WBD450 Audio Transcription
Bitcoin vs Crypto & Web3 with Ryan Selkis
Interview date: Saturday 15th January
Note: the following is a transcription of my interview with Ryan Selkis. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
In this interview, I talk to the founder and CEO of the research and data firm Messari, Ryan Selkis. We discuss Messari’s industry-leading opus on the state of the ecosystem, Bitcoin and gold, regulation, both sides of the Web3 debate and the differentiation of Bitcoin and ‘crypto’.
“A lot of us when we talk about Bitcoin we’d say look it’s schmuck insurance, or it’s a digital gold analogue or replacement. But because it can also be used as money, yes it’s very volatile, but it also has upward volatility, not a persistent depreciation of value over time like you have with some of these other currencies you’re going to hold your assets in.”
— Ryan Selkis
Interview Transcription
Peter McCormack: Ryan, how are you doing?
Ryan Selkis: I'm doing great, man. Finally!
Peter McCormack: Fucking hell, I can't believe it's like 400-and-something shows and you're on.
Ryan Selkis: I'm a shitcoiner, I know. You had everybody else to get through that's less open-minded than me.
Peter McCormack: That's actually not fair. You are a bitcoiner, I know you're a bitcoiner at heart, you just have a business that does a lot of shitcoining.
Ryan Selkis: Yeah, we can talk about that.
Peter McCormack: Well, we can talk about that. What we can talk about, actually, because you sent me your report. Fucking hell, man, how long does that take you?
Ryan Selkis: It takes about a month, 5% to 10% of my annual bandwidth about, and so it's kind of a running joke with the team that I secretly hope it flops every year, that we don't have to write it the next year. But there's a lot of reasons to do it. It's a synopsis of all the research that our team has come up with through the year. It's a good marketing asset for us, we do a lot of co-promotion, we've got a big new product launch coming out this coming week. So, there's a lot of things that go into it.
Obviously it's good for newsletter growth, and everything, so it's worth it, but barely, because it puts me to the end of my wits by the end.
Peter McCormack: How many words?
Ryan Selkis: Well, I don't know how many words. 165 pages. I didn't do the wordcount. But I think, 165 pages, probably about 100,000 words, right? It's about that.
Peter McCormack: It's a short book, yeah.
Ryan Selkis: Yeah, it is.
Peter McCormack: Well listen, I obviously want to talk to you about the Bitcoin stuff.
Ryan Selkis: Of course. We had a full section on it.
Peter McCormack: It's a good section on it, and we can go through all of the ten points on there.
Ryan Selkis: Amazing. I might even remember a few of them.
Peter McCormack: I might want to talk to you a little bit about Web3, because I think it's annoying.
Ryan Selkis: Let's do it.
Peter McCormack: I think it is WebVC.
Ryan Selkis: That's why people come, they come for the juice, not for us high fiving each other. You see, you've got to have more people like me on.
Peter McCormack: All right. Well, we can do that and we can possibly also talk about regulation, because that is an important thing.
Ryan Selkis: 100%.
Peter McCormack: I've just got back from DC, made a couple of shows there, right in the DC crowd where regulation's a hot topic. But let's talk about Bitcoin. You do hold ten sections to Bitcoin, your ten hot takes, but I think a good starting point is your first hot take. Look, we've got him here.
Ryan Selkis: He's always watching! I saw. I wasn't sure if you also packed the picture of me, but I figure that's by your bedside still at home. But Peter's right here in the corner for those that are just listening, watching, waiting.
Peter McCormack: You got a one-off cameo appearance, but he's become a permanent fixture now, he travels with us. We keep an eye on him.
Ryan Selkis: That's good.
Peter McCormack: So, listen, let's talk about Bitcoin and gold, Bitcoin taking on gold. I interviewed Saylor the other day. I disagree with him. He said, "Gold is the enemy of Bitcoin", and I disagree with that move. And the reason I disagree with it is I don't think we need to make enemies of gold bugs, because gold bugs who don't own Bitcoin are the next bitcoiners, really, should be. We agree on the problem.
Ryan Selkis: You know, I would compare it to something slightly different. So, my freshman year in college was 2004/2005, and that freshman year, maybe 5%, I don't even think 5% of the laptops, were Macs versus Dells. Then, by senior year, you're starting to see the progression. So, all the young people were first to use Macs, and they were first to use all the Apple products and consolidate it around the iOS ecosystem. It was just a better design, it was young, it was hip, it was just a better product. And I don't think that Macs have overtaken the rest of the PC market still.
But as you see younger generations coming up, they're going to have a different set of tech preferences and they're going to have a different set of money preferences. So, I don't think you have to be the enemy of gold, because they're just going to age out and it's going to be a very gradual rotation. And in the meantime, gold will be collectible for jewellery.
But in terms of the money use case, I think that's just going to be a kind of natural, multi-decade switch that we see in the next 15, 20 years.
Peter McCormack: It's more than jewellery though, industrial, doorstops!
Ryan Selkis: I know you're kidding, but there are some industrial use cases. It's mostly jewellery. So, I actually break down the report. If you're talking about the true comp, it's not $11 trillion, it's more like $6 trillion. So, $6 trillion would be investment purposes and central bank reserves, would be the gold market cap, which leaves about 5X to get to parity with the gold investment comp.
Now, if you're going to lump in jewellery and all that, that's where you get to the $11 trillion, where there's, "Oh, you can get to a $0.5 million Bitcoin", but I don't think that's the right comp. I think it's more like $250,000 to $300,000 gets you to parity with gold as an investment at today's prices.
Peter McCormack: It's the flippening that matters. We're going to talk about the other one as well.
Ryan Selkis: Yeah, there's all kinds of flippenings, yeah.
Peter McCormack: How long do you think we've got until we flip gold, five years?
Ryan Selkis: I don't know. So much of it depends on how these cycles actually play out. If you keep seeing the four-year boom-and-bust cycles, the extreme corrections, we could see it this cycle and then have a pretty big comedown all the way back to $100,000. But, I don't think we want that for a whole slew of reasons, not the least of which is, you go up to $250,000 Bitcoin and then down to $100,000, you're talking about actually triggering a real-world global recession or minor depression, because that would be so much money to have evaporate from the financial system in the markets.
Peter McCormack: So you believe Bitcoin, there's a contagion effect?
Ryan Selkis: Well, remember, we're at about $1 trillion right now. So, if Bitcoin corrected from $250,000 to $100,000, that would be a $3 trillion decline in asset values for a relatively small niche of investors, because I don't think it would take a whole lot for that market to move that market to $250,000. I don't think you need all of Wall Street and a dozen countries and all the big corporates putting it on their balance sheet. It could be a boom and bust. I personally don't think that's going to happen.
Peter McCormack: Do you think the cycle might be breaking?
Ryan Selkis: I think it is and I hope so, because it means that the bear markets will be shallower and you're not in this feast or famine cycle. It will look a little bit more like tech has the last decade, or the last 15 years, since we came out of the trough of the dotcom burst, where you see things get funded, you see slow and steady upward trajectory and you see good projects and good teams deliver, according to the performance of their product and specific KPIs; not just, "Okay, we're in a bull cycle, so throw as much money on black as you can. We're in a bear cycle, take it all out, go home, come back in a couple of years".
Who knows, and the market's out of anybody's hands, but I'm hoping, I kind of expect that maybe there's a cap on how crazy we can get this time around, maybe because of the other assets that could steal a little bit of the Bitcoin thunder.
Peter McCormack: We'll come to that. I mean, it's been a wild year, right. I did a couple of shows at the end of last year, talking about expectations for this year. I never saw a scenario where Tesla would buy $1.5 billion of Bitcoin this year, and I never saw a scenario where a county would make Bitcoin legal tender.
Ryan Selkis: You should have read my report last year.
Peter McCormack: Is that what you said? Did you put it in last year?
Ryan Selkis: Well, I didn't say Tesla and El Salvador, but I think that was one of the macro trends. I think in general, it seems like it's inevitable. There was game theory involved, where Bukele's looking around, "If I'm first, then there's uncapped upside. If I'm wrong, well there's a lot to fix in this country anyway, so that's going to be maybe the least of my problems, least of my worries". So, I think it's a good asymmetric bet that you'll see a lot of other emerging market leaders probably make it, especially the younger ones, in the next few years.
Peter McCormack: Did you think we'd have another country by now, or do you think people are waiting to see?
Ryan Selkis: Well, I didn't think it would be a big country. I think the smaller countries are probably looking to see how things play out with the IMF and what all the externalities are that could potentially impact El Salvador. Because, I think there's a little bit of a Venezuela effect too, right. I mean, Venezuela has all the oil, I think they've got the largest reserves, even ahead of Saudi Arabia, and that hasn't fixed what's a colossal nightmare in Venezuela right now politically.
Now, I'm not saying that's money related, but I think there are some similarities where the IMF and some of the other financial leaders of the world decide to crack down or limit commerce with El Salvador, or otherwise just make life difficult because they don't want Bitcoin fully integrated into the financial system, then obviously there are bigger issues that El Salvador has to solve for. That's one bit of conjecture. But I would be surprised if we don't see other small countries coming to the fold. It really is going to depend on what the next three to six months look like.
If we can establish some medium-term lower bound, so you don't see another selloff to $25,000, that's a risk that no one's going to take. But I think if we trade sideways for a while, you'll absolutely see other central banks and other companies start to think about this as a balance sheet asset.
Peter McCormack: How important do you also think the volcano bond is, and how much have you looked into that?
Ryan Selkis: Honestly, I haven't really looked into it. I mean, educate me. I've read about this being one of their plans, along with their Bitcoin City and the weird diagrams of the dystopian-looking citadel, but the volcano bond in particular, I'm not as familiar with the mechanics.
Peter McCormack: Well, the Bitcoin City, I'm less excited about, because what is it and how much infrastructure has to be built in the city, and how much time does it take to build the properties in the city? It sounds like something you can work towards, but it might be a decade, multi-decade project, to be something that looks like one of the artist's impressions that you get of this.
But the bond itself is kind of interesting. I mean, I don't know too much about it, I'm not a bond guy, I'm not Greg Foss. But my understanding is that they're looking to raise $1 billion, of which half will go straight into Bitcoin, half will be used to build up their mining infrastructure, it's a 6.5% coupon, which is half of the traditional El Salvador bonds, so they really have to return $65 million a year on that, and I think there's a five-year lock-up on the Bitcoin they hold. Then at some point, they start scaling out that Bitcoin, and also the earnings from that go to the bondholders. So, it could pay well in excess of the 6.5% coupon.
But the interesting part of it is it looks like it's built into the game theory of Bitcoin. It's like, if we have this over a five-year period, and Bitcoin does what it does, then the bond will pay. And they're talking about doing ten of them. But I think if it works, if they can raise the money really quickly, I think that's an incentive for other countries to go, "They just raised $1 billion outside of the IMF in a short amount of time".
Ryan Selkis: I always love bets like this, because they prove nothing in either direction, other than Bitcoin is volatile. I mean, you're betting with other people's -- if you gave me $100 to borrow and I knew that I could default without you taking out my kneecaps, I would probably invest in something that could pay off 10X if I could only lose $50; you're probably not going to lose $100. So, you're basically taking nation state capital to make the same, speculating with other people's money, but that's what countries are designed to do.
So, if you're thinking about shooting your shot as an up-and-coming country that's trying to, again, reform a lot of things, aside from just the financial status, then making a bet on emerging tech I think is a pretty smart play. Now I know again, we're going to get a little bit further into this, but I wonder if Bitcoin is too limiting for a country like El Salvador, and how that's ultimately going to play into their competitive positioning in terms of attracting talent. Maybe the Bitcoin-centric community, can I say maximalist?
Peter McCormack: Yeah, it's not pejorative to me.
Ryan Selkis: Okay, all right. I don't know, some people get touchy. We're both Bitcoin holders here, so I'll say the maximalist crowd, that's not a slur when I use it, the maximalist crowd, I wonder if it's a little bit too limiting from the part of a world leader, someone like Bukele, or if that dedicated maximalist contingent is enough, where they're going to say, "You know what, I don't care about Portugal and Singapore and Estonia and all these other shitcoin countries, I want to go to some place like El Salvador and support them, either at arm's length, or physically, or somewhere in between, because they're going all in on this asset".
I think you're starting to see that playout with companies too, right? Like MicroStrategy, I'm not sure that Saylor's going to put Ethereum on the balance sheet.
Peter McCormack: I don't think he is.
Ryan Selkis: I don't think he can. Not only do I not think he's going to, I don't think he really can. I think he's kind of boxed himself in.
Peter McCormack: Well, he would dilute his play.
Ryan Selkis: That's what I mean. So, number one, you dilute the play, and I think you saw this play out potentially with Twitter and Square as well.
Peter McCormack: Reading between the lines?
Ryan Selkis: Well, I think that's probably pushing it. I think that what Jack can do with Bitcoin at a financial company like Square is, in order of magnitude, more interesting than anything he can do with Bitcoin on Twitter. And if he cares about Bitcoin, leave Twitter aside, go all in on Bitcoin and Square on the financial element. If he cared about Twitter and some of the crypto use cases, then you have to broaden out beyond Bitcoin.
I guess the more blockchain-oriented you want to be, if you're a Bitcoin maximalist like Jack is, or at least someone that's heavily in that direction, then you want to do it through the financial company that can actually focus on Bitcoin versus -- NFTs on Twitter are going to be run through Ethereum. A bunch of different applications on Twitter that are crypto-centric are going to be Ethereum and non-Bitcoin blockchains.
So, I think maybe that's the tail wagging the dog, but I think it's definitely a better thing, I think, for both parties that Jack has picked one. My point is, did he have to? He may have had to, I'm not sure. But I think you've got that with Saylor, you've got that with Bukele. You've got this playing out with leaders corporate and sovereign, and everywhere in between. And this happens with influencers too, you know this.
Peter McCormack: Well, I went the other way. I don't like the term "influencer", I find that pejorative! I'm a professional journalist. No, it is, and look, it's tricky.
Ryan Selkis: Well, you are a journalist, I was talking about me!
Peter McCormack: Come on. You're a journalist. You were a journalist before I was a journalist.
Ryan Selkis: The lines are blurring.
Peter McCormack: They are. I mean, people call you a journalist when they want you to do a better job, and then they say you're not a journalist when you think you've done a good job. You can never fucking win.
Ryan Selkis: Or they call you a bad journalist, because you own the things that you're talking about. That's my favourite. And that's why you get all this garbage coming out from The New York Times and all these other cut-rate publications. You can't use the stuff and you're going to write about it, which is why the quality of the writing's so bad.
Peter McCormack: Maybe journalism's just dead; it's all entertainment.
Ryan Selkis: Well, I think everything's getting decentralised. I can never quite tell when you're being tongue in cheek, but I do think journalism is dead.
Peter McCormack: No, I kind of think it is in the traditional sense, in that there are journalists out there doing great work. But for me, a journalist is out there to tell the truth, investigate a story and tell the truth.
Ryan Selkis: Yeah, so this is a really important insight, because I think that there are great journalists, and what we're seeing is the institutional brands of journalism are complete shit, almost across the board. I mean, if you think about what The New York Times has done, running out Bari Weiss and some of the other senior editorial staff that they have. If you don't fit to a certain narrative, you're out. I mean, I won't even get into both sides of the 24/7 cable news media, everybody knows that it's toxic to get that type of information diet, unless they're just watching it --
Peter McCormack: I don't think everyone does know.
Ryan Selkis: No, I'm saying, unless they're actually in it and they've picked a side and they're like, "No, no", and their answer is always, "This is healthy, because this is what I watch every night". I think that people who don't watch news will look at both sides and say both of these are not good.
Peter McCormack: Well, they're full of shit, let's be honest.
Ryan Selkis: And I think there's a reason that Substack is spiking, that you're seeing more people get their news from Twitter and from -- people complain about the algorithms on Facebook on Twitter and say that it's inflammatory, but at the end of the day, that's still better than getting all your information from one news channel.
Peter McCormack: The same temptations exist for these people who've gone out on their own.
Ryan Selkis: Exactly.
Peter McCormack: So, Substack is great. I pay for Bari Weiss, I pay for --
Ryan Selkis: Glen Greenwald? Let's see how much of an overlap we have.
Peter McCormack: Matthew Taibbi, and then there are a few other smaller people I know.
Ryan Selkis: Yeah, same.
Peter McCormack: I've got maybe five to ten on Substack and they're great. The problem is that Twitter still rewards audience capture. If you're on any end of a political spectrum, it rewards audience capture. You see this with Tim Pool. I think Tim Pool sometimes is brilliant and smart, and other times I see he's very inflammatory because the audience capture algorithm rewards him.
So, when people talk about, "The mainstream media's dead, but we've got these great new freelance independent media operations, they've got their own podcasts and stuff", some of them are just as guilty as the mainstream for audience capture, because they get rewarded, because they get likes when they speak to their audience and so they have to speak to their audience and their revenue model's based on that. So, finding someone who's truly independent that you can trust is hard. I do trust Bari Weiss, I do trust Matthew Taibbi. I don't always agree with Glenn Greenwald, but I do trust him.
Ryan Selkis: Exactly.
Peter McCormack: So, there's very few journalists I do trust and when I say journalism's dead, better say it's dying, because there are some people out there. But previously where you would trust -- maybe you shouldn't have trusted a newspaper, you would go and pick up the newspaper you trust and expect some good, investigate journalism, I used to believe it was there; I just don't believe it is anymore.
Ryan Selkis: I take the first day in prison approach to journalism, which is I try to find the biggest enemy I can find at any point in time, punch him as hard as I possibly can, then I go relatively easy on everybody else, so you can maintain this diplomacy, still call it both ways. I mean, this happened -- I think about how I got into the industry, Mt. Gox and the Bitcoin Foundation, and then Ripple and my crusade against Ripple, three years ahead of the SEC, by the way, and of course now it's the current SEC Chair!
Peter McCormack: But are they actually doing anything with Ripple? Does it exist for any purpose?
Ryan Selkis: Is Ripple, the company, doing anything with Ripple, or…?
Peter McCormack: Well, I mean I conflate Ripple and XRP as the same thing.
Ryan Selkis: Well, I mean so do I, but just for clarity and conversation… I think it's tough for them now. Here's a thing. The first critical piece, I mean I got much more critical once I started to dig into it in 2018 and figure out how they were doing their treasury sales versus their marketing for XRP, that's when I started to get a little bit crazy. But my first post on Ripple and its use of XRP was actually pretty steelman of like, "Here's what they're saying, here are the things you need to believe to get excited about", like XRP at $3.50. I wrote this literally the day of the market top. Basically the punchline was, "You're out of your mind".
But the way that they were trading XRP, the currency, as a bridge currency was interesting. You just knew that no institution was ever going to go for it unless they were getting bribed, and this is exactly what happened with MoneyGram, if you actually looked at documents and all the court proceedings, all the stuff that's come out since. MoneyGram is essentially like, "If you want to invest and pay us an enormous amount of money that we're going to be able to liquidate, and we cleared this with our lawyers; if this is all good and we literally don't have to say a nice thing or actually use it or hold it or anything like that, we'll take it".
Peter McCormack: A lot of stinky bullshit in there, Ryan.
Ryan Selkis: No, it is, but here's the thing. We have outdated Securities Law in the US, 90 years old, 80 years old. I mean, the core press never talks about 75 years old about fucking orange groves in Florida. So, we should probably update it for the fact that not only the internet exists, not only PCs exist, but modern cryptography exists, post-1946 and the Howey case.
The reason I have talked about it, and in many ways this was what led to the founding of Messari, my first post introducing Messari, months before the company even officially existed was, "We need an open-source editor, because the SEC is not up to the task structurally", not because they're not competent. I mean, we could talk about the institutional competence, or whatever. But structurally speaking, this is new tech, you need a new framework.
The irony is, everything I wrote about has since come true in multiple fashions: (1) we're doing pretty well, (2) nothing has actually gotten solved in terms of community disclosures for tokens and all the worst things that Bitcoin maximalists hate and I hate, as someone that kind of leans in that direction. It still persists and it's never really been corrected, and one of the reasons is, we haven't had anything like a safe harbour that would have allowed for some cooling off and the ability to pick and choose, not necessarily which are good projects and which aren't, but which are just fucking scams. So, what behaviour is actually going to be permitted.
I think what Ripple's going to argue in court is, "We didn't get any guidance from the SEC", that's true, "They gave us mixed messages", also true, "They said that ETH was probably sufficiently decentralised", that's true. The SEC's now trying to backtrack. So, there's a bunch of things that I think are on their side, not to mention the former SEC Chair, Mary Jo White, who's on their legal team now. But if you'd had something like a safe harbour that modified the disclosures, the shit that they did with the selective disclosures and basically allowing all their insiders to dump on retail throughout, and mark it however they wanted to, if you had a safe harbour, it wouldn't be on the hook for Securities Law violations, it would be on the hook for fraud right now.
Peter McCormack: Wow. Okay, yeah.
Ryan Selkis: I'm saying, if you had written the safe harbours in a certain way, that are common sense and they're based on insider holdings and how they're reporting them, then all these insider deals, I think, would have been closer to fraud than a Securities Law violation. But I don't think that they're actually guilty of fraud right now, just because we don't do anything halfway intelligent when it comes to regulating tech, or tech-related finance.
Peter McCormack: Yeah, I'm not really sure where I want that one to go. I've always thought XRP is bullshit, I've always felt Ripple have lied to people and they have dumped billions of tokens and enriched themselves, but I'm not really sure I want them to lose a case to the SEC.
Ryan Selkis: The enemy of my enemy is my friend.
Peter McCormack: Yeah, I think Ripple dies anyway. But it will be interesting to see how these things play out, because there are certain things that just seem a little -- at the moment, one of the things, I mentioned Web3, why it's bothering me, is that my background before doing all this, I had a web business, we used to build websites. I went through the transition from Web1 to Web2, and it was about, "How do we make the internet better for people?" we had a more interactive web. The tools that came available with CSS, I'm trying to remember now, just to make the experience a lot better on the internet. You typed into Google, you get the suggested results; lots of little more interactive elements.
I don't remember when Web3 was first being discussed, what's the next phase of the web, that people talked about tokens. They talked about the decentralised nature of the web, or owning your data, and privacy being an important part of the web. Decentralisation is important, but I'm really concerned, not concerned, concerned trolling, just the way Chris Dixon is really pushing hard this Web3 narrative of a world of tokens, which really suits the investment thesis of a16z. And, I just wonder how much we're going to pollute the potential of the web with a flood of just bullshit, and it does worry me.
I think Web3 has been co-opted, I think grublés got it best when he said, "It's not, it's WebVC". And I think if you were trying to design or think about a Web3, what we need, for me it's not a world of tokens. Decentralisation, yes, it's important; data ownership is important; privacy is important; a native digital currency like Bitcoin is important. A basket of shitcoins just isn't the world I see for the future of the web, I just don't think it makes it a better experience myself.
Ryan Selkis: There's so much to unpack there.
Peter McCormack: I know.
Ryan Selkis: It's such a sweeping statement, and I'm sure there are parts that I agree with you on and there are probably some parts that I disagree with you on. So, first of all, let's just say the name Web3. I actually think Web3 is much better than crypto. In terms of new audiences and being a little bit more friendly to regulators and not scaring the shit out of people and new audiences, and I think it's maybe a little bit of a better catch-all term, because now you can include digital art and all these NFTs and the metaverse goods and anything that will settle with a blockchain, or stablecoins; things that people don't intrinsically think of as crypto, because that sounds a little Wild West.
So, I actually think it's a really good meme and I think it's important for adoption and maybe just a slight rebranding from crypto, given how hostile I think we're going to see things get in the regulatory sphere, particularly in the US, in the next year. Maybe in Europe, to a certain extent, but I think Europe's a little bit more balkanised and you're seeing groups in Portugal and Germany and France, they've all got slightly different tacks and are arguably a little bit more friendly. So, I think Web3 is definitely an upgrade from a branding standpoint.
Point two, something can be self-serving and also be true at the same time. So, you really have to unpack the threads there. Is this self-serving? Is this in a16z's best interest? Yes, yes. Is this also in the best interest for the US tech environment? I would also argue that the answer's yes, so I don't think the interests are necessarily misaligned.
Peter McCormack: I think you've missed the audience that I'm thinking about though. I'm thinking end user.
Ryan Selkis: No, because I think that with these Web3 protocols, they should have opportunities for their end users to actually meaningfully participate in the upside if they're early and they're active. So again, we're conflating a couple of themes here. If you're talking about a VC chain that goes public at a $20 billion valuation; yeah, not as interesting, but I think that's going to get worked out in the market, because I think users are starting to get conditioned to token upside in return for participating in some way, shape or form of these networks.
The way to think about it is cooperatives. So, cooperatives are mutuals. So, REI were a mutual insurance company. They're ultimately going to payout to their members. If those businesses waited until they got to $20 billion and all of the wealth and all of the user rewards were privatised amongst private investors, like venture capitalists, yeah, that's bullshit. No one's actually going to care about that brand as an end user. But then you're going to have competitors that take that more seriously, will get the balance right. I think that's something we're going to see get figured out in some of these early experiments. And frankly, you'd rather they get figured out now when the stakes are relatively low versus five or ten years from now.
I think that the VCs and the rounds that are getting underwritten right now, yeah, you've got a lot of the same, usual suspects and usual names. But I also think a lot of individuals, like super angels, are starting to gobble up good chunks of these rounds, because they're just viewed as better connectors and more strategic for connecting protocol to protocol and how these communities actually ebb and flow and trade off of each other and integrate with each other.
There's not an endorsement for any of those tokens right now, because I don't know what fundamental value is for most of these projects, but it is to say I think it's likely that some of the big winners early will be the VCs, because they are early to the trend. Over time, I think more of these protocols will democratise and you're going to need to share the incentives.
It's the same way we're talking about, "Why is Web3 a threat to Facebook and some of the other Big Tech companies?" It's because you've basically now, with tokens, conditioned a group of users that they should have upside, they should have financial upside for being earlier, valuable members of this network. Facebook gives you nothing. So, when the starting point is nothing and I could get something, and I could get even more, potentially a lot more, if I'm early to this budding Facebook or budding Twitter, or whatever, now it's a different value proposition.
Which one do you think the users are going to go to? Do you think they're going to go the one that has all the VCs? And actually a user, not just a speculator in this crazy environment we're in right now, where everything swings wildly; the actual users of those products are going to go for the peer-to-peer alternative versus the one that's owned by the VCs. I think this is going to get worked out naturally.
Peter McCormack: I think they're going to go to the user experience that delivers what they need, what they want.
Ryan Selkis: My point is, I think token economics, rewards to some of these early users, that is part of the user experience, that is part of the product. Now, other things equal, you're going to use a product that gives you more money. Other things equal, you're going to use the better product period, so it doesn't matter if you're going to pay me $50 a year to use Friendster, I'm still going to use Twitter.
Peter McCormack: Friendster! I remember Friendster. It was so close.
Ryan Selkis: Yeah, exactly. So, all of these comps, it's other things equal.
Peter McCormack: I think going back, I don't think Web3 should equal crypto.
Ryan Selkis: Well, I think that Web3 is a superset and that crypto is some of the subsets. So, you will have some of the elements of Web3 that are true punk crypto. How would you define the two, so we're not talking past each other?
Peter McCormack: Well, I think the narrative is being flipped there for, "Web3 is crypto", and I don't think it is. I think Web3 is the decentralisation of the internet, and it's the ability to hold your own data and protect your own data, it's privacy. It is cryptography, but it's not necessarily that everything will be built using a blockchain protocol, which somebody sees an upside for. Plus, I actually think in this new Web3 model, I think the VCs are in a far better position than in traditional investing rounds, because they get in so early. And I've said this a few times on the podcast now, you essentially get to IPO before you've had product market fit, which I think's wrong.
You've raised money, you know what it's like, it's hard. You have to show what problem you're going to solve, then step by step, as you go through rounds of funding, you've got to show whether you've brought on users and whether users are sticking, or whether you've hit a revenue marker that you want to reach. You have to prove yourself to get to the next round and you don't get to IPO unless you really have had product market fit.
But by the time Solana is available in the market -- by the way, I always say "Solano" to piss people off. It's always funny, you go in the YouTube comments, "You're an idiot, it's Solana". But by the time Solana hits the market and becomes a multi-billion-dollar chain, it hasn't proven product market fit, it still has massive of technical hurdles to get through. So, I actually think the VCs have a far better position in these investments.
I mean, Multicoin's investments, it's unbelievable the returns they've had without product market fit. So, I just don't like the "Web3 equals crypto"; I think it misses out a lot of other really important things that people are not talking about.
Ryan Selkis: I think we would -- again, we're probably in agreement on one factor and then there's shades of grey on the other. So, you bring up Multicoin and Solana. Full disclosure, Kyle and Tushar are personal early investors on the pre-pre-seed for Messari.
Peter McCormack: Oh, okay.
Ryan Selkis: But I call both ways, like I've called out some of my investors at different times and I have colourful debates on Twitter even with Kyle to this day.
Peter McCormack: I know they're just playing the game that's in front of them.
Ryan Selkis: But it's more than that, so there's two things. One, anyone could invest in Solana, a $15 million valuation two years ago; they didn't. Two, there are some elements of Solana that are just more scalable than Ethereum. So, the comp is not like Bitcoin or Solana, it's Ethereum or Solana, and we've seen this play out. Now, it's much more centralised, some of the infrastructure's much more centralised as a trade-off. We can argue if that's good or bad. But the protocol itself has product market fit, because it has absorbed a ton of throughput and some of the use cases that traditionally went over Ethereum rails. There are just more developers that are building decentralised applications there.
Again, you might argue this is just like turtles all the way down and there's nothing there for these applications. That's a valid criticism. But my point is, if you think this is all moon fumes, they've got product market fit on the moon fumes that a lot of other people believe in right now, and it works. So, we can talk about what the…
I feel like a lot of the debates and a lot of talking past each other comes down to, "What is value?" and I don't think that this should be valuable. This looks like a multi-level marketing scheme versus the thing that I own, which is technically superior and beautiful and world-changing and democratic and all these other things. Balaji got me onto this concept, Russell Conjugation.
Peter McCormack: No, tell me. I'm surprised he hasn't told me as well.
Ryan Selkis: Yeah, and I was just listening to him on Ferriss, so I'll just use the exact same example. But, "I sweat, you perspire, she glows", right? Same exact thing that's being conjugated in a different way, depending on your perspective and your audience. And then I think the other one he used was something like, "He leaks, The New York Times investigates", or something like that. But you could say the same thing with any of these cryptos. I'll try to come up with one on the spot for Bitcoin. I'm not even going to try.
Peter McCormack: Yeah, I see what you're saying.
Ryan Selkis: Bitcoin is disinflationary, Ethereum is a rentier class, because of this proof-of-stake switch, where all the rewards are just going back. It's that same general constructure being used as a criticism or a feature, and something to be lauded, depending on who the audience is and what your current holdings are, quite frankly. I think that's true with some of the other Layer 1 chains in some of these other applications. But that was kind of a roundabout way to answer that specific example about Solana.
I think the other thing that I disagree with you on, not for the reason that you might expect, but I disagree with you on the whole concept of public companies needing product market fit. I think that's an indictment of the SEC and the US markets, because companies used to go public a lot sooner, until Sarbanes-Oxley and until a lot of the things that made it very hostile and cumbersome for companies to go public kept them private longer. Then, the private markets responded to that dynamic, because VCs could capture so much more of the upside, so their funds got bigger and the rewards were sweet.
So, you combine that with the fact that you had a half dozen now trillion-dollar tech companies that would ultimately acquire many of these top performers, and you're at kind of a perfect storm to keep almost all of those gains privatised. Should Uber have gone public at $40 billion or $4 billion or $1 billion?
Peter McCormack: Fair.
Ryan Selkis: So, I think crypto is probably the extreme in the other direction that we have to be careful about, because should something go public at $0 and then have this immaculate conception that in reality, all the insiders knew about or got tipped off to, so they were the first to deploy for a transaction? My point is that I think there are shades of grey, but I do think the market is ultimately going to win out in the end. And, you'll have mechanisms where you can actually measure someone's bona fide contributions to an ecosystem, or meritocratically distribute rewards into these mutual models. People will flow to the chains that, other things equal again, will flow to the chains that are otherwise fairest to the users that have been contributing value, otherwise you just have this dead weight issue.
Peter McCormack: Ryan, this is a Bitcoin show and you're turning me into a shitcoiner. What's the next protocol I can buy at $15 million that's going to -- I'm only kidding!
Ryan Selkis: Oh, man, I'm disappointed. I had five, because I know your audience is --
Peter McCormack: But like I say, my point is just that --
Ryan Selkis: I want to imagine some of your audience right now like, "Why the fuck does he have this guy on? I thought this was a Bitcoin podcast. Get back to the Bitcoin stuff!"
Peter McCormack: Because you're a statist!
Ryan Selkis: I wrote a good chapter on Bitcoin, come on, bring it back.
Peter McCormack: We will, but I just want to round my point. Look, it's going to happen, I get it's happening anyway. I just feel like, where are the conversations about Web3 that aren't talking about cryptocurrencies or tokens or NFTs, because there's a lot of stuff that people will need as users on the internet, there's a lot of things that the experienced people need? They need control of their data, they need better privacy.
Ryan Selkis: Well, here's the thing, so I think NFTs are a primitive that enables a lot of -- just for instance, my definition of Web3 was basically, this is a catch-all term that includes cryptocurrencies, that's the native currency; includes the Layer 1s, these are the ledgers of record and the contractual enforcement systems; it includes NFTs, which are the discreet digital goods that you might use purely online, and that also could be the building block for your reputation, that's what I want to come back to; and then DeFi basically makes that a liquid economy, because you need a liquid economy to be able to run anything like the metaverse, and I do think more of our lives are going to be run online.
So, let's come back to NFTs. So, there's digital art, there's profile pictures, there's these things that 95% of them are going to go to zero. I actually think you can think of the NFT market kind of like digital art. Digital art right now is about one-one-thousandth of actual art. In 2013, Bitcoin, in its blowoff top, was about one-one-thousandth of gold.
Peter McCormack: Okay.
Ryan Selkis: So, right now, Bitcoin's about a tenth of gold. If digital art follows the same path that digital gold did, then we've got 100X from here, but that's 100X in market cap, not 100X in projects across the board. So, yes, 95%, 99% of these things are going to crash, going to end in tears, people are going to be very sad, they're going to have a very overpriced jpeg. But let's talk about the things that stay. You've still got a pretty significant upside in this as a class and it could open up new cases for Hollywood, or wherever.
But I'm actually much more interested in NFTs, because you talk about protecting your own data or packeting your own data, and those being the Web3 cases that you're actually interested in, I think that NFTs are just a wrapper for any data. Where that data points doesn't really matter. It could be a profile picture, it could be your data record on Facebook, so that you can port it into a new front-end application that is not run by Mark Zuckerberg. Same exact front end maybe, different algorithms, so you can customise whatever you want to see, and you'll basically permission access to your data record that way. That's still an NFT.
The thing is you're going to need, I think, use cases and toys that people speculate on, that helped pave the way for all that infrastructure before that infrastructure actually becomes useful. Another good example would be, NFTs as a building block for digital reputation, or digital credentials. You think about a college degree. Do you remember the whole Token Curated Registry thing?
Peter McCormack: Yeah.
Ryan Selkis: So basically, TCRs were like, you could have a list of things and if you post a bounty and the community accepts you, you can basically get onto this list. So, it was a way, could we whitelist ad-free domains, or basically hypothetically anything, or could we create a rank list of influencers, or create a club vibe. That V1 was garbage, and I think DAOs, as communities, that infrastructure took back over, and I think it's more interesting for some of the early TCR use cases.
But when you talk about credentials, a TCR could basically be like -- a Token Curated Registry could be managing diplomas. Do you have a diploma from X internet university, because we all agree that college is overpriced? This will be a replacement that will follow you anywhere and ensure that you have these minimum requirements. What NFTs allow you to do is it could basically give you a badge, not only for every course you passed, but for every test that you took, for every question that you took. So basically, they just complete the binary.
Then, depending on your performance on any of those tests, maybe you have an NFT that has rarer attributes than the other 10,000 people in the class, because you're in the top 1%, or you're very top of the class. So, you basically bundle all these together, and then you can extrapolate that to your work, to your social score, basically whatever you want to be able to permission out, you could do. I would argue that because you can do that in a way that is completely owned and within your control, or managing your own wallet, it's transformative in a good way, not in the Black Mirror, "We're tracking your every move and we're deducting and adding credits to your social system", and that Uber episode, you know which one I'm talking about, right?
There's a way to selectively permission access to your reputation and your data using some of these primitives that today look like toys and look like garbage, and you probably hate, but I think are necessary for the Web3 that we actually probably agree that we want to see.
Peter McCormack: What do you think, Jeremy, are you convinced? Do you want some NFTs now? You want DIDs? The interesting thing on NFTs is that --
Ryan Selkis: I think there's similarities, right? I just registered TBI.eth as an identity.
Peter McCormack: Well, the NFTs have chipped in a little into the Bitcoin crowd. There are bitcoiners who are, "Fuck Ethereum, fuck Solana", but they're like "I'm okay with NFTs" and we have NFTs on Bitcoin as well. I heard Samson Mow talking about using NFTs to issue concert tickets, easy way you could have it as a concert ticket, or a cinema ticket, and you can just use that use that.
Ryan Selkis: As long as it's on Liquid, that's fine, right?
Peter McCormack: Yeah! For those listening, I got a little wink there. No, look, I empathise your point, and we just did an interview before this with Lane Rettig talking about proof of work versus proof of stake, and one of the things I was saying is that, one of the big issues is that actually, I think the bitcoiners have tried to do this, this Bitcoin, not blockchain; Bitcoin, not crypto, separate Bitcoin out. But I think it needs separating out for both communities in some ways. Because, if you just ignore the ultra-sound money crowd, who I think are fundamentally wrong and dishonest, actually it's just two different things.
My metaphor for Lane was, you need wheels for an aeroplane and you need wheels for a car, but they're doing two fundamentally different things. One is taking you across the ocean, one is driving you down the road, but people might consider them the same, because they both have wheels, but they're fundamentally different things. Bitcoin is separation of money and state; crypto, for me, is just a new type of company creating permissionless things to make the internet a bit better. I don't have a need for them and I don't really use them, not to say that I wouldn't in the future if I did have that need, but I think it's even more important now to separate what these things are, because otherwise it feels like a lot of the fight is pointless.
Ryan Selkis: So, I completely agree. I think the end-all, be-all fight is for Bitcoin to maintain its status as sovereign-resistant money and secure store of value settlement. I almost don't like talking about it as currency, it's too volatile. Stablecoins are a better product right now. But secure sovereign store of value for if shit hits the fan, or if you start to see currency failures, then yes, the bet is still on Bitcoin, that's where all the action is, that's where it's going to be for quite a long time.
Peter McCormack: Yeah, I agree with you. If you're in Turkey right now, you probably want Bitcoin and stablecoins. You want to put your savings into Bitcoin and you want to hold a certain amount in dollar stablecoins to protect yourself against the collapse of the lira.
Ryan Selkis: And the thing is, we knew this was coming. I've been talking about this for years, I know you have as well. We're just now starting to see it actually become relevant in the US, because we've got 6% inflation.
Peter McCormack: Dude, yeah, and the rest.
Ryan Selkis: But this has been the case in Argentina for years and different African countries for years. So, a lot of us, when we talk about Bitcoin, we'd say it's schmuck insurance or it's a digital gold analogue, or replacement, but because it can also be used as money, yes it's very volatile, but it also has upward volatility, not just a persistent depreciation of value over time, like you do in some of these other currencies you're going to hold your assets in. So, Venezuela and Argentina and some of the African countries being the big ones, but you knew that they were going to be some of the early adopters and people there would use it to help maintain their own safety.
I think Tether's taken a little bit of that use case from Bitcoin for a lot of the same reasons. So, I think that there's some truth to that. If you're in Turkey, would you rather have Tether, or would you rather have Bitcoin?
Peter McCormack: Well, you need to live. It depends on your net wealth as well.
Ryan Selkis: But my point is, if your economy is going to be black-market dollarised anyway, then Tether's probably better than Bitcoin even. It's still a crypto asset using crypto rails, but you're at least admitting defeat with your own currency, but you're saying, "We're still going to have a black market where dollars are good". Dollars will always be good, until we ruin them.
Peter McCormack: Do you think in some ways, it will benefit some of crypto to become quite highly regulated, and bear with me when I explain this, in that we stop having this argument about -- because, it's really an argument about decentralisation. It's like, "Well, Bitcoin's maximally decentralised, it's directionally decentralised", which is why I say these other things aren't really decentralised. Decentralisation is a spectrum, but they aren't really. Is it more important that these things are permissionless than decentralised?
Ryan Selkis: Much more, yeah.
Peter McCormack: So, we could create that separation whereby, look, there is this whole decentralised --
Ryan Selkis: I think it's important socially for them to be decentralised, because you're more likely to trust that one of these systems is permissionless if it is decentralised, but really decentralisation is an input to get to permissionlessness.
Peter McCormack: Yeah, but resistance to state attack, I think most people would agree probably Bitcoin is the only one that is truly resistant to state attack, best equipped.
Ryan Selkis: The thing is, we're not going to know. We're not going to know until we actually see both, a crackdown on individual holders and mining. Because I could also argue the other direction, seeing how effective the Chinese crackdown on Bitcoin mining was. I don't think other states are as competent as the CCP, but they show that it's possible. They could basically evict hash power from their country.
Peter McCormack: That chart in your report, fucking insane!
Ryan Selkis: Wild, yeah.
Peter McCormack: Explain it, so the people listening will know.
Ryan Selkis: So basically, it's a couple of visuals from the Cambridge study. If you just look up, "Cambridge Bitcoin Mining Study", or whatever, it just came out, it comes out every few months, and they've had updates the last couple of quarters that show hashing power, again this is an approximation, because not 100% of hashing power came out of China; but basically, they rely on pool information for the source of hashing power, and China went from 60% to 0% essentially in two quarters, well one quarter after the Chinese ban.
I'm sure it's probably high single digits, low double digits, still in China, but it's just for obvious reasons not being reported. Regardless, that's a 50-point change in market share that has just been distributed mostly for the benefit of the US. The difference between the US and China is, if the federal government tried to ban Bitcoin mining, you have a real problem in Texas. Ted Cruz now wants to make this almost a pillar of his next presidential run.
Peter McCormack: Yeah, Governor Abbott as well.
Ryan Selkis: Yeah, so you already have a state like Texas, which is arguably the most likely to succeed, or to really challenge the federal government on things like this. It could have its own standing army. It has its own energy and now it's got a foothold with Bitcoin. I think it's going to be much harder to replicate that in the US, and that's just one example.
Is the EU going to be able to do that? No. There will be certain countries within the EU that say, "Fuck off. We have clean, renewable energy sources that are powering Bitcoin mining and we have no other way to use it up here, it's very cold, so we're going to basically use this money battery, because we can exploit renewable resources and make money from it, just like any other industry. So, don't tell us…" That's not going to get banned in Europe, for instance.
Peter McCormack: Well, Bitcoin's ability to help stabilise the grid, or make it more efficient and essentially -- I'm not completely on this "Bitcoin is digital energy" thing, but as a way --
Ryan Selkis: I wasn't either. So, this is what's super interesting about doing this report. Nic Carter had a great piece in CoinDesk on this, and Lyn wrote about it too. I know you're a fan of Lyn. I've kind of come full circle on that, because I think your point about Chris and Web3 being self-serving, I thought that was just total bullshit propaganda from the Bitcoin crowd of like, "No, this could actually be a good thing for energy". I'm like, "Come on, man. I know we have to say this so we don't get lit up by the folks from Greenpeace, but not really", come on, wink, wink.
If you look at the numbers though, and you look at a lot of the arguments and the trend, especially with China off the grid now, I'm a buyer.
Peter McCormack: Well, look, I buy it in the concept if you -- I think if you say Bitcoin is digital energy, you have to say all money is energy. Then, how do you get to that point? Well, outside of the government, to create the money, you usually have to exert some form of energy, whether it's yourself or a business, you have to do that, and therefore you create this financial product, the output, which you can then use to buy more stuff, which uses energy.
So, if you consider all money is energy, then I agree that Bitcoin is digital energy and it's the most efficient form of digital energy, but I think you have to say all money is energy, otherwise what happens when I sell that Bitcoin for money? That's the only way I can buy into that concept. But either way, the idea that you can, one part of the world, use excess energy and create this pristine asset that you can move to another part of the world that you can use to buy energy, to me is just an amazing thing.
But Bitcoin's ability to stabilise or make the grid more efficient feels like something that's really, only in the last 12 months, become a real major talking point, and it's actually a great talking point, and it feels like it's almost come off the back of the ESG movement?
Ryan Selkis: That's why I think even folks that are naturally inclined to support it, like me and you, and Nic and Lyn are others are in the same camp, I think our bullshit detector is already very finely tuned. So, we hear something like this, we're like, "This is very conveniently timed!" Now everybody's flipping the script, and I'd actually written about some of these operations, like Crusoe Energy and some of the operations in Texas, two years ago in my report, end-of-year report. So, we kind of knew that this was something that was happening.
I think the switch was not ESG though, I think it was China, because I don't think it mattered. All these renewable discussions and, "Actually, Bitcoin mining is not that bad", it didn't really matter, as long as 80% was being mined with coal during the dry season in Sichuan! So, it kind of fell flat, because the US and Europe just had such a small market share. I think with that change in the dynamic of Bitcoin mining, now it's actually relevant, because now you can talk about the entire market is X% renewable or X% clean.
Let's split this into a finer pie chart, so we can see how much is running with purely renewable energy, how much is basically entrapped off-grid energy sources that's otherwise going to be wasted, how much of this is recycled from flaring, so we're releasing CO2 instead of Methane. Now, all of a sudden, it's actually meaningful, and this is one of the things I've come around to, that this matters now (a) because more people are starting to use it as an attack line, but (b) it just so happens that they shut off China. So now, we actually have a credible counterargument. If China comes back online and unbans Bitcoin and then we start seeing all the coal-powered mining just come back in full force, then it's a different story.
But I don't know, I think there's something here. And the fact that you have politicians that are starting to actually talk about it, getting educated on it, it's a cross-the-chasm moment; we'll see if it actually sticks.
Peter McCormack: Well, I was going to say, the other part, which I think is a missed opportunity, Dan Morehead didn't miss it, is the fact that everyone's focused on the E, but Bitcoin is so good for S and G anyway. We've missed that opportunity to come back and say, "Well, hold on a second, let's have a net conversation about ESG". Okay, firstly we have great arguments for the E. We're not perfect, and it would be great if all Bitcoin mining was 100% renewable, but that's fine. We are stabilising the grids, we are making the grids more efficient as well, we are able to move this digital energy around the world, and we are trending towards more renewable.
But let's talk about Social and Governance, let's talk about what Bitcoin does. You didn't miss it, but did you put it in the report because you'd read the Dan Morehead piece; had you read his piece?
Ryan Selkis: I don't think so.
Peter McCormack: Oh, I shall forward it to you, it's really good.
Ryan Selkis: Great minds! No, I think that as a meme, "We're not that bad on the E, and we're really good on the S and G", I've probably heard from half a dozen folks, like Alex from the Human Rights Foundation; I feel like he's said things along those lines. There's a number of other folks. I don't recall seeing Dan's piece in particular. I probably have read it at some point, it wouldn't surprise me. So, if I plagiarise it, just do a Control F. Put it through your plagiarism machine and that can be the headline for this!
Peter McCormack: I trust you!
Ryan Selkis: "We talk about TBI's Dan Morehead plagiarism"! I actually had a disclaimer in my intro. I was like, "This 165 pages I wrote in a month I borrowed from a lot of other really smart people. So, if anything's plagiarised (a) tell me and I'll fix it, (b) go fuck yourself!"
Peter McCormack: Dude, my whole career is built off other people's smart takes and observations, so I'm with you. But yeah, I do feel like the S and G, someone really needs to go out there and really attack that publicly, especially because we have Republicans very interested in Bitcoin; but the Democrats will love the S and G side.
Ryan Selkis: I think the problem is, no one really thinks about S and G as a positive, because it's an indictment of their failed leadership.
Peter McCormack: Yeah, fair.
Ryan Selkis: So, we can't really talk about the S and G.
Peter McCormack: They would if Bitcoin was negative.
Ryan Selkis: All we can do is minimise the E damage and say, "This isn't that bad for the environment", but as soon as you start getting into social, now you're opening up a whole can of worms. And you will never be right, no fact will ever get you on the right side of the woke narrative if you're on the wrong side of it. There's no data that will get you out of trouble if you are on the wrong side of the woke agenda.
When it comes to governance, you're talking about removing the country's ability to print money at will and having a check on its ability to print at will in perpetuity, because that's what Bitcoin is and it's how it was born. So, you can't really go into DC and be, "Yeah, this is fine for E, it's good for S", for fact-based people, because we don't live in a fact-based society, "and it's good for G, because we strip people like you of this money-printing authority, and everybody would agree that's a good thing, right, Congressman?"
Peter McCormack: Yeah, fair.
Ryan Selkis: So, I think we can talk about it and we have to win this in the court of public opinion, not necessarily the actual courts, because we'll lose there.
Peter McCormack: Let's go back to flippenings, because you mentioned Bitcoin flippening gold earlier. You in your report talk about, I've got it here, "The king will stay the king, no flippenings". I got a text the other day from a very well-known crypto trader, Twitter personality, told me the Bitcoin flippening's coming, and I hadn't even looked at the market cap of Ethereum, and it depends what you consider the flippening to be, whether you view it in Bitcoin terms or dollar terms, but really I think of it as a dollar flippening, people will call it a flippening. You don't think it will happen; 20% chance, you said?
Ryan Selkis: I go back and forth.
Peter McCormack: Does it matter?
Ryan Selkis: It definitely matters for Bitcoin holders. I mean, I think it's uncharted territory. As soon as you dethrone Bitcoin, I think you lose one of its narrative elements, that it's like the bellwether for the entire asset class. And if Bitcoin is going to be sovereign-resistant, censorship-resistant money, or digital gold, I think it's important that it maintains its top spot.
One flippening that I think could happen, and it's already happened arguably, Bitcoin dominance is below 50%. It's happened multiple times in history, and we've already seen Bitcoin become a plurality.
Peter McCormack: But that's a weird figure.
Ryan Selkis: Why?
Peter McCormack: Well, because if it was just versus Ethereum, it's just a race between two. If it's versus the whole crypto market, every year a load more tokens, projects come out, that eke away that market share. So, it's a weird comparison. If the dominance was based on the top ten and those top ten never changed, then fair, let's see what's happening. But there's so much money and things going into everything else, it was always a weird number.
Ryan Selkis: Yeah, Bitcoin does not look strong right now from a trading perspective.
Peter McCormack: Which is always a good time to buy.
Ryan Selkis: I think that's my midwit answer, either my 70 IQ or midwit answer, we're not going to know. If there's a flippening, then it was a midwit answer; if Bitcoin rallies from here, then it was a good 70 IQ move. So, that 20% figure is way down, or way up rather, because if you'd asked me a year ago, I would have said, "Not a chance".
I still think that Bitcoin is bellwether and the money flows through Bitcoin first and foremost when it comes to the bigger investors. I'm not entirely convinced that's true, and I think it's been death by a thousand cuts, to a certain extent. But Ethereum has many other competitors. Bitcoin really only has Ethereum as a competitor. It has no other real monetary competitors, whereas Ethereum has 20 other Layer 1s.
Peter McCormack: I'm going to slightly disagree with you.
Ryan Selkis: All right, what's competing with Bitcoin; Doge?
Peter McCormack: No, there's use case competitors, which I agree with you on. But really, we're not always talking about use case competition right now, because we're still in the speculative phase. We could be many years in the speculative phase. It's really, your competitors are anywhere else you want to put your money. Your competitors are stocks and gold, for example.
But really, if we're talking about the crypto space, people are coming in, they can go on any exchange, they can buy Bitcoin, they can buy Ethereum, they can buy fucking Shiba Inu, they can buy Solana, they can buy anything. So, I think its competitors are, if you're a speculator, its competitors are everything else on an exchange you can buy, and I think that's where I would say it is. You understand the difference I'm pointing to?
Ryan Selkis: Yeah, I do.
Peter McCormack: And your market cap comes from the money that goes in.
Ryan Selkis: I mean, if that's your definition, then the odds are stacked even worse against Bitcoin.
Peter McCormack: That's why I think so. I mean, at least previously before, you had to buy Bitcoin to trade other shitcoins. That gave it a bit of an advantage, when a lot of the exchanges --
Ryan Selkis: Yeah, now arguably, Ether's more of a unit of account for some of the things that are happening, or Solana. Now, the reason I said -- it was kind of a two-part thing. One, we will eventually see a digital gold flippening of gold. But I think we're unlikely to see something where Ethereum flips Bitcoin. And the reason is, there's a lot of other Ethereum competitors, including the Layer 2 blockchains that are going to be processing all these transactions, that are going to absorb more of that volume going forward.
So, we already know that Ethereum, as a base layer chain, is not going to process 100% of smart contract transactions. I mean, it never was, but now we know, because even the community and even the developers are saying the way that we scale this is to have one Beacon Chain, where transactions settle and basically any high-value settlement occurs, and then you delegate to other Layer 2 chains, whether they're using zero-knowledge proofs or plasma or optimistic rollups, or they're coming from an entire different blockchain entirely, different structure.
All of that is ultimately secured at the sub-chain level and all of that is going to have its own economics, and that's what we've seen with Solana and Avalanche and Terra and Cosmos and all that this year. I think the question is -- so, I do think that you'll see that group of Layer 1s, the Ethereum and friends, will collectively overtake Bitcoin. I think that's basically a foregone conclusion at this point.
I wrote in the report, this from Arthur Hayes from BitMEX, I think he had the best framing of it which is, "Do you think that M0 or Big Tech is going to be bigger in terms of market cap?" Well, we already know that Facebook, Amazon, Microsoft, Google, Apple are already bigger than M0 themselves. So, I think that is probably the right way to think about it.
The much bigger issue for Bitcoin is, if it's not actually used, wrapped Bitcoin needs to be ubiquitous across these different chains, and it's not. That's one of the biggest issues that I think has to be solved for in the near term, or my probabilities are probably going to flip.
Peter McCormack: I'm not going to wrap any Bitcoin. Wasn't there a hack recently that involved wrapped Bitcoin?
Ryan Selkis: There's hacks with everything. It's early days. I would like to see more of those hacks, because it means that the shit's actually getting built.
Peter McCormack: I don't!
Ryan Selkis: I don't want to see more victims, but I want to see more hacks, because it means that things are actually being built and stress tested and you're fixing some of this stuff.
Peter McCormack: I think that's a good post-rationalisation for the hacks. Listen, one more thing to talk about.
Ryan Selkis: It's not!
Peter McCormack: A little bit!
Ryan Selkis: No, it's not.
Peter McCormack: Do you want to see more of your Bitcoin hacked, Jeremy, because that would make it more secure?
Ryan Selkis: He's not a risk, he's not using a bridge. The guys that are using the bridge are taking the risk, they're going to make money on whatever the protocol is, because they're getting incentivised to use it. So, they're on a risk-adjusted base, they know exactly what they're signing up for, because it's early stages. If you guys want to sit in the corner and wait for the big boys to figure everything out so that Bitcoin is actually useful --
Peter McCormack: Bitcoin's already useful, man, Bitcoin's already useful. Jeremy's not going to do it, because he's a smart guy. Okay, look, one more thing.
Ryan Selkis: I own a lot of Bitcoin, I think everybody knows that on this show.
Peter McCormack: Probably got way more than me, dude. One more thing I want to talk about though, I will recommend people go and read the report, and I will put it in the show notes. I did really enjoy the -- I only read the Bitcoin section, but I did really enjoy it, I thought it was brilliant, especially the Chinese bit. The China bit was brilliant, actually, and actually the ESG bit was really good as well. But let's talk about ETFs, because I know you care about this, I know you've been very critical of the SEC.
I don't understand how the SEC works. I'm not going to pretend I know any of this, but it feels like we are ready for an ETF. Other countries are getting ETFs, Canada has an ETF, it feels like we're ready. What is Gensler waiting for?
Ryan Selkis: He's waiting for complete control and surveillance of all of the US-based crypto exchanges.
Peter McCormack: Basically, they've got to register.
Ryan Selkis: It is hostage taking, he is a political animal, he wants control and ultimately, he wants to be able to either hang a couple of scalps, or notch a few wins, so he can burnish his resumé for Treasury Secretary. 100% politics and Elizabeth Warren, who's a very powerful Senator on the Financial Services Committee, hates crypto.
So, he's I think block step with her and currying favour and until somehow, whether it's through congressional authority or some executive order, which the details of that will be muddy and would probably get challenged, but basically until he has some time of, I think, congressional authority to oversee US-based crypto exchanges and some clarity on what constitutes a new security under the token regime, you're going to see just a bunch of stonewalling.
He could get away with allowing the futures-based products, because the CFTC regulates futures. No regulator in the US has oversight of the spot market right now, which is what he's holding out for.
Peter McCormack: So, it's probably not going to happen for quite some time then.
Ryan Selkis: No.
Peter McCormack: It's a real shame.
Ryan Selkis: I mean, like I said, it's hostage taking.
Peter McCormack: One man's career.
Ryan Selkis: To call it anything else is dishonest.
Peter McCormack: All right, fuck you, Gensler.
Ryan Selkis: Your words, not mine.
Peter McCormack: Can I get in trouble for that? I don't know. Can I get in trouble for that one?
Ryan Selkis: What?
Peter McCormack: Can I get blocked from coming in the country or chucked out for saying that?
Ryan Selkis: No, I don't think so.
Peter McCormack: All right, fuck you, Gensler!
Ryan Selkis: There you go.
Peter McCormack: I've got a feeling he has Bitcoin anyway, but come on, give us our spot ETF, come on.
Ryan Selkis: Well, here's the thing. It's one thing for them not to approve a spot ETF, well sorry, an ETF period. But the way that they went about this, so basically there are four different products you can have. You can have a foreign ETF, which we have a bunch of now; you could have a futures-based ETF, which comes with this 5% to 10% annual cost, and no institution is going to hold this, because it's a complete piece of shit. You might hold it for hedging purposes, or for short-term, very short-term swings or positions, but you're not going to hold it, because it's a guaranteed loser long term.
The third is a spot ETF; and then the fourth is this disaster that we have, basically trading OTC, which is these quasi-ETFs, like Grayscale's Trust, which came public through something called Rule 144. Essentially, it's a loophole that allows you to trade this public trust, raise money from accredited investors, and then after a 6-month or 12-month holding period, you can list them on the public markets, OTC.
We've now got a $40 billion trust in the Grayscale Trust and their Ethereum Trust and all these other ones that trade on the open market and they trade at like 15%, 20% discounts now. In a real ETF, you would be able to redeem those shares for the underlying. They're locked, and so basically, Barry Silbert is Gary Gensler's daddy. I was going to say the reciprocal of that, what Gensler is in that situation, but yeah, essentially Grayscale wins, Gensler wins because he gets to take hostages and advance his political career, and investors lose. Which is why, again, I try to pick my battles, but this guy, I just think he's a snake.
Peter McCormack: Okay, well fuck you, Gensler, then! All right, wicked. We won't give away everything, we should get people to go and read the report and read about everything else you put in there. But look, great to finally get you on. Tell them where to go and download the report. I'm going to get a load of shit, by the way, for the amount of shitcoin talk we had.
Ryan Selkis: You know what, every once in a while, people have got to open their minds, open their hearts and accept this shit.
Peter McCormack: That's a meme in itself!
Ryan Selkis: You know what, if nothing else, this can be a sign of the shitcoin top. I don't think it is, but you can go and tell your listeners, I had him on in a moment of weakness, because we thought that the flippening was here. And then you can turn around in three months and do your victory lap, "I told you it was never going to happen!"
Peter McCormack: I had you on because you are my friend and you are a bitcoiner.
Ryan Selkis: Long overdue.
Peter McCormack: Long overdue. You are a bitcoiner and I like talking about Bitcoin with you. We've just veered off into the shitcoin stuff, but whatever. Where can they get the report?
Ryan Selkis: Messari.io, it is all over the home page and I am @twobitidiot on Twitter, or @MessariCrypto on Twitter, or Messari.io for the report.
Peter McCormack: You can go straight to page 36, I think it's page 36, the Bitcoin section.
Ryan Selkis: You would know! You've clearly looked it up. There's a table of contents.
Peter McCormack: There's a table of contents, read the intro as well. Listen, go and check it out. Thanks for coming on, Ryan, finally. Take care, good luck with everything.
Ryan Selkis: It was a pleasure, thank you.
