Six years ago, Kyle Bass provided a crucial context for the debt-laden world of ever-increasing sovereign debt:
"Buying gold is just buying a put against the idiocy of the political cycle. It's That Simple"
And now, as interest in Bitcoin surges, Arthur Hayes, a former CitiGroup trader who runs BitMEX - a Hong Kong-based crypto exchange - asks an interesting question - In the coming war between digital currencies, which side will your money be on?
As CoinDesk reports, Hayes thinks blockchain is lighting a fuse that will ignite open combat between "true cryptocurrencies" (like bitcoin) and a new "digital fiat" controlled by central banks.
These two parallel currency systems are the inevitable outcome of his core investing thesis:
"A digital society needs digital cash."
In other words, bitcoin has brought the world cryptocurrency and institutions of all kinds will use the technology to their advantage.
Here's what Hayes sees shaking out as a result: Governments will respond to the proliferation of cryptocurrency by withdrawing banknotes from circulation, and governments will issue digital fiat that functions similarly to cryptocurrency.
But don't be fooled, according to Hayes, the similarities here are all on the surface.
Government-controlled digital fiat will be the antithesis of absolutely everything true cryptocurrency stands for. Central bank's issuance of digital money will lead to a brave new world where governments are able to monitor and control every single transaction in an economy.
And countering that overreach is the reason Hayes believes bitcoin and other cryptocurrencies have a value proposition not just today, but for years to come.
What all these country's governments have in common, according to Hayes, is the desire to use digital fiat as a tool of economic control.
He sees digital fiat as an instrument that will allow governments and global central banks to monitor every financial transaction, tax every sale and even lock out people from the payment system if they don't have the right government-issued licenses.
Shifting digital fiat into cryptocurrency, he reasons, will be the only way to preserve privacy. Plus, cryptocurrency will allow individuals and businesses to trade in jurisdictions where parties don't trust electronic fiat – or each other, for that matter – because they know cryptocurrencies cannot be tampered with.
"If you want to have a financial presence – and not have somebody else know what you're doing at all times – then you'll use a form of cryptocurrency."
But there may be limits to the value propositions of even true cryptocurrencies today. For example, Hayes sees small value transactions are out of line with a once resounding narrative in the space, that bitcoin is – and should be – a payment system for consumers. Hayes told CoinDesk:
"I don't think bitcoin is going to replace consumer facing activities, like buying a cup of coffee or buying a magazine at a 7-Eleven."
Hayes called bitcoin's user experience "terrible" for these purchases, because public blockchains are slower than private payment systems. So, for a trip to Starbucks, buying coffee with Apple Pay is a better experience than paying with bitcoin, he contends. It's an interesting observation in that many of bitcoin's strongest proponents tend to envision a world where the cryptocurrency is used for everything. Even still, Hayes is just as bullish on bitcoin, as he continues to reiterate what a fantastic mechanism it is for online international payments and anonymity.
And "those trade flows are massive," he said.