“Let's untangle that a bit,” says Meltem Demirors, the chief strategy officer of CoinShares. “Bitcoin represents three different things.”

In this episode of Bitcoin Macro

, one of the most prolific voices in the space speaks with CoinDesk’s head of strategy, Nolan Bauerle, about bitcoin as software, as a “supranational global communication network” and as an asset.

“For traditional investors, it's sort of a challenging paradigm when these three things are wrapped together,” Demirors explained.

The conversation takes place ahead of Demirors’ appearance at CoinDesk's Invest: NYC conference on Tuesday, Nov. 12. The Bitcoin Macro pop-up podcast series features speakers and themes from the event, which explores bitcoin’s current role in the global financial system.

On the podcast, Demirors talks with Bauerle about:

Listen to the podcast here or read the whole transcript below.

Nolan Bauerle: (00:09)

Welcome to Bitcoin Macro, a pop-up podcast produced as part of the CoinDesk: Invest New York conference in November. I'm your host Nolan Bauerle. Both the podcast and the event explore the intersection of bitcoin and the global macroeconomy with perspectives from some of the leaders thinkers in finance, crypto, and beyond.

Nolan Bauerle: (00:29)

I'm delighted to be joined today by Meltem Demirors, one of the most famous people in crypto, that's for sure. Meltem has been around for a long time, but really sprung to international prominence with her amazing testimony in a Congress Committee this past summer on the whole Libra offering. The people who have been working in cryptocurrencies for a long time have always been aware of Meltem's brilliance, and she's been kind enough to join us for today's podcast.

Nolan Bauerle: (01:05)

This podcast is really trying to look at bitcoin's place in the world today, and is a taste of the type of content that we're going to be focusing on in New York City on November the 12th at Invest. So Meltem, thank you for joining me.

Meltem Demirors: (01:21)

Thank you so much for having me, Nolan. That was such a beautiful intro. I feel like I'd love to have you intro me all the time.

Nolan Bauerle: (01:32)

[inaudible 00:01:32]. I have had the good fortune of knowing you for quite a while now.

Meltem Demirors: (01:35)

I know. We met a long time ago.

Nolan Bauerle: (01:37)

And watching you gather up all this ability to sort of let your ideas shine on the global stage has been a real treat, and I'm happy to have even met you on the train back from Washington that day.

Meltem Demirors: (01:49)

That's right. I think I was enjoying a Bud Light.

Nolan Bauerle: (01:57)

You definitely earned it. You definitely earned it. So let's jump right in. We're talking about bitcoin in the world today, and the first question I have really is around whether or not you see bitcoin as a true macro asset? Is it there? Is it in the main stage? Is it in the side stage somewhere? Is it in the wings? Or is this really something that can be thought of as the macro today?

Meltem Demirors: (02:19)

I think for most people in the world right now, particularly in the world of investing and finance, bitcoin and crypto assets are not yet an asset they think about. It's a very small asset class. It's around 200 to 250 billion right now. That's very small, and so for most investors looking to allocate capital moving even 5 to 10 million dollars into the coin creates a lot of price movement, and there are not really efficient ways to do that today. So that's one concern I think certainly.

Meltem Demirors: (02:55)

I think the other piece to think about just on a macro level that's really relevant is macro investors sort of define the world in the context of specific assets in markets, and so I think as an investor you look at sovereign debt, and you look at debt generally as an asset class, corporate debt funds, you look at equities, and then a lot of people like to lump crypto under the alternatives category. Alternatives is sort of a growing part of the investment world, and I think it's challenging for a lot of investors, even in the alternative space, to really try to figure out where bitcoin fits in.

Meltem Demirors: (03:38)

And so, I think the big challenge is to people in our industry, we like to talk about bitcoin as an asset class, because we live, breath, eat, sleep crypto all day every day, and certainly in our little part of the world bitcoin feels like the big asset, but I think frankly to most investors bitcoin's not really on their consciousness, and if it is it's far too early, and if anything the place are getting exposure if through their PA or personal account, certainly not through their firm, or their fund, and I don't think that's going to change in the near future, and we can talk about that more as well.

Nolan Bauerle: (04:20)

So in practice what you're saying is it's not quite there yet. If it was in this sort of macro level the features that would define it, the aspect of it that would sort of propel it forward, I think we can even trace to some of your testimony back in Washington in July. In that testimony, I think what we saw was you had Facebook, which was almost threatening, not a nation-state, but it was taking on certain powers. It was taking on certain responsibilities that we would normally prescribe to a nation-state, and it was saying we're going to issue this private money, that, of course, got everyone's back up.

Nolan Bauerle: (04:58)

I think one of the things that was remarkable about your testimony is you showed that bitcoin didn't propose these same challenges, yet it is coherently creating what amounts to a digital jurisdiction at the same time, and is perhaps is at the foundation for this type of macro asset going forward, the foundation for what could amount to an important money supply, a hard money supply.

Meltem Demirors: (05:25)

Let's untangle that a bit. So I think what's challenging when we talk about bitcoin is unlike debt or equities bitcoin represents three different things. Bitcoin is technology in the context of the bitcoin protocol, which is open-source code, and open-source software has been a part of our world for a long time, and open source is I think starting to gain acceptance as an investible category in the venture world and beyond. And so, bitcoin at its core is the bitcoin protocol.

Meltem Demirors: (05:56)

Bitcoin is a network and what's interesting here is bitcoin is kind of a supranational global communication network, and so there are tens of thousands of devices around the world, whether people are running minors, or people are just running full nodes there's this network of computational devices that are maintaining the bitcoin ledger, and engaging the invalidating transactions, and maintaining the integrity of the ledger, and so the bitcoin network is physical in nature.

Meltem Demirors: (06:26)

And then, lastly, you have bitcoin the asset. And so, what I think is interesting here is for traditional investors it's sort of a challenging paradigm when these three things are wrapped together, so when you see people look at bitcoin they'll talk about bitcoins in the context of software infrastructure. You'll hear people talking about bitcoin in the context of a commodity because it's produced in its mind digitally in the way that we sort of think about producing and mining things like gold, and oil, that are limited in supply theoretically.

Meltem Demirors: (06:57)

And then, you have people talking about it in the context of currency, of hard money. What I think is interesting about Libra is Libra styles itself as a cryptocurrency, but really the point I was trying to make in Congress is anyone can call anything a cryptocurrency but that does not make it so. What's interesting about bitcoin is unlike a commodity, unlike a bond, unlike an equity bitcoin is packed by nothing but the demand for it.

Meltem Demirors: (07:25)

And so, it's a little bit unique in that regard. It has no physicality, which I think is part of the larger conversation about the evolution from highly physical to where we increasingly engage digitally. So that's difficult for people to grasp. It doesn't necessarily fit into the constructs we have for assets in our world, even assets that have been dematerialized part in like stocks that trade, you know, they still have a physical share certificate that's somewhere.

Meltem Demirors: (07:53)

And then, I think the other component that's interesting is when we look at what Libra is comprised of, and what it proposes to do, it's really just a pooled investment vehicle where the interest in the fees accrue to the association. And so, I think it's an interesting series of choices made by Facebook. I'm not really clear as to why they felt this was the best approach, but I think if you look at the intent of Libra it's a pool of capital. You're taking money from people who purchase the tokens, you're putting it into currencies, and interest-bearing instruments, and we're holding it, and then we're distributing that plus transaction fees to people who participate in this private closed sort of group called the Libra Association.

Meltem Demirors: (08:37)

And so, to me, that's sort of the antithesis of bitcoin. So my only goal really in the testimony was to help clarify that bitcoin is not Libra, bitcoin is separate and distinct from every other cryptocurrency and it has features that make it incredibly unique. And Libra, and many things, are in fact not cryptocurrencies. There's a lot of ambiguity in language but certainly having specificity in how we use these terms is starting to become more and more important, particularly for regulators, policy makers, who are trying to understand what's happening, but sometimes the translation they're getting isn't particularly helpful, and in fact can be more confusing than not.

Nolan Bauerle: (09:19)

So I want to pick up on two things that you said, and you said that Libra's, of course, this pool investment, so the incentives of all these parties are definitely for protection fees, but you also mentioned that because bitcoin is only backed by the demand of the user that it really can exist as an uncorrelated asset, because Libra would theoretically be involved in all the ups and downs of a typical economy because the value of bitcoin is only really based on the demand that users and people have for it. Can it behave as a safe-haven asset?

Meltem Demirors: (09:59)

I think the idea of a safe haven is an interesting conversation. I think the way people typically frame this is this risk-on or risk-off asset. And I think the challenge with safe haven is again everything's relative, so if I live in the United States, and I have US dollars, and I have a driver's license, and I have a bank account, and a debit card I probably don't view bitcoin as a safe haven asset, because the dollar's pretty safe for me, and I'm able to do everything I want, and I don't necessarily in times of crisis feel that the dollar depreciates rapidly, and so my purchasing power parody, my PP, stays intact.

Meltem Demirors: (10:42)

Now, conversely if I live in a part of the world where there is a lot of instability, and volatility, now I'm from Turkey personally, I was just there, and speaking to people about bitcoin, I think within the bitcoin community there's this idea that people who live in regimes or parts of the world where their purchasing power parody, or their ability to buy the same basket of goods fluctuates a lot, because of the fluctuations and the value of their local currency. I think in our community we like to believe that they're just going to rush to adopt bitcoin, and go out, and hold bitcoin.

Meltem Demirors: (11:17)

What's really funny is if you actually go out and talk to people they don't want to hold bitcoin they want US dollars. And so, this is where I think some of the challenge emerges in explaining a new asset class, and also really understanding some of the macroeconomic shifts happening in our world. We live in a dollar-denominated world today, and at the end of the day you can't yet pay your rent, or your taxes, or your employees, or for your groceries in bitcoin, and I think someday you'll be able to, and there's certainly a number of companies I've invested in, and worked with, and support that are enabling people to do that, but I think again for your average person who's living in a part of the world where they don't have stability in their currency I think they're not necessarily thinking of bitcoin as the solution, it's maybe one part of the solution.

Meltem Demirors: (12:12)

I think right now they're looking more at things like the dollar, and unfortunately, I think it's going to take some time for the world to get to a point where bitcoin achieves that status in a larger sort of way. I think to us in the bitcoin community we certainly like to pontificate about what hyper bitcoinization will look like, and what a world will look like if people start holding bitcoin as a safe haven asset, but I just don't think that narrative on a global scale has gotten there yet, and I think again part of the challenge there is how you communicate something that is so new, and a lot of people ask who's the CEO of bitcoin, what's stopping bitcoin, and so explaining this it's really a fundamental shift in mental model and how people think. It's a shift in trust instead of trusting an institution, or company, or a brand, you're trusting an idea, and a set of principles.

Meltem Demirors: (13:11)

And so, that in my view is going to take some time, and it's going to take the technology being developed, it's going to take the on and off-ramps being developed, it's going to take the user experience putting it a little easier, but most importantly it's going to take some hard work from our community to translate a lot of the topics we talk about into things that people are actually thinking about on a day-to-day basis.

Nolan Bauerle: (13:36)

And so, your recent experience in Turkey did it strengthen your idea what it wasn't quite there yet, but there was this work to do, or did it actually bring you out of a state of let's say being disconnected, and sitting in one of these bitcoin ivory towers saying this is what bitcoinization is going to look like, and all that stuff, or was this just you've been enough times, you've seen it in this context, and you know that people just aren't ready, and even if we are seeing some increased trade flows out of Turkey on local bitcoins it really is still isolated individuals and it's not enough of a wave to really push the needle?

Meltem Demirors: (14:13)

So let's talk about that. I think first and foremost I feel like I've tried to constantly force myself to step outside the bitcoin world, and interact with people who come from a totally different perspective, totally different viewpoint. I think the context is really important, especially when one of your functions is serving as a translator. I sometimes feel like my role is I'm a translator between two very different worlds, and so we have these crazy bitcoiners over here, and I'm certainly a part of that community, but at the same time I'm also communicating with a very different audience who has the potential to really shape and influence the trajectory of bitcoin as a technology, as an infrastructure, and as an asset in very material ways, and so I think it's very important for me to be aware of all of the different perspectives and viewpoints in order to be an effective translator, and I do wish we did that more.

Meltem Demirors: (15:12)

I think hopefully that's starting, but we'll see. When it comes to Turkey, so Turkey's interesting because ING the bank releases this study every year, this is the second year they're done it. They just released it in October of this year, and what they look at is rates of digital currency adoption in different parts of the world, and Turkey ranks number one. And so, a lot of people are like oh yeah people in Turkey want to hold bitcoin because the lira is unstable, and that's an attractive narrative, but the reality actually is that Turkey is a place where people are already accustomed to trading FOREX.

Meltem Demirors: (15:50)

People like speculative trading. I'm a Turk myself so we have that cultural acceptance for speculation. And so, FOREX trading, currency trading, is something a lot of people engage in. You have a population that's already accustomed to digital banking because when banking services came to Turkey they kind of leapfrogged the '80s and '90s and it sort of went direct to digital. And then, you have a high population of young people who are really interested in the technology, and what they're doing is they're speculating on bitcoin.

Meltem Demirors: (16:26)

And I think that's certainly exciting, but I think the narrative that people have isn't, oh, I want to protect myself from price fluctuation in the lira, and certainly if you look at their experience over the last year even though the lira depreciated dramatically had they bought bitcoin when that happened, or before that happened, they would've lost more holding bitcoin. And so, I think again it's important to be careful with these narratives because it's very easy to overgeneralize, and I don't think we're quite at that point yet.

Nolan Bauerle: (16:56)

So you're saying the simple argument holds, they just want to make money like anybody else.

Meltem Demirors: (17:01)

And look, I think through that process I actually think speculation is one of the great drivers of bitcoin adoption, because as people start to speculate, and as people start to interact with bitcoin they start to appreciate some of the principles and social values, what it represents, and I think that leads to people holding bitcoin longer, and viewing it more and more in the context of a form of sound digital money, but I do think we get a little bit overly excited about narratives that aren't really quite supported by the evidence yet.

Meltem Demirors: (17:38)

Now, the good thing is I do think the bitcoin community's doing more diligent research. Cambridge in the UK releases their annual study on bitcoin and blockchain adoption. ING, which is a global bank, is now doing their report. The coverage and the research methodology keeps getting better and better. And within the crypto space there's also a number of new research firms that are starting to parse data in different ways to try to analyze, and provide more context, and insight as to what the actual growth metrics might look like, but I think as I travel around the world and interact with people all over the world that story just isn't there yet.

Nolan Bauerle: (18:16)

And so, going back to what you had mentioned about bitcoin presenting these opportunities for people to learn, and let's say inform their worldview, one sort of test that I've had for a long time about someone's world view is how accurately it can predict the future. A lot of bitcoin people have been saying we anticipate a global recession because of sovereign debt, and all these other factors. When we look around the world today we certainly see some of the things that people who have been in bitcoin as long as yourself have been predicting for some time. What we're not seeing, for example, recently in the United States not a recession, but we have seen let's say liquidity crunch with the repo news.

Nolan Bauerle: (19:00)

But bitcoin hasn't behaved in the way that most people had predicted according to these narratives, these narratives that sort of said if we have another round of quantitative easing in America you're going to see a lot of demand for bitcoin in America. The wider question being the following, what happens to bitcoin in a recession? Is it going to be this asset that you can use to get out of these little ups and downs around the world as many people have predicted for years now, or is it going to become more and more correlated and the demand will go down just because there isn't as much liquidity in general?

Meltem Demirors: (19:35)

I think this topic is an interesting one, and certainly, it's very tempting for people to buy into the recession narrative. After all, we are in the longest bull run in market history. We're not at 10 years and three months, and counting. And look, I think the fact of the matter is the financial system is changing. There're certain beliefs we're had for a long time about how markets should work, and how investing should work, and we're not seeing a lot of those beliefs we had being proven false.

Meltem Demirors: (20:11)

You look at just the sheer volume of negative-yielding debt. I mean, that's a bit mind-boggling. The numbers just don't make sense. You look at what's happening in the passive investing space. When you look at the challenges that many hedge funds are facing, and generating meaningful alpha, through active management. They're just a lot of challenges that the financial markets are facing, that investors are facing, but I don't think that points naturally to we are in for a recession, because at the end of the day capital continues to flow, we are continuing to see people continuing to move out on the risk curve investing in high-risk venture investing, more and more capital being deployed there.

Meltem Demirors: (20:57)

Alternatives continue to grow as an asset class. So I think this narrative of a recession is coming is a tempting one, but I think it's one that's sort of difficult to predict. I'm not really in the business of reading teal leaves if you will. What I think is more interesting to think about, and one thing we've never seen in how bitcoin behaves in a recession, right? Because bitcoin was introduced to the world in 2009 after the 2008 financial crisis, the bitcoin network launch, and so we've never seen it in an environment like a recession.

Meltem Demirors: (21:32)

And so, I think there are a lot of what I like to call unknown unknowns about what will happen when we enter that new time. And I think again the forces shaping our world and the forces shaping the financial system there are some known unknowns, but then I feel like a lot of investors I talk to feel like they're facing a lot of unknown unknowns, and so there are a lot of open questions about what the world will look like in this new era. It does feel like we're in a new stage of financial markets. Some people call this late-stage capitalism. Some people look to Japan as an example of what might happen.

Meltem Demirors: (22:11)

But again, I think my job really is trying to focus on what this means for bitcoin, and really trying to manage the ups and downs of what's happening with bitcoin and crypto assets, and put it in context for investors who are looking at the world feeling very confused, looking at bitcoin saying no way, this is too much, there's so much other stuff going on in my world that I don't need to add more risk, and add so much uncertainty by adding a highly volatile, poorly understood asset, that I just fundamentally don't get yet.

Nolan Bauerle: (22:45)

Yeah, so it's basically that perhaps we're living in an era of unlimited leverage for now, which makes basically everything funded including bitcoin, and all the ICOs, and all the crazy projects. What happens if that funding just isn't there anymore? Does bitcoin still stand up on its own, or is it a product all this free money all around the world that's just looking for risk? As you mentioned, appetites for risk are growing just because there is so much leverage out there that you can take in going.

Meltem Demirors: (23:16)

The hunt for yield, right? There is a hunt for yield because ultimately what we're relying on here in the US, and in many other Western developed economies, we have a population that is retiring, and pensions are underfunded. There are all of these social liabilities that need to get paid for, and historically the way we're paid for them is through the compounding of interest, and through yield, and when that stops working the only other alternatives is to extract it sort of from society through taxation, or through inflation, right?

Meltem Demirors: (23:51)

And we're seeing that effect around the world. You look at what's happening in Chile, you look at what's happening in Argentina, you look at what's happening in Hong Kong, you look at what's happening in the UK. There's only so much you can squeeze that out of a system, so I think there're a lot of fundamental existential questions about the relevance of nation-states, the relevance of currencies generally, and what I think is so interesting about bitcoin if we leave aside sort of the price of bitcoin, and these arguments around bitcoin as sound money, and these things that are very exciting, I think what's even more interesting is the questions that bitcoin introduces to the conversation.

Meltem Demirors: (24:33)

So when people first learn about bitcoin I think it opens their mind to the idea that there is a different choice, because we've never really contemplated a world where I could hold something other than government-issued currency, and so that to me is the more interesting, and more profound question, and now of course with China announcing the digital renminbi with a lot of US corporations including Facebook looking at getting involved in the currency game in different ways, or in the cryptocurrency game, or other versions of digitized dollar, or digitized store value, I think it starts to get really interesting.

Nolan Bauerle: (25:12)

Meltem, you've always enjoyed a real tremendous bird's eye view of the industry in your time with DCG and now with CoinShares. You're really someone who's able to not just be in touch with the sort of grassroots of the industry but also the more sophisticated investors, buyers, all of those folks. Have you seen a change from their perspective in the last six months around bitcoin in what they're looking for, the questions they're asking, and what they're interested in?

Meltem Demirors: (25:43)

Yeah. Absolutely. I think people are certainly getting smarter faster. I think a part of what's so amazing about the bitcoin community is just the extremely high level of quality content that's out there, that's produced by members of the community, for free, is easily available online, on Twitter, on people's websites, on blogs, and podcasts. There's just a real wealth of content information, knowledge being created to share, disseminated, expanded on, which I think is really exciting, and people are responding to that, and people are certainly reading that, and reacting to it.

Meltem Demirors: (26:23)

And so, I think people are starting to gain more of an appreciation for, an understanding, of bitcoin and cryptocurrencies, but at the same time I think there's also more confusion than ever, and unfortunately there're a lot of people who look to bitcoin's success and attempt to use it as a way to substantiate whatever their project is, and we saw a lot of this with the ICOs of 2017 and 2018. Everyone wanted to build a better, greener, faster, more scalable bitcoin, name your favorite feature here. I like to call this the era of future fetish in blockchains.

Meltem Demirors: (27:01)

But I think there are so many things about bitcoin that can't be replicated, but what you get is you get a bunch of people in the market who are spreading their own narratives around what bitcoin is and why their asset or their project is different, or better, and I think that market confusion is now being reflected at the government level where we see a lot of conversation around central bank-issued digital currency, a lot of fundamental misunderstandings about how bitcoin works, even in US Congress. I think there was this perception from some of our congressman and congresswoman that bitcoin was unregulated, and I think again the confusion there is yes as a protocol there is no regulation around bitcoin, but if you operate a bitcoin company, and you're domiciled in the US, or you touch a US customers your subject to the rules and regulations of this nation, and there are a lot of rules and regulations from every agency out there going from the CFTC, to the IRS, to FinCEN.

Meltem Demirors: (27:59)

So this sort of notion that bitcoin's unregulated I think is just a misunderstanding, and I think the media's also played a big part in that, in perpetuating some of the sensationalism of what's happening here, and so, unfortunately, there are these series of narratives that have defined bitcoin for the last 10 years of its existence. I think they're starting to die down and fade a bit, but I think that's just a really strong inertia that we as the bitcoin community need to overcome.

Meltem Demirors: (28:32)

And unfortunately, we have not done a very good job with storytelling, and with grasping the why. It still feels like it's stuck in a bit of an echo chamber, and so I'm really hopeful that as more, and more people start to understand bitcoin, start to get interested in bitcoin, and in digital currencies, and they go out there, and they educate themselves whether it's going through events, like Consensus: Invest, or whether it's listening to podcasts, or reading blogs that they'll start to piece together their own view of the world, but I guess that's one of the challenges of having no leader, and essential coordinator, and no marketing body for bitcoin.

Nolan Bauerle: (29:12)

I like the comment you made about that future fetish, because some of it comes up. People will say well what if there's a better bitcoin? Well, this isn't Nintendo. It's not consumer electronics. This is something different. This is cryptography and it develops at a different pace than Nintendo or video games. Just because something is newer doesn't mean it's more useful, and will sell at a fixed sum feature.

Meltem Demirors: (29:34)

Right.

Nolan Bauerle: (29:34)

The very idea that people have accepted demand for this secure network that in many ways is already the most secure network in the world, depending on your basis, or your metrics, you know, here it is. It's about the buy-in, you know? Not the same as consumer technology.

Meltem Demirors: (29:54)

Yeah, and I think when people talk about features a lot of the common complaints you hear about bitcoin are either around technical features, or certain aspects of bitcoin, and I think it sort of misses the point. Yes, bitcoin is technology. Yes, bitcoin is infrastructure, it's communication infrastructure, but we communicate about value, and we can also communicate other types of information. And yes, bitcoin is about money. But at the end of the day I think bitcoin more than anything else represents a social movement and a set of ideas, and I know that sounds very esoteric, and a bit philosophical, but I think what a lot of people are starting to grasp as they go down the proverbial bitcoin rabbit hole, and I love that we call it a rabbit hole, because it's such a strong reference to the movie The Matrix.

Meltem Demirors: (30:47)

I think as people start to learn more and more about bitcoin they understand that it's less and less about technical features, but it's more about some of the unique aspects of bitcoin's design that are impossible to replicate. And at the end of the day, we've seen this time and time again if you have a company that has paid employees, you have a known founder, you have entities that are set up that hold funds that were raised, that creates points of failure that governments can go after.

Meltem Demirors: (31:17)

And bitcoin's sort of birth and creation, and the myth of Satoshi Nakamoto, and how bitcoin was launched and released into the world I think has some of those characteristics of other social movements that sort of emerged that are leaderless that become really powerful. And by the way throughout history, a lot of revolutions have been started by pseudonymous or anonymous creators, writers who have hidden or obfuscated their names. And so, I think there's this interesting sort of tension there where a lot of people try to reduce or simplify bitcoin to just technology, or to just money, or to just one thing.

Meltem Demirors: (31:57)

And it is complex and multidisciplinary and multifaceted, so in order to have that conversation, I think it just takes time for people to understand these multiple components that are working together to imbue bitcoin with some of the really unique characteristics that it has.

Nolan Bauerle: (32:12)

And I did notice your reference to The Matrix on Twitter recently where you did that great Twitter thread sort of linking what it really meant for the pills, and I think that speaks to what you're mentioning right now, this sort of a choice of the foundation that you're going to create some of these super and national institutions out of, or even just ideas that link us together. Maybe they're not institutions at all, or maybe they're just the type of tissue that goes between us all, so that we can transact, and have these types of relationships without the sort of pieces in the wall that were necessary to make it happen before.

Nolan Bauerle: (32:50)

So once again mentioning the reference to your Twitter thread and graph, or chart, or particular visual insight you have to offer the audience that can really sort of capture what you're thinking right now with bitcoin in the world?

Meltem Demirors: (33:07)

Yeah, absolutely. I think just going back to that thread one of the points I was trying to make was the point around systemic risk, and SIFIs, or systemically important financial institutions, and what that means for systems. So I think one chart that's really important, one graph that's really important, I thought to keep in mind is the percent of the total bitcoin supply that's held in third-party custody, and there is this ongoing sort of meme in the bitcoin community around not your keys, not your coin.

Meltem Demirors: (33:40)

But there is a fundamental question I have that if we institutionalize and financialize bitcoin, and we take 50% of the world's bitcoin supply, lock it up somewhere with the GTCC, and we start trading paper certificates that represent an underlying bitcoin, and sort of dematerialize bitcoin markets, and detach them from the underlying, what does that really do for us other than to create a new tool for speculation? I'm not really sure.

Meltem Demirors: (34:06)

And so, one metric I'm tracking closely is the number of bitcoin in third-party custody according to our latest research, which is linked in the thread, and also on our CoinShares website. It's close to 20%, and so that's just an interesting thing to keep in mind. And then, the next thing I'm looking at ... So that's sort of relates to systemic risk we're creating, and in my view if we're just recreating the same financial system, if we're recreating banks, and institutions, and governments because they're the people who hold the coins ultimately, and control who can access them then that doesn't really accomplish much of the end state of bitcoin, which I think is interesting, and sort of intellectually challenging to think about. It's important to stay intellectually honest as we look at these things.

Meltem Demirors: (34:55)

And then, the second thing I think about that's really more relevant on the macro scale is the balance of accounts and trade flows between countries. I think one of the big questions that's emerging now US economic, political, military hegemony has been a reality for the last 100 years almost, and as we start to see geopolitics shift and get reshaped, and as we start seeing increasing anger, and social frustration in the world about wealth inequality, and income inequality, and the unequal consumption of our planet's resources, and what the implications are I do think we are starting to see nation-states, and people kind of waking up, and saying, well, wait a minute. Why are we living in a dollar-defined world?

Meltem Demirors: (35:49)

And it's interesting to see just over the weekend Rosneft, which is Russia's largest energy exporter, said that they were going to start taking steps to minimize their use of the US dollar with the plan to eliminate it completely. And so, they could use euros, maybe they use digital renminbi, maybe they create their own digital currencies as means for payment and settlement, but that I think is really material because the petro dollar, the dollar defines 90% of the trade flows in the energy industry, and the energy industry's a huge part of the global economy.

Meltem Demirors: (36:24)

And I think the other thing that's really interesting here is the narrative around China's adoption of blockchain technology, and the recent statements made by the government there that they fully intend to create a digitized currency that is going to be used by commercial banks to start, and what do commercial banks do? They finance trade flows.

Meltem Demirors: (36:44)

And so, I do think there's an increasing awareness on the importance of the base currency that's used to sort of shape economic activity around the world, and that's an area I think is really fascinating, because again some of the aspects of bitcoin that make it unique, the fact that it's leaderless, and not controlled by any one entity, and some of these things could potentially also position bitcoin well to be a neutral sort of means of a value transfer.

Meltem Demirors: (37:14)

And so, I think it'll just be very interesting to see how different nation-states attempt to capture that narrative, an attempt to use certain aspects of what we've learned from the growth and rise of bitcoin, and other digital currencies to shape their own place in the world's financial system.

Nolan Bauerle: (37:32)

Fascinating stuff, Meltem. We're coming up at the end of our time here. So you're going to be leading off Consensus: Invest. You're our first keynote speaker out of the block's that morning.

Meltem Demirors: (37:44)

Right.

Nolan Bauerle: (37:44)

So excited to have you there, excited to hear what you have in store, the research that you guys have been working on at CoinShares. I still use your Mining Profitability document that you guys created a year ago to really test, or to quantify mining profitability, through that whole big one, so keep up the good work. CoinShares' research continues to be a reliable resource for myself. Thank you a ton for your time.

Meltem Demirors: (38:08)

Thank you. I'll see you soon, Nolan.

Nolan Bauerle: (38:16)

Enjoyed this episode? I'd like to personally invite you to come to Invest: New York in November. The event features not only the speaker you just heard but an array of other amazing thinkers. Visit coindesk.com and click events, or simply follow the link in the description. Thanks for listening, and see you in New York City.

Meltem Demirors image via CoinDesk archives