Saturday, July 6, 2019

Understanding Bitcoin's Role in a New Financial System

Barry Silbert, founder and CEO of Digital Currency Group, and Raoul Pal, CEO and co-founder of Real Vision, discuss the future of Bitcoin, its role in a new financial system that’s being built right now, and its potential to replace gold. Silbert argues the combination of speculation and the next recession will be a trigger for Bitcoin’s popular acceptance. This clip is excerpted from a video published on Real Vision on June 17, 2019 entitled “Top Crypto Investor Looks Forward.”
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Barry Silbert & Raoul Pal: Bitcoin's Role in a New Financial System
Transcript: For the full transcript visit:

And the other is, is you're betting on the innovation. You're betting on the technology. You're betting on the community. You're betting on this new financial system that is going to get built over the next couple of decades.And that investment thesis is a little-- it's a different analysis. The gold analysis is, OK, what is the probability that it captures some of $8 trillion? And then you discount that back and you say, OK, it's got a 5% chance it's going to happen that is going to capture 25%, so you could do the math, it's still a big number. Whereas if Bitcoin becomes the underpinnings of the new financial system, all of the value that gets tied up in Bitcoin as it's moving around the pipes, it's like a working capital analysis. And so if there's 5, or 10, or $100 billion tied up in the Bitcoin system, assets being used for all these use cases, you can make some assumption as to what the value of the asset class would be at that point. And that's not even valuing the blockchain use cases, using the database for recording ownership around digital rights, and identity, and all the crazy ideas that we've invested in and you've heard about. RAOUL PAL: Sorry, can you think that therefore Bitcoin, thinking through your idea with gold and other areas is, you need to think of it in terms of option value? What is the probability of it ending up replacing gold and then trying to impute that? My guess is, you could probably apply some sort of option pricing model and come up with some fair value, whatever that means. BARRY SILBERT: Right. And the small changes in your assumptions have a pretty meaningful impact--
RAOUL PAL: Absolutely. BARRY SILBERT: --on the outcome. And look, that's why Bitcoin will move up or down 5% or 10% in a week, because the very small changes in money flow, very small changes in perception changes the probability of that ultimate outcome. And so again, with gold as, in my opinion, the number one use case-- or digital gold-- $8 trillion relative to $125 billion, for you to double your money in gold over the next couple of decades, it's essentially a bet against the dollar. It's a bet against fiat currency. It's certainly my belief that Bitcoin would perform well in that environment. But really more importantly, if the world doesn't fall apart and if the value of Fiat and the US dollar doesn't collapse, Bitcoin could and should still perform really, really well because you're investing in this new financial system, this technology, this community, this restructuring or rebuilding of the way that value moves around the world. And gold is never going to have more utility. It's just going to-- or not-- be perceived as this store of value that you put in your portfolio that would perform well in periods of financial dislocation.

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