If bitcoin ever reaches 1 trillion, that's still 10, the size of gold, could it reach 10 of goals? Market cap? I think so. This is strategic investor lynn, alden. Back in 2017, she was highly skeptical of bitcoin.
I was concerned with dilution right so so, if there's, no kind of one network effect that kind of retains control uh. You could see that kind of market cap distributed among multiple different protocols in the three years.
Since then, the world has changed dramatically. The coronavirus has spread quickly around the world, leaving a tragic and growing toll of illness and lost lives. Yes stu. This is the biggest push yet that i've, seen from the federal reserve chairman to get more fiscal stimulus into the economy.
Against this new macroeconomic backdrop, alden stands toward bitcoin has done a nearly 180 degree turn. We can look at price history. We can look at you know, market share. We can look at all the different ways of measuring a network effect and see that you know the thesis for bitcoins network effect is playing out in our conversation.
Lin explains why 2020 may be one of the most favorable years to invest in bitcoin. My name is jackson and welcome to another exclusive coin telegraph interview back in, i think 2017. You had an analysis of bitcoin that was overall bearish and since then, in your 2020 blog post, you & # 39.
Ve turned bullish. So could you take a moment to explain the the factors that led you to change your position? There uh? You know at the time we were seeing, you know we saw the hard fork uh and then we're.
Also seeing uh, you know, bitcoins market share of the cryptocurrency space was declining and it's. My i was concerned with dilution. Right so so, if there's, no kind of one network effect that kind of retains control uh, you could see that kind of market cap distributed among multiple different protocols that i was like you know.
I'm just gonna watch. This for now, i think there's, a lot of enthusiasm here, uh, and so you know about two and a half years later in early 2020, here uh bitcoin, basically round tripped all the way to the same price.
So it's in like the six to seven thousand range uh, but so you get at the same price as you could back in. You know 2017, but the network effect was much stronger. I mean the ecosystem. Around bitcoin was stronger uh.
The the use case was stronger. The macro backdrop was stronger, so it could have been. We could have had, for example, a challenger come along and possibly you know. Uh take some market share. Uh we could have had uh issues around some of the hard forks.
We could have more split communities uh, but so far you know, bitcoin has survived all of those kind of various kind of uh riskier moments for it uh. So you know now from from looking back in in early 2020, when i made my investment uh, you know a lot of those initial concerns were addressed.
It survived a lot of the the the challenges coming up to it. I think the path dependency is is a key thing, and i i incorporated that into part of my argument that you know bitcoin came first uh there could have been potentially an early challenger to kind of take it away a little bit uh, but from what we've seen you know it build up that that security advantage from a very really early period and because, especially as a store of value security, is the most important attribute for, for you know a digital asset to have, and so the fact that bitcoin Has the highest hash rate it has tons of decentralization uh.
You know, uh really kind of it has a really kind of fixed uh monetary policy right. We know exactly how many bitcoins uh pretty much are going to be uh created over any given time period uh, whereas you don't get that with some of the other protocols.
So you know it & # 39. S basically only strengthen the argument. Over time and the further we go, the more we can, we can look at price history. We can look at you know, market share. We can look at all the different ways of measuring a network effect and see that you know the thesis for bitcoins network effect is playing out.
Yeah bitcoin's kind of interesting, because its network effect is like inherently tied to its security protocol. You know the bigger it gets, the more secure it gets, so it kind of like builds on itself in that way yeah.
So it's. It's, definitely interesting to invest in and um, and, speaking of that, you know, i think a lot of people could probably guess where i'm kind of going with this. We had this news recently of paypal, integrating bitcoin payments into its system, and a lot of people are incredibly bullish on this news, i mean we saw the price skyrocket mike novogratz has called it the the shot heard around the world on wall street coin.
Telegraph reported that this paypal integration could potentially double or triple network uh bitcoin's network effect. So if we're talking about uh, investing is in bitcoin as an investment in its network effect.
How big is this news? Actually, in your opinion, uh, so i do think that that's, a that's yet another kind of uh. You know, platform that strengthens bitcoin's network effect, and so, if you know people can access it with robinhood, they can ask access it with cash app.
They can access it with paypal. Now these you know most of these protocols. You know they're, not really kind of meant for the the hardcore uh bitcoin enthusiast that wants to to custody of their own coins and stuff.
But the the point is that they get out to people they they get people familiar with it uh and then they can go down the rabbit hole and then they can find other ways of of acquiring it later on uh. So i do think it is important for reaching a wider audience to have these these big uh.
You know, entities uh, allow uh, you know, has more access points in the protocol uh it also. You know some of these services are bitcoin only right, so we have some companies, like you, know: cash app or swan bitcoin that are bitcoin specific companies.
They let you accumulate bitcoin uh, and so i think that strengthens bitcoin's. Network effect and the same thing is, you know when we see kind of paypal uh, you know they're, not letting you trade in a 5 000 different cryptocurrencies there's only like a handful that they're willing To go into so that kind of further entrenches the network effect of the top players, and particularly bitcoin, do you i mean just from the news we already saw the jump, as you mentioned, do you have an idea of like, as as the bitcoin network spreads, you Know you people are interested in learning how to buy it.
I mean if we see this like doubling or tripling of bitcoin's network, how high? What do you think that will do to the price? Well, i think you know, i think the market cap could easily go to over a trillion uh, because that's, that's.
Still a small fraction of gold's. Market cap - i mean gold. You know, depending on the estimate, is somewhere in the ballpark of a 10 trillion dollar market capitalization uh. So when, if bitcoin ever reaches 1 trillion, that's still 10, the size of gold.
So, even if you just only call it a digital gold - and you forget the fact that it has other use cases as well - but you say: okay say it's, just a store of value uh, you know, could it reach 10 of gold's market cap, i think so uh.
So you know, as you get more and more people into it, uh that can definitely put up the price pretty far uh, and you know some of the analysis i did show you know how much it grew in each halving cycle and though, even though each having Cycle it has explosive price gains, it's.
You know each cycle is a little bit less in percentage terms than the one before it just because you're starting from a bigger base uh. But you know, even even if this having cycles like one quarter of the magnitude or the previous halving cycle, that's, still a very, very large jump uh for the market, capitalization uh.
So you know i'm kind of i'm kind of looking at that that market cap of over a trillion. As kind of my you know, first target we're. Looking at here, you were saying in your blog post that stock prices, bond prices, gold prices and real estate prices have all been pushed up over the past 25 years, more or less obviously, and that even like a one percent spillover into bitcoin from the tens of Trillions of dollars worth of zero, yielding bonds and cash assets would be um that spillover would be far larger than bitcoin's entire current market capitalization.
So how likely do you think a one percent spillover from all of those asset classes would be well. I mean if you look at global assets, it's, it's somewhere in the ballpark of 400 trillion uh, and so, if you were to get a one percent spillover, that's, that's, four trillion Dollars uh, if you were to get a quarter of one percent, that gets you at a trillion dollars uh.
So you know, i start there and i say you know what does it take for bitcoin to reach a one trillion dollar market cap it needs about? You know a quarter of one percent of global assets. You know back of the envelope kind of figure uh.
So, for example, going forward. Gold is likely to see a little bit of a bid in terms of the percentage of the total world assets that are in gold. I mean, even if it just goes up from you know it's, a tiny base, so it can double pretty easily, whereas bitcoin, of course, is an as a much smaller base uh.
So it's, not hard for that to go up three-fold, five-fold uh, and then you know long-term potentially more. But i like to i like to focus on the next few years ahead and just see you know. I think i think it it shouldn't.
Be that hard to reach a quarter of a percent. Half percent. You know we we can uh reevaluate from there yeah is. Is the the current money printing uh environment, accelerating that spillover process? Do you think? Well, yeah, i think you know uh the macro backdrop.
Certainly you know favors scarce assets. I mean you know the the overall kind of the the amount of debt in the system, the demographics of the system and technology growth are deflationary uh, but the the policymaker response to that.
You know the the large deficit spending financed by central bank uh. You know: reserve creation, uh, that's, that's, kind of an inflationary reaction to those deflationary forces, and so the things that need me benefit from that are scarce assets.
So you know in an inflationary environment, real estate does well commodities. Do well bonds and cash do poorly with stocks, it varies so, for example, in the 1940s we had an inflationary decade. Stocks did very well, but they started from extraordinarily cheap valuations.
In the 1970s we had inflation stocks did very poorly uh and they started from very high valuations uh. So generally highly valued stocks, don't, you know, do well in an inflationary, uh period uh. So you know, bitcoin is definitely one of the potential uh contenders there and because it's such a you know it's, a new technology.
It's, still tiny market capitalization. In the grand scheme of things uh. You know the percent gains can be pretty large if more and more investors view it. As you know, an inflation hit, and i think a lot of people are wondering where this is all heading: what's? What's, the? What's, the reckoning? You know, i think i think you called it in one of your your articles or in one of your interviews.
The event horizon um, but i i'm - asked this because i think a lot of people in the crypto sphere have some um, pretty um, interesting ideas about the eventual fate of fiat. I think um anthony pompliano even said that we may soon see the end completely of the fiat exp experiment.
You know the us dollar will fail right and whether we like that or not that's, just how history has played out. So i mean: do you think that we eventually will live in a society without fiat? But i guess before that you know: where are we heading with this current uh currency debasement? I think if you look far enough in the future, those options are always on the table.
I think you know if we're looking at say, you know the next five years or so uh or even putting out to ten years like let's, focus on this decade. Historically, in this sort of situation, uh you see that the debt you know gets partially inflated away.
So there's. All sorts of disagreements on what the actual inflation rate is uh, but the general theme is that the inflation rate will be above the yields you get on on cash or treasuries, and things like that, and so, if you are a long-term holder of those assets uh You'll, lose purchasing power over time, even though you still, if you look at your bank account if you look at your treasury value, it's.
It's slowly, going up over time uh, but the the the number of you know the goods and services that those can buy are generally going down, and so, whereas things like uh, you know harder assets, uh they can retain value.
And, of course, if you have a a growth scarce asset like bitcoin is, is taking market share, uh that you can actually increase your purchasing power if that, if that bullish story continues to play out uh, so you know some of those uh.
Basically, you can, if, if more, if that becomes a narrative right, so we're, still kind of in this period, where there are still people saying well, you know the high unemployment is going to be deflationary uh.
The pandemic's deflationary and they are correct about that in the current time. In some sense i mean we're, seeing kind of price pressure on discretionary goods. For example, we're, seeing you know things like that, whereas essential goods are still kind of inflating, but basically, as you go forward, and it becomes more and more unmistakable, as we say, come out of this pandemic as we get further rounds of stimulus.
Whatever the case may be, if you get that kind of more clear inflationary direction, then you can see investors saying: okay, we don't want to hold a ton of cash. We don't want to have a ton of treasuries.
Why do we have a non-zero bitcoin position? Why do we have one percent in gold when we could have five percent, so you can see kind of a spillover into some of those assets that do better in that environment of perpetually negative uh inflation-adjusted rates? And how would you, how do you respond to anthony pompliano's, statement that we could potentially see the end of the the fiat experiment? Do you think that there's uh and like do you think that we will eventually live in a in a world where fiat just doesn't exist anymore? I think it's possible.
I mean, if you get, you know one of the ways that they could combat inflation is to re-peg the dollar to something right. So you know we. We have been an unusual period in history for the past 50 years.
You know now a lot of people have come to think of you know. Money not being backed by anything is normal uh, whereas if you look back over the really long stretch of human history, this was an unusual 50-year period of you know.
The entire world every occurrence in the world is is exactly that fiat. So it's not backed by anything officially, and so that's. You know that's been an exception rather than the rule to human history.
So i do. I do think you know. People should have an open mind about what currency looks like you know, 10, 20 years from now um. I think there's, going to be like a lot of ways that that could play out uh, but i think in this in this decade, uh.
If, in order for that to happen, uh you'd, have to see a pretty big inflationary crisis, and you know there's on one hand, there's, a lot of disinflationary pressures again like the debt, the demographics technology, But, on the other hand, the the the policy intervention is kind of relentlessly inflationary uh, so i do think that we're going to see higher inflation in the 2020s.
I do think we're, going to see uh long-term negative, real yields, and i do think there's going to be a shift. Out of you know some of those paper assets into some of those scarce assets and ultimately, where that settles, i think, is an open question uh, but i think the first step is to make sure you have exposure to some of those uh scarce assets, things that Things that have kind of intrinsic value, whether they're real estate, whether it's.
You know uh, like key commodities like copper or uranium, or nickel or silver things like that. Uh gold uh for some investors, uh and you know maybe high quality equities things like that that you know basis to claim on something of of intrinsic value, uh and so and bitcoins.