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Red Pill / Blue Pill: The Two Faces of Bitcoin

Meltem
October 23, 2019

Red Pill / Blue Pill: The Two Faces of Bitcoin

Meltem

October 23, 2019
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  1. Red Pill / Blue Pill
    The Two Faces of Bitcoin
    October 2019
    Meltem Demirors | CoinShares
    @Melt_Dem / @CoinSharesCo

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  2. This document, which is provided for informational purposes only, is intended to provide a high level overview of the CoinShares investment philosophy adopted by certain
    investment products promoted by the CoinShares Group only. Nothing in this document should be interpreted as constituting an offer of (or any solicitation in connection with)
    any investment products or services by any member of the CoinShares Group (and nothing herein constitutes, or should be construed as being, advice relating thereto). Access
    to any investment products or services of the CoinShares Group is in all cases subject to the applicable laws and regulations relating thereto.
    CoinShares Co has its offices at 101 Fifth Avenue, New York NY 10003. References in this document to ‘CS Strategies’ should be interpreted as being a reference to a common
    investment philosophy adopted by a family of investment products promoted by the CoinShares Group. ‘CS Strategies, CS1, or CS2’ is not a reference to any particular
    investment product or structure. The specific application of the ‘CS Strategies’ investment philosophy, and the actual investments held by products pursuing it, will differ on a
    product-by-product basis. Each ‘CS Strategies’ investment product may have a distinct structure, including (without limitation) in respect of fee arrangements applicable
    thereto, and regulatory treatment in the jurisdiction in which it is domiciled.
    The information presented in this document has been developed internally and / or obtained from sources believed to be reliable; however, no representation or warranty,
    express or implied, is made as to the accuracy, reliability, or completeness of such information.
    Predictions, opinions and other information contained in this document are subject to change continually and without notice of any kind and may no longer be true after the
    date indicated. Any forward-looking statements speak only as of the date they are made, and the CoinShares Group has no responsibility, and does not undertake, to update
    forward-looking statements. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time.
    The CoinShares Astronaut is a trademark and service mark of CoinShares (Holdings) Limited.
    © 2019 CoinShares Group. All rights reserved.
    Note Ms. Demirors herself is an investor in cryptocurrencies and companies, some of which are referenced in this deck for informational purposes only. You can find her
    disclosures and investments at meltemdemirors.com under “disclosure” and “investments”.
    Important Disclaimer

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  3. Red Pill / Blue Pill: the Two Faces of BItcoin
    Copyright © 2019 CoinShares Group. All rights reserved. 3
    “This is your last chance. After this, there is no turning back. You take the blue pill -
    the story ends, you wake up in your bed and believe whatever you want to believe. You
    take the red pill - you stay in Wonderland and I show you how deep the rabbit-hole
    goes.”
    - Morpheus, to Neo, in the movie “The Matrix”

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  4. Red Pill / Blue Pill: the Two Faces of BItcoin

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  5. Red Pill / Blue Pill: the Two Faces of BItcoin
    Copyright © 2019 CoinShares Group. All rights reserved. 5
    The World is Changing
    Understanding the Context for Crypto

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  6. Red Pill / Blue Pill: the Two Faces of BItcoin
    The Times We’re Living In
    MISTRUST GENERATIONAL SHIFT DISRUPTION
    • Rising populist tide, trade wars,
    growing societal unrest
    • Constant revelations of abuses of
    power of all types
    • Balkanization of society in physical
    and digital world
    • Largest generational wealth
    transfer under way – or maybe not?
    • Failing social entitlement systems
    • Millennials facing life-long
    indebtedness
    • Shift towards open source software
    and online collaboration tools
    • Physical jurisdiction less relevant
    thanks to digital domain growth
    The preference for crypto is driven by social, political, and economic factors
    Copyright © 2019 CoinShares Group. All rights reserved. 6

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  7. Red Pill / Blue Pill: the Two Faces of BItcoin
    Trust is a Tricky Thing
    Copyright © 2019 CoinShares Group. All rights reserved. 7

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  8. Red Pill / Blue Pill: the Two Faces of BItcoin
    Welcome to Our Digital Overlords
    Physical World
    Price of Physical Things = pp
    Today – our digital world is controlled by a small group of companies
    VALUE TO BE CAPTURED
    Digital World
    Price of Digital Things = pd
    Copyright © 2019 CoinShares Group. All rights reserved. 8
    $800B
    $500B $900B
    $1,000B
    $900B
    Our Digital Overlords
    $4.1T in Market Cap / 5% of US GDP

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  9. Red Pill / Blue Pill: the Two Faces of BItcoin
    Their Track Record with Trust is Tricky Too
    Copyright © 2019 CoinShares Group. All rights reserved. 9

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  10. Red Pill / Blue Pill: the Two Faces of BItcoin
    A New Type of Trust – Systems, Not Institutions
    Copyright © 2019 CoinShares Group. All rights reserved. 10
    Source: Crypto Graffiti

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  11. Red Pill / Blue Pill: the Two Faces of BItcoin
    Copyright © 2019 CoinShares Group. All rights reserved. 11
    Enter Bitcoin
    The First Ten Years of a Social Movement

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  12. Red Pill / Blue Pill: the Two Faces of BItcoin
    BITCOIN
    Innovation in Value Transfer
    Copyright © 2019 CoinShares Group. All rights reserved. 12
    Bitcoin as a Medium for Innovation
    THE INTERNET
    Innovation in Information Transfer
    Network:
    ISPs
    Killer App: Email
    Application Universe:
    Streaming video and music, data sharing, cloud
    computing
    Protocols:
    TCP/IP, HTTP, DNS, FTP
    Network:
    Miners and Full Nodes
    Killer App: Store of Value
    Application Universe:
    Time stamped data, payments, distributed compute,
    data storage, and more
    Protocol
    Bitcoin

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  13. Red Pill / Blue Pill: the Two Faces of BItcoin
    Bitcoin is a Unique Phenomenon
    Copyright © 2019 CoinShares Group. All rights reserved. 13
    “Financial institutions make people feel safe by hiding risk behind
    layers of complexity. Bitcoin brings risk front and center and brags
    about it on the internet.”
    - Elaine Ou, Global Financial Access

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  14. Red Pill / Blue Pill: the Two Faces of BItcoin
    The Most Valuable Companies are… Intermediaries
    Copyright © 2019 CoinShares Group. All rights reserved. 14
    Source: CoinShares Research
    CREATE DISTRIBUTE RETIRE
    OR REPLACE
    MANAGE
    t = 0 t = 1 t = 2 t = 3
    Speculation Utilization Specification
    $8 B
    5 Years
    $5 B
    4 Years
    $4 B
    5 Years
    $5 B
    2 Years

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  15. Red Pill / Blue Pill: the Two Faces of BItcoin
    So Where Have the Coins Gone?
    Copyright © 2019 CoinShares Group. All rights reserved. 15
    Source: CoinShares Research
    Xapo
    Grayscale XBT Provider
    Self-stored or held by an un-accounted for intermediary
    Mt Gox Custodian
    Assumed lost
    Top Exchanges
    Coinbase

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  16. Red Pill / Blue Pill: the Two Faces of BItcoin
    A Familiar Picture
    Copyright © 2019 CoinShares Group. All rights reserved. 16
    Source: Office of Financial Research
    0 100 200 300 400 500 600
    Capital One
    PNC
    U.S. Bancorp
    State Street
    BNY Mellon
    Wells Fargo
    Goldman Sachs
    Morgan Stanley
    Bank of America
    Citigroup
    JPMorgan Chase
    US SIFIs (Systemtically Important Financial Institutions)
    Composite Risk Score

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  17. Red Pill / Blue Pill: the Two Faces of BItcoin
    Recall Bailouts Aren’t Unique to Our Legacy World
    Copyright © 2019 CoinShares Group. All rights reserved. 17
    Source: CoinShares Research

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  18. Red Pill / Blue Pill: the Two Faces of BItcoin
    The Challenges of Building a New System
    Regulation
    User Preferences
    Service Providers
    Compliance
    Requirements
    Political Pressure
    Macroeconomic
    Climate
    Financing
    Talent
    Technology
    Execution
    Financial Planning
    Operational Discipline
    User Acquisition
    Idea
    Distribution
    Security

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  19. Red Pill / Blue Pill: the Two Faces of BItcoin
    An Expanding Range of Options
    Copyright © 2019 CoinShares Group. All rights reserved. 19
    Source: CoinShares Research
    • High risk tolerance
    • Unfazed by complex rituals
    • Some technical competence
    • Low risk tolerance
    • Desire convenience
    • Seek intuitive user experiences
    CYPHERPUNK MY DAD

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  20. Red Pill / Blue Pill: the Two Faces of BItcoin
    Copyright © 2019 CoinShares Group. All rights reserved. 20
    The Blue Pill
    Watering Down Bitcoin’s Promises and Selling “Blockchain”

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  21. Red Pill / Blue Pill: the Two Faces of BItcoin
    Copyright © 2019 CoinShares Group. All rights reserved. 21
    From Bitcoin to Shitcoin to Fedcoin
    Cryptocurrency
    Tokenized
    Securities
    Stablecoins ???
    THE EVOLUTION OF AN IDEA
    Initial Coin
    Offerings
    COIN FEDCOIN

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  22. Red Pill / Blue Pill: the Two Faces of BItcoin
    Company Crypto Move Market Cap
    Buy and sell bitcoin in $cash app,
    contributing to bitcoin’s open source
    $32B
    Bitcoin futures contracts $63B
    Bitcoin custody, crypto mining $1.4T AUM
    Created a subsidiary for institutional trading,
    custody, and much more
    $44B
    Copyright © 2019 CoinShares Group. All rights reserved. 22
    Finance Firms are Not Waiting

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  23. Red Pill / Blue Pill: the Two Faces of BItcoin
    Corporate Coin Type & Peg Description # Users
    1 Libra = 1 unit of stable
    basket
    Libra coin backed with a pool of assets,
    Libra Foundation, and Calibra wallet
    2,700M
    1 JPMCoin = 1 USD
    Internal use only, for now – used to settle
    “smart contract” bonds
    30,000 middle market,
    1,700 corporate
    1 Rakuten Coin = TBD
    The online giant’s $9B loyalty program will
    be rolled out on a blockchain
    102.6M
    1 S Coin = TBD
    Will allow for mobile phone payments, and
    also allows others to mint their own
    tokens
    Unknown
    1 TON = 1 TON
    Telegram’s TON token allows in
    application use
    250M
    Copyright © 2019 CoinShares Group. All rights reserved. 23
    Corporates Want to Play the Game

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  24. Red Pill / Blue Pill: the Two Faces of BItcoin
    Copyright © 2019 CoinShares Group. All rights reserved. 24
    But the Results are Mixed

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  25. Red Pill / Blue Pill: the Two Faces of BItcoin
    Copyright © 2019 CoinShares Group. All rights reserved. 25
    And Now, Governments Too

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  26. Red Pill / Blue Pill: the Two Faces of BItcoin
    Copyright © 2019 CoinShares Group. All rights reserved. 26
    The Game is On

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  27. Red Pill / Blue Pill: the Two Faces of BItcoin
    Not so Much Revolution as Evolution
    Evolution
    Early adoption fits the existing regulated structure
    Revolution
    Experimentation phase takes time…
    Decentralized
    Financial System
    Centralized
    Blockchain
    Applications
    DENIAL ANGER DEPRESSION
    BARGAINING ACCEPTANCE
    *The Kübler-Ross grief model serves as a good index of how incumbents and stakeholders alike will react as we progress through the parallel paths
    VALUE TO BE CAPTURED

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  28. Red Pill / Blue Pill: the Two Faces of BItcoin
    The Stakes Have Never Been Higher
    Copyright © 2019 CoinShares Group. All rights reserved. 28

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  29. Red Pill / Blue Pill: the Two Faces of BItcoin

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  30. Red Pill / Blue Pill: the Two Faces of BItcoin
    [email protected]

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