In the 1800s we had a bubble in railroads, and almost every one of them went bankrupt, said Downtown Josh Brown, CEO of Ritholtz Wealth Management. But what was left behind in the wake of that financial wreckage were the tracks, and the trains, and the stations, and the expertise to build more.
Thats the analogy Brown sees with the bitcoin bubble of 2017, as explained in a recent episode of Bitcoin Macro, a pop-up podcast series featuring speakers from CoinDesks upcomingInvest: NYC conference on Tuesday, Nov. 12.
Eventually the technology [railroads] found a way to be profitable, useful, and became woven into the fabric of our society, Brown said. So its possible that the crypto investments people made in 2017 were stupid, but that they had the right idea.
The last six months have seen a growing dialogue between the bitcoin industry and leaders in global finance. No longer written off as some ignorable niche, increasingly people are asking: Is bitcoin a macro asset? Is it a safe-haven asset? How will it perform in the next recession?
Brown is a regular contributor to CNBC. In this episode of Bitcoin Macro, CoinDesks head of strategy, Nolan Bauerle, talks with Brown about:
Listen to the podcast here or read the whole transcript below.
Nolan Bauerle: (00:09)
Welcome to Bitcoin macro, a Pop-up podcast produced as part of the CoinDesk Invest New York conference in November. Im your host, Nolan Bauerly. Both the podcast and the event explore the intersection of bitcoin and the global macroeconomy with perspectives from some of the leading thinkers in finance, crypto and beyond.
Nolan Bauerle: (00:34)
Welcome to the latest edition of our pop-up podcast around bitcoin. This podcast, in particular, is designed to shed light on some of the content that youre going to hear about at Consensus: Invest on November 12th, here in New York City. Today we have a veteran speaker of our series and a crossover star, Josh Brown, who certainly is known for his role in mainstream financial news, a regular on CNBC, various other networks. Josh Brown has been with us at Invest since it launched in 2017. He gave terrific advice to the original attendees of that conference and was our final keynote fireside chat with Howard Lindzon, his good friend.
Nolan Bauerle: (01:23)
Last year he came back to let the audience know what asset managers are really concerned about when it comes to cryptocurrencies in general. And this year hes going to involve himself as our master of ceremonies, and well introduce all of our great panelists, and were happy to have him. So crossover star, I think, is a good way to describe you. A lot of people know you over crypto, but youre certainly well known for your mainstream financial news.
Josh Brown: (01:48)
Hi Nolan, its great to be with you.
Nolan Bauerle: (01:50)
Great to have you aboard. So were going to jump right in. This podcast is really all about bitcoin. And the first question is about bitcoin behaving as a macro asset. So youve seen a lot of whats going on in the world today. Youre pretty plugged in. How do you see bitcoin fitting in here? Is it an actual asset that you can see as a way to hedge macroeconomic changes? Or is it sort of still in the wings waiting to be built up and mature a little more before its really in the major leagues of macro assets?
Josh Brown: (02:24)
As I said to you just prior to recording, I see myself as more of a student than a teacher in this realm, but Im an apt pupil, and I try to pay attention to various opinions and, of course, look at charts and price action. And I try my best to understand whats happening. To answer that question directly, I would say I do not believe that bitcoin behaves in any way like a macro asset. And the only reason Im saying that is because we have no evidence that its correlated with any other macro development. In other words, I wish I could say when Think about gold. When people are worried about inflation, and Im not saying gold is a great inflation hedge, but when people are worried about it, there are trades where you can see flows go into that asset class. Its demonstrative.
Josh Brown: (03:21)
So you could say whether or not you think gold is an inflation hedge, you know that other people do, and it acts that way. Think about utility stocks. All year long, the story has been the federal reserve about to lower rates, now theyre lowering rates. Maybe theyre going to lower rates more. And as that process has happened, youve seen money flow into utility stocks, which are prized for their high yields. So if youre not getting yields in bonds, whats the next best thing or the next, next best thing? Its high yielding equities, and utilities are considered to be among the safest high yielding stocks. So you could say that, thats a macro asset. What can we say about bitcoin thats even close to being comparable? In the month of October, I think its a world record of people around the world involved in various protests, whether were talking about Santiago, or were talking about whats going on in Hong Kong. All over the world, there are millions and millions of people taking to the streets.
Josh Brown: (04:20)
Why isnt bitcoin up 50% if in fact its a protest asset? Well, it isnt, so I dont know. If were worried about disinflation and we say that maybe people, if theyre scared of their own currency, therell be this huge rush into bitcoin. Well, where is that happening? It isnt. So I would love to be able to answer in the affirmative and say, Yes, bitcoin has now taken its place among the Pantheon of asset classes that people can use to express a macro view. But it just isnt, theres no evidence for that. So my answer to you is no it isnt, but maybe thatll change at some point.
Nolan Bauerle: (04:57)
Yeah. And that youre focusing on the behavior I think is the important part here. A lot of people get caught up with what they want it to be and they sort of will fall into kind of a bubble, where they see it behaving in ways that maybe it isnt actually, given the facts, and that you underlined here that the behavior of it, given all these conditions is pretty clear. It looks like a speculative asset that people are interested in making some money on, and certainly there needs to be a high risk tolerance to get exposure even to this day.
Josh Brown: (05:29)
If were saying that bitcoins most obvious use case is the ability to get out of a fiat currency and move money out of a country, or its got huge competition. US dollars are what people want all over the world. In Asia, maybe they want the yen when they fear for the safety of the currency, or the capital markets, or the economy in which they live. This is a fact, and then if were saying, Well, people are going to use bitcoin when they want to get out of the denomination of whatever their country is, or the jurisdiction. They want to, I dont want to use the word hide money, but they want to literally move money where it cant be touched. Well, real estate has been a much, much more prominent way to do that. Look at Vancouver, half the buildings are Chinese money.
Josh Brown: (06:21)
Look at the towers theyre putting up in New York. They just put the capstone, I think its called, or whatever. They just put the cap on something called Central Park tower. I think its 1400 feet high. Its the tallest residential building in the Western hemisphere. Its only going to have 70 something apartments. So whos buying those apartments? Well, its not like a guy whos a lawyer in New York City. These are $7, $10, $20, $50 million apartments. You could think about these as safe deposit boxes for Russians, Indians, Chinese, people that are trying to have assets outside of the country. Nobodys even going to live in half these apartments. And thats just one tower of five that I could reference off the top of my head.
Nolan Bauerle: (07:10)
The one they built on Lexington, the skinnier one that went up earlier, I cant remember the name right now, but you can see the windows are empty. The lights are off every single night.
Josh Brown: (07:19)
Of course. You want to laugh? When they built 437 Park, which I think was the largest until this new one, the tallest, they did something for New York City called a traffic study. So if you want to build something of size, you have to spend millions of dollars and a couple of years studying what the impact will be on local traffic. And the joke is there aint going to be no fucking traffic, because no ones going to live there. So that is the way youre seeing foreign nationals move money out of their currency, or out of their governments jurisdiction and into what they consider to be a safer place. And youre just not seeing those dollar flows into bitcoin to the same extent. So its hard to make the case that functionally thats whats really happening there.
Nolan Bauerle: (08:05)
And you mentioned something that I hadnt really heard before. We call it a safe-haven asset, but you called it a protest asset as well. And I think thats a really interesting label, and that its behavior really hasnt mimicked what youd expect from a protest asset. Now I saw it traded at a premium when the Hong Kong protests began, it traded about a $100 premium. And that was really because people were worried about using their Oyster cards, their Metro cards to get home back to China if theyre going to the mainland, because they were going to get tracked, and basically just really worried about local dollars being tracked. But we havent really seen that premium stick, and we havent really seen that sort of flow towards using this so that youre not surveyed and youre not spied on so they know where your simple consumption dollars had gone.
Josh Brown: (08:52)
Somebody was telling me about Venezuela, and Im aware of whats going on in the economy there, and its been going on for years. And hyperinflation, the collapse of institutions, people starving. Its a horrible, horrible situation. Now, if you were to tell me 30% of all Venezuelans have moved their money from the local currency into bitcoin, then I would shut my mouth and I would say, Okay, theres something substantial here. But I dont think thats the case, do you?
Nolan Bauerle: (09:24)
No, I mean, and weve seen Turkey, for example, has seen a lot of users, lets say buyer [inaudible 00:09:32].
Josh Brown: (09:32)
Yeah. Great example. Another inflationary situation where people for political reasons want assets out of that country, and the local currency and economy is collapsing.
Nolan Bauerle: (09:44)
Yeah. But, like youre saying, we just havent seen that kind of use.
Josh Brown: (09:48)
Yeah. Where is it, where is it? When does it start? So Im not saying it cant, Im just saying Im not seeing it.
Nolan Bauerle: (09:54)
Now moving onto a recession. A lot of rumors of recessions, were still doing pretty well here in the United States, but its certainly crept in, in other jurisdictions. So weve seen this sort of cheap money around the world for a long time, and it looks like even from high risk tolerance from the VC side of things, because money, its just available and it looks like every idea out there is funded and the risk tolerance has grown to a certain extent here. Now, if that changes, if a recession does cause some kind of liquidity crunch, or some inability to get access to this cheap money again, how do you think bitcoin behaves?
Josh Brown: (10:34)
I guess we have no in the United States, we have no prior history of it, so well say weve been in expansion for 11 years, so its the longest expansion ever. So I dont know the answer.
Nolan Bauerle: (10:49)
Yeah, well theyre-
Josh Brown: (10:50)
Well find out.
Nolan Bauerle: (10:53)
And my final question for you, and really this is sort of tapping on your exposure to mainstream media, mainstream financial world. Bitcoin really popped in everyones consciousness in 2017 when I met you at that great dinner that we had down near Chinatown. And you wrote a beautiful blog post. I thought it was I really realized what a fantastic writer you were.
Josh Brown: (11:16)
Ah, thank you.
Nolan Bauerle: (11:17)
I think it was something into [inaudible 00:11:18], and it was great.
Josh Brown: (11:19)
Yeah. Yeah.
Nolan Bauerle: (11:21)
So here it is. It popped into world consciousness in 2017. Everyone started talking about it, and its already mutated a few times in peoples minds since then. In the last six months though, what have you seen thats changed, or if anything, is it just the same old story?
Josh Brown: (11:35)
So when I was a keynote speaker in the closing panel of Consensus: Invest 2017 the first year, the audience was filled with young people, primarily, mostly dudes, and they had made a lot of money. I think the price of bitcoin at that time was $15,000 or $16,000, and my message to that audience at that time was, calm down. Its okay to feel like youre missing out. You dont have to do something just because everyone else is doing it and they seem to be getting rich. And of course, it would only take a couple of weeks for that to look like really good advice. But that is always good advice. Maybe now were in the polar opposite situation, where instead of fear of missing out, theres this just incredible amount of pessimism that everything that people thought would be true about digital currencies, and cryptography, and blockchain is now like a joke in the mainstream financial media, or at least its being derided on a daily basis.
Josh Brown: (12:47)
And so maybe now things have gotten too pessimistic. And the only other example of this kind of thing that I could think of for my own career and experience, I remember my formative years in the industry we were doing the dot com bubble, and everything came apart relatively quickly. It only took from March of 2000 to, lets say, the end of 2001 for people to just be completely wiped out, not just in financial terms, although they were, but emotionally, and mentally. And just nobody wanted to hear anything about technology ever again. And in the ashes of that experience, Google was born. In the ashes of that experience very quietly with very little fanfare Steve jobs rejoined Apple as the CEO. The seeds for the technology boom that weve now been living through over the last, lets call it 12 years or 15 years, were born in the ashes of that prior mania.
Josh Brown: (13:52)
So I think statistically, spiritually, any way you want to look at it, there was absolutely a bubble in anything related to crypto going into the end of the year of 2017. I dont think anyone would deny that it was insane just as the internet mania, but the thing is all of the predictions that were made about the transformative power of the internet actually ended up coming true. It just took longer than what people expected, and the companies involved were very different. If you think about the original dot com bubble, we were worshiping at the altar of fiber optic plays like JDS Uniphase and Nortel. And we were buying up stocks like AOL, and Excite, and Lycos and Yahoo. None of which are particularly relevant anymore. But all the predictions, were going to buy groceries on the internet. It happens. Were going to buy pet food on the internet, it happened.
Josh Brown: (14:51)
Toys, books. Were going to communicate all day long. All of those predictions came true. Its just the investments werent right. So if there is a crypto future and there is a blockchain future, its highly possible that the early entrants, who came along in 2015, 16, 17, 18, arent going to be a part of it. And a lot of the investments that have been made will turn out to be zeros. But it doesnt mean that the future is written. So if I could maybe flip the script and this year offer that, I know its not that hopeful, but its somewhat hopeful to the audience. Then Ill feel as though Ive said something thats somewhat meaningful.
Nolan Bauerle: (15:33)
What youre basically saying is the world today is recognizable to the entrepreneurs and visionaries of 25 years ago. They would recognize what were doing today as the thing they predicted, but as you said, maybe coming at it from a different angle, with different names, on a different platform. The specifics are perhaps different, but the overall outline of it is pretty much in line with what those folks had envisioned.
Josh Brown: (16:00)
You know, this predates what I just talked about. In the 1800s we had a bubble in railroads, and almost every one of them went bankrupt. But what was left behind in the wake of that financial wreckage were the tracks, and the trains, and the stations, and the expertise to build more. And I mean we have trains to this day, and we had bullet trains. And what theyre building to connect I was just down in Orlando, and I saw all the facilities that theyve built for the bullet train thats going to take people from Miami to Orlando in 15 minutes.
Nolan Bauerle: (16:37)
Jeez.
Josh Brown: (16:37)
But that system that theyre building is a descendant of money that was lost to overambitious investment all the way back in the 1840s. So I know people dont have that much patience to wait 160 years to see their dreams come true, but Im just pointing out, after the railroad bubble, there were probably a lot of people running around saying, You see, its all stupid. No, it wasnt all stupid. And we had functional railroads from the civil war on. So eventually the technology found a way to be profitable, useful, and became woven into the fabric of our society. So its possible that the crypto investments people made in 2017 were stupid, but that they had the right idea. And that in the wreckage of the bubble having burst, new companies, new ideas, new entrepreneurs, new uses come about, and the whole thing rebuilds itself.
Josh Brown: (17:34)
And all of a sudden there are people with profitable investments. And just as a Coda to that, I took the long Island railroad into Manhattan today from long Island. And in every car, there are advertisement posters. And in a car I happened to have been riding in today were posters for the Genesis crypto exchange. And I know thats Tyler and Cameron [Winklevoss] and I would imagine they spent a ton of money on this, but everyone riding that train car was surrounded by posters for this new monetary exchange or brokerage or whatever you want to call it. And most of the people looking at this poster were like, What the hell does that mean? But some people know. And I just find it interesting that there were still people willing to invest, and advertise, and market new products. And as long as that continues, maybe there is a future thats more in the near term than what I think now for these types of technologies.
Nolan Bauerle: (18:32)
So like youre saying, the tracks were laid to bring you from Miami to the happiest place in the world in such a short amount of time. And perhaps the tracks are still there to bring bitcoin to the moon and realize everyones-
Josh Brown: (18:48)
When moon.
Nolan Bauerle: (18:48)
When moon, when moon.
Josh Brown: (18:49)
Well, look, I think we could separate what we think the price of the thing does versus what we think the utility will be. Thats where Ive been since December of 2018. We wrote a blog post basically saying, Im done speculating on the price of bitcoin. I think its a mania. However, Im open-minded to the possibility that blockchain will become a transformative technology. The caveat is that it might be very unsexy. It might show up in the income statement of a company that managed to save a few million dollars, by going from database to a blockchain. I dont know that that implies that the price of a digital coin will go up, but Im trying to stay open-minded.
Nolan Bauerle: (19:34)
Its not the romance of pamphleteering around the French Revolution or the American Revolution that everyone was sort of-
Josh Brown: (19:42)
No, right, it could just be corporate cost savings. And again, that is a sort of revolution. It just wont involve people waving flags and storming the barriers.
Nolan Bauerle: (19:54)
Well, Josh, thanks for your time today.
Josh Brown: (19:56)
Did I bring everybody down? I dont want to do that.
Nolan Bauerle: (19:59)
No, no. It was fantastic and were looking forward to hearing more in just over a week now. So thanks for your time and see you soon.
Josh Brown: (20:07)
All right, Nolan. Thank you.
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PODCAST: Josh Brown on Why Bitcoin Is Like the 1800s Railroad Boom - Coindesk
