13-year Goldman Sachs veteran’s observation: Why is it difficult for traditional finance to accept Bitcoin?

The “Orange Pill” of Traditional Finance

I am one of a growing number of people who are leaving traditional finance and entering the world of Bitcoin, Bitcoin , not “cryptocurrency”.

Prior to joining Swan Bitcoin, I worked at Goldman Sachs for nearly 13 years in the asset management department responsible for institutional sales and fixed income portfolio management. During that time, I had many conversations with colleagues about gold, sound money, fiat money, Keynesianism, Modern Monetary Theory (MMT), and Bitcoin.

Conversations with colleagues about gold/money/economics started early in my career in 2009 – the same year Bitcoin was launched. I was a senior when the financial crisis hit, and it had a huge impact on my perspective and my study of economics. Conversations with colleagues about Bitcoin only started after Bitcoin went mainstream in 2017, when it entered mainstream media such as CNBC and Bloomberg.

I would like to share my experience in discussing these topics with people in the traditional finance/traditional finance community, including general views on these topics.

Before sharing these experiences, I would like to emphasize the multifaceted nature of Bitcoin. Anyone who has fallen down the “Bitcoin Rabbit Hole” knows that mastering Bitcoin requires an understanding of various disciplines. This includes economics, monetary theory, investor psychology, computer science, cryptography, energy, geopolitics, politics, game theory, history, privacy, and human rights.

Few people are proficient in most, let alone all, of these fields. This helps explain why so few people hear about Bitcoin for the first time and immediately grasp its immense significance. This is why the proverbial “Bitcoin Rabbit Hole” is so tempting — the concepts to learn are almost endless, and many people have fallen into the Bitcoin Rabbit Hole, but no one has found the “bottom,” Jameson Lopp wrote: “Nobody understands Bitcoin (that’s okay)”.

While I’ve mentioned several disciplines that Bitcoin encompasses (and I’m sure Bitcoin enthusiasts will point to others), I believe they can be distilled into two main elements:

  • understand what sound money is;
  • Learn how Bitcoin succeeds as a sound money

My experience shows that very few people in traditional finance can do the second. This happens for a variety of reasons.

Principles of sound money – not taught in school or discussed at work

Traditional financial firms recruit talent from great colleges, and let’s talk about what people typically learn on these topics during college.

I can speak from my own personal experience and confirm that in my college experience as a finance student I was never asked to think about “what is money”? Or questions like “why does gold become money”, no teachers, textbooks, or other parts of the curriculum cover these basic questions.

I can’t speak for all colleges, but what I can say is that in the many discussions I’ve had with others about traditional finance, no one has said that their colleges cover these topics. Of course, in the Bitcoin community, there is a general belief that these topics are simply not included in schools, be it grad school, undergraduates, or high schools.

These topics are certainly not discussed once you get a job in traditional finance. You start to learn more complex economic and financial concepts. Strangely, no one seems willing to admit that they have not thought about these fundamental questions, because then they would be forced to start thinking again about how our economy and financial system work. But what’s the motivation to start over from the beginning? They come all the way to Goldman Sachs to talk to savvy clients about complex investments, so they definitely have to understand the fundamentals and history of currencies – right?

They ignore the fact that they can’t tell you where and when you learned it, or any coherence about the key properties of money. It’s a knee-jerk assumption that the question of “what is money or currency” is too simple for the elite of financial services firms.

As far as the views of those working in traditional finance on the history or fundamentals of money are concerned, it is almost entirely influenced by Keynesian economics, and possibly by Modern Monetary Theory (MMT) in recent years. Each of these schools of economic thought strongly supports central planning and offers no plausible explanation for why gold became money. Keynes said that “the gold standard is already a barbarian relic” and Ben Bernanke claimed that the ownership of gold by governments and central banks can simply be attributed to “tradition”.

The reality is that throughout history, money has naturally emerged as a commodity in society without any centralized government. Gold became the dominant global form of money because, among commodities, it most possesses the key characteristics of money—durability, divisibility, recognizability, portability, and scarcity. Some say there are more key attributes of a currency, but the five listed here are core attributes. The point is that the characteristics of money are not discussed at the university level, nor are they discussed in traditional finance.

To be clear, this is not to say that sound monetary principles are taught and then thoroughly debunked by Keynesians. That would be more honest. You might stumble across a comment in an economics textbook claiming that the inflexibility of the gold standard causes depressions and hoarding, but there is no logical explanation. This is unfortunate, but does not teach sound monetary principles in any honest or comprehensive way.

If you ask someone in the traditional financial industry “what do you think sound money is?” they probably won’t even understand the question. If they did, it would be a relatively recent development, probably thanks to the Bitcoin movement that inspired so many people to learn about money and monetary systems.

Another example is the term “fiat currency”. Back in 2010, you’d find the term “fiat currency” on sites like Mises.org. Few people in the traditional financial world know the existence of this term. To the extent that traditional finance now knows the term, I believe it can be attributed to the Bitcoin movement. (Before, of course, credit for the term goes to Austrian economics.)

Many people are scratching their heads and wondering why the nature of money is not taught in schools. They might think that of course those educated specifically on money must cover the history of money or analyze it from the fundamentals. But it turns out that’s not the case.

Our best schools simply impose prepackaged economic theories on students that they think are valid because the schools they attend are prestigious and alumni who attend the same schools agree on it, very few Ask key questions. When they ask, those who provide answers that require a re-study of the concept of money are usually blocked, not because they are wrong, but because they don’t want to learn the material being rewritten. Unfortunately, the material never came up in the expensive schooling where it was supposed to be taught.

Six Drivers Behind Traditional Finance Not Supporting Bitcoin

Bitcoin is sound money based on first principles, and we see little support for it in traditional finance because the principles of sound money are largely unknown.

image.png

Going a little deeper, I think the reasons why people in the traditional financial world are generally not supportive of Bitcoin are as follows:

  1. They do not understand the history or fundamentals of money;
  2. They spend almost zero time researching Bitcoin, they just repeat the objections they hear in the mainstream media;
  3. They are accustomed to believing that government fiscal and monetary central planning is necessary for economic growth and stability;
  4. They are high-performing consensus followers, not independent thinkers;
  5. Their worldview is entirely centered on developed countries that have not experienced a currency crisis or totalitarian regime in recent memory;
  6. They want to keep the current system running, in which case simply saving money is not an option and has to be invested.

Reasons 1-5 are very common, reason 6 is less common as it implies an understanding of sound money.

As mentioned earlier, reason 1 stems from the fact that almost no one is educated on these subjects in any level of school.

As for reason 2, starting to learn how the Bitcoin network and protocol works is a daunting task, admitting you don’t know anything about a topic is not common in traditional finance. It’s more common for a person to pretend to be well-versed and hold strong opinions on a particular topic, regardless of one’s basics — especially for a topic that touches the world of investing.

Regarding point 3, I think those in traditional finance have become proponents of Keynesianism and central planning simply because that is the economic dogma of our time. This is what they learn in college and what the average person repeats when they are employed in traditional finance. But the vast majority of these people have never even heard of Austrian economics, let alone understand the arguments of Keynesian versus Austrian schools.

Point 4, the vast majority of people working in traditional finance are so-called “high-performing” consensus followers. They follow general rules throughout their lives: they listen to their parents and teachers; they do well in school; they follow the steps they’ve been told will lead to success; and generally have a lot of trust in authority and so-called experts.

There’s nothing inherently bad about these things. However, these behaviors did not lead them to become independent thinkers, who become early adopters of new assets or technologies. They are more likely to believe that a small group of people with Ivy League degrees can control our economy and monetary system. In the weeks before the global financial crisis, Ben Bernanke told us publicly that it didn’t matter that the mortgage problem was contained in subprime mortgages or that Fannie and Freddie were not at risk of financial loss. It doesn’t matter whether Jerome Powell and Janet Yellen could not have foreseen the biggest consumer price rise we’ve seen in four decades, though that’s what we believe they saw more than anyone else. In the face of all this, high-performing consensus followers still trust the system. Although they admit that the likes of Bernanke, Powell and Yellen are wrong, they still believe that if we put the “right” people in power, and if they develop the “right” model, they can manage smoothly economy.

In conclusion, I would say that I spent most of my time as a high-performing consensus follower until two things ended it – the global financial crisis and the eating pyramid. After that, I can no longer ignore how wrong the “experts” can be in understanding their respective fields.

This does not mean that people should always distrust experts, such blind rules are stupid. However, it does suggest that so-called experts may be wrong on key topics.

Regarding reason 5, they only see a limited world, they can’t imagine a situation of persistently high inflation where the price of basic goods goes up by an order of magnitude every year; or the government decides to do away with a certain currency overnight; or the government doesn’t allow you to put taking funds out of the country; or confiscation of your personal wealth through a corrupt legal system.

Many in the developed world may feel that demonetization, persistent inflation, capital controls and confiscations are rare. But when you look globally, these things are far from uncommon. This is why people from Argentina, Turkey, Lebanon, Venezuela or Nigeria (to name a few) are able to understand Bitcoin’s benefits faster than high-performing consensus followers living in developed Western countries and employed in the financial industry value proposition.

When you look at bitcoin and cryptocurrency adoption at a country level, it’s not surprising that almost all of the top 20 are developing countries, and these dynamics are at play.

image.pngTop 20 Global Cryptocurrency Adoption Index 2021

The United States is a major exception. This gives me some hope that Americans have not lost the capacity for the confrontational thinking that this country was built on. Choose a limited and explicit federal government framework because they don’t believe that anyone has unilateral power over the country, so maybe Americans understand the concept better than citizens of other developed countries.

Regarding reason 6, people who hold this view are likely to hold senior positions and will never admit that they dislike Bitcoin simply because it means fewer customers and less money for companies to invest.

If Bitcoin continues to succeed as a globally used store of value monetary asset, it will re-establish the line between saving and investing. This will mean that citizens will no longer be forced to invest their hard-earned money to maintain the value they have acquired. People who work in investment firms or investment banks and understand this, as long as they are still working in traditional finance, have no financial incentive to do anything positive or say anything positive about Bitcoin. Of course, they would prefer that the world’s capital was forced to invest, and their company provided the opportunity to invest and made great profits!

Views are changing, but slowly

To further support the notion that traditional finance has yet to research or understand what they think about Bitcoin, consider that their consensus opinion on Bitcoin has changed so dramatically in the last 5-10 years, but they don’t seem to even admit it. a little.

Over time, traditional finance has completely changed the way they think about Bitcoin without recognizing the clear trends here. Bitcoin is becoming a more established asset with practical uses across society. When your criticism shifts from saying something is worthless as a scam to saying it’s related to tech stocks, or that it’s so important and disruptive that the government will shut it down, then obviously your first criticism is wrong . It’s okay to be wrong, but in traditional finance, it’s neither realized nor acknowledged.

Another thing to consider about traditional finance is that it is highly specialized. Specialization itself is not a bad thing, but it can lead to a lack of understanding of the fundamentals of the system, as participants focus only on their own specific tasks. For example, I work with a lot of people who can tell you everything about the corporate bond market, such as issuers, spreads, yields, relative value, deal volume, new issuance, M&A rumors, legislation, and more. But these people spend zero time thinking about “what is money”. I’m not saying I blame them or they should do something else, they make a living by knowing the specifics of the financial services sector and have little incentive to examine the rationale of the system.

in conclusion

All in all, deep research or understanding – people in the traditional financial world who have a negative view of Bitcoin do not reach this level. For a number of reasons, when I work in traditional finance, I engage in conversations about these topics with as many people as possible.

Any Bitcoiner knows that once you understand the history and fundamentals of the currency, you will be eager to discuss it with anyone. This is what happened when I studied Austrian economics and learned about the gold standard long before I heard about Bitcoin. I became even more enthusiastic when I discovered that Bitcoin was designed with all of these in mind and improved on gold’s shortcomings.

I want to better understand why most people in the traditional financial world are so opposed to the gold standard and Bitcoin. Is it because they thought of something I didn’t think of? If I have colleagues who know why Bitcoin failed, I certainly want to talk to them. After many conversations, I can say that I can’t find anyone in legacy finance who has a well-researched stance on why bitcoin is not a good form of money or why bitcoin won’t succeed. Considering everything discussed in this article, it is perhaps not surprising that traditional finance is largely opposed to Bitcoin.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/13-year-goldman-sachs-veterans-observation-why-is-it-difficult-for-traditional-finance-to-accept-bitcoin/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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