TFTC: A Bitcoin Podcast - #423: Retirement Funds In The Age Of Bitcoin with Matt Dines

Episode Date: May 31, 2023

Marty sits down with Matt Dines from Build to discuss the retirement landscape and how to handle a large scale transition to Bitcoin as a primary store of value. Matt on Twitter: https://twitter.com/BuildCIO Check out Build: https://buildbitcoin.com/ 8:17 - What’s happening to retirement funds 11:49 - Balance sheets of the American household 26:23 - History of retirement accounts 30:30 - The post-Covid financial landscape 34:52 - Retirement account participation 46:14 - Legislation isn’t the answer 50:09 - Primary residence ownership and mortgage backed securities 55:39 - Target Date Funds 1:01:28 - US bond market selloff 1:09:45 - Near-dated TDF vs inflation 1:13:12 - Investment/retirement industry isn’t keeping up 1:17:59 - Bridging the gap to Bitcoin with Build 1:32:15 - Bitcoin lending 1:46:36 - Unchained 1:53:57 - Explaining the mindset 2:02:31 - The flywheel of truth 2:08:12 - Wrapping up Shoutout to our sponsors: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Unchained⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠River⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠CrowdHealth⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Bitcoin Talent Co⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TFTC Merch is Available: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Shop Now⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Join the TFTC Movement: Main ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠YT Channel⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Clips ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠YT Channel⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Website⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Twitter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Instagram⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Follow Marty Bent: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Twitter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Podcast⁠⁠⁠⁠

what's up freaks it's your boy marty here to introduce this rip of tftc i sat down with matt dines founder chief investment officer of built company looking to bridge the gap between the world of bitcoin in the world of a retirement landscape here in the United States that finds itself on pretty unstable foundations. Very good white pill. Very dense episode. You're going to learn a lot about the landscape of retirement funds

in the United States and how Bitcoin can help. The boomers need our help, freaks. Matt is here to lend a hand. before we dump dump we're not going to dump into them we're going to jump into them the uh the sponsors of the show we have to read the top four boost from rip 422 human forever with jane pulos at eric99 50 000 sats stay humble stack sats thank you eric at blockchain bug 5 000 sats a pod for the soul it was a good soul a frank america at frank america 2 222 sats twos across the board palindrome boost a sojourning linguistic samurai who deploys words

similar to the potency of sats my favorite so far stoked to hear about human forever canonic.xyz taking stock frank thank you frank and at joel w 1111 sets ones across the board palindrome boost this was your best episode of my opinion shit went deep it did go deep with james a lot of people like that rip go check it out if you haven't already before you enjoy this rip it was brought to you by our good friends at river river's doing it the right way you're looking to mine river mining is here to help you if you're an individual or an institution looking to acquire asics and plug them in with affordable hosting agreements river mining is here for you go to river.com slash tftc set up an account go to the mining page they have asics that are already

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which is your uh cold storage multi-sig cold storage that eliminates single points of failure when you buy bitcoin you go to the trading desk you buy bitcoin it goes boom straight into that vault there's no pulling out wallets there's no holding bitcoin on unchained exchange it'll hold bitcoin for users you hold it in your two or three multi-sig vaults go to unchained.com tell them the tftc sent you enjoy as matt matt describes it you don't have to hear from me matt uh really dove into why unchained is the creme de la creme in the bitcoin industry because have done it the right way. Unchained.com. This report was also brought to you by good friends at CrowdHealth. CrowdHealth is here to help you take back sovereignty of your healthcare.

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or looking to find talent and get set up with their team today. Tell them the TFTC sent you and enjoy this rip with Matt Dines. Good white pill. Dickie. You've had a dynamic where money's become freer than free.

if you talk about a fed just gone nuts all all the central banks going nuts so it's all acting like safe haven i believe that in a world where central bankers are tripping over themselves to devalue their currency bitcoin wins in the world of fiat currencies bitcoin is the victor i mean that's part of the bull case for bitcoin if you're not paying attention you probably should be probably should be ready to roll and we're rolling matt dines got through some technical difficulties there are we okay we are i actually learned something about the microsoft office suite today that i didn't know so and you're always a excel junkie doing anything in finance um but uh yeah it's always it's always interesting when you when you learn a new bell and whistle

inside of ms office i haven't had to deal with ms office in almost a decade i don't miss it no uh no 1031 uh bc deal number crunching going on in excel there i do it in the excel on the macbook but that's the extent i don't have to do powerpoints anymore got it yeah but regardless We're here to talk about something very important on Microsoft Office. The state of the private retirement fund landscape in the U.S. You are somebody who has thought deeply about this. I'm joined by Matt Dines from Build, a Bitcoiner who is looking to solve a very hard problem, which is how do we ensure that people have been saving for retirement for decades now,

actually have money when they go to retire? I don't know where we should start. maybe we should start with the gravity of the problem maybe describe the dynamics of what allowed the problem to get to as big as it is and mention that a lot of people are focused on the lack of funding for things like social security public pensions like calpers but what you're focused on is a completely different area the retirement landscape that i think you would argue is very underappreciated and sending signals that something is wrong that many people aren't paying attention to yeah um if you just start from the basics of the landscape you don't

have to go back to when the wheel was made but uh you know as this retirement system that um that you know people accrue and save their purchasing power you know from their working years into their latter years you know something that you know the bitcoin uh audience and and you the freaks are are well aware of um you know a big part of this uh kind of movement into bitcoin is finding a money right that protects and can act as a store of value uh preserve its purchasing power um but uh over the last and you could really start in the post-world war ii decade or post-world war ii era um you know we don't have to go that far back in history but this this landscape that's built up in a world you know prior to where bitcoin existed um

you've seen the kind of the american household the middle class um build up around you know we'll go into the data here um either the you know one aspect is you know social security benefits that you mentioned uh public or private pensions but those you know social security is still there obviously but the pension plan uh landscape has really kind of fallen by a wayside over the last let's say four decades since the 1980s and what you've seen kind of take its place is an increasing reliance on financial assets so stocks and bonds and those are really just tucked into you know where most households hold them is going to be retirement accounts and then second on that is is the primary residence so Logan has brought up

this slide, the Fed actually publishes this data series. It's just a wide kind of panel survey every three years. They've been doing it since 1989. It's called the Survey of Consumer Finances, and it shows where American households are. They really own their assets. They provide a lot of data here. It's one of the richest sources available on how the American is saving. This is fundamentally a huge part of what Bitcoin is trying to accomplish on its mission of delivering something that is resilient and lasts. But you see on this chart here, there's this survey of consumer finances and Bitcoin is never on here.

It's never really been a line item on American household balance sheets in this report. We'll see if there's a breakout, 2022 will be the next year published in this series, that won't come out until later this year. So all this data reflects kind of the progression of this stock and bond bull market from, you know, the early 1980s to, you know, give or take 2022. We'll see as the kind of financial asset track record, you know, puts on more years and we see whether that unwind in 2022 as part of something lasting. But anyway, what you see on this report is every kind of light item that you can think of on an American savers balance sheet it's kind of categorized in this series and you see

data on both how many households own these assets and what you can you can measure the account balance two ways either the median or the average averages if you take them for a group they're gonna skew higher because the highest account balances are going to just pull the average up so what I use here on this chart is the median it really gives you a better reflection of where the the kind of typical owner of an asset an American owning you know specific asset on their balance sheet is sitting so Logan's pulled up this first chart here and the way I designed this is you've got two arrows here you got

The start of the arrow is where each asset class started. X-axis is the percent of American households holding a given asset. And then the Y-axis is the median account balance. So the tail of an arrow is where this was in 1989 when the Fed first started producing this survey. And the end of the arrow, the tip of the spear, is where the point landed at the end of 2019, the last reading. We'll get an update at the end of the year, but this right now kind of the best indicator we have of kind of this big picture tide shift of what's going on, kind of the state of the American households balance sheet. So we just go right to left here. I'll start with the big one, the middle blob, that gray blob.

there's only two items or two assets that really the the majority of americans hold on their balance sheet that have any meaningful both ownership or like value on them and the first line is your primary residence and this one makes sense um with kind of all of our lived experience you've got um housing prices just going up almost continuously uh over the last four decades except for two big hiccups. One really, you can say right now there's a big pullback. That's not going to be on this chart. The only one that would be on this chart or like in this time sample from 1990 to 2019 is the 2008 crisis. But other than that, the primary residence is your number one store of value for your majority of middle class Americans. And then

your second is going to be retirement accounts. So you see the arrow, it starts at like 40% ownership, it ramps up to about 50% over 30 years. And then you see the median balance increase from about $25K up to the mid $60K range. So roughly a doubling. Housing prices increase more. But those two arrows are really the store of values that Bitcoin is competing with as the space looks to grow. But those other blobs, as you cluster those other line items, they really tell you a good story of what's going on with how the typical American is living, kind of as a broader case study. If you start on the bottom right, the little blue dashed line, those two assets that fit in that bucket are, I call them broadly owned, but they have not gained in value over this 30

years so number one is vehicles so you know mid 80s percent of americans own their own vehicle benchmark value maybe 10 to 20k now that's changed in the last three years as we got this massive inflationary impulse and you saw things like used car prices shooting up so that's kind of an interesting kind of dynamic of what's going on in this process but by and large you know most Americans on the household balance sheet own some vehicles they have not gained in value you know most of them are you know Americans are owning their vehicles longer than ever you know saw it a print in the last couple weeks I think the median age of an of a of an auto in the in the U.S. fleet is now 14 years kind of same same trend you see in the housing stock as well the housing

stock going back to the private residence half of the housing stock is is you know structures built pre-1980 so you're seeing price go up on existing structures um and this is something that i think uh the bitcoiners are well familiar with uh from the trend of kind of a credit bubble monetizing itself through you just got to keep rolling over loans increase debt um and you end up with just more credit on on the same assets um and then the second account in that um broadly owned no gainer value group is transaction accounts so checking accounts um so you've So, you know, ownership ramp up there from, like, low 80s penetration or mid-80s penetration up to near 100%. Almost everybody you know will have some sort of, call it a transaction account in this report, but it's basically just checking accounts, you know, just where do you store your dollars for readily available access.

um so then you get into the left two clusters and this is kind of a um a good good uh benchmark for for what's going on um in terms of both markets that are growing as well as kind of the shift of who's gained a lot in and in value as you know this monetary system and and policies have gone the way they have so that first group the the the red bucket I call these groups the declining ownership and no gain in value and once you like see what's going on here like a lot of these are monetary related so you see number one here is certificates of deposits no one's made much money media account balance has not grown in CDs and they're falling out of use part of this

was in the 2010s you you know the monetary system went the way it had that forced you to deal with its you know can kicking down the road so zero interest rates so pretty obviously people flocked out of CDs and other like just short-term monetary assets and you kind of saw a return to that or you're seeing return to that right now as we move move interest rates up there's a minor I guess transition we saw this same effect in 2018 when rate hikes came People flow into money market funds, certificates of deposits, all that type of stuff. But it's really been temporary.

The trend has been down, and there hasn't actually been that much money made for median account balances in that line item. Second, cash value life insurance. So this one's kind of surprising once you see the data here. Like once you see the movement of ownership from mid 30s percent down to 20 percent of American households owning life insurance policies, you know, it really speaks to a market or a product space and decline. So big feature here of what this data is describing, you know, inside of that whole kind of school of fish and that red group is a lot of monetary products kind of transitioning out as, you know, hopefully other markets are going to grow and take their place. But the life insurance market, that was something that kind of surprised me the first time I was looking at this data. It's kind of bundled into the entire monetary landscape. People are using that product less and less.

and it's kind of failing as that store of value or use of value use for American households that once was number three savings bonds I don't know if uh you guys ever had this experience but my grandma you know when I was little used to give me uh savings bonds for Christmas I don't know if you ever got those well that was funny my grandmom used to give me cds when you mentioned that she's like yeah I'd set you up with a cd it's gonna be gaining interest it was like in the 90s when interest rates were above zero yep um and it it really feels like as you see this it's kind of a a different era right i mean the way you might give a you know you talk about on tftc wedding gifts etc you're giving you know open dimes with sats on them uh yeah it's just it's

just a different era technology is is dying or a monetary instrument is uh phasing out uh we're moving to the new but you see that number three savings bonds like yeah i haven't gotten one of those in quite a while um and hopefully you cash those in quite a while ago too number four is a little bit surprising this group directly held stock so this is this is like when the american household actually has a brokerage account and they're buying single name tickers like nvidia right now right how many households are flocking into that um this was 2019 it'll be interesting to see in the latest round how many households plowed into brokerage accounts especially in the pandemic like we saw you know massive waves of people moving on to like robin

hood or other cash but brokerage right exactly um so it'll be it'll be interesting to see that trend but over this time frame massive bull market and and equities um you saw ownership decline and the median account balances decline so like the average household was not making money buying single-name stocks number five other financial assets this one is stuff like like oil and gas rights lawsuit or like just pending settlements it's just a catch-all for other like paper claims or loans made to other households for example really just a catch-all but the other category is even dying there on on financial assets.

And then number six is other non-financial assets. Like this could be commodities, gold stored in a vault, somewhere safe, something like that. That's also in decline as well. So you see that red cluster, kind of the way I take that bucket is that like this, these are the industries of like the monetary products that are no longer working.

You know, the paper savings bond, you know, that I got at Christmas or your grandmother giving you a certificate of deposit. I don't think we're going to be getting too many more of those in the future, but time will tell. And then the left one, the limited ownership gain value. I think this is where, you know, you speak of the kids, in effect, a small number of people making a lot of money. You saw, you know, fewer than 10% of the population owning these assets. but medium balancers are skyrocketing increasing yeah so the the number one here uh that line is other managed assets this is really uh annuities and then um things like managed accounts so if you have a financial advisor managing a brokerage account in your name that'll be mapped here um

specific types of pool fund hedge fund ownership you know stuff like that so those have obviously done really well over the last three to four decades in a financial asset um kind of like boom and then number two directly held bonds so if you actually own the qsips you know the people who are buying the you say treasury bonds but it's you know corporate bonds securitized debt those like the people who own those have really large balances um in in those accounts number three is pooled investment funds this is what build actually does uh which is just you manage one to many um kind of uh just just vehicles uh where you you have an investment manager someone who is credentialed regulated um you know sec oversight that type of stuff um but this is these

are investors um you know american household balance sheet holdings and those assets those assets so those have gone up as well uh and then four is other residential real estate so just like your primary uh residential real estate went up like if you held your second home or third home investment properties etc um those are also um going up in value that's a like a tiny minority of the population uh but what you see here is you know it kind of tells the picture of what's going on in this massive four decade um asset bubble ever since we came out of the 1970s grade inflation you get a um or you get an environment where interest rates are just in secular you know but cyclical decline um bull market and bonds bull market and equities um this is the way it works

out but the the crux of the story really is you know as we enter this kind of next phase of whatever we're turning into um and bitcoin adoption is is going to have to compete in um kind of the legacy uh holdings the store value for the american household everything is riding on your primary residence, your household, your home price is holding up. And number two is your retirement accounts. So your retirement accounts have been favored by policy. We can do like a brief history lesson here. But really, this came out of a movement in like after World War II, between the 50s and the 70s. You saw a lot of American industrial companies, a lot of businesses is starting to struggle to uphold their pension benefits.

You saw some failures in the 50s, kind of as America exited World War II, we were the kind of the factory of the world, but you gradually saw under this, you could say the Bretton Woods monetary system, the dollar system, US companies became less competitive and that liability on the balance sheet

to maintain pension benefits for your agent workforce, that became a problem. And you saw a lot of pension failures. So first step was this law. I think it was 1974. It's called ERISA. It basically put the first layer of regulation over the pension industry. But over the next, let's say, eight years, 10 years, you saw a shift away from companies wanting to put that liability on their balance sheet. right when you have a pension uh if you're a retiree you just get a check in the mail every month um it doesn't show up on your balance sheet it's not like a recognized or valued asset but as the company as american corporations kind of shifted away from that the model shifted over into what's called defined contribution uh but you which basically just means instead of the companies um kind of signing up for a benefit amount as the worker exits in the retirement it

It becomes, they'll give you a specific contribution with each paycheck and then that sets an account so you as the worker actually hold some level of ownership over the asset. Now the amount you get for that asset once you turn 65, that's on the worker now, that's on you. That's your responsibility to invest it and build up a nest egg that you can kind of pay for yourself once you pass your working years. But it does, you know, if you think about this from the Bitcoin perspective and the sense of ownership, I think it is kind of a big picture trend, you know, as you measure

things over decades and centuries, you kind of see the ebb and flow towards individual ownership, individual responsibility, even in that one move right there from defined benefit to defined contribution. Now, the assets piled into that defined contribution plan have all been, it's basically stocks and bonds. in a 401k right your your your investment menu right you'll you'll generally get 10 to 15 funds you can invest in uh if it's a corporate retirement plan and you'll see some some equity funds some bond funds and then usually it's just like investment mix right there we'll talk about

this later but the movement into target date funds which is just basically a fancy industry financial industry project to just say, own your agent and bonds. But you do see that mix at least in terms of if you're looking for a silver lining and the data we'll talk about, I think one of the positive things is you're giving more control to the individual, more responsibility to the individual as they own those assets. But yeah, this is just a highlight here. We were looking at that chart. It's very clear. The system right now is built upon a kind of like a foundation of house prices and we talked about that the housing stock is aging we're not really building to at the rate we need uh in the american housing stock and then after that it's it's just retirement

plans or the retirement accounts and then stocks and bonds uh kind of piled into that so that's that's kind of the landscape we're we're running uh or we're working with as uh we enter this kind new phase of uh what comes after the you know the coven monetary impulse yeah and it paints a pretty precarious picture excuse my alliteration uh because it does a number of things one highlights like the the emergence of the black rocks and the vanguards of the world essentially providing people the menu of the different stock and bond blends that they can opt into to pour their their retirement funds into uh so really that chart that you just shared so if you freaks are listening we do have charts that are uh accompanied with this episode if you want to go watch on

spotify or youtube or rumble um you can see them there but just to try to articulate what we just saw for anybody who does not want to go watch this on a screen is just listening you essentially have a large portion of americans wealth being transitioned to real estate and retirement accounts specifically and why this gets really precarious is on the real estate side as matt mentioned a lot of these houses are very old and houses are physical things that do decompose and have upkeep cost and it's simply wear and tear throughout time than the other or these retirement accounts that people are just funneling into. You get your menu, even though you do get optionality within that menu,

you're essentially just dumping your money into stocks in bonds that are heavily dependent on monetary policy, essentially injecting liquidity into the system. And then on top of that, we have the demographics that come into play, which is we have the baby boomers retiring right now. And so when you couple all that with what's going on in the economy, obviously the financial system seems to be a bit fragile right now, as we've seen with the bank situation over the last six months,

as we've seen with the debt ceiling impasse that we recently had but got over. We've raised the debt limit again. And after talking with Matt many times over the last six months, this particular section of american wealth held in retirement accounts is a very scary situation because if you have all this tumult in financial markets uh driven mainly by monetary policy and the value of the bonds and stocks are still holding up pretty well but um it wouldn't be too crazy to think that they're not going to perform as well moving forward if we do head into a recession um you have the value of those retirement accounts falling just from pure

performance and then on top of that we have the demographics come into play where a large section of the american economy is going to be for sellers because they need cash to live their lives in retirement so it's a difficult setup that's that's for sure um we're talking about you know the impending recession like that's that's very maybe short term what how do you get through the next six twelve months um it is a problem that's going to need to be worked through uh and resolved and you know we talk about bitcoin has talked about this transition um you know towards bitcoin adoption a bitcoin standard um you know keep that has to be built um but what we're talking about here is a kind of a system built upon pillars that are you know

on a shaky foundation as is so you know i kind of compare it to that indiana jones what was the movie was it raiders of the lost ark where he flips like it's got like pulling us uh an easy hand off um you know that's gonna be hard to do But, you know, to paint a positive picture here, I think just to point out, we'll talk about what Build is doing with some really important partners and people we hold in a really high regard and what they've built on Bitcoin in the last, let's say, five to 10 years. You know, this transition is not going to be easy, but, you know, keep building.

But on that topic, I think that the next chart based on this data series, if you put the date, if you lay out the data in a certain way, you see a very clear trend that this big picture system, you know, zooming out on a three to four decade time horizon is already struggling here. So you see retirement account participation. We mentioned how it is a pillar asset for American households. It's already, I would say it's in a structural decline at this point. It is already buckling. I would say the signs are already there. So you saw this data series. Every three years, they print the survey of consumer finances report.

They break out all this data. So you can see not just for the collective American household audience, you see it by age group. So they bucket it by 10 year ranges. And what you see on the slide or what you see once you lay it out, it is very clear that participation in these retirement accounts is is past its peak. So we haven't been able to get more Americans saving into this retirement system. If you think about it, an investment trade, right, that's entering the accumulation period. Now, what happens when you get to the distribution phase? Well, that's kind of scary.

But you see here the peak in retirement account participation across all age groups really hit an inflection point between 2007 and 2010. So the GFC was kind of a critical moment. I know in our lifespans, it feels like it was a long time ago, but you go back and read these episodes in history about prior equity bubbles, sovereign wealth bubbles like these take a lot of time to play out. So 15 years here is really just almost a blink like in the scale of the phase of the system. But like right now, the system looks for the retirement accounts. It looks like we've hit that point where this pillar, that policy has become reliant on that savings has become reliant upon for the American households. We've passed kind of that point of no return where now that the second order effects of, you know, getting people in and employed at companies where they can save in a retirement savings plan. That's kind of fallen.

And it's pretty clear that policymakers are aware of the problem at this point. So in 2019, before we even got into COVID, you had this big push to pass the SECURE Act. I mean, it's another great Washington, D.C. acronym, and it has a great – I don't know what SECURE stands for, but it's very clever, almost comedic. I mean, it's just good marketing, right, because it's not secure. standpoint uh but it was an attempt to kind of band-aid uh onto this this problem and structural decline it obviously was a band-aid because you just had secure act 2.0 passed three years ago uh so the fix is you know the holes in the dike if you will um or the the dutch boy plugging up the holes in the dike um they're they're coming faster and and the kind of the timing between

those attempts is just the their hands are being forced uh to to resolve issues in this kind of framework but secure act one tried to fix this by uh expanding access to retirement plans so maybe not 401ks but like simple iras or you know stuff like that approaches that let um either um individual uh workers what do you call those like um self-employed self-employed yeah right exactly um start up kind of a government saving or government tax favored uh retirement savings plan or it expanded it also to part-time workers so this deal was never part of the kind of the bargain between employers and the part-time uh work out but as you've seen a shift um you know full-time employees full-time employment numbers kind of topping out more workers you know falling

into part-time work this this act kind of treated as like well we can we can reverse this trend by you know lowering the criteria to be able to participate in one of these plans and that'll hopefully pull this participation back up it also pushed the they call it the required required minimum distribution age so basically it's just a forcing point for when or it gives you the ability to work longer right without having to take mandatory withdrawals from your retirement account so it pushed that age to 72 right so the answer here is just you can resolve this problem if you're an american household by by working longer and i don't know about you but by the time i'm 72 i'm you know i'm gonna be chilling yeah and you're also spent like it's uh it's hard to

work i imagine it's hard to work 500 hours a week in most jobs at age 72 uh but that's one of the key um answers right now that policy is throwing out uh for for this system as it's going through these issues you're seeing the same thing or you know similar across other kind of g7 countries other developed economies you know france this thing with the yellow shirts and macron trying to pass this uh mandatory age limit and you know people don't like it obviously um they increase the max contributions for 401k auto enrollment and so there's basically just save more plow away more of your savings you know this this as you know we're going into uh kind of inflationary examples where household disposable income and savings are squeezed. It sounds nice,

but in practice, it's hard to do. And then four is increased tax benefits for small businesses to launch a retirement plan. The thinking is, well, if you get all these small employers to launch this there'll be more access and that that was the problem um i love the oh go ahead i was going to say the um so the explicit intent with something like the secure act and secure act 2.0 is to increase the participation rate in these retirement accounts but is the implicit sort of acknowledgement is that they need the flow of those dollars into these assets to keep them uh elevated in value i think so from a standpoint of uh keeping the call it a credit bubble right keeping the bubble going the actual size of the dollars here um this is actually a silver

lining i think for for the american household um the the scope and scale of what the what the households actually own here in terms of the entire credit pile or the equity market cap it's relatively low so total 401k assets call it six to seven trillion dollars right somewhere in that ballpark equity market it's probably about 35 trillion um and then the bond market tradable qsips and that's pretty much what all of these uh qsip is just a bond that is you know a registered security and it trades publicly uh when i use that term total qsips outstanding i think there's there's I mean easily 45 trillion total credit outstanding in the U.S. like just measured from the Fed's perspective is in the 90 trillion dollar range so total assets here in 401k plans is six to

seven trillion households own a small sliver of the entire bubble so they might be a marginal buyer of dollars and financial assets but they're not holding the bags so that like the good news is if this is a generational bubble, which I think you look at the charts and you don't know it while you're in it. You won't reveal it until we write, you know, five more chapters and we're looking back on hindsight. We go through some numbers here towards the end. There's a slide. I think it's pretty clear that the financial asset bubble is similar to what, you know, other societies saw in the past, you know, UK with, what is it, South Sea, France with the Mississippi company netherlands with dutchies etc like this this looks a lot like those but uh from the

household's perspective the the the bid their bid into um financial assets in 401k it's really not holding up market cap they're not the driver they're just there because it i mean it did work and then the policy my interpretation of it is hey let's let's funnel them into what's working And then also let's do it in a way that works for, you know, American corporate balance sheets, etc. Now, this is just household balance sheets. You look into like public pensions, including like things like CalPERS, State of Illinois, you have some municipalities that are, you know, in trouble and funding their pension obligations through, you know, municipal bonds, right? So you're just, you're paying your pensioners by taking on more debt. Now that's a problem. And then I think, you know, if you dive into social security, it's, you know, in a similar situation where you got the number of workers paying in, you know, hitting a transition point where workers paying in is much less than, you know, workers drawing from the system. that's a problem but in terms of just asset ownership on the on the bubble i think i think it's actually driven by international like the data this is a different time series than what we're looking at here you know you look at like the treasury auctions and stuff like that

it really looks like the international bid for the dollar and dollar assets is is driving up the stock and bond prices so the good news is i think we there's a there's a really a silver lining opportunity here um you know 50 of americans owning you know the housing stock at you know ultra rich valuations and same thing with stocks and bonds like we can get hurt but we also have time to make this transition and and uh you know save a lot of starfish i don't know if you know that analogy it's like the starfish oh shouldn't you throw it back in the water well I saved one. There's, there's, there's a lot of good. I think we can do here. Um, you know, collectively, I don't want to,

I don't want to fall too much into the black pill. Like this is, this is a white pill episode freaks. A hundred percent. There's, there's a problem, but you know, and, and there will be, there will be, um, you know, damage, it will be painful for, you know, a system going through transition, but I think there's a big opportunity here and relative to, uh, where a lot of other a lot of countries other other you know economies are it's not great for anybody but for america i think we do have an opportunity to to make a nice flip but my answer

there going back to the the secure act um i don't think this is a you know the big kind of tectonic plates moving here i don't think this is something that just legislation is going to be the the solution um and it's very clear like you put an act out you know secure act 2019 oh now we need 2.0 um it's kind of the same thing um you've seen in a lot of the different big spending bills you know touching on retirement savings so i forget what one of the 21 2021 uh congressional spending acts was called you know there was inflation reduction there was the affordable recovery or something american recovery i think it was the american recovery act but it included a bailout like 900 billion dollars almost a trillion dollars for the central states pension

plan so all these just collection of american businesses with failed pensions were kind of bundled up into one vehicle um and we needed like part of one of these spending bills was bailing those out and you think about or if you if you read about how the this pension there are like these thousands of pensions got here right and once they were bundled up this kind of like managed oversight of this vehicle was operating they needed to hit like a 7.6 percent return target i don't know if i think to a decimal but like all these pensions structure themselves like you got to hit your eight percent bogey right that feels possible in a three to four year bull market what they realized was like a 5.2 percent irr maybe like five point something like that was

there's an irr in the fives which i mean relative to historical norms and and asset returns that's not bad um especially given a you know a certain level of risk but just tells you like the difference between hitting a five versus your seven or eight bogey is insolvency and you need a sovereign bailout it really tells you like this is a system that um you know it's pushing up against its constraints it it it is now struggling to deliver after you know 30 40 years of bull market and then the answer i think is it it's like think about the analogy of like a king in the middle ages and and like this the the problem shows up you know at the in the keep of the castle um you know if you're decentralized or if you're you know other lords your institutions whatever

if they can't deal with it well now it's your problem now it needs to come onto the sovereign balance sheet that's kind of what you're seeing here with both pensions and then um exactly this the retirement plan so we're trying to band-aid it with you know secure act one two i i'm gonna go out on a limb here and say i'm not i'm not convinced like 2.0 got it done like we'll be back here um and there will be another kind of like sovereign action like it rises up ultimately to the to the sovereign balance sheet yeah 3.0 will fix it i think they got to figure it out third time's a charm yeah well that's what like as you can see i'm looking um at the notes you sent me let's give a shout out to matt here uh i think you are the guest that has sent me the most

detailed prep notes for a show in tftc history uh i've been reading through them the last few days and i think one of the the big drivers of sort of like this passive investment model and this problem that we find ourselves in is the structure of these funds so i think we can dive into like stable value funds and target date funds like defining what they are and how they really sort driven flows into particular financial assets over the last five decades yeah um oh before we do that i put this third slide in there on the the housing i think this is a key point to make you see that you see the same crack showing up in that other pillar the primary residence so that is in decline um make sure we hold that thought so we go back to target day funds um but primary residence you're

the same ownership decline here as, you know, just retirement accounts. So the problem is getting more of the middle class in, and this is kind of part of the broader theme of headlines you see in the 2010s, right? This isn't something new, like the American middle class is struggling. And at this point, every, like the policy makers all know it. But when you look back on what happened in 2020 and 2021 on the fiscal and monetary policy just flood, kind of makes a little bit more sense, right? Primary residence is the pillar. If we start seeing a contraction in home prices like we did in 2008, the problem just becomes worse. Like you enter a gravity well. So put a chart here on the right or a table of the QEs and you break it out between treasuries

agency bonds and then agency more mortgage-backed securities right mortgage-backed securities are just bundled pools of um like fannie freddie jenny may home loans just just rolled in in uh the last qe it was actually more agency mortgage-backed securities like 2.9 trillion versus treasury bonds i think you know the the the bitcoin twitter memes like we obviously see the the money printer go brr we think about it as treasury debt um but it was actually the the agency mbs 2.9 trillion dollars of um new issues so you see in the in the data here the the housing market in 2020 and 2021 was essentially subsidized by the fed i think they bought like 85 percent roughly of all agency mortgage-backed security issuance 85 yes like that's how if i in bloomberg

you can scrape all qsips so i put together these numbers myself that's that's my own number what i see on it but i think it like it's about 85 percent of um agency mortgage issuance so the jumbos like you're i think it's like 750k don't quote me i'm not a mortgage industry expert so the fed didn't buy the jumbos but the agency mortgages like your bread and butter conformant loans that gets packaged and pulled packaged and pulled wall street ships them out uh to the world yeah fed bought 85 of the 2020 and 2021 issuance it's it's it's um it's just shocking it's all inspiring that's what i was going to say it truly is it truly is um i mean now we can just get into another side tangent here just interesting points they're they're not they're obviously not they're

in qt mode right now they're forcing private balance sheets so banks right now um you can still buy agency mortgage-backed security issuances but they're going to be shipped to private investors and this is where you know everybody's kind of seeing the charts of mortgage rates right so the jumbo rate is now above seven percent your your agency uh lending rate is going to be lower like six to seven but right now kind of the housing stock that this this this I don't call it a bubble is being kind of fed or like forced to absorb forced onto the private balance sheets to absorb new new mortgage debt at six or a six to seven percent coupon so what it amounts to is the borrower who is going to be typically younger buying their first home you know the

bottom of this pyramid, you know, the less than 35% group here who is struggling with home affordability, right? You're forced to buy in now, after the Fed has pulled back from subsidizing, now to get your first home, forced to buy in at a 6% or a 7% mortgage rate for 30 years on the same house, most likely, you know, your entry level home is probably not going to be the brand new construction. So it's kind of an interesting moment here, what's going on in the grand scheme of things. So I just thought that was interesting here.

That second pillar here, the same way, you know, QE is supporting the financial assets. It's like, no, it's also supporting your other pillar too. It's supporting your primary residence. So that $2.9 trillion, that's a shocking number here once you understand it in the grand scheme of the housing industry. Yeah, it just edged out treasuries.

So if you freaks can't see it on the box on the side, March 2020 to March of the COVID stimulus, they bought 2.916 trillion in treasuries and 2.926 in MBSs. So that's 10 billion more in MBSs than treasuries when everybody thought they were just, most people thought they were predominantly buying treasuries.

It's truly awe-inspiring when you use that word. So I think, yeah, we're going to get into the talk about target date funds and then there's another niche that I specifically focused on called stable value. But target date funds are basically this kind of new financial product that started showing up, I want to say in the early 2000s, but they got their kind of like anchoring in industry regulation right in 2008. So April 2008, the Department of Labor issued this ruling for the, they call it the QDIA Qualified Defined Investment Alternative, I think is the acronym.

But basically what it means is it's the set it and forget it, the default option for when your new employee signs up or whenever you start a new retirement savings plan with your employer. So it used to be, you know, you could just plug them right into the equity market or you could save them in. I'll talk about stable value here. It's, you know, just to lead the story here, it's like a niche money market account. It's got some specific problems with it at this point in its history. But the target date fund is essentially just, you know a passive investment mix between stocks and bonds and it sounds like a nifty clever product but basically it just foots to the the heuristic own your agent bonds so the idea here

is if you're younger you should be able to you should be willing and able to take more risk in your investment profile versus if you're you know older you're in retirement you're 65 70 80 etc You have less time horizon. The money is more important for you. You're more dependent on the flow for your investment or from your investment portfolio to deliver your, you know, what you need, your food, your rent, your health care, et cetera, to live. You don't have a paycheck, so you're totally dependent. So in that aspect, you shift towards more bonds. Less risky assets.

Less risky, correct. you know in in you know in financial academia with the cfa curriculum to test you yeah yes um lower risk um and as you have an aging kind of population what happens is you know if your median age is trickling up from hey we were a young country back in you know 1982 you know as we came out of the great inflation now you know you have lower population growth fewer births per household you get you age and then the the the investment mix then will shift inside this pool towards fixed income bonds that's where it really where you land yourself right now like we're in this little window where you've got the

biggest demographic exit from the American workforce and every developed economy now is kind of hitting this at the exact same time you know you look at western european countries i mean japan hit it way before everybody um but uh we're all like seeing this kind of transition point at the exact same time um so we go into a slide here this is this is just an example of a target date fund so this is vanguard if you go to the website um basically just the to describe the chart for the people listening on audio um You've got age on your x-axis, so it cranks up from 20 to 95. And then on the y-axis, you've got your investment allocation.

So if you picture a portfolio with 100% that you invest, when you're young, at age 20, Vanguard says 90% in U.S. stocks and international stocks, 10% in U.S. bonds, international bonds. and then they also add some some tips here at the end but basically it just kind of glides down they call it the glide path um you you'll lower uh that mix from like 90 95 stocks down to i mean they call it on theirs 30 let's say by the time you hit 72 and that's it and this has been like the big industry push uh probably like the biggest product in the retirement space where there's So there's a little bit of, I guess, nifty stuff that you'll hear people talk about at conferences. How do you get the auto escalations up, all these little things. But like TDF has been the biggest product.

It's just this own your age and bonds rule. And that's really what we're riding on. Yeah. Yeah, it's just a lot of groupthink. I think that's how I would describe it. And that's, again, it's precarious because when you have a material amount of people riding this particular model of investment strategy paired with the demographic situation and paired with the rate. So that's the one thing that scares me as an individual who has many loved ones who are entering their retirement age. We're looking at a Fed's fund rate above 5%, potentially going higher.

that's having a very material effect on the value of the bonds that have been shifted to a majority or a large portion of many people's portfolios as they're about to retire. So the last two years of Fed rate hikes have completely borked this model, have they not? So I would, my kind of mental model or like framework for understanding the system you know as as you learn more and more about this i think the fed is less in control than we appreciate and that's actually like the market isn't like the bond

market is in control so the the sell-off in the bond market um and i i mostly just watch like the u.s dollar denominated bonds i don't have to go go back and check the dates on itself let's say the european euro bond market jpy bond market those didn't time exactly the same way but The U.S. dollar bond market has been in sell-off since August 2020. See, they're about like we put the mother of all stimulus into this thing, $6 trillion of QE, $5, $6 trillion of fiscal stimulus. That put the bond market in a rally basically from just March 2020 through August of 2020, and then it's been selling off since. um we'll see how this goes here like the bottom on the chart right now is um end of q3 2022 so last year when we had the um like the big event was the the the uk um asset liability hey it's

again go figure um creating this this unwind um after that um there's there's been like nine months of you know it's been it's been windy but but it's recovered now my answer here is like i don't i don't think it's the fed that's actually responsive in creating the the market sell-off and if you if you go back and look at the tape um you know the jacksonville conference august 2020 they thought the problem was actually going to be like systemic deflation and i said yeah we'll get a little bit of inflation will be transitory um but you've just seen the opposite like they they were caught off guard i think as you know the inflationary impulse was much stronger and surprising um than they expected and they've they've had to kind of catch up um and kind of

roll roll back their playbook if you will on you know how the system works so you kind of could see this in their quotes they were given to the media last may you saw like janet yellen making statements. Like we didn't fully understand or grasp the inflation or what was going on. So they were behind the eight ball, I think, in terms of understanding the real system dynamics and what was going on. This is an insanely complex situation. Like once you get under the hood on how the bond market works, there's so much going on. And it's tied extremely closely. If you look fixed income markets uh credit markets like all the investment banks structure them into groups like ficc they call it fixed income commodities and currencies and this plays into the bigger

picture of what's going on um in the grand scheme of things in the global economy um that's a huge can of worms to unpack we're just trying to focus here on how does the american you know middle class household get through this thing um preserving as much as possible but you think about like the fed was wrong footed they've had to hike rates um and you know give that incentive to pull dollars in uh to to savings and like for you know front end low risk uh you know investments and currency ious um if you think about it that's kind of good for a 65 year old you would think right so let's say you saved up um and you've got let's say like the median account balance something like 150k um in your time balance like now i can shift that into a money market fund and

i'm gonna i'm gonna get five percent right now um that sounds like it would be good right but not everybody did that right away like positioning doesn't happen like by definition um the entire kind of like group isn't going to be in the right position before the trade um so that one it caught them off guard and we'll go into like the actual results here for these target date funds um in 2022 um but uh yeah i think it's just a tough environment too like you're i'm going to be pulled into five percent money margarita so it's like how long do you think that's that stay there yeah or it could be is that actually going to keep up with your future consumption needs i think you know consumption gets a dirty word it's like it's not going to

the mall and buying you know new shiny clothes or taking a fancy vacation sometimes it's just like your food your health care and your rent right your your basic life life needs um so yeah it's it's insanely hard i think for a 65 year old or a 70 year old um to kind of like plan their life and then their savings in this system around whatever is coming around the corner over the next five ten years and what they're entering into yeah you shouldn't have to worry about it either like you're talking about like the average middle american middle class american they just go to work they do their job something bitcoiners have said ad nauseum over the years is like your average american saver shouldn't have to have a vast understanding of the intricacies of

the financial monetary system to make portfolio allocation decisions on the go to ensure that they have money when they get to retire yeah and even still i mean you know we treat bitcoin for for what it is this is uh this is the project to be building on this is the you know the the long term we're building the cathedral here if you think about it that way um this is something that's going to pay off and build a system of you know resilience but even if you think about a 70 year old uh with a bitcoin allocation like if you bought uh or you built up your your allocation and let's say like three four years ago you're you're fine taking what happened uh to your portfolio in 2022 but um that's not the way most markets actually work in terms of like

forming a trade right most people you know enter a trade on the run like as the exit liquidity so you started piling into this trade as a 65 year old and there were probably one like there are definitely examples out there people who did this like they heard the narrative 2021 it made sense to them i need to buy a bitcoin they probably like if you bought 40 50 60k like now after what happened in 2022 you took the drawdown and now you have to have the conviction to stay in that trade and it it it it just just tells you like even if you are thoughtful you think about this like this is really hard for a 65 to 70 year old like to solve this problem um yeah as much as kind of the narrative goes like uh there's a what's called like an age

clash going on i think in american society right now like young people resent boomers for pulling the ladder up on them on the way up uh boomers resent the younger generations for not having the work ethic that they you know i'm just speaking you know painting with a broad brush but it's not easy like just speaking from I guess I'd call myself right in the middle of those two things between the young and the old it's not an easy environment I don't view

to be you know 65, 70 and trying to plan out the next 10 to 20 years of your life into this is a massive challenge building on top of this kind of shaky foundational system yeah

it should be easier you should just be able to save money in a good asset i love that yeah uh but like building the bridge to get there is i think the that's that's the work to be done um hopefully we can talk about that later but i got hopefully only one or two more slides we can go through here but and the key thing is these target date funds um the way they work is you'll set your target retirement date that's where the name comes in and you'll have a year and they all the industry every investment manager will bucket them into like five-year buckets so you have a target date 2020 you have a target date 2025 you have a target

date 2030 and then as the retire as the employee in this plan you'll just have to choose you're like all right how old will i be what year will it be when i turn 65 i was like round it you know the closest fighter like that's my that's my mix and then you've you're just going to get whatever was on that glide path chart uh for your for your mix um so how did these actually perform in in 2022 when it was like time to deliver um it's like things that sound great in practice or they they worked uh in your back test in reality you know once your plan meets it's kind of like the mike tyson fight everybody has a plan until they get punched in the face it's kind of that in 2022 too right you saw everybody exit came after that boomers exiting from the workforce i think it's

like 10 000 per day are retiring uh which is a just a crazy number to think about um and then you saw kind of the the exit hangover from the 2020 and 2021 monetary and fiscal policy saw this massive pullback um for these near-dated retirement funds so i bucketed these in bloomberg there's no good benchmark here um and that's part of secure act 2.0 is now we're going to get benchmarks on these target date funds and that will supposedly help fix it and it doesn't change anything from from my opinion um but you just bucket these funds and do like just kind of three year groups uh 2016 to 2020 2021 to 2025 and 2026 to 2030 for these these targeted funds you look at the chart and they all perform the same everybody's doing the

same glide paths you're just going to get the you know the plain vanilla you know whatever's off the shelf and what we actually achieved at the end of the day for 2022 for this like this was like the biggest development i i would say in the uh retirement savings plan kind of industry and and also pushed by the department of labor with this qdia rule in 2008 where the rubber meets the road is like the year that it mattered um these near-dated target date retirement funds lost like this is just measured like 12 31 2021 to like end of april lost one-fifth of their purchasing power in that time frame so big hit like that's your that's your number two nest egg your home price is still holding up you get that but you just lost one-fifth of your purchasing power um

in 15 months and this is what needs to be counting on this for for like your remaining time horizon it's uh it's scary it's yeah inflation it's only transitory though don't worry it'll be fixed yeah and so is there a recognition in the target date fund industry if you will that this isn't working or do you think they're sort of hoping and praying that uh we'll have a reversal here this is just a temporary uh so downturned good question um i think that's the that is the default kind of mindset um hey markets sell off you gotta buy the dips be in it for the long run stocks go up into the right you know bonds will work for 40 years i think so far the the general mindset you know if you show up at an industry conference it will still be like markets recover

this happens stay the course stick with your plan i i would say that's that's generally where things line i haven't seen anything um a couple big industry trade groups i know you know i've been focused on going to the the bitcoin conferences lately um we've seen each other a lot met a lot of great people um but you know as you go to these retirement conferences yeah the the the new kind of approach is what do we do what do we change um there's nothing that stands out to me as particularly innovative or or that stop or that changes the like these are tectonic plates moving at the at the at the base level level that are driving these trends um you know you're not going to solve this on a piece of paper or

you know some industry consultant comes down like hey you need to put commodities and you're this fund or whatever it's like that's i don't know like i just don't see that being as uh kind of transformative um to get out of this problem but right now i'd say it's in like the general mindset is in the middle of like some like a still like they're shaken but not broken i would say they still think this model isn't under like um systemic threat or or decline yeah and you would argue it is i think yeah if yeah if uh if you really look at the data and you take a long-term time horizon and you take the collective body of evidence i think yes this looks like a

I mean built from first principles this is a monetary system that's you know maxing out on its on its end of life and then this retirement plan kind of complex is built on top of that you know same thing with your insurance sector you know it all plays in on the same things so I think you know part of it you know who's the quote sometime it might be Keynes sorry to mention in this way is like it's hard to get someone to understand something if their livelihood depends on it if you go to the the industry you go to these conferences like it's it's still slow um to to absorb um and and and realize we we don't just need something um you know status quo we need we need to innovate you know from from the studs from the foundation up

and i think you see that same thing i talked about the industry um you go and talk to retirement professionals you know there's asset managers there's a whole consulting industry built along this where you know employers don't you know they're they're in the business of making widgets you know providing goods and services into the economy and they're just gonna follow best practices of what the retirement savings plan consultant says and i think the same thing from like a like a politician or a policymaker like they're just going to take advice from who they trust um and i think right now they're like they're still built they're still plugged into this industry where they think they can um they think someone else still still knows the answer

and i think it's similar to what you see in the you know the energy industry you know all these other industries we're going through and how government responds to um structural issues we're still at that phase where you know you're you're the king is still listening to his existing council until things continue to decline and you got to pull out and start listening to new people so i'd say we're we're somewhere in between those those two settings lovely well let's let's give let's give the freaks the white pill i mean that's why i'm excited to talk to you because you have dove deep into the the data uh you've painted the picture very clearly not only during this conversation but other conversations i've had with you and you think that that there is a place for

bitcoin to help smooth out um the proverbial landing of this plane particularly with the retirement accounts of of americans that's why you build build 100 yeah exactly um build um the only way out is to build the future um so if you look at from a standpoint i think what you know you you hear in the you know the bitcoin chatter the in the space it's basically we're we're thinking about this in terms of how do you get more and more people to own bitcoin right if you look at an adoption curve where are we on the s curve you probably have a better guess than i do but like true people who see this as a store of value on their own balance sheets three percent five percent i might feel high maybe one i was going to say one to three yeah yeah one to three

i'd probably ballpark about there too um and bitcoiners essentially like already intuitively feel this it's like you you describe it to someone you explain it um you know half the people might just you know so now yeah tone out pound sand um we're not going to listen you might get interest or curiosity from i don't know another big group um but they ultimately don't do anything they won't act on it um and then it's just very slow you're very slow to pick up new people into this transition um and that'll continue to happen right you're you will continue to see adoption here as people are pulled in by the kind of those first principle values um all the freaks know this right like why why would you choose this money versus other money like

very familiar with the with the uh with the value prop and all those use cases that bitcoin delivers and uniquely delivers and that's why you think this adoption continues right but in the in the big picture you've got to do uh some sort of transition we talked about um you know if you're going to transition the middle class you've got 50 percent of people totally dependent on their primary residence and uh just financial assets in their retirement account how do you how do you smooth that out right because this is going to be a messy process right it's already kind of obvious like just picture where we're at like mentally like where were you 18 months ago how did you feel about the financial market like how like everything that's

taken place the geopolitics everything like this is just an extremely violent process um to go through like this type of you know potentially what we're facing as a monetary transition um and it's not all going to come smoothly right i think everybody kind of sees that happening hopefully agree with that and history's playing like live reality is playing that out but i think from my perspective what i've tried to do and talked about build why did we found this company um we saw this problem there in the 2010s you know once you put three qes on the board and you saw the slowness to respond and right about that 2015 2016 election where you know it was very clear where something something had changed china was doing a

massive currency devaluation um what else you've been through two sovereigns so you had a u.s I call it the GFC. It was a credit crisis. And then you had the European credit crisis back-to-back. It's like, oh, we got to start figuring something out. And I'm talking about what we started here at Build. We took the approach of helping that middle class transition out of this from the perspective of kind of resolving the problems in their fixed income allocation. And that's the, we talked about it, the largest kind of asset class in your investment allocation that the industry, the financial industry is going to push you towards once you hit that kind of like 65 retirement age bucket, you're going to skew into bonds. So for better or worse, that's where kind of me and my co-founder chose, like, we're going to try to solve that problem. and in the uh from our from our early days like our foundational uh kind of approach was okay if you have to own bonds in this mix and that's the only way you get in the door

right and like through the consultant you know gatekeepers through the regulations you know you got to have a target date fund mix you got to have all these things um it's like we got we got we got to meet people where they are right so that's you know let's solve the bond problem because that's really where the rubber meets the road on a monetary system that's entirely built on IOUs. If you're holding those IOUs, let's try to save you there. So our firm, we launched our first investment funds in January of 2020.

We got out after going through all the regulatory red tape, becoming a fund manager. um it's this is not an industry built for startups to compete right it's a huge amount of gatekeeping like it's uh it's unbelievable the amount of um compliance and overhead and and the the good thing too is it's also proof of work like you have to have a track record uh to compete so they want to if you're being evaluated right as a as a fund manager as you know someone who's going to manage other people's money um you have to have that kind of time series of your what did you do did you deliver results um so it's kind of aligned

with bitcoin in that way the proof of work aspect does stand out um but it also and that's in that sense though it also kind of value like it puts the incumbents in a seat where well by definition they've got the longest track records um they delivered in these bull markets and um for the most part you're not going to see kind of like broad or complex thinking in terms of how investments are going to be positioned especially from the from the employee you don't understand the big picture of financial markets and what's going on that shouldn't be your your day job because your day job is making goods and services right to provide into the real economy but um um what i was going with there is like even in the the consultants like what you look at is

the history it's like what did you do and if you had this great bull market well until something goes otherwise um you're just kind of gonna assume on that say here it's uh it's proof of stake and like you you can't get in in the door until you've done that proof of proof of proof of work. So on that point, we built out kind of an approach. If you think about this, every time you get a monetary easing, what happens? You see the Fed or any central bank buy a lot of bonds or absorb a lot of bonds or do the cash swap, take bonds onto its balance sheet, inject liquidity into the economy what happens you see risk assets go up right so our first kind of suite i would say um of uh of products in this space to compete in in the fixed income market was built around that

concept it's like the duration trade um if you look at the bond yield chart um going back to the early 1980s all the way to 2021 when we went from a fed funds from 20% to zero duration really carried you as a bond investor, yields go down, your prices go up. So as the system goes through these issues and you have to keep lowering rates to continuously bail it out it actually makes asset prices go up both bonds and equities right um but in bonds you don't keep up with the with the risk profile every time that happens with what you call just risk premium of risk assets so it could be the s p 500 it could be you know tech stocks it could be um it even shows up in and um like high yield credit right high yield credit behaves like a

stock but basically this first round of what we launched we're like let's keep up with that every time we get an easing let's let the bond investor instead of having to just absorb you know i have a two two duration fixed income portfolio if rates go from two to one percent you're not going to get that much of a lift and you know a lot of these investment portfolios that your 65 year old retirees are kind of migrated or like shifted and allocated into uh from the industry perspective um they're not getting the full benefit of what policy was was doing right so that's what we launched in jan 2020 we were one of the the top performers in uh investment grade intermediate bonds which are like the core building block of i would say the bond market and these um

investment portfolios um especially as you get into this near retirement kind of age cohort problem is the inflation and then also this this massive sell-off um despite being one of the best performers and like accomplishing what we were setting out to do um you know we might save let's say let's say it's like instead of a one-fifth drawdown it's like well if you don't if you don't draw down at all that's a win well then you take the inflation charge right as that that 65 year old um so by like 2021 2022 like the the inflationary impulse was there the sell-off was already well underway i started to realize like this isn't going to get it done and as you see these two things working in parallel um you know i've been working on this project for

i would say like the greater part of my my 30s like it's it's been a while uh what we're doing and try to save a bond market. In parallel, you've got what's going on in Bitcoin and I've been, you know, long time TFTC listener, you know, been involved in this space. And I think after the cycle, I would say 2016, 2017, that was the point where I saw, we actually had really good people in the Bitcoin space

just describing the monetary system. like you and matt odell included um i don't want to name just add incremental shout outs after there because i'll leave someone out but there are a lot of great people along the way who helped me put these um just kind of like two parallel streams together and you kind of see what's going on uh and where the leapfrog can happen so anyway um about 2021 i started reaching out uh to figure out how do we get bitcoin involved um as a solution right i think um bitcoin uh the the community and it's pretty small where the business development is going on um you know you see what like strike the custodial solutions like unchained etc like your 1031 portfolio companies they're

really doing an awesome job building out this kind of nascent developing you know new monetary system like just from the ground up like building um that's obviously what i love um it's the the name of of our project name of our company but in parallel now um you know what i've tried to try to start thinking about is how do you how do you connect those two systems and the people who are at the you know the middle class who is primarily invested in these you know the legacy framework of kind of this parallel system that is in structural decline. How do you bridge that gap? And when you think about what this kind of entire system is built on, the legacy monetary

system, it's just dollar credit IOUs at the end of the day. You know, the dollar system is insanely complex, you know, once you think about it, or if you try to map it out you know repo markets swap lines you know what's the the fed uh counterparties dealers treasury like all of this stuff um but at the end of the day it's it's it's dollar values and that's what these you know the the the bulk of people in the middle in america besides their primary residence that's what they're invested in so my thought here was all right you got to find a way to bridge them into bitcoin not a lot of them are just owning uh bitcoin on their balance sheets and even even aside from that owning bitcoin in a way that is um you know

self-sovereign you know taking taking it into their own custody um you know all of that like we see these problems going on like as we go through this transition um but the idea here is And you've seen a lot of great kind of thoughts put out into this space since I want to say I'll give I'll give a shout out to Nick Batia. I think in 2016 or 2017 was the first that I knew of to describe this as like a collateral there to Bitcoin as a hard money ledger to back up as a, you know, a collateral for dollar lending. and that's you know just a slow moving process of everything that's been building on my head as i'm thinking about how do i how do i help save this this um you know the retiree and you know you map these onto real people it's our it's our parents it's uh aunts uncles co-workers people in our community they're invested heavily into dollar ious so the thought is um you know if you bring in

Bitcoin custody or Bitcoin into that dollar IOU landscape can you help bridge the gap and this led to conversations with people like I would say Parker uh just to give a shout out at Unchained and everything that Unchained has developed uh from the back-end custody uh model as well as their servicing operations um they led the way on uh from my perspective like a lot of companies we're entering the space on i'll just like blanket here they call it like crypto lending and just garbage approaches where they just re-hypothecate their collateral you see the same effects with daisy chains that you see in the existing like repo market problems and all of these guys like i don't say all but like you've seen just massive amounts of failure um so

while it's viewed as like tremendously risky here um to to build this dollar credit foundation on top of bitcoin meeting with this team at unchained and everything they've built um shout out to to joe kelly um i could just name up and down the list of you know the the really solid uh people they have there the team and what they've built out on the ip uh but mastering that bitcoin back lending and just to briefly describe just the profile here of from a supply side as a provider of dollar capital you've got you're looking at the entire landscape of credit to invest in you got treasury bonds you know the risk-free asset if you will I don't want to go through why there's hair on it you've got corporate bonds you've got securitized debt and then after that you're

getting into just other stuff and in a bond market where you've got the largest sell-off since i want to say like 1931 like like it's basically the great depression had a big sell-off and then you had a big sell-off um at the tail end of the revolutionary war what we saw in 19 or in 2022 was like on par with those so you got to choose like all right if i'm going to save my investors in dollar i use because everybody's still piling into those like as a as an asset manager and this where my day job comes in you're not wearing that hat you know as we're talking right now but when I wear the hat of CIO for our investment manager like my job is to choose what is going to be the most performant fixed income you know dollar IOU at a perceived level of risk for that

investment so if you look at what unchained has built out when i saw this um we came to you know that aha moment you see on their loan profile like you see a lot of these loans going out you know i want to see them going out to bitcoin companies for one like i want to see it going out to to entrepreneurs who are providing goods and services into the economy so when we talk about this what i don't want to see is people levering up um their own balance sheets posting their bitcoin to buy more bitcoin um you know listen listen to rhr listen to matt and marty folks like stay humble and stack stats do not do not use leverage like you will get taken to the wood chipper you are not you're probably not um you know uh a savant trader like you you most

likely will deliver pain uh to yourself in your portfolio just i would say stay away uh for for for most people, humble advice. But when you loan into the Bitcoin economy, you loan to the Bitcoin entrepreneur, I like to think about this, I picture this, I wanna see businesses collateralizing their Bitcoin on their balance sheet, using that to obtain dollar capital, go out into the economy, create the goods and services

that our community, the market, our parents, siblings neighbors etc need food rent energy etc so if we're lending out and this is where the unchained loans come in as the profile they're like a 14 percent um nominal yield or apoi on those um they're about a average is about a one year duration and then the backstop they're about we say 40 loan to value so if you if you have 250 000 dollars and and uh and bitcoin basically that's gonna just give or take um you're gonna be able to pull a loan of 100k against that so from a lender standpoint you really like that you like that mix um in an inflationary environment where cpi is running seven eight at its peak last june um and this thing's going to be

my opinion um we're probably going to be in a in a volatile kind of inflation cycle we got one impulse last year, you're going to keep getting these. But to have your dollar IOUs kind of maintaining their purchasing power, you're going to need that high level of yield shield, right? Let's just say right now, the 5% treasury yield on the front end, I'm not 100% sure that's going to get it done. And a lot of people are, you know, flocking in as that rate kind of attracts more people but in an uncertain future you see a system getting more and more volatile you don't know so the bigger you build that shield i'm speaking on behalf of like a fixed income or credit fund manager the higher that yield shield the more likely you are to um to kind of that that yeah

and maintain purchasing power of those dollar ideas. After that, the one year kind of maturity, you know, basically if you think about this, you structure this as a pool, right? And you've got many loans behind a one to many fund, right? So say on average, you know, you've got half a year, right? Cause you have some maturing tomorrow, you have some maturing a year from now,

and then they'll just kind of wind down between one day at a time. on average, you got a half a year duration. Rule of thumb, you hear that metric duration. You talk about it in bond portfolios. Basically what it means is, say like your duration of your portfolio is one. It means like, what's the average length

of all the maturities, all the cash flows in the year? When does the average come in? So if you say a duration of one, it means barbell one year, or sorry, a bullet one year. Your fixed income portfolio is basically balanced right there. So your duration is this metric where it tells you, let's say you have a duration of one,

it means that if interest rates rise 1%, they'll go down. Your value of your bonds will go down 1%. So same thing, just two, duration of two means interest rates rise 1%. Your bond portfolio value is gonna go down 2%. In a rising rate environment where we had this just massive sell-off in 2022, duration is not your friend right versus in in the in the environment where during where

rates are going from 20 back in 1982 to zero and 2021 you love duration like it's gonna it's gonna carry you um it'll be a volatile process but it's gonna work in your favor um you know no no crystal ball is is perfect you know the future is always uncertain but imagining like just saying uh this next phase is potentially looking at uh uh an environment where rates are going to rise as opposed to just structurally come down direction not going to be your friend so this loan pool and then on top of that you've got um something actually backstopping like backing your dollar credit don't like it i don't know that i can like harp on this too much like so much of the credit in your bond portfolios your bond funds so much of this is what you would call uh unsecured like

it just sits on the capital structure you have some bankruptcy positions but most of these bonds don't have anything underlying tied to yeah exactly um sometimes you might see like a first mortgage or you see some piece of real estate or like a utility has assets that they're backing it but you know if you're just lending to like a corporate bond or the u.s treasury it's all just on a good faith iou you just call it unsecured um lending um so in an environment where this you know the credit bubble just keeps growing like you think at some point like well you keep going through these violent spasms like 2008 was a heart attack saw minor ones you know in other places across the globe, 2012, 2016. 2020 was another heart attack. And once you get

into those, or you're in a resolution event where you're going into bankruptcy and you need some sort of recovery on your credit, right? You should generally be senior in the capital structure or in the proceedings. You want that. I think as we go into this forward looking environment you're investing in dollar ios yeah because if you don't have it you're going to have massive loan loss yeah and you're seeing that in the data you know you said i was massively prepared uh there was a bloomberg article i'll find a tweet for you and and send it over but um bank loans you know there's this kind of niche you see all these niches and um fixed income credit investing and this little sleeve called leveraged loans basically it's

just that it's like there's a pool of loans and there's leveraged applied to buy more loans and then and then you own the equity and layer on that the the profile here the recovery rates for this newest tranche of levered loans and default is you see the trend line it's down but the bloomberg print um just coming out last week it's like it's looking like it's going to be like like right now realized rates are like 20 cents on the dollar you know that's shit let's keep it white pill here but here's the beauty thing like if you're looking um and this is where you know you you go we were just in miami we we went to some talks you know 10 31 everyone had, you know, a panel up on stage. Like, why would you not, you know, search out this type

of backstop in your dollar IOU? We're slow. Like, it takes a lot of time for people who are kind of trained on the existing frameworks that you use, the work group thing, but just like steady habits. You're not just going to throw those all out the door. I mean, it was a massive sell-off but you're you're not going to totally give up on 40 years of what you learned in your career all in one go the other aspect too is this is a tiny like we were talking about bitcoin back loans um it's a tiny sleeve on the entire dollar credit market so just for perspective like how many dollar ious are out there um it's hard to calculate uh there's no centralized ledger it's like surprisingly um if you think about it it's actually it's actually a highly decentralized

system with banks all across the globe securities all across the globe um but there's a industry trade group the iaf i think they just quoted it it's about 300 trillion dollars that's your credit pile so this this industry the legacy industry who's doing fixed income investing they need size right if you're going to invest 300 like you've got to be big and you start with like what's the market cap of bitcoin like if you're going to build on that for a new credit layer market cap is i don't know what it is just to say half a trillion dollars and then your daily tradable liquidity i don't know that number like right now off the top of my head let's trade it on exchange or bitcoin to dollar markets it's probably about the size of like an on the run t-bill like just

measuring but that's just like one q-sip um so it's still relatively small in the scheme or in that like relative scope of this giant dollar credit market and then the actual what i would call the good lending sound lending built upon bitcoin and i think it's what my perspective on that is that universe is is what unchained capital is doing and what they've built now like in all of my deep dive due diligence the the conclusion i made was unchained is I'm not going to say there's not other parties out there who are sound but they are

the most sound yeah the most it's not that big it's eight figures so we're just getting started yeah and to take a step back and to break this down for the freaks listening so Matt running a credit fund looking to allocate

dollars to credit facilities to get a return on that and unchained is very attractive for many reasons number one start with start with the custody it's a two or three multi-sig it's multi-party custody so you have unchained holding a key kingdom trust holding a key and then the borrower holding the key as well so the borrower has some insight into that escrow account where the collateral is held to know that It's not being re-hypothecated.

So right off the bat, Unchained with this product is reducing risks because they've built it in a way where they can't move your Bitcoin to take risks to try to get yield for themselves and their customers. And they don't have the ability to unilaterally move Bitcoin out of the escrow account. Two, the collateral is over collateralized. 40% loan to value. Like you said, put $250,000 worth of Bitcoin in,

you get $100,000 alone. So the price of Bitcoin falls, you still have collateral. And another important thing with Unchain, I feel comfortable saying this because they say it publicly all the time, they've never had a loan loss on their book. So any credit lender who's given them money to then lend out to Bitcoiners had never lost a dollar that they'd given Unchain. And that's when you juxtapose that with the crazy leverage credit facilities that exist out there, they're going to return 20 cents on the dollar that's extremely attractive and then number two you have bitcoiners who don't want to sell bitcoin they'd rather take a loan out and pay a high interest rate because they don't want to eat the tax burden of selling their bitcoin and they believe they can

do something productive with that money to pay back that loan keep their bitcoin maybe get some more bitcoin on the back end from producing a productive business that creates cash flows it allows them to stack more and the apy associated with as the interest rate on the loan is high because it's deemed risky by a lot of allocators and so that produces a quality return for these credit funds and this is something we've talked about at 1031 like the unchained lending desk if your credit fund is the biggest no-brainer in the world people say treasury's risk-free nothing's risk-free obviously there's risk bitcoin can go to zero which would be a systemic risk to of this type of product though you have to put probabilities on that i put the probability

very low um it's close to risk-free as you can get when you factor in like the transparency of the escrow the over collateralization and your customer or bitcoiners that can either pay back the loan or if they don't um you just liquidate the bitcoin the money goes back to the lender um it's we've been beating the table at 1031 like if you're looking for uh outsized credit returns as a credit fund like you should be pouring your dollars into the unchained lending desk it's uh yeah i don't i don't like to use the language of risk-free anymore period um because Like, this is an unknown probability distribution of, you know, what's in the bag.

But at the end of the day, it's a track record. I talked about that earlier. You know, launching this fund, being an SEC-registered investment advisor, all of that, and the existing track record we've built up since launching our firm. you go into these discussions with uh you sit around a conference room or you know you make a board pitch you're pitching to like it can be any institutional pool of capital um they could at the end of the day what they care most about is returns i like it like it's it's proof of work right um so ultimately it's performance uh is is what the what the uh the equalizer is or at the end of the day capital is going to fund to its highest

and best use or highest and best uh or its best allocators um and and so you heard a lot of discussion about this topic you know 1031's talked about it you've talked about a lot um i think what's been missing um from kind of that plug-in what we're doing dollar back loans all of that or sorry bitcoin back dollar lending um one it's it's hard to segment out like oh what's the difference between you and i guess we can just name dead name like blockfi celsius etc like it's it's hard as a kind of an investment committee member like you're on a pension or you know a family office and you really have to dive deep and understand why is that why is what Unchained's doing different than what Blacklight's doing.

Why is their custody model superior to, I call it the absence of a custody model at a lot of these shops who are just, you know, there's no Unchained footprint. It's just, you know, I have an IOU, a Bitcoin IOU somewhere at a Postgres database or something, like it's really hard. And then on top of that, you gotta understand

like what's going on in this legacy system. You have to have a view and then you have to understand what Bitcoin is and what it's doing with its parallel framework. And it's insanely hard, I think, to grasp everything at once, especially coming from a standpoint. Most people making these decisions are going to be having like having sat in that seat for three or four decades. So it's it's at that time where usually you're not going to arrive at this, this, you know, these conclusions or make these choices based on first principles like you need to see things work out. And I think, you know, at the end of the day, you know. I met a lot of great people, you know, in the Bitcoin space who are thinking about these things from first principles, building on top of them. i've chosen to build on top of that as well um you know making that bet and like ultimately

comes into i want to pull more dollar capital into the space um you know allocate to the bitcoin entrepreneur um it's going to deliver goods and services into the economy solve this problem um you know collectively that's the exit path out and we win and to do that i think the the the point in this highly regulated industry like the the missing piece is you've got to have track record um at the end of the day it's it's a gated industry so like people won't listen to you like most people won't act same way when you tell them you need to buy like you should book into bitcoin you should read more you should think about this whatever like one out of a hundred might answer your call i guess it's the same way like you the results are what what what bears out

the change and those key decisions at the end of the day yeah so putting this in the context of how allocating dollars in a credit fund toward a product like unchained lending desk like what could that do to save your average american retiree or somebody saving for retirement like how does this help with the transition yeah so we talked about before like let's say you're 65 and people make an investment decision usually based on news or something they hear most people aren't you know process oriented or you know putting a lot of structural thinking into why this is this a good time to enter a trade is this a good time to acquire this asset um they usually just kind of react like there's

there's an emotional um kind of driver to that is my opinion so even if you think this is the promising system um you know truly disruptive innovation it's it's the the framework to build upon if you buy in 2021 like you may be waiting you know what i mean it's like the same thing buying a tops of other cycles and it it hurts and then and then you're left with this bad experience and then you're you know instead of uh questioning yourself or taking personal responsibility you might instead just turn sour on the entire asset class and i think that's kind of the natural human instinct right it's it's hard to look in the mirror and realize like i might have been right but i was wrong on timing or i didn't think about certain feature or aspects i

didn't you know hey i'm 65 i didn't realize i shouldn't you know rolled into something that has an at that time frame that has a track record every time the dollar cycle enters a contraction it can draw down 80 percent 90 percent um so where you build in with that pitfall how do you cross the line there well i don't know i think just from a creative perspective and looking for looking for solutions i try to piece together what what has promise what works and if you think about well the the bond market was responding to the same you know dollar cycle you know 2022 that that that bitcoin bitcoin drawdown was but how do you put the pieces together in a way that kind of fits the the parameters for that customer you're you're trying to solve a problem for i think that's where

the the bitcoin backland in this this nascent space this growing space if you do it the right way with the right operational integrity um with the right people um you know just just do the job well um and i i think uh you know saw it on a mission to find that and that's i think the the rocks we've turned over in the space what we've talked about before if you put people in that type of a vehicle you know that that target cut like work fast work backwards from your customers needs um you're a 70 year old you need income yet it's an inflationary environment and you can't take drawdown um well maybe 2021 is not the right time in the cycle to for you to be accumulating a bitcoin position or like heavily and you know gradually ramp that up but the loan profile if

your dollar credit same thing that's struggling uh from duration or rising yields well if you flip those parameters on their heads where now you've got a high nominal yield reduce the duration and then put a strong backstop behind it, you've now got something to allocate towards for that specific customer, that client, that fits their use case. So I think, yeah, from that standpoint, you think about, or the way I think about the envisioning

what 1031 is so good at investing with, with these companies, building the monetary system like from the studs out your strikes your vma wallets like all of those apologies to all the other awesome companies and entrepreneurs i've met uh doing that work it's like okay now what can i do and bringing into that for this this i'd call it the mission of what i've been working on for the last like five to ten years how do we save the fixed income investor all right let's build the bridge from that side as well into the the bitcoin economy and um i'd say the the the promise

to get excited about is you can solve both problems and at the same time pull in more dollar capital into the bitcoin economy those same entrepreneurs and that's just a flywheel like it's just another asset it's pulling in more capital into this i mean truly a sliver of a space like it's it's it's it really is astonishing how much headline attention bitcoin has gotten with no marketing team shoestring budgets a tiny sliver of the population even rowing in the boat in the in the right direction it's even worse than that like the dollar capital like from the vc space and you know this better than than i do i mean it's like 99 to 1 going into yeah that's absurd crypto junk and just exit exit schemes um so i don't know you start small but i think this is

one more bridge um sounds fiat right how do you your business is uh focused on a mission of bringing more dollar ious into bitcoin it's like no i like if this is hopefully transitionary in terms of where bitcoin is going in the in the grand scheme of things but in the the day-to-day picture uh pulling in more dollar capital into the bitcoin economy pulls in more resources for for bitcoin development and i think you know as i map out the economics what it does for the entrepreneur i said this before i i i don't like the idea of retail borrowers collateralizing their bitcoin like you need some sort of value creation where you're going to use that dollar capital create something into the economy you cover that high cost of capital like 14 is hard like this is this is a

credit card rate type of hurdle uh but in terms of access if you're a business you need if you're an energy miner you need a6 if you're or or a new pipe to get your well connected into the um you know the existing legacy network you know um you're a farmer you know i haven't met the bitcoin based farmer yet but i'd love to hear that episode on tftc but oh the uh the shout out from the live rhr miami that dry cleaner right i love hearing that he's like how am i going to incorporate bitcoin into my business and this is where as an entrepreneur as a business owner like it's on you like you have to be the master of your your income statement your pnl but if the problem is capital shortage uh and i say dollar capital shortage ironically the problem we're

looking at right now looks to be a shortage of dollar capital not a surplus where we think about the money there should be dollars flowing everywhere it's actually not the case you have bank balance sheets constrained in the domestic banking system you see the data in the high yield bond market so that the more you venture out on on riskiness as a business like credit risk the less willing the existing system is to fund your project your business at this point so stepping in there and it's also like the the smaller your business is the more risky you are from the system's perception and I think you know in terms of actually resolving the the problems at the base layer you just flip it on its head it's it's more likely the exact opposite bet on

the entrepreneur bet on the bet on the soundness that those that do survive are the ones that are going to be the ones that exhibit strong balance sheet management strong capital discipline manage their income statements tightly those are the ones i want to see allocated capital to and and in this case bitcoin is the vehicle that gets us there yeah speaking of flywheels too like i like i love that this is like a bridge product where it's like all right you're 70 years old you don't want to ape into bitcoin but you do you don't even have to understand like the loan dynamics and the collateral and what happens but you just want to see the performance you you can get a return of 10 to 12%

after everything's chopped up in a credit fund, which is extremely high for credit funds. And they get into it like, oh, this is backed by Bitcoin. Then maybe Build does this successfully. Unchained keeps running their desk successfully. And your returns outperform a lot of your competition. And then that sends a signal to the market for like, hey, what are these guys doing?

and that forces people to dig into your strategy and what you found, and that leads them to Bitcoin, the collateralized loans, and then to Bitcoin more broadly. And it's just, I could see it being a legitimization of Bitcoin as super collateral

that people really don't recognize yet, which forces them to ask questions, to learn more, to get closer to the point where they realize, like, oh, this is not just some pyramid scheme. It's actually something that's very foundational to our transition into the new monetary system, to a new monetary order, if you will. Yep. And I think human beings are, you know, we are clever.

We go towards what works. And in this environment, like the business owner was hitting on this before, there's a capital shortage. You can't get a loan from your bank. You know, the only capital is going to be available to you. the highest quality borrowers you know perceived by the system u.s treasury your large cap companies apple google metal meta oracle you know all of those and you know the biggest issuers um in the system what do you do if you're the uh the small business owner and that that's kind of where the the rubber meets the road for most of the goods and services we consume uh that keeps society

running and uh humans are problem solvers and i think they're ultimately gonna move towards what works like just how do i survive how do i create value um so that's the beauty of it i'm gonna say one more thing like the the tftc rebound uh rebrand of truth for the commoner um yeah i think that's awesome it puts to the conversation we've been having um you just start from that perspective of what what is this system like offering the commoner right the retirement accounts in your primary residence as your as your bedrock um and you think about what's uh you know the cracks showing up in the system the the problems you know in here in an everyday life the problems for a small business owner it's like what what more is there right than to just

show people for for bitcoin like no this is uh something that works for that that broad group of people to help our help our entrepreneurs our communities move forward oh thank you it's the uh it's funny because most people would find this conversation or like the subject retirement account it's like boring but like after sitting down with you for two hours now digging into it only not boring it's like a big problem that people should understand and the perception of it being boring is probably allowed the problem to get to the extent that it has it and it resonates with I mean like you put in a word cloud like that you know the driving ideals of Bitcoin the low time

preference right what is retirement saving like you're supposed to like I i work today to put a nest egg aside for tomorrow like that fundamentally is just a a core concept of the the understanding of what bitcoin offers so i think it's like these big picture moves and how people move towards systems and all that complexity um you gradually shift towards what works and it's a messy process but yeah hopefully this is this is additive um for and across all parties too like a win-win-win is kind of what i'm hoping to accomplish yeah well thank you for doing what you do i think it's very important i think i made that clear through our conversations off here leading up to this it's uh again i mentioned this is something we talk about a lot at 1031 it's

like no-brainer um young chain landing desk if you're a credit fund allocator um i don't like the word no-brainer because it implies like you didn't put any thought into it so like you need to get people like think um yeah people are like there's there's a shortage of thinking sometimes i think in these decisions and uh over reliance on what a committee tell or what a consultant tells you or what you learned for 30 40 years um that's like who moved who moved my cheese that boy like you got to be the the mouse who who thinks um about where you know things are heading now not what worked in the rearview mirror yeah yeah well this has been an incredible conversation very dense

dove into a lot of your freaks if you're listening and you want to um read the charts i'll have a i'll have matt send me a pdf i'll put a link to the pdf um in the show notes so you guys can follow along if you're listening or if you want to go check out the charts after listening and obviously if you go to youtube spotify rumble you can see the charts bitcoin tv for yourself um i'm at yeah again thank you for doing what you do i think what you're building at build is extremely important and can be excuse me a model for um allocators in the traditional financial space to unlock something that that shows them the way to creating this bridge to a bitcoin standard and helping using bitcoin as a way to help what they

do in a day-to-day basis with their allocation strategy yep it is it is hopefully the lifeboat uh for any freaks that are listening and want to find out more where should we send them Yep. So on Twitter, my handle is build CIO, just letter CIO. And then from a product space, what we talked about today, this project that we've undertaken with Unchained, for right now, we talked about how do we bridge the gap, solve problems for the middle classes. Right now, the only way we could do this is in a private fund offering, and the requirements there require that we only work with accredited investors, so there are certain standards that need to be met. So big picture goal, what I want to work towards is expanding this to all supplies of dollar capital, because the dollar credit problem impacts everybody, what's going on in the legacy system, and just investors across the board. uh but right now just how we could map this solution onto what was up like feasible and attainable um for the first i'd say run at this um the requirement in it is uh we have to work uh with accredited investors for the for the bitcoin back nature of uh

uh, dollar IOUs that we discussed, uh, before, but, uh, we've got a site up at buildbitcoin.com. It's a domain I was really happy. I was able to still get back in, I want to say I got it in like 2020, 2021, but we're using that as our kind of our masthead on, um, describing this project. So I think that's what the Bitcoin audience here today will be, will be most interested in, But that's kind of the landing point if you're interested in learning more about what we talked about and what I'm going to be working on to solve this big picture problem from the Bitcoin focus perspective. Thank you for the white pill, Matt. We need more white pills. Awesome.

I think we can do this. I think we can do it. I do too. We're going to win. We're going to win. Freaks. Matt. it's been a pleasure i'm sure we'll talk soon thank you for coming on enjoy the rest of your

afternoon and uh yeah that's all we got today freaks peace and love