Hi, it’s Marc. ✌️

“Everyone has a boss. The central bank’s boss is a devil known as inflation. When inflation is tame, they can tune the economy and bail out the system. But when price pressure stays steady, the central bank gets constrained. That’s the environment crypto sits in today.”

That’s Garrick Hileman, one of the few Bitcoin advocates who’s deeply skeptical about what Bitcoin will actually become.

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About Garrick: Ranked as one of the 100-most influential economists in the UK and Ireland. For over a decade, Garrick Hileman has occupied a unique position in crypto. He was publishing research on Bitcoin in 2013 (pseudonymously, to appease his PhD supervisors). He authored University of Cambridge’s first major crypto benchmark study in 2017. He was Head of Research Blockchain.com and was a visiting fellow at the London School of Economics. He studied under economic historians such as Niall Ferguson.

In short: He’s seen crypto from the very beginning. And now, he’s warning us about something uncomfortable.

Bitcoin won’t be money. It might be digital gold. And if institutions keep accumulating it, it could become neither.

“I am one of the only Bitcoiners who consistently rails against ‘Hyper-Bitcoinization.’ People only think one chess move ahead. A dollar collapse wouldn’t just make Bitcoin go up; it would trigger a government response so catastrophic and restrictive that you might not like the exit you’re running toward. You want the frog to boil slowly in the kettle, not a crisis-driven rush.”

In our conversation, we dive into why Bitcoin isn’t “money” by traditional definitions, why the AI bubble might be the biggest threat to your portfolio, and why the massive concentration of Bitcoin in the hands of Wall Street institutions like BlackRock might actually break the “cypherpunk” dream.

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🎧 Jump to the best parts

• (02:25) → The central bank’s boss: Why inflation is the only thing that can stop the money printer and what that means for asset markets.
• (05:16) → Dollar dominance, stablecoins and payments in the context of financial history
• (11:45) → Is Bitcoin money? Garrick explains why his students are always split 50/50 on this question and why Bitcoin currently fails the “Unit of Account” test.
• (18:10) → The hyper-Bitcoinization fallacy: Why a dollar collapse would be bad for Bitcoin
• (21:40) → The biggest systemic risk: Why the real risk to the economy isn’t a bank run, but ChatGPT-6 “underwhelming” the markets.
• (27:04) → Why CBDC’s failed vs private stablecoins
• (38:05) → Corporate blockchains vs open blockchains
• (46:15) → The Wall Street concentration risk: What happens to Bitcoin’s soul when BlackRock and Michael Saylor own more than Satoshi?

Important Links

• LinkedIn: https://www.linkedin.com/in/hileman
• X: https://x.com/GarrickHileman
• Website: https://www.garrickhileman.com/
• ITIF: https://itif.org/person/garrick-hileman/
• Google Scholar: https://scholar.google.com/citations?user=0SuZhjwAAAAJ&hl=en
• RePEc: https://ideas.repec.org/e/phi155.html

Watch or listen now:
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My biggest takeaways from this conversation & who to bet on:

1. Bitcoin is currently a “speculative store of value,” not money

Here’s the billion-dollar question Garrick asks his classes at Cambridge, LSE, and Dubai:

Is Bitcoin money?

Every single time, regardless of audience: Brazilian executives, UK bankers, undergraduate students, the answer splits 50/50.

And he’s the one to explain why:

“Using the traditional economics definition, something that’s money has to meet three functional tests: Is it a unit of account? A store of value? A medium of exchange? Bitcoin really only maybe starts to pass the store of value test.”

Even there, the logic breaks down:

“Bitcoin is one of the most volatile things humans have ever encountered. Just as recently as March 2020, Bitcoin lost 50% of its value in a single day. Anything that can lose half its value overnight, it’s hard to argue that it’s a stable store of value.”

Then there’s the unit of account problem. Garrick gives a practical example:

“When you go into a pub to buy something with Bitcoin, you come back the next week. If Bitcoin has dropped 50% in value, your Sunday chicken roast now costs you twice as much nominal Bitcoin as it did the week before. Because the true unit of account at that pub is not Bitcoin. It’s the pound sterling.”

So what is Bitcoin then?

A speculative asset. A bet on the crypto ecosystem expanding. A way to store value in a more volatile fashion than real estate or gold.

And maybe, just maybe, the currency of a future machine economy.

“One of the biggest barriers to something becoming money is it’s hard for something to become money unless people are paid in it. With Bitcoin, there’s this extra step, you have to go acquire Bitcoin, then spend it.”

But miners already get paid in Bitcoin. Machines already participate in the Bitcoin economy.

So what happens when machines trade with each other? What happens when you need to pay a driverless robotaxi for a ride?

“Perhaps one of Elon’s driverless robo taxis needs to be paid in cryptocurrency because it’s programmable, it integrates nicely with smart contracts. When I want something from the machine economy, I may need to use the coin of that realm.”

But here’s the catch: Gresham’s Law.

“Bad money drives out good money. Something that’s really good and scarce, like Bitcoin or gold, is unlikely to become money because of Gresham’s observations.”

This is the financial history lesson Garrick thinks crypto investors are ignoring.

2. The AI “winter” is the real macro threat

When asked about the biggest risk in the current financial system, Garrick doesn’t point to crypto. He points to artificial intelligence.

“This spring, I saw evidence that suggested the crypto run was running out of steam. I went on record publicly with that call. And I think that so far has been proven quite accurate.”

But AI is the real danger:

“I see signs that make me nervous about the near-term improvements in large language models. If ChatGPT 6 underwhelms like many people thought ChatGPT 5 did and I kind of disagree with that, I think there was enough improvement but if the benchmark models start to really fall flat, you’re going to start to see more concerns about the CapEx investment in AI, which is really holding up the financial markets.”

He’s lived through this before:

“I’m old enough to remember the dot-com bubble. I was in San Francisco working at a tech incubator. We saw that whole rise and crash. I could very much see that kind of unwind happening in the AI space and that really nuking financial markets.”

And then what? Back to his opening point: Central banks lose flexibility because of inflation. And that’s when things get dangerous.

“The best way to destroy democracy and trigger revolution is inflation. It’s a really powerful phenomenon. I don’t believe we’ve figured out a way to avoid another Great Depression. I think we may sleepwalk right into that again.”

But he ends on optimism:

“I’m a techno-optimist. I think AI is phenomenal. If we can figure out a way to smoothly get through these AI winter periods without too much damage, we could end up in an incredibly exciting place in the next decade.”

The bubble: Financial markets are currently being held up by massive CapEx (capital expenditure) in AI.

The crash: If the next generation of LLMs (Large Language Models) doesn’t deliver a massive leap in productivity, the “unwind” could be as nasty as the dot-com crash of 2000. Because central banks are fighting inflation, they might not have the “room to maneuver” to bail the markets out this time.

3. Why CBDCs failed and why banks want to keep it that way

Central banks spent five years hyping CBDCs. Very few actually launched. Why?

Garrick lists the problems:

“Privacy trade-offs. The concern that you might exacerbate a financial crisis: you might cause Silicon Valley Bank-type runs. Do you cap how much CBDC the average retail customer can hold? Do you have different interest rate policies for CBDC versus commercial bank money?”

Then there’s the tech and political layers:

“Very few governments are good at technology. There’s strong technical proficiency required to pull off a CBDC. You open up a whole new attack surface to something that’s critical infrastructure: the monetary system. And then you get into the political side, concerned about a panopticon, an all-seeing, all-knowing state.”

But here’s the uncomfortable truth:

“90 plus percent of our money is bank-created money. It’s not minted by the government. Banks like that power. They want to keep it. And they were pretty happy to see the dream of CBDCs end.”

4. Institutionalization is a double-edged sword

This is where Garrick gets genuinely worried.

Michael Saylor’s MicroStrategy owns roughly 1% of all Bitcoin. BlackRock’s Bitcoin ETF owns another massive chunk. Coinbase, BitGo, and other custodians hold enormous positions.

“A company controlling 3.5% of Bitcoin, which is what MicroStrategy and Michael Saylor control today, this is getting to near Satoshi-level ownership. To my knowledge, there’s not been an announced cutoff.”

The problem isn’t that institutions are adopting Bitcoin. It’s what happens next:

“If you’ve got a dozen institutions largely controlling all of Bitcoin, it’s just too concentrated to ever even hope to become a currency. Not to mention the fact that these entities will undoubtedly wield some kind of influence over the network and its development.”

Picture this scenario:

Bitcoin wants to adopt privacy-forward technology. But the Trump administration, pro-crypto though it is, has cracked down on money laundering. BlackRock gets nervous about regulatory pressure on its Bitcoin holdings.

“You could see BlackRock and others saying: ‘You cypherpunks, we may be sympathetic to your desire for more privacy and liberty, but I’ve got shareholders. What you’re doing threatens the value of my stack. I’m going to fight you.’”

And that’s how Bitcoin loses its cypherpunk soul:

“One of the biggest risks of further institutionalization is it gets too far away from cypherpunk principles, and it also undermines its potential for currency use because it’s too tightly controlled.”

Our view

Stablecoins are the true “Fintech” winner: There is a lots of discussion ongoing about the passage of the U.S. Clarity Act bills and eventually stablecoins are more likely to become a payment medium, not replacing bank deposits, at least for now. The reason is not just banks lobbying, even the government doesn’t have a playbook for setting up the compliance and eliminating all the loopholes to minimise the risks and restrict bad actors.

Tokenization will succeed first in liquid assets (stocks and treasuries): The goal with tokenization shouldn’t be the liquidity but better access, infrastructure that can save time and cost. Trust boundary is a massive hurdle for penetrating illiquid assets like real-estate.

Take care,

Marc

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