Article / 25 October 2017 at 9:57 GMT

Bitcoin, blockchain, and beyond with Saxo Bank’s Kay Van-Petersen

Head of Editorial Content / Saxo Bank
  • Saxo Bank now offering access to Bitcoin, Ethereum via ETNs
  • Cryptocurrencies the subject of much heated financial-sector debate
  • Crypto adoption, growth tied to emerging and frontier markets
  • Blockchain currencies a reaction to a compromised financial system

Traffic jam in central Lagos, Nigeria: Could emerging- and frontier-market adoption prove more bullish for cryptocurrencies than developed-market speculation? 
Photo: ariyo olasunkanmi /

By Michael McKenna

This year has seen Bitcoin and cryptocurrencies in general make their most determined step into the world of mainstream finance. Saxo Bank, of course, now offers access to two exchange-traded notes tracking Bitcoin and two tracking Ethereum on its platform, but investors need more than access: they need direction. 

After all, who is correct? Last week, JPMorgan CEO Jamie Dimon told an audience at the Institute of International Finance that "if you're stupid enough to buy [Bitcoin], you'll pay the price for it one day”.

On Tuesday, Standpoint Research founder Ronnie Moas told CNBC that Bitcoin’s market value (currently about $96 billion) will surpass that of Apple ($806.5bn) within five years.

Jordan Belfort says that initial coin offerings, or ICOs, are “the biggest scam ever… worse than anything I was doing”. Saudi Arabia’s Prince Al-Waleed bin Talal says Bitcoin “is going to implode.”

Meanwhile, a ruminative Lloyd Blankfein tweeted on October 3 that investors should recall that “folks also were skeptical when paper money displaced gold” while on the same day BlackRock CEO Larry Fink told a Wall Street audience that he is a “big believer in the potential” of cryptocurrencies while sounding a note of caution on the “more speculative” climate surrounding Bitcoin itself.

In December 2016, Saxo Bank global macro strategist Kay Van-Petersen predicted that Bitcoin would test $2,000 in 2017; at the time, it traded at $754. Today it trades at $5,270.83, and in May, Van-Petersen told CNBC that Bitcoin has the potential to hit over $100,000 in 10 years.

We recently sat down with Van-Petersen at Saxo’s Copenhagen headquarters to talk Bitcoin, blockchain, and cryptos in general.

Rather than talking predictions and price points, however, Saxo’s global macro strategist was more inclined to speak of these assets in a broader historical and economic context that goes well beyond the charts and the CEO remarks.

Kay Van-Petersen: “Some commentators have called Bitcoin a fraud but in my view that's the epitome of arrogance. And one must also realise that some big banks are developing their own blockchain technology on, guess what, another cryptocurrency infrastructure. 

Note that these bank-led blockchains are not going to be truly decentralised, they are just another step for the incumbents to mitigate and delay the inevitable disruption. We’ve had very little game-changing innovation in the traditional banking system for several hundred years – it's been a cozy system built by the incumbents, for the incumbents – for the advanced economies of the world and for corporations rather than for the individual person's interests. 

The end result is a global system that, on a relative basis, is elitist.  

I was not surprised by Dimon's statement, it’s a natural thing to hear from incumbents of any space, and you will hear more and more of it from other bank leaders and other banks because blockchain and cryptocurrencies have the potential to, or rather will, revolutionise a lot of industries and the finance industry in particular because what they end up doing is eliminating the need for third-party verification as well as also pressing down the costs. 

Anyone who's in that system is naturally going to be threatened.

If you're saying it's a fraud, I think you are ignoring one major factor: globally, there are 2.5 billion adults who happen to be in emerging and frontier markets, and these men and women don't exist in the banking system. They don't have necessarily have a birth certificate, never mind a bank account or a credit card – they are out of the system from any traditional banking perspective.

The most amazing thing about the cryptocurrencies is that all of a sudden you have 2.5 billion people who can now play on a global scale. Because wherever you are, as long as you have an internet connection, you can now send and receive money anywhere in the world. 

I can't get my head around that. Two and a half billion adults who are now fully able to participate, who are now part of the financial world. If you're structurally short bitcoin and cryptocurrencies in the long term, then you are structurally short 2.5 billion people.

Against the crowd

There is such a thing as going overly counter-trend. Photo: Shutterstock

Michael McKenna: So it's important that we get a sense of the parties involved in the crypto space...

KVP: ...absolutely. I am not a maximalist by any means, I think there is room for cryptos, fiats, and digital currencies (digital fiat), as well as things like biometric IDs that act as gateways into payments, transfers, banking & contracts.

But it's important to understand that if the person speaking about Bitcoin is a bank and therefore an incumbent, they are more likely to talk about the benefits of blockchain and how they are developing one, or are part of a group (and of course they will control this blockchain... this is the least revolutionary aspect of the cryptocurrency space). You need to compare this to someone advocating a truly decentralised system who wants the secure, inexpensive, and unobtrusive transfers, payments, contracts to anyone, anywhere, anytime.

Every space has its fanatics. You always have the extreme views, from "all ICOs and crypto currencies are bubbles and frauds (but please buy the CDO, its triple AAA!) to "central bankers are going to blow up the global economy, turning every country into Zimbabwe!". The truth is always somewhere in between.

MM: Bitcoin is obviously the standard bearer as the best known cryptocurrency. Does it present the most compelling or a compelling value proposition relative to competitors at the moment?

KVP: I think it depends on what you're looking for. I think cryptocurrencies are here to stay; there's no doubt about that in my mind. What form or how they would look like in five to 10 years’ time is anyone's guess. 

The best analogy I have is that it's like what the internet was in the early ‘90s. Think of all of the business and thought leaders who dismissed it as a fad or a minor innovation at best...

Bitcoin does have a first mover advantage, there's no doubt about that. So far it's also maintained dominance in terms of market share and average daily volume. It is the most well-known and the most well-held, and that will continue for a while.

Bitcoin ETN

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Source: Saxo Bank 

From an elegance and coding perspective, though, maybe something like Ethereum is better… the main thing Bitcoin is missing that a lot of the newer cryptos have is obviously on the scaling issue, which has to be overcome.

For instance, again depending on whose data you use, the VISA network can process 65,000 transactions per second. Bitcoin's blockchain can only do seven. There's a lot of work that has to be done, but there [are also people] advocating for how that can be done, and that was also the reason we had the fork.

MM: The relationship between the crypto space and emerging/frontier markets is interesting, particularly frontier markets where peoples’ ability to move money around and have a stake in the financial world is expanding so rapidly. Do you think that the rise of cryptocurrencies is a structural factor that would support a “bullish frontier markets” view as a whole?

KVP: I definitely do. I think the ways developed and emerging/frontier markets view cryptocurrencies are going to be very different. A lot of people in developed markets tend to view the crypto space as being a lot more speculative because, again, they're part of the traditional system. 

They're indoctrinated, they’re used to things being a certain way – for example, why can't I trade USDJPY on the weekend? Well, it's because the convention is that it trades Monday to Friday. But Bitcoin trades 24/7, and there are even people trading Bitcoin who don't know that! That's how indoctrinated we are.

I think emerging and frontier markets don't have that luxury. They have to be solution-oriented, and they will grasp and embrace cryptos far quicker than will the developed economies. They will also have fewer incumbents, fewer vested interests; in some cases, like Zimbabwe potentially, you could see economies that have no choice but to embrace cryptocurrencies. This is something I think we will see in the next five to 10 years.

So I see the adoption and growth of, and innovation in, the crypto space really taking off in EM and in FM. You could even see it as analogous to mobile and smartphones where development really took off in Asia, in China… the classic, developed market internet protocol for adoption was everyone got their fixed-line, internet-enabled PCs, then moved on to the phones.

In China, they pretty much jumped straight to the phones.

MM: So there’s this generation of people totally unused to the landline, to the predecessor technology…

KVP: …they have no idea what a landline is! And this is what is so key for cryptocurrencies. It’s like [British science fiction writer Arthur C.] Clarke’s law, “any sufficiently advanced technology is indistinguishable from magic”. This is what [the next stage of a technological development] should feel like – it should be something where it makes no sense to go back. 

It’s like how a lot of younger millennials can't read an analog watch – they've had a smartphone from day one with a clock on it. If they do get a watch, it's a digital watch. Why would they start using a technology they have never had a use for and have no history with?

To be fair it can be a little abstract. Photo: Shutterstock 

MM: It's a Renaissance technology.

KVP: Exactly. And on that same "leap frog" theme, do you think millennials and the younger generations will view gold in the same way that their parents and grandparents do? Of course not; for them, there will be a crypto equivalent of gold. 

Back to the cryptocurrencies, the bet is a basket of cryptocurrencies over a five- to 10-year horizon. It's not necessarily a total concentration on Ethereum or Bitcoin because we don't know how they will unfold and evolve.

A powerful metaphor I once heard was, you go back to the Middle Ages and church and state were synonymous, for a long time it wasn’t even disputed or discussed. And now this is no longer the mainstream, to many people it seems obvious that this would produce conflicts of interest, abuses of power, all the rest.

It’s like how we are starting to look back and say, “how could people smoke? What were they thinking” And maybe one day we’ll ask the same thing about all the meat we eat… the point is, I think we may well look back in maybe 25 or 50 years and ask “how did we let the state maintain control of the money supply for so long? How come we didn’t insist on a more transparent and open system, one that would lead to more accountability?”

The mechanisms around incentives and accountability drive everything in this world.

You have to take a step back and see why we're here. If we had astute monetary policy, and political/fiscal accountability, we wouldn't be where we are. 

We're where we are because of all the financial crises and the stress and the billions of dollars of lost wealth, as well as the lost accountability and trust. If the average citizen felt that their central bankers and politicians had their best interests at heart, things would be very different.

The system is tainted. We have not had an economy, a central banking system, and politicians who have been prudent throughout. No one went to jail following the financial crisis and the CDOs scandal. How could the banking industry have been made to pay so many fines while no individual was guilt?

Cryptos are by no means the Rosetta stone, but they are strong and long-overdue antiseptic for the system as we know it. 

Just the thing? Photo: Shutterstock

Michael McKenna is senior editor at Saxo Bank


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