Debt Crisis in 5 Years: Time to Buy Bitcoin? | ShapeShift's Erik Voorhees Explains

So this was something that worried me a lot pre Bitcoin, because I felt very much attached to that financial system. And part of why I advocate Bitcoin and crypto to people is to help them escape that system as well, to get away from what is going to be a train wreck and probably a monumental human catastrophe of suffering and darkness. I pretty much think all government regulation is horrible and unethical and counterproductive.

What's up, everyone? My name is Jackson. I am your host and journalist at cointelegraph. Today I have the pleasure of talking to Eric Voorhees, who is the CEO and founder of one of the most well known cryptocurrency exchanges out there, Shapeshift. Today we are going to be talking about why he believes there could be a global debt crisis in the next five years, why the bitcoin maximalist mindset is a poor one, and why New York regulation is, and I quote, absurd. So, without further ado, how are you doing today, Eric?

I'm great. How are you doing?

I'm lovely, thank you for asking. So I've seen, I saw on Twitter recently you've been weighing into this ever present bitcoin maximalism versus part of my friend's shitcoin argument. And why do you feel that Bitcoin maximalism is a poor mindset to have?

Yeah, well, so I used to be a maximalist. You know, that was an easy position to take getting into it in 2011, because that was really the only coin back then almost. And so that was kind of my default position. And for a while I saw all these other coins and chains as distractions at best, and felt like it was really pulling people's time and attention away from the core project, which was the most important. And I changed my view as I started seeing the experimentation that was happening and as I realized that one of the most important elements of Bitcoin is this decentralization aspect. That's kind of the whole point. And to hold a position where decentralization is important, to value that, and to simultaneously hold the view that there should only be this one, one blockchain, and that all use cases and all development should orient around this one monolithic chain, to me seemed completely hypocritical and counterproductive to the ethos of what Bitcoin was about. So with time, I changed my view on that. And especially as some of the privacy coins came out, Monero and zcash, and as Ethereum came out that did things that Bitcoin could not do, it was just an entirely different way of thinking about blockchains. I started realizing that these things were mutually beneficial, that they were complex and you could not design a chain that had all the features that would be ideal for every use case. That was just impossible. And you shouldn't try to design one chain to do all things for everyone. So without understanding, I just very naturally came to the opinion that there's going to be a number of chains that are very useful and valuable and they'll do different things, and in some ways they'll compete with each other, in other ways they'll complement each other. But that's all part of the process. I think the fallacy that the maximalists fall into is that they rightly see that many of these other chains and coins are absolute garbage. And they're right, like most of these are absolute garbage. But that doesn't mean that there aren't a number of them that are very valuable and useful and interesting. And so their inability to have nuance in their understanding of these different chains I think is a. It's, it's, it's kind of lazy from an intellectual perspective, but it's also not helping Bitcoin to pretend that there is not value being created elsewhere. And I think we've seen bitcoin and Ethereum rise together as both highly valuable systems that are designed and built differently. They each have some pros and cons, and I think the world is better to have both of them instead of just one.

Yeah. Personally, I do agree a lot with that mindset. Do you have a name for this ideology you've just prescribed, or do you abstain from giving labels like that?

The best label I've ever come up with for it is just to be a crypto pluralist, to realize that there are more than one cool cryptos out there and that that's okay. Instead of being essentially like a monotheist about one chain from the heavens that must be worshipped above all else.

A crypto pluralist. I like that. That's good. You suggested that there will be some kind of financial meltdown in the next five years or so, and that people will actually end up falling back on crypto. What kind of shape would this crisis and response take in real life?

Yeah. So first I have to acknowledge that I've been under the belief that there would be a huge financial catastrophe in the next few years, for the last 12 years since the last financial crisis. So things have been humming along for longer than I thought. And I have to admit that I've been wrong in that Timing. And yet I still hold the same position that it is going to happen. And my basis for this is simply a matter of looking at the debt of sovereign governments and seeing the tremendous amount of debt that they have, the rate at which it's growing, and the understanding of how compound interest works. So I tweeted about this like a week or two ago, but it took the US like its first, you know, until the year, I forget what it was, 1990 or whatever, to get its like, first trillion dollars of debt. And then at this point, we've increased that to a rate of adding trillions of dollars of debt, like, every few months. And it's just become a stratospheric exponential equation. And that can't continue forever. So not only can it not continue forever, it can't continue for long because of the way exponents work. So the debt will crush the financial system when the bond market falls apart. And it's going to be a massive catastrophe because basically, people will realize that sovereign bonds are a huge, greater fool game where everyone buys them because they know that they can sell them to another person easily. When that ends, then all of it falls apart. So this was something that worried me a lot pre Bitcoin because I felt very much attached to that financial system. My future, my family's future was very much dependent on the global financial system being healthy. Post Bitcoin, I. It's kind of like watching a train wreck from afar where I feel much more detached, like I'm. I'm okay because I have untethered myself from that disaster. And part of why I advocate Bitcoin and crypto to people is to help them escape that system as well. To. To get away from what is going to be a train wreck and probably a monumental human catastrophe of suffering and darkness, and it's going to be awful. Thankfully, I think there are systems now that will help people emerge from that faster and in a healthier way, and society on the other side will be a much, much healthier one. But, yeah, it's going to be pretty. Pretty miserable and awful. And I don't know what to do to help people avoid that other than to just keep promoting Bitcoin and these alternatives.

Yeah, it's kind of strange because I feel like people have been kind of predicting this looming debt crisis for a long time now, you know, ever since we had a trillion. Yeah, decades. Right. And it's just. It has never come to a head yet. And I feel like because of that, a lot of people think that it's Just never going to happen. I mean, but you really do.

This is how all bubbles form, right? They, they start and some people start predicting that it's a bubble, but the bubble doesn't pop. It keeps growing and growing. And people keep predicting it's a bubble and it keeps growing and growing. And at some point a lot of people just become completely complacent and they think like, well, it won't happen because it hasn't. And on the scale of national governments and that debt, those are huge, huge institutions and these things play out over decades. It's very easy for people to become complacent because anyone that's 50 years old or younger has only lived in a fiat world. The dollar became fiat currency in 1971, right? Yeah. So on a global time frame, it's a really new form of money. But for almost everyone alive today, it's all they've ever known. And that can be a really hard thing to see outside of.

Yeah, it's. I find it very hard to believe that like the government or the people who are in control of this debt, who can actually influence it policy wise, are just totally like hands off the wheel, you know, like not, not even trying. Well, they hinder it.

Once again, they're stuck. They can't do anything because to do anything would mean proposing that the government gets smaller by even a little bit. And none of them ever do that. They never advocate that the government shrinks. They might advocate a certain department has a lower budget or cut this thing over here, but always, always with the understanding that the government as a whole will be bigger next year than it was this year and none of them will be elected if they ever tried to do the opposite. Right. Any politician that basically said, I actually want to shrink the government by 5%, even 1%, they would not be elected. So what do they do? The game theory of all this is that those politicians that are willing to promise more get elected. They're elected and put into power and then they end up promising more and they simply borrow from the future, which is what debt is. They borrow more from the future, where people in the future can't vote right now. So the people paying this debt in the future can't vote in today's election. And so you just get into this situation where it perpetuates and I don't know that there's a way out of that because most people want more and more and more from the government. So they're taking it from tomorrow.

And buying crypto is. You think of the Best way potentially to set yourself up to endure this kind of catastrophe?

No, the best way to endure a catastrophe like this is to work on oneself and develop one's own skills as a human. And this is everything from the skills you have to earn money to your personal skills and relationship skills and your ability to interact well with other people. That's always the best way to start, is to change oneself and to make oneself a better person. If you are doing that, could you.

Explain the connection a little bit? Just because like, you know, if you say the best way to set yourself up for a debt crisis is like to just to be a better person, you know?

Yeah. So it's, it's because in any kind of situation, prosperity in life usually comes down to one's ability to get along with other people and to cooperate. This is everything from your personal life or your romantic life or your professional life. If you are a good person and interact well with others, it does not matter how bad things get, you will always have a decent chance of building from there. And so investing in yourself in that way has to be the main theme here. But if you're doing that, then what else can you do? Well, financially speaking, avoiding any kind of assumption that, that annuities or Social Security or anything with a fixed income in the future is going to be there for you is really important. The group I'm really worried about is like sort of the boomer generation who is assuming that their retirement will largely come from Social Security. And they've been planning for that their whole life, that Social Security will either be going away or will be inflated into irrelevancy and will not be useful. So realizing that that stuff won't be there for you in 10 or 20 or 30 years is key. And then making sure that you own assets that are real and valuable. So real estate, precious metals, income generating businesses, cryptocurrency, these are all real things that are valuable because they're, they're useful in and of themselves. And avoiding things like government bonds, which is essentially a promise from a bankrupt organization that they will pay you back, that's probably not a good idea. So just kind of thinking of it in those frames is useful.

I'd like to bring it back towards crypto a bit more specifically. You've had some run ins with New York regulation in the past. Well, you haven't thought highly of New York regulation in the past. I think in 2015 you said that Shapeshift was cutting off service to New York over some scuffle with bit license. Yeah. And you recently called New York's regulation of crypto an absurdity. So could you just go like a level or two deeper? Why is New York's regulation just so absolutely absurd? Especially given that it's like the financial center of the world on Wall Street?

Ye. So first I'll acknowledge my own bias, which is that I pretty much think all government regulation is horrible and unethical and counterproductive in that frame of reference. What New York did to the crypto industry there is particularly egregious. Basically what the New York Department of Financial Services did was create this new license, which is basically a permission slip that one needs in order to run a crypto company in, in New York State or to, or to serve New York customers. And there is, there's this myth that like that crypto is unregulated, which has never been true. All regulators around the world think that it is regulated in one way or another and often in multiple ways. So crypto has never been unregulated. Now as a sidebar, because it's self sovereign, you can get around those regulations if you so choose, but the regulations still exist. And so basically New York said, okay, all these financial regulations that currently exist and which obviously apply to Bitcoin already, we're just going to add to that and create this 35 page application form for a license to operate in New York. And if you ever look at this application form, it just, it like will drain your soul and make you feel like the future of humanity is totally screwed.

Which according to your prediction, might well be the case.

Yeah, yeah. I mean, so basically they want, they want to treat crypto startups as banking institutions and they don't seem to think that there's anything wrong with that. So basically to actually get a bitlicense in New York is several hundred thousand dollars of legal fees to kind of just apply to, just to do the groundwork to fill out this kind of application appropriate appropriately, several hundred thousand dollars. And then there's all sorts of these requirements and restrictions that are put on you if you succeed in getting the license. Things like if you want to change your business model at all or implement a new feature, you need the permission, the explicit permission of the New York Department of Financial Services. So imagine being a startup, you know, three people in a garage. To use the stereotype, you have $15,000 in startup money from your grandmother and you're in New York and you want to build this business because you have this great idea, nope, not going to happen. You're not going to be able to get the bitlicense. And so you're either just going to not start your business or you're going to be running it illegally. And even if you have the hundreds of thousands of dollars to do it, it will take you one to three years at least to actually get this thing. And to date, I think only 20 companies have actually gotten a bitlicense. So it's something like three or four companies a year. So in one of the most populous states in the US with the center of the global financial industry there, only a few companies per year have been permitted by that government to innovate and build anything in crypto. So this is, when I say the word absurd, this is what I'm talking about. They crushed the ability for startups in crypto to be in New York. Why?

Why did they do this?

So a couple reasons. One is that regulators regulate and New York regulators believe that they are the reason. New York regulators believe that they are the reason that New York is the center of finance in the world. They think that it is through their wisdom and their care they have nurtured the industry and allowed these, these companies to form and these markets to build because of their, their benevolence. So they just have sort of like a God complex and they don't realize that the market has been created there despite them and that they are actually parasitic life forms that live on the success of other people who actually build things of value. So it's part God complex and then it's part, you know, if I'm being more, more charitable to them. It's part God good intentions. I think most regulators have good intentions. They, they want to make people safer, they want to help people. They have a horribly misconstrued idea of how markets actually self regulate and handle things better than politicians can. But their hearts are often in the right place. And so they think like, okay, this new technology came along, we need to set the rules of the road and we need to tell people how they can interact with it. And then you end up getting all these committees that start talking about it consisting of people that have no idea what the technology is. Probably most of the people that wrote the bitlicense had never sent a bitcoin transaction, had never used a block explorer before, were not running their own nodes, much less had they any conception of where the industry was going, which is hard enough to predict even for those of us who are in it. And then they get together and write all these rules and then put them out there and they're applauded by the, by the press for coming out and protecting the public. And you know the main architect of the bitlicense, Benjamin Lasky, months after he created the bitlicense, he then leaves the government, goes into private practice to help companies navigate the license that he created. So he's now making a bunch of money helping people navigate the maze that he constructed. And then, then he ends up going to work for Ripple and is one of their board members. Now meanwhile, all the companies and people that wanted to build and innovate in New York have just been stuck under this nonsense. New York has been the absolute worst state in the US From a financial regulation perspective. Wyoming has been the best. And most states are kind of just somewhere in between those.

Great. Well, thanks for that really impassioned look into regulation in the U.S. i really appreciate that. And thanks for, thanks for coming on the show today, Eric. It was, it was a pleasure talking to you.

Yeah, really, really good to chat. This is always fun.

Thank you everyone for watching. That was Eric Voorhees, who is the CEO and founder of cryptocurrency exchange Shapeshift. My name is Jackson. I am your host and journalist at cointelegraph. If you enjoyed this interview, please hit that like button and subscribe to our channel so you can stay up to date on the most recent crypto content.

Cointelegraph like subscribe and Hodl.