Bitcoin’s long-term objective is ‘to replace something like gold’: CoinMetrics co-founder

Nic Carter, Castle Island Ventures gen partner & CoinMetrics co-founder, joins Yahoo Finance Live to discuss the correlation between bitcoin and risk assets, the outlook for bitcoin and cryptocurrencies, and the future of bitcoin mining.

Video Transcript

- Increasingly, we have been watching Bitcoin and other cryptocurrencies trade pretty much in line with tech stocks. So we see a similar trend when we see bond yields go higher, we see risk assets go lower. And the correlation that we have seen between those risk assets and Bitcoin has been increasing.

Let's talk about that phenomenon, whether it's going to persist. Nic Carter is joining us. He's a partner at Castle Island Ventures and a co-founder of Coin Metrics. Nic, it's good to see you. So talk to us about what could be driving this and whether you think that this is the new normal now, that we're going to continue to see this increased correlation.

NIC CARTER: Yeah. We've seen this since March 2020, is a higher correlation. Effectively, it was zero before, and now we have a non-zero correlation between Bitcoin and risk assets, in particular long duration tech stocks, things like that. And that's the flip side of Bitcoin and other cryptocurrencies being financialized and being incorporated into the mainstream financial apparatus is you're exposed to the behavior of more mainstream investors.

That said, the case for these assets in a very uncertain and highly inflationary monetary environment, with sovereign defaults and sovereign currency failures we're seeing in a number of countries, has never been stronger. So I think the fundamental case for non-state monetary goods is still very strong.

- Nic, just given that enthusiasm, continued enthusiasm, on crypto and Bitcoin too, can you help us understand why we have seen prices come back down to 40,000? 41,000.

NIC CARTER: Well, it's a cyclical asset class. And every cycle you get new entrants that are excited by the hype and want to pile into something interesting and new without maybe a full appreciation for sort of the underlying fundamentals and the purpose of the assets, frankly. This cycle, we've seen an enormous amount of investment, malinvestment you could say, in assets that really don't make any sense.

And you see a supply response, entrepreneurs create more quantity of these assets. You're seeing a lot of new supply come online for a lot of these hot new tokens that attract a ton of investor dollars this year. And so that's adding pressure to the price. But yeah, I think the long term objective is still, as far as Bitcoin is concerned, to eventually replace something like gold which is worth over 10 times what Bitcoin is worth in the aggregate.

- And this sort of disconnect you talk about, or decoupling that you're talking about, between Bitcoin and some of the other assets out there and the other opportunities out there, highlights to your point how many of them there now are. What do you like right now in terms of where you are seeing opportunity, whether it be in other cryptos or just other sort of Web3 investments right now?

NIC CARTER: Yeah. Well, we're spending a lot of time on decentralized internet infrastructure. I think it's very important, socially and politically, that we build tools for people to communicate and interact with each other online without deferring to these gigantic Silicon Valley tech corporations that increasingly control speech and commerce and activity on the internet.

And so that's not just something I think is economically very interesting as an opportunity at the earliest stage with these startups, but I think it's just very important for a society. We've reached kind of a peak of centralization here, where a small handful of tech firms control a huge amount of enterprise value if you look at the ratio of the FAANG stocks to the S&P 500, for instance.

And they increasingly have discretion over what is allowed to be said in the public sphere, and how you can make money, and who can receive payments, and who's entitled to do business online. And I think it's very important that we invest in companies that are building tools for voluntary engagement online without surrendering your user data and your identity to these third parties effectively. So that's a big focus of ours these days.

- And Nic, there were several, or numerous, Bitcoin mining companies that came to public markets. What is your outlook on those companies, given all the concerns we have heard about the energy use amongst Bitcoin miners?

NIC CARTER: Yeah, and the House Committee on Energy and Commerce is holding a hearing later this week on that precise concern. And they released a report today. It's frankly pretty hostile to the Bitcoin mining industry.

The interesting thing is that the North American Bitcoin mining community, which I think operates 35% to around 50% between the US and Canada of Bitcoin's hashrate is pretty clean and sustainable in their operations. They've done a great job of identifying these stranded underutilized energy assets, renewables, whether it's wind and solar in west Texas, or hydro in upstate New York, or British Columbia, or Quebec.

If you actually just look at where these firms are located, and what energy inputs they're using, they're remarkably clean. And they're getting cleaner. We'll see disclosures from the Bitcoin mining council today, actually this evening, that will bear that out. So it's actually a success story as far as the miners in the West are concerned.

Now, there is still residual miners in Kazakhstan, China, Iran. They're certainly less clean. But there's not a lot that we in the US, and sort of the public markets, can do about that.

So the cohort of the 20 or so publicly traded mining firms have done a good job of pursuing those sustainability goals, and actually being transparent and undertaking disclosure. So I think a lot of the concerns in the House are going to be met with some pretty robust reactions here from the mining community, which I think gets a pretty unfair amount of scrutiny.

- And so Nic, do you think that those publicly traded miners are a good investment right now? Or is there still that regulatory overhang if they fail to convince the House not to impose some sort of regulation?

NIC CARTER: Well, I think it would be unlikely we'd see anything at the federal level. It would be difficult to push through. Bitcoin is a pretty popular theme. You have a very strong pro-crypto contingent in Congress. And this Congress hasn't shown much of an ability to do anything, frankly.

That said, the states do have the ability to make policy here. And New York is mulling a ban. Other states are trying to attract Bitcoin miners and other energy intensive industries to their states, like Wyoming, like Kentucky. Texas has been a huge heartland of this stuff.

It's certainly possible that New York State does ban the practice. And so it's just a matter of locating your operations in the state that avoids that political risk. But generally speaking, I think US miners can sleep soundly.

- All right. We'll keep an eye on them. Nic, it's great to catch up with you. Nic Carter is partner at Castle Island ventures and co-founder of Coin Metrics. Thanks again.