first in-person crypto event.

4:11 And then, uh, I met Sven, who was recently-- Sven from Onerium and Jan from Onerium at a London conference later in 2013.

4:19 Um, I mean, those of us who were ba- around back then, in our wildest dreams maybe imagined, uh, that, that crypto could achieve its, you know, current status and role. Uh, it really was theoretically conceivable.

4:36 I mean, we did talk early on about these possibilities. I even started blogging in 2015, 2016 about the idea of nation-states actually investing in Bitcoin and, and, and using it as a new global strategic reserve asset.

4:50 So certainly, some of us were imagining what has come to pass, but it's still rather shocking. You kind of have to pinch yourself. It all seems so,

4:58 you know, um, so established that, you know, governments are now thinking about Bitcoin. Some have even adopted a Bitcoin strategy.

5:06 It's still pretty stunning, though, honestly, if you think about how quickly we've traveled from 2011, 2012, 2013 to today. Un- un- unbelievable journey. [chuckles] Garrick, you studied economic history.

5:19 You also studied monetary systems over centuries. What patterns from past monetary transitions help us understand crypto's role today? Yeah.

5:32 That is a fantastic question, and I've spent a decent amount of time trying to think about that. You know, Barry Eichengreen was one of my inspirations to go study economic history.

5:43 Barry kindly met with me back before I took up my PhD at the LSE, took time out of his day.

5:49 He's an incredible scholar and, and, you know, he, he and others pointed out that during the 20th century, during the last kind of transition from the prior reserve currency regime, which was the British pound sterling to the US dollar, it wasn't a, um, a- A kind of like, you know, kind of smooth, gentle, you know, on/off, you know, kind of like switch.

6:11 Basically, the dollar became more important in the early part of, of the 20th century and supplanted, it seems, sterling as the primary reserve currency.

6:21 But then sterling made a comeback, um, as I understand, in the '20s and '30s before the US dollar finally put sterling into the rearview mirror after World War II, and that was what my PhD was focused on, was the 1940s.

6:34 So I guess the point, the key takeaway there for the crypto folks is, you know, don't expect any kind of new regime, monetary regime to emerge in a really smooth, kinda like, "Oh, one day we just flip the switch and we're on the renminbi regime," or some Bitcoin regime or some-something else we haven't even considered, some new, you know, maybe algorithmic stablecoin decentralized regime.

7:00 So I, I expect some bumps in the road.

7:03 And, and then the other key point I would make is that, you know, when people talk about how long certain currencies have been around, this comes up a lot, like how long will the euro last.

7:12 People in crypto, especially out here in California, have a very dim view of the, [chuckles] of the future of the euro.

7:19 I disagree, but it's important to remember that the British pound sterling, for example, of today is not the same pound of 50 years ago, and it's not the same pound of 100 years ago, and not the same pound of 200 years ago.

7:32 These currencies evolve. So we may have pound sterling in existence for centuries, but in terms of, you know, what it's backed by and, and how it's managed and, and so on, this has evolved regularly. So currencies adapt.

7:47 Uh, they don't just sit there static, uh, like and, and, and are unchanging.

7:53 And the reason I mention that is, you know, my PhD supervisor, Niall Ferguson, a few years back published a Bloomberg article arguing that the US dollar, to really remain triumphant, relevant, dominant, needed to embrace Bitcoin in some way, shape, or form, perhaps as a backing asset.

8:11 I think that was a rather prescient perspective. I might have had, if I, if I can, Niall, a little credit with maybe informing, uh, his view on that.

8:18 But this idea that, you know, the dollar is kind of like an unchanging, you know, uh, you know, kind of rock that just never, never evolves, I think is not correct, and it could evolve further and may evolve in a way that incorporates crypto in some way, shape, or form.

8:36 You know, dollar, dollars are already traveling on crypto rails, as we know, with stablecoins, but maybe there's a further evolution. That's a great point.

8:44 And speaking about a new regime, I guess you could say that thanks to blockchain and se- and thanks to stablecoin, the US dollar today is as strong as ever, at least in, in terms of the, the US dollar global dominance.

9:03 Would you support that thesis, or how do you see that? Yeah. I, I think, I think that you make a great point, Marc, that

9:11 I would, I would add a little bit to, which is that I think when we think about dominance, there's a couple of different kinda lenses or ways to measure that.

9:19 You can think about, you know, reserve assets, like what do other central banks and institutions hold in reserve, you know. And that's roughly over 50%, close to 60% US dollars by common measures, right?

9:32 There's another form of dominance, though, which has to do with, um, the numéraire or the unit of account in which transactions occur in.

9:40 And, and there, on international trade, I believe the US dollar might be even more dominant, perhaps even 75% of all international trade, um, is, is priced in US dollars.

9:53 So y- you know, the petrodollar is the famous example here, right? The Saudis cutting a deal with the Americans and FDR back in the '40s, you know, you price your oil in dollars, we'll guarantee your security.

10:04 That's played a big role in, in maintaining the US's dominance, US dollar dominance as a numéraire for international trade, right?

10:14 And then when we think about the evolution of the monetary and payment system, I think to your point, the fact that the dollar is even more dominant, 99%-plus of stablecoins,

10:25 and this new emerging payment rail that might cross over from crypto to traditional markets puts the dollar potentially even in a stronger position, to your point.

10:36 It actually has even more market share and use than it does in the traditional markets in international trade. Having said that, there are, I think, some very serious challenges the dollar faces. You know,

10:50 the dollar is weakening in some ways, too.

10:53 I think, you know, you see with the use of the dollar for policy censorship, a term that we in crypto like to use, you know, censoring kind of regimes that are behaving badly through control of the SWIFT network and so on, has already led many governments to try to route around the US dollar kinda complex, not have payments always running through New York and so on and so forth.

11:16 So, you know, on the one hand, the dollar is strengthening with its kinda dominance of these new emerging rails and weakening at the same time, and I think that's one of the more fascinating kind of things to watch in payments and, and in money today.

11:29 And again, speaking about a new regime, do you think crypto is actually a new monetary regime, or is it just the rails to support existing regimes?

11:41 S- so from the very beginning of my teaching at Cambridge and, and the LSE and elsewhere, this question of is Bitcoin money has been something I, I've spent a lot of time covering with, with, uh, classes.

11:52 And what's so interesting, Marc, is that I always poll the class, and this is executives, it could be executives from a multinational in Brazil, it could be bankers at a UK-based, uh, global financial giant, it could be undergraduate students in Dubai, where I was most recently teaching, uh, the rise and fall of empires, as you mentioned.

12:12 And almost Every class, no matter who is in the audience, when I ask, "Is Bitcoin money?" the result that comes back is 50/50 split.

12:22 [laughs] 50% of the audience, even more crypto-savvy audiences, will say Bitcoin is not money, and 50% say it is. And it's, it's, uh, you know, something that, you know, I, I think, uh, it's, it's

12:39 I think something that can be argued both ways, all right? So people construct arguments on both sides of this. But in my view, using the traditional economics definition of Bitcoin...

12:48 Or sorry, something that's money has to have three funct- meet three functional, uh, tests. Is it a unit of account, a store of value, and a medium of exchange?

12:55 It really only maybe starts to pass that store of value test, in my view.

13:01 And even there, when you think about, well, what kind of properties from a store of value perspective should money have, you think of, well, something that's stable and, and less volatile.

13:13 And crypto is one of the most volatile things humans have ever encountered. It's maybe getting less volatile,

13:19 arguably, but, you know, just as recently as March 2020, Bitcoin lost 50% of its value in a single day, and it's done that before. It did that back in December 2013.

13:28 So anything that can lose 50% of its value in a single day, you know, it's hard to argue that it's, uh, a stable store of value. Um, so and then, you know, it's really not used as a unit of account almost at all.

13:44 I mean, when you go into a pub to buy something with Bitcoin, you could do this in Cambridge. I did this.

13:50 Uh, you, you, you, you come back the next week, and if you buy, try to buy the same thing and imagine Bitcoin has dropped 50% in value, well, guess what?

13:58 Your Sunday chicken roast now costs you twice as much nominal Bitcoin as it did the week before, because the true unit of account at that pub is not Bitcoin, it's actually the pound sterling, and you have to pay more Bitcoin for the same chicken.

14:12 So it's not really money in the view of most economists, but could it become money? I mean, you, you could argue, you know, anything's possible, right? Um, we'll see. [laughs] So Bitcoin is no money.

14:26 You just mentioned Bitcoin is also not really a store of value. So what is Bitcoin then? What is the thesis- I think it is a way for people to store value in a more speculative fashion than other more established,

14:44 uh, and, and well-understood assets. So, for example, real estate or even gold, which Bitcoin is often compared to.

14:54 We, we, we know that gold can be quite volatile, and it doesn't always perform well as a safe haven either. Like Bitcoin, during a crisis, we often see the price of gold fall. We saw that in 2008.

15:05 The only thing that really went up was the US dollar, uh, when, when Lehman failed. Gold plunged. It was not a safe haven in that moment.

15:15 Um, and so, you know, it, it's, I think, a way to store value in a, in a, in a kind of more speculative way, 'cause you're betting on a few things when you store value in Bitcoin.

15:28 You're betting on the crypto ecosystem expanding, becoming more widely used. You're betting on maybe the rise of the machine economy.

15:38 Um, I often like to point out to my students that one of the biggest barriers to something becoming money is it's hard for something to become money unless people are paid in it.

15:48 You know, there's, with Bitcoin and spending it at your local pizza parlor, there's this extra step you have to go through, right, to acquire your Bitcoin and then spend it.

15:55 And if you're paid in Bitcoin, which very few people are, some people are, but very few people are, it becomes a lot easier, less friction, fewer steps to actually use it as a currency.

16:05 Well, we already have a large group in this world that is getting paid for its work in cryptocurrency, and that's miners. The work that the miners do, the machines actually already get paid for their work in crypto.

16:19 And if you see or can imagine the rise of the machine-to-machine economy, you know, it could be a case where just like when I go to France, I use, need to use the coin of the realm.

16:28 I have to acquire euros and spend euros there.

16:31 When I want something from the machine economy, perhaps one of Elon's driverless robotaxis, then I may need to use the coin of that realm, and perhaps that's a cryptocurrency because it's programmable, you know, it integrates nicely with smart contracts and so on and so forth, right?

16:45 So that's one way to imagine how you get past this barrier to something becoming currency and money because people aren't paid in it.

16:53 Well, we already have machines paid in it, and maybe they'll lead the charge on this being more widely used as currency. Mm-hmm. Mm-hmm.

17:02 A lot of Bitcoiners argue that Bitcoin is a hedge against the collapse of the dollar. Mm-hmm. How do you see that in the context of the history of monetary systems? Do you think that's a legitimate stance to have?

17:20 Yeah. So I, I don't see the collapse of the dollar or the financial system more generally as a good thing for Bitcoin. And, and this is, I think, an area where I kind of, kind of differ

17:32 quite strongly actually in my views from the consensus in the crypto community. I mean, you know, if, if I may, I, I would, I might even go so far as to say I'm the [laughs]

17:42 one of the only Bitcoiners I know of who's consistently for years really railed against this concept of hyperbitcoinization that a lot of people dream of in the Bitcoin world. And, and let me unpack that.

17:56 I, I think you can imagine the dollar collapsing. Currencies do collapse. That's not theoretically inconceivable. It may even be probable. Most currencies don't live forever, right?

18:09 Some can adapt and go on for centuries, right? But we have many numerous examples of failed currencies. So I think the concern is legitimate. Let me start with that.

18:19 The problem I have is people are only thinking usually one chess move ahead when they imagine a US dollar kind of collapse scenario and what that means for the price of Bitcoin or the adoption of Bitcoin.

18:30 I don't think people fully appreciate how catastrophic and calamitous a dollar collapse could be and what the response may entail.

18:40 So in a situation where there is a run on the dollar, people are exiting the dollar like they're exiting Silicon Valley Bank a few years ago, right? Trying to get their money out.

18:49 They're scared, um, they're going to something, they're going to gold, they're going to, you know, stocks, they're going to Bitcoin. Well, if they pile into anything too quickly,

18:59 what we know is that the powers that be will probably try to put the brakes on that to preserve some type of financial stability.

19:09 And I think there's some strong arguments, you know, as, you know, even the libertarians, I think, would need to concede that there's some strong arguments for, for not letting things get that destable.

19:21 And it's a hard, hard pill to swallow if you're a libertarian to acknowledge this. But, you know, in the 1930s, the instability in the Weimar Republic and in Germany, you know, had some really, really bad consequences.

19:35 And you have to, you have to keep that historical perspective when you think about even if you want Bitcoin to take over the world, become the new global reserve currency, and I certainly understand and appreciate that perspective.

19:48 I think there's a process to get there that might have a greater chance of success than some kind of sudden hyperbitcoinization crisis-driven rush to the Bitcoin exit.

20:00 I think people are failing to appreciate the, the, the counter measures that governments might employ that could be quite catastrophic to Bitcoin if, if that scenario is to play out.

20:11 So if you're hoping for Bitcoin to take over the world, think about the frog slowly boiling in the kettle. I think that's what you want, not some kind of crisis-driven...

20:20 I know everyone's impatient, but Bitcoiners are actually quite patient, relatively speaking, [chuckles] I think, and, and just be a bit more patient. I think, I think it's gonna work out better for you. Yeah.

20:30 I, I agree with you, and it, it's certainly a multifaceted argument and certainly not binary what Bitcoin really is, and probably that question is also not something that we have answered yet, whether it's a peer-to-peer payment system or a store of value or something else.

20:46 I think that's still up for grabs.

20:49 You talked about risk, and I just want to zoom out a little bit, um, zoom out of crypto as well and ask you, what do you think is the biggest risk right now in the current financial system? No.

21:03 Well, I mean, the AI bubble's what everyone's talking about, of course.

21:06 You know, and I've, I've, I, you know, I, I've historically been a bit guarded about making financial markets forecasts, at least publicly and loudly.

21:15 But I, I-- this spring, I, I saw evidence that to me that suggested the crypto run was running out of steam, so I went on record publicly with that call, and I think that so far has been proven quite accurate.

21:30 I see signs that make me nervous about the near-term improvements in large language mo- models, and if the innovation starts to slow down, you know, if ChatGPT-6 underwhelms, like many people thought ChatGPT-5 did.

21:48 I, I kind of disagree with that. I think there was enough improvement that it certainly could sustain the investments.

21:55 But, you know, if the benchmark models start to really fall flat in terms of what they're delivering in terms of improvements, I think you're gonna start to see more

22:05 concerns about the CapEx investment in AI, which is really holding up the financial markets in a big, big way. And, and then you could get this kind of really nasty unwind, right?

22:19 Um, that I was-- I'm old enough to remember the dot-com bubble. I was in San Francisco, uh, working at a tech incubator with one of Bill Gates' good friends.

22:27 Uh, we set up and saw that whole rise and crash, and so I'm one of these people who's been on the ground floor for a couple bubbles, the real estate bubble as well, 2006, '7, '8.

22:37 Um, you know, I, I could very much see that kind of unwind happening in the AI space, um, and that really nuking financial markets. And then you have to ask yourself, well, then what?

22:49 Well, again, we come back to the point I started with, which is who's the central bank's boss? Inflation. Central banks are incredibly powerful institutions if they have room to maneuver.

23:01 But we're already seeing a uptick in inflation. And as Lenin famously war-warned and John Maynard Keynes agreed with, you know, the best way to basically destroy democracy and, and trigger revolution is inflation.

23:16 Um, it's a really powerful phenomenon that can destabilize things in a big way, as we saw in the 1930s, you know, and '20s in Germany and so on. So, [sighs]

23:26 um, you know, I do worry a little bit about the inflation boss constraining central banks, and then what? You know, then what? It could be really painful. Um,

23:39 you know, this idea that we somehow have figured out a way to avoid another Great Depression, I don't, I don't believe that.

23:45 I think that scenario, especially as memories get more, more and more faded, and people don't realize how horrible that time was, we may sleepwalk right into that again. But I'm a techno-optimist.

23:56 Let's, let's end on a happy note, this, this quick question. I, I think AI is phenomenal. I'm much more bullish on where it can take us. I think it could be bumpy in the short run, but I think if we can

24:08 figure out a way to smoothly get through these AI winter periods, uh, without too much damage, we could end in an incredibly exciting, happy place in the next decade, and the investment and party keeps going in markets.

24:20 Let's zoom in a little bit and focus on stablecoins. I know that you already wrote about stablecoins in 2019, "The State of Stablecoins."

24:28 What are you most surprised about when you see what happened this year and the explosion we saw to over 300 billion in market cap? Yeah. Yeah, no, I, I, uh, that was another thing I, I, I got right.

24:44 Um, I don't get all my calls right, but my intuition on what to research seems to always, in crypto at least, be, um, a leading indicator.

24:53 And, and yeah, to your point, I got interested in stablecoins actually much earlier than that.

24:58 There were a few folks, um, Robert Sands, Sams, JP Co- Coning, um, David Andefratto, and others who started talking about fed coin and central bank digital currency and, and, and that was actually what, what piqued my interest originally in this kind of stablecoin space, going all the way back to 2014 timeframe.

25:18 And then, um, got involved with stablecoin projects in 2017, and then started doing research and publishing in 2018, 2019.

25:25 And, uh, it just, it just seemed obvious to me that this product, this stablecoin product, could really solve one of the big problems that attracted many people, including myself, to crypto to begin with, this idea that why isn't money fast, free, and instantaneous, like email and text messages?

25:44 You know, Jeremy Allaire, uh, deserves a lot of credit for, I think, really championing that, that concept early on.

25:50 He thought Bitcoin could deliver on that, that kind of, um, you know, problem and, and, and, and, and, you know, pivoted to s- to stablecoins because Bitcoin isn't something people always want to spend, and that's okay, by the way.

26:04 There's nothing wrong with hoarding your Bitcoin and having it as a store of value.

26:08 If all that Bitcoin ever becomes is digital gold or a database, uh, a network for, for various activities, a timestamp ledger, NFTs, et cetera, whatever you wanna use it for, that's not such a bad outcome.

26:22 But it doesn't necessarily solve this other problem of how do we make money more like text messaging and email, fast, free, easy.

26:30 And, and stablecoins really, to me, screamed loudly that, "Hey, we could potentially do this. We're programmable like Bitcoin and Ether. We're usable with digital wallets and, and crypto exchanges,

26:42 and, uh, we are stable," you know? And it's worked, you know, really well. They have absolutely achieved a very strong product market fit, and, you know, that possibility wasn't hard to imagine back in 2017, 2018.

26:57 Um, so I'm not surprised. I think- Mm-hmm... the fact that regulators have given in and the banking system has allowed this to happen is, I guess, maybe the, you know, bigger surprise, but we'll see.

27:11 [chuckles] It's still pretty early days. I mean, the Genius Act was packed, passed, right? But it's like a multi-year im- implementation.

27:18 You know, it's, it's still early days in kind of the post-Genius Act world that we inhabit now. And, and I guess I'm still-- I think the jury is still out on how widely stablecoins kind of like creep into everyday life.

27:31 Yeah. I, I agree. So during the last cycle, I remember in 2019, 2020, '21, many talked about CBDCs, central bank digital currencies, and very few central bank digital currencies have seen the light of day so far.

27:48 What we've seen is an explosion in privately issued stablecoins like Tether and Circle, the most dominant ones, almost making up for those 300 billion, uh, total supply right now. Why do you think that's the case? Yeah.

28:02 Boy, [chuckles] yeah, this...

28:05 I, I had a, a pretty good zinger that got the attention of my friends in central banking a few years back when it, it became apparent to me that central bank digital currency was going to overpromise and underdeliver.

28:18 There was a lot of hype, exactly as you said, Mark. You remember that time period really well. Where are we now? Well, there were huge problems about, with, with central bank digital currency from the beginning.

28:30 The privacy trade-offs, you know, the concern that you might exacerbate a financial crisis.

28:36 You might cause Silicon Valley Bank-type runs into the central bank digital currency and make it all the more easier, because you don't have to go stand in line at the bank like you used to in the 1930s to get your money out.

28:47 You push a button, as Silicon Valley Bank learned the hard way, and money can flee instantaneously. So do you cap how much CBDC the average retail customer can, can hold?

28:58 Do you have different ex-- or interest rate policies for CBDC versus commercial bank money, and so on? I mean, there's a lot of complications.

29:04 And then you layer in the fact that frankly, very few governments are good at technology, right? And there's a really strong

29:12 technical proficiency, I think, that's required to pull off a CBDC, and risk if you get it wrong. You know, cyberattack risk, which I think most people don't appreciate how conservative many central banks are.

29:24 They don't like to take risks, and this is a whole new attack surface you open up to something that's critical infrastructure, the monetary system, that wouldn't exist without a CBDC kind of type instrument.

29:37 And then you get into the political side of it, the concerns about a panoptic- a panopticon, a all-seeing Sauron-type, you know, all-knowing state that sees all, knows all.

29:49 Uh, those are real concerns, and, and that ran right into, um, you know, kind of like, you know, in America at least, you know, privacy concerns that put, put an end to the dream of CBDCs.

30:01 Um, and the private market, I think, was pretty happy to see that dream end as well because banks, um, like that they can create the vast majority of our money. 90%-plus of our money is bank-created money, right?

30:13 It's not minted by the government. There is, of course, dollars and coins in our pockets still. They haven't gone away yet.

30:20 But again, one of the big secrets, you know, that I try to dispel in my teaching, so few people, Mark, actually know that it's commercial private for-profit institutions, banks that lend into existence the vast majority of our money.

30:34 That's not widely known by the man and the woman in the street. Banks like that power, they wanna keep it. And meanwhile, Europe just announced that they're gonna launch a Euro stablecoin issued by the ECB,

30:48 even though, and you mentioned at the beginning, 99% of stablecoins are denominated in US dollars today. Mm-hmm.

30:58 Why do you think that's the case, and are other nations just asleep at the wheel or what are they doing wrong? Yeah. I, I think that's gonna change. I think we are gonna see

31:13 other currencies, including the euro, taking market share from the US dollar stablecoins. And it reminds me a little bit of 2018, 2017, when Tether had 99% of the stablecoin market.

31:29 There were other stablecoins back then, but, you know, it's the same story.

31:34 Uh, Tether was 98, 99% almost of the, the whole stablecoin universe when there was two billion or so stablecoins, and it's come down a lot, right?

31:44 I mean, USDC has taken a huge market share and, and others have, have come in as well. And

31:51 I think that seems like a healthy development for stablecoins, and I think it will be healthy if we see other currencies like the euro, you know, and others rising in the stablecoin lead tables.

32:03 In terms of what the European Central Bank is doing, look, I've talked to people who have worked on the European Central Bank digital currency.

32:14 They've been frankly pretty frustrated with, you know, the pushback, the politics, the technical challenges. It's, it's a, it's been a frustrating project. So I'll, I'll believe it when I see it, I guess.

32:26 Um, you know, in terms of what impact it would have. I mean, it could be, could be significant.

32:30 A wouldn't-- well-executed central bank digital currency could be a really interesting, powerful financial instrument to do a number of really useful things in a, in an economy. Let's go back to COVID a few years ago.

32:43 You know, the stimulus checks, I wrote about this on my blog about the, you know, advantages a digital dollar would ha- would have if you were putting out stimulus checks.

32:52 You could actually track that the money was received. There was huge fraud, huge, uh, inefficiencies in terms of the, the speed at which funds could get to someone.

33:00 You know, a lot of benefits if you could digitize those stimulus payments, for example.

33:04 You certainly would create a public institutional competitor that could maybe drive down the costs of the financial services system, if you think of the financial services system as a middleman and ex-extracting rents on an economy, on the productive parts of the economy through, you know, high fees and, you know, exorbitant interest payments and so on.

33:26 You could see a central bank digital currency competing to put pressure, downward pressure on that tax, if you wanna think of it that way, on the productive aspects of the economy.

33:36 So I think there is a case to be made for central bank digital currencies.

33:40 It's just a complicated one, and there's a lot of execution risk and, and potential spillover effects, anticipated and even unanticipated ones when you get into things like cyber risk. So,

33:50 um, yeah, the story of CBDCs is not over. I wanna move on a little bit and talk about tokenization. You highlighted a couple of years ago a critical limitation of tokenizing real world assets.

34:03 You called it the tr- the trust boundary. You noted- Mm... that while a ledger is immutable, it cannot verify the veracity of off-chain data entering the system, so meaning garbage in, garbage out.

34:19 And we've seen a renewed push this year from big institutions, most prominently probably BlackRock, pushing into- Mm-hmm... the tokenized real world asset space. Mm-hmm.

34:31 Have we solved that problem, or what's your view today on that? Yeah. I, I think a lot of the concerns still stand, but there's powerful arguments and powerful institutions, as you mentioned, getting behind tokenization.

34:45 That's been true for a number of years now. And, uh, I think the, the reasons are, are pretty compelling. You know, a lot of people want access to US equity markets. For example, they want to be able to invest in Nvidia

34:59 or other stocks. And, um, you know, opening up traditional US brokerage accounts are, you know, it's complicated. It's not a great user experience. It's not even possible for a lot of people around the world.

35:13 And so this idea that you could expand access to a category like, say, you know, domestic equity markets through tokenization, a-integrate with some of these fintech companies like Robinhood and others who are much better at building compelling, compelling user experiences and apps than traditional banks, which have struggled, um, to attract engineers and software talent.

35:37 I think that makes a lot of sense. You could expand access to a range of asset classes, things we've never been able to do.

35:45 I mean, you know, I think one of the more interesting examples that has been kind of thought about for many, many years is this idea of tokenizing real estate, you know, and having kind of a crowd-shared down payment to help first-time home bo- buyers or, you know, there's all sorts of things we've never been able to do that tokenization opens up.

36:04 You know, you still have the fundamental problem that you're talking about a digital instrument representing something that's not digitally native. That's the great advantage of Bitcoin, is it's digitally native.

36:15 It lives entirely on the blockchain, whereas the real estate doesn't. The gold that we've tokenized, and that's been a relatively successful mo- I'd say modestly successful example of tokenization.

36:26 It lives somewhere else, so you've got to bring in all this custody and auditing and offline, you know, functions that require trust and really undermine kind of the...

36:37 ethos of what a blockchain is about, trust minimization, you know, risk reduction, and so on. We just had Carlos Domingo on the show. He's the founder of Securitize, one of the- Mm-hmm... prominent tokenization players.

36:51 And his view on that is that it makes sense to tokenize, but instead of focusing on illiquid assets, you need to focus on assets that are al- already liquid and then- Mm-hmm...

37:02 bring it on the chain because you need a market, and the other way around, it doesn't really make sense. Yeah.

37:09 I mean, look, the s- the success of stablecoins I think highlight how, you know, incredible tokenization can be, right? Like the case has been made successfully. There's product market fit here.

37:20 But there's definitely execution and implementation risks, and it's not really-- It's more fintech for me.

37:26 You know, I think of stablecoins, this point's been made on, uh, by others, that stablecoins are kind of almost more fintech than crypto.

37:33 That can be a kinda useful lens to think about what is, you know, tokenization versus what is Bitcoin or Ethereum or something that's really truly digitally native, trust minimized, and more cypherpunky, right?

37:47 Tokenization's not very cypherpunky. And that's okay. [laughs] That's okay. Yeah. Garrick, in your research, you also highlighted the institutional preference for permissioned systems. And in this- Hmm...

38:03 in 2025, we saw a lot of companies capitalizing on that. We saw Circle launching their own chain. We saw Stripe launching their own chain.

38:11 And now we have that playing field of permission corporate chains versus open permissionless chains. How do you see that development, and how do you think that is gonna play out? Yeah.

38:25 To me, this is one of the funniest things in, in my time in this space because, you know, human nature is human nature and, and that's why historians often are the best forecasters and futurists is they,

38:39 they, they understand that, yeah, the times change, the tech changes, but boy, human nature doesn't really change.

38:45 And yeah, permissioned blockchains have some real attractive elements for corporations in particular, who I think, you know, it's easy to kind of bash this, this corporate chain phenomenon, but keep in mind that, you know, companies have to worry about things like regulations and privacy and customer data.

39:04 And so I, I get it. I get why there's ongoing and, and you could argue renewed interest, and we're, we're back where we were in 2015 when Bitcoin was bad, blockchain good. We saw, you know, Blythe Masters and

39:18 others out there at the first CoinDesk Consensus conference, you know, touting the rise of distributed ledger technology. So this, this all kind of echoes and rhymes a little bit with me to that period.

39:30 And you know, you get into, I think some real kind of trade-offs and fundamental problems though as soon as you start trying to erect your own chain with its own, you know, standards and interoperability issues and it's just not very open.

39:43 It's like, it's like, you know, have we learned anything on why DLT was largely a dud and, and you know, wasted a lot of time and capital?

39:53 It, it lets CEOs, you know, tick a box and say, "Yes, I have a blockchain strategy. We're running this DLT pilot over here."

40:01 But I'm not really sure that much was learned based on what I'm seeing with the rise of all these corporate stablecoin chains and I, I, I don't know that it's gonna end any better, frankly. You know?

40:12 I think there's huge advantages to open networks like Ethereum and Bitcoin and, and others that allow kind of an open playing field with, uh, interoperability

40:23 and have a huge moat by the way already in terms of developers and established, you know, liquidity and so on. I mean, yeah, I, I'm, I'm not, to be honest, super bullish on those efforts, but we'll see.

40:37 Yeah, I, I agree, and I actually have a thesis on that. I think it's probably gonna be a hybrid future where we will- Yeah...

40:43 have permissioned chains and those permissioned chains will plug into permissionless chains- Yeah... and that will kind of live side by side. I think- Mm-hmm...

40:53 what JPMorgan launched with DBS Bank a couple of weeks ago where they used their permissioned chains and then Ethereum in the middle to, uh,

41:04 coordinate and transact between their permissioned chains, I think that's a very good example of how this could play out. Yeah.

41:10 The corporate chains have a big advantage in that because they're new, there's new equity to allocate.

41:16 There's new kind of like pieces of the pie that you can use to incentivize the best and brightest and attract them to your project, attract teams. You know, the Ethereum ICO and pre-mine already happened, right?

41:28 You know, and, and there's been very efforts, various efforts by Vitalik and other thinkers in the space that answer this question of how do we incentivize and fund ongoing development?

41:38 You know, do we tax transactions or do things? You know, it's a complicated issue, right? But that does give the corporate chains a bit of an edge in terms of being able to

41:48 spend a lot of capital, right, to achieve adoption and attract talent.

41:53 Uh, Garrick, you've been around long- longer than most of us, and you've probably seen more Layer 1 ecosystems and launches and Layer 1s disappear again than most of us.

42:06 If you look at the Layer 1 lans- landscape today, how do you see that and how do you assess different Layer 1s and, and what Layer 1s are you most bullish on? Yeah. Boy. [laughs] Yeah.

42:24 Uh, uh, you made a point earlier about how in 2013 there wasn't anything but Bitcoin and, and, and you know, figuratively that's true, but there were actually other things going on back in 2013 besides Bitcoin.

42:36 There was Peercoin, there was Namecoin, there was- You know, um, other things, you know, Light, Light, uh, Litecoin, um, which is still around, I guess. Um, yeah, the layer one landscape.

42:49 Well, look, I think, I think what we've learned is there is a lot of really interesting tech that could justify launching a new layer one, in theory.

43:02 But, you know, the, the idea that you're gonna supplant, I think, the leaders, the leading layer ones in this space at this point is, I think, tough, a tough argument to make. And, you know, we'll see.

43:15 You know, there could be some new whiz-bang solution that needs its own layer one, attracts enough c- capital and excitement, and really does achieve kind of escape velocity.

43:26 But I think, you know, investors in the space, developers should be skeptical of those attempts to launch a new leading layer one. You know, I think,

43:38 I think there's just been so much capital destroyed and, you know, value destroyed chasing the next Ethereum, you know, the next Bitcoin.

43:48 Um, you know, it attracted a lot of talent, it attracted a lot of innovation, but I don't know that we're gonna see

43:57 a repeat of, like, the 2017 ICO layer one phenomenon again, where there's a wide proliferation of EOS's and Tezos and...

44:07 Sorry to name names, but yeah, there's just been a lot of battlefield deaths, and I think people are pretty burned, and that's gonna be the case for a while. You know, we'll see what tech emerges, you know?

44:19 It's, uh, nothing's impossible, you know, to imagine in crypto. That's what's so exciting about it. Yeah. From your perspective as an economist,

44:28 are there any mental models that you use to actually value those networks and layer ones? Yeah. This has been a struggle, right? Like, how do you value these things?

44:39 You know, I, I think the general feeling is a lot of the value's gonna accrue to the application layer, and that perhaps, you know, you know, there would be certain layer ones, you know, that can, you know, attract value and, and need a certain amount of value to have a certain amount of security and so on and so forth.

44:55 I think, you know, there's, there's ways to kind of like start to model that and think about that. But it's a big, big struggle, right? Like, what are, what is this all worth?

45:03 I mean, that's been part of the fun and part of the problem with crypto is we can speculate on what everything is worth and, and without really having anything like a discounted cash flow model

45:13 to, uh, kind of like really, you know, in a more scientific fashion, business school-friendly fashion, um, actually value these, these platforms. So I think there's still a bit of a struggle there. Um, I think, uh,

45:29 you know, yeah, I'll stop there. I mean, it's, it's a big, big conundrum, the, the valuation challenge for, for crypto and, and what is this all worth. A lot of...

45:37 That's why a lot of it's heuristics and like, "Oh, gold's worth this. Bitcoin should be worth that.

45:41 Visa and MasterCard make these kinds of profits, so maybe we can discount that and assume this and this will make that kind of profit."

45:48 You know, it's a lot of like really rough, kind of crude analogizing that frankly informs valuation guesses.

45:54 And Gary, in the spirit of intellectual honesty, what is the strongest argument against the institutionalization of crypto that actually worries you? Yeah. This worries me a lot, actually.

46:08 I, I, I think I was a bit early to worry about the rise of, um, you know, a company controlling 3.5% of Bitcoin, which is what it's estimated Strategy, and formerly MicroStrategy, and Michael Saylor control today.

46:23 I mean, this is getting to near Satoshi level, uh, you know, Satoshi level of ownership. To my knowledge, there's n- not been an announced cutoff.

46:35 Like, is, is he gonna stop at Satoshi's stack at 1.1 million, we think, or is he gonna go beyond that? Where, where does this end?

46:43 The reality is, yes, having a buyer like Strategy, a very creative, and, and hats off to Michael Saylor. I mean, incredible accomplishment so far. We'll see how the story ends. It's not over yet. Concern is, uh,

46:58 you know, as you get a BlackRock controlling a huge chunk of Bitcoin with the ETF, with Michael Saylor here and Satoshi's original stack, the more concentrated the ownership crypto becomes, the less useful it is for something like payments maybe, right?

47:15 If, if you've got a dozen institutions largely controlling all of the Bitcoin, Coinbase has a huge custodial position, BitGo, et cetera.

47:24 I mean, it's just too concentrated to ever even hope to become a currency or, or some kind of new form of money.

47:30 Not to mention the fact that these entities will undoubtedly wield some kind of influence over the network and its development.

47:38 I mean, it's just not realistic to think that, uh, oh, these will be benign actors who will let the core devs do whatever they want, and the community, through rough consensus, kind of continue to chart their own course.

47:50 I mean, where the rubber meets the road here is imagine Bitcoin wants to adopt a more privacy-forward kind of technology and, and it starts to run into

48:01 concerns around threat finance and money laundering and these kinds of things, which the Trump administration, as pro-crypto as it has been, has continued to crack down on kind of this money laundering side of, of, of kind of digital currency.

48:18 You could see BlackRock and others saying, "Wait a minute, you know, you cypherpunks, you know, we may be sympathetic to your desire to have more privacy and liberty and censorship resistance, but I've got shareholders.

48:30 What you're doing threatens the value of my s- my, my, my stack. I'm gonna fight you." Right?

48:36 So that, that's, I think, one of the biggest risks of further institutionalization is it gets too far away from cypherpunk kind of principles, and it, it also undermines its potential for, say-...

48:48 currency use because it's too tightly controlled. Garrett, we're almost at the end of the show. Last question I have for you before we do a short lightning round is- [laughs]...

48:57 if you had to define a plausible end state scenario for crypto in, let's say, 2035, grounded in economic history, what would that look like? Yeah.

49:11 Look, uh, I'll just, I'll just stick with Bitcoin here because, uh, you know, it, it, it's the biggest, it's the original.

49:18 Um, look, I, I think there's such strong arguments for why Bitcoin sh- should supplant the total market value of gold. I get that gold, uh, you know, look, it's, it's arguably orders of magnitude more decentralized.

49:31 You know, it's secured by the laws of the universe.

49:33 Yes, I know some physicists, um, figured out a way to kind of, um, through cold fusion, I guess, convert mercury into gold maybe, was what I heard, and Elon might go out and get some gold from the asteroid belt beyond Mars.

49:46 Look, I mean, yeah, I, I think Bitcoin's so, so superior.

49:49 This idea that we're gonna be using a rock, I've got a copper rock right here that I use as a paperweight, that this is somehow gonna be the anchor of our, you know, our, our global digital financial system, I think is silly.

50:01 So, you know, my expectation is that someday Bitcoin will exceed the total market value of gold as, as kind of digital gold and, and it already performs so many more functions than just what gold can do, uh, you know, with, with being a timestamp ledger and so on, and a platform for other things.

50:17 So, so yeah, I, I think, I think we're gonna continue to grow. Don't expect it to not be bumpy, though.

50:24 You know, just because one US administration has enacted a strategic Bitcoin reserve doesn't mean the next one's gonna keep it. You know, there could be a dump.

50:34 You know, there could be a lot of volatility, so, but I think the

50:39 past is a pretty good predictor of the future, and we're gonna see kind of onwards and upwards with some kind of, like, interesting dips between now and 2035. And then quantum is coming around the corner as well.

50:51 That's not solved yet for Bitcoin, so, uh, it's certainly gonna be interesting. Yeah. Yeah. It's one to keep an eye on. I think a lot of Bitcoiners, um, are, are, you know, thinking that they'll be target number one.

51:04 I, I had this argument with some folks recently, and I tweeted about it. I, I don't think Bitcoin's target number one for the first quantum relevant computer.

51:11 I think it's probably a state lab or a state-aligned institution that gets ahold of one of these things, and they're gonna use it quietly for as long as they can, uh, to try to harvest things that are worth more than attacking Bitcoin, frankly.

51:25 And, and nation-states often don't care as much about profits. Yes, if a degen in a garage got ahold of a quantum computer, target number one might be Bitcoin or Ethereum, but that's very unlikely to happen. Yeah.

51:37 [laughs] Garric, that was a great discussion. Let's do a short, a lightning round. Short questions, short answers. First question, your favorite cryptocurrency? Gotta go with Bitcoin, yeah. The old, the original. Yeah.

51:54 Then, uh, what, what is the single biggest lesson from financial history that crypto investors are currently ignoring? Gresham's Law, this counterintuitive concept that bad money drives out good money.

52:08 In other words, something that's really good that's scarce, like Bitcoin or gold, is unlikely to become money because of Gresham's observations. Mm-hmm.

52:17 If you were designing a syllabus for 2026, what is the first topic you would re- remove from the 2017 curriculum? [laughs] From the 2017 curriculum.

52:29 I would definitely spend less time on distributed ledger technology, despite Tempo and what Stripe and others are trying. I, I'm still, I think we went way too deep into that topic.

52:40 One book on crypto or economics that you would recommend to anyone? Yeah.

52:46 I mean, if you're new to crypto, um, or even if you've been in the space, I've been surprised at how many people don't know about Benjamin Wallace's new book that came out this year, "The Mysterious M- Mr. Nakamoto."

52:57 I would, I would put that with Steve Levy's Crypto book, which came out before Bitcoin and is really about the cryptography wars that predate Bitcoin. Those are two excellent books.

53:10 They're fun to read, and they get into the history, the characters, the personalities of the people who created this whole space. So check out Steve Levy's Crypto and Benjamin Wallace's "The Search for Mr. Nakamoto."

53:21 Highly recommended. And then last one, what is one thing that changed your mind when it comes to Bitcoin and Ethereum over the last couple of years? That's a great-- I don't know that I have an answer to that. I mean,

53:40 it's kind of, it's kind of like what we imagined has kind of happened, you know? I mean- Mm-hmm... it's, I guess the dream came true. You know? It, it came through, you know? Um, I guess it's now what?

53:52 That's the, that's the question. [laughs] Yeah. Where do we go from here? Um, yeah. Good question. You stumped me on that one. Yeah. So that's a good ending. Garric, now what? Where do we go from here?

54:04 Maybe that's the topic of a next discussion that we'll have. I really appreciate you coming to the show. It was a very interesting discussion. Where can people learn more about you? I have a website.

54:16 I don't tweet very often. I, I occasionally will sound off on things that, you know, rub me the wrong way or try to give a market forecast on Twitter or X. Um, I'm on LinkedIn, but send me an email.

54:28 I love, especially if you're a student or someone in the space, I do read my email. I do respond to them. Um, I, I love, like, love talking with people about interesting questions they have, so write me an email.

54:40 Uh, love to hear from you. Yeah. And definitely check out Garric's research. We'll link it in the show notes as well. Garric, thanks for coming on the show, and all the best. Thank you, Marc. Pleasure.

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