How Legacy Finance Perceives Bitcoin
Observations from a 13-year career at Goldman Sachs.
Swan Private Insight Update #14
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I happen to be one of the growing number of people who left traditional finance for the world of Bitcoin. That’s Bitcoin, not “crypto”. Before joining Swan, I spent nearly 13 years on Wall Street at Goldman Sachs. I was in the Asset Management division, and held roles in institutional sales and fixed income portfolio management. Throughout my time at Goldman I had many conversations with coworkers about gold, sound money, fiat currency, Keynesianism, MMT, and Bitcoin. My conversations with colleagues about gold/money/economics began at the beginning of my career in 2009 — the same year Bitcoin launched. I was a college senior when the financial crisis was happening, which played a huge role in shaping my views and my study of economics. My conversations with colleagues about Bitcoin only began in 2017 after Bitcoin reached the mainstream, being discussed on platforms like CNBC and Bloomberg.
I’d like to share the experiences I had when discussing these topics with people in legacy/traditional finance, including what I think are the commonly held views on these topics.
Before sharing those experiences, I’d like to highlight Bitcoin’s multifaceted nature. Those who have fallen down the Bitcoin rabbit hole know that it takes an understanding of various disciplines to grasp Bitcoin. This includes economics, monetary theory, investor psychology, computer science, cryptography, energy, geopolitics, politics, game theory, history, privacy, and human rights. It is rare for anyone to be well-versed in most of these areas, let alone all of them. This helps explain why it’s uncommon for someone to hear about Bitcoin for the first time and immediately grasp the immense significance. This is also why the proverbial Bitcoin rabbit hole is so enticing — the concepts to be learned are virtually endless. It’s been said that many people have fallen down the Bitcoin rabbit hole, and no one has found the bottom. Jameson Lopp has written that "No one understands Bitcoin (and that’s okay)."
While I mentioned several disciplines that Bitcoin encompasses (and I’m sure there are Bitcoiners who would point out additional disciplines), I believe they can be distilled down into two main elements:
Understanding what sound money is; and
Understanding how Bitcoin can succeed as sound money
My experience suggests that people in legacy finance rarely ever make it to the second of these. This happens for a variety of reasons.
Legacy finance firms hire from select universities, so it’s worth discussing what students typically learn regarding these topics while in college. I can speak firsthand from my own experience and confirm that, as a finance major, at no point in my college experience was I asked to think about the questions “what is money?” or “why did gold become money?” No teacher, textbook, nor other part of our curriculum covered these fundamental questions. I cannot speak for all universities, but what I can say is that in my many discussions with others in legacy finance, not a single person ever said that these topics were covered at their universities. And of course, in the Bitcoin community there is general agreement on the observation that these topics are simply not covered in schools, whether that be graduate school, undergrad, or high school.
Once you reach employment in traditional finance, there is certainly no discussion of these topics. You begin learning about far more complicated economic and financial concepts. In a weird way, it felt as if no one wanted to admit that they hadn’t thought about these foundational questions, because then they’d be forced to start back at square one in thinking about how our economy and financial system work. But what incentive is there to start back at square one? They made it all the way to Goldman Sachs where they now talk with savvy clients about sophisticated investments, so surely they must understand the fundamentals and history of money — right? They ignore the fact that they couldn’t tell you when or where they learned it, or tell you anything coherent about money’s key properties. But rather there is an unconscious assumption that the question of “what is money?” is simply too basic of a question to be asked by someone at an elite financial services firm.
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To the extent that those working in traditional finance have any opinions about the history or fundamentals of money, it’s almost entirely shaped by Keynesian economics, and perhaps by MMT in more recent years. Each of these schools of economic thought are in strong favor of central planning and they do not provide rational explanations for why gold ever became money. John Maynard Keynes called gold a “barbarous relic” and Ben Bernanke claimed that government and central bank ownership of gold could simply be chalked up to “tradition.”
The reality is that throughout history, money has naturally arisen as a commodity in society without the action of any centralized government. Gold became the global predominant form of money because, among commodities, it best possesses the key characteristics of money — durability, divisibility, recognizability, portability, and scarcity. For the record, some people denote a longer list of money’s key properties, but the five listed here hit on money’s core attributes. The key point is that there is no discussion of money’s characteristics at the university level, nor in legacy finance.
To be clear, it’s not as if sound money principles are taught, and then thoroughly debunked by Keynesians. That would be more honest. You might see a passing comment in an economics textbook claiming that the inelasticity of the gold standard causes depressions and hoarding, with no logical explanation as to why. It’s unfortunate, but sound money principles aren’t taught in any honest or comprehensive way.
If you asked someone in legacy finance “what do you think of sound money?” they likely would not even understand the question. And if they did, this would be a relatively recent development, which could likely be credited to the Bitcoin movement that has inspired so many people to learn about money and the monetary system.
Another example of this is the term “fiat currency”. Back in 2010, the only place you’d find the term “fiat currency” was on sites like Mises.org. Virtually no one in legacy finance even knew that the term existed. To the extent that legacy finance is now aware of the term, I believe it can be credited to the Bitcoin movement. (While of course credit for the term goes to Austrian Economics before that.)
Many people scratch their heads and wonder why nothing is taught of the nature of money in schools. They may presume that those whose education specializes in learning about money must of course cover the history of money or an analysis of it from first principles. But as it turns out, this is not the case. Our best schools simply shovel pre-packaged economic theories onto their students who accept these as valid because of the prestigious nature of the schools they attended and the consensus around them by others who attended the same schools. The key questions are hardly ever asked. When they are, those who offer answers which require re-working one’s concepts of money are often pushed away, not on the grounds that they are wrong, but out of resistance to doing the hard work to learn the material. And unfortunately this material was never presented during the expensive schooling where it should have been taught in the first place.
Bitcoin is sound money based on first principles, and therefore we see little support for it in legacy finance, where the principles of sound money are largely unknown.
Delving a little deeper, I would suggest that people in traditional finance are generally not supportive of Bitcoin for some combination of the following reasons:
They do not understand the history or fundamentals of money;
They have spent almost zero time researching Bitcoin, and they simply repeat the objections they have heard in the mainstream media;
They’ve been conditioned to believe that government central planning, both fiscal and monetary, is necessary for an economy’s growth and stability;
They are high performing consensus followers rather than independent thinkers;
Their world view is entirely focused on developed countries which have not experienced a currency crisis or a totalitarian regime in recent memory; and
They want to keep the current system going, where simply saving money is not an option and it must instead be invested.
Numbers 1-5 are incredibly common. Number 6 is less common, because it implies an understanding of sound money.
As mentioned previously, number 1 stems from the fact that virtually no one spends time on these topics at any level of schooling.
On number 2, it is a daunting task to begin learning how the Bitcoin network and protocol operate, and admitting you are ignorant about a topic is not commonplace in legacy finance. It’s much more common for one to pretend to be well-versed on a given topic and take a strong opinion regardless of one’s underlying knowledge — and this is especially true for a topic that touches the world of investing.
On number 3, I would argue that those in legacy finance have become proponents of Keynesianism and central planning simply because this is the economic dogma of our time. It’s what they learn in universities and it’s what the average person repeats when they reach employment in legacy finance. But the vast majority of these people have never even heard of Austrian Economics, let alone do they understand both sides of the Keynesian vs Austrian debate.
On number 4, the vast majority of people who work in legacy finance are high performing consensus followers. They are the people who generally followed the rules throughout their lives: They listened to their parents and teachers; they did well in school; they followed the steps that they were told would lead to success; and they generally trust authority and alleged experts.
There is nothing inherently bad about these things. However, these behaviors do not lead them to becoming independent thinkers who will be early adopters of a new asset or technology. They are more likely to trust that a small group of people with Ivy League degrees can control our economy and monetary system. It doesn’t matter that weeks before the Global Financial Crisis unfolded, Ben Bernanke told us publicly that mortgage problems were contained to subprime, or that Fannie Mae and Freddie Mac were not at risk of financial losses. It doesn’t matter if Jerome Powell and Janet Yellen couldn’t foresee the largest increase in consumer prices that we’ve seen in forty years, even though this is exactly the type of thing that we trust them to see before anyone else. High performing consensus followers still trust the system in the face of all this. To the extent they admit that people like Bernanke, Powell, and Yellen were wrong, they still believe that if we just got the “right” people in power, and if they developed the “right” models, they’d be able to manage the economy properly.
It’s worth giving a tip of that hat here to Croesus’s epic article “Why the Yuppie Elite Dismiss Bitcoin.” It’s an excellent read and delves into the concept of high performers who maintain trust in the system.
Lastly, I’d say that I spent most of my life as a high performing consensus follower myself, until two things brought it to an end — the Global Financial Crisis and the food pyramid. After those, I was never able to unsee how incredibly wrong the “experts” could be when it came to understanding their respective fields.
This doesn’t mean one should always distrust experts. Using any sort of blind rule like that would be foolish. However, it certainly does reveal that alleged experts can be wrong about critical topics.
On number 5, they see only the local world around them. They cannot imagine the condition of high, persistent inflation, where the prices for basic goods increase by an order of magnitude from one year to the next; or a world where government decides to demonetize the currency overnight; or where government does not allow you to take your money beyond the country’s borders; or where it confiscates your wealth via a corrupt legal system.
Many people in developed countries may feel that demonetization, persistent inflation, capital controls, and confiscation are rare. But when you look across the entirety of the globe, these things are anything but rare. This is why someone from Argentina, Turkey, Lebanon, Venezuela, or Nigeria (just to name a few) are able to much more quickly understand Bitcoin’s value proposition compared to a high performing consensus follower living in a Western developed country and employed in the finance industry.
It’s no surprise when you look at Bitcoin and crypto adoption at the country level, nearly all of the top 20 are developing countries where these dynamics are at play.
The USA is actually the major exception. This gives me some hope that Americans have not yet lost their ability for adversarial thinking. The USA was essentially founded on adversarial thinking. The Founders’ framework for a limited & defined federal government was chosen because they did not trust anyone to have unilateral power over the country. Perhaps Americans grasp this concept better than citizens of other developed countries. But I digress.
On number 6, the people holding this view most likely hold senior roles and would never admit that they dislike Bitcoin simply because it means fewer clients and less capital needing to be invested by their company. If Bitcoin continues to succeed as a globally used store-of-value monetary asset, it would reestablish the line between saving and investing. It would mean that citizens would no longer be forced to invest their hard-earned money in an attempt to maintain the value they already earned. People who work at an investment firm or investment bank and understand this have no financial incentive to do or say anything positive about Bitcoin as long as they still work in legacy finance. Of course they would prefer the world’s capital to be forced into investments, which their companies just so happen to provide access to and earn juicy fees on!
To further support the idea that legacy finance has not arrived at their opinions of Bitcoin through research or understanding, consider how their consensus opinion of Bitcoin has changed so dramatically over the past 5-10 years, yet they don’t even seem to acknowledge this.
Legacy finance has drastically changed their tune on Bitcoin over time, without recognizing the clear trend here. Bitcoin is becoming a more established asset with real uses throughout society. When your criticism changes from saying something is a worthless scam to saying it’s correlated with tech stocks, or to saying that it’s so significant and disruptive that the government is going to shut it down, then clearly your first criticism was wrong. And it’s okay to be wrong, but in legacy finance there’s neither awareness nor admission of this.
Another thing to consider about legacy finance is that it is highly specialized. Specialization is not a bad thing on its own, but it can lead to a lack of understanding of the fundamentals of a system, because participants are focused only on their own specific task. As an example, I worked with many people who could tell you everything about the corporate bond market, such as the issuers, spreads, yields, relative value, trading volumes, new issuance, M&A rumors, legislation, and far more. But these people are spending exactly zero time thinking about the question “what is money?” I’m not saying I blame them or that they should act otherwise. They earn a living by knowing the specifics of their corner of the financial services sector. There is little incentive for them to examine the fundamentals of the system.
To summarize, people in legacy finance who have a negative opinion about Bitcoin have not arrived at that stance due to deep research or understanding. For multiple reasons, I sought out conversations on these topics with as many people as possible while I worked in legacy finance.
As any Bitcoiner knows, once you become aware of the history and fundamentals of money you become eager to discuss it with anyone. This was my situation as I studied Austrian Economics and learned about the gold standard long before I had ever heard of Bitcoin. As I found out that Bitcoin was designed with all of this in mind and improves upon gold’s shortcomings I became even more enthusiastic.
I wanted to better understand why most people in legacy finance were so against the gold standard and against Bitcoin. Was it because they had thought of something that I hadn’t? If I had coworkers who were aware of reasons why Bitcoin would fail, I certainly wanted to have a conversation with them. After many conversations, I can say that if there are people in legacy finance who have a well-researched stance on why Bitcoin is not a good form of money or why Bitcoin will not succeed, I was not able to find them. Considering everything discussed here, perhaps it is not so surprising that legacy finance is largely against Bitcoin.
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John is the Managing Director of Private Client Services at Swan Bitcoin. He previously spent 13 years on Wall Street, where he was a Portfolio Manager and Insitutional Investor at Goldman Sachs.
If you’d like to learn more about the Bitcoin network and protocol function, you can download Inventing Bitcoin by Yan Pritzker for FREE!
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