Where are we along the Bitcoin adoption curve?
And what did that mean for the price growth can pick when reach millions of dollars a
coin in today's dollar terms, or is this it, are we at full value already? We're here to
talk about this topic with Dan held. He is the director of growth at cracking. One of
the world's largest crypto exchanges. Dan is also the author of the weekly held report,
why they follow the blog that covers all areas of cryptocurrencies on his own podcast. Dan
has interviewed many notable figures in the cryptocurrency
space, including Michael Saylor. Dan has followed the markets for many, many years and is low
respected on social media for his commentary on cryptocurrencies. He's also worked in the
tech sector prior to working for cracking at companies like Uber. So he understands
both the tech side and the monetary side of cryptocurrencies. In part one of our conversation
with Dan, we'll be talking about market manipulation, potentials for Bitcoin, as well as potential
problems with tether. We'll see what the recent news and
in part two, we'll talk about the price adoption of Bitcoin and regulatory problems that could
potentially bring headwinds to the price.
Dan it's an honor to have you on the show
today. Welcome to Kitco. Thanks for having me. Let's talk about recent news tether, the
producer of stable coins. The executives, uh, were just recently probed by the department
of justice for bank fraud. I don't know if you've been following this case of
recently came out the story not too long ago yesterday.
And so, um, it's a fresh story.
This has have any broader implications for the crypto market what's going on?
Well, there's a few things to cover here first and foremost, I believe that the quote, um,
in the, in the re and then most new, the newest, um, concern with the department of justice,
that quote comes from someone familiar with the matter who chose to remain anonymous.
So I don't believe that that that came from the department of justice. It came from someone
that a journalist considers to be a good source, but that is a unverified, uh, sort of news
story out there. But this isn't the first new story that's come out about tether. In
fact, over the last five to six years, people have been concerned about tether
that it's not backed, that it represents an, an a, uh, inherent, you know, huge risk to
And I wrote about this in the held report where I think concerns on tether,
uh, are a bit overblown for a couple of reasons. One, yes, there have been concerns around
auditability, but they recently settled with, um, I forget the regulatory agency, but there
were those where your agency based out of New York, the recently settled in performed
quarterly audits. Now, so the bank statements are audited. So we know
exactly how much has held in reserve that would back tether. Second, there have been
10,000 that have come and gone during Bitcoin's existence. Some of those went to zero and
that did not represent a material risk to Bitcoin. So tether is one of many different
crypto assets out there. And even if it went to zero, or if it was found that tethers were
unbacked or there was some other huge glaring issue that doesn't necessarily represent
a long-term risk to Bitcoin, yes, there would be a short-term price movement, but that wouldn't
influence Bitcoin that materially over time. Um, there are tons of other rails to buy Bitcoin
with. So, you know, with some of the tether flood,
one is that is tethered backed or not.
Well now they perform quarterly audits that are
public and transparent. So we do know they are backed question. Number two is, is, uh,
the question is if tether is used to print Bitcoin or used to manipulate Bitcoin, well,
uh, the research report that kick that conversation off years ago was done by two university of
Texas professors where they concluded that correlation is causation, which violates the
core fundamental tenant of basic data science.
Um, it's a very big embarrassment for the university of Texas to have individuals publishing
information like this. It's sort of like saying umbrellas cause rain. So they performed that
did not find any causational relationship, but they said that correlation equals causation.
So they're like, oh, tethered more tethers are created as Bitcoin moves up, therefore
tethers like Bitcoin move up.
And that that's materially not true. Uh, we don't find that
to be the case. There's a couple of different, other ways to think about it. One is that
more USD or euros or, or, uh, pounds are deposited at exchanges as the price of Bitcoin goes
up too. That's not, that's not necessarily saying that it's artificially manipulated.
It just means that more people are moving money in to be able to go buy Bitcoin with
it or crypto or any other asset. And the number two, there's a cryptocurrency called USBC
USBC is their stable coin. It created by a company called circle. Where's all the
concern about USBC being printed and that manipulating the price of Bitcoin. Of course,
you don't see any of the tether, uh, although the concern trolls on the tether side highlight
any of those metrics, because if you daddy would be the exact same metric, it shows as
the price of Bitcoin goes up, more USBC is being created.
So there's a lot of ways to
pull apart this argument that tether represents a, this ex you know, this huge material risk
to the system that it, it, it manipulates the price of Bitcoin Bitcoin's price is being
discovered across dozens of venues across the world, using a wide variety of different
types of assets, whether that'd be USB-C USD, euros, Yens pounds, et cetera,
Fundamentally are stable coins prone to being manipulated as you speak or pro to being used
for manipulation. That's a great question. I think the real,
or what will you, what we should be concerned about is that tether USBC, these type of cryptocurrencies,
these stable coins, these aren't necessarily decentralized at all. They're completely centralized.
So what happens is a dollar goes into a bank account. And then on the other side of that
on a blockchain, there's this there's this certificate or representation of that dollar
being deposited. And so that's why it's called a stable coin as there's a backing of a dollar
And that big account that represents this digital version on this blockchain well,
blockchains and Bitcoin in particular are, were built to be decentralized, which means
that no, there's no central point of control. So what you're doing is you're bringing this
asset that is completely controlled because USBC USBC, those can be censored. Those can
be blocked, and those can be reversed. These are not like traditional cryptocurrencies
that are irreversible and are not sensible. So with that, I think that's a bigger risk
to this of, um, if the, uh, I think that's a bigger risk
to the crypto ecosystem. If these coins are someday and, you know, there are, there are
examples of where tether and circle have sensory transactions based on local regulators. So
if there are defy platforms that use USB-C or USB-C as USD T, or USB-C as collateral,
that could have a circumstance where if that collateral is frozen or reversed, that could
unwind in a very bad way in the defy ecosystem. So I think in the defy
ecosystem, stable coins represent a very inherent problem with the collateral in the space,
because the collateral is centralized and not a native token like Bitcoin or Ethereum.
So let's talk about manipulation. Now, let's
go back to Bitcoin. And particularly you've written about Bitcoin manipulation on the
held report, and I'd like to touch on this. So, uh, what do you mean first and foremost,
when you, when you talk about Bitcoin manipulation, because anybody who understands fundamentally
where even just on a base layer of proof of work would, would, would argue that it's very
difficult to manipulate something like Bitcoin. So I'm curious in the traditional financial
sense, at least. So I'm curious as to know what you mean by that. Yeah. The Bitcoin
Protocol is very prone to, um, you know, it is the, the Bitcoin protocol inherently. It
was made to be decentralized and very, um, resistant to any sort of centralized attack
or manipulation. So the protocol itself is extremely stable. I mean, the Bitcoin protocol
can survive like a new surviving nuclear warfare. The Bitcoin protocol can survive. Part of
the internet going down, Bitcoin protocol is intensely.
It was built to be intensely
resilient. Now the price of Bitcoin can fluctuate because the price is being discovered across
multiple exchanges and it's an open market. And so a lot of people, especially when Bitcoin
goes up tremendously in value or drops significantly equate that to being manipulated. They go,
oh, wow, there's no way an asset moves like this. Unless there are big mysterious players
choosing that with the well, Bitcoin has no inherent price stabilization mechanism because
it's not centrally controlled. There is no one party that controls the supply
to reduce the supply or increase the supply to stabilize the price. So that's why we see
such a wild fluctuation. A lot of people scream, oh, Bitcoin's price is manipulated. There
must be big forces at play to move it up or down. So this concern has always existed in
Bitcoin, especially due to that price volatility. And I wrote this to represent kind of a more
macro thinking around what is price manipulation.
Whenever you buy a stock, you as a, an individual
trader let's, let's say for $5,000, you move the price.
Every single market participant moves the price. And so I argued, you know, if we look
in here, if we look deeply at what the word manipulation means, or if we look at, you
know, defining manipulation is actually much more difficult than we thought, um, market
participants buy and sell different assets and move the price. Was that intentional to
move the price or not? Did they have a malicious intent? W we'll never know that, and there's
tons of market participants all across the world doing this for every single asset, gold
stocks, bonds, Bitcoin, it's all the same thing in terms
of trading. There's a buyer and a seller, and they all come together and have different,
very different levels of, of intent and different levels of how much they want to buy or sell.
And then all of these prices. So the price of Bitcoin is tied together to the price of
light coin and Ethereum and gold and, and all of these interplay upon each other to
where some people want the simple narrative of like, oh, the price went up today, due
to these whales are due to market manipulation.
But in reality, it's
this super complex nuanced conversation of everyone moves. The price was that intentional.
And there are so many different waves in the ocean that came together to define what the
price is today. It's nearly impossible to say, oh, one actor could push it this way
or one way. So it was a more meta take on the idea of thinking
through prices and manipulation and evil versus good actors in the system.
Okay. So let's comment on market manipulation. I think in my, in my opinion, the, uh, the,
the main two factors that determine whether or not NASA could be easily manipulated by
market mover movers, um, so to speak are liquidity. And what percentage of the asset is owned
by a minority of stakeholders? Can you comment on both of these factors for Bitcoin?
Sure. So Bitcoin is more liquid than apple and apple is one of the most highly traded
stocks in the U S or I mean in the world, right? So the quiddity is a function of, I
would say like three different things, one market capitalization to volume.
So the number
of buyer, the number of, of, uh, the, the value of the assets exchange that day, and
then, and that's what the apple reference comes into play is like total, uh, volumes,
or how many shares traded hands, or how many Bitcoin traded hands in one day, and then
depths of the order books at depth as the order
book demonstrates how much slippage would occur if an order was placed in either direction.
So a sell order by order.
And when we look at Bitcoin, Bitcoin has become more and more
liquid and more and more, uh, you know, having deep institutional level liquidity over time
as the market participants have become more and more. So this represents a lesser as Bitcoin
becomes a larger, it becomes harder to push the price around if you had IL and Tet. So
that answers the first part of the question. Second
part, um, uh, actually, can you refresh my memory on the second part?
The percentage of, yeah. The percentage of, uh, coins owned by whales or a minority of
stake holders. Yeah. So the distribution of Bitcoin as a
kind of a constant question, um, a lot of people do a bad analysis if that's where they
look at on chain balances and they go, oh, well, the Gini coefficient of Bitcoin is correspondent
corresponding to these different addresses that I see, and they hold certain amounts
of Bitcoin. Well, one of those addresses can represent 50 million customers like Binance
or, or millions of customers like cracking, right? So it's really hard to parse through
the on chain data and go, oh, this is the distribution of Bitcoin.
certainly based on Bitcoin's initial distribution, some earlier members have a nice chunk of
them. For example, like Satoshi might have close to a million Bitcoin. Um, these, I don't
think are too as big of a concern because over time we've seen most of those early coins,
you know, either have, have moved by now very rarely move or they've Mo more than likely
have been lost. So that early distribution of those, like a large percentage of the coins,
most of those coins have either been lost and, or already moved around or
spent. So the worry that there might be a giant chunk of these coins unlocked from that
early era where someone finds this wallet with 200,000 Bitcoin and decides to go sell
it. I think we've already seen a lot of that already occur. Bitcoin has been traded for
10 years, and most people don't have the fortitude to hold onto something worth that much money
for that long without wanting to sell part of it.
What happens when all 21 million Bitcoins are mined, then what happens to the liquidity
profile then? Yeah.
Great question. So Bitcoin has an issuance
schedule that started since day one and will continue until the year 2140 approximately.
And so Bitcoins are produced along the supply curve. And at one point in 2140, the number
of new Bitcoins will, will the newly created Bitcoins will century go to zero. And that
means that 21 uproar very close to 21 million will be produced. Um, you know, from a liquidity
perspective, there's a really interesting dynamic between Bitcoin supply curve. So the
issuance of new coins and these moments called havings, so halvings occur
every four years.
And what that does is that that is the decreasing or the decay rate of
the issuance schedule until it reaches zero and Bitcoin's price cycles are somewhat intertwined
with this, as these things occur, which reduces the number of newly-minted Bitcoin being created.
So that reduces selling pressure. Then if demand stays the same or goes up, the price
starts to creep up. More people become aware of Bitcoin. As people become more aware of
Bitcoin, they buy in an expectation that it might go higher after they do that. They start
to learn more about it, and they become increasingly a part or involved in the community and become
a Bitcoin or someone who really likes Bitcoin and believes in Bitcoin and wants to store
more and more of their wealth in Bitcoin.
And these are the speculative cycles that
have increased Bitcoin's adoption have increased the usage of Bitcoin and or why we're talking
about it today. It's been going headstand at $1. We
wouldn't be talking about it. Um, Bitcoin's volatility is its calling card, and it taps
into innate human nature of, uh, speculative speculative nature that we have the, the,
um, the wants to pursue something with a return. The, the, um, it's a, this really beautifully
simple solution for the bootstrapping problem. And Satoshi actually hypothesized that this
might work back before Bitcoin was even worth a penny Satoshi, basically hypothesize that
FOMO due to the extreme scarcity of Bitcoin, because Bitcoin no more than 21 million can
never repeat, ever be produced.
So during these speculative cycles, the price goes up,
but no more Bitcoin are produced. So 20, you know, the price goes up and if demand keeps
going up that causes these really intense, volatile time period, they've all volatile
price periods. And those are the periods in which Bitcoin grows
and adoption volume, liquidity and companies, building products and services for Bitcoin.
Okay, well, let's hope our society lasts long enough till 2040 to see the day that all Bitcoins
are mined and that's a different topic for a different time…