Reggie Middleton: ‘The Problem is Not Brexit. It’s the Euro’

Bitcoin.com caught up with the founder of Veritaseum Reggie Middleton who shared his thoughts on the higher Bitcoin price, The DAO’s proposed fork “bailout,” and why the Euro is doomed following Brexit. 

Middleton is known for making predictions about the crash of markets and large financial institutions long before they occur. He has been called “startlingly accurate” by Aaron Elstein of Crain’s New York Business. Middleton is well known for calling the collapse of the housing market in 2007, as well as the demise of Bear Stearns weeks before it happened.

Also read: UK Credit Rating Downgraded Amid Post-Brexit Uncertainty

Interview with Reggie Middleton

Reggie Middleton

Bitcoin.com (BC): You are most known for correctly predicting the collapse of Bear Stearns in 2008 when Bitcoin didn’t exist. Now, with the world economy once again in a downturn, what will be the straw to break the camels back this time?

Reggie Middleton (RM): I’m fairly certain the failed Frankenmonster global macro experiment otherwise known as the Euro will collapse, exposing much of the weaknesses simmering in many global economies. As risky assets finally start acting like, well… risky assets and are repriced accordingly, money will become more responsibly priced.

That means negative yields will be righted as the market forces bond prices to reflect reality or force disgorge massive resources to maintain the charade that everyone will recognize exactly as such.I’m talking China as well as EU area states here. The repricing of risk, rates and currencies will force many to see more value in BTC. The problem at that point is the extremely thin float of BTC, which leads to volatility.

BC: What do you attribute the recent big moves in Bitcoin Price? 

RM: Outside of extreme sensitivity due to thin float, I truly don’t know what the impetus is. I can pontificate, but unlike many others, I fully admit that I don’t know ????

BC: How much impact do you think the upcoming reward halving will have on price and the ecosystem as a whole?

RM: Using historical prices as a guide, there may be some price fluctuation, but it will be transient in nature, with a generally upward trend in price, save a catastrophic event that effects the ecosystem directly (things such as Brexit actually help the system). It will also bring us closer to the truly economic equilibrium pricing of BTC transfer prices – that is transmission prices with a smaller subsidy sourced directly from the network protocol.

BC: Is it counterintuitive to believe price will rise amid a supply cut? 

RM: Not at all. Supply doesn’t determine price. Price is determined by supply as a function of demand. Supply can spike 200% and price can still double if demand spikes 400% (think Britons trying to mobilize capital).

BC: What’s your take on the DAO debacle? What can the community learn from this event? 

RM: To begin with, the DAO was not “hacked”! Proclamations along those lines simply represent inaccurate reporting by the media that didn’t take the time to analyze and understand what they were reporting.

Long story, short – the authors of the DAO wrote very sloppy contracts as code, and someone actually read the contracts (God forbid) and took advantage of a clause that allows him to recursively withdraw funds into his own mini-account.

 I don’t think Ethereum is “doomed”, but they are definitely at a critical crossroads.

Not only did he not hack the DAO, he followed rules that literally encouraged the behavior and allegedly has retained a law firm to threaten members of the Ethereum community if they attempt to prevent him from taking his assets away. This is an interesting exercise to observe but grossly misrepresented in the media. The danger in the way the DAO was represented, from an economic perspective, is that once you declare the code to be the final word in regards to the terms of the contract, and there’s a bug in the code, then that bug now becomes the de facto “rule of law.” Arguing intent etc. is meaningless. The code said what it said and the contracts apparently executed as they were supposed to. The issue that everyone is ignoring? What you will likely see next is the SEC going after Slock.it for marketing unregistered securities. It takes much more economic, legal, business and financial savvy to pull off the very ambitious stunt than that was dedicated to that project. Then again, they probably didn’t think it would raise $160 million in 2 weeks, either. On that note, Veritaseum is creating a DAO-like structure that will essentially be code-driven Central Bank for the people – smart contract-driven and directly on the Bitcoin blockchain. We are being retained by a very powerful sovereign wealth fund to put our unique interdisciplinary spin on this. Trust me, we will be much more cautious…

BC: Do you agree with Daniel Krawisz’s article proclaiming that Ethereum is “doomed” as a result? 

RM: I don’t think Ethereum is “doomed”, but they are definitely at a critical crossroads. I have an awful lot of respect for the founders, but any decision to fork the platform for the benefit of the minority will kill it (at least for prudent institutions). I hope they choose to do the right thing.

BC: Is it fair to compare the proposed soft/hard fork to retrieve lost investor funds to the TBTF bank bailout? 

RM: I don’t think the TBTF comparison is accurate. More appropriately, suppose you knew people owned a software firm whose database and networking software was used by your brokerage firm to conduct your options trades. You create a robotic LLC and members of the software firm invest in it, as well as a lot of other people. You write put options on the EUR right before Brexit and before a Brexit vote even occurs, Ireland secedes by a military coup. You didn’t think it would happen, but then again you never read or write the option contract with those scenarios in mind either, and the guys who bought the option contract were experts in global macro, and Ireland.

Banks have no idea of the value of Bitcoin or its true capabilities.

Did the guy who bought the puts hack you, or did he just read the contract and understand it at a level that you didn’t? Even if he knew you were ignorant (which may bring into question a matter of ethics, but that’s a different conversation), you still had the opportunity, and likely the prudent man responsibility, to read and understand the contract you were investing in. Now, suppose your friends in the software firm who also invested in your robotic LLC decide to ponder changing the database code to “undo” this guys purchase of your options, calling it an “attack” or a “hack.” Need I say more? If I do, you should not be in this business.

BC: You’ve met with numerous heads of major banks discussing Bitcoin and blockchain technology. Do the banks actually get the real value of Bitcoin, realizing that blockchain is just hype? 

RM: Banks have no idea of the value of Bitcoin or its true capabilities. They have been jaded by inaccurate reporting in the media (yes, this again). Banks and bank heads can’t blame the media because it is their responsibility to find facts and not tabloid-style fiction.

I’m not picking on banks since I actually believe that most in the ecosystem materially underestimate the network effect and programmability of the Bitcoin network. Then again, I do have a smart contracts startup that runs on top of Bitcoin, so caveat emptor! ????

RE: financial institutions, attempting to discuss the blockchain without a token sounds as if they are either absolute geniuses or maybe have a misunderstanding of the opportunities at hand. Now, with that being said, many bank heads thinks the blockchain is mostly hype, and from their vantage point I can definitely understand where they are coming from. Think about it. Taking a bleeding edge P2P tech and attempting to cram it into a decades-old, server-centric back and that requires dozens of direct competitions to cooperate and agree???!!!

When I pose our approach to the C-suite, I get a very different reaction. We use the P2P tech to connect the clients and customers of the banks on a transparent, low cost, counterparty risk-free basis. This gets their attention, or at least the attention of at least one CIO in one of the top global investment banks.

BC: What do these bank heads think of your Veritaseum platform that enables P2P investment banking? 

RM: They have a healthy skepticism, but even a healthier curiosity. I explain to them that, unlike my indirect competitors, I’m not hawking a radical new technology, I’m pushing a radical new business model – a platform business model (that is enabled by this new technology), that hits an itch where legacy institutions can’t scratch (they have 40 to 60% compensation margins, but that is a story for a different article). Technology has never been the cause of a paradigm shift. It has always been the business model (which, again, may be enabled by a new – and often commodity – technology).

The problem is not the UK, not Brexit. It’s the Euro.

BC: Do you agree with major banks like JP Morgan Chase who claim that #Brexit will hurt UK economy, people would lose jobs etc.?

RM: I think Brexit will hurt JP Morgan by increasing their expenses. I also think that Jamie Dimon either didn’t see or didn’t express the whole landscape. The problem is not the UK, not Brexit. It’s the Euro. It’s a failed experiment that tried to replicate the success of the USA federal union in 40 years, while not going through the 250 years of slavery, a civil war that decimated (that’s 10%+ of) the male population, a single universal language and common culture, two very large war barriers (Atlantic and Pacific oceans) and centuries old allies north and south.

Hey, we can duplicate that in a couple of decades, with 17 disparate languages, economies and legal systems who’ve been at war for thousands of years, right? Yeah!… Think Brexit, Grexit, Spexit, Nexit, Italexit, etc. exit, if you know what I mean. If the UK doesn’t utterly collapse, the Euro Frankenstein monster experiment is doomed!

BC: Overall, do you see an inverse relationship between alternative finance (e.g. Bitcoin) and the health of the traditional economy particularly as China’s gov’t is increasingly propping up its economy, Brexit, another subprime loan bubble etc.? Is it becoming the new store of value? 

RM: Alternative Finance is simply financial business models, which haven’t hit mainstream as of yet. Replace “alternative” with “Internet,” pre-date the conversation to 1994 and almost anyone can answer that question. “… , do you see an inverse relationship between ‘Internet’ finance (P2P money, i.e. Paypal) and the health of the traditional economy particularly as Japan’s gov’t is increasingly propping up its economy, Venezuela, another tech, etc.? Is it becoming the new store of value? ” Answer, of course not.

Progressing technology is allowing more innovative, therefore generally more innovative business models. The inefficient ones, the slow ones, the merely lucky ones, are getting run over. It happened before, it’s happening now, and it will happen in the future. It’s called economic reality.

Do you agree with Reggie Middleton on his prediction for the Euro? Let us know in the comments below!

Images courtesy of commons.wikimedia.org, youtube.com

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