Bitcoin Focus: Caitlin Long 2018- Financialization, institutional investment, banks, privacy, more!


Hello everyone this is adam meister the
bitcoinmeister the disrupt meister welcome to the bitcoin focused show
strong man all right we’ve got Caitlyn long for you today when she was first on
then this week in Bitcoin show a year ago this is just a focus on everything
she said for all you people with short attention spans it’s only 25 minutes it
cuts out all the fluff is just pure knowledge from Caitlyn long check it out
pound that like button see yeah sure thank you it’s great to be on your show
financialization is a word that to me brings negative connotations I realize
that’s traces 6 Network effect and he and I were talking about that before the
backed announcement came out which is the first real move to using physical
bitcoins again I know physical kind of you’ve got to put in quotation marks
that’s the financial market term to distinguish between synthetic which is
all cash base and physical which is actually settling in the underlying but
but financialization a lot of financialization is bad so you really do
have to be very careful to distinguish between the good and the bad type
financialization is basically what Wall Street does for a living and and Wall
Street creates regularly creates as standard operating procedure more claims
to an asset than there are real assets that’s that’s financialization and of
course the Austrian school economics folks among us would recognize that as
what Mises would have called circulation credit and I need to distinguish here
good financialization includes the regular one for one backed debt there is
absolutely nothing wrong with debt there’s absolutely nothing wrong with
wrong with coin lending as long as it’s 100% backed by the real on chain coins
when you start to actually have off chain claims to Bitcoin that are sold as
if they’re Bitcoin and they’re no longer linked to the to the actual blockchain
itself that’s when you start to get that circulation credit creepy
and that’s the bad type of financialization I called it leverage
based financialization another way to call it as uncovered claims to Bitcoin
that are not 100% backed by real Bitcoin there are lots of ways that Wall Street
does this it’s very insidious and because of the way the accounting works
auditors don’t even catch this either it’s something that builds slowly over
time and unfortunately I think it’s probably coming to Bitcoin all right now
that’s just stairs everyone right there that last line unfortunately it’s coming
to Bitcoin yeah but how about it you can keep track of it on the blockchain you
can require these companies get out a public address you’re saying they’re
gonna be able to get away with this somehow nobody’s doing that right look
at the products that are already out there involving physical Bitcoin look at
gbtc look at ledger X are they disclosing public keys nobody’s doing
that I think that Nick Bhatia wrote a median post and I get my hat’s hats off
to him saying if we really want to do this right and you are gonna be
commingling Bitcoin in what’s called an omnibus account instead of holding it
for individual customers on Wall Street you really need to be disclosing those
public keys and and I’ve been saying that to the regulators to use the
blockchain to your advantage you can track this stuff and verify that there
are no shenanigans happening behind the scenes because GAAP accounting is not
going to pick this up which means the auditors are not going to pick it up
either all right now okay so bad financialization it’s coming but let’s
good financialization is also coming yeah okay sure it’s already here it’s
already hit so this is we got a look at both sides now again we people are gonna
say all of it wasn’t meant for the bank’s Bitcoin wasn’t meant for the
bank’s we can’t stop it it’s a done deal they are coming they’re not the Messiah
they’re not the devil either because in the end of the day if there is a big
custodial hack one day if there is this bad financialization I think people will
demand that you know the pub keys are revealed are given out you know
right right I mean from what you’ve seen here I mean you’re involved on a lot of
levels on Wall Street here do people even understand uh what a public key and
what a private key is are they or are they just getting into this for greed
well the people on Wall Street are well and then regular users to its if there’s
a lot of there’s a big learning curve here there’s just a bad look I think the
early adopters of Bitcoin clearly understand what the difference between a
public key and private key is hats off to Andres Antonopoulos and others who
have been saying until they’re blue in the face you don’t own your Bitcoin if
you don’t control your private keys but Wall Street isn’t built for that Wall
Street is not built to handle bearer instruments they haven’t handled bearer
instruments since you know stock certificates went immobilized and D
materialized those are the words that the lawyers would have used in 1970s
right so now you’ve got not just fairer instruments but digital bearer
instruments The Wall Street’s gonna have to start managing when it’s stealing
with physical bitcoins big distinction by the way the cash-settled contrast I
don’t care about those because the Fed can always bail out an institution if it
gets in trouble with cash-settled futures contracts and the like but the
physical settled Bitcoin futures that’s different because Wall Street has to
touch these physical bitcoins and we all know what’s happened how many hacks
there have been in the custodial exchanges there are there is not 100%
security in those custodial exchanges for the most part even even when there
was a big run on coinbase a couple summers ago everybody survived it right
and that tells you they’re not really playing three-card Monte behind the
scenes we hope but we have no way even with those custodial exchanges to know
whether they’re playing three-card Monte they don’t tell us what what their
public key addresses are all right these are we’re talking about billion dollar
tremendous companies that are gonna end up with these custodial accounts because
everyone is so many people out there only are gonna feel comfortable
to own Bitcoin through these traditional financial mechanisms which is again you
just said andreas gets blue in the face screaming you know control your
private key right that’s only what you own it is vital people don’t get that
does they’re not they don’t get it and that was so anyway they these big
corporations are gonna become Bitcoin banks okay yeah and these cuz what even
though they are the richest corporations on the planet are they going to be able
to have an unhackable account unhackable custodial organization or is one of them
eventually gonna get it’s it’s a honeypot I know you can tell where I’m
going with this I think worse I think one day if there’s
good one thing bitcoins gonna be worth $80,000 and one of these things is gonna
get hacked and it’s quarters it’s gonna be something like we never seen ugly
absolutely and and the size are just just having this conversation yesterday
with some important people in the industry the size of the Wall Street
firms compared to the size of the crypto exchanges we’re talking about very
different zip codes here because Wall Street is mass market and you know the
crypto exchanges it’s the early adopters maybe some of the early majority that
are you know that have been involved I think in the you know in the in the big
bubble that happened at the end of last year you know coinbase was opening
something like a million new accounts a day right a lot of those folks probably
don’t understand they don’t really own Bitcoin they own an IOU from coinbase
right but but the magnitude of the Wall Street money that’s going to be coming
in here is a different zip code because it’s institutional money and that’s
that’s why this is it’s so important to get this right and to your point I am
reasonably certain that one of these guys is gonna get hacked
virtually every custodial exchange has already been hacked and I will also say
the engineers who are in charge of those custodial exchanges
they’ve been tried by fire the engineers of the big Wall Street firms I worked
there for 22 years very familiar with how they work and how their how their
tech platforms work they have not been tried by fire and that this is not a
skill set that Wall Street technology platforms have which is managing digital
bearer instruments so IIF I were forced to keep my bitcoins at a Wall Street
firm versus a custodial exchange like and I are Crafton or bit trucks I’d
rather choose one of the latter because they’ve been tried by fire for four
years and the Wall Street firms have not and they’re going to be doing this in
very large size and the thing that really bugs me I’ll be very very clear
about this taxpayer-backed Wall Street firms should not be
leveraging Bitcoin and it’s gonna happen and that’s what and it’s gonna burn them
Wow pound that like button everyone we’re
getting some real honest talk here and again I I want to I want to point out
she you made a very interesting point there you’re comparing two different
types of custodial accounts the ones that have been tried by fire the coin
basis of the world and then the future ones that are gonna be controlled by
these tremendous organizations and it all sounds scary but remember people you
can avoid all that simply by getting your treasure or your ledger nano and
controlling your own private key I mean it is it you this all sounds scary what
she’s saying but the simple answer is control your private key and then you
don’t have to worry about these shenanigans sure there’s gonna be a huge
hack one day there’s going to have hurt the Fiat price of Bitcoin you all have
to be comfortable with that fact that one day there is going to be a
tremendous hack like you’ve never seen before that’s gonna freak out the
mainstream world but you still have that you will still have the same amount of
Bitcoin all right well they’re never gonna be 100% comfortable with it I
don’t think anybody who uses it is 100% comfortable with it right it’s to be
honest because it is scary it’s a digital bearer instrument and you’re
always worried that something’s gonna go wrong or that you’re gonna get hacked or
you know kidnapped or something right that’s digital bearer instrument
inherently have higher risks that you have to take responsibility for but but
but yeah Wall Street is going to react Papa Cato the perfect example of this is
Citigroup announced this week that it’s going to be creating depository receipts
for Bitcoin ok depository receipt is just a it’s just basically like a little
trust account that’s gonna hold Bitcoin and it’s going to clear and settle
through the Depository Trust Company we haven’t mentioned them yet but basically
that’s where a lot of the sloppy accounting takes place in Wall Street
that allows a lot of the counting systems to get out of sync with
one another and the big example of that is the old food case right right where
one-third more shares were created in Wall Street’s accounting system these
were valid legal claims to dole food shares that didn’t exist and that
happens through the DTC and so when I saw that Citigroup is doing this
depository receipt with the DTC I just left because we’re trying to fit the
square peg into the round hole and there are going to be accidents here
the DTC is not set up to handle clearing and settlement for a digital bearer
instrument and you know if anybody wants to set up one for one non non leveraged
back non leveraged based financialization bitcoin godspeed right
that’s what all the cryptocurrency exchanges have done and you know it does
appear that they’ve survived the run on the bank the big exception of course to
date of wealth couple of amount GOx of course but okay Y X most recently did a
bail in that you know that if you’re playing around with leverage with with
cryptocurrencies there is no lender of last resort and so you really do need to
be careful who you’re doing business with because there isn’t anybody to bail
out those those crypto entities what’s different about Wall Street firms is
that the clearing and settlement infrastructure is fundamentally designed
to lose track of who really owns what and that there’s fault-tolerance Patrick
Byrne refers to at John Kenneth Galbraith phrased the bezel in Wall
Street and it’s there and and it’s not it’s not necessarily purposeful it’s not
necessarily nefarious it’s just inherent in the clearing and settlement
infrastructure so now Wall Street’s coming and saying well we want to put
Bitcoin into our clearing and settlement infrastructure to use Jameson laughs
phrase Wall Street needs Bitcoin more than Bitcoin needs Wall Street I’m not
sure I agree with that because one of the one of the big Wall Street folks
with for whom I have tremendous respect put it this way that Wall Street needs
to solve bitcoins scarcity problem they look at that 20 million 21 million cap
and say that’s a problem we look at that and say that’s
future that’s a feature not a bug they look at it as a bug right and so by
creating these unpacked claims that people think are real bitcoins and
passing them off as if they are they are going to bring more supply that is why
the price of Bitcoin dropped on the backk announcement I believe there
wasn’t a lot of other news in those first couple of trading days and the
price went down 20% on the backed news because markets this is the wisdom of
crowds markets discount future activities when they’re announced into
the price of anything on that day and what this is is a license from Wall
Street to start creating unpacked claims to Bitcoin and in their words solve
bitcoins scarcity problem I don’t think it’s a problem but they do that that
they are going to be creating they are going to be artificially increasing the
supply that is their business model they are going to be creating unpacked claims
to Bitcoin through all these various insidious mechanisms like
rehypothecation like margin loans at less than a hundred percent like
collateral substitution rights in clearing houses where you can’t you
don’t have to post actual Bitcoin you can post Treasuries of cash on your
exposures there are ways lots of different ways that that that unpacked
claims the Bitcoin are going to start leaking into the system and their
inherent in the clearing and settlement infrastructure of Wall Street this quick
addition one of the things that would keep Wall Street honest that would make
me say yes you’re doing this right is if they actually offered clients as you as
she said a right to settle in physical you talked about it we could just
withdraw our bitcoins the problem is with the ETFs and with the futures
contracts there is no right to settle in physical what they when you sell they’re
gonna pay you cash so if they actually did give you the right to settle in
physical which I completely agree they should and would be easy to do then it
would keep them honest and I’d be a lot more comfortable I would agree that the
challenge though of course is that the institutions like pension funds and
mutual funds will naturally want to buy a Wall Street version of Bitcoin because
it’s because they want to fit it into their clearing and settlement
infrastructure right they don’t want to have to deal with holding their private
keys the huge pension
it’s like the CalPERS of the world absolutely could they have a capability
to do it the big hedge funds are doing exactly that but most institutional
money is going to buy the Wall Street version of the product and to quote Jim
Jim grant from his wonderful essay that was printed on the 10th anniversary of
the financial crisis talking about ETFs being the tail that wags the dog
proverbially he said look no one knows what’s going to happen when there’s a
rush for the door in an ETF and if indeed we have these unpacked claims
that I strongly suspect are have crept into ETF all over the place just because
I know how Wall Street’s accounting system works and you don’t know this
until you have a reckoning event you couldn’t have told how big that bezzle
was in the dole food situation until there was a merger I experienced it in
my pension business at Morgan Stanley until we actually tried to transfer all
of the bond portfolio from the pension fund over to the insurance company that
was providing annuities to the pensioners and we were freezing things
in place so the musical chairs stopped we did not know that there was
unauthorized securities lending happening in that account that it was
not discoverable until you have that reckoning event and what Jim grant is
talking about is these reckoning events are going to be ugly and and you’re
gonna see a big collapse in the price and the tracking errors on those ETFs is
going to be massive I think he’s right but I but none of us can prove it
because with only a few limited exceptions
we really haven’t tested the ETF market yet yeah I looked at the Vanek solid ex
filing with the SEC for the ETF and you’ll be interested to know I have two
beeps with it the big ones are that the that they say nothing about custody
there’s literally one sentence in there that says the trust has warning
exactly and they say nothing about whether they’re going to be lending it
out there’s just nothing disclosed about custody and the other beef I have with
all of these wall street products is they’re not making any commitments on
Forks or airdrops yep so you know what are you really
buying I I was joking with a regulator or speaking with recently that I’m an
attorney but I but I’m non-practicing I might reactivate my bar membership and
start suing fiduciaries for buying some of this stuff because there’s no promise
in that it’s being made to the investors where is the investor protection in this
stuff when there’s no compromise okay then question for you though so
what type of commitment would you expect so you know I think that’s a very
difficult thing to to expect from an institution regarding the fork so what
would you well it is interesting I would most like gbtc is the best one of the
ones I looked at including the the synthetic ones the CBOE and CMI futures
which are cash settle I was merged in the physical settles because they have
to actually deal with it as opposed to just try to track it synthetically but
but gbtc is the best one it actually is the most specific I think they if I
recall right they actually are doing they said something about whatever it’s
the longest chain within 48 hours but but one of the big but not all the other
ones including panic essentially just says the Vanek solid x application says
that our risk and management committee will consider the appropriate course of
action so basically there’s not you have no enforceable legally enforceable
promise you point out exactly the same thing is
true in these other ETFs for other scarce assets like gold and silver is
EC’s job is investor protection and the you know sun sunlight is is the is the
best cleanser and they don’t require disclosures on on some of these things
and and again the thing that’s so amazing about blockchain is we’ve got
the actual public chain why not use that technology in forcing disclosures of
public keys so you have a verifiable net asset value or you can verify that this
you know your your your financial institution is
indeed not playing three-card Monte with your own coins behind that behind the
scenes and again I want to underscore I’m not against banks I’m not against
and I completely agree with your statement earlier that this they are
always going to exist it’s the planning of the three-card Monte with the client
assets that’s the long term can they manipulate the price no long term nobody
communicated Bitcoin they definitely can short term I think they already have but
but no bitcoins gonna win it’s too decentralized they can’t control it they
and anybody who really tries to play three-card Monte to trace this point the
community will just fork them and and and reveal the magnitude of the
insolvency of the financial institution this gets back to my earlier very strong
statement any taxpayer backed a Federal Reserve back financial institutions
should not be leveraging cryptocurrencies well yeah they’re
definitely interested in etherium so that’s coming too right behind Bitcoin
maybe I don’t know six months behind Bitcoin in terms of Wall Street creating
you know if they’re in based packages and I think over time their goal is to
trade anything that’s liquid and do what they do anything that’s liquid so they
they’re you know they’re they’re not going to get involved in all these
fights between the the tribes if you will but in in this in this industry
because they just want to do what they do they’re they’re all about capturing
bid-offer spread and and inflating the supply of assets so that they can trade
even more and capture more big op bid-offer spread their you know and then
they take their money and run this is not they’re not gonna get tribal about
this whatever’s liquid is what it is whatever they’re gonna want to trade
yeah but I might a Bitcoin maximalist yes I am I think it’s gonna take 20
years for that to play out and I do think that there is real room for other
blockchains I think aetherium has amazing
applications for tokenizing things will they coin be the better use for that
over time maybe but right now if there is gonna lead in in tokenizing assets
and and and there is real value to that about because I do believe that the
cruft happens on Wall Street can be fixed by
blockchain and at this point it’s wide open in terms of fixing the
cruft on Wall Street with blockchain clearly Bitcoin has a big lead on money
itself and and really aetherium is not really going after Bitcoin in terms of
monetary yes yeah so what are your thoughts on that it’s crazy it’s a great
question I thought where they were going was a point that Andres made earlier
which is that the problem with Wall Street is because of the Bank Secrecy
Act that Wall Street whales are going to be influencing the technology upgrades
and specifically privacy upgrades and he was making a point that the Wall Street
where whales would try to block privacy upgrades to the Bitcoin core software
and because their compliance departments won’t let them trade in any of the
privacy coins how would I be able to do how would they be able they can’t in
other words if the community Forks your upgrades upgrades Bitcoin core to
include privacy all of the in all of its versions and Wall Street can’t follow
that because they can’t comply with the Bank Secrecy Act his point is Wall
Street’s gonna fork into what he calls corpo coin and that may very well be
what happens if if a privacy upgrade takes place and Wall Street can’t follow
it for compliance reasons but that your question or asked a slightly different
question which which is wouldn’t Wall Street want to benefit from that because
they could play even more games if they do and the answer is yes but I think the
bigger obstacle is Wall Street it’s not going to be able to because of the Bank
Secrecy Act they have to know their customers that have to comply with anti
money laundering laws and they also now have to own the bet know who the
beneficial owner of the assets is Trump has gone you know in the very wrong
direction on financial regulation he’s making it worse not better
all the deregulation talk he’s had in other industries it’s been there he’s
done some good things but in finance he’s gone backwards we’re getting is
getting worse and in the Bank Secrecy compliant Bank
Secrecy Act compliance in financial services so Wall Street can’t deal in
privacy coins I just I just fascinated by the fact that the privacy Edition is
gonna force them into a corner possibly yes this will it will because they
cannot adopt a private cryptocurrency they can’t they couldn’t be doing this
with Manero for example or Z cash yeah and we the funny there we can see the
beginnings of that that truth that basic truth because coin base which is not a
big financial organization they won’t list Manero know that was exactly under
aces point like you know the coin basis of the world actually had a big impact
on the debate last August they didn’t influence it and again back to my
earlier point I wanna clarify I don’t think Wall Street’s ever gonna be able
to control the debate but are they gonna have a big influence because they’re
Wales and again we think coin base is a whale wait till you see core Wall Street
market infrastructure coming in those the coin base is not going to be a whale
compared to that you know what Wall Street just by coinbase for pennies on
the dollar will be like them buying Polonia X to laugh at it yeah it’s me
what we’ve seen so far in the crypto space is really small compared to what’s
gonna be happening now that core Wall Street infrastructure is coming into
this space it’s gonna it’s gonna have a big impact but will it control no but
will it have an influence just like coinbase did relatively last
year of course it because these are gonna be big whales found that like
button everyone this show has been freaking on fire conclusionary thoughts
hey I would just add traces point which is if lost rates gonna come in and
suppress the price with all these these games of fixing the supply problem
quote-unquote that just means that it’s cheaper for the rest of us to buy it and
and what I mean by it I mean buy it and keep your private keys because I
completely agree with everything long-term this is gonna be you know Wall
Street can’t really mess with this this is what the bitcoins gonna win but that
doesn’t mean in the short term that they can’t create buying opportunities for
those of us who are not afraid to take our own personal responsibility for our
own wealth excellent purse but I love it personal responsibility is
the new counterculture

11 thoughts on “Bitcoin Focus: Caitlin Long 2018- Financialization, institutional investment, banks, privacy, more!”

  1. ASK WHEN ARE THE INSTITUTIONAL PLAYERS COMMING IN. WOULD'NT THE PRICE ROCKET IF THIS WERE TRUE. EVEN CATLIN SAYING WHEN THE INSTITUTIONAL MONEY. THE BIG WORD IN THAT IS WHEN

  2. Cash settled btc is a danger⚠️ Thats how the USA CME/Cboe pop the bubble by making away to short bitcoin! You guys need to pump this show the public addresses! YOU got the people in the space! Usa is the problem 23T in debt pumping out 100b aday and being the fait world reserve currency⚠️🚫⛔ #bitcoin 21m s.o.v

  3. Wonder why MISS Long is trying so hard to make sure no one takes your Bitcoin through the Wyoming crypto laws when they are just going to dilute and financialize them anyway. Sorry Adam, Long and Mayer are playing all of you.

  4. I keep seeing bitcoin being advertised at premier league football matches could you tell me who is paying for that advertisement please?

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