[AUDIENCE] Fiat currencies have interest rate
markets which reflect the time value of money. What about bitcoin and other cryptocurrencies?
Are you aware of interest rate markets for bitcoin? [ANDREAS] Yes, there are interest rate
markets for bitcoin. You won’t see them… that often, simply because a lot of them are
over-the-counter. But if you are in the mining industry, and will have a steady stream of bitcoin, and you
don’t know what its value will be [in the future], you may want to have various futures contracts
to protect yourself against volatility [in the price]. Out of these futures contracts, various
forms of interest payments emerge. [AUDIENCE] That would be a market in reference
to another currency. I mean within Bitcoin itself. [ANDREAS] There are some investment funds
that invest bitcoin into companies directly. Presumably, that generates returns in bitcoin.
These investment vehicles pay some rate of return. Therefore, those represent interest rates,
The future value of money doesn’t change… if you change the currency.
It still exists as an economic concept. We don’t yet have the mechanism to carefully
and quickly discover the correct market price… for the future value of money in this economy yet,
but you will see that mature [over time]. If you remember, in the beginning, we didn’t have a
market mechanism to discover what the price was. “How much do you want for two pizzas?”
“I don’t know, ten thousand bitcoins each?” “Sure.” That was [a purchase made on May 22nd] 2010, I think. [AUDIENCE] Thank you very much. I was
wondering if you have done any work… Due to the rapid growth of cryptocurrencies, with a total
market capitalisation of $150 billion, give or take, When will we have a cross-over in the capitalisation
of the [traditional] monetary system? There is no way… to stop the monetary system from wanting to come in. We are at the point where institutional
[investors] can’t help themselves. We haven’t done the cross-over math, but have you
considered that or done any equations around it? [ANDREAS] That is not really my area of focus.
I am not a financial adviser. I am interested in… the historical, political, and philosophical
implications of this technology. I know [the cross-over] is coming, for sure.
Digital currencies is the future we will live in. If you build an open system that offers
an unbiased, neutral medium-of-exchange… on a level playing field where people can enter it,
the closed system of control will lose every time. Financially, it is unviable [in the long term].
It will not have the flexibility or liquidity. It will lose; it is just a matter of time.
I don’t think we have seen anything yet. Right now, this is not even a trickle [of money].
This industry, this economy, this system, is… a trifling curiosity compared to $114 trillion global GDP,
or the flows of international money through SWIFT, or the foreign exchange markets. It is a drop in the ocean, one little trickle [right now].
But it is a trickle from a dam, with a lot of pressure… built up behind it. One trickle becomes ten, which become a thousand,
and eventually the dam will be washed away. We will see very interesting
times over the next ten years. “Gold bugs complain that the futures markets
are used to manipulate the price of gold.” “Is there a risk of price manipulation in bitcoin
with futures markets, particularly naked shorting?” I don’t know. I am not a trader and don’t usually have
strong opinions about trading or investments. One of the concerns that you point out in you question
is naked shorting, which is where you sell short… or take a contrarian position to an increasing market,
saying, “This asset should go down in price.” You offer to sell the asset at a specific future date,
but you don’t actually have [enough] of the asset to sell. This means that, when the date arrives and you don’t
have the asset, you will need to buy it on the market… and then sell it to the person who holds
the opposite end of the futures contract. The problem is, if the price increases dramatically,
the risk you take with naked shorting is unlimited. Quite honestly, I think the parties who are the most
capable of shorting in a futures market are miners. They would do it in order to hedge the risk of a price
downturn and protect their ability to have cash flow, to pay for the electricity they are consuming. They are not shorting naked.
They own the underlying assets. If I have one hundred bitcoin, and I make
a short contract on the price for ten bitcoin, but then the price goes up, I will potentially need to sell
those bitcoin at a much lower price than I would like. However, the value of the remaining ninety bitcoin just
went up in price, so the loss isn’t bad. My risk is limited. I actually have that bitcoin, so that is
more of an opportunity cost than loss. There is a great deal of risk in a market which
is only $160 billion [in market capitalisation], with not as much liquidity
trading [as traditional markets]. [To be in] a naked shorting position where your risk
is enormous [and] the price could balloon suddenly, [which would force you] to try to buy
back that security to cover your short, you might find that you can’t buy it [anymore]. The price [could] keep going up and
your risk grows bigger and bigger. It depends on how the futures market works.
You are probably referring to the upcoming launch… of the Chicago Mercantile Exchange futures [exchange
for bitcoin], which is a cash-settled market. In that case, you don’t need to own or sell the
underlying [asset] in order to take a position. Instead, you will need to pay the cash value
in dollars to the Chicago Mercantile Exchange (CME). They won’t even [allow] you to take a position [on
the exchange] that you can’t capitalize adequately. In order to be a member, you will need to have
collateral and a capital account with the CME. They won’t let you take a position
that is larger than the collateral you have. Yes, there is a possibility that futures markets
could be used to manipulate the price of bitcoin, I do expect to see more opportunities for investors
to short bitcoin, put downward pressure on the price. This means the bubbles [will be] less bubbly.
By increasing liquidity, the drops are less sudden too. Overall, I think cash-settled futures markets where
an exchange [requires] collateral from its members… is not as easy to manipulate. There are [bigger] risks. It is more likely to
decrease volatility and increase liquidity, which are both good things. I don’t know, we will need to find out. Let’s see.