Cat on a keyboard, or billion-dollar cheque?

ABERDEEN, SCOTLAND – “If I told you, I’d have to kill you,” he said gravely, wine glass in hand.

It was the summer of 2017. I was in the Royal Automobile Club on Pall Mall, where Charlie Morris had just made a presentation to a crowd of City-folk on the merits of bitcoin.

While most in attendance were unfamiliar with BTC, there was one individual who knew it only too well. He was in charge of one of the early attempts at a bitcoin exchange-traded fund (ETF). Up until then, the only proper way of getting much exposure to bitcoin was by buying it straight from a crypto exchange, which back then had a particularly bad reputation as money laundering facilities (that reputation still exists, but the major exchanges have done a good job in showing their hands are clean since).

What this chap was aiming to do, was to create an investment product that would allow anyone to buy and sell bitcoin (or at least exposure to bitcoin) through their brokerage account.

It wasn’t actually an ETF, but something similar – an exchange-traded note, or ETN. Instead of owning shares in a bitcoin fund which they managed (as you would with an ETF), you’d be owed bitcoin by the fund. You could then trade the receipt for that debt (a “note”) as though it was bitcoin itself – for the debt fluctuated in value in line with the bitcoin price. For every note they created, they’d go out and buy bitcoin from crypto exchanges to back it.

It was when I flippantly asked what they did with the private keys that he delivered the rather cliché punchline.

But it was a fair reply, for I was effectively asking him where the key to his mighty treasure hoard was – and that’s obviously not something you’d reveal to a stranger.

They can appear very innocuous, private keys. They take on a variety of forms, commonly just 64 numbers and letters in a row. Like this:


If you found a Word document which contained one, it’d be easy to dismiss as just gibberish – a cat walking across somebody’s keyboard perhaps.

But that bland string of characters could be worth an untold fortune. There are individual bitcoin addresses out there today with billions of pounds’ worth of BTC in them. And the only thing separating that hoard from the unwashed internet is some very specific gibberish.

How do you secure such a thing? Some folks daringly destroy any record of their private key, and commit it entirely to memory. Talk about confidence in your own abilities…

But leave it anywhere it might be seen by someone else, and a thief could seize it and send it anywhere in the world, from the comfort of their home. It’s a bit like a hacker stealing your online banking information, but on steroids – for this time, there’s no bank or police to back you up, and the attacker cannot be sanctioned. Once they have the keys, unless you can transfer that bitcoin to a different address faster than they can, it’s theirs.

But conversely, with bitcoin, there is no corruptible government or bank that might compromise its structure: your bitcoin is as safe as you are responsible with it. The cryptography securing the blockchain has yet to be broken, and it may never be (quantum computing is bitcoin’s bogeyman – a subject for another letter). Your private key is too complex to just be guessed; the only way somebody else gets at your stash is if you’re trusting a counterparty with your bitcoin, using an unsecure computer, or saving it in a document called “private key”.

Part of what makes bitcoin so challenging is that its existence is effectively a question: do you trust governments and banks, or do you trust cryptography and yourself?

If bitcoin’s price action is any guide, the latter answer is gaining popularity.

Though for those who are dissuaded by the prospect of private keys – there’s always the masterkey

Ironically, for the bitcoin rally to continue as it has, it’ll need more investment from institutions. And institutions use trusted custodians to hold the private keys to their bitcoin for them, to keep everything above board and maintain transparency for their clients. As Charlie Morris wrote recently, for the bitcoin rally to sustain itself, it’s gonna need more investment flows from institutions:

[Investors making] a small allocation to gold a decade ago, soon saw $200 billion in the gold ETFs. The same needs to happen with bitcoin. A modest allocation, across many portfolios, would support a sustained advance.

In order to attract portfolio managers en masse, bitcoin needs to be an attractive proposition for the “suits”. The real risk here is not just the price volatility and the noise, but the way in which they deter the institutions that the network so badly needs. Remember last October when the institutions couldn’t get enough?

A rising price means we have to feed the miners even more than we currently do. In that sense, I do not see the four-year halving of new supply as a force which drives the price higher, but more of a relief to reestablish market equilibrium. Bitcoin needs $11 billion of institutional flow this year and even more if you want a sustained bull market. Think about that while you curse those suits.

I wonder how many of those folks in Pall Mall bought bitcoin after Charlie’s presentation back in ‘17 before the grand surge. He’s a damn good public speaker, so I imagine quite a few. If so, they’ll be sitting damn pretty today (unless they’ve lost their private keys of course).

I certainly regret not buying more back then. But then, so does everyone – including Charlie…

Wishing you a good weekend,

Boaz Shoshan
Editor, Capital & Conflict

Category: Investing in Bitcoin

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