“Perhaps the real enemy is ESG"

Peter Thiel Goes Off

If you caught Peter Thiel’s speech at the Miami crypto conference, good for you. If you didn’t, here is a link to the highlights.

If you’d like to watch the whole speech, here you go.

The problem with Bitcoin today is it is not a medium of exchange…yet. The other argument I have about comparing Bitcoin to Gold is that when America went off the gold standard and allowed currencies to freely float, it was a massive exogenous shock to the gold market, and intellectually, the market hasn’t recovered.

People think gold is a hedge against inflation, but the data shows it is not. Ignore the commercials on Fox News.

I am not sure if I agree with Thiel that Bitcoin was the canary in the coal mine when it comes to predicting inflation. It’s tough to tease out because Bitcoin’s price is heavily correlated to acceptance and adoption.

If you told your friends you bought Bitcoin, what would they say? If they are part of the 86% of the population that doesn’t have a crypto wallet, they will think you are crazy. Tulip bulbs. Rat poison as Warren Buffett says.

Bitcoin isn’t near being respectable yet.

The other downside to Bitcoin and crypto is that it is inexorably tied to the US dollar to determine its value. Even with trading and wider holdings, no one thinks of a Bitcoin as valuable without putting a US dollar value on it. What tells you that a US dollar has value?

At the beginning of his keynote if Thiel would have handed out Bitcoins valued at $100 each, would people have accepted them as readily? They would have but why? It’s because those people knew they could exchange them for $100 in US fiat currency. What happens if you can’t?

Until Bitcoin establishes itself as a medium of exchange where I can actually buy goods and services independent from any fiat currency, it will not blossom.

Thiel is right when talking about crypto and blockchain. They cannot be separated. If you want to own a blockchain without the crypto, buy an exchange stock that has a captive clearinghouse. Clearinghouses are blockchains at their core. A blockchain without a corresponding token is simply another closed network.

Bitcoin and cryptos like Bitcoin are open networks. There are no barriers to entry or exit. Simply buy a token and you are part of the club. If you understand Microeconomics 101 and remember the Producer Surplus/Consumer Surplus discussions, in crypto consumers have the ability to grab more of the surplus than they do in closed networks today.

My personal hypothesis that I don’t have any data to back up except gut feel is that crypto can alter the costs/opportunity costs of entering certain markets. It should lower the costs, so that we drive production up, and more people will have access to more goods and services.

One example is the unbanked. Fiat can’t afford to bank them. Cryptocurrency can.

I agree 100% that ESG investing is dangerous. It is a deliberate acceptance of a lower return. It is virtue signaling. ESG are forces outside of a capitalistic market making decisions for your money. There is no rigor or discipline or predictability around ESG investing.

Investing is never virtue signaling. If an investment makes you money that has ESG characteristics to it, it’s nice to have. You can feel good about yourself and tell your friends. Your friends will pat you on the back.

But, any company on earth that provides a product or service where people will part with something of value to receive it is just as good if not better than any virtue signaling company. Hence, oil companies explore, drill, and process raw materials. They turn the raw materials into something useful and deliver them safely to you. You can put fuel in your tank and have a much more productive and fulfilling life. The industry creates jobs but also enables billions of people to carry out jobs outside of the oil industry. Oil companies are ESG companies.

The issues around crypto that stop them from gaining widespread adoption are mostly technological. Web 3.0 is not easy to use yet. If you want to purchase something using crypto, it’s tough.

The other difficult part about Web 3.0 is that it is hard to explain to even smarter than average people. Even when curious, there is an acceptance hurdle that is hard to overcome.

That’s gonna change soon though.