Few billionaire investors have been so vocal and bullish on Bitcoin and cryptocurrency price appreciation as Tim Draper, the founder of venture capital firm Draper Fisher Jurvetson.
TheStreet sat down with Draper in early May at the Collision tech conference and later chatted after Draper spokeat the Federal Reserve in San Francisco in mid-May, where he told the people at the organization in charge of U.S. monetary policy that it might be time for them to think about getting new jobs as centralized fiat currencies gradually get replaced by decentralized cryptocurrencies.
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In an exclusive interview with TheStreet, Draper weighed in on where he thinks Bitcoin's price will be in the future, cryptocurrency regulation and price volatility. What follows is a condensed and lightly edited transcript of our discussion.
TheStreet: Let's jump right in. Former chairman of the Commodities and Futures Trading Commission Gary Gensler recently argued that Ripple, Ether and other cryptocurrencies should be regulated. What's your take?
Draper: Regulations need to be reined in and made clear. The governments of the world are in competition for us now and the best of them are creating very clear and light-touch regulations for crypto. Cryptocurrencies are the next big technological tectonic shift and governments have to weigh their need to protect investors with their need to be included in this potential economic powerhouse that is crypto. I believe cryptocurrencies will overtake fiat currencies in the next five to seven years.
I hold a lot of cryptocurrencies and mainly Bitcoin. I am buying more. I feel that crypto and Bitcoin are the future. Fiat is the past. I do still have to hold some fiat currency for everyday transactions today, but I suspect that that will change over the next few years. I cannot wait to be able to go to a store and make purchases using cryptocurrencies. Fiat currency will eventually become as passé as trying to pay for coffee with pennies.
Security is one of the best features of cryptocurrencies. The Bitcoin blockchain hasn't been hacked, but banks are constantly being hacked. They are playing whack-a-mole trying to keep hackers away. Bitcoin is like the hero that came at the perfect time to save us as banks have begun to lose their safe hold on people's money.
The larger the network of wallet holders, miners or stakeholders, the more secure the cryptocurrency. So Bitcoin is the most secure. By contrast, hackers are finding more and more holes in our banking systems.
TheStreet: Certainly digital wallets that hold cryptocurrencies have been hacked. Do you see that as an issue?
Draper: There are plenty of instances where digital wallets have been hacked and cryptocurrency has been stolen [Editor's note: Over the weekend, a South Korean cryptocurrency exchange was hacked, losing as much as $40 million, which sent the price of Bitcoin and other cryptocurrencies tumbling about 10%]. But the underlying blockchain has never been hacked into. Knock on wood. And it is getting harder and harder to penetrate as it grows.
TheStreet: So if cryptocurrencies aren't securities, then what are they?
Draper: They are very much currencies. They are recognized tender throughout the world. If you are a knee surgeon, everyone looks like they have a knee problem you need to solve. If you are a securities regulator, everything looks like a security to you. Unless the tokens are tethered, they are not securities in my view.
I expect that since cryptocurrencies will increase the velocity of money, the current $86 trillion global market for currency will grow to be about $140 trillion in the next 10 years, and that growth will be in crypto. In fact, I estimate that fiat currencies will actually decrease in use, and that crypto will become as much as $100 trillion of that market. I expect Bitcoin to be about 10% of that market, or $10 trillion. There is a lot of room to grow there.
Other cryptos will grow and surprise us. Entrepreneurs have a way of surprising everybody. I believe that in about four years there will be a big change when people start paying in cryptocurrency. It used to be the case that the Bitcoin block was too slow to make small transactions, so it was better as a store of value. But what is happening is that as time goes on, more technologies make it easier for us to use. We have had the introduction of Lightening, Bitcoin Cash and Bitcoin Gold, and I think what eventually will happen is that these cryptocurrencies will be more ubiquitous as engineers continue to make them faster and more useful.
I think the best approach for most people to get involved is to move over gradually. I have a whole bunch of Bitcoin and a whole bunch of other cryptocurrencies, and when I look at my fiat currencies all I am thinking is, is this enough to live off of in the next four to five years, because what I really want is for everything to move over to Bitcoin and other Cryptocurrencies. I'm not really interested in holding fiat, because it loses value over time.
I have no interest in selling my Bitcoin. What would I sell it into anyway? Moving from crypto to fiat is like trading shells for gold. It is reverting to the past. I'm thinking long term I'll use it, spend it, invest it, or just keep it.
Price-wise, we'll continue to see Bitcoin move higher. I've revised my estimate up to $250,000 four years out, so we'll see Bitcoin trade around the $250,000 mark in 2022.
TheStreet: You've been very critical of regulators over the last few months. If Donald Trump calls you into the White House to draft cryptocurrency policies -- as has been rumored -- what would you do differently that we are not doing in the U.S.?
Draper: I would suggest that he think about first, making Bitcoin a national currency as Japan has done, and next creating very light touch but clear regulation on ICOs --probably with a new department, ideally outside the purview of the SEC and the CFTC. Then I would suggest that he make a strong bully pulpit statement saying, "The United States is open for business! We intend to compete to retain the world's best innovators."
I just spoke to people at the Federal Reserve recently. I felt like I should tell them they should start looking for a new job. Not immediately, but over the next 10 years, I suspect we will have less need for centralized currency.
Historically, they've been able to have all the currency centralized and under one roof. And now with decentralized currency they have a quandary: Should they just embrace the new currency and eventually drive themselves out of business, or should they try to balance that and control everything with, for example, a tethered currency?
I do know the regulations were very light in the U.S. when I was much younger, and over time they have gotten heavier so that as I try to innovate, I feel like I'm always walking through Jello. Other countries are starting to recognize this, and picking off some of our best innovators.
Japan was brilliant: As soon as they saw that China was blocking everything, they said Bitcoin is the national currency of Japan and here's how you do an ICO if you work through Japan. Suddenly all these entrepreneurs are flooding into Japan from China and the U.S. has been lucky they have not been moving too hard. But people in the U.S. are afraid to innovate now because they think the SEC is this big, dark cloud hanging over their head.
TheStreet: From a regulatory point of view, was it a mistake to borrow the term "ICO" from "IPO," in reference to the equity market's initial public offering of a security?
Draper: The typical IPO has a market cap of $10 billion with 100,000 people working for it and it's no big deal if they spend $5 million a year on lawyers and accountants to comply with regulation to maintain a security.
That's very different from two guys or girls and a dollar who are starting with a crowdfunded ICO. It makes no sense to force them to go and hang out with lawyers and spend $5 million just to be compliant with some antiquated regulation that came before there was ever any kind of cryptocurrency. Regulators need to figure out the one-page memo they want us all to follow. The idea that you have to mold what you're doing into looking like an IPO is ridiculous.
TheStreet: Thanks, Tim, for contributing to the cryptocurrency and Bitcoin conversation for our audience.
Draper: Glad to talk again; TheStreet is one of the savviest financial publications covering Bitcoin and cryptocurrency.
The author holds stock in investment holding company, Leucadia, and remains a partner in an emerging technology fund. He holds no positions in cryptocurrencies or in any companies that invest in them.