So the reason everybody can trust Bitcoin from the US to Japan to China to the European Union is because you don't have to trust anyone else. It's the one currency that is not manipulatable by a single government.
If you could ask Satoshi one question, what would it be?
I don't really care who Satoshi is. It's a curiosity and other than that it really doesn't matter.
We're back at Consensus Miami. Joining me is my co-host, Bonnie.
There you go, Bunny Blockchain. And Mike Belshe is back with us. He was at our show last year. Check out the link down below to see Mike's interview from a year ago. Mike is the CEO of BitGo. Welcome back to the show, Mike. Good to see you.
Thanks for having me, Mac. When am I going to start using blockchain banks, if you want to call them asset managers or digital wallets instead of my traditional bank? I'm just waiting for my DEX or even a centralized exchange to pay yield on a stable coin that I own. That's not happening now. Why is it not happening now?
Why is it not happening now?
Well, you put a lot of things in there. First off, what is a bank? BitGo is a bank. We are an OCC chartered national bank, but there are two types of banks: depository banks, which you're thinking of, and reserve banks. We're a reserve bank, also called a trust or custodial bank. We hold 100% of our assets in reserve. As for when you'll see traditional banks replaced by blockchain-based banks, probably a little bit of time, but it's coming quickly. We have stable coins, which are a better deposit; lower risk, instant, 24/7, fees almost nothing.
Why do you say they're lower risk?
People remember Luna, right?
Okay. No, no, no. All right. All right.
Great. Sorry, I escalated that quickly. Great question.
Just like there are different types of banks, there are different types of stable coins. Genius compliance stable coins, the types BitGo can issue, are one-to-one backed with very low-risk T-bill instruments. That's the risk-free rate in economics. Luna was an algorithmic stable coin, much trickier, not part of the Genius Act. When we talk about banking, we're not talking about those. The last hurdle for retail is how to get interest via stable coin. The Genius Act says you shall not give interest to retail holders for holding a stable coin. This is the wrong side of history. Eventually, we will have stable coins that give yield back to retail. Right now, traditional banks are worried about a run, but there's no systemic risk.
The rest of the world outside the US, a lot of us are getting yields on our stable coins, 4% up to 5% or 7%. What is the fight really about?
Well, you're not supposed to get passive yield, but it's okay to get yield if you...
I don't know what that means.
Here we are in the United States. We passed the Genius Act. The good news is it provides structure: one-to-one stable coin, not a Luna type, held by qualified issuers like BitGo. But it didn't get the interest right. We've got competing businesses: companies like BitGo totally pro-interest, and traditional banks, the ABA, fighting, saying there's systemic risk. That's false on multiple levels. We've seen this movie before. In the early 1970s, money markets backed by T bills were introduced, pegged to a dollar and backed by T bills. Banks had regulation Q preventing high interest rates. The T-bill interest was higher, they said there'd be a run, but there was no run. Regulation Q is gone. Everyone's happy. Banks are just trying to preserve their business model. At the end of the day, it's your money. You should get the risk-free rate on it.
Why do you say we won't see a bank run?
Because not everybody is going to move. It's simply not true that everyone chases the best yield. There are many considerations: trust, checking accounts, services, lending. Banks should compete with stable coin issuers. Most folks in the US get 0.1% on their checking while the risk-free rate is 4%. Why take risk with a bank that lends your money and gives you 0.1%? The reason is simple: banks don't need your money. They have plenty of cash and don't have good places to deploy it. Look at SVB: they had so many deposits they didn't know what to do, so they put it in 10-year T bills, which blew up the bank. If your only idea is to put money in a 10-year T bill, you're not a good financial manager. I can do that myself with a stable coin. Banks will have to compete and give a yield. Right now they're taking money from retail to subsidize low-interest loans to institutions.
So what you're saying is there won't be a bank run because banks will try to compete.
They would rather just keep your money. Of course.
That's the fight right now.
Who's winning? What's really happening?
When it comes to money, we have a highly regulated industry. Software hasn't had more impact because of regulatory modes. Blockchains are getting past those modes. Companies like BitGo are on both sides: blockchain and traditional finance. We're a licensed bank in the US, Germany, Dubai, and Singapore. Once software comes in, banks have to compete.
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So, I've interviewed Tom Hoenig, former vice chair of the FDIC, and I asked him if he were still at the FDIC, would he insure crypto banks or any blockchain asset manager? He said no. He said, 'If I were still at the FDIC, I would make it a mandate to never insure crypto banks because I think crypto is a speculative asset. People are gambling. You want to lose your money gambling at the casino or at a crypto bank.' His words, not mine. You have the right to do so, but the government shouldn't be beholden to your risk and insure your risk. How would you respond to that?
Well, I don't know if he said the government shouldn't be beholden, but the government is not FDIC. It's supposed to be private. He misspoke about his own product. Which would you rather use, an insured bank or an uninsured bank?
I would use an insured bank.
When we talk about an insured bank, written into law, we're talking about depositories. They take your money, lend it out, take risk, and sometimes fail. The FDIC is insurance because they screw up. So an insured bank is insured because it takes risks. Which is safer: a driver with insurance or someone who doesn't drive? Someone who doesn't drive. BitGo is a bank, but a reserve bank. We're not eligible for FDIC because we're not a depository. We hold assets in 100% reserve, 100% of the time. We could have a full bank run today and satisfy it tomorrow. Show me a depository that can make that claim. They can't because they don't have the assets. That's what caught SVB. I understand his concern about crypto, but it's different from taking risk. Holding 100% reserve is less risky than any bank.
So, in the future, traditional banks will do that as well. Is that what you're suggesting?
They'll have to do what? 100% reserve? No, I don't think so. Depositories have a place, but times are changing. 150 years ago, you went to a bank for a loan; depositors kept money safe. The bank knew you. Today, banks don't have that ability. Mortgages are securitized and sold to Wall Street. Commercial lending can move to private equity on a blockchain. The coupling of retail deposits with institutional lending is from the past. Blockchains will lead the way.
Would you consider switching BitGo to a fractional reserve model? Would that be more profitable for you?
No, that's not of interest. We're not trying to be a bank in the traditional form. We're an infrastructure provider. SoFi is a great client. The reason we have a federal charter is so clients know their money is at the utmost extreme of protection.
Is stable coin making the Fed less powerful?
Is stable coin making the Fed less powerful? I don't think so. Stable coins are backed by short-term T bills, which are regulated by the Fed.
But it's short-term. So the argument is that whatever interest rate they have to buy, that means the Fed's power is less powerful now.
