Law professor tells Steamboat audience that crypto isn’t worth the hype

Lee Reiners, Executive Director of Duke Global Financial Markets Center, discusses cryptocurrencies with a Steamboat audience on July 25, 2022.
Katy Pickens/Steamboat Pilot & Today

Cryptocurrency, like many hot topics in the US, can draw mixed reactions. Some think it’s the future of global trade while others think it’s a scam.

During seminars on Steamboat in the Strings Pavilion on Monday, July 25, Lee Reiners, Executive Director of the Duke Global Financial Markets Center, explained crypto’s rapid rise, why he believes it’s a risky bet, and how the currency look can evolve technologically.

Reiners, a professor at Duke University School of Law, had worked at the Federal Reserve Bank of New York for five years. In his lecture “Cryptocurrency: The Future of Money or All Hype?” He explained the problems and potentials of crypto technology.

To open the talk, Reiners asked the audience who owned cryptocurrency – a few attendees raised their hands. He then asked how many people in the audience “would never consider owning cryptocurrency.”

Laughing, a majority of the audience raised their hands. Reiners explained that cryptocurrencies attract a lot of attention but can be a polarizing topic.

He explained that the rise of cryptocurrency happened in the context of the 2008 financial crisis.

“The first bitcoin transaction took place in January 2009, and that first transaction contained a reference to a UK newspaper article headlined ‘Chancellor poised for second bank bailout,'” Reiners explained. “Now that tells you something about the environment in which bitcoin and cryptocurrencies emerged.”

“This was in the midst of the global financial crisis when trust in banks and government institutions was at an all-time low, so it was really libertarians and anti-government guys who were first drawn to cryptocurrency and sustained it for its first few years” , he said.

That feeling has persisted in the crypto community to this day, Reiners added.

“It’s one of the reasons why the crypto sector is so resistant to meaningful forms of regulation,” he said.

This decentralized ethos was built specifically into programming for Bitcoin and blockchain technology, Reiners said. Blockchain is a type of digital ledger where transactions or the chronological history of something valuable can be posted publicly.

“I should note that blockchains are inferior to a traditional database on almost every dimension. They are slower, they are more energy intensive, they offer a poorer user experience and are difficult to control,” explained Reiners. “But these are all structural tradeoffs that flow directly from the blockchain’s primary design goal of decentralization.”

This decentralization, Reiners said, makes it difficult to prevent bad actors or illegal cryptocurrency transactions.

“It’s really illicit activity and the enthusiasm of techno-libertarians who carried bitcoin for the first few years,” he said.

This all changed in 2017 when bitcoin and crypto entered the public domain. Hype and excitement surrounding the currency spread quickly, aided by social media and internet communities.

Reiners explained that this has led to a crypto bubble similar to the dot-com bubble of the late 90s or mortgage investments up until 2008.

Reiners explained that people thought that the fixed supply of bitcoin would mean that it would retain its value. But there is no consistent or traditional way to determine how much a bitcoin is worth, making it a particularly volatile currency.

“You have an asset with no fundamentals that trades purely on sentiment,” he said.

“After peaking at $69,000 last November, bitcoin is down over 70%,” said Reiners. “During the same period, the market cap of all cryptocurrencies rose from $3 trillion to $1 trillion, an amazing drop in wealth in a very short period of time.”

Reiners explained that largely the strategy for managing crypto in the US was to “do nothing.” He said that he supports broader regulation of cryptocurrency but does not expect it given the current Congress or political climate.

He added that he believes there may be more digital currencies – such as a digital US dollar – in the coming years. Reiners stated that cryptocurrency and traditional currencies are bound to change.

“The only thing I can guarantee is that it will unfold in unexpected ways,” he said.

The seminars on Steamboat will continue with a talk entitled “America’s Dysfunctional Housing Market” by Christopher Ptomey on August 8th at 5:30pm in the Strings Pavilion.

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