Why Bitcoin Will Never Displace the Dollar | Crypto Fund Managers Explain

Look, there's real concerns about inflation right now. Buy gold. Buy gold. Buy gold. And basically all the big macro guys are saying that none of them are saying buy Bitcoin.

Prevailing narrative that Bitcoin is a store of value is the only narrative. And that is failing in a world where we've seen $2 trillion printed overnight by the US government.

And so I've been thinking, you know, in the event that the bitcoin doesn't break out and actually become modern digital gold, what, what else could all of this kind of play out?

Something else. Close the gap. Because if there is demand for a global currency, global payment, rail settlement, Rails and Libra can fill that gap and people want that, then that's where it's going to go.

What's up YouTube? My name is Jackson. Today I'm joined by co founder of multicoin capital Kyle Samani and CEO of Civic, Vinny Lingam. How's it going today guys?

Hey, how are you Jackson? Great to be on the show.

Great to be great Jackson. Good to be on the show. Thank you.

Yeah, thanks for coming on guys. So let's get started. Kyle, you are the co founder and managing partner of a crypto investment firm. And Vinnie, you made the first ever bitcoin investment on South Africa Shark Tank. How do you search for companies to invest in in the crypto space?

Yeah, so you know we do a lot. I mean broadly speaking there's two ways to make investments, inbound and outbound. So on the inbound side, you know, we've written our kind of three mega theses on our website. We publish those and share them with the world hoping that obviously companies that, you know, if they, whatever they're doing fits in one of these thesis, it should kind of be obvious that we're a good fit. And we generally make a pretty concerted effort to be engaged in the community online, going to events, sharing our thought leadership so that you know, we can send signals to the entrepreneurs out there that hey, these are how we think and why we think these ways and that if you're building something that is aligned and how we think, then you should reach out to us. And that's been a very effective practice over the last couple years that kind of covers the inbound. On the outbound side we internally just like we obviously we were reading and thinking and learning all the time and occasionally we got to have a conversation internally where we're like, hey, like this is a big opportunity, let's go find a team and, and when that happens then we will Start usually systematically, just like calling everyone we know, looking at all the companies tangentially in that space and trying to kind of try and find the right company to really express that view. And we've been fortunate to do that now on a couple of different instances.

Vinnie, so I'm curious, how do you appraise a company, startup token or project you're thinking about investing in? Is there a set of criteria that, that you use that helps, you know, when you look at that company, that that's the company I want to be invested in.

Look, everyone's different and everyone has their own sort of mental models for how they look at these things. My personal one is I look at the founder, the team and what they've done before. And so the history and past and the area of expertise and that for me is the most important thing because in the startup world, when you're going in really early, things are going to change. It's going to be pivot after pivot. It's going to be, you know, it's just there's so much variability right. In the tech world and the industries are so volatile as it is. So it's always about the team. Can they stick together? Will they wear this through? Will they keep fighting for survival? And then once it's cleared that hurdle, okay, what problem is this team trying to solve? And do I believe they have the background and the technical expertise to go and do it? And often I find that they have the passion but not the technical expertise and I always advise them, go find the technical co founder, find someone who can help you build this. And, and those are things. I'm an early stage guy, I'm a series A C type investor. I want to back the team to go get it done.

Kyle, what does your criteria look like? Are there any specific or key indicators that you keep an eye out for?

Yeah, so as many kind of suggested, every investor is different in how they prioritize things and that certainly varies across stages. I'd say both myself and Tushar, my co founder, we are very, very focused on market and really understanding the size of the market, the existing players, you know, wedges to kind of build a footing in them. How can you build a footing and what's kind of your asymmetric insight about that? And those are the things we spend the majority of our time and effort on is really, really focused on market. Once we get comfortable with the market, then we really really poignant on the founders because at the end of the day we're going to be working with these people for a long time. And so getting comfortable that they are, you know, they have the right founder market fit to pull it off. The more time I spend investing, the more time I really value the importance of founder market fit because being a founder is really hard. And like, if you don't have the right story and context for why you're doing what you're doing, you're gonna, you're gonna get, you're gonna give up eventually. You're gonna have challenges along the way. And so making sure that we really understand what's motivating the founder to pull that off is kind of our next big thing after we really understand the market structure.

And we, I mean, we saw a lot of projects, especially in 2018, and I guess that sort of tapered out in 2019. How do you see the number of crypto startups and crypto projects? How has that number evolved over the past few years and where is it now? Kyle?

Yeah, so I'd say that on an absolute basis, sure the number of companies has decreased from the peak, which is probably called mid 18, but there was just a lot of noise in that, in that. So I don't kind of put too much on that today. The number of teams is lower, or new teams I should say is lower, but there's generally higher quality signal teams. The people who have bothered to stay in crypto through this time or who've gotten interested in crypto even after the crash are typically the kinds of founders you want to back. And so the signal to noise ratio has increased quite a bit.

Do you agree with that, Vinny?

Yeah, I think so too. I always, like, on Twitter, I've always spoken about the tourists, people who come into the industry when it's hot and when it fizzles out, then they just leave. And then they realize everything's taken off and they want to get back in again. And we haven't got to the point where they want to get back in again. But the same thing happened in the dot com era. You had people quitting their jobs as teachers at schools and firemen and policemen all jumping in to start companies in the dot com era. Literally. These are famous stories. Same thing happen 2017, where people who had no business being in this industry in tech were coming into this tech industry and they were like people from social media and whatever else trying to become technologists in a tech startup and they just can't easily contribute. And the moment things get tough, they go back to what they're used to doing what they know how to do well. And that is definitely what's happened here because we saw a huge influx of people and then we saw them all leave. And the people who are still behind, the guys are still sticking out through the tough times, like myself, Kyle, the founders that we back, etc. These are the guys actually going to build the future in the day because they stuck out through the hard times where because it doesn't get easy, it gets harder. And if you're not willing to stick it out, then you just don't have the passion for the industry and then you should go to the industry you do have passion for.

So let's, let's switch away from talking about the crypto space and let's talk more about crypto itself. Kyle, you recently tweeted, what if the ultimate use case for crypto is not non sovereign money, but just global payment rails in which all assets are bear assets. What role do you think crypto will play in the future of the global economy? Kyle?

Yeah, so one thing that's right now is a really interesting time to think about crypto. A lot of the kind of quarterly and monthly hedge fund letter that are the big global macro funds are coming out now. So Bridgewater, Oaktree, Elliot, a lot of these guys, and a pretty common theme you're seeing through all of them is they're saying, look, there's real concerns about inflation right now. Buy gold, buy gold, buy gold. And basically all the big macro guys are saying that none of them are saying buy bitcoin. And so that is a little concerning right now. Saying is like, look, this is almost certainly the largest kind of inflationary, this is likely to be the largest inflationary crisis of the last hundred years or maybe the last 50 years. And people are saying buy gold, not buy bitcoin. Even though bitcoin in our view is objectively better than gold at actually being a store value for all kinds of reasons. And so that's a little concerning. And so I've just been thinking through, well, what if this just doesn't break through and gold's been around for thousands of years and so it's just very hard to break that amount of inertia. And so I've been thinking, in the event that the bitcoin doesn't break out and actually become modern digital gold, what else can all of this kind of play out? And the next kind of, I'd say very obvious, very, very large market is in using just the crypto payment rails to just facilitate large scale global commerce payments. And so Libra is Probably the strongest instantiation of this where they're saying, look, we're going to take this technical framework that crypto really pioneered with public key cryptography with an open ledger, with all these things by making assets a bare asset and we're just going to focus on scaling that out to support billions of people and make it as cheap as possible to make payments work around the world and then kind of enable smart contracts on top of that. And that to me is a, although it's not the same, it's a very distinct vision from just digital gold for everybody. It is still a massive scale vision with a strong, strong focus on enabling people to change how they interact with money. And I think a lot of the crypto people who are just digital gold bugs are kind of missing that just different framing.

Vinnie, if Bitcoin continues to fail as this digital goal, do you see this outcome as occurring as well?

Well, I mean when you say the outcome of people using alternative currencies as a rails. Yeah, I think that's what I've been saying for years. I said if Bitcoin can't scale lightning network doesn't exist, can't really scale. I mean it's no way, right? After three years of waiting, it was supposed to be 18 months time back in 2015. So lightning is not working. There's no way to scale Bitcoin to become a payment rail. So the prevailing narrative that Bitcoin is a store of value is the only narrative and that is failing in a world where we've seen $2 trillion printed overnight by the US government, governments around the world creating money and putting Bitcoin is failing to rally, not even like to its January highs, forget its all time highs. Right? So this is, this is a big problem. I think that the narrative, because I never bought the narrative of digital gold, but I do buy the narrative that Bitcoin could be a global, global payments Rails, but that would mean the block size increases, et cetera, which nobody wants to do in the community. So it's stuck in this sort of store of value hypothesis. So what happens? Something else fills the gap because if there is demand for a global currency, global payment rail settlement, Rails and Libra can fill that gap and people want that, then that's where it's going to go. Because ultimately utility is going to drive value. And so if there is utility moving money cheaply around the world and there is alternative services that can do it, it's going to take off. So to the large extent I agree with Kyle on that. I will Say, though I do disagree around what the inflationary aspects of the money printing that has been happening is. Because what's really happening is the US dollar is gaining in its dominance in its index around currencies around the world, other currencies. So the COVID 19 crisis is causing governments and other currencies around the world to fail. And it's slow failure, but it's failing because those currencies were really running very high deficits and very close to the line and get to GDP ratios which are absurd. And now the economies have been crippled by COVID 19, they have to print more money. So, so effectively Gresham's law kicks in and people spend that currency, but they're going to start putting their savings into US dollars. So there's this demand for US dollars globally and because global money supply is 70 trillion, you print $2 trillion, it doesn't really make a huge impact in global money supply, especially since most of that is dollar based or dollar denominated and there's demand for more. So as we see the rest of the world moving towards dollarization, effectively, I think Raoul Paul called it that the inflationary pressure of the dollar is actually very muted at the moment and they could probably print another $2 trillion and not see inflation rear its ugly head just yet. So it's too soon to tell when inflation kicks in, but for now the dollar is the store of value for the world.

Do you think that crypto will ever have the power to displace the dollar as the dominant global currency?

Potentially, I think there is potential for it. But the real question is, is it crypto native, which is like something like Bitcoin or Ethereum, or is it tokenized currency? Because there's two very different things, right? Tokenized dollars is not replacing dollars in a sense, it's just moving it to a transportable form factor, right? It's moving from bank accounts to a distributed ledger. It's still the same amount of dollars. Whereas something native like Bitcoin or Ethereum is a totally different asset class.

What are your thoughts on this, Kyle?

Yeah, I'm pretty skeptical that crypto is going to replace the dollar on any timescale in the event the dollar is not the gold reserve. That is a scary, scary, scary world to live in. And I do not want to live in that world because that transition will be very painful. I think crypto can challenge a lot of long tail fiat currencies, but I think the dollar is out of the question.

How do you see the current COVID 19 crisis affecting crypto's role in the global economy now. And as we potentially move out of.

The crisis, I think the kind of there's a few lenses. The big obvious lens is that governments around the world are engaging in large scale quantitative easing and they're monetizing their money like crazy and monetizing their debt by printing new money. This is definitely the largest monetary experiment in human history and I'd say it is relatively intuitive that there's a lot of risk here and this could really backfire and just kind of create an inflationary spiral. It has not happened. I'm not saying it will happen, but it is a pretty reasonable conclusion to draw that the risk of that happening is increasing by the day. And if that happens, that's probably good for bitcoin because bitcoin is disinflationary fixed supply, yada yada yada. So I think that's a pretty obvious case for crypto coming out of this crisis. I think the other ones that are a little more interesting, that are more nuanced is looking at as consumption patterns change, as travel patterns change. How can you use this technology to kind of ride those trends? So like video is booming, right? Like Zoom and all these things are blown up right now. There's some unique crypto enabled technologies such as livepeer that make it dramatically cheaper to transcode video at scale. And so like that's very under discussed and we're fortunate to be large investors in live care. You know music, right? Like concerts are like, and like large scale public gatherings are not going to be a thing for a while. And so artists are looking for new ways to like new channels for distribution, new ways to remix their work and other artists work. And one of our. And there's companies like Audius that are super focused on trying to kind of facilitate that kind of new creative consumption. And so I think there's. While those aren't nearly the same kind of macro scale as gold or digital gold, I think there's a lot of kind of tail use cases where crypto is going to be a really powerful enabling new technology and we're really excited about some of those.

Vinny, do you also see COVID 19 as spurring the integration of these more niche use case tokens?

Yes and no. I think there's definitely some, some of that and agree with largely what Carl said there. I would add that I think COVID 19 does bring in some concerns around governments being undermined in the efforts. So imagine this, right? Imagine you have an isolated economy. I'll Use South Africa for example, because I'm South African. Imagine that the government's printing money to keep social welfare going because people are starving right now, the country's in lockdown, it's a total crisis. The IMF's giving them 80 billion rand, et cetera, et cetera. There's a 500 billion rand stimulus package, about 30, 40 billion dol billion, probably less now the exchange rate fluctuations. But the point is people there are using the fiat on ramps to go from their local currency into Bitcoin or into whatever cryptocurrency they want to sort of protect their wealth from. The government's eroding the currency. What happens when the government sees that this is happening in such a large degree that it's undermining the efforts and it's weakening the currency even further and it creates a hyperinflationary sort of spiral. Right. Because if nobody locally within a sort of controlled geography wants the local currency because the government is failing and the economy is in trouble because of COVID 19 governments have to stop the fiat on ramps into crypto for that market. They're going to, if they haven't already in some countries, and I know they have, they're going to in other countries the moment they see the spot out of control. So it is interesting that there's this like barrier, right? So if it becomes even slightly too much of a threat for a government, they're going to shut it off in certain countries. Now that doesn't mean that globally doesn't have an impact, but it just means in that country demand, it'll go become a black market currency in those countries. I'm talking about Bitcoin in particular. But it is interesting how there is probably some sort of limit on what. I mean institutional buyers would just be locked out in that country where institutional buyers right now could legally go and buy Bitcoin to hedge themselves against Rand devaluation. If the government outlawed it, they just couldn't do it. So you'd only have retail buyers and black market traders and that reduces demand for that currency. So it's kind of a weird. What do you think? Do you think that. Because I kind of think that's what's going to happen in some countries when people start fleeing out of their currency.

Yeah, I think that this kind of global monetary experiment, the first order implication is not the crumbling of the dollar, it's the crumbling of long tail fiat. And those people are probably to flee their local currencies for the dollar. And so that to me seems like the Kind of first order impact. And I think Libra could potentially over the next few years just line up as the kind of perfect way, like the perfect actual rails to make that happen.

But so does the government start banning Libra? Right. Whether it's Libra or Bitcoin, like there's this reflexivity sort of thesis in this effectively that the more successful these cryptos become against local currencies, the more governments are going to just react viscerally towards it and block it. So then it doesn't actually gain traction in that market because of that reflexivity.

As we move forward with COVID 19 and from an investor's perspective, what do you think is the most important aspect of the crypto space that needs to be developed in order to enable growth of the space?

I mean, I think the most bullish thing that could happen would be a large number of the global macro hedge funds saying they buy Bitcoin. I think the next most bullish thing that can happen would be cpi, consumer CPI increasing, which for the last decade it is really not. And I think those two things would really drive the kind of narrative for crypto at this point. The actual market structure is there, the exchanges are there, the fiat on ramps are there, the derivatives markets are there, they're mature. You have futures, you have options, you have spot, you have global access, you have prime brokerage, you have banking. Like all of the market infrastructure is finally there to support large scale capital inflows. And so I actually feel pretty good that if people wanted to move a trillion dollars into crypto, it would be doable today with the kind of infrastructure that's there. What's not there is the people recognizing the need for this and why this is a step function better than the kind of technology solutions in the past like gold.

Vinny, do you see those same points of growth?

I'll add one thing to that. I think what, what I think still needed is the scaling of transactions and transaction fees and cost reductions. If you look at Civic Wallet launching soon, we're in testing right now, beta testing and one of the biggest issues we really do have is the cost of Ethereum transactions for stablecoins can be quite high, especially in the microtransaction side. And so Ethereum needs to figure out scale or someone else needs to replace it with a more scalable, cheaper solution. So we're obviously backers in Solana. We think Solana's technology is fantastically well suited for this sort of environment. But this is one of the biggest issues in crypto for over A decade is how do you scale crypto? And so until we get to the point where we can scale this so the transactions are throughputs on issue and costs are, you know, reasonably low, I think it's, it's one of the difficult things to build use cases in the market right now because how do you, how do you use something which is, you know, 50 or 100 times more expensive than a simple database transaction or even more in some cases.

So speaking of development, Kyle, you recently tweeted that over the next 36 months, Asia will become by far the most important market for defi and promotionalist crypto more broadly. Why do you think Asia will become so important in the crypto space?

So a, I think Asia is already the most important market for crypto. All the mining is there, most of the mining is there. Almost all exchange activity happens in Asia. The substantial majority of retail users today are in Asia. There's not much retail in the US and so I think already definitively today, Asia is actually the hub of crypto. I think over the next 36 months. We've been thinking a lot about defi and the growth of Defi. And I think the problem in the US is the people in the US do not want to opt out of the US dollar and they don't. They're very happy with Visa, MasterCard, PayPal, you know, the kind of tools they have Today, I think the opportunity for defi is going to be in serving people who are unhappy with some part of their existing financial services infrastructure, whether it's the currency they have or whether it's the surveillance that they're undergoing. But the people who want for some reason to opt out of the current financial either fiat regime or either the payment rails themselves, those are the people who defi are going to appeal to the most. And I don't think any of those people basically live in the US I think almost all of those people live in Asia. And so I think with a pretty high degree of confidence that over the next 36 months, DeFi is going to become just absolutely not like the ratio of defi consumption between Asia and the US is going to just balloon.

Vinny, do you also see Asia becoming the or continuing to be the defi hub of the world?

So maybe on the technical side that's possible. I slightly disagree with Kyle. I think that the interest rates that defi can offer would be attractive to people around the world and even more in the US where interest rates are super low, zero at the moment. If people could build safer, more secure insured smart contracts, for example, and the liquidity pools exist already. Even the biggest crisis we had in crypto last month, given the size of the market, there was relatively few hiccups in the defi space, even when the market dropped 20, 30% in a matter of hours. So I think that if you can package good defi offerings to consumers and you don't have to call it defi, if it's something like hey, deposit coins, dollars and this wallet and 5% annual interest or 8% annual interest, that's appealing to anyone really. And all they care about is is it safe, is it insured, is it recoverable, will I lose my money and how safe is the money? Like this is the things that goes through consumers head. So I think it's more about what is the product offering as opposed to whether or not Asia will win or not. It doesn't matter. Like if the offering is solid and it's global, people around the world will adopt it.

Great. Well, thank you guys very much for coming on the show. I appreciate your insights and the future of crypto looks bright. Thank you guys.

Jack, thanks so much for having us on the show. Take care.

Thank you everyone for watching. That was Kyle Sumani, co founder of Multicoin Capital and Vinny Lingam, CEO at Civic. My name is Jackson and if you guys enjoyed the video, hit that like button and subscribe to our YouTube channel, Cointelegraph.

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Sam.