Palo Alto, Calif.
Niall Ferguson, 56, is one of the world’s leading historians, a prolific author, and creator of the TV series The Ascent of Money, which won an International Emmy award. His new book, DOOM: The Politics of Catastrophe, will be published next spring. He is also working on the second volume of his biography of Henry Kissinger. Born in Scotland, Ferguson is now a senior fellow at the Hoover Institution at Stanford University, and founder of Greenmantle, a macroeconomic and geopolitical advisory firm.
Niall Ferguson: I’m going to go with Bitcoin. It has had a stellar year, up 165% year to date. [It’s now above $19,000.] If, at the beginning of the year, you had said, “The pandemic is coming. It’s going to be very disruptive. Should I choose gold or Bitcoin?” you would have been right to choose Bitcoin because gold is only up 21%. So Bitcoin returns have been an order of magnitude higher.
Why has that happened?
In a pandemic, financial history can be accelerated. We’ve seen that in just the same way that the use of coins as money was accelerated by the Black Death. Payments in kind were yielding to a cash economy in Europe, and this was accelerated in the 1340s. The acceptance of Bitcoin as a digital asset, a quasi-digital gold, has been accelerated by this pandemic. Almost every month, some major figure in the mainstream investment world has said, “OK, now I’ll take Bitcoin seriously.” This process of institutional adoption has further to run.
Many remain cautious or outright bearish on Bitcoin.
You could argue, if you were a skeptic like my old friend Nouriel Roubini, that this is just another bubble. But the adoption of a new financial technology tends to be quite volatile, and each time Bitcoin rallies and then folds, it folds to a higher level than the time before. So you could probably take a little bit of downside risk, but hold Bitcoin for a year to five years and feel pretty good about it.
What might drive Bitcoin higher?
In a new edition of my book, The Ascent of Money, two years ago, I observed that if all the millionaires in the world collectively decided to hold 0.2% of their assets in Bitcoin, the Bitcoin price would be $15,000, which it reached this year. If it was 1%, then the price would be $75,000 per Bitcoin. So, as people adopt this as a new form of asset that has a respectable place in a diversified portfolio, there is still quite a bit of upside.
There are about 18.5 million Bitcoins outstanding, and the total amount is capped at 21 million. That values Bitcoin at $350 billion now, versus about $10 trillion for all the world’s gold. What makes Bitcoin distinctive?
Bitcoin is the only digital asset or token that has scarcity built in. Everything in the internet is defined by a superabundance; Bitcoin is the exception.
PayPal Holdings
[ticker: PYPL] and others are allowing people to use Bitcoin to buy stuff. Will that help?
I don’t think Bitcoin is for buying things at
Starbucks.
It’s a peculiar form of asset, and isn’t highly correlated to other assets. A friend told me to think of Bitcoin as an option on digital gold. I like that formulation, because it has behaved kind of like that. So, I don’t think PayPal is the cure. It is more that, if every millionaire is adding a little bit of Bitcoin, that has a lot of power to bid the price up.
How hard is it to buy and hold Bitcoin?
It’s getting easier. Coinbase, for instance, has made it very easy to trade cryptocurrencies, but quite expensive each time you transact. That will change over time. That again is typical of an early stage of a financial innovation.
What are some key policy issues the U.S. will face in a post-Covid world?
On foreign policy, China is the big issue. The Biden administration can’t simply turn the clock back to 2016 and revert to the late Obama years when the U.S. essentially acquiesced to China’s rise. That is the main challenge for Biden, whose instincts are not especially hawkish on China. But his foreign-policy team will be telling him to stay tough, because public sentiment has changed.
Also, the pandemic revealed that our bureaucracy generally has become sclerotic. You can blame the poor response to Covid on President Trump if you like, but it wasn’t all his fault. The Centers for Disease Control and Prevention completely screwed up testing; HHS [the U.S. Department of Health and Human Services] was clueless about the nature of the challenge it faced. And state governments, not least New York, did abysmally, too. So, the question I would put to Biden’s team is, if that’s how we fail at the pandemic, what other disasters could we fail at on your watch? It isn’t likely that the next disaster will be another pandemic. History never works that way. So, there is a general problem at both the federal and state level. We have dysfunctional bureaucracies, and they don’t handle crises well. This isn’t peculiar to a pandemic. Look back over the past 20 years to [Hurricane] Katrina or even 9/11.
Will fixing the problem require more money or a different approach?
It is definitely not more money. It is about the incentives within the public sector and the curious ways in which federal agencies grow larger and more bureaucratic. Other countries don’t seem to suffer to the same extent. Germany is better run than the U.S., and Taiwan is far better run than the U.S. We need to recognize that there is something wrong in the state of our government.
What can we learn from Taiwan or South Korea?
If you are a government or a country that has reason to be paranoid, whether you are Taiwan next to the People’s Republic of China or South Korea next to North Korea, you are generally anti-fragile. This is a term from Nassim Taleb [the author of The Black Swan]. You are on the lookout for trouble without necessarily putting all your eggs in one basket of preparedness. The flexibility of the Taiwanese and South Korean response tells you something about the way they are set up, with a sort of built-in insecurity. But if you are the No. 1 superpower, you can get complacent about risks. The challenge for any new administration is to try to get away from highly detailed regulatory solutions to problems, which fill pages and pages of the federal register, and instead have a more responsive, flexible attitude toward the multitude of potential crises that we face.
Where would you most like to go when the pandemic ends?
The pandemic has made big cities hazardous places, and I’ve spent most of this year in a rural backwater. So, the place I’d most want to go is London because two of my children live there and I haven’t seen them since February. Also, because I just love the idea of being in a crowded pub in London, preferably just before an Arsenal game at Emirates [the Arsenal soccer club’s home stadium in London], surrounded by fellow Arsenal fans, having a pint and not worrying when somebody coughs in my face. That’s what I am really looking forward to.
Thanks, Niall.
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Write to Andrew Bary at andrew.bary@barrons.com
