Mention Bitcoin to Felix Salmon, and you can sense the eye roll even though you are on the phone. The veteran financial journalist has long been an ardent skeptic of Bitcoin. He’s repeatedly squared off against some of the community’s equally ardent supporters, whom he considers as rational as gold bugs. He famously made a bet with Andreessen Horowitz co-founder Ben Horowitz on the subject in 2014. Salmon took the under on a wager that by January 2019, at least 10% of Americans will say they’ve used bitcoin to buy something in the preceding month.
Salmon’s position on Bitcoin is reminiscent of the old saying about Brazil being permanently the country of the future. “Bitcoin is the currency of the future, they say,” says Salmon, adding, “And it always will be.”
“Bitcoin is always just about to compete with the incumbents of the world. The killer app is always just around the corner,” Salmon says. “It just never seems to get there. I don’t see the waveform collapsing right away, but there’s not a lot of progress. It’s always a lot of hand waving and hype, but at the end of the day, not a lot of actual product is being put on the market.”
Salmon points to remittances as an example. “Remittances were supposed to be the lowest conceivable low-hanging fruit, the most blindingly obvious use case for bitcoin. Everyone predicted the big remittance firms would wither and die. Yet startups in the space have been at it for two to three years and haven’t made a dent. Why not? Because it’s not a business that competes on price. It’s a solution looking for a problem.”
Ditto for the predictions that the blockchain will upend the global clearing and settlements industry. Salmon points out that the SWIFT network moves an estimated $8 trillion per day in cash and securities quickly and securely via more than 25 million financial messages across 10,800 financial institutions and corporations in 200+ countries. “That’s the sort of thing you’re competing against,” he says.
Meanwhile, Salmon argues that Bitcoin remains far too complex for the average person to use for daily purchases. “The Bitcoin community is already retreating from the idea that this will become a consumer-facing technology. Six years on, your average consumer still doesn’t understand bitcoin, and still doesn’t need it.”
Still, Salmon believes the blockchain’s distributed ledger concept is interesting. He gets why so many institutions are exploring it. But that doesn’t mean its use will rise. On the contrary, customized private ledgers can potentially mark ownership and transfers just as easily, and never go near the bitcoin blockchain itself.
“Bitcoin is open-source,” explains Salmon. “There will be sidechains, colored coins, and so on, and they’ll all implement ledger technology. But will they all need bitcoin? I don’t think so, and even if they did, there is actually a strong incentive to use the smallest amount possible. The impact on bitcoin’s price will not be material.”
Even if the value of bitcoin doesn’t go up with increased use of the blockchain, will a portion of all those startups developing bitcoin blockchain applications succeed? Probably not, says Salmon, because of the open-source nature of the code and the now-crowded nature of the space. “All the big boys are there now, like Goldman Sachs, Morgan Stanley and Citigroup. The credit card companies are all there. These are really big companies with really deep pockets, and they’re all researching the same thing. A huge number of incredibly brilliant people are building on top of this. Pretty much everyone will be able to make your mousetrap.”
Capital flows further tell the story, Salmon says. “Silicon Valley is a Series A sort of place. We’ve seen some very large seed deals, but not much in the way of subsequent financings. The reality is that the overwhelming majority of seeded bitcoin firms will not do a Series A round. Some people describe this as a sign of the market maturing, that it’s a good thing. I just scratch my head – it seems to me an investor could wait to see which technology wins at a pretty low cost.”
Mention bitcoin trading and Salmon rolls his eyes again. “The number of professional investors trading bitcoin rounds to zero,” he says. He recommends shorting bitcoin volatility, if you can find a way to do it. “The price of bitcoin isn’t going anywhere soon. The bubble has burst, and it’s just going to meander around. Low price volatility might be a good thing for blockchain applications, but it doesn’t help a trader much.”
Salmon jokes that bitcoin advocates often ascribe his skepticism to just being dense. That’s clearly not the case. Salmon’s quick wit comes along with a deep understanding of global finance, macroeconomics and technology, and he admits to being fascinated by Bitcoin. “I’m genuinely interested. But I just can’t get to where it works out the way everyone thinks it will.”