Aaron Gray specializes in the history of technology, communication, and markets in the 20th and 21st century; his chief interest is the period surrounding the ‘long’ 1970s in the Western hemisphere, and the atomisation of society under globalization. That’s a complicated way of saying that he specializes in contemporary global trends.
As a freelance writer also, Aaron has contributed to a variety of publications, including this publication on the Future Price of Bitcoin. He received his BA from Western University, and his Master’s Degree in history from New York University. His Master’s Degree focused on viewing history through a particular methodology which concentrated on global/universal human patterns and trends.
Many of the themes that define our world today, such as deregulation, neoliberalism, and individualization, found their origins in the 1970s. The post-industrial economy, which also saw its origins in the 1970s, is an area of fascination for him, and that’s why Bitcoin is so interesting to him as we will see in this interview.
1) Hi Aeron, What are your focus areas and why?
My main focus is how Bitcoin is simultaneously a departure from, and a fundamental mechanism of modern capitalism. Sometimes, due to the profound technological innovation at the heart of Bitcoin, it is easy to lose sight of the history and context of Bitcoin, and where it rests on the broader continuum of capitalism. I like looking at Bitcoin over an extended period, and analyzing the technological and economic innovation that preceded it; Bitcoin is part of a long and ever-evolving economic system.
I’m fascinated by the fact that Bitcoin is the first significant innovation in money in the last 400 years; the possibilities and value of not only Bitcoin, but the blockchain, are absolutely dizzying. We live in an increasingly interconnected world, and Bitcoin seems to be a technological monetary innovation that represents our new reality.
2) You describe Bitcoin as a highly volatile currency, why?
Because its limited history is filled with sudden and drastic changes in value. For example, after SegWit2x, Bitcoin dropped 29% from November 9th to November 13th. Looking a little broader, Bitcoin’s incredible surge in price since June 2017 is rivaled only by “tulip mania” in 17th century Europe. I believe that Bitcoin is going to continue to be volatile until institutional money fully sinks its teeth into it.
I’m optimistic that once the CME exchange starts trading on December 11th, Bitcoin’s volatility will see a marked reduction. As I outline in the article, I think the closest comparable asset class to Bitcoin is gold.
When people (specifically Ian Bezek) write about the market value of precious metals (gold, silver) you’ll often hear repeated complaints about naked shorts on futures contracts limiting the value of the metals below their true market value. No doubt a complicated, contentious subject. To put it as succinctly as I can, we can be fairly sure that the price of precious metals would be higher if it weren’t for the involvement of hedge funds and other large institutional investors being able to short precious metals (through reputable institutions) at minimal cost (often via cash-settled exchanges.) However, while this may keep the purported value of these metals from reaching their imagined ceilings, it also acts as a safeguard against volatility. I believe that CME will be the first of many Bitcoin futures exchanges, and that the aggregate effect of futures contracts in the case of Bitcoin will be to reduce volatility.
3) Do you think Bitcoins will face a trust crisis with the latest security breaches?
Not really. Bitcoin’s price, which had climbed as high as $8,339 before the latest breach, did indeed slump by 5.4-percent after the Tether hack was disclosed and officially acknowledged. But the price rebounded quite quickly, and it’s still a bull market right now, without a doubt. There’s no sign of this slowing down, which means investor confidence wasn’t weakened much, if at all, by this hack.
In the latest security breach, it wasn’t actually Bitcoin itself that was hacked, or even a Bitcoin exchange. Tether, the 20th largest token in the world, was what suffered the hack, to the tune of approximately $31 million. Tether is pegged to fiat currencies, like Euros and USD. (The exchange purchases fiat whenever it sells one Tether coin, and one Tether is equivalent to one USD. Users are then able to use the blockchain to store or send this however they’d like; it acts as a crypto-proxy for fiat currency.)
It doesn’t even seem likely that users will abandon Tether, as it continues to be supported by major crypto exchanges and there are no other credible tokens tied to fiat as of yet. Tether is an integral part of Bitcoin’s ecosystem, as it facilitates trades against traditional fiat currencies, and conventional rules of finance have stopped numerous Bitcoin exchanges from opening bank accounts that are required to hold fiat currencies.
Given the markets continued faith in Tether and Bitcoin, and Bitcoin’s rapid rebound, I highly doubt that this latest security breach will have any significant implications for the price or trust in Bitcoin going forward. Also, the crypto community is already working together to find out who was responsible for the hack, and how to prevent any similar type of malicious attack in the future. The crypto community always has a vested interest in reaffirming confidence in digital currencies and tokens. It’s banded together to overcome significant hurdles in the past, and it will do so again here and in the future.
4) Bitcoin continues to grow in developing economies, but some countries are banning it. How do you think investors can avoid this kind of situation?
For this answer, I’m going to enlist the help of one of the most brilliant historians to ever live, Fernand Braudel.
Braudel theorized that there were three levels of time: geographical time, social time, and individual time. The first level, geographical time, is concerned with environmental change. Change in the physical environment is nearly imperceptible; it is slow and difficult to understand unless viewed through broad temporal lenses.
Social time is the long-term history of social, economic, and cultural structures, such as the social organization of groups, nations, empires, and whole civilizations. While change occurs much quicker at this level compared to geographic time, it is still slow, and patterns can extend across decades, even centuries.
The third level of time, individual time, is focused on individual actors and specific events; this was the least important to Braudel, as he characterized it as surface-level events of dubious importance and long-term implication. Braudel wrote that particular events are “surface disturbances, crests of foam that the tides of history carry on their strong backs.”
A country banning Bitcoin is tantamount to a “surface disturbance.” Investors should ignore basically ignore it. These countries will be on the wrong side of history and, ultimately, their actions will be of little importance when we revisit the history of Bitcoin. I do not believe Bitcoin is just another event, another asset within capitalism as we know it, that will merely serve to enrich the lucky few who have seen its price skyrocket. I believe that Bitcoin’s potential lies in its ability to alter social time and change many of the world’s economic and social structures as we know them.
5) In a market with hyper-inflated currency, can the highly volatile Bitcoin solve some of the third world’s financial problems?
Sort of. Despite Bitcoin’s volatility, it has proven value on many different exchanges around the world. It can be traded and certified outside the confines of national economies and central banks. Bitcoin is an internationally accepted medium of exchange; while those who hold it in the third world may occasionally see Bitcoin’s price plummet, it is still in a much more secure situation overall compared to the dire straights of central banks with tenuous stability, such as in Venezuela.
I won’t go as far as to say Bitcoin can “solve” any of the third world’s financial problems, as many of these problems are deeply rooted in social, economic, and cultural strife that transcend any quick fix. However, Bitcoin can absolutely be an aid to these long-standing third-world problems and lend an air of stability to turbulent economic environments.
6) Do you think traditional banks will adopt the concept of the blockchain?
Yes, and many already are. The potential to use the blockchain for any kind of encrypted data — from financial transactions, to escrow, to medical records – is almost limitless. The blockchain allows data to be shared between companies, people, and institutions outside of the confines of national borders, and it protects every constituent party from fraud and data manipulation. How far traditional banks will integrate the blockchain into their existing structures is an unknown, but it figures to be a significant area of growth moving forward.
7) Many people still find it hard to understand Bitcoin, yet some people are already talking about NewCoin … What is a “Newcoin”?
A “Newcoin” is usually referred to as an “Altcoin.” These are cryptocurrencies that use the algorithm and software of the blockchain to create either alternate or substitute versions of Bitcoin. Just like Bitcoin, Altcoin are a decentralized, peer-to-peer method of digital exchange; they often have modifications in specific areas of the original blockchain, such as block size in the case of Bitcoin Cash.
There are currently 1,323 Altcoins, each of different value.
8) What is the right way to approach, invest in and deal with Bitcoin?
I like the approach of digital currencies professor Andreas Antonopoulos (a man sometimes dubbed the other Bitcoin Jesus). Antonopoulos was asked what percentage of one’s wealth should be tied up in Bitcoin, to which he responded, “a percentage that is equivalent to your understanding of how the technology works and your ability to absorb the risks it entails, which for most people is a small percentage.”
Bitcoin’s price has grown leaps and bounds recently, but no one knows whether it’s going to be $10 or $100,000 in the next few months. I’d advise those interested in Bitcoin to do some research, then invest an amount that you are comfortable with, based on your understanding of the currency and your current financial position. I think, at this point, Bitcoin should be considered a speculative investment. Don’t shun Bitcoin, by any means, but think long and hard before you sink your savings into it.
9) Where do you see Bitcoin in the next five years?
Obviously, this is difficult to predict. I would guess Bitcoin’s price will be at least double what it is right now. I think progress will continue, but we are not going to see such absurd gains as we have in the last few months or even the last few years. Bitcoin has gained +2073% in less than two years; the S&P has gained +47% over the same period. Such astronomical gains are sure to slow soon.
Should Bitcoin continue to rise at the same trajectory (estimated by Seeking Alpha columnist Zoltan Ban at ten-fold/year appreciation), it stands to be worth as much $130 trillion by the end of 2020. That’s the equivalent of the current bond and stock market global cap. There is just no way this can happen; this would mean that most businesses, not to mention sovereign states, would be in default if Bitcoin was to surge this high.
The only thing that is going to kill Bitcoin’s value entirely it is when money stops getting poured into it, or if there is a global, supra-national effort to kill Bitcoin. Both of these seem unlikely.
10) What are you most excited about for Bitcoin at the moment?
I’m excited, in the short term, to see what happens in the first six weeks or so after the opening of the futures exchange on the CME. I think that this will reduce volatility and increase crypto-related products and opportunities in established finance.
Institutional capital is coming, and its effects will be significant. Most are familiar with J.P. Morgan’s Jamie Dimon lambasting Bitcoin, but recently his finance chief, Marianne Lake, adopted a guarded tone, suggesting that J.P. Morgan is “open-minded” to Bitcoin and digital currency, as a whole, as long as it is adequately regulated. J.P. Morgan, home of the most notable Bitcoin bear in the world, is currently considering giving their clients access to CME’s Bitcoin futures, through its own future’s brokerage unit. Whether this ends up happening remains to be seen; but the fact that J.P. Morgan is even entertaining the possibility is a testament to the promise, and demand, of Bitcoin.
Bitcoin will start to generate wealth for traditional finance; a rising tide eventually lifts all boats.
11) What would be your last words for our readers?
Regardless of what happens with Bitcoin’s price, whether it is a bubble or not, it’s important to remember that most bubbles, as Mike Novogratz stated, fundamentally change the way we live. Bubbles happen because the asset is poised to alter the world radically, and enthusiasm is justified. Railroads, dot-com business, and countless other examples all fit the bill. These bubbles were driven by the fact that investors saw the potential of the asset to alter the structure of how we live and organize ourselves at social and economic levels. We can see the transformative potential of Bitcoin and the blockchain right before our eyes. As William Gibson says, “the future is already here. It is just unevenly distributed.”