ETF Expert Corner

“Cryptoassets” Co-Author Jack Tatar on Bitcoin

November 28th, 2017 by ETF Store Staff

Jack Tatar, Co-Author of Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond, goes in-depth on bitcoin including its history, naysayers, portfolio applications, and ETFs.



Transcript

You can listen to our interview with Jack Tatar by using the above media player or enjoy a full transcription of the interview below.

Nate Geraci: We're now very excited to welcome to the program Jack Tatar co-author of the new book, Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond. This book is actually currently sold out on Amazon. This is one of the top books in their portfolio and wealth management categories. Jack has an interesting background. He worked in financial services for over two decades. He was an expert in retirement planning, he used to write for MarketWatch in their featured RetireMentors section. But now Jack is an angel investor and an advisor to startups in the cryptoasset community. He's a frequent speaker on the topic of cryptoassets and he actually co-authored one of the earliest books on bitcoin titled, “What's the Deal with Bitcoins?” Jack is joining us via phone today from New York. Jack, our pleasure to have you on the program.

Jack Tatar: Nate, thanks very much for having me, I really appreciate it.

Nate Geraci: Jack, before we talk about the book and hear your thoughts on bitcoin and perhaps some other cryptoassets, how did you first become interested in this topic? What first drew you to bitcoin?

Jack Tatar: I had always been interested in new technologies. I spent time in the technology industry in the 80s and I had always been interested in new technologies and I was very fascinated by the whole concept of bitcoin and blockchain. I run a research company and we had looked at, wanted to get involved in, and understand what bitcoin was all about so I had an associate of mine look into it and I asked to him, "Write me up a few pages about this." And he came back with about 50, 60 pages, a very detailed report and I was just fascinated by it and he and I actually turned it into a book which became, “What's the Deal With Bitcoin?” It was fascinating because this really grew out of the whole financial crisis of 2008 and it was this basically computer software that was created to disrupt the entire financial industry. We see today - today is a day where we're seeing bitcoin actually break $10,000 per bitcoin today.

Nate Geraci: Alright, so your new book, who you co-authored alongside Chris Burniske, who by the way, for our listeners, Chris was previously with ARK Invest - the ETF provider. We've had the CEO of ARK Invest, Cathie Wood on the program a couple of times. ARK was the first ETF provider to own bitcoin in an ETF, through the Grayscale Bitcoin Trust. But Jack, how did you meet Chris and then what led to writing Cryptoassets?

Jack Tatar: It's a funny story. Chris and I actually met at one of the largest bitcoin conferences called Consensus. Actually, today Consensus has their first Consensus Invest conference for institutional investors. Chris and I met actually sitting next to each other at the lunch and we started talking and Chris had known some of the people from a startup that I had invested in and we started talking and he knew about my work, I knew about his work. We basically said that there was a need for a book that talked about cryptoassets or at the time, bitcoin, in the context of investment and how it can fit into a portfolio which has always been a fascination of mine - how it can potentially fit into people's portfolios to lower risk and increase return. After that, we started writing together and about a year later we ended up finishing the book.

Nate Geraci: Jack, obviously the topic of bitcoin is still very new and, in many ways, still very confusing to many investors. I'm curious, how do you describe bitcoin to the layman?

Jack Tatar: Bitcoin is essentially a digital currency that utilizes an infrastructure known as the blockchain. What the blockchain does is the blockchain actually is a ledger of all transactions that have ever been recorded. It's immutable, it's permanent. It records every single transaction that's done on it. But the beauty of it is that it's running on computers all over the world and essentially the cost for transferring bitcoin is very, very small and you can see the potential for it to disrupt credit card transaction costs and remittances and things like that. Bitcoin is essentially a currency, a digital currency. What we're seeing more and more now is that it's also being used as a store of value. Something similar to gold. Almost digital gold as it's been called by people. The whole concept of bitcoin actually has led to other coins such as Litecoin and now we see over 800, 900 different altcoins that are out there. They're all doing different types of applications. It's a very exciting concept that's grown out of bitcoin.

Nate Geraci: You alluded to this earlier, and we actually touched on this a bit in our first segment - in the book you talk about how bitcoin really rose out of the ashes of the 2008 financial crisis and it was sort of a counter to the erosion of public trust in the financial system. You said that bitcoin doesn't need to rely on the ethics of humankind, it simply relies on math and computers. Can you expand on that? Why do you think the timing was right for something like bitcoin?

Jack Tatar: The beauty of bitcoin, the beauty of blockchain, is that it's decentralized. One of the criticisms of it is that there is no central authority controlling it. But those who are familiar with bitcoin and blockchain see that as a feature of it because it is now running on computers all over the world. If one computer goes down, there's no disruption to the system. When you have things like the financial system, where you have central authorities, where people feel like oh, there's a higher level of trust there, you also have that central authority that if there's an issue with that central authority, it can disrupt the entire financial system. The whole distributed nature of bitcoin, of blockchain and bitcoin and the decentralized manner of it is a very exciting thing. What also happens with it is because it was software that was created by a person who we don't really know whether it was one person or whatever, a person by the name of Satoshi, that software is actually being maintained by a number of volunteers and even though there's no central authority for it, there is still a consensus and a group of developers who maintain it and make changes to it to constantly improve it. Even though it is decentralized, there is still some developers and some authorities involved with it to just maintain it and keep it running at an optimal level.

Nate Geraci: Our guest today is Jack Tatar, co-author of the new book, Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond. Jack, also in the book you walk through the early days of bitcoin and you talk about how in December of 2010, as you mentioned, Satoshi Nakamoto, the purported founder of bitcoin, he pleaded with WikiLeaks not to accept bitcoin for donations to its site because he was afraid the bitcoin network wasn't ready for primetime. But then a short time later, Silk Road was launched, that was in February of 2011. This was a decentralized marketplace for everything from drugs, to guns, to other illicit goods and they used bitcoin as a means of payment. Do you think this early history led to the perception that bitcoin is tied to a seedy underworld? Because that perception still exists with some people.

Jack Tatar: That's a very fair point. What's important to recognize is when this was created, it was really created as an experiment. I think the creators of bitcoin would be somewhat surprised at where it is today. It's grown and it's matured because of the group of developers that are behind it and because of the reach of the network. The interesting point about the criticism around it being something that's being used for illicit means, I think initially that was the case because essentially what you have with bitcoin is everyone has an address. Think of it as your checking account number. That number may not be associated directly with your name as a checking account would. What we're seeing now is we're seeing more and more maturity in the markets where exchanges like Coinbase are requiring KYC and AML regulations to associate a name to a bitcoin address. As we see more and more of that, it's going to legitimize it. The other thing that's very interesting is anytime there's been a hack - and the hacks always occur off the blockchain - the blockchain has never been hacked. What's been hacked are the exchanges that are holding bitcoin. Anytime that's happened, they've typically through forensic means, have been able to find out who was involved in hacking things. And that's because every transaction is permanently recorded on the blockchain. It's actually a pseudonymous structure. It's not anonymous, it's pseudonymous. You actually will be able to find who did every transaction and because of that, there's actually a higher level of security with the blockchain than we're seeing, obviously the use of cash and other types of fiat.

Jason Lank: Jack, this is Jason Lank, welcome to the show. With any major technological development or revolution such as bitcoin, in the marketplace there are winners and there are some losers because of that development. Who are some of the parties, agencies, people that benefit from blockchain technology and bitcoin and who are some of the potential losers?

Jack Tatar: What we're seeing is there will be many winners around these what we're calling the ICOs, the initial crypto offerings. What we're seeing are companies are now funding themselves. This is a bit in contrast to the typical capital market system that we see with IPOs. Companies are now funding their applications by offering altcoins as a way to raise money. They're short-circuiting the normal capital market process of raising money and they're doing it with coins. Some of the losers, however, are those investors who are not doing their due diligence and are investing in some of these less than high quality ICOs. Even though it's raising money for developers and there's new applications coming on board and some of them are very good, there are some of them that are not good. What we're seeing, is we're seeing investors are trying to jump on the bandwagon here and they're investing in ICOs which are some of these new blockchain applications and they really stand to lose a lot of money. That's a place where we're starting to see the regulators take notice. The SEC is starting to take note of this and they're starting to declare some of these ICOs securities and put some guidelines in place there which is probably good. As more and more money comes pouring into this market, we need to see more regulation.

Nate Geraci: Jack, obviously we're still in the very early days of bitcoin and given that and given that the price of bitcoin has gone from a $1,000 in January to nearly $10,000 as of today, you have both rabid supporters of bitcoin and certainly detractors. We've heard from JP Morgan CEO Jamie Dimon, he's called bitcoin a fraud. Warren Buffet has called it a mirage. But you had a great anecdote in the book, you mentioned that you yourself appeared on CNBC several years ago and said bitcoin would not survive. I'm curious, what ultimately changed your mind and then what you think of some of the recent naysayers?

Jack Tatar: That actually, that quote was from Brian Kelly who was actually on CNBC and he's a CNBC contributor. He wrote the forward for the book. It's interesting because I know Brian very well and Brian did feel that way as many people in the financial industry felt because it is so different and we've always said, well the existing financial system is so great. You have to have a central authority in place. But you start to explore this, and you start to see the depth and the amount of people that are involved in this and the amount of reach that it has and the potential it has for growth, you really start to see the potential for this. It's upsetting when we see a Jamie Dimon come out and really make comments that are not really, they're not accurate comments at all about it being a fraud and a fad. It's not good overall because there's a lot of qualities and a lot of things that the whole financial system can learn from bitcoin and blockchain and I would rather see a cooperative discussion between the existing incumbents in the financial space and what's going on in bitcoin and blockchain. I'd like to see a little more constructive discussion rather than just a dismissive nature that we see from a lot of the incumbents that are out there.

Nate Geraci: And on that note, I've actually tried to think through just about every negative scenario I can with bitcoin and one thing I've come up with is that humans are always innovating. We're always learning more, we're certainly going to progress in mathematics and computer science and programming code. I know hacking or cracking the bitcoin code today is essentially impossible. Launching a 51% attack is just too far-fetched in today's environment. The question I have is couldn't that change down the road? Couldn't the code or blockchain technology be compromised as we progress as a society?

Jack Tatar: The concern that is out there is very much around what you're saying, the 51% attack. That is basically insuring that you don't have miners who can control a majority of the network. That is a concern and I will tell you that that's actually something that's consistently being monitored by the people who are in charge of the platform. Bitcoin is really an experiment in our whole capitalist system here. It's a very democratic system. It's very much an experiment in capitalism. The other concern that we might run into, I'm sorry about the noise in the background, I'm in New York. The other concern that I have is how some of the political aspects of this can make an impact. We already see that with China and Russia. Because of the worldwide reach of it, that is potentially another concern as well.

Nate Geraci: Our guest today is Jack Tatar, co-author of the new book, Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond. Jack, we have just a few minutes left here. A fairly substantial portion of your book is dedicated to the potential role of bitcoin and other cryptoassets in a portfolio and you make the case that something like bitcoin has had a near zero correlation to traditional assets like stocks and bonds, the sharpe ratio's been better, you talk about some of the comparisons to gold. Can you elaborate on this a bit? Just give us a higher level overview on why you believe investors might want to at least consider a small allocation to bitcoin in their portfolios.

Jack Tatar: The easiest way for an investor to look at it is to view bitcoin and cryptoassets as an alternative asset in your portfolio. After 2008, we saw more financial firms and financial advisors starting to recommend that investors should have a certain portion of their portfolio into alternative assets. Fortunately, we've seen the ability for investors to easily do that through ETFs. Gold ETFs and real estate ETFs and things of that nature. If you take a look at your overall portfolio and you consider what you're doing right now with alternative assets, take a look at how potentially a bitcoin based investment could fit into that. It's important that people don't just try to look at this as a get rich quick and throw everything into it. You have to do this with prudent investment planning and that's where investment products like you guys know, ETFs, can really play a role. We're going to start to see more and more bitcoin and crypto based-ETFs come into play. They're going to fit the role for investors in terms of fitting that criteria of an alternative asset within their portfolio.

Nate Geraci: You mentioned ETFs. You do dedicate an entire chapter to ETFs in your book. You say an ETF is arguably the best investment vehicle to house bitcoin. Before we let you go, why is that and when do you expect to see a bitcoin ETF?

Jack Tatar: There actually is an investment out there right now which is called the Bitcoin Investment Trust. It is not a pure ETF, but it kind of functions as an ETF or acts like an ETF. But the reason that I think ETFs are a good way is right now the user experience with buying bitcoin, an individual bitcoin, is not all that great. If there's a way and an ETF can come along and make it easy for investors to be able to ride the wave of bitcoin, fit it into their portfolio effectively, have their advisor discuss with them how this can fit into their overall portfolio through an ETF, that's where an ETF really comes into play. Just making it very easy for them to position it in that manner. I would say over the next year or so, you will start to see some pure bitcoin and maybe crypto, multi crypto-related ETFs start to hit the market. It seems as though the SEC and different governing agencies are starting to look at this and seeing where they're appropriate. But still, they have a learning curve to get in front of as well because they want to make sure that it's suitable for investors.

Nate Geraci: Jack, with that, we'll have to leave it there. Greatly appreciate your time today. Congratulations on all the success with your book and we certainly hope to connect again down the road. Thank you.

Jack Tatar: Thanks Nate, thanks very much. I apologize about the noise behind me. Thanks for everything.

Nate Geraci: Hey, no problem at all. That was Jack Tatar, co-author of the new book, Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond. You can find this book on Amazon. I'll give you another website as well. You can go to bitcoinandbeyond.com. That's bitcoinandbeyond.com. They have additional information there on Jack and Chris and the book. Jack said in the book that, "If your financial advisor is a deer in headlights on this topic, hand him or her a copy of this book." I would certainly agree with that.