Bitcoin's tug of war
Raoul Pal, CEO of RealVision and influential global macro investor, found himself in the middle of a fight recently after he tweeted to bitcoiners that know-your-customer (KYC) rules are in their interest because they will bring institutional money into bitcoin and boost its value. As someone with an account bearing the name SexyWebCamPro100x noted in one of more than 700 replies to that remark, the tweet begged for a meme of someone kicking a hornet’s nest.
Pal is an influential thinker about bitcoin’s place in the future financial system. So we invited him onto this week’s Money Reimagined podcast to discuss his brawl with Crypto Twitter. For balance, we also invited CoinDesk columnist Jill Carlson, who, among other roles, is a founder of the Open Money Initiative, which focuses on boosting financial access and economic freedom for underserved communities.
Pal offered a nuanced explanation of his position. He said while his point was partly about allowing both bitcoin HODLers and institutions to “get rich,” it was also that for the Bitcoin system to be a transformative force it needs the “network effect” of more money coming into the space, which in turn requires institution-friendly regulation.
“For people to realize their ambitions that it’s a stateless money … for it to be adopted by people who live within the confines of a sovereign state, unfortunately it will have to be regulated and there’s almost nothing we can do about it,” Pal said.
Some might see a contradiction: for Bitcoin to realize its power as a “stateless” network, the state must exercise more control over it. But Pal’s point is about sequencing. He says we need to first go through a process of official accommodation within the existing system to advance Bitcoin’s journey along “Metcalfe’s Law.” Once it becomes a ubiquitous network, then it is in a position to properly challenge that system.
Indeed, as Carlson pointed out, the positive thing, for those who believe in Bitcoin’s disruptive potential, is that “you’re not going to implement KYC and AML [anti-money laundering rules] at the protocol level.” Since “there is nothing inherent to Bitcoin that can be regulated, enforced or controlled in that way,“ it can at that level always resist official coercion.
But she also worried that the ever-growing encroachment of compliance requirements on applications built on top of that protocol impedes access to it among marginalized and financially excluded people.
Carlson cited how LocalBitcoins, a peer-to-peer exchange network that was once a “gateway to economic freedom” in places that impose capital controls and other forms of monetary repression, has “increasingly come under scrutiny and has to institute more and more KYC and AML standards and protocols. She added, “That’s problematic where we are talking about people who don’t have any identity or are unbanked and are refugees and so forth.”