Halal Money Matters

Episode 14: Cryptocurrency

Digital asset manager Motasem Benothman joins Halal Money Matters for a beginner's guide to the past and present of cryptocurrencies such as Bitcoin.

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Halal Money Matters Podcast

Episode 14 – Cryptocurrency

[music intro]

MONEM SALAM: Welcome to Halal Money Matters presented by Saturna Capital. I’m Monem Salam.

CHRISTOPHER PATTON: I'm Christopher Patton.

MONEM SALAM: So, you know, there's been a lot of talk, Chris, about, you know, Bitcoin and Ether and how most people don't even know what they are. But they've got to figure out a way to buy it or sell it or try to take advantage of it.

CHRISTOPHER PATTON: Every day, there's a headline about what Bitcoin is doing or you know, somebody who's really into it. But I think a lot of people, they've seen the headlines, but what is this? I think some people have kind of skipped past that or they’re not sure. Maybe they're afraid to ask.

MONEM SALAM: Yeah. My favorite story is I was literally sitting in a restaurant in Chicago, and I overheard a conversation between the cashier and the customer, and the cashier was explaining to the customer what Bitcoin was just decides. I just had to laugh. Aside from just any particular coin, what is what is the concept of crypto? And really, once you understand that you can make your own judgment as to what you want to do, but knowledge is key, and that's what we try to do on the show.

CHRISTOPHER PATTON: Right. And to that end, we had a great guest on.  Motasem Benothman, founder of Portola Springs Capital. He kind of focuses on digital assets like crypto. He's got a background in halal real estate investing, so he seemed like the perfect person to come on and explain to us what is going on.

MONEM SALAM: Yeah, I think if anybody I think understands this, this marketplace and not from it again, it's not a, you know, buy this or sell that, but just from understanding from a market perspective, I think he’s a great person.

[music interlude]

MONEM SALAM: Motasem thank you so much for joining us.

MOTASEM BENOTHMAN: Thank you for having me.

MONEM SALAM: You know, I think it's a good place to start to talk a little bit about the history. I know there's a there's a lore behind it as well with Bitcoin and the white paper that was that was written by some anonymous person named... it was some Japanese name, if I'm not mistaken, right?

MOTASEM BENOTHMAN: Yeah, Satoshi Nakamoto.

MONEM SALAM: That's what it was, yeah. Nakamoto. So yeah, why don’t you just start off, maybe with a brief history about where this all started?

MOTASEM BENOTHMAN: You know, a good place to start is just simply when the internet was created. There were many people that tried to create internet money. And a few startup companies as well as some sort of nonprofit efforts ventured into the space. And really, the main hurdle became around trust, right? That effectively, to know... So, if you recall from the mp3 days with the music industry and how they struggled with the copying of files. Obviously, anything that's digital can be replicated. So, when you're talking about money, how do you protect that from being replicated? And the typical solution for that is to basically have a database that controls or states which coins were transferred, or which digital currencies were transferred and so forth. And then that becomes kind of the ledger of record. The problem with that, though, is that when you have a company controlling this database, that's arguably too much control for one entity. So, with something as important as money, no one wants this no-named kind of startup to basically control that, that much power. So, people tried different ways to go about it. And for a few decades there was no success. Until basically the Bitcoin white paper came out in late 2008. And that basically solved the problem using the blockchain technology. And that effectively created the blockchain which is basically a ledger. So, think of it almost like a database. And it contains the transactions of Bitcoin. So, whenever you send a Bitcoin to someone else, that blockchain is updated with that transaction. So, wallet A no longer has that Bitcoin and wallet B now has that Bitcoin.

MONEM SALAM: I remember when I was just reading about this, there have been other societies in the past that have used some, some maybe rudimentary form of this right. I think there was one Aboriginal tribe in Australia that actually had a ledger on a rock that they used to record transactions. And I think that's where when I when I was explained blockchain, that's how it was explained. Like, hey, this has been around for a long time, just a way to do it digitally rather than on a hard stone or something carving it.

MOTASEM BENOTHMAN: Right. I mean, there are a lot of interesting analogs, right? Even if you think about one of the traits of Bitcoin is its immutability. And when you think of, like, in Islam... We have... in terms of the scholars and how they've come up with the Hadith and which Hadith are considered to be sahiyah. There's it's basically a lineage, right? And based on who were the people that transferred these hadith? And are these people trustworthy or not? 
A lot of this has some similarities in blockchain, as well. A sense of how you can trust that information. And so going back to the white paper with the blockchain, it created this this ledger, but it also had some very advanced cryptography built in that enables, basically, this blockchain to be trusted. The information in the blockchain to be trusted without you trusting the people running it. So that solved that original problem of having who runs this database and can you trust them with something as important as this? So currently, and from the origin days, we do not necessarily profuse to trust the people running the blockchain. They're all in it with their own incentives and self-interest. But due to the cryptography involved, we can mathematically verify that the information has not been modified and therefore we can trust the information in it without trusting the people running the network.

MONEM SALAM: So just to break that down a little bit further. So basically, what you're saying is if I was to transfer some Bitcoin over to you and then and then and so then I guess the idea would be how the cryptography comes in into how do you secure that file, right? And then also, how do you record it? And it's so it's permanent and nobody can ever change it? Is that what that cryptography for.

MOTASEM BENOTHMAN: Correct in terms of validating, once you say I am receiving or I am sending this Bitcoin, the cryptography is involved there to validate that you are the true owner. And then there's also cryptography involved in regard to validating that the ledger that this database... that these Bitcoin miners did not go back and change some things that happened, you know, days ago or years ago, or whatever it may be. So, to their benefit.

CHRISTOPHER PATTON: And you mentioned that the early efforts were kind of centralized. You might think, to keep it in a centralized place. But in a public blockchain, part of the appeal is that it's not centralized, it's decentralized and that is that that's part of what helps keep it trustworthy. Is that right?

MOTASEM BENOTHMAN: Yes, absolutely. So now you basically have tens of thousands of Bitcoin nodes around the world, and these are basically just computers running the Bitcoin software. And they're run by all kinds of people, some that are just believers and supporters of Bitcoin and others, the majority, are just simply there for profit. So, they run the software and the software is open source. So, it's software that anyone can read. And therefore, that also gives them additional credibility in terms of the trustworthiness of the software and its components.

MONEM SALAM: Let's break down further, because there's a couple of things you mentioned that we just want to make sure everybody understands. One was you mentioned a node, right? And the other one you mentioned was a ledger. So, let's kind of define those a little bit. A ledger we can probably understand. It's where all the transactions are kept. But the one part of the part of the ledger... How does the ledger, the distributed aspect and the block aspect... How do all three of those work together?

MOTASEM BENOTHMAN: Yeah. So, you can think of the ledger as a database. And the reason why it's called the blockchain is that every ten minutes, in Bitcoin’s case, there is a new block that gets added. And that block basically lists all of the transactions that took place over the prior ten minutes. And then it gets basically validated from a cryptography perspective and added to the prior list of blocks and therefore a blockchain, right? So, any time you send a transaction? That's why sometimes if you're if you're sending something to Coinbase or another exchange, sometimes they'll make you wait ten or 20 minutes because they want to make sure that transaction is basically validated to the blockchain. So that's the ledger piece of it.

MONEM SALAM: And what does validation mean?

MOTASEM BENOTHMAN: So, validation is making sure that the transaction is in fact accurate, right? So, if you are a customer of Coinbase’s and someone sends you ten Bitcoin, Coinbase will see that on the network within ten minutes. But there's usually a period of time where sometimes that blockchain can be modified for the last... Basically every ten minutes, the more immutable it becomes. So Coinbase, when they try to reduce their risk, they'll say, “We're going to wait for three blocks or 30 minutes before we confirm your receipt of those ten Bitcoin.” So, it's more of a risk management piece just based on in case Bitcoin miners argue amongst each other or about what the latest block really included.

MONEM SALAM: These miners aren't picking up the phone and starting to argue about it. So how are they arguing about the chain?

MOTASEM BENOTHMAN: Yeah. So, you end up, basically, having on the network... Let's say, for example, two Bitcoin miners claiming to have basically solved the recent block at the same time, and therefore they may have two different sets of information. So, there is a resolution period where there are two competing sources of truth. And it takes a little time for the broader network to kind of start to all lean towards one of those two to become the final source of truth.

CHRISTOPHER PATTON: And this process that it was supposed to simplify things does sound very complicated.

MOTASEM BENOTHMAN: There is definitely a one step forward, two steps back thing with crypto as a whole. So that's why I think, like with the blockchain, especially when you go into like dispute resolution and things like, that likely gets into the weeds and loses people.

MONEM SALAM: Let's talk a little bit about the miners and what does a miner do?

MOTASEM BENOTHMAN: Yeah. So basically, miners are computers running the Bitcoin software. And basically, every ten minutes they embark on a race to solve a math problem, effectively. And the first person to... the first computer or nodes to win that race basically becomes the source of truth for the next block. They determine what that next block is, and all the transactions included in it. And the reason why all these miners are racing is because one of the... part of the token economics built into the Bitcoin software is that for every block that gets created, there is a reward of Bitcoin that gets minted and given to that miner. So that's where the profit comes in for Bitcoin miners. Currently, that means every ten minutes there's 6.25 Bitcoin that get awarded to a single miner. So, these miners basically turn on many machines and they try to get machines that are very fast and therefore they can solve this math problem faster. And therefore, earn the 6.25 Bitcoin. And then every ten minutes that gets reset and they start again.

MONEM SALAM: So, when Bitcoin first started that 6.25 could have been worth $6.25, but now that's 6.25 could be worth more than $120,000, making it more competitive for other people to get involved.

MOTASEM BENOTHMAN: Correct. It is a little more complicated in the sense of... the way to kind of address to make things attractive even from the early days, is that the rewards many years ago was actually much higher, a much higher quantity of Bitcoin. And part of the code says every four years we cut that reward in half. And that's why sometimes you'll hear people talk about the Bitcoin halving. And that's the point, that took place last year and will take place again in 2024, where the reward gets cut in half. So, in 2024, the rewards will become 3.15 et cetera. So that's also why typically, price tends to go up after that having because now your new supply, which is also called inflation, gets reduced significantly. 

CHRISTOPHER PATTON: You just touched on this a little bit. Monem mentioned the price going up. What causes Bitcoin value to fluctuate?

MOTASEM BENOTHMAN: Yeah, so, there's two pieces to that, right? One is, you know, how do you determine a price for Bitcoin? What should it be valued at and so forth? And two, kind of why is there so, so much volatility? And the answer to the first kind of also answers the second, which is right now... So, Bitcoin is a store of value, right? It's considered to be more like digital gold. And because it's so new, it still is arguable in the context of what its value should be. It's not like a stock which has a cash flow and tried and true methods of calculating a value, right? So, typically in the stock market, you have agreed upon methodologies of valuing a company. OK, and there's, say, two or three really popular methods of valuing a company. What is not agreed upon, necessarily, is what are the inputs you put into those methods, right? With Bitcoin and the rest of crypto, there is not even an agreed upon pricing methodology or valuation methodology. So, therefore, the range of possible values is much wider, right? So, that's a big part of the volatility. Additionally, in the context of what the value is with Bitcoin not necessarily having intrinsic value, it's tied to the story, right? Just like gold when gold first started, it was basically two people that found the shiny rock, and they decided that they're going to trade using this rock. And as they talk to more people and convince them to use that same rock, then the value of gold grew. So, the same with Bitcoin. As more people believe in Bitcoin, the value of it increases. And therefore, the price changes. So, one analogy I've heard is to think of Bitcoin almost like a bank account. And as more people believe in the story of Bitcoin, they're going to put money in this bank account. And if you therefore believe that more and more people will believe in Bitcoin over time, you can assume that this bank account will get more and more money over time. Right. And the price of Bitcoin will be whatever is in this bank account divided by 21 million, which is the total number of Bitcoin that will ever be created.

CHRISTOPHER PATTON: The maximum amount of Bitcoin that will be created... what is that based on?

MOTASEM BENOTHMAN: Yeah, that's so that's a really important point, because when you think of the success of gold, a big part of the success was because of how rare gold was right? And that's part of why gold versus silver, et cetera went out. So, Bitcoin's architecture was initially designed based on that 21 billion max supply. And as we described earlier in terms of how mining works, every ten minutes, new Bitcoin is created. So, today, there's about 18.7 million Bitcoin that have ever been minted, and then that continues every ten minutes to grow slightly. And because of the halving... it cuts that inflation down. So right now, the inflation amounts to sub 2% annual inflation of Bitcoin and then every four... and three years from now, that will become sub 1% and so forth. And by the way, comparatively to gold ... gold is a little over 2% inflation. US dollar inflation is even higher than that. So, we're already at a point where Bitcoin's inflation is lower than gold and the US dollar, which is an attractive element, right? And then that inflation drops in half every four years. So right now, we have the 18.7 million and eventually it stops at that 21 million mark.

MONEM SALAM: Okay, so the sum of all of it will be equal to 21 million coins.

MOTASEM BENOTHMAN: Correct. And then it assumes that there are about three to four million Bitcoin that have already been lost over the years. Right? So, think of someone many years ago in the 2011-2012 stage, which earned a lot of Bitcoins, had them on a computer. At the time, they weren't worth much, and then that computer got thrown away by accident or a person lost their passwords or whatever. So, of that, 21 million, three to four of them are arguably lost forever. So basically, this asset could become very valuable in the sense of its scarcity. 

MONEM SALAM: Yeah, I don't admit this to many people, but I did lose a couple of Bitcoins because I lost my passwords. Yeah. So, because again, it was very early on when I when I got into those and didn’t know how much was going to be worth eventually.


MOTASEM BENOTHMAN: Well, it’s impressive that you were early.

MONEM SALAM: So now, I mean we talked about Bitcoin because that was obviously one of the pioneers of it, but there's so many other coins that are out there. So, how do you explain the growth of the all the other coins out there? Because are they based on Bitcoin or are they completely different than Bitcoin? What's going on there?

MOTASEM BENOTHMAN: Yeah. So, they basically took the blockchain architecture that Bitcoin is built on to create new technologies. So, the founders of Ethereum basically said, “Hey, let's see. This blockchain concept is really innovative but let's use it for more than just the ledger capabilities of the transaction of an asset. Who holds what, however many coins? Let's use it for much more information. Almost like a computer, the internet can store data and do calculations and things like that. So, Ethereum basically took the blockchain architecture and redesigned it in a manner to allow for that and allow for applications to be built on top of the blockchain. And therefore, that kind of spawns the opening of all of these other blockchain applications. And each of these applications creates their own tokens. And hence now we're in this state where we have multiple thousands of different tokens and projects. So, it's interesting because you think of Bitcoin as basically a store of value or digital gold, whereas most of the rest of crypto is really more of a technology play, right? It's basically Web 3.0, and it's much more of the next internet, so to speak. So, from an investing standpoint. It's a very different outlook because now you're trying to assess... is this technology going to be adopted in the future and where will value accrue in this adoption process and so forth? And then that's what feeds into trying to decide from an investor’s standpoint which coins are good to invest in. But from a user standpoint, it's going to create these applications just like the internet did that you can use, right? So, an example would be there's decentralized finance today. That's basically has a lot of momentum. Most of it rides on top of Ethereum. And these are basically blockchain applications that are creating financial use cases such as borrowing, lending, trading, etc. But because they're all on the blockchain, and these applications have tokens and they are decentralized, meaning they're not run by specific companies or people, that affords a lot more innovation than traditional finance or even fintech has today. So, some of the capabilities around that or advantages are regulatory arbitrage. Right? So, if you have a project that's joining DeFi—or decentralized finance—since it's decentralized, it does not necessarily have the same regulatory burdens that a traditional finance company has. So, if I'm if I'm trying to offer lending services to the unbanked, I have to deal with every territory that I expect to have customers and comply with all those regulatory burdens, which usually are quite significant. And if you're building a DeFi application, it's arguable that you don't need to worry about that because this is just software that's floating out there and is not being run by a specific individual or company. And therefore, it's much harder to regulate. So, it's interesting. The other part of this, also, is tied to the speed of innovation. That’s because it's all open-source software and now everyone is building on top of each other's work so that the iterative growth of that innovation cycle is significantly faster than what you would see in the traditional world because you’re not hampered by intellectual property rights and other types of restriction. So, imagine if in Silicon Valley, you have the keys to open up any office and any computer. Facebook, Google, etc. and just use that software however you want it. That's basically what we have today in the blockchain world. You see a new application get rolled out on a Monday. You like it but think you can do something a little differently. So, you can go to their code base, copy it, modify what you want, and on Tuesday you release a new version of that and put your name on it or whatever. And now it's an iteration of what was released on the prior day. So, this creates this innovation cycle that is quite amazing.

MONEM SALAM: And I don't know if this still happens or not, but there is this idea of anonymity when it comes to trading or, you know, buying and selling and transactions and that type of thing. And that led blockchain to be labeled as a great enterprise for criminals to be able to do. Can you comment a little bit about that? Because my understanding was it's actually not anonymous. I mean, if I have a hash, which is my code for that, that identifies me, you know, if any point in somewhere down the road, if I ever attach my name to that hash, it's public knowledge forever because it's on a blockchain that's immutable.

MOTASEM BENOTHMAN: That's correct. So basically, if someone is able to connect your personal identity with a wallet address on the blockchain, then your entire history on that address is available. So therefore, it's less anonymous from that standpoint. Criminals today, like with ransomware criminals and so forth, use Bitcoin and some other crypto less because of perceived anonymity but more because ease of transferability, right? They don't have to depend on the banking system, which tends to be less favorable and more restrictive. But yes, that is definitely a common misperception that you have more anonymity in crypto. So, there are companies that exist today that focus exclusively on basically reading the blockchain and trying to connect wallets in their history and identify people and organizations and so forth. And then it's basically the FBI, IRS, et cetera, actually contract with these companies so that they can basically use that information to help with their own direct efforts.

MONEM SALAM: And they were able to do this recently in a malware attack. I think where they were able to trace back to Bitcoin and they were able to source exactly who was the one who was behind all of that because they're the ones that got paid. So, we talked about Bitcoin, and we talked about the Ethereum, which maybe that's supposing it's like a second phase. And now there's what thousands of cryptocurrencies that are out there and not really from a trading perspective, but even from a use perspective and from an investment perspective, how do you decide for all of these things?

MOTASEM BENOTHMAN: Yeah, it's very difficult. The market has a significant amount of information asymmetry. And we see this commonly where people come into the market. And, you know, depending on how much time they have to invest to understand things, it's easy to fall prey for projects that are of lower repute and things like that. So, the easy example would be Dogecoin, right? So, Elon Musk tweets about Dogecoin and then therefore, that gives it some hype and the price goes up, and that just kind of creates this cycle. The unfortunate part, though, is where people buy Dogecoin thinking that it really has a strong potential of beating out Bitcoin because the richest man in the world or one of is supporting that coin, right? Dogecoin was built as a joke. It copied Bitcoin's code made some minor adjustments. But it was really just rolled out and deployed as a joke. So, it doesn't really have much of a future. Elon Musk may give it a little bit, but yeah, it's unfortunate when you see people just kind of with small amounts of research kind of go down these specific points that don't have as much future potential. But that's what happens when you enter something in such an early stage right? It is high risk, high reward. And that's part of why people like myself create funds. There's also ETFs that are currently applying with the SEC. There are some indexes out there. So, the market will mature over time, and it's gotten much better than it was a few years ago, right? So, back in 2017, that bull market had basically just coins and white papers, right? You were buying and selling these coins just based on a white paper that someone wrote, whereas at least now you're able to buy and sell coins based on actual applications that are running. So, you're at least dealing with something that's real, and you can assess it from that perspective. So that part’s gotten interesting. You have some coins that actually have cash flows and actual distributions to coin holders and actual voting of coin holders and governance that's taking place so the market's evolving. However, it's evolving so fast that it's hard for a non-full-time person to really keep up and identify what's, what's good and what's not.

MONEM SALAM: And they have cryptocurrencies that are linked to gold, or even they have now stablecoins, which is a direct one on one relationship with the US dollar. So, if the original idea of cryptocurrency was to be able to be that alternative currency, what is how does that play into a crypto that's actually tied to the US dollar?

MOTASEM BENOTHMAN: Yeah. I mean, so one of the things of this all being open source and free for all is that people are going to create where there's a lot of experimentation going on right and some of the things that are sticking definitely include what's called stablecoins. And these are coins that are tied to the US dollar. There are there are coins tied to other currencies and then stores of value like gold and the euro, etc. Those haven't been as successful. The stablecoin tied to the US dollar has definitely been very successful, and there's a handful of them today. It's going to be... we're already seeing hints of the US government trying to figure out how to regulate that space. So, so that's going to be interesting. There was actually a lawsuit from New York against Tether which is one of the one of the bigger stablecoins in the industry. So that’s going to continue to resolve itself over time. But the market is identifying that having a coin tied to the dollar, because that's the way investors still look at things from a value perspective is valuable and therefore, the stablecoins have grown significantly.

CHRISTOPHER PATTON: You mentioned that it's hard for somebody who's not a full-time kind of student in this field, maybe to know what they're getting into or to fully understand the pieces of it, especially as they're moving so fast. What opportunities do people have, who maybe, the blockchain ideas new to them, but they're interested, and they want to get involved, but maybe they don't know what they're getting involved in?

MOTASEM BENOTHMAN: Yeah, I mean, I think people that are interested in the space, I encourage them to read as much as possible with the amount of time that they do have and then to, you know, speak with others that spend more time in the space so that at least they can guide them in the right direction so, they're not spending too much time figuring out the details of Dogecoin, for example, and stuff like that. And yeah, I guess over time that will get better there or there will be more obvious winners and so forth. And as people learn to start to actually use the applications themselves, that will make things a little more obvious, right? It’s just kind of like people didn't understand what social media was, really, until they actually created the Facebook account. And then they used it and it's like, OK, I get it. This is special. The same with Tesla owners. You drive a Tesla and it's like, OK, I get it. And then that enables these people, some of these people, to buy the Tesla stock and so forth. So, the same thing is going to happen with crypto where we're not there yet right? So, even though DeFi has a very high... the applications in DeFi are live and running, it’s really crypto people that are using these applications, so they're not mainstream yet. But that's coming and that will help people help onboard people significantly.

CHRISTOPHER PATTON: The question of whether or not crypto is halal... I assume the answer to that question is as varied as all the different types of crypto you're seeing out there?

MOTASEM BENOTHMAN: Yeah. I think so... you know, there are definitely many Islamic scholars that have said it is halal. And I think the starting point of that is that one of the primary principles of Islamic law is a base ruling for all things is permissibility and allowance. So, it’s basically... one needs to prove that it’s not halal to determine that it that it is haram, right? So, there's that notion of it. Well, one interesting piece tied to the permissibility of things is that the market is still trying to figure out what it is. So, when you think of even just Bitcoin... the Bitcoin white paper was called “A Peer-to-Peer Electronic Cash System.” So, it is focused on the means of exchange property of money that Bitcoin would replace or service. Now that story, that narrative, has changed to not being a means of exchange but a store of value. So, we're still figuring this out. Things are still settling. The technology is evolving very quickly, so it's akin to people—at least from my readings and whatever I’ve read indicating that it may not permissible... To me, I've seen it as more tied to a misunderstanding of the space, right? It's akin to when the internet first started. Some scholars may have said the internet was haram because there were people using it for pornography. And it's just, you know, people may do things. But it's not the primary use case and there's so much more to it and so forth. So, yeah, this space is still evolving. And of course, whatever you use it for must remain within the parameters of Islamic law, right? So, you can say potentially that that crypto is halal, but you can't use that crypto for lending with interest and leverage, riba, and so forth. So, the use cases of that crypto, I think, is where there's more applicability of Islamic law.

MONEM SALAM: So, I mean, I think you touched on a little bit about whether it was peer to peer or the store of value. But give me an example. I mean, has Bitcoin been used for doing transactions? Because one of the things I think about is, you know, like, okay, let's, you know, maybe if I'm trying to buy a Diet Coke or something and I give you 0.01 Bitcoin for it, you know, like today I got $0.50, but tomorrow I got $3 for it. How do those transactions work if that value is fluctuating so much?

MOTASEM BENOTHMAN: So, one way to do that for people that are valuing on the dollar would be you do the transaction and upon receiving, you immediately sell it into the dollars, right? So, there are cases where you transfer crypto to a relative abroad. They receive that crypto and they immediately convert it to their local currency and problem solved. There, they're able to avoid some of the problems with transferring money abroad, both from a cost as well as a time perspective. Because this is immediate, right? They can get it in minutes and then that's also pointing to the use case of stablecoins as well, right? So, people that do prefer the dollar-based transfers... instead of basically sending that person Bitcoin, you can send that person any stablecoin. And it has the same advantages of the convenience, the time advantages and so forth. But you don't need to deal with the conversion issues.

MONEM SALAM: So, what's a good use case for Bitcoin, particularly in a transaction?

MOTASEM BENOTHMAN: In a in a transaction? I think stablecoins have a better use case, right? So, for now, I think the better use case of Bitcoin is treating it like digital gold that you're using it as a store of value. And then given that we are still arguably in the early days, that value could potentially increase over time.

MONEM SALAM: So, it would be like for the example of gold, it would be... in the early days, nobody really knew how much it was valued at. You know, the more people get involved, the more equilibrium you kind of come to. Is that what you're talking about? So, because it's very early on, that's why the value of a Bitcoin or Ethereum can go up and down by 200%, 300%. But as more people get involved in that, there's an equilibrium that's formed?

MOTASEM BENOTHMAN: Yes. But I think people come into this space for different reasons, right? So, there are definitely a lot of speculators that are going into it thinking that as more people come into the space, therefore the price will go up. But then there are there are a lot of... so over the last what, about a year almost now, institutional money just started kind of coming into the Bitcoin space. And arguably a good chunk of that institutional money is based on seeing the attractiveness of Bitcoin as a hedge against inflation. Right? So, one, there's a correlation play of Bitcoin being having a very low correlation to other major assets and that in and of itself being very attractive. But then two, and with some of these macro players now seeing inflation risks going up significantly, they're using... they're basically allocating instead... Previously, they were allocating to gold only, and now they're allocating to Bitcoin and gold together as a hedge against that inflation risk.

MONEM SALAM: What I've seen of people entering the cryptocurrency market of the of the institutions are mostly hedge funds, and hedge funds usually are not looking for a store of value. They're trying to make as much money as possible as quickly as possible. So, my understanding was that they were coming into the space because they realized that they could make money through the volatility of the currency, not as a kind of hedge against inflation, running against the US dollar and those type of things. So where, where... what institutions do you know of that actually are using this as a store of value rather than just a play on volatility.

MOTASEM BENOTHMAN: So, an example would be Paul Tudor Jones, right? So, he's a macro investor, so they're trying to make plays on the macro evolution in the economy and he put out a paper basically explaining why his firm invested in Bitcoin and basically, they were comparing it to gold and identifying that basically the upside potential was significantly overwhelming compared to gold as far as an inflationary hedge. So, there are firms like Paul Tudor Jones’s firm that are going into Bitcoin for that inflationary hedge. There are also, as you mentioned, many hedge funds that are going in just purely playing on... they’re basically quant firms, right? They're doing just a lot of trading leveraging and taking advantage of the volatility in crypto to basically make money off of trading. And then there are also firms that are going in and taking advantage of other idiosyncrasies but there are there are nuances in the market that unfortunately a casual investor doesn't know about, right?

MONEM SALAM: You know, I mean, I think you do have this idea of herd mentality. You've seen it during the dot com arrow you see in other places as well. So, I'm not I'm not in favor of regulation, but some kind of a control on how do you not let the average investor get ripped off? There has to be good balance between the two.

MOTASEM BENOTHMAN: I agree. And one thing that feeds into the volatility of crypto is that it has proven to be a very reflexive asset, which basically means it carries a lot of momentum, right? So, once it starts going, in either direction, it tends to carry momentum and go extremely in that direction. So, some of that's just the nature of the beast that may change over time as more participants entering the space and so forth. But for now, that's what we have. And you can use that to your benefit, right?

MONEM SALAM: So, I mean, talk a little bit about you are you are an expert in the field. You kind of deal with this thing on a daily basis. Where do you see crypto in ten years?

MOTASEM BENOTHMAN: Yeah, I think it's really exciting. I think the most people only see Bitcoin and they kind of don't understand the applications behind it and the web 3.0 for all of the other assets in the space. The digital assets. So, the innovation I'm seeing on a day-to-day basis in DeFi is truly incredible. So, I'm very excited to see how that eventually pans out to become applications that are more mainstream. And then you think of just kind of the programmability of all of this, it creates new possibilities that we haven’t thought of yet, right?  So, we're still akin to the basically... to do another internet analogy, we're back in we're in the early internet days where we're copying what exists and putting it on the blockchain. Just like in the early internet days, people said, “Hey, let's take an encyclopedia and put it on a website, and we'll make it a little better by adding a search function,” right? So that's what we're doing today, where we're taking basically lending, putting it on DeFi and making some improvements that make it better and so forth.

MONEM SALAM: Just like I guess with the internet to the early days, you know, there's a lot of money to be made, but there's a lot of money to be lost as well. And so you have to go through and be very careful as you are going through, and so...

MOTASEM BENOTHMAN: Right. And that's why I believe in kind of you look at this from a long term, perspective, you apply fundamental analysis and therefore as the market goes through its different cycles—and those down cycles can be brutal—if you have enough conviction in what you've researched and what you've acquired, you're able to basically hold through those cycles and just wait it out. And eventually, if things pan out, things can be very favorable.

MONEM SALAM: What I from what I see just as a, you know, as an investor, is that, you know, I don't know which coin will survive or those type of things, but the embedded technology behind it. There's a lot of use cases, and I think it's only going to grow as time goes on.

MOTASEM BENOTHMAN: Right, agreed. And hopefully also with Islamic finance, there's a lot of opportunities that these token concepts can be used for that.

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DISCLOSURES (read by Christopher Patton):

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