A lot of people have asked me about Bitcoin recently. Here I would like to share with you my very personal and probably highly subjective view.
The first time I bought Bitcoin was back in 2013. It was because I came across something intriguing, something that was making no sense from the point of view of classical monetary theory.
As the government of Cyprus announced a bail-in for banks, they had to cascade the losses on their shareholders, debt holders and even large depositors. The run on the Cypriot banks pushed Bitcoin from around 50 USD to 200 USD. This case in itself was actually quite an interesting incident from a historical perspective. For the first time in our history the role and behaviour of gold – a physical asset as old as history of humanity – was replicated by something that does not really exist: some abstract computer code run on decentralized network of computers. Perplexing situation, right? Especially if you’ve ventured into the history of monetary policy before. At my post-Soviet Union University this subject was my favourite, as it was a glossy new addition to our Fiscal Policy course.
I didn’t take Bitcoin seriously before, but this incident got me thinking. Is it really possible to create a post-national currency that would substitute gold, a universally acknowledged asset? Cyprus was just a little ripple in the ocean of capital markets. What would happen to Bitcoin’s price if World War III were to break out tomorrow?
Later the same year the Chinese got excited about Bitcoin and the price started to rise even further. Chinese government however understandably was not so happy about this new borderless currency which makes it so easy to circumvent the capital control. There were announcements about a clamp-down on Bitcoin. All of this was to no avail, as the price of Bitcoin just dived for a while. This was the first proof, that governments can’t do much about Bitcoin. This story was replayed in September this year as the Chinese government introduced restrictions on cryptocurrencies exchanges.
Yet 2013 was proclaimed “The year of Bitcoin” by the media. It was a real breakthrough for Bitcoin. Finally, after four years since the first block was mined on the Bitcoin blockchain, Bitcoin started to get some traction, to be accepted by retailers while the number of Bitcoin wallets rocketed to 12 million.
By January 2014 Bitcoin was reaching over 1100 USD. Then the biggest hack in the history of Bitcoin ruined Mt. Gox, one of the largest Bitcoin exchanges at that time. Around 750.000 were stolen from the exchange, which would be worth around 12 billion USD today. Bitcoin again lost half of its value. But that wasn’t all. It continued its decline over the next two years coming back close to 200.
Reasons for Stagnation
Such a prolonged stagnation occurred for a number of different reasons. I think the major problem was actually the lack of regulation. It was not possible to receive a legal status, even if you would be a legitimate business e.g. providing custody solution – saving cryptographic keys. And as Bitcoin companies could not receive any kind of licensing, banks could not engage with them in financial transactions. This situation lead to the absence of the ramp-on/off from and into flat currencies. Bitcoin being largely cut out of connection to the “real world money” was naturally of limited use. The whole dream of fast mass adoption of Bitcoin, which was driving around 1 billion USD in VC investment back then, did not live up to the promise. It was a very disappointing situation.
Then in 2015 New York came up with BitLicence, which was a total disaster, too. Limited to the New York state it was inherently restrictive – only three companies managed to get it. It was around this time when Xapo, one of the leading Bitcoin custodians founded by a famous Silicon Valley entrepreneur Wences Casares, decided to look for a better regulatory solution.
For me personally it was a perfect call to help Bitcoin succeed. I met Wences in Zug, Switzerland during one of his first trips here. I was amazed by how similar his and my story were. They were both about hardship and deprivation, about corrupt governments and hyperinflation. The only difference: he was from Argentina, and I from Ukraine. Behind our incredible intersection on the Swiss ground, coming from two different continents – was the same conviction that the human rights of people cannot be abused by a government targeting wealth redistribution through printing money, inflation. We both suffered from it. We both knew that it is up to us to change something that was never possible before: to create a first post-national currency which no government can interfere with.
It felt like quite a mission. So without much discussion about salaries and percs, I took over the responsibility for driving the regulatory process in Switzerland. For Xapo, Switzerland back then was still a bit of a gamble. We largely hoped that Switzerland’s financial regulator – FINMA – being a highly professional and pragmatic regulator will be more open to creation of a proper regulatory environment.
A lot has been written about the Xapo case in the press. In short, after initial difficulties relating to assumed obligation to apply for the banking licences, we finally managed to find a pragmatic solution with FINMA. Yet looking back, we realized that this would not happen if we would just concentrate on legal aspects. Very soon after we discovered there was a dead end, I started to engage with Swiss parliamentary groups in support of innovation, banking association, governmental bodies and startup associations. We managed to gain support of several parliamentary members. Franz Grüter, a member of the SVP party even submitted a motion to parliament concerning a change of the banking law redefining the term of “public deposit” and exempting cryptocurrency from this category.
The result was that FINMA has allowed us to operate without a banking licence being categorized merely as a financial intermediary. No banking licence, no FINMA supervision. Only an application to become a part of self regulatory organization for financial intermediaries. A big success story for Xapo and for me personally. For once in my life I did something that helped to solve one of the biggest problem of Bitcoin: the regulation. It was highly rewarding and an exquisite experience.
Moreover, it was an ideological victory. For me it was about human rights and freedom. To put it simply, if governments cannot print money then there will be also less war. Inflation was always the traditional way to finance wars imagine that they were no longer able to do it because their people would be able to say no. Cryptocurrency provides an escape-route. As long as they have a phone and internet – no government can stop them. How great is that! No wars, no abuse, a more liberal and fair society.
Cryptocurrencies as Disciplinary Measure
Cryptocurrencies as disciplinary measure for corrupt governments. If nobody could stop them until now – now there is a new force. And this force is the technology. I think there is a high probability that post scriptum this moment will be regarded as one of the biggest historical breakthrough: the case when technology changed the social order, just as it did at the beginning of first industrialization era.
In that sense I consider myself a very fortunate person. I was lucky enough to live through that, to witness this gigantic shift. And to help the movement along the way.
For that reason, I am not particularly excited about the recent price rally and the waves of speculation and greed rolling out of the news. Too many people today are focused on Bitcoin as a ‘get rich quick scheme’. But Bitcoin is actually not about that. It is about a better society, it is about equality and freedom.
Think about this when you buy Bitcoin . Buy it and never look back, no matter what happens.