Social Capital CEO and former Facebook
In a recent discussion with Morgan Creek Digital Partner Anthony Pompliano, Palihapitiya shared his views on the current state of the global economy and governments’ different options for getting things back on track. Additionally, Palihapitiya explained how Bitcoin could stand the gain from the major economic crisis of the 2020s.
Although he thinks Bitcoin is still too volatile for mass adoption today, Palihapitiya believes the chances for Bitcoin to succeed as a global reserve currency have increased over the past few months.
Bitcoin Volatility Still Too High
When first asked for his thoughts on Bitcoin in the context of the currently-unfolding global economic turmoil, Palihapitiya pointed out that Bitcoin is not ready for prime time as it exists today.
“It’s still a speculative instrument, and it’s too speculative for it to be reliable,” said Palihapitiya. “If you’re going to make the case that it should replace fiat currency, one thing you have to look at is the volatility of the U.S. dollar. You can’t replace it with something that’s nine sigma more volatile. It doesn’t work.”
Palihapitiya added that traditional fiat currencies are critical pillars of how businesses operate today due to their relative stability. In his view, Bitcoin’s volatility is a crutch that is holding it back from further adoption.
“[Extreme volatility] pushes [Bitcoin] into this ghetto of day traders and speculators,” said Palihapitiya. “And, right now, that’s where we are. We’re in that ghetto.”
In Palihapitiya’s view, the day traders and speculators must be flushed out in order for Bitcoin to get out of the ghetto of volatile assets. Additionally, the interest of long-term holders must be maintained, and the potential for the traditional financial infrastructure to implode must appear increasingly likely.
The Opportunity for the Bitcoin Price in the 2020s
The good news for Bitcoin holders is that, according to Palihapitiya, the existing financial system looks much weaker than it did just a few months ago.
“We are driving, slowly but we are driving, towards a cliff,” said Palihapitiya. “And then, we’re going to drive much, much faster down that cliff or down that hill. And at the end of it is a huge brick wall.”
According to Palihapitiya, the world will have to choose between inflation (and removing inefficiencies in the economy) and debasement once the global economy runs into that brick wall.
“The path dependence for Bitcoin is if it looks like [debasement] is likely, it will really emerge as a flight to safety,” added Palihapitiya.
The former Facebook executive noted that this move towards a brick wall will take ten years to take shape.
Like many others, Palihapitiya sees Bitcoin as a binary investment, and in his view, these price swings in the thousands of dollars don’t matter in the grand scheme of things.
“This is either zero or it’s millions,” said Palihapitiya.
In the case where a single Bitcoin is worth $1 million or more, Palihapitiya sees the cryptocurrency as the basis for a quasi gold standard where the hard money is held by everyone rather than central banks. Palihapitiya thinks the probability of this scenario playing out in the real world has recently increased.
“If the probability was 1% that [Bitcoin] would be valuable, unfortunately, the probability is now probably like 5% or 10%,” said Palihapitiya. “And there’s a real chance that by 2030 we don’t find a way to inflate our way out of this. The only way to break the back of inflation is essentially to create some quasi form of a gold standard, but it’ll be almost impossible to do that between governments and central banks. They’ll never agree on an instrument and they’ll never agree on an exchange [rate]. But then, bottoms up, people could decide to do it [with Bitcoin].”
On the other hand, Tesla CEO Elon Musk recently shared his view that he doesn’t think Bitcoin will become the primary database for money. Additionally, fellow billionaire investor Ray Dalio agrees with the negative thesis around fiat currencies, but he thinks gold will be a better option for those searching for a safe haven.
In terms of potential price movement in 2020, Bitpay’s Vinny Singh predicted the crypto asset will hit a new all-time high above $20,000 by the end of the year back in January. A report from around the same time indicated that more financial advisors were planning to add Bitcoin and other crypto assets to their clients’ portfolios this year.
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