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Feb 7, 2018

Bitcoin Buy In

Do cryptocurrencies have a bright future? Former hedge funder and head of the Merc Bo Collins is betting the answer is, yes.

Financial innovation and the upheaval it causes is nothing new to J. Robert “Bo” Collins Jr., a Texas natural gas trader and former head of the New York Mercantile Exchange, whose hedge fund, Mother Rock, lost a high-stakes bet on natural gas and was forced into liquidation in 2006. After licking his wounds, Collins is back, and he’s got a new passion: cryptocurrencies. His new firm, Morpheus Asset Strategies, is trading cryptocurrencies and plans to open up a fund to outside inventors.

Photo by Robert Paul Cohen for The Wall Street Journal, courtesy of Bo Collins.

Worth sat down with Collins to talk about bitcoin and crypto just as digital currencies were tumbling from their recent lofty peak amid heightened regulatory concern.

Q: How did you, an energy trader, get involved in bitcoin? It seems so far removed from what you’ve done.

A: It does, doesn’t it? But my first job in life was with the Federal Reserve Bank in Dallas. I was on this national working group that led the conversion of savings bonds from paper to actual electronic entry. Now, you don’t get a savings bond; what you get is you get a certificate that says you bought this. The actual bond is a book entry at the Federal Reserve.

So the idea of a currency in electronic form made sense to you. What led to your interest in bitcoin?

I had a failure with my hedge fund. That was my first failure in life, and it was hard. I literally packed up my bags, and said, “I’m going back to Texas. I’m going to clear my head.” I continued trading, and I would follow my wanderlust in researching interesting topics on the internet. Some time in 2009, I came across Satoshi Nakomoto’s original paper on bitcoin. I just was blown away. I was like, “Oh my God, this is the solution to what’s going on in banking and markets right now.” I watched bitcoin go from a penny to $9. At $9, I finally invested in it. I finally became convinced that this isn’t just a scam. It is actually a system that serious people are trying to participate in as money.

Why did you think it was a solution?

Because we were, and still are, debasing our currency as fast as we possibly can through the actions of central banks. We’ve put ourselves in a precarious position.

Isn’t bitcoin a form of debasement? You’ve got a bitcoin worth $7,000 to $10,000. How does that solve the problem?

That’s not debasing. It is an exchange. Studying bitcoin forces you to ask yourself the question, what is money? It seems like such a simple question.

You argue that it’s a free market currency that can’t be debased by the actions of the state because there is a limited number of bitcoins. But is it really money if you can’t use it to buy things?

That’s because it’s not widely adopted. Don’t think that is a static fact, because it’s not. Five years ago, no one accepted bitcoin, but I’ve bought some pretty significant assets with my crypto. I’m about to convert one of my business’ payroll to all crypto.

I do not think that bitcoin is going to be the winner among crypto currencies… because technology evolves.

What is the benefit of bitcoin?

First off, I do not think that bitcoin is going to be the winner among crypto currencies. It’s like everything else. Are you still using your 287 Intel chip that ran Microsoft DOS? No, because technology evolves, and what we use now is way easier and better. Bitcoin is probably one of the worst crypto-assets, but it’s the legacy. Bitcoin is not cheap. If I sent you a bitcoin today, it costs me $25. The transaction costs are high.

Regulators all over the world, including those in China, Korea and India, are taking a really close look at this phenomenon. The Securities and Exchange Commission recently stopped the launch of crypto futures ETFs and seized the assets of a so-called crypto bank. Some big banks won’t allow their customers to trade in crypto assets. How is that going to affect the growth of this market, and the price of cryptocurrencies?

What’s happening right now is we’re going through that very messy era of trying to figure out what rules we should have in place to protect people. You have this Wild West stage of the market. It begins to get regulated. As it gets regulated, it gets safer and gains more participants, and the volume of it goes up. That’s happened in the commodity market, it’s happened in the stock market. As a rule of thumb, regulation may not help the profits of the participants, but it creates a more sound market.

Where do you think we’re going to be 10 years from now, with regards to bitcoin and crypto?

My guess is the adaptation of these things is far slower than people think. There are a number of hot topics that aren’t fixed yet, and we’ve known about them for three or four years.

Aren’t the scandals involved in cryptocurrencies, including instances of hacking that led to losses, likely to turn off potential investors?

There is no doubt about it. But the enormity of social value that comes from distributed ledger technology generally is important. I’m really committed to seeing it grow. There were scams with dot-com companies. You can go through every American epoch, and in the beginning of that story, there were scams. Our job is to build something that has staying power and has a societal benefit. And we’d like to make money doing it.

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