BTC Sessions - Preston Pysh: The Future of Investing and Finance in a Bitcoin World ep148

Episode Date: February 18, 2021

Preston Pysh is the host of The Investor’s Podcast, a long-time proponent of Bitcoin, and one of the most prominent voices in finance when it comes to Bitcoin’s role in both traditional financial markets and future investment paradigms.   In this conversation, we dig deeper into those paradigms: How does Bitcoin change the way investors view interest, risk, and yield? What models are becoming obsolete as Bitcoin introduces new ones? And, especially relevant for the current moment, how does Preston feel about witnessing these two opposing systems juxtaposed on top of each other? 🔗 More ways to follow Preston   Twitter: https://twitter.com/PrestonPysh YouTube: https://www.youtube.com/channel/UCLTdCY-fNXc1GqzIuflK-OQ The Investor’s Podcast: https://www.theinvestorspodcast.com/ SUPPORT THE SHOW: LEDN Bitcoin backed loans –  get $25 free https://bit.ly/397rlLN   Get Wasabi wallet for Bitcoin privacy https://wasabiwallet.io/   Cobo Vault: secure your Bitcoin! https://bit.ly/2GgMFlH   BillFodl: get your wallet backups in solid steel. https://privacypros.io/btcsessions   Bitrefill: use Bitcoin to purchase gift cards https://www.bitrefill.com/buy/?code=O04UMic9   LIGHTNING tips: https://tippin.me/@BTCsessions

Wasabi wallet and fairly private. Preston Pish is the co-founder of the Investors podcast, which is the number one downloaded investment-related podcast on iTunes. He has been watched and listened to by millions of people across the globe, and he is a huge proponent, proponent, rather, of Bitcoin. He covers a lot about traditional finance and the juxtaposition of a system like Bitcoin on our traditional system. We get into a lot here. We talk a bit about risk and yield and interest rates and things like that where they could be thrown into a bit of a tizzy in a world where Bitcoin becomes even more dominant. I really enjoyed this chat. I hope you guys do to as always i am ben with the btc sessions and this is your daily session

before we dive in of course a big shout out to sponsors of the show leaden dot io this is where you can use your bitcoin for a variety of different services of course they've got their bitcoin backed loans where if you're in a pinch and you need to get your hands on dollars but you don't want to sell your bitcoin because that is a taxable event and maybe you're worried about having a buy back in at a higher price point. This could be for you. Pretty easy. Deposit Bitcoin. Get dollars into your bank within 24 hours. And when you pay back those dollars, you get back the same amount of Bitcoin. Of course, they also have their Bitcoin in USDC savings accounts, interest rates of up to 12.25% annually paid monthly. And their B2X offering for you, bullish Bitcoin is out there.

Basically uses the same loan mechanism to instantly buy you more Bitcoin. If you want to check them out, links down below in the show notes. And if you, if you, you'll, click that link and choose to use one of their loan products, they'll give you 25 bucks for free into your savings account. Now up next, we have the cobo vault, one of my regularly used hardware wallets. I love it because it is 100% air-gapped. That means that you never plug it into an internet-connected device. Everything is done via QR code and that keeps the keys to your money safe and offline. Secure element, open source software and firmware. I love it, and it works with all my favorite wallets like Blue Wallet, Wasabion.

desktop, all that great stuff. Check them out. Links below. And for reference, I'm using the pro, which has the fingerprint scanner and the rechargeable battery. Now, I live on Bitcoin and I obviously need to eat and shop and do all those other things that living requires. And so one of the ways I can do that is through bit refill. These guys have pretty much every gift card that you could ever imagine and you can pay for it all with Bitcoin. You can pay on-chain. You can pay with Lightning Network for basically instant and cheap transactions, and it's all there. Not to mention, you actually earn Sats back as you shop, so you can get back some of that Bitcoin that you are using to purchase, which is fantastic.

Be sure to check them out. Links are in the show notes down below. And finally, of course, if you're backing up a wallet, you typically start off by writing down your backup phrase on paper. However, that might not be the most secure option given that fire, water, or just human error accidentally throwing out a scrap of paper could essentially render your backup useless. So it might not be a bad idea to get it on solid steel, something like the bill foddle over on Privacyproes.io.

This thing is how I back up all my wallets and I love it. So be sure to check them out. There's a link in the show notes down below. make your backups a little bit more resilient. With that, let's dive into the show. But yeah, Preston, thank you so much for being here. I've got to say, I'm never more bullish than when I finish a Preston Pish podcast. I appreciate that. I hope that the information that I'm putting out is for good reason and that there's something behind it and not just, you know,

a bullish, uh, qualitative talk. I try to make it quantitative so people can really kind of hang their hat on something that's behind it. So yeah. Yeah. Yeah,

absolutely. I think, I think every time I listen it, uh, the type of content that, that you touch on, it gives that error of legitimacy to, to Bitcoin because there's serious conversations that,

that you have and you, you look at it through a lens that, you know, previously was not it was not looked at through in the early days, especially by a lot of early bitcoins. It was just kind of, you know, the cypherpunk, you know, moon boys. Yeah. Yeah. Yeah. Yeah. Exactly. And so it's it's it shifted a lot. This year's been insane. And it's funny because a lot of people, a lot of people that have been around for a while, it's almost like they saw it coming exactly.

They laid it out and said, well, it's probably going to look something like this. And it didn't just look something like that. It looked a lot like what was kind of foreshadowed. Maybe we can kind of kick things off. And I know I'll frame this for you a little bit. I'm going to try and come at this from,

a bit of the perspective of a layman. So, you know, there's been a lot of stuff that's, that's been hitting the news. There's a lot of newcomers that are coming into this space. And they're seeing big things like Elon Musk just bought $1.5 billion worth of Bitcoin. They see PayPal dip in their toes and they see things from Twitter hitting today. They see micro strategy, which a lot of people didn't know who they were. But they're seeing these things in the news. And some of them may have been paying attention in 2017. Some of them may have not.

It could be, you know, multiple touch points for some people and others not. But they're trying to parse, I think, what's going on here. You know, they see the price is up. There's companies buying. They don't quite get it. They don't understand why a company like Tesla, why Elon Musk, even though he's a bit of an online troll, you know, having fun. Why does a company take that kind of risk? So I was wondering if maybe we could dive into first some of the fundamental problems that we've run into in traditional markets that have driven this behavior to fly.

to something like Bitcoin. So, I mean, for the layman, what's going on that's causing companies to reconsider holding cash? So I would start off by saying that when you think about the value of everything on the planet, whether you're talking real estate, whether you're talking a stock, whether you're talking, it doesn't matter. fixed income bonds. The thing that's at the center of all of that is really kind of two parts. It's how much is the underlying currency? If you could take all the currency in the world and look at it under a microscope,

how quickly is it being debased? And so if it's not being debased at all, you're going to have these free and open markets where the cost of capital, which was the second part, which is the interest rates that are being applied between people that are lending and people that are borrowing, those interest rates are driving the valuation on everything. That's really important for people to understand. I would say that interest rates and Warren Buffett's real famous for saying this, that interest rates are like gravity. And if you think about interest rates, being really high, it'd almost be, instead of us experiencing one G of gravity right now,

as we're having this conversation, we're both experiencing one G. Imagine if we were experiencing 5 Gs and your weight isn't 200 pounds. It's five times that, right? It'd be like sitting in this chair and you weigh a thousand pounds. The force on you just to have a conversation and just to move around a little bit is so taxing that it's extremely difficult. to perform whatever actions you're trying to perform. That's a high interest rate environment. Now, if you have a low interest rate environment, it's easy to do business. You can, it's almost like being on the moon.

I'll tell a really neat story because I don't think I've ever told this story on any podcast before. Great. Exclusive. This is a really neat story. So when I was a cadet at West Point, my senior year, I did a capstone project. and I was an aerospace engineering major, and I did an internship the year before at NASA. And it was incredible.

I was down at Johnson Space Center. I got to meet all these different astronauts. And when I was there, there was an aircraft called the KC-135. And it's well known as the vomit comet. And the vomit comet is completely gutted. There's nothing inside of it. But there's padding all through the fuselage of the aircraft. is a pretty large aircraft.

And this is how the astronauts train for zero gravity. They'll take the aircraft up to 40,000 feet. They'll nose it over. And then the pilots are accelerating the aircraft down in order to create the zero gravity sensation that you have in space so that you can kind of learn what that's like and how much pressure. You can literally use one finger

and push on one side of the fuselage and fly to the other side. So my senior year, I don't even know where I'm going, completely with the story. I'm just going to finish out the story. All good. All good. So my senior year, I went to the guy who ran this, the KC-135 down at Johnson Space Center, and I said, hey, if I come back with a Capstone project, could I fly in this thing? And he's like, actually, we have a program with colleges all over the United States that you can do that exact thing. So I go back my senior year because I did my internship

between my junior and senior year. I developed this like this little robot that used pneumatics to, that used ultrasonic sensors in order to keep a distance, almost like you could put a laptop on top of this little device that would follow you around inside of the International Space Station was kind of the concept. So I got to fly in the zero gravity trainer. So on one of the parabolas, now I remember where I was going with this, on one of the parabolas, they, and we did like 40 parabolas where you go up and down. I mean, it's the most insane experience you could ever have with your clothes on. By the way, zero gravity is on my bucket list. So one day. I think there's, I think there's private companies that do this. I'm not real sure, but I think

there might be some. And if you have the opportunity, do not pass it up. But anyway, on one of the last couple parabolas, we simulated the gravity. on the moon. So the parabola lasted longer. When you're coming down, I think our parabolas were like 30 seconds is all the longer you have. You go from 40,000 down the 10,000, and then you pull out and you do it all over again. Well, they announced in the fuselage and said, hey, we're going to simulate the moon. And it was crazy. I actually enjoyed that moon gravity better than the zero gravity because it was just so strange to be standing on the ground. You could feel a little bit of gravity, but you could like jump. And it was just like the movies you watch, like, you know, them walking on the moon and how they're like bouncing, but it's like really slow. And you got that sensation. So the reason I'm telling this really long story, which I didn't mean it to be that long,

it's just such a cool experience, is when a company, when you have really low interest rates, it's almost like the same sensation that you have on the moon. You're doing half as much work. You're incentivized to go out and do crazier things because it's easier for you to do. them. And that's what interest rates do to the entire global economy. And so to get back to the root of your question, which is how, like what's going on? What are these, the circumstances that we're experiencing on a global scale? What happened when you look at these credit cycles, everyone's used to these six to eight year business cycles. But what a lot of them don't realize is that there's

actually larger credit cycles that the smaller ones kind of ride on, almost like these waves on top of waves. Like the Ray Dalio. This is the Ray Dalio. If you don't know who he is, I highly encourage you to look up Ray Dalio, how the economic machine works. There's the 30-minute video that goes into deep detail on this idea. But you had interest rates sky high in the 80s. And then for the last 40 years since 1981, interest rates have come down. Now the interest rates are at 0%. And you're promoting and incentivizing this behavior by all businesses. It doesn't matter what business you're in to lever up, to go out and hop all around, right, to go do all these risky things because it's super easy to do them because interest rates are so low.

But the problem that is the result of this is this is not a free and open interest rate that's being determined, right? Like people think that these interest rates that we're seeing right now are free and open, but anything of the sort. Since 2008, 2009, especially, you've seen central banks coordinated across the globe, just not in the U.S., all over, that have coordinated their actions in order to keep dropping interest rates lower, they step into the bond market, they buy, they bid those prices higher and higher, that's what pushes the interest rates lower and lower. Well, what does that do for the capitalization of everything else?

It drives the capitalization rate of all these businesses way up. And so as long as those, as long as that manipulation keeps playing out in the market, you're going to continue to see these prices get crazier and crazier, and they're not in any type of economic reality. If I was going to equate it back to the example, it'd be like I was experiencing moon gravity for literally a decade, and I'm starting to think that that's reality now, like that the 1G or the 2G or the 3G gravity can't come back. but I have a feeling it's going to come back and it's going to come back extremely hard and intense and it's going to be one heck of a wake-up call for a lot of businesses and people. So let's let's kind of step back to when, I guess, before we got to such an insane state of the world, what was kind of the status quo of how a company would handle its cash reserves?

be a reasonable thing to be doing if you're sitting on a ton of cash if you're a large company? What would and how does that compare to some of the insane things that we see today? So Berkshire Hathaway would be the template for talking about it historically because the way Buffett would always look at this. And this is one of the reasons why he loved the insurance company so much is because they have a massive float that they have to sit on in order to, you know, pay out their insurance claims if, if, if they're called. So he loved having that float, which is just a treasure trove of cash. And so what do you do with that cash when you're in an environment that interest rates are going down? Well, you want to be buying and owning debt if

interest rates are going down. So he's stepping into long duration bonds because if interest rates continue to go down over a long term trend, well, the value of those bonds, the premium, especially long-duration bonds are going up in a major way. Now, if interest rates are going the opposite direction, you do not want to be in that trade. You want to be on the lending side of that trade, not on the buying side of that trade. So I kind of think that that's probably going to be the place to be when this dynamic that we're seeing starts to unravel itself, you're going to want to be in the lending business, not in the buying of debt business. Now, So let's get kind of down to the very, very root of the cause, because it's not just, obviously, the interest rates.

It's the money itself, right? And when you have this kind of measuring stick that has been perverted, that kind of skews everything. And an interest rate, correct me if I'm wrong, more or less prices the risk of lending capital, correct? Yeah, so I would look at it from these terms. So if you didn't have any type of debasement happening in the currency at all, your market would automatically find, and this is what Bitcoin is going to ultimately supply, it's going to take a lot of time to get there. But this is what it's ultimately going to supply is your cost of capital is being determined by the risk appetite of entrepreneurs and people that hold the currency or the money. I should say money in that scenario because the currency and money are one for one because the currency. I like to call it currency when it's being debased because the currency is riding on top of the money. But let's say that the currency is not being the base. Well, then the currency and the money are synonymous at that point.

History is always proven that that's not the case, although what we're about to step into is going to be really interesting to see change for the first time in human history. So getting back to your point about money versus currency versus interest rates. So when you have a money, or let's just say that you have something that is sitting at the rock or the foundation of that, historically it's been gold. In the future, you and I both believe that that's going to be Bitcoin. And then state governments, because you can't go and spend an ounce of gold because of the value of that ounce of gold, you have to put some type of paper currency or some form of currency on top of it. And that's where the debasement happens. And that's where you have the trusted agent in between those two things. And that's why for a sovereign entity, gold has always failed.

But on the individual level, gold has always worked for the individual. Right. Well, yeah, because I mean, if a person can't pay their bills, well, they got, you know, they don't have a lender of last resort to come bail them out, you know, the little guys on his own. but if you're quote unquote too big to fail, then you get to go to the printing press and ask for a handout. And so it's kind of this double standard depending on the size of you and who you are. Now, before we kind of get on, because I want to touch on some of the stuff that you actually

chatted about with Peter McCormick the other day, there were a lot of questions. I threw it out there on Twitter. If I could ask Preston something, what would you ask? And everybody was asking about the long, short thing. We'll get into that in a minute. But just to kind of cap this section off, a lot of people, regular people that are not super in tune with financial markets, they see the disconnect right now between kind of what the narrative about the state of the world is versus how they experience it themselves. They see stock markets hitting all-time highs while everybody is out of work and barely

able to make ends meet. And they're wondering, you know, how do I begin to sidestep this and insulate myself from this and what actions can I be taking when I'm seeing companies take these sort of actions and start to insulate themselves. So if somebody's trying to figure out what's going on and how to mirror what the smart money in the room is doing, and I know this, I don't want to lead this down the path of like financial advice, but what does what companies are doing right now, how does that translate on an individual level if somebody were trying to mirror that? So I've used this example a couple of times on some other shows, but I'm going to use it in a little bit of a different way.

So I use this monopoly example to help people kind of understand what's happening. But let me phrase it this way. Imagine you had four people playing a game in Monopoly. and the equity of the board, the businesses that you can own, is pretty equally distributed amongst all the players. And let's say that a banker stepped in and said, all right, you guys have been playing with the same pot of money. I haven't been inserting or taking money out of it.

But now I'm just going to quadruple the amount of money supply that's in the game. I'm just going to give everybody, like whatever is currently in the game, I'm going to quadruple it. what would and there's not any more properties we're still playing on the same monopoly board what would happen if you let all those participants continue to play the game what would happen to the values of those properties and the answer is that the properties are going to get bid the prices in nominal terms of that of that monopoly money that you're using it's going to force the value of park place to go 4x from where it was currently being valued if you would sell it between players the value that the person

who's holding that would want would be four times as much than where it was approximately, right? And so you see a similar dynamic and it's a lot harder to see when it's not 4x, it's just 2%, or it's 5% or whatever it is. And recently it's been like 10 or 15%. It's been really high. But that's how people can understand what's taking place is the value is going up in nominal units of Fiat units. So what it really comes down to is how can you own something that's scarce?

So going back to that example of monopoly, what is scarce on that board? Well, the properties are scarce. You can't create more properties. So what you want to own is something that has some form of scarcity to it that's not being impaired by the event that's taking place. So like they printed all this money, they inserted it into the system. There's, There's way other things that are happening that are causing them to have to do this. But for COVID specifically, you'd be looking at what is, what is scarce and what still has a competitive advantage in an environment where everyone's running around with a mask and isn't able to do the things that they used that they used to be able to do. That's the investment thesis for that. Now we're getting

ready to move into what I would call a new crisis. And I think the new crisis that we're going to be experiencing is one where your financial system has a meltdown, which is separate from the COVID event. And I think a lot of people would probably try to make the argument that COVID is going to cause this next crisis. But I would say they're sorely and very way off base because this thing's been brewing for literally 80 years. Well, and we saw major hints well before COVID really kicked it. Like we saw the repo markets in the fall before. just going haywire. It's been brewing for so long. And the other funny thing that you'll see is people will say, oh, well, it was this president or that president. It has nothing to do with any of these

presidents in the last three terms. This thing was, this, this, this goose was cooked from 1944 up until 1971. And it's just now the, the impacts of those decisions are now coming to maturation today. Believe it or not. And so up until, well, 2009, there's realistically been no opt-out. There's been no excellent opposing system that one could step into if they didn't like the writing on the wall. But that's been introduced now via Bitcoin. And you have two totally different schools of thought. of how a money should work and how an economy should work and that there should actually be

consequence to one's actions versus not. How does that parse when those two things are juxtaposed together? How does that begin to play out? I mean, I guess we're seeing it with Tesla and with micro strategy and others. But, you know, how do we start to see this materialize more from here? What are the next steps? What do you see the running on the wall being? If you, if the old guard that, that were the gatekeepers of the old financial system understood what was actually taking place with this as far as how this thing gains entrenchment, which in my opinion is the four year having cycle combined with the two week difficulty adjustment, is is the thing that's supplying this time-fused entrenchment into the old system.

If the gatekeepers of that old system understood what it was doing and how it was doing it, I think it could have really resulted in a bad situation for mankind because there would have been this attempt to continue to implement this inflationary monetary policy. They would have just gone to the SDR next. They would have, and you can still see people talking about this being the solution, which it's just humors to me because that's not the problem. The problem is the fiscal spending that is forcing the monetary policy makers to have to react to the decision making that's being done upstream via fiscal policy globally.

And so because you have Bitcoin, providing a decentralized response to that, where there's no one person or thing that that these old guard traditional finance type entities can point at and push a button to turn it off. I think it's actually going to end up being way better for mankind, for all of humanity, because it's going to force a reset. And it's going to force a reset of the wealthy, really. I mean, they're going to be the ones that ultimately pay the biggest price in relative terms. And I think that's really important to emphasize because they're the ones that own all the equities.

They're the ones that own all these fixed income assets that are going to get completely repriced when you step into a Bitcoin world where interest rates are not even close to where they're at right now and feel. terms. Now, now that we're kind of on that vein here, I have a couple tweets of yours from today that I wanted to touch on. So I'll read off the first two and maybe we can dive down that rabbit hole a little bit. So you said, I can't wait to see these CBDCs or Central Bank digital currencies come out and start kicking off the same yields that U.S. is already kicking off today, 10 plus percent. It's going to make Wall Street mines explode.

Sorry, folks, less than 1% interest is a lie. Might want to do a little research if you don't understand. And secondly, you said central bank digital currencies will greatly accelerate Bitcoinization. It's the equivalent of using dirt paths, today's stable coins, and building an eight-lane expressway central bank digital currencies. So maybe you'd like to dive down there and elaborate a little bit on currently, like interest rates are effectively nothing. They're negative in some places. And yet with a digitized version of the dollar or the equivalent of a dirt path to access dollar, quote unquote, stability, you can lend that out. And you can get more than 10%, which is insanity.

if you look at, I just saw a tweet today where in, I think it's in the Netherlands, like a retail individual savings account now has negative interest rates. So some dude had dollars or I guess euros in his bank account and they were taken a little bit every month. So let's dive down that. I'll let you take it away and just kind of elaborate on what you were saying here. So think of it as two different money networks. or currency. One's a money network, the other one's a currency that that acts like its money. And these networks were, were separated, and there's this tiny little path between them that connects them.

And that path that connects them is U.S. dollars that go through traditional clearing that take, you know, if you do a wire, hopefully you can get it done in one day. If you don't want to pay the extra fees for the one-day wire, then you're looking at two to three days for it to clear. The reason it takes so long to clear is because the clearing houses are like Rube Goldberg machines compared to the way cryptocurrencies work and the way that they clear. It's literally like you're dealing with something from the 1800s like Michael J. Fox and Back to the Future Three, right? That's what it looks like. Your traditional banking in this traditional money network that I'm referring to. So when you step over into this new network, this future

network, this Bitcoin network, in order to speed up clearance, the market has already answered the mail on that solution to clear up the, to make it faster and make it immediate, you've had private industry that has developed stable coins, whether it's U.S. SDC, whether it's the Gemini coin. I mean, you got all sorts of them, right? And all they're doing is they're just tokenizing this old legacy dollar that is sitting in an account that takes forever to clear. Okay. And then they're tokenizing it on top of it so that it can work in this new future. It's almost like taking a horse and buggy and exchanging it for a Lamborghini of today so that it can operate in today's environment. That's not.

not a great example, but people can kind of visualize what I'm trying to equate to. So over in this new future money network, people are, if you want to borrow the dollar in this new network, you can borrow it for 10% interest, actually higher than that. You can lend it for 10% interest and you can borrow it for even more than that. That's the rate to borrow a dollar or to lend a dollar. if you want to lend out Bitcoin in this new world, and this is going to blow people's minds, it's a lower interest rate than the dollars, right? Now think about all your people out of this traditional money network looking at what I just described. What are they thinking? They're saying, well, how in the world would Bitcoin only, you know, if you're lending Bitcoin only get 4%,

but if you're lending dollars that are completely backed, you're getting 10%. That doesn't make any sense whatsoever. Well, here's why. Because the people that are operating over in this future money network, the Bitcoin network, are looking at the value of Bitcoin and saying, it's going up so fast. It's such a breakneck pace that if I convert that into dollars and lend them out, I'm going to get those dollars back and they're going to have deprecneck. appreciated in value so much relative to Bitcoin that I demand a higher interest rate. So you have the

free and open market that's saying the dollar is riskier than Bitcoin. And it's not like I'm just saying that from a qualitative standpoint. I'm saying that from a quantitative standpoint. The numbers and the yields tell you that's what the market is valuing the dollar at. is a higher risk liability relative to Bitcoin as far as what you're getting in lending terms. So my point of what I was saying in the tweet is in the right now you have this dirt path that connects these two worlds or these two money networks. When these central banks come out and digitize their clearing by making a central bank digital currency, they're going to basically provide an eight-lane highway over to this future

money network. No one needs these stable coins anymore. They're just going to deal in central bank digital currencies. And guess what? They're still going to debase these central bank digital currencies because it's not a monetary policy thing that's causing them to get debased. It's a fiscal spending problem that's causing them to get debased. That's the problem. That's why the CBDCs are no different than the dollar, they just clear faster. And as soon as they clear faster, people are going to plug them into these lending and borrowing markets that are already established, that are already happening. And those are the yields you're going to get. And this is going to be the big aha moment for people in fixed income out of this legacy old guard money network,

is they're going to look at this and say, holy moly, like we just went from nothing percent interest rates immediately to a 10 percent interest rate because the market over here in this new money network is gobbling it up and going long and short and doing all these kind of things and in Arben the price because it's a free. This is really important because the new money network is a free and open market that's not being manipulated. Right. It's crazy and it's exciting. And when you when you come to the realization that today, right now, the dollar is being lent at 10% plus interest. And you think what does that mean for the value of everything else on the planet? Minds should explode if you understand how to do a discount cash flow model for any type of stock or real estate

or anything that's an asset. Because 10% yields mean your PE ratio should be at least 10. And they're at 30, which is 66% lower than where they are today. Oh, my gosh. So while we're, I guess while we're on the interest rate and the lending, let's dive into a little bit of what you chatted about with Peter the other day. And you dove down a little bit of longing and shorting at the same time and how you were even talking about, I can't remember the guy's name, but you were very surprised he wasn't in on this trade because it was kind of his forte. What was this name? Matt. Mike Green. Mike Green, right.

Okay. Yes. So there were a lot of people were listening to it. And there was the feedback I got was, damn, that sounds bullish. I wish I understood what he just said. So I was hoping that maybe we could just take a minute and get a little bit more granular with what you said there. So I just want to kind of lay a foundation first.

You can just do like some bite size answers here. But okay, you said you can go long and short at the same time and effectively get a no risk trade from that. So first, let's talk about if somebody wants to go long Bitcoin, what effectively are they doing? We'll do long and then we'll do short. And then we'll talk about how the two combined can net you a no risk trade or what could be done. So this is what I would challenge people to do. Go on YouTube. Type in long, short, how would I search for it?

I would just type long short trading strategy, right? Type that into YouTube because when you see it graphically, it's going to help you understand what's happening, way better than I can do in an audio format. A derivatives class is hard enough to try to sit down and figure out with a piece of paper and pencil, then to just kind of hear somebody explain it. But this is how I would try to simplify it. When a person goes long and short, they're stepping in and they're arbitraging a spread that naturally exists. Most people who buy a stock, you see the ask price and you see the bid

price. And then there's a spread in between. It's kind of like that. It's not exactly like that. It's kind of like that. And that spread, let's say that that spread is 10%. So if you're going long and short, you're capturing that 10% spread. Now, think about a stock that would be going wild in price and really volatile. That bid ask spread is going to widen. And there's more that can be captured from somebody who's implementing a long, short strategy.

But go on the YouTube, Google it. and then you can kind of see the mechanics. And being able to see it is going to help people really kind of understand what's happening. I am not as a retail investor, I am not doing that trade. Yeah. Right. These are large institutions that are coming with tons of capital that are doing this trade. Now, where what I was describing to Peter is when a large institution is doing,

this and they're capturing very large spreads. I mean, they're, they're capturing 20% spreads in some cases today. And they're doing this in a way that they're buying it long, they're going short simultaneously at the exact moment, and they're realizing that that spread right then and there, right? And then they're just going back to what they borrowed. In order to do this trade, you have to borrow Bitcoin. And they're going back and they're just, they're taking their proceeds along with their next amount of cash to do the next trade. And they're coming back and they're basically paying off their loan that they had in order to borrow the Bitcoin.

And at that point, they're complete with the trade. They're not having to sit and wait for months on end. They've already realized the capture. It's almost like going out hunting and you come back with a capture. And so that's how I would try to explain. it really simply in audio format for people to kind of understand what's going on. But for me, the thing that was, that's really interesting is that Bitcoin lending and borrowing is different than traditional finance. Yes. I wanted to touch on this because it's as opposed to legacy

kind of financial systems, it's over collateralized. So can we go down that route a little bit, explain what's going on there? So if you want to borrow some Bitcoin today, and you go to a block FI or you do it on whatever lending platform you want to pick. If you go there and you want to borrow one Bitcoin, you have to put up more than one Bitcoin's worth in order to borrow it. So if Bitcoin is $40,000, you have to go to that lending platform with, call it $80,000. And you take that $80,000, you lock it in escrow,

and then you get your one Bitcoin, which is worth $40,000. If the price starts to go down of what you deposited or what you put in escrow starts to go down and let's say the value is now approaching $40,000, well, you might get liquidated as the borrower of that Bitcoin. So as the person who borrowed that Bitcoin, you better give it back, sell it and replenish your escrow and then still have the obligation of, somehow getting another one to give back, not only that are you over collateralizing, but then you're paying an interest rate on top of it. And the interest rate to borrow right now, at least cash right now is like 10%, close to 10%. So that's what I find that this long, short strategy that's being implemented by institutions is driving a really interesting dynamic where they're having to lock up more value than what they're borrowing. And when you think

about what that does to the supply of Bitcoin, it's suffocating the supply of Bitcoin. And it's suffocating it at a time where the protocol itself is suffocating the supply of Bitcoin because it's issuing a smaller block reward. So when you add these factors together, I don't know what it gives you, But I suspect it's very bullish. It gives you less Bitcoin is what it gives you. It gives you less Bitcoin for trading. Yeah. And this is a concept that I think so many people miss is when they think about the price

going up, they always think about there's more buyers that are stepping in and buying the price. Well, let's just say that you had one buyer for every seller. And your market price is going completely sideways. Well, if you start having less sellers and the same number of buyers keep showing up, let's say that it was a 10 to 10, right? Well, 10 buyers are still showing up, but only five sellers are showing up. That drives the price up.

That's the same thing as getting, you know, double the number of buyers the next day is if you have half as many sellers. And in this market, that's what gets this thing going. And that's what keeps it going. And then when you see the price really blow out, sure you can attribute maybe that to speculation, especially on the previous cycles. On this next one, I don't know. Maybe they won't be speculators. Maybe they're doing things from a mathematical standpoint that just keeps driving the price higher. I don't know. It's, I mean, it's wild. It's,

it's just this perfect storm, but it's so in tune with just kind of the natural, I guess, for your Bitcoin epoch. Is this? So I want to say one more thing that makes this cycle interesting. you have a shortage of mining rigs right now, like a major shortage. And what you find on the previous cycles is as the price starts to die out and you don't have as many people that are stepping into the market, what happens with the miners? The miners are stepping in harder and harder throughout the entire four-year cycle because what they're trying to do is capture the margin that has been provided to them through the price action. Like the price action right now is very advantageous for anybody that's mining.

It's incentivizing more miners that come online. The problem is, is there's not enough hardware to facilitate the demand flow for mining rigs. Well, that was one of the major things in the last cycle is you had so many mining rigs coming online, even after the price was starting to fall back down into 2018. You had all these miners that are still trying to capture that margin because there was a ton of margin there. And then that just makes it harder and harder because it gets more competitive. And then they have to sell more of their block reward in order to stay in the game. So what happens when the hardware isn't there on like we're seeing on this cycle?

Because they just can't keep pace with the demand of hardware. Yeah. Well, the existing minors are no longer. under so much pressure to sell so that that that that sell pressure is is a lot less pronounced, I imagine. So that's another fact. That's another really important dynamic that's that we're seeing playing out in real time that I haven't really heard anybody talking about that could that could play a role and

maybe the price running in a more, the speculative price may be running way more than it did on the last cycle. I don't know. Which in turn, down the line. will quite obviously, I would say, spur more competitors in ASIC chip manufacturing further kind of decentralizing that realm. Because right now, China, like there's not a whole, it's still very, like, you get it from a particular region.

So if that starts to diversify, well, it may be a factor in, if we go through another kind of epoch and same kind of boom bus cycle, while in the short run it may put a damper on the price like in a year or two. Eventually. Here's another factor. If we would go through another cycle and let's say the price runs up to 200 or 300,000 and then comes back down into the 100,000 and that takes a year plus to play out. The place to be is in Bitcoin lending.

because just like you're seeing right now with the dollar, if you're lending in dollars right now, the yields are way higher than if you're lending in Bitcoin. But that would flip itself if Bitcoin was going down, where the lending that you would be able to capture by lending out Bitcoin, the yields would go much higher than what you'd get for the dollar if the price was depreciating because it's going through another four-year cycle. So as a person who holds Bitcoin today, I'm now looking at an incentive structure based on the lending yields that you could maybe capture and them going up in that type of situation.

It incentivizes me to maybe not sell because those yields are going to be going up or at least my expectation would be in a free and open market. Now, is this like a lagging? Because it obviously kind of correlates with the market. Do you think it's a lagging indicator then? Like the market starts to dump, yeah. Yeah, if you saw the yields on the dollar dropping below the yields that you could collect on Bitcoin lending, I would say that that's a bearish sign for the Bitcoin price moving into the future. That would be the market telling you that, you know, it's run its course.

It's probably going to go through another cycle. But whether you're going to see that in any type of timely manner, I would suggest that that cross-over, over would be way lagging any type of timing of the top. It would be my expectation. Yeah. Now, I wanted to change gears here a little bit for kind of one last topic to dive into. Another tweet of yours actually, you were on fire today. You had a bunch of stuff going on.

So I had to bring it up. But you actually, you retweeted Eric Voorhees in regards to. a Bitcoin ETF. So I'll give some context here. What he said is nobody even cares about a Bitcoin ETF anymore. Bitcoin has matured beyond the trappings of such tradition. And then you retweeted that and you added on. You can't make cash flows off your Bitcoin ETF. If your Bitcoin ETF custodian holds the keys, many people are going to learn this lesson the hard way as they don't want to sell with huge capital gains, choices, choices. So how do you see, let's do a couple rows.

Number one, how do you see the response of the SEC and approvals of ETFs when effectively people are looking for pseudo-Bitcoin ETFs through micro strategy and now Tesla? Does that make them pull the trigger and say, well, the market wants this? and they're finding it another way, so we'll just let them do that now. And if so, does that put a damper on the price of micro strategy? And then down the line, do people exit traditional markets and instead of even touching an ETF use alternatives, as you're alluding to here? I think at the end of the day, the SEC is going to eventually approve an ETF.

Kathy Long, I'm sorry. Kathy, no, no, no, no, no, who runs ARC. We just had it on our show. I'm blanking. I'm blanking. I'm totally blanking. But anyway, her number was $2 trillion, is the market cap for Bitcoin before you're going to see an ETF be approved. and I suspect that she has, she has a very good beat on, you know, what the, what the inner workings and talkings of the government entities that would be approved in. So I kind of see that as being the number. So do I see that probably this year? Yeah. I think that's going to happen this year. The, what, what Eric was getting at is, he's, he's basically saying if it's not your keys and you're not controlling it, you're not able to do these other.

other things where, because everything that everyone's talked about with respect to Bitcoin to date is a balance sheet kind of way where it's a store of value. It's not earning any type of income on your P&L. Michael Saylor started talking about how it can impact your P&L. So people that don't hold their own Bitcoin aren't going to be able to use it in a P&L kind of way that's kicking off free cash flows. So I think that's where he's coming from with his comment and I completely agree with them.

And I think most of your market is going to not understand where this is all going from a lending standpoint, lending borrowing standpoint. They're not going to see it as this this cash flow generating thing because it's so counterintuitive. It is how I'll stick up for the person who doesn't understand this because in our minds, we're so used to if something's producing cash flow, it's because there's people down there working and doing things. in order to generate this cash flow. But similar to Fiat, if you're holding a bunch of cash, you can go out and get interest on it.

Now, it's been manipulated and you're not getting much if you're in the old legacy system. But in this new system, you're going to get cash flows for this. But if you don't hold the keys, somebody else is going to be getting cash flows for them. And so if you're running an ETF or you're running a trust, for example, you better believe that in their terms, they're probably going to start changing. their prospectus that says we can lend this out and we can collect extra. Maybe the prospectus says you'll be entitled to 10% of the cash flows that the lending activities generate, right?

Like those things can happen. And they're going to happen to people that don't control their keys and that they're kind of along for the ride. And most likely the people that are going to own this are going to have very substantial capital gains. And they're going to be in this situation. where like, do I sell this and do I move into something that allows me to control the private keys so I can participate in these revenue and cash flow type activities that naturally come off of

owning this? So it's an interesting idea and I think the smarter people can just, this is what I would challenge people. Don't buy one of these ETFs or gray scale trusts out of convenience without doing a whole lot of homework as to what it is you're missing out on by defaulting to the easier short-term thinking solution. But that's my two cents. Not your keys, not your coins, indeed. Now, we just talk about all of this kind of institutionalization of everything and kind of this flipping from legacy to future finance here. Is it becoming?

to entrenched for government intervention? What are your takes on that? Like, like, it's, it's, it's effectively part of the S&P 500 now. What are the implications of that? Well, not only that, but you have all this case law that's already in place that has allowed it to be treated as a commodity. So, I mean, I just, I don't, I don't know how you could possibly overturn all of the, of all of the precedents that's already been set in place. I mean, heck, you had,

you had regulation that came out that said banks can now use blockchains as, as the rails for clearing. So like, you're, you're beyond that argument anymore. I mean, I encourage people to make it and try to troubleshoot it. But for me personally,

I'm just a little bit beyond really kind of entertaining it anymore because I just see it as kind of like, Like, what are you talking about? If anything, all the, all the legal that we're seeing and all the policy and the decisions and the case law and the precedents is suggesting the exact opposite. It's everything is suggesting the exact opposite. I mean, you saw MasterCard today is now incorporating this. PayPal, Square.

Come on. It's, it's, I, you need to focus on other types of arguments if you're going to try to talk about the risks because that one I just don't. don't see anymore. Okay. I'm going to, I'm going to finish this off here. It is the fall of this year, September, October, somewhere in there.

Crunch time. Yeah, crunch time. What is, what is the FUD going around? And what should people actually be paying attention to? I think the FUD, the fear, uncertainty in doubt is actually going to be on the side of Fiat, not Bitcoin. I think that what you're going to be hearing in the news is, because, I mean, at that point, I expect every major tech company is going to have some portion of this on their balance sheet. And I think the concern that you're going to hear on CNBC is, is Fiat currency melting down? I think that's truly what you're going to, the fear, uncertainty, a doubt is going to be in the legacy system at that point because the price is going to be so hard to ignore for something that is intangible, that is so hard for people to understand that when they see a price of call it 100 or 200,000, it is going to be so difficult for anyone to wrap their head around it that they, that it's almost like when a story is so outlandish, you have to know it's true.

that's kind of what I what I kind of suspect Bitcoin is going to be it's going to be viewed from that optic it's so outlandish and it makes like so it just does not make any sense to somebody who hasn't looked at it that and when they look at the types of people and businesses that are participating in it they're going to be saying to themselves what in the world has happened it's it's funny because it just it makes so much sense to everybody in it like everybody's like, of course, of course that's going to happen just as we said, you know, post-having wait a year and we'll all be clinking glasses and celebrating as we're on our way up. And it's just so in your face obvious, but it's asymmetric information.

And people haven't parsed what Bitcoin is. They're just barely beginning to even realize that. it's even worth paying attention to for the vast majority. Could you imagine how hard this would have been to understand if you would have gone back to call it late 1980s or early 1990s? If something like this was happening, could you imagine how difficult it would be for any of us to understand what it was or what's happening? Because we're able to share information, like this conversation, we're able to share

information. Well, I didn't develop this information. I got it from other people, right? and our ability to share at a very high bandwidth and at a rapid pace. Like, you just log in the clubhouse and look how, look at the conversations you're having with the smartest people on the planet from all these different fields. And they're sharing this information. And there's a thousand people there listening to it.

Like the speed of information and knowledge that's being shared today is allowing people to understand this and see it in a manner. that I don't think could have ever existed before. But on the same breath, you have to be looking for it. If you're not looking for it, it's compartmentalized. Like all this chatter is happening. But to date, it's been somewhat compartmentalized because unless you're looking for it, you're not going to really see it.

Now, I think that's going to change going into the end of this year. I think once it starts getting itself into the regular news media like the CNBC, and you're already seeing it right now where they're talking about every single day. But give it to the summer. And it's going to be every segment that they're talking about it. Every guest. I'm looking forward to that. I'll have to, you know, be taking in some sun and watching those on my phone on a beach somewhere maybe.

But I'm very excited for this. Maybe let's leave it at this. If I'm your average Pleb that is just kind of, I'm diving into Bitcoin. I feel pretty confident in it. I'm excited. What would you say are things that I should be focused on learning about and considering in the coming year? Real fast. It was Kathy Wood from Ark. Oh, yes. Yes. I said earlier. I'm sorry. I just completely. Oh, good. When you don't think about it, that's when it pops into your head. So the things I would be focusing on, I mean, it really comes down to the individual and kind of what they already know going into it. But if I was just going to kind of paint some broad brush things, here's a book right here just sitting in front of me that I would tell people, this book does such a good, this is Jason Williams book. I just bought it. I'm telling you, it does such a great job.

job of talking about a lot of the ideas that I was explaining earlier about like these larger credit cycles. And then it pieces in like how Bitcoin fits into all this. This is a fantastic book. He has amazing charts in here that really graphically will help people to understand it. And he wrote it in a way that is so easy to access even though we're talking about really complex ideas. So I would tell you a book like that. I would tell you Jeff Books or Jeff Jeff Booth's book. Yeah. Jeff Booth's book, The Price of Tomorrow, is a really important kind of book because

that'll help you understand that this inflationary monetary policy that's been happening for decades is incentivizing this tech eats the world type scenario. And the only way you're going to start pulling the speed of that down is by stepping into a deflationary money. I really liked Nick's book, the layered money book. That does a great job of kind of explaining how we've arrived at where we're at as far as these layers of credit that are stacked on top of a base money and then stepping into this fiat world and now what we're about to step into.

That's another book that I would tell you is at the top of the list. And I'm really just providing book recommendations because I could tell you something for three minutes or I could tell you something in three minutes that will allow you to learn, you know, literally lifetimes of knowledge that were put into these works that these authors, these great authors have provided. So I would tell people to focus there. The final thing that I would tell you is when you look at what's happening around the world as far as the social unrest that's happening around the world, if a person's listening to this, like this is all sounds crazy. This is what I would tell you to focus on. It's not a coincidence that it's

happening everywhere all at the same time. And the reason that it's happening everywhere all at the same time is because it all comes back to a critical variable, a fundamental element that ties us all together around the world. And that's the money. And when you look at how things have played out, So Bretton Woods, 1944, everyone, the dollar was pegged gold, and every other major currency in the world was pegged to the dollar. We were all in it together. It was one, indirectly, it was all one global money system. And the whole world had interest rates that all went up simultaneously together because they were all pegged to the dollar, which was all pegged to gold, up until 1971. We come off the gold standard, which means everybody in the world comes off the gold standard.

standard. Interest rates continue to run. Everyone starts manipulating their fixed income market through the federal funds rate from 1981, clear down to where we're out today, all together, all simultaneously. And you can see this all in the charts. And now you're at zero percent. And now you're at like negative percent in some locations when you're talking real terms. That is the thing that's driving the chaos in the political rivalry, the partisanship that you're seeing all over the world and it's happening not just in one location. It's all happening collectively all at the same time. It's the money. So I would start there and try to learn as much as you possibly can about this and follow the right people. Really kind of focus on who you

follow because there's a lot of people out there that can lead you astray. But focus on people that aren't trying to sell you something and allow you to do your thinking and read books. Because is if somebody actually took the time to write a book, there's something there that needs to be kind of maybe explored. And the ones that I've told you are some of my favorite ones, at least. Yeah. I would 100% echo you got to read. You got to read some books because the depth of knowledge that you get from covering just a single book on the topic, you come out of that and you're so much more well-informed than having listened to like a podcast here and there and done a quick cliff's notes of what Bitcoin is.

You're so much better off. So yeah, excellent, excellent advice. Preston, I've got to say, thank you so much for coming on. Again, I always get so much from listening to you. And it's an absolute pleasure to actually finally talk to you. Ben, it's a pleasure. and I really appreciate the opportunity to come on a chat. Awesome.

Well, guys, I will link to everything Preston down below so you can find them. Thanks again. Thank you guys so much for watching and or listening. As always, if you're here on YouTube, please do remember to hit like, subscribe, and share all of those things. Really, really do help. It helps get this type of content in front of more eyeballs. If you want to help out the show in another way,

you can hit up the previously mentioned sponsors in the links down below. That was 11.io. That was bit refill, Kobo Vault, and the guys over at Privacy Pros with the Bill Fottle. Check them all out. They're all awesome. And finally, if you really loved what you saw, you can hit me up with a Bitcoin Lightning Network tip at my tipin.

That is tipin.me.com. Dot me slash at BTC sessions. With that, I'm out. Have yourselves a wonderful day, a wonderful evening, wherever you may be. And I will see you next time for your daily session. Oh, good bit more.