Famed investor Tim Draper predicts both a digital dollar and Chinese DCEP “will bomb”

As China prepares to release its new central bank digital currency and U.S. lawmakers consider using digital dollars to disburse Covid-19 relief money, billionaire venture capitalist Tim Draper gives them two thumbs down.

“Both of them will bomb,” said Draper in an interview with Forkast.News, adding that he believed cryptocurrencies like bitcoin would be better options.

“The whole point of cryptocurrency is that it’s decentralized,” Draper said. “It’s open, it’s global, it’s transparent. It is not subject to political whims.”

Highlights

• “You say cash is king, I’d say bitcoin is king because they’re printing cash like it’s going out of style.”

• “Yeah, well both of them will bomb, and the reason is; the whole point of cryptocurrency is that, you look at bitcoin — it’s decentralized, it’s open, it’s global, it’s transparent — it is not subject to political whims or the idea that somebody can just print two trillion of them. And if you digitize the dollar or the renminbi, you are still stuck with most of the problems that you have with current political currency, with fiat currency.”

• “I wouldn’t want to take Chinese digital currency anymore than I’d want to take renminbi.”

• “Trying to digitize the dollar makes no sense. You’ve got the dollar, you now have a better currency; you have bitcoin, you have Tezos, you have other currencies that are just better. They are faster, more friction-less.”

• “I think everybody should be prepared for some bitcoin or some cryptocurrency because it’s just more efficient.”

• “I don’t know who came up with that raw egg thing. I didn’t say it, but I don’t mind eating a raw egg, it’s not really that big a deal for me.”

• “Absolutely, 2022 or the beginning of 2023, we will see bitcoin hit $250,000.”

The U.S. Federal Reserve’s balance sheet has grown to $6.13 trillion over the past few months due to aggressive measures to protect the economy from the devastation of the coronavirus pandemic. But investors are concerned that the stimulus efforts are eroding the value of the dollar.

“Now [investors are] seeing their dollars being diluted by like 20%, and they’re saying, ‘whoa,I need a currency that’s stable, I need something that retains its value, I can’t hold something where the government can just willy-nilly print as much as they want,'” Draper said.

China’s DCEP

China’s electronic renminbi, also known as the Digital Currency/Electronic Payment (DCEP) system, could become the world’s first major sovereign digital currency when it is launched.

According to state-media news site China Daily, the first pilot trial of the system is taking place in Shenzhen, Suzhou, Chengdu and Xiong’an.

“A sovereign digital currency provides a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level,” according to the report in China Daily.

But experts say that a digitized dollar or renminbi would not solve problems that their fiat counterparts currently have, since they would still be subject to economic and monetary policies guided by political decisions. In contrast, a decentralized, transparent cryptocurrency would not be dependent on government policies. Moreover, despite being digitized, it is uncertain that new electronic national currencies would be accepted and used outside of their region.

“I think the same thing’s going to happen with the Chinese digital currency, although they do have a pretty large group of people that could all use it, but it won’t be used outside — I wouldn’t want to take Chinese digital currency anymore than I’d want to take renminbi.” said Draper.

Not all experts believe that China’s DCEP would fail though, and they see its links to the government as a strong point. Since the DCEP is legal tender, merchants will not be able to refuse payment with new currency.

“I think DCEP can be a game-changer in the finance, blockchain, and crypto spaces,” said Jay Hao, the CEO at bitcoin exchange OKEx.com, in an interview with Hackernoon. “Unlike bitcoin or Libra… which is not backed by any central banks or issued by private institutions respectively, DCEP is 100% state-backed by the government’s reserve fund.”

Bullish on bitcoin

Despite the turmoil and wild price swings in the cryptocurrency market, Draper expresses near certainty that the price of 1 bitcoin will reach a quarter of a million dollars by 2023.

“I’m very, very confident — egg-eating confident,” said Draper, alluding to alleged reports that he would eat a raw egg if he missed his prediction, a penalty he told Forkast.News he did not stipulate. “I have a very good picture of what 5 to 10 years from now looks like, and yeah, absolutely, 2022 or the beginning of 2023, we will see bitcoin hit $250,000.”

Bitcoin has seen growth as institutional investment asset, with New York-based digital currency asset manager Grayscale Investments recently reporting over $1 billion dollars invested into their crypto funds since 2019.

See related article: ‘Enormous potential’: institutional investment in cryptos may be boosted by regulator’s approval of Hong Kong’s first bitcoin-tracking fund

Angie Lau spoke to Draper in the context of Virtual Investor Conference, the next conference is in June.

Full Transcript

Angie Lau: Welcome to Word on the Block, the series that takes a deeper dive into the world of blockchain and adjacent emerging technologies like AI, 5G and IoT, all at the intersection of business, politics and the economy. It’s what we cover right here on Forkast.News. I’m Editor-in-Chief Angie Lau, and today we are talking to one of Silicon Valley’s originals, Tim Draper, prolific venture capitalist whose investments span the globe, including Baidu, Tesla, SpaceX, Skype and of course, Bitcoin.

In 2014, Tim Draper famously paid $19 million for nearly 30,000 bitcoins auctioned by the U.S. government, bitcoin seized from the Silk Road online black market. Quick back of the envelope calculation today — that’s a nice $248 million profit right there. He’s an early proponent of blockchain, and as we head into a post-Covid world, who better to assess what the future holds than with a man who makes real bets on where it is headed? Tim Draper joins us now. Tim, welcome to the show.

Tim Draper: Terrific, thanks for having me on this show. This sounds like a fun show you’ve created.

Lau: Tim, it is an honor and a privilege to have you on the show. How’s shelter in place where you are? How are you getting business done these days?

Draper: I’ve been working a lot harder than normal, and normal is pretty hard. Because with Zoom and Skype and whatever else, I’m pretty much 100% tied to my seat all day. So I go and I get dressed up and I kiss my wife goodbye and I go into my home office and then at the end of the day, I come back and I say, “Honey, I’m home!” That’s the way I’ve been sort of keeping sane, because otherwise I’d be sitting here with a pizza box and a pair of pajamas. And I think this is just a better way to operate. Just say, “hey, this is work, is what I’m doing,” and it has helped a lot.

We’ve had quite a few difficulties with our portfolio,  the venture capital business. But we’ve had just as many companies where they’ve started to accelerate their business so that this Covid thing or to have been trapped in place has made it so that people are trying new things, they’re experimenting. And so when our entrepreneurs pound and pound and pound and they maybe get a few early adopters to try out their new product, well, when people are stuck in place, they try out all sorts of new products.

And so we’re seeing things like a lot more activity in VR, a lot more bitcoin wallets, a lot more remote health care, whether it’s diagnostics or therapeutics. We’re seeing a lot more activity in the delivery service businesses, in that kind of thing. We’re seeing a lot more remote work and remote education opportunities.

Those companies are doing better because customers are either forced to try them or have finally gotten around to trying them. And then where we have trouble is with anything that’s tied to commercial real estate, anything tied to retailers, restaurants, travel. Anything that requires high energy costs. I think automotive, hotels, they’re all going to be having some trouble.

Lau: Well, that’s why you need a diverse portfolio. And that’s why you need to have a broad thesis, right?

Draper: Yeah, and something that’s really interesting: I feel this extra responsibility now. And it’s not just to all my portfolio companies and trying to make sure that they stay on track and full of cash and everything else. My responsibility now is heavier because the U.S. now has 25% of its workforce unemployed. That is tragic. That is potentially more tragic than the deaths that have happened from Covid. And when a quarter of your workforce is unemployed, a couple of things happen.

One is, I know that it’s entrepreneurship and small business and venture capital that drive all the net new jobs in the world. And so we want to make sure that we’re backing the best companies who are going to create the most wealth and the most employment possible and grow the fastest. And so we really feel that responsibility. We now have funds that we’re putting out, but the way we’re going to do it is a little different where we’re thinking in terms of, “wow, there are that many people unemployed.”

There’s some opportunities there because somebody who is a machine learning expert in travel can now be repurposed to something that might be more relevant to the future. But there are a lot of people out there unemployed, and I feel a real responsibility to get them going again.

Lau: How do these startups survive until that time comes when they can be impactful? Right now in this Covid environment, every company that exists today, I think is a startup. You’re starting from ground zero where cash is king.

And so how do you lean into what eventually will be a post-Covid world? And how are you specifically helping your startups in your portfolios, the ones who are in trouble and the ones who are doing a little bit better lean into a new reality?

Draper: You say cash is king, I’d say bitcoin is king because they’re printing cash like it’s going out of style. They have two trillion dollars, and all these other governments are printing money. We are going to dilute cash, it is going to have a serious dilutive effect. And bitcoin won’t dilute ever because there are only 21 million of them. I feel like bitcoin is king. Cash is plentiful right now because they’re just printing it like crazy.

However, I did tell my entrepreneurs last year when the markets were so hot, that they should raise as much money as they can and just don’t spend it. And most of them did follow that advice. Well, now they’ve got to just hang in there. If their business has dropped off to zero because of Covid, they’ve really got to figure out how to stay lean and stay alive. If their business is taking off, as some of them are, they are going to start hiring. And so hopefully that all ends up balancing out and we get everybody back to work.

Lau: The fundamentals of Wall Street don’t seem to jive with what’s actually happening in the global economy, especially with all of these stimulus dollars. I’ll point to Larry Fink, CEO of BlackRock, who’s always candid whenever I interview him, was stark in his assessment of a post-Covid U.S. economy.

Bankruptcies of corporate America about to spike. Tax rates likely to go up to cover the enormous stimulus efforts. How do you see this environment? Is this one where cryptocurrencies can play a key role here?

Draper: Yeah, I think this is the time. People looked at the early adopters of bitcoin and they said, “oh, eventually I need to sort of explore that.” Well, now they’re seeing their dollars being diluted by like 20%, and they’re  saying, “whoa,I need a currency that’s stable, I need something that retains its value, I can’t hold something where the government can just willy-nilly print as much as they want.”

And that money is going into the government. I look at it as like feeding a boa constrictor a mouse. Eventually gets through the boa constrictor and comes out and does the things it’s supposed to do, but to start with that money, two trillion dollars just went into the bureaucracy and the bureaucracy is trying to figure out how to give it out. And they want to do it fairly, and according to certain rules.

And it turns out that anybody who’s trying to get that money has to hire a lawyer. They have to fill out a whole bunch of forms. They have to prove that they are one type of small business and not another. If I were to have created the stimulus, I would have said, “OK, we’re going to give you a tax holiday, and that would encourage more people to invest, and we’re going to guarantee any extended credit, like 80% of any extended credit starting here.” Well, what that would do is keep the economy rolling, encourage investment and make it fair for everybody.

But this turns out to not be fair. It turns out that one company gets a whole bunch of money, another company gets none. A lot of it’s still stuck in the bureaucracy, the lawyers are making a fortune just because everybody has to go to their lawyer to fill out the form properly to make sure that they qualify. It makes no sense. So I am frustrated with the way they’ve done it. I’m not frustrated with what they’ve done. I actually do think trying to make this a quick V made some sense to just say, OK, well, let’s flood it with some money for this short period of time.

But then they extended the period of time, and it was from two weeks to dampen the curve so the hospitals wouldn’t be overflowed. But now the hospitals are empty and people can’t go for all their other ailments. So that is a very different, difficult thing, and they haven’t started us back up again. I’m glad they finally realized that we’ve got to reopen. But this is very unwieldy. We look to our leaders for guidance at times like this, but I think in this case, the political leaders are different from the medical leaders and different from the business leaders. And all three of those groups really needed to talk before they made these draconian decisions.

Lau: Well, it’s a stark contrast to what we’re observing even in Asia. And even on the technology front, we’re still observing that China is really leading when it comes to blockchain applications, on the supply chain, we’re seeing some of those initiatives in the U.S., but it’s not as seamless as one might hope. I want to ask you about the bureaucracy, as you’ve noted.

When you dole out stimulus dollars, you could go with the old system or you could do something like what has been proposed in one way or another, some form or fashion of a digital dollar, a digital currency from the U.S. side. Contrast that to China, where it’s expected within the next month, we’re going to see a launch of its digital currency/electronic payment, essentially a China-backed digital currency.

So these are two real conversations in the technology space that are evolving. One is speedily happening right now, while it seems right now in America, there is still an enormous bureaucracy that seems to be clogging up the pipeline.

Draper: Yeah, well, both of them will bomb, and the reason is, the whole point of cryptocurrency is that, you look at Bitcoin — it’s decentralized, it’s open, it’s global, it’s transparent. It is not subject to political whims or the idea that somebody can just print two trillion of them. And if you digitize the dollar or the renminbi, you are still stuck with most of the problems that you have with current political currency, with fiat currency.

It’s all tied to the politician at the top. It’s not welcome in any other country. It may or may not be transparent. In effect, you’re basically saying, oh, “OK, let’s go invent something that’s already been invented in a better way.” It’s like reinventing the wheel and making it square. The Icelandic group have already done this. They tried the Aurora coin, and it was tied to the Icelandic currency and nobody cared. Nobody wanted it because it’s the same as the other currency and it’s all tied to that government. And you can’t use it anywhere except Iceland.

I think the same thing’s going to happen with the Chinese digital currency. Although they do have a pretty large group of people that could all use it, it won’t be used outside. I wouldn’t want to take Chinese digital currency anymore than I’d want to take renminbi. And trying to digitize the dollar makes no sense. You’ve got the dollar, you now have a better currency. You have bitcoin, you have Tezos, you have other currencies that are just better. They are faster, more friction-less. They’re going to create more wealth in your world, they’re decentralized. 

One other thing is, these countries have to start to recognize that they’re in competition with each other. And these barriers, the trade barriers and the walls and whatever, are not going to help the people of that country. Every country should be thinking, how do we become more global? How do we trade with our partners? How do we build more olive branches around the world? Because then our country will be rich. We will get the best of the best. It’ll come from wherever it is produced, for the least, and where the best quality is. We will have trading partners around the world. We can sit between two countries that don’t seem to be able to trade together.

When China declared bitcoin illegal, Japan popped up and said, OK, bitcoin is one of our natural national currencies. Well, that sends a message to the entrepreneurs of the world that, hey, let’s go to Japan. Let’s not go to China. And then when Binance gets created and it’s in China and they build a 10 billion dollar business, then China says it’s illegal what you’re doing, they decided they’d move to Singapore. Singapore got heavy handed with regulations and so they moved to Malta and they said, “come on in, everything’s great!”

So I think these countries now are recognizing that they’re in competition with each other for us, for the people of the world. Businesses, finances, entrepreneurs, all the people they want, they have to compete for now. And this tribalism that’s going on, this nationalism, I think is an overreaction because they’re afraid that they’re losing their power base to this globalism. But we all know that globalism is far superior to any tribalism. Tribalism you have to invent it all in your place. But if you’re global, you can trade with partners all over the world and you’re better off.

Lau: Therein lies the real debate of centralized versus decentralized, right?

Draper: Yeah, it’s not just centralized. It’s tribal versus global. It’s the idea that you have to draw lines so people don’t cross your border. You have to make sure that you’re protected from those other people. Well, I travel enough to know that I don’t need protection from any other people. I love people, everybody I’ve met around the world.

I realize that we are so much better off being open and doing trade and being global businesses that whatever protection or perceived protection people are getting from having strong borders and whatever, I think they’re missing the big point. The big point is we are all better off the more global we are. So I think the geographic borders should be shrinking and they should. The internet shrunk the geographic borders. So bitcoin should shrink it even further because now we can do business with a global currency everywhere.

Lau: Do you think it’s as friction-less or seamless as it can be? What are the challenges still?

Draper: I think the tribal group of politicians have to die off so that the young group — that recognized decentralization and the fact that we’re all one world — those young people can take the reins and make it a utopia I hope it becomes. The dystopian world is the one where governments use this as a way to control their people. And so it’s not just to stay six feet away and wear a mask. It’s turn around three times before you walk out the door. It’s you can’t do this, you can’t do that.

Those countries are going to die. The brains will be drained from those countries as quickly as possible. The countries that look at this as a very temporary phenomenon and they free themselves back up — Sweden’s a good example — are going to attract all the great entrepreneurs, attract the businesses, attract people. There is a natural competition that’s virtual going on between governments, and it’s just starting. The Estonian government has the virtual residency program. The Malaysians have copied that, they have their own virtual residency program. Kazakhstan is doing a virtual citizenship program.

So governments are realizing they can compete across borders with governments that are in place. So I could imagine a time where we could create an insurance company right now with smart contracts, bitcoin, an actuary and satellite data and do a better job and provide better service than any of the existing insurance companies. Because if your house burns down, we can see it with the satellite data, we can send you a check immediately. If your car blows over, we can know that 120 mile an hour winds came through that corridor. With artificial intelligence we’re going to know better and better and better.

What is government but a lot of insurance businesses? It’s your health care insurance. It’s your Social Security, it’s your workman’s comp insurance, it’s your jobless insurance, it’s it’s all those different kinds of insurance, unemployment. And you could provide those services without a geographic piece of property. You could go out on a ship. You could go up into a satellite and create an insurance company that provided all those services and did it better than any of the governments are doing today.

What that does is it forces governments to compete and to provide better services and to be accountable to us. I’m old enough to remember when the government worked for the people. Now it feels like the people are working for the governments. And that needs to switch very quickly because I think the bad governments are going to fall under their own weight, and the good governments are going to rise. And we’re going to have a natural free market competition amongst governments. That is probably five to 15 years out where all the governments recognize this.

Lau: Has it been sped up, though, by this metaphorical brush fire called Covid-19?

Draper: Yeah, I think it did. I think you’re dead on. It’s not the only thing that’s accelerated. People have jumped forward in a lot of the services that they’re using now. They’re realizing that some of these things are better than what we had before during a bear market. Nobody wants to change anything, but when a tragedy happens all of the sudden people look for an alternative and those alternatives are available, and a lot of them come from our startups.

Lau: And so what should CEOs and senior executives and professionals who may be in more traditional industries right now and looking at the brush fire that’s burning around them, where they’re getting seriously scathed in layoffs and such? What piece of advice can you provide as a glimpse into this future? And how traditional companies or industries can lean into this transformation, either with digital technology, blockchain or cryptocurrency?

Draper: Yeah, I think everybody should be prepared for some bitcoin or some cryptocurrency because it’s just more efficient. It’s a more efficient way to pay your employees, a more efficient way to settle royalty payments. It’s a more efficient way to put together a payment waterfall. It’s just more efficient. It also requires no accounting, no bookkeeping, no auditing, no transfer agent, no legal.

For instance, in venture capital, I can raise a fund in bitcoin. I can put it to work in bitcoin. Those companies can pay their employees and suppliers in bitcoin and all the accounting is all taken care of. With a series of smart contracts, everybody’s wallet will be filled with whatever money comes out of those companies in the way that they’re supposed to. That wouldn’t require a lot of legal work. It would follow the legal advice. Wouldn’t require a lot of accounting because the accounting is all taken care of on blockchain, it won’t require a transfer agent if you have to move interest from one place to another. This is just better.

So if you’re a business trying to figure out what’s next, that’s a good place to start. The other thing is your business. Start thinking about having half your team working remotely. They clearly can be very efficient and very effective. Or maybe they work remotely three days a week or two days a week. Well, what does that do? That means we need fewer cars. I think there will be less travel because people that used to make five or 10 trips a year to China, me included, can now handle at least half, maybe more of those trips just through a Zoom call.

I think that the health care system is clearly going to fall under its own weight. We’re proving that a lot of health care can be done remotely. That means that it will be a lot less expensive and a lot more innovative and that diagnostics can be done with data where it keeps track of not just your medical records, but your genetic history, your blood test results, your Fitbit results, what you eat for breakfast, the airplane seat you sat on. All that data is now available to you if you want a diagnosis.

And then for therapeutics with computational biochemistry, you can actually design drugs that are specific to you and the computer can do a better job of creating efficacy and safety than the FDA. So we are going into some major transformations. I will also give corporates the advice they already know; if you’re the leader in the industry, this is the opportunity to grab market share. If you’re not, this is an opportunity to hunker down and make sure that you’re around after it all blows over.

I think a lot of companies have done just that; that’s why we have 25% unemployment. That is a major tragedy, and I think people are going to start to recognize what these governments have done to their people and how tragic it has become. The governments will spend it like, “oh, we finally got rid of the disease and now everybody can get back to work.” That won’t be the case, 25% of the people are not back at work, and we have to reinvent the economy to get them back to work.

Lau: Well, if there’s one thing that we know that technology and innovation can do, it is providing that kind of exponential growth that even you were part of with Silicon Valley when this used to be sleepy farmlands, and now it is one of the driving forces of economic growth in the world that is being mimicked in and hopefully replicated in regions beyond America’s borders. It’s going to be critical to our future.

Tim Draper, you are a prolific prophet. And one last thing that I’d be remiss if I didn’t ask you; will you really eat a raw egg if bitcoin doesn’t reach $250,000 by 2023? But truthfully, why do you think that, and are we still on track?

Draper: I don’t know who came up with that raw egg thing. I didn’t say it, but I don’t mind eating a raw egg, it’s not really that big a deal for me. I once did eat a hat, and that was when I said to one of my partners that if this company ever amounts to anything, I’ll eat my hat.

So at their big, huge party that they threw when the company was sold for $118 million dollars or something, I stood up there and faced it, I admitted it and I started to eat my hat. I ate a piece of the hat. (By the way, don’t eat a baseball hat. It is not good.) I started eating the hat and the guy said, “no, no, that’s enough, don’t eat any more” after I had swallowed my first bite.

Lau: You’re a man of your word, Tim Draper. But do you think the fundamentals, especially when we have zero idea of what the world is going to look like post Covid? Is that still your bet? $250,000 for one bitcoin?

Draper: Oh, yeah. I didn’t realize it was because the dollar was going to drop so fast. I thought it was that bitcoin was going to rise. But that ratio, I’m very confident in and a lot of it has to do with the engineering that has to take place and is taking place in companies like Open Node where they’re making it so a retailer can easily take bitcoin without slowing down the blockchain. And these companies who are creating accounting around the blockchain and the companies are creating smart contracts, contracts that make it easy for people to do business on a smart contract.

All of that progress is happening, and that’s why I’m saying eventually this is going to be where you’re going to be looking at two currencies. One is constantly dropping in value. That would be the dollar. And one is constantly rising in value and that would be bitcoin. And the other things that you’re going to be looking at are how easy it is to use, bitcoin is going to be easier to use. How global it is, bitcoin’s going to be more global. How subject to political whims it is, bitcoin is not going to be subject to political whims, but the dollar is. How much do they print, all that stuff? And then how easy is it to pay people overseas? How easy is it to remit money to another country?

There are so many reasons that people will move to bitcoin once they realize that it’s actually easier to operate in than in the dollar. And so that’s why I’m very, very confident and egg-eating confident. But I’m happy to do that, I didn’t come up with it — usually I come up with those. But you know that I predicted bitcoin at $10,000 pretty much on the day it hit $10,000. And I have that proof in the news. Bitcoin was at two hundred dollars or something, and I predicted bitcoin in three years to hit $10,000 and it hit $10,000 on the nose.

So I have a good view of the future. I meet six people a day who tell me what the world’s going to look like in 5 to 10 years. I have a pretty good view of how it’s going to look and 5 to 10 years. I have no idea what’s going on today. I don’t watch the news. I have a very good picture of what, 5 to 10 years from now looks like. And yeah, absolutely, 2022 or the beginning of 2023, we will see bitcoin hit $250,000.

Lau: Well, it was a pleasure, and I’m not going to make you eat a raw egg or balut or your baseball cap. I think that there is real direction to your crystal ball-gazing. So thank you for joining us today, Tim. And stay well. Stay safe. It was a pleasure. 

Draper: Stay brave — enough of this stay safe stuff! Stay brave, take risks. Go do something cool.

Lau: Absolutely, amen. And thank you, everyone, for joining us today on Word on the Block. I’m Editor-in-Chief Angie Lau, Forkast.News. Until the next time.