Bankless - 22 - The People’s Narrative | Ben Hunt

Starting point is 00:00:01 Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, how are you doing today? Absolutely fantastic. We had Ben Hunt on the podcast. Ben Hunt is a very well-respected writer in the legacy world. he is the writer of Epsilon Theory newsletter, and he does a fantastic job bringing in new ways to think about the world to an audience that might not have gotten exposed to it. And the need and demand for the thinking that Ben Hunt offers to the world is definitely well reflected in the size

Starting point is 00:01:02 and community that he's generated around his Epsilon Theory newsletter. Yeah, I've been reading epsilon theory forever, David. It's just a fantastic body of work. And I think the main ideas, the core ideas, Ben started this newsletter in 2013. The core ideas have really played out. Like, he's been right. The world is turning into a place that is valued more by narrative than by fundamentals. And he caught that switch very early. And I think he's got a lot to teach us in the crypto space about how narratives and game theory affect asset prices and virtually everything around us. They really are the base layer of the human experience. That's the social layer. And so we get into these topics and then we get a chance to apply them to crypto at the end. We really wanted to

Starting point is 00:01:54 get Ben's perspective on crypto and to bring these mental models that he's come up with in creative for, as he said, David, the legacy world to crypto and get, his thoughts on it. So he shares that at the end too. This is just a fantastic interview, incredibly fascinating. I think you will pick up new mental models. You'll be able to apply them both to the legacy world and equities and what's going on with central banks and also to apply them to crypto. So I really think you're going to enjoy this one. We talk a lot on the bankless podcast about narratives, about meme and how they are baked into these systems. And so the crypto world is pretty familiar, I would say, with the world of narrative and the world of memes. And I think we appreciate it more than the rest of the world, right? And what Ben Hunt is doing, in my opinion, is bringing that perspective to the legacy system using different words other than like memes because, you know, it's very, the word meme is much more relevant to crypto. But in the legacy world, it's it's the narrative, right? And Ben Hunt calls this the epsilon where he talks about the alpha and the beta, but then they're talking.

Starting point is 00:03:02 also the epsilon, which is the human side of things. The world, in my opinion, is separated into the physical world of atoms and science and physics, but then there's also the world of the stories that humans create in order to determine what is valuable, right? So how to act based off of what we know. And that's what Ben Hunt is doing in the legacy system. And so why Ben Hunt is such a good guest for the bankless podcast is because he's taking some of the things that we know, the story side of things, the narrative side of things, and he's applying it to the legacy markets and applying it to investing in a world that we thought was perhaps based off of, you know, hard facts and evidence and fundamentals, but turns out it's actually based off

Starting point is 00:03:50 of narratives and stories. And so this is really where we overlap with Ben Hunt. And so getting him on to the bank with podcast to talk about these things was an absolute treat. All right, we're going to bring Ben Hunt on in just a few seconds, but first we want to tell you about our sponsors. As we all go westward, we need to get our values into the crypto world, but hopefully escape the tyranny of centralized rent-seeking institutions. And that's where Monolith can help you get your value into the crypto world while skipping over the crypto banks.

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Starting point is 00:06:17 And when you mention bankless, they'll on ramp the first 100K in US dollars for free. So go to ramp dot network, mention bankless, and get started. All right, guys, now that that's done, let's go ahead and get right into the interview with Dr. Ben Hunt. Hello, Bankless Nation. We are incredibly excited and honored to have Dr. Ben Hunt. He is a former fund manager, tech entrepreneur, Polly Sye professor. He's the writer of Epsilon Theory, which I read frequently. He writes narratives about game theory for investors and in general for people trying to understand the world. And I would be remiss if I didn't say he's actually part of the inspiration for starting the bankless

Starting point is 00:07:08 newsletter for me personally. Ben, how are you doing in these uncertain times, sir? I'm doing great, Ryan. Well, thanks for that introduction. I'm so glad to hear that something good came out of my work if it helped inspire you guys. And also, hello to David, behind the glass, as they say on the radio. Hello, hello. Cheers and welcome. Well, absolutely. We are just so excited to talk with you today because I think, I mean, you talk so much about communities and about, you call it the PAC. Yep. And, you know, bankless, we sort of, we sort of use the analogy of the nation for the bankless

Starting point is 00:07:50 pack because it's kind of a tribe that's rallied around some similar ideas to the ideas you're talking about on Epsilon Theory all of the time. So what we'd really love to talk about today is some of those. common base values between our communities, between crypto and between the Epsilon theory movement. I would call it a movement. You've talked about the lowercase L values like freedom and liberty and thought and the lowercase C values. Yep, yep, yep, small L liberal and small C conservative. Yep. Exactly. And those are, I think, our values, base values that our communities share. So we just want to explore some of those and honestly expose the bankless nation to some of your fantastic ideas

Starting point is 00:08:38 because they are so relevant to crypto. What else is crypto except narratives and game theory? And that's a lot about what you talk about. So I guess, Ben, maybe to start, we could set some context for one of your biggest ideas, which is rooted in the epsilon theory name itself. self, you know, kind of where you got the name, where you came up with the name, what this epsilon, what the meaning of epsilon actually is. And maybe we could talk a little bit to introduce folks to an idea that comes from science, which is the three body problems. So could you describe maybe the three body problem? And then let's talk a little bit about the meaning of epsilon and how can explain the world? Yeah. Yeah, you about.

Starting point is 00:09:32 right in fact if you know if you don't mind i'll kind of flip that around i'll i'll kind of describe what what epsilon is first and kind of why i call what i do um and you're right i i do hope it's a movement right i do call it uh epsilon theory and kind of where that comes from so you know in i started writing epsilon theory this would be the the summer of 2013 right so uh just a little over seven years ago. And, you know, I had wound down my hedge fund. We can talk about that a little bit.

Starting point is 00:10:11 It was a big hedge fund. We had about a billion dollars there. And I was trying to make sense of a world that, from an investment perspective, didn't seem to make a lot of sense to me anymore. And, you know, my background from academic days and, you know, professorial days was in game theory you know it's always so silly you know people say oh there's you know game theory and it has become kind of a meme in and of itself kind of of kind of silly silly science so i mean it's not it's it's a it's a real thing and i've been a lot of years

Starting point is 00:10:51 oh oh we love game theory we love game theory in crypto yeah right so i you know i i knew i wanted to to write this note and blog, whatever you want to call it, but I was trying to figure out what to call it. And what I finally hit on was that in investing, the core, I'll call it formula, right? The core econometric description of what investing is, is that the value of your portfolio, the performance of your investment,

Starting point is 00:11:28 depends on alpha. You know, you see that in places like blog like Seeking Alpha and, you know, people talk about hedge funds and what's your alpha. Alpha is basically your outperformance, right? Alpha is the idiosyncratic performance of your portfolio. What's special about you, right? That's your alpha. And then your performance is also your beta, which is how much of your portals.

Starting point is 00:11:58 your performance, goes up and down with broad markets. Right? So beta is the performance of the overall market and how closely linked you are to that. And then alpha is your idiosyncratic performance, you know, what you do that's special to you. But those actually aren't the only two terms in this econometric formula. And in fact, in almost every conometric formula, there's a third term or a final term that's tacked on to the end. And it's the epsilon term. So in this formula, the full formula, if you write it out, it's not just, oh, your performance is alpha plus beta.

Starting point is 00:12:48 It's alpha plus beta plus epsilon. And epsilon is, you know, the Greek letter E. and the way people think of it is, well, that's E for error. Yeah, right? It's everything that's left over that you can't explain from your variables and your formulation, whatever goes into your calculation of alpha. It's all the stuff we don't understand. It's all the stuff we don't understand.

Starting point is 00:13:17 That's exactly right. All the stuff that's outside of your formalization of alpha and beta. Like I say, look at any econometric formula, in any field, and there's always this tacked-on-on-epsalon term, E for error. And the truth is, and this is a truth that comes after, you know, a lot of years and a lot of scars in, you know, lots of different fields, but including investing, is that, you know, there is a lot we don't understand. And just because we don't understand it, just because we don't form.

Starting point is 00:13:56 normalize it in whatever we are putting into our conceptualization of alpha and beta doesn't mean it's not real and doesn't mean that it's error it means that it's outside of our scope of thinking well you've used the analogy of dark matter right then to describe that yeah yeah yeah yeah that's a great way to think about it that's a great way to think about it so so the epsilon term is you know think about it is like the dark matter in the universe which you know as you know as you know as you you know, dark matter and dark energy, you know, it's probably 95% of what's out there in the universe. It's just we can't see it or measure it or understand it. So we just kind of put it over there to the side. And we spend all our time talking about the 5% that we can see and measure

Starting point is 00:14:44 and visualize and all like that. So in investing what is particularly left out of alpha and beta and what is particularly, I think, frankly, something we can extract from epsilon is the strategic behavior of market participants. That's a mouthful, right? What I mean by that is, there's this old poker saying, right, that you don't just play the cards, you also play the players. And the cards, think of those as the fundamentals, right? So that's going to be in alpha and beta.

Starting point is 00:15:22 but playing the player, that's not an alpha and beta. That's an epsilon. And playing the player is as good a description, an informal description of what game theory is as anything I know. That's what game theory is, is trying to understand how do you play the player, right? Not just playing the car, is it playing the player. So that's what epsilon theory is all about.

Starting point is 00:15:47 It's trying to look at the strategic interaction of, market participants. It's trying to look at the strategic behavior of investors, of voters, of any sort of social interaction. Because, you know, like your example about dark matter and invisible matter, I really think that in a lot of times and circumstances, it is that strategic interaction, it is that playing the player that's so much more important than that. than just playing the card you're dealt. So, you know, I started writing Epsilon Theory. I sent it out, you know, and emailed about 100 people.

Starting point is 00:16:31 And today we've got, you know, over 100,000 people on that, on that email list. And, you know, get about a quarter of a million people a month to the website. And that's all from word of mouth. You know, we've never done any marketing, never, any advertise or anything around it. And I look, I think I'm a pretty good writer, and I think that's, you know, I like to think that. But that's not really what's responsible for the appetite for this, for the growth of this. What's responsible, and I'm certain of it, is that, you know, we are told over and over again, you know, these overly scientific and I'll say overly didactic kind of pronouncements. about how to understand the world.

Starting point is 00:17:21 And when you're in the world for a while, you realize, hey, you know, the world's a lot more than that. That the world is so much about stories and narratives and the way that impacts our behavior, all of this stuff is outside of the rules that we're told that govern markets or voting and all like that. And I think that as people have, frankly, woken up or been forced to confront

Starting point is 00:17:49 the fact that these old rules don't work. I mean, frankly, I don't think they ever worked that well, but we all believed in them so that they did. You know, it's really interesting to see over the last seven years, ten years, whatever you want to call it, that I think everybody is now thinking in terms of narrative and playing the player and these strategic interactions. And I think that's so important for, coming to grips with the real power structure of the world and frankly what we can do to change it.

Starting point is 00:18:26 So anyway, a long involved conversation, but it's important to me this notion of epsilon and why I call what I do epsilon theory. So, Ben, I have always thought that, like, if you want to win in the investing game, you have to do what you said, which is to play the player, along with playing the beta and also trying to play the alpha, right? Like, you can't, you have to pay attention to all three of these things. They're interlocking with each other. And it's like this rock paper scissors game.

Starting point is 00:18:57 But it's the playing the player side of things, the epsilon side of things that we are thinking is perhaps underappreciated or undervalued. And when we discuss about, like, how to play the market, what we're really talking about is like trying to understand, like, if I do this, then they do that. and if they do that, then I'll do this. And it's this hall of mirrors of trying to put yourself in the shoes of other people playing the market. And so, and this is just converges back onto game theory, right? So like, if I do this, if my opponent does this and I'm going to do this, and then that recurses over and over and over again.

Starting point is 00:19:41 And to me, what epsilon is is the substrate for thinking. what your opponent is going to do, right? And so it is the narrative of sorts of the world that we live in. What we perceive to be valuable based off of the narratives that we share are how we try and frame what we think our opponents are going to do, right? And so I'm speaking in very general terms, so it's pretty difficult to make something concrete. Yeah, yeah, yeah, no, but listen, you're exactly right, because this strategic interaction game playing, right, it's not random. And there are, I'll call them rules, but what I mean by rules is there are predictable patterns, predictable because they're very rational, predictable patterns in human behavior in these sort of strategic settings.

Starting point is 00:20:40 So the one that I think is most powerful for markets, the one that I think is most powerful for really any sort of social market, and that can be investing markets, that can be voting markets, is certainly true for crypto markets, is the strategic interaction of what's called the common knowledge game. And, you know, we're all familiar with a couple of games, right? we're all familiar with prisoners a dilemma because you see that on every police procedural TV show, right? That's one where they question two people in separate rooms and the predictable behavior, you know, to use the $10 economic word, the equilibrium is that both prisoners will rat each other out. It's the smart move.

Starting point is 00:21:33 It's the rational thing to do. Now, there are ways to get around that, right, by setting. up structures of the game that reward or punish ratting someone out, right? So if you know you're going to be sent to prison with the buddies of the guy you just rat it out, that's an incentive structure that changes the parameters of the game and may, you know, change the predictable behavior, the equilibrium. But there really are these sort of predictable behaviors, depending if you can understand the structure of the game. And the one, You know, like I say, we're familiar with, most people are pretty familiar with Prisoner's Dilemma.

Starting point is 00:22:12 Most people are familiar with the game of chicken, right? If you've ever seen any, you know, movie like footloose, right? Or, you know, driving your tractors at each other with Kevin Bacon. You know, we're all familiar with that game. Yeah, some people are familiar with a game called the Stag Hunt, which I think is actually pretty important, particularly when you're talking about politics and their national relations. But the common knowledge game is one that I think most people aren't so familiar with, even though like I say, I think it's the game of markets.

Starting point is 00:22:48 And it's hard to get familiar with it because it doesn't lend itself as well to a TV show or a movie. It doesn't boil down to a single tense moment, right, of tractors going at each other or, you know, an interrogation in a police squad. But the common knowledge game, and this goes back to the 1930s, when a very famous economist then and still today, John Maynard Keynes, came up with this idea. And I think it's so right. It's really, think of it as like the game theory for crowds.

Starting point is 00:23:27 And what the example Keynes gave was what he called the newspaper beauty contest. and this was, you know, back in the, I mean, it sounds crazy today, but in the 1930s, the newspapers, the social media of the day, they would frequently run a contest where they would run, they would print the pictures of 10 pretty girls. Again, it's inconceivable to think of this today, but this was really a thing, right, in the 1930s. And they would invite their readers to vote for who they think the prettiest girl is.

Starting point is 00:24:03 And send in your vote. And if you, the people who, the, if you vote for the girl who gets the most votes, then those voters will be entered into a sweepstakes drawing. You know, we'll, we'll pick one of those voters' names out of a hat. And you'll win an all expense paid trip to Atlantic City for the Miss America Patrick. Right. So, again, inconceivable today, but this is really, this was a thing. And so Kane said, well, you know, let's think about how you play this game.

Starting point is 00:24:38 So, you know, what he called the first level of thinking is that you really would look at the pictures and say, oh, I think, you know, top row, third from the right, I think she's the prettiest. I want to vote for her. And so you would fill out your little card and you'd send it into the newspaper. That's my vote. And Kane said, well, you know, it doesn't take too long before you realize, yeah, hey, that's not the way to win this game, right? What I'm trying to do is I'm trying to win that prize that trip to Atlantic City. I shouldn't be voting for the girl I actually think is the prettiest. I need to vote for the girl that everyone else thinks is the prettiest.

Starting point is 00:25:15 What's the consensus view of who the prettiest girl is? Because I want to be in that sweepstakes drawing. So he called this the second level of thinking. And then he said, but then you figure out, he said, well, some of somebody said a lot of people don't get past that second level of thinking. But they said, well, most people ultimately do get past it because they realize, well, hell, am I the only one who's smart enough to figure out how to win this game? Right?

Starting point is 00:25:43 I mean, otherwise, in otherwise the thing is, is everyone else so stupid that they're going to vote for who they really think is the prettiest girl? Or is it, as Kane said, is there a third level of thinking where it's ever, everybody trying to figure out what everybody thinks about the relative prettiness of these girls, right? It's not the consensus. It's kind of like, what's the consensus of the consensus? And it's that third level of thinking that that Kane said was so powerful because he said, look, forget about these newspaper contest and voting for pretty girls.

Starting point is 00:26:27 What about the stock market? where what you're doing when you buy a piece of stock is you're voting, you're saying, oh, I think that's a pretty company. I'm going to vote for that. And Kane said, you know, the first level of thinking would be to say, ooh, I think that company is very attractive. It has great fundamentals and it's got, you know, good cash flow and a sound management team. I'm going to buy that stock.

Starting point is 00:26:52 And then you realize, well, no, no, no, no, that's not how I'm going to win. What I have to win is that second level of thinking, I want to buy stock in a company that everyone else thinks is attractive. And then you go to that third level thinking where you say, well, isn't everybody doing this? Isn't it the crowd looking around to see the crowd who we think is the most attractive? And Kane's kind of left it at that. And then in subsequent years, and this is how the common knowledge game comes around, the question then becomes, well, how does.

Starting point is 00:27:28 the crowd figure out what the crowd is looking at in terms of, you know, a pretty stock to buy? And the answer is you introduce this concept of the missionary. The missionary that we call it that in game theory because there's a famous thought problem about how the crowd figures out what the crowd is thinking. and the game or the thought experiment usually goes by the name of the island of the green-eyed tribe and so the setup for this thought experiment is all right there's there's an island all the people there on the island have blue eyes it is taboo to have green eyes meaning that if you do have green eyes, you have to leave the island immediately. The next day, you have to get in a canoe and you have to leave the island immediately.

Starting point is 00:28:38 But what's also taboo on this island is to talk about eye color. And in this thought experiment, there are no mirrors on the island. So, you know, so there could be people on this island who have, you know, green eyes, but they never know it because nobody's going to tell them, hey, you've got green eyes. You need to leave the island. And there are no mirrors, so you'd never look at yourself and you'd say, oh, I've got green eyes. I've got to get off the island. But then one day, you know, so this island, even though it has this taboo structure where green-eyed people have to leave the island, it can, nobody ever leaves the island and life goes on happily, you know, for, for generations.

Starting point is 00:29:25 one day the missionary comes. And the missionary gets there and, you know, he's going to tell, you know, the truth to people. And so he gets up there, stands up on a box. And he says to everybody on the island, because, you know, he's not part of their taboo system. He says, I just want you to know, there are people here on this island with green eyes. And so then the thought question, the thought experiment is, okay, well, what happens next? And what happens when the missionary comes up and makes a statement like that is that the missionary is creating common knowledge. Common knowledge is what we all know that we all know.

Starting point is 00:30:12 Right. So before the missionary said that, each of us, each of those islanders individually knows that there are people on the island with green eyes. But that thought stays inside their head. after the missionary makes that public makes that public statement, the people in the eye, it doesn't change what each individual islander knows, but now they know that everybody knows. Now they know that everybody knows. So the question is what happens. Well, the answer to the question is, if there's, the answer is trivial if there's one person on the island with green eyes. Right? Because now that there's common knowledge that there is at least one green-eyed person on the island,

Starting point is 00:30:59 that one person who has green eyes looks around, he looks at everybody in the island. You know, it's a small island. You can see everybody. He says, well, everybody on this island that I see has got blue eyes. And he goes, oh, shit, that must mean I'm the guy. So the next morning with one islander with green eyes, one islander, leaves on his canoe the next morning. But then there's a question, well, what happens if there are two islanders,

Starting point is 00:31:30 two tribes people that have green eyes? What happens then? The answer to that, the answer to his thought experiment is that for every in islanders with green eyes, they all leave simultaneously in days later. So how does that work? Well, the two islanders are there with green eyes. Each one of them looks around and says, oh, man, Joe over there, he's got green eyes. He must be the guy that the missionary was talking about.

Starting point is 00:32:06 So it waits to the next morning, and he says, well, wait a second. Joe over there, he must have seen that we've all. Why is he still here on the island? I mean, he must have looked around. and he must have seen that we all have, oh, oh, no. Joe must have seen somebody with green eyes. And if I see that everybody's got blue eyes except Joe, that must mean that I have green eyes.

Starting point is 00:32:31 And this same process is going through Joe's head. So both Joe and I, myself, we both leave the morning of the second day. Right. So I've gone through this long example. And the point of this is, This is so much, you know, how markets work, where it's nothing, nothing, nothing for a long period of time. And then, boom, a lot of people leave the island on the same day. This process of creating common knowledge.

Starting point is 00:33:07 And then all of us looking around at the crowd to say, am I the only one who's out of step here? That's the way this works. There's a time element to the creation of the world. common knowledge and the way that it hits a market, the more people who share the, I'll call it the non-common knowledge view, the longer it takes for the break in the narrative, but the bigger it will be. So these are the kind of principles, these game theory principles, that once you start applying it to the creation of common knowledge, these missionaries, these people who create narratives. Once you start analyzing and measuring how much these narratives are

Starting point is 00:33:55 successful in creating a common knowledge, how many people are, let's call it, off target, right, have green eyes when the common knowledge says you need to have blue eyes. That inserts a time element and then a magnitude element for what the dislocation is going to be for markets. It's an incredibly powerful framework for understanding very predictable patterns of crowd and market behavior. And it's the sort of thing that is totally ignored isn't even the right word. It's the dark matter for how, you know, we are told that we need to spend our time doing to try to understand how markets work. So again, sorry for the long-winded talk, but man, this stuff is so powerful once you start wrapping your head around it.

Starting point is 00:34:49 Ben, there is so much to unpack there because what it does is it absolutely flips investing on its head. It's basically saying like all of the models that you thought were real and true and imbued in the fabric of reality investing, they're manipulatable by missionaries, by the, you know, know, by social structures. Like the social system is at the base layer, and that can be fundamentally manipulated. Well, it makes them time dependent, too, right? It makes them have an expiration date. There's a half-life to these narratives. It's once you start measuring and visualizing narratives, and that's the, that's the focus of our research. So the company, you know, I started two years ago,

Starting point is 00:35:41 partners, we call it second foundation partners, you know, after the Isaac Asimov second foundation, which is a whole other story, right? But the research we're talking about is called natural language processing in LP. And these are ideas that have been around, you know, I was writing about this stuff 30 years ago in academia. The problem 30 years ago, though, was that, you know, we had all the the ideas and the formulas and the models for how to look at this, we just didn't have the computing power, right? We didn't have the fire hose of data that we can get, where I can get everything that's published in the world

Starting point is 00:36:23 and transcripts of everything that CNBC, you know, vomits out there during the day. Or even Twitter. Oh, my God, or Twitter, right? I can get all of that, and I can run it through as much computing processing power as I want through AWS or Azure or whatever. And our ability to now measure and visualize the structure of narrative,

Starting point is 00:36:48 it's like discovering a microscope, right? It's like somebody hitted you a microscope in the 1700s. And they said, yeah, here, look at this under the microscope. And they put a little piece of glass and a little drop of dirty river water on there. and you look at it, through the nighties go, holy shit, there's a whole world that's inside there. Yeah, and it's the base layer of everything. Absolutely, absolutely.

Starting point is 00:37:15 Because that's what it means to be a social animal of, you know, humans, there are four incredibly successful species of animals on the planet. There's the bee, there's the termite, there's the ant, and there's the human. It is not a coincidence that these four species, that dominate the world we're social animals. And there are, you know, a few definitions of social animals. It's, you know, multiple generations that live in the same nest, you know, shared,

Starting point is 00:37:50 taking care of the young, the brood, right? But the most important characteristic, the sine qua non for what it means to be a social animal, is that you swim in an ocean of intrastecese, communication. For the B, the anthotermite, that's mostly pheromones. It's mostly chemical communication, which they literally swim in. We are no different. It's not chemicals. It's our words. And, you know, think about during the day how many messages you receive from other humans. And the answer is, for a typical human is like five or six thousand discreet messages every day. And we don't recognize them, you know, discreetly and consciously. We couldn't. We'd go

Starting point is 00:38:46 nuts, right? But we all know that we swim in this ocean of communication. And just over the last couple of years, it's possible now to actually measure it, to visualize it. What I like to narrative world. And now it's really possible today to actually start to measure and put some numbers behind these games like the common knowledge game so that we can actually try to predict and anticipate human behavior in ways that just weren't possible before. So Ben, I think this has two really interesting implications, right? the first is a bit of a red pill probably for some of our listeners. Yeah.

Starting point is 00:39:35 The things that we call fundamentals, right? You know, stocks have fundamentals. Yeah. Profit margin, these sorts of things. The things that we thought were so sturdy, the foundation, it's not actually the foundation. The foundation runs deeper than that. And even those fundamentals are based on narrative because the social system, you know, is what essentially puts in fundamental metrics, right?

Starting point is 00:40:04 Why do we think discounted cash flows should be the basis for valuation of the company? Well, because Wharton School of Business teaches it, basically, right? And all the MBAs believe it, and therefore the market believes it, right? That's the first implication. You know, let me interrupt you there, right? Because it's not that things like fundamentals and cash flows and the like, it's not that any of these models and lessons and principles. It's not that they're wrong, right?

Starting point is 00:40:38 It's whether they are useful. So let me give you an example. So, you know, it's the difference between Newtonian physics and Einsteinian physics, right? It's not that Newtonian physics is wrong. It's that in certain circumstances, like you're going really fast. or you're dealing with, you know, something the size of the sun, right? It doesn't work very well. Yeah, they're non-predictive.

Starting point is 00:41:07 Right. So that's right. So Einsteinian physics, it's not that Newtonian physics is wrong. It's that it is a subset of a broader concept that we'll call Einsteinian physics. And in markets, it's exactly the same thing. So, you know, Ray Dalio, the founder of Bridgewater, just down the street from me. And look, for my money,

Starting point is 00:41:32 Bridgewater is the best, smartest hedge fund on the planet. And I've got, I've got, honestly, I've got nothing but good things to say about those guys. I mean, they're weird as shit, right? Don't know, go to me wrong. You know, I could never work there, and, you know, there are a lot of stories,

Starting point is 00:41:47 and I know a lot of stories. But I think they're fantastic, right, for what they do and managing other people's money and being really smart about it. Yeah, Ray's writing alone. It's just fantastic. It's really good, right? I mean, anyway, that's a whole other podcast to go down, right?

Starting point is 00:42:03 But, you know, Ray's core idea around markets is what he calls the economic machine, right? And he describes, frankly, everything as a machine, including humans and the way we think, which is the whole other conversation we can have. But what Dali was talking about when he says there's an economic machine, and that's how you should understand market. and stocks. He's not wrong, right? It's like Newton isn't wrong when he says F equals M.A. But there's a larger system that encompasses the economic machine. I'll call it the narrative machine, that in certain periods of time,

Starting point is 00:42:53 your old-fashioned narrative machine, economic machine, your old-fashioned economic machine, your old-fashioned Newtonian physics, it just doesn't work very well. And ever since the great financial crisis, and this will finally return to that idea you introduced early on, the idea of the three-body problem, our old ways of understanding like Newtonian physics, like the economic machine, they just haven't worked, right? They just haven't been very useful. And I really think it's because not that they're wrong per se, but, but, but, you know, But because there is a larger machine, the narrative machine, I like to call it, like I say, that is like it's like it, that is like Einsteinian physics, right?

Starting point is 00:43:38 It's, it is the thing you need to really focus on to be useful when, you know, the world, the world gets a little crazy like it has over the last 10 years. Absolutely. So the world is getting super crazy right now. And I think this is where the, where the conversation is going to start to converge on the top. topic of crypto, but how we are getting there first, I feel like starts with the conversation of what happened in 2008, where the markets were in turmoil and the Fed started to integrate itself into the economy, into the market by propping it up, right? Yeah.

Starting point is 00:44:18 Yeah, yeah. And Ryan, it wasn't just that the markets were in turmoil, right? So it was that there was a non-trivial chance that the entire system would collapse. Right. And so I remember this day so vividly. So the hedge fund I was running then, man, we killed it in 08, right? We had, I mean, we were early, we were right. We were doing, we did really well in 08.

Starting point is 00:44:50 and in our mirror, I guess this was kind of September. Well, this was right before Lehman was, you know, was taken out in the street and shot. And, you know, we'd had a great day. I mean, we were like 5% that day because, you know, the shorts, the credit default swaps, everything was working for us. And, and I was kind of, you know, smiling to myself after the day and then it kind of hit me.

Starting point is 00:45:17 And it was like, hmm, what if nobody's around to to pay me what they owe me? Yeah, what if the world goes to hell? It's not a victory. Exactly, right? I mean, you know, all these big banks, you know, J.P. Morgan owes me a shitload of money on these contracts I have with them. Well, what if J.P. Morgan's not there tomorrow?

Starting point is 00:45:38 Right. And, you know, and that's, that was what was really at stake there in 08. and what happened, you know, as you're describing. To me, it's the, going back to the analogy that we were discussing, what happened was the missionary came and started to dictate what the rules are, right? And so the Fed came and said, like, hey, you know, J.P. Morgan is going to be there tomorrow. We guarantee it, right? We are stepping into the free market and we are guaranteeing a future. And the reason why we are able to do that is because we have the money printer.

Starting point is 00:46:18 This is coming from the crypto narrative, right? And so in 2008, a new narrative stepped into play, right? Like the epsilon grew stronger in the face of alpha and beta because the central bank said that we are going to make sure that the market, the free market moves in the direction that we want it to, which I think has generated a substrate between 2008 and now coronavirus that some people may call moral hazard in some ways, which would, the messaging from the Federal Reserve, which controls the dollar, which gives them the power to control the narrative in the first place, offers the market, the backstop, the perceived

Starting point is 00:47:03 backstop that will always be there, and has thus created this insanely strong V-shaped recovery because of the narrative that the Federal Reserve is there. And it's the entire narrative, it's the belief in the Fed that is creating the current economic conditions that has arisen some of the most crazy manifestations, such as like Hertz going bankrupt and then rallying. We have the Davey Day Trader movement where he said he solved the markets, he solved stocks, because the rules are that stocks only go up. And so I think we are now starting to see the fact that this missionary comes and makes these statements. What it really is, it's the emperor's clothes parable metaphor, right?

Starting point is 00:47:52 Where the free market is now starting to identify exactly, put their finger right on the pulse of what is actually going on here with narratives. Yeah, that's like the common knowledge we all operate under now, right? Yeah, it really is. The Fed it's going to prop up stocks. Yeah, the Fed's got your back. The Fed's got your back. And so, you know, one kind of historical point and then, you know, on with this. What before we got the creation of common knowledge and I'll call it the Fed as missionary, right?

Starting point is 00:48:27 That really starts in 2009 with what they call forward guidance and the like. Before we got there, though, and I just want to, you know, it's important that, you know, kind of get this out there to your community, right? For everybody to know it because the history gets rewritten so much. What the Fed and the U.S. Treasury did that before they started, you know, their common knowledge, their narrative missionary work was, you know, we're familiar with Lehman going bankrupt, but then what they did was called the temporary liquidity guarantee program. This was in October of 2008.

Starting point is 00:49:11 And what they did there, this is where they really took action, not words, but action, to prop up to rescue the big banks. Because what they did in this program was they put the full faith and credit of the United States government behind the unsecured credit of the United States government behind the unsecured credit of federally chartered banks. What the hell does that mean? What that means is that the next day, Goldman Sachs became a federally chartered bank, and over the next few weeks issued about $30 billion worth of corporate debt that was backstopped,

Starting point is 00:49:52 that was co-signed by the U.S. government. And it was that program that saved. the system. I understand that. But it was that program that also makes me so angry when I hear guys like Lloyd Blank Fine and all the other Goldman Sachs guys says, oh, we weren't bailed out. We, you know, we started around two feet. That's bullshit. That's bullshit. Right. So in late 2008, the federal government put the government to backstop the debt of every federally chartered bank. And so I like to call it and say, you know, the pleasant skin of capitalism for me was ripped off in 2008. And I could see just the the naked sinews of power below that.

Starting point is 00:51:00 Right. And so that exists, right? So what's what's been created over that, the new skin is this skin of narrative and missionary work and the like, which which you described very well. And by the way, Dave Portnoy is exactly right. That's the thing. He's exactly right. Oh, he nailed it. He got it absolutely perfect.

Starting point is 00:51:26 And he's making money off of it. Absolutely. Absolutely. And he's like, you know, to use your story of the emperor's new clothes, he's like the little girl in the crowd is, hey, the emperor's naked. Yeah, absolutely. It's not fundamentals and, oh, what does this analyst say about the earnings potential for stock, XYZ next week?

Starting point is 00:51:47 Point that is exactly right. He's saying to play a part out loud. Hey, guys, we're going to pause the interview. with Ben real quick and just talk about some of our fantastic bankless sponsors. AVE is a borrowing and lending protocol on Ethereum. So what that means is that you can deposit your assets into AVE and then take out a collateralized loan or simply deposit just to earn an interest rate. So you pay an interest rate for borrowing, you earn an interest rate for supplying.

Starting point is 00:52:15 But what the magic of AVE offers you is stable interest rate loans, which is a really important money Lego for building out a bankless revolution. Having an interest rate that doesn't change under your fee is really important for long-term thinking and being able to plan out your own personal finance futures, but also make strong business decisions based on an interest rate that you can depend on. In addition to their stable interest rates, there's also flash loans, and flash loans are where you can borrow any amount of any asset without any collateral, so long as you are also paying it back in the same transaction.

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Starting point is 00:54:24 All right. Let's go ahead and get right back into the interview with Ben. Okay. So the byproduct of this, right? So missionaries are incredibly powerful because they can set narrative, particularly missionaries that are already in power. Nation state missionaries might be the most powerful of all. And those are the ones at the central bank. So now we're operating under this new, common knowledge narrative that stocks only go up because that's what the Fed wants. But the byproduct of this is something we talk about an awful lot on bankless, right? Like the name bankless is like the goal of doing less with banks, adopting protocols rather than banks where we can, being self-sovereign over your money. Because the byproduct of everything that we've been talking about is we've created

Starting point is 00:55:17 what you call the nudging oligarchy. Can you talk a little bit about that? Yeah. So, look, I talk about the nudging oligarchy and I talk about the nudging state. And what I mean by that is that, you know, we don't live in a Orwellian 1984 world where the, you know, in that book,

Starting point is 00:55:43 famously the image of the state was a boot, you know, crushing the face of humanity for all time, right? That was the, that was the self-proclaimed image of the state. And that's, that's not the image of our state, even though in many ways it and the oligarchy, you know, the corporate interests are, and I know it's sound tinfoil hatish with this stuff, but maybe not to your audience. You're in good company, sir. Yeah, it's really real, right? This shit's real.

Starting point is 00:56:19 It's not a jackboot, you know, smashing the face. It's a, it's a smiley face button. That's what it is. So, you know, I use a lot of imagery and pictures in, you know, when I write on Epsilon theory. And I think the image I've used the most, and some of your audience will get this reference is the, you know, there's this, this, this, this fantastic, you know, graphic novel.

Starting point is 00:56:48 It became an okay movie, right? Watchmen, right? And so the image of Watchmen is that smiley face button with the blood dripping down it, you know, a few drops of blood dripping down it. And that to me is like the perfect imagery of what I mean about the nudging state and the nudging oligarchy.

Starting point is 00:57:08 It's not done by, you know, jackbooted thugs. It's done by narrative, by this smiley-faced narrative of, oh, wait, wait, wait, you're going to buy crypto. Don't you know that, you know, crypto is used by a terrorist? What, are you, are you supporting terrorism? You know, right? That's what a nudge is. That's what a nudge is. And by the way, that's so powerful.

Starting point is 00:57:35 They have to do that nudging in the West. because of our social contract, because of Western liberal democracy social contract. But in other places in the world, you know, it might be a bit more like 1984-ish. China, for instance, Russia is just a, in the open oligarchy. Yeah, yeah, yeah, Russia for sure. But China's an interesting case, right? Because, you know, China is moving much more in the direction of nudge. So take their kind of their social credit system, right? You know, I'm familiar with this, right? Where there's this national database where everything you do, and it's a very black mirror kind of thing, I mean, it is a black mirror thing.

Starting point is 00:58:15 Everything you do, every action you take can be recorded and goes into your score, right? It's like your credit score except as your social score. And that includes the citizen score. The citizen's right. And that includes the people you talk to, you know, where you travel, what you do. And so what you find is that people that. they self-control, right? They start to censor themselves.

Starting point is 00:58:44 It is this self-censorship that is the goal of the nudge, right? Because, and look, it makes a lot of sense. It's so much cheaper to get people to censor themselves than to force compliance, you know, with more policemen and everything else. it's the whole notion of as this

Starting point is 00:59:09 Jeremy Bentham this late 18th century British thinker talked about the panopticon and it was his model for how you would design a prison

Starting point is 00:59:19 with minimal guards and the way the panopticon works is on self-censorship on self-regulation because you see in the middle of your prison you can see all the other prisoners.

Starting point is 00:59:38 And again, this is game theory. You know that the other prisoners can see you. And when you are being watched like that and you know that others can be watching you, you censor yourself, you control yourself. And it's, again, it's a very predictable pattern of human behavior and you're increasingly seeing governments take advantage of this. And now, Ben, what we have is the Panopticon meets Moore's law because they can be so much

Starting point is 01:00:14 more efficient when they have the power of digital technology. So one thing that China is doing, for instance, you talked about nudging, right? And yeah, I agree with you. They're doing it digitally as well. but they are creating a central bank digital currency basically. So the ability, it's just an entry in a ledger and centralized ledger. It's nothing from a public blockchain or crypto about it, nothing really free about it, it's a state apparatus.

Starting point is 01:00:44 And that gives them the power to freeze your bank account, to take your money at a will, to track every single commerce transaction that you do, do to eliminate you from the economy. Tie that to the good citizen score. Hey, Ryan, guess what? Coming soon to a liberal democracy near you. Exactly. Right, right? I mean, the Nordic countries have pretty much already moved to this as well. Right. I figure it'll be the, you know, the, the 22, you know, dollar rescue or, you know, anti-terrorism bill that'll do that. And the, you know, the, you know, the, you United States. Well, especially, and you've got more fodder because you just game theory and you

Starting point is 01:01:33 just say nation state against nation state, well, the U.S. says, in order to compete against China, we need to recruit Mark Zuckerberg and team to create Libra for us. Libra. No, absolutely. Yeah, I wrote a long piece on this. I mean, it's the co-opting of, and this is what governments always do with financial innovation, right, which is one of the reasons, and I, you know, may well, you know, is one of the paths for us to go down is one of the reasons why you know i'm not a what's my attitude towards i'll call it towards bitcoin i'm it's not that i'm a skeptic or a cynic is that it i just i've what always happens is that governments co-opt these financial innovations and they take, I like to call them the coyotes, the clever coyotes. I'm a coyote, right? We're too

Starting point is 01:02:33 clever by half. We're too smart for our own good. We don't see the forest for the trees. They kill the coyotes. You know, governments are in the business of coyote control. And I've just seen this too many times. And I just, I see the path this is on. I am so sympathetic to the goals and the ends. We agree so much on the where we need to be going in the world. I am so, certain is the wrong word.

Starting point is 01:03:08 But I'm, I really believe that the tactics and the strategy to get to that desired endpoint, I don't think you can fight the nudging, state and the nudging oligarchy on this battlefield of money. I think that is the sine quaanone. That is the raison d'etra here. I'm using lots of foreign languages here. That's why governments exist is money.

Starting point is 01:03:43 Right. Seenridge. This is what a government is. It is the control over money. It is existential to a government. They do not want to give up that power and will not do so easy. They can't. They can't. It is their power.

Starting point is 01:03:58 And so there's a direct relationship between the size and spending of the military and the ability to print money to back that system. Like the power and spread of the United States of America as a empire, regardless of whether we actually, like we don't actually control the EU or South America, but we kind of do because of the dollar, right? It is the power that backs the United States. And this is kind of where I want. I know you just expressed maybe some apprehension or some cautiousness about Bitcoin as a successful alternative to this. However, when we talk about the nudging state, we do have to also include the fact that Bitcoin and Ethereum, me and Ryan are more representative of the Ethereum community more so than the Bitcoin community, although we do have to also. we do believe in the power of Bitcoin. What these things represent is the ability to exit, right?

Starting point is 01:05:00 And exiting the option to exit the system, we hope offers a check on the ability of the nation state to nudge. Because if the nation state nudges you in a direction you don't want to go, you may have the option to exit out of the system. And while I don't believe that, like, this is just going to be a peaceful transition, there's going to there's going to be a ton of conflict in a bunch of different ways. The mere ability to exit might put limits upon how far a nation state can nudge its citizenry. It kind of puts the nation state almost, you know, rather than nation state versus

Starting point is 01:05:40 crypto, it's like nation state versus people. Are you going to strip away the people's ability to buy Bitcoin or transact in it? That's a slippery slope for Western democracy. Yeah, I think yes and no. It depends. It depends how existentially gets for that nation, right? Right? So I actually think that the – and look, I totally get what you're saying.

Starting point is 01:06:09 There are clear – I hate to use this phrase, but I will. There are clear use cases for Bitcoin that are crucial and critical in – lots of places around the world, where in a sense the government is at war with its citizenry, right? You know, you can use Venezuela, right? Or you can say, you know, in Lebanon, right? Which is why, you know, you're in Lebanon. What people want is they want U.S. dollars, right? They don't want, you know, whatever the, you know, I should know what the Lebanese currency is. I don't, right? But nobody wants their domestic currency, right? They want dollars, first and foremost. Or they get a, you know, know, if you have the ability to do it, they would want to get Bitcoin.

Starting point is 01:06:57 I get those use cases. I get those, I guess I'll call them store of value use cases because it's very similar to the argument around, you know, bitcoins, you know, store of value, light gold, you know, digital, you know, these sort of arguments. I know there's exists. I think that works. And I'm not arguing with that. What I'm saying is that for me, for me, I think there's a bigger game afoot that we're all interested in, right?

Starting point is 01:07:29 We're all interested in liberty and justice for all. We're all interested in how do we reduce, how do we mitigate this nudging oligarchy and nudging state, which aggrandizes, which takes more and more control. over our bodies, our minds. That's the worst part, our autonomy, day after day after day. And I think the risk of focusing on the use cases that you're describing, which I'll call it kind of the gold store value

Starting point is 01:08:11 use cases you're describing, they're absolutely right. What I think we all have to be mindful of here is that the ability to be ghettoized the ability for powerful states to patch you on the head and say, oh, that's right. Yes, you go over here and you play with your little friends who also talk about gold all the time. Yes, yes, yes.

Starting point is 01:08:37 Isn't that cute, right? That's what happens. And that's been the life of the gold bug. And I'm using that term, that pejorative term. I think of myself as a bit of a gold bug, right? I believe in these use cases you're talking about for Bitcoin. But what you see in the community of people who follow gold and the like is they've been ghettoized. It's a miserable way to live because basically what you find yourself doing is you find yourself in a sense and over time hoping for catastrophe.

Starting point is 01:09:14 Right? Because you think, man, if the system really collapses, I'll be sitting pretty then. And it's like, really, dude, that's They call it a Bitcoin Citadel idea. That's like, no more like hell and winners are in the Citadel and they just watch from their palaces. Yeah. And I've, listen, I've lived that to an extent. And it's just, it turns you into a grumpy grandpa.

Starting point is 01:09:38 It's a pretty measurable way to live. Using crypto terms, I think. Yeah. Yeah. Yeah. So I get the use cases you're describing. I believe in the use cases you're describing. describing. I personally believe in the use cases you're describing. I think, though, in my, in my

Starting point is 01:09:55 professional life and in the movement I'm trying to create, though, I'd like to, I'd like to go after bigger game, you know, and, and that, that may be a, a longer game I have to play. It's a longer hunt, right? I don't think that that, the battlefield I want to fight on is not really the battlefield of money per se. Because I do think it lends itself either to, when the chips really get down, just to be outright crushed on that battlefield, i.e. outlawed, right? But even before then, you end up being, you know, like I say, ghettoized and turned into this, you know, patch on the head and, oh, you stay over here and do that.

Starting point is 01:10:41 So, Ben, I have three things to throw at you, but before I do, just on the top, on the topic of crypto to get your thoughts on. Before I do, David, I think, wanted to say something maybe. Well, I was actually just going to make a distinction between, so like I said, the bankless nation that we are trying to build out incorporates Bitcoin, but not just Bitcoin. I get it. I get it. From the greater outside perspective, you know, I think people know the name Ethereum, but they're far less familiar with it and what it does. And it's, and what it does is not any one particular thing. And in the Ethereum world and the Bitcoin world,

Starting point is 01:11:24 we kind of consider these two different nations that are similar but different. And the goal is to, even though the nation state does have some control and influence and they can nudge perhaps people away from Bitcoin and reduce its meaning, it's also a race, right? Because Bitcoin is a global nation.

Starting point is 01:11:46 It's a global financial platform which every single nation state is or every single citizenry of every single nation state can take part of. And Ethereum is even the same thing, but Ethereum is even more generalizable. And so while I'll totally concede that like Bitcoin, because it is one singular thing, it's perhaps weaker to the nation state's influence. Ethereum isn't one single thing. It is a platform to host many things. And so the nation state can't. Listen, I'm really glad you brought that up because that is where what you're describing is exactly where I would love, let's call it the crypto community to use that kind of innocent silly term where I'd like to see things go. Right.

Starting point is 01:12:36 Because what I'll use kind of a, you know, even kind of broader term. what I'll call it. What I'll call is distributed ledger technologies, right, which underneath that we can include all different, you know, instantiations of that. Right. What all this does is, I think, attack in an incredibly elegant and powerful way. What I think is the Achilles heel of the nudging state and the nudging oligarch. What I think it does is it solves a problem that must be solved in order to go after the bigger game that I think is possible here. And that is that it solves the problem of distributed trust. Solving this problem of distributed trust is at the core of the, again, highfalutin word, movement.

Starting point is 01:13:42 I want to try to create around, yes, investing, but more importantly, a fuddy-duddy world, citizenship. How do you know that that person, right, that that touring entity that you're, you know, talking with on via email or whatever? Yeah. How do you share trust here? And finding that sort of permissionless. And I know that's a spectrum, right, where we can talk about that, depending on what, you know, instantiation of distributed ledger you're talking about. And then different use cases will have different places on that spectrum.

Starting point is 01:14:26 But attacking that spectrum problem of distributed trust is at the core of what has to be accomplished to really get at the big game that we want to play here. So I get it, right? So, you know, moving towards decentralized finance in whatever form and fashion, man, I am, I am a total ally of that. What I would like to see is I, and it's difficult sometimes because there's not money directly associated with. You can't trade this. But I'm looking for finding these decentralized ways of, I'll say, taking back your identity, taking back your data, taking back. taking back, you know, your vote and your actions.

Starting point is 01:15:17 It's all underpinned by these distributed ledger technologies that I think really get at this, attack this question of distributed trust. And that's why I'm so hopeful about the energy and the shared goals here. I'm just, I'm not particularly interested in playing on that battlefield of money per se and and and i and i get the 30 years ago the you know the the the the 26 year old bed would have been all over that right so i get it right but but but but that's not where i am now and and and that's at the heart of i think where you know you know not that i get misinterpreted but but the you know the issues i have around a lot of the the the finance application

Starting point is 01:16:10 of these distributed ledger technologies more general. So, so, Ben, I think, you know, so many millennials read your work and resonate with it, because,

Starting point is 01:16:22 you know, you're talking about issues that they care about. Totally get that you are less bullish on the bankless, kind of these bankless systems, usurping or replacing aspects of the nation state and the banks. But maybe you could give us, some advice because we think there is still some hope there. And there are kind of three paths, I think, by which we might be able to achieve it. So I would be interested in your advice on these

Starting point is 01:16:53 three paths and just thoughts, given your game theory experience, given your sort of narrative experience, because those are the realms we're playing in. So let me kind of give you these three different paths and then maybe comment on each of them. So the first path is this. that there's game theory involved between competing nation states. And the way crypto economic systems work is there is incredible, extraordinary value in getting in early. So US is the reserve currency of the world. How much does China as a supernational power want the U.S. to remain the reserve currency of the world? So China adopts a decentralized currency. doesn't have to be China. It could be Russia. It could be, you know, another, a smaller country.

Starting point is 01:17:47 One nation state adopts it, gives them an unfair advantage, and forces the other nations to adopt it. And the way it gives them an unfair advantage is through price appreciation, potentially, the first, you know, central bank who starts buying Bitcoin. What's that going to, what path will other central banks have to go down? So there's this idea of game theory of nation states. The second is this. This is kind of how the internet was adopted. It became so damn useful. So did centralized state governments want an open communication protocol? Did they want cryptography embedded in things like, you know, HTTP? Not really. But the U.S. adopted it in the early 90s and, you know, essentially put it out pro regulation because it was good for the economy

Starting point is 01:18:37 and because it would give them an unfair advantage relative to other nations. So there's the potential. We're seeing things like stable coins on Ethereum that are reaching $10 billion that are essentially bank issued. We're seeing J.P. Morgan with their own stable coin. We're seeing Coinbase go to an IPO. They become more embedded in our existing financial system, and it becomes so damn useful that essentially nation states have to adopt it

Starting point is 01:19:03 or they get left behind. Sort of like the internet, they have no other choice. other than to remain sort of like a North Korea, right? So that's the second. The third is this, something we've been talking about, which is narrative shift. And this could be generational. So there is definitely a sense of disenfranchisement with younger generations. You know, millennials feel it. Gen Z is going to feel it even more so, that we've missed the boat, that they have missed the boat, that the boomers have kind of rigged the system, essentially. God bless boomers. We love them. Our parents are boomers. But there's less opportunity today than there was in their generation. So they rise up. They switch the narrative. The missionaries succeed. Dave and I would consider ourselves missionaries of a sort. For sure. They succeed in bringing common knowledge that ETH is money. That's Ethereum's cryptocurrency. That Bitcoin is valuable. That because it's a non-sovereign store of wealth, it's worth whole.

Starting point is 01:20:07 holding and, you know, it's necessary. So essentially, the millennials rise up. So those are three paths that possibly this could take and kind of intersect with game theory. Like, what's your, what's your take on those? What advice would you give, you know, the 26-year-old you who was into crypto? Yeah. So I think that of the three paths you described, I think that the third path, there is a variation on the third path that I think could be extremely powerful. The first two paths you described, I think, are, I think those are blocked paths. And so let me just quickly describe that first, and then I'll go on to the third path, which I think there is a viable version of that.

Starting point is 01:21:01 So on the game theory of nations, you know, I'll talk about strong nations first, like a China. Yes, China would like to see the dollar is a reserve currency to throw it, but not because they really care about the dollar. What they care about is their own currency. What they're looking to do is to supplant the U.S. or protect their own centralized currency. That's the goal. That's their strategy. That's their goal. So adopting a decentralized currency is not aligned with their goals, right? So it's not just taking down the dollar, it's taking down the dollar.

Starting point is 01:21:43 It's taking down the dollar to the degree that it either protects or elevates their own centralized currency. For weaker nations that might say, hey, you know, I could get some, as you described, competitive advantage by adopting a decentralized currency and the like. you know, Thucydides, you know, he's the historian of the Peloponnesian War like 3,000 years ago.

Starting point is 01:22:07 And again, the sole notion of repeated patterns in human behavior, one of the great lines from Thucydides is that the strong do what they will, the weak do as they must. And let's take example of a country like Switzerland, right? Pretty strong, powerful country, right? Right there in the heart of Europe, right there in the heart of the international banking system. for a long time, they had a competitive advantage by not having a decentralized currency, but by essentially having a decentralized banking system. Right? So you'd get your Swiss bank account and you would effectively be shielded from taxation and other controls

Starting point is 01:22:45 that other countries want to put on the financial system. Well, that's gone, right? Because as soon as the U.S. said, hey, you know what, Switzerland, this is bullshit. Switzerland said, yeah, you need to jump, right? That's what the U.S. said. Switzerland said, how high? So I think that first path, and we can talk through the different permutations about you. I really think that's a dead end.

Starting point is 01:23:13 The second path about, I'll say, being very useful, I totally get the use cases. I think that that can exist. what happens when you allow or when J.P. Morgan kind of takes you under their wing, come over here, young fella, let me show you how the game is played. What happens is you become yet another table in the casino. Right. And that's all you become, right? You're now, oh, we're going to set you up over here next to the blackjack section.

Starting point is 01:23:46 You're now the Pai Gow table here in the Wall Street casino. and you can make money from that. You've developed Pai Gow. Fantastic. Great. Congratulations. Right. But that's all you're ever going to be.

Starting point is 01:24:01 You're going to be just another freaking game in the Wall Street Casino. So you're saying they co-opt it, essentially. They co-opped the movement. That's right. The banks do. Now, now, the third, that third approach you're talking about, the narrative. What I think is possible in terms of, of the, I call it, again, the distributed ledger, the distributed trust solution narrative,

Starting point is 01:24:28 is to do some co-opting of your own, to find an alliance with, there are two ancient languages of investing. There are two populations of investors, you know, use whatever kind of analogy you want to use here. There are momentum investors, growth investors, same thing, and there are value investors. For the last decade, for the last 11 years, value investors who believe that fundamentals matter have been crushed, just crushed for the Dave Portnoy reasons, right? That's not what makes stocks move. Well, what's possible today is to say, you know what, let's play a different game, right? Let's not play the public market game of, you know, the casino here and, you know, this lifting tide for all boats,

Starting point is 01:25:34 whether they're crappy companies or, you know, whether they're bankrupt companies like Hertz, or really good companies that have a great management team and cash flows and all that stuff that used to matter. Well, you know, what distributed ledger technologies, what Ethereum can play a role in particularly, less so Bitcoin, but essentially Ethereum, I think, is in assigning value to and trust in private markets such that the fundamentals, matter again, meaning that I can trust what the stated fundamentals of this company are, right? In a way that I can trust it because they report it, but it doesn't matter in public markets today. I honestly think that there is an enormous reservoir of desire, of hunger for an alternative financial, I'll call it financial system, an alternative financial network of investors and markets and trading that is outside of the public market casino utility that we have today,

Starting point is 01:26:50 and that what your community has is the integral part of that. So, you know, that's the kind of stuff that I'm really thinking about and writing some stuff on now, because I think there is a natural alliance that can be cemented through the right narratives between value investors who are as fed up and discouraged with public markets as the Gen Z and Y and Millennium that you're talking about when you're talking about there's no path for us in this system we've got. I think there's a real potential marriage or alliance there that could shake the existing financial system and really create something interesting. So, you know, that's really how what I'm working on right now. And I think that that third avenue you described, I think it's got legs.

Starting point is 01:27:56 So, Ben, you think there's a chance. Like, it's not too bad. I mean, you think. And I don't mean that in the dumb and dumber way, right? where you're telling me there's a chance. That's not what I mean. I can see this. I can see this.

Starting point is 01:28:12 It's just been, I mean, so the oligarchs, Ben, they feel so entrenched at the moment. And more and more powerful. So we've got NASDAQ reaching all-time highs, and we've got the prospect of 20 to 28 million Americans being evicted. That's happening at the exact same time. How does that happen? Like, it's, you know, bankless and crypto is sort of our escape hatch, right? It's the thing that we are investing in in order to beat back this oligarchy. But I guess my question is like, is there hope?

Starting point is 01:28:48 Is it too late? There's absolutely hope. And I tell you why. And this is the, because, you know, I started writing Absalom theory seven years ago. And I was in a pretty dark place, right? And it was like, what the hell? What the hell is going on with the world? world. And to start writing this and send it out to 100 people and then again through word of mouth,

Starting point is 01:29:10 there are 100,000 people is like, and this is, you know, before your time, but it's the old, you know, police song where, you know, you toss that message in a bottle into the ocean and then you come back the next morning and there are a thousand bottles that have washed back up on your shore, right? that's what my experience with epsilon theory has been and it's been the most intrinsically powerful and rewarding things ever happened to me and that's why I try and and I think that you guys are experiencing some of the same thing right where you're you're saying look guys that you realize you're not alone there are tens of thousands there are hundreds of thousands of not just people right but

Starting point is 01:29:56 successful people. People who are in this world and they are successful in this world, but they are not of this world, right? They're not happy with how things are going either. They know that this isn't right and they're willing to, hey, you know what? Let's do something about it. So that's what I mean about finding your pack. The pack is there. It's just that you can't recognize them, right? So, look, we've got, you know, Epson theory's got subscribers in every, it's a kind of a game we play. You know, name a financial institution anywhere in the world, you know, a hedge fund, an asset manager, a big bank, a central bank. I will guarantee you I've got at least one or two subscribers there. That's amazing.

Starting point is 01:30:46 Now, but it's like Fight Club, right? I mean, we're everywhere. But the difference here is okay to talk about, you know, being part of Epsilon theory. It's okay to talk about being part of the bankless nation, right? You don't have to keep it secret, but the problem is you don't know who these other people are. Maybe it's the person sitting next to you in your cubicle. Maybe it's not. It's finding and it's linking people all around the world, and what I'll call is an epistemic community, a community of knowledge, not just a community because, oh, I sit next to you in an office.

Starting point is 01:31:20 this is an incredibly powerful thing. It's new to the world, the ability to create these epistemic communities. But man, this is how the world changes. And so I'm really optimistic about what, I know this sounds crazy because I write very pessimistically about the power again of this nudging state and nudging oligarchy. But man, it's happening.

Starting point is 01:31:50 And I feel it, I see it. It's been in my own life. I suspect it's in your guy's lives as well. You see how this grows and spreads and how there's a hunger and a desire for it. And so I'm not pessimistic about where this all ends up. I just want to be very thoughtful in how we fight this so that, you know, we don't get wiped out on a battlefield that has got really bad terrain for us. I don't want to charge a machine gun nest, you know? So not leading by telling Congress that crypto is money and it's here

Starting point is 01:32:35 to replace you. Don't leave with that. That's what you're saying. Exactly. Exactly. But I think I absolutely, you know, it's not the dumb and dumber chance. I think there are real avenues here of of creating alliances of similarly both disaffected yet successful in this world and having, you know, good-hearted people who want the same thing, which is a world of liberty and justice for all, right? You know, imagine that. And, you know, it's going to take a long time, but man, it's happening. So, Ben, you spoke about these two types of investors, one of which are the,

Starting point is 01:33:18 the value investors who have been disenfranchised, right? If you've been a value investor, you've been looking for the wrong wavelength. And what's been going and crypto, and one of the reasons why we wanted to bring you on, because so much of what you talk about is so incredibly relevant to crypto, which is the narrative, right? Crypto is primarily narrative at the moment. But baked into the narrative of crypto is a return to value investing because of the way that Bitcoin and Ethereum and all the sub-proticles on Ethereum are inside out. You can see everyone has access to the same amount of information. What is baked into the narrative of, you know, investing in Ethereum, investing in assets

Starting point is 01:34:02 on Ethereum is that you are actually given the assurances that you need and the information data that you need to allow a resurgence of value investing. That's exactly what I'm saying. That's right. So you're sharing these same. principles, that there is some bedrock that you can trust, right? And for value investors is the fundamentals of a company. You know, can I trust that? And moreover, can I trust that that work I put into understanding that, that matters and won't go away for what, for what it, for what

Starting point is 01:34:37 the value that people assign to that, right? And it's the same thing with, with, with, you know, Ethereum or Bitcoin as well. There's, there's, there's, there's, there's, there's, there's a bedrock there that you can point to and say, okay, this you can trust, right? It's whatever we want to call it, proof of work, or whatever you want to call it. Say, this exists, I can trust it. That's the bedrock I'm going to build on. And that sort of shared principle combined with using the right words and right language, man, like I say, I think that's got legs.

Starting point is 01:35:13 Well, I think we need some defy missionaries who can speak. to the fundamental investors, right? Because that's a cohort that would resonate with what we're talking about, the transparency, less power to the bankers, like a more market-driven economy. We'll get there. I think the crypto-anarchy narrative is, you know, for some people, it's not for this group, though.

Starting point is 01:35:38 And yeah, it's part of adapting that narrative. Ben, one more thing, I've got to ask you. So this V-shaped recovery in equities, like, were you surprised? How is this happening? Is it going to continue to happen? So, you know, we saw the same thing happen in 2008. And I wrote a note about this. You know, what I guess what people forget is that in March of 2008, the market was down about 20%.

Starting point is 01:36:13 and at the end of March the U.S. government took an investment bank, Bear Stearns. They executed it. Again, I use this phrase when I talk about Lima. This really happened with Bear Stearns. They took it out into the street and they shot it in the head

Starting point is 01:36:32 and they gave the carcass, literally the office building to J.P. Morgan. And that was supposed to be it. systemic risk was off the table. Bear Stearns was the bad apple, and by eliminating Bear Stearns, all was well. And then, in fact, what you saw in markets was markets went right back up to where they were when they started the year in 2008. And, you know, if you weren't living it, you tend to forget that stuff, right?

Starting point is 01:37:06 Because, you know, we remember 2008 is, oh, my God, markets ended the year down 50%. Right? and that's true, but in May of that year, markets were back at their peak for the year. It was, you know, this classic V-shaped recovery in markets. Now, the answer, of course, was, well, Bear Stearns wasn't just a bad apple. It was all the big banks. And then starting in May and then really accelerating in the late summer, the markets collapsed to, we know what happened in September and October.

Starting point is 01:37:38 So what I, if we were thinking about this, you know, in 2008, I would say, this is, this is just what happened then. D-shaped recovery because systemic risk is off the table, quote unquote, but, you know, we're heading back down. The difference today is that this is that three-body problem that we kind of never quite got around to, but we'll save for another time. Yeah. The central bank intervention in these markets is so much greater today. To Dave Portnoy's point, right? This is the difference between today and 12 years ago, that the central bank is there to actually buy shit, right? And to lend money directly to corporations. And if push comes to shove, they'll just buy stocks. They'll just buy stocks, right? Like Japan already does and the Swiss National Bank does. Stock must go up. And yes, stocks will go up, right? If the central bank is. buying it. So, you know, that's the difference today. So I don't, so the V-shaped recovery did not just surprise me because that's what happened in 2008. And that's what always happens when people say, oh, it's a short-term thing. We'll have some solution around the corner. I don't think that's the case when it comes to COVID-19. I don't think a solution is around the corner. I think

Starting point is 01:39:02 that things are getting worse and will continue to get worse in the United States and other countries. not in Europe, but I think it gets a lot worse before I think it gets any better here in the U.S. How does that impact the stock market? Should make it go down. Whether it will, will depend is, you know, will the Fed say, oh, yeah, I guess we'll stop now, or will they do more? And my guess is they'll do more. And that's the common knowledge we have today. And, you know, that's why the stock market stays up.

Starting point is 01:39:34 It's tricky, tricky to predict. In fact, impossible to predict. That's what the three body problem says. And by the way, we never quite got to it. We won't have time today. But, Ben, you did a great description of the three body problem on our friend, Dmitri's podcast and Hitting Forces. We will include that in the show notes. There's a good section in there.

Starting point is 01:39:54 Yeah. So, yeah, we won't leave the bankless nation hanging on that. Yeah, good, good. Well, you guys got the island of the blue-eyed tribe. So we'll be a reference point. Yeah. Okay. So communities from a, you know, last thing I think we want to quickly talk about,

Starting point is 01:40:16 been talking about how governments have failed us, but communities are the hope and that's the future. One thing that you are doing with N95 masks is getting them to health care workers. Can you talk about getting PPE to health care workers and what you guys are doing on that. Well, thanks for bringing that up. It's something that's very important to me, and I mean that both for what we're doing directly, which is, you know, to date, we've bought and we've distributed about 100,000, well, more, about 110,000 N95 and KN95 masks, you know, these medical respirators, to more than 1,000 hospitals and clinics and fire departments and prisons and shelters

Starting point is 01:41:01 all across the country, about 46 states we've sent them. And we don't send them in big batches. We send anywhere from 50 to 200 masks directly to doctors and nurses and EMTs and social workers who have an urgent need for this because we live in this freaking trickle-down society. And it's not just trickle-down when it comes to money. It's also trickled down when it comes to PPE, you know, the medical supplies that these heroes, these who are fighting this battle on the front lines, need to protect themselves. So we started a charity to raise the money and then we buy the masks from, you know, all over the world.

Starting point is 01:41:53 And, you know, it's like an underground railroad of masks we set up. and then we deliver them directly to, you know, the people who are really needing it. And I always want to talk about it because it's, A, I think it's really doing a lot of good in the world, but B is an example of what we can all do, right? We all think we have to participate on some grand scale, right? And that's what the oligarchs and the states want you to think. the fact is that we can all make a difference from the bottom up. We really can, particularly if we find our pack.

Starting point is 01:42:37 We find it doesn't take a lot of people. It's your family. It's your friends. It's just getting five or six people together and saying, shit, I'm going to do something in my community to make a difference for the other human beings who are in this foxhole. And maybe they'll have very different. different politics and maybe they'll have very different whatever race, class. It doesn't matter.

Starting point is 01:43:05 And this is how the world really changes. It doesn't change from the top down because the sociopaths take it over. It changes from the bottom up. And it's not sexy, it's not glamorous, and it takes a long time. But this is how the world really does change. And it's why the work you guys are doing is so important to create this pack, this nation like you're calling it. It's why I think, frankly, what I'm doing is important too. I get passionate about this stuff. I can go on and on. I'll just leave it at that. Find your pack. Work from the bottom up. And watch how the world changes. Because it's not just a virus that's contagious. It's good works like this. It's even more contagious. And anyway, man, that's why I'm so happy to be on you guys show, because I think you guys are doing exactly the same thing.

Starting point is 01:44:10 And getting this message out here, yeah, we're going to change the world. Absolutely. Nations and communities and everything that we try and organize people by is all underpinned by passion and purpose. And so, Ben, to the degree that you are leading that charge, we will absolutely follow you. So thank you in that. You got it, man. Thanks for having me on. This is a blast.

Starting point is 01:44:34 Ben, it's been a lot of fun. Bankless Nation. That was Dr. Ben Hunt. We have common values. Liberty and justice for all. Bankless is about a money system for all. Going bankless is how you join your pack, as Ben mentioned. And I've got a strange feeling that our paths with Epsilon Theory and Ben's work in the bankless nation

Starting point is 01:44:55 are going to intersect in some way. in the future. There's just too many commonalities, too much common value, a common value system that I would not be surprised at all. Actions for today, one thing you need to do is sign up for Epsilon Theory. That's Ben's newsletter. It's, you know, kindred values, and it's a fantastic read. Every time it comes out in my inbox, I am all about reading everything that Ben and his fellow writers are writing about. Also take a look at his N95 program, the Epsilon Theory N95 program that he talked about will include links to both. The second thing you can do is send this episode to someone who's crypto curious. That's how you invite your friends and family to the bankless

Starting point is 01:45:42 pack. Give them some exposure. If they are seeing the issues that you're seeing with the nudging oligarchy in the nudging state, this is definitely the community for them. Last thing, we need. David, I saw that we're at about 70 five-star reviews on iTunes. Can we get to 100 in the next month or so? What do you think? Hey, you know, it depends on the bankless nation. If the bankless nation will get us to 100, it's in their hands. And so if you please could go to wherever you listen to podcasts and give us those five-star reviews so we can grow the bankless nation louder and prouder than ever before. That is your duty. That is as a Patriots of the bankless world, that is what we need you to do.

Starting point is 01:46:25 So if you could go ahead and please do that, we would greatly appreciate it. And the bankless nation would thank you. As always, guys, risks and disclaimers. We talked a little bit about Bitcoin and Eith. Both are risky. Crypto is risky. None of this is financial advice.

Starting point is 01:46:39 You could lose what you put into crypto, but we are headed west. This is the frontier. It's not for everyone, but we are excited that you are with us on the journey. Thanks a lot.

Bankless - 22 - The People’s Narrative | Ben Hunt

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