Law professor tells Steamboat audience crypto not worth the hype

Lee Reiners, executive director of the Duke Global Financial Markets Center, discusses cryptocurrency with a Steamboat audience July 25, 2022.
Katy Pickens/Steamboat Pilot & Today

Cryptocurrency, like many hot-button issues in the U.S., can draw mixed reactions. Some think it is the future of global commerce, while others think it is a scam. 

As part of the Seminars at Steamboat at the Strings Pavilion on Monday, July 25, Lee Reiners, executive director of the Duke Global Financial Markets Center, explained the rapid rise of crypto, why he believes it is a risky bet, and how currency may evolve technologically.

Reiners, a professor at Duke University School of Law, had worked at the Federal Reserve Bank of New York for five years. In his talk, “Cryptocurrency: The Future of Money or All Hype?” he explained the problems and potential of crypto technology.

To kick off the talk, Reiners asked the audience who had owned cryptocurrency — a smattering of attendees raised their hands. He then asked how many people in the audience would “never ever consider owning cryptocurrency.”

Laughing, a majority of audience members raised their hands. Reiners explained that cryptocurrency generates a lot of buzz, but can be a polarizing topic.

He explained that the rise of cryptocurrency happened in the context of the 2008 financial crisis.

“The first Bitcoin transaction occurred in January 2009, and that first transaction included a reference to a UK newspaper article with the headline ‘Chancellor on brink of second bailout for banks,’” Reiners explained. “Now this tells you something about the environment in which Bitcoin and cryptocurrencies came into being.”

“This was in the midst of the global financial crisis, when trust in banks and government institutions were at all-time lows, and so it was really libertarians and anti-government types that were the first to be drawn to cryptocurrency and sustained it for its first couple of years,” he said.

This sentiment has persisted in the crypto community today, Reiners added.

“It’s one of the reasons why the crypto sector is so resistant to any meaningful forms of regulation,” he said.  

This decentralized ethos was built into the programming for Bitcoin and blockchain technology specifically, Reiners said. Blockchain is a sort of digital ledger where transactions or the chronological history of something of value can be posted publicly.

“I should note that blockchains are worse than a traditional database across almost every dimension. They’re slower, they’re more energy intensive, they have worse user experiences, they’re difficult to govern,” Reiners explained. “But these are all structural trade-offs that result directly from the primary design goal of blockchain, which is decentralization.”

This decentralization, Reiners said, makes it difficult to prevent bad-actors or illegal transactions using cryptocurrency.

“It’s really an illicit activity and the enthusiasm of techno-libertarians that sustained Bitcoin for the first couple of years,” he said.

This all changed in 2017 when Bitcoin and crypto entered the broader public sphere. Hype and excitement about the currency spread rapidly, aided by social media and internet communities.

Reiners explained that this led to a crypto-bubble, similar to the dot-com bubble of the late 90s, or mortgage assets leading up to 2008.

Reiners explained that people thought the fixed-supply of Bitcoin would mean it retained value. But there isn’t a consistent or traditional way to determine how much value there is for one Bitcoin, making it a particularly volatile currency.

“You’re left with an asset with no fundamentals, that trades entirely on sentiment,” he said.

“After peaking at $69,000, last November, Bitcoin has proceeded to decline by over 70%,” Reiners said. “Over that same time period, the market capitalization of all cryptocurrencies went from $3 trillion to $1 trillion, the staggering loss of wealth in a very short period of time.”

Reiners explained that the strategy toward managing crypto in the US has largely been to “do nothing.” He said that he is in favor of more comprehensive regulation of cryptocurrency, but that he doesn’t foresee that happening with the current Congress or political climate.

He added that he thinks there may be more digital currency — such as a digital U.S. dollar — in the coming years. Reiners explained that cryptocurrency and traditional currencies are bound to change.

“The one thing I can guarantee is that it will evolve in ways unexpected,” he said.

The Seminars at Steamboat will continue with a talk entitled “America’s Dysfunctional Housing Market” by Christopher Ptomey at 5:30 p.m. Aug. 8 at the Strings Pavilion.

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