TFTC: A Bitcoin Podcast - Tales from the Crypt #67: Nik Bhatia

Episode Date: April 23, 2019

Join Marty as he sits down with Nik Bhatia, who has pushed forward the theory of Lightning Network Reference Rates, to discuss a range of topics including reference rates in the traditional financial sector, LNRR, Bitcoin + Real Estate escrow, Nik's experience producing rap albums and much more. Check out Nik's writing on LNRR: https://medium.com/@timevalueofbtc Follow Nik on Twitter: www.twitter.com/timevalueofbtc Follow Marty on Twitter: www.twitter.com/martybent Shoutout to this week's sponsor, Unchained Capital! Sign up for their multisig vault product today by using the link below and receive a free three-month subscription to Saifedean Ammous' The Bitcoin Standard Research Bulletin. https://www.unchained-capital.com/vaults/?utm_source=MartyBentNewsletter

What's up, freaks? It's your boy, Marty Bent. I hope you are all living well right now. Here to introduce this week's episode with Nick Bhatia. Nick and I sat down and had an incredible conversation about traditional financial reference rates, about his theory around Lightning Network reference rates, his history producing rap albums, and a couple other fun topics. I think this episode's a great piggyback on the episode with Parker Lewis from a couple weeks ago in which we dove into Fed policy. Nick and I sort of built on that, talking more specifically about interest rates. Before we hop into this episode, I'd love to introduce this week's sponsor.

You freaks know all about them already, Unchained Capital. They recently released their multi-sig volts platform. Go check that out when you get a chance. It's a two of three multi-sig setup where you hold two keys, you enhance your security, you preserve your sovereignty. It's compatible with trezor and ledger so you can use your hardware wallets when they're offline it's 100 cold storage so get off exchanges we all know there are risks to having single keys we've been pontificating about multi-sig setups on tftc for a while now this is a great solution that's on the market and even better when you free sign up by going to www.unchained-capital.com slash vaults and you sign up there you get three free months of the bitcoin standard research

Bolton by our good friend Safedina Moose. This is an incredible perk for signing up for better security in the Bitcoin world. Again, go to www.unchained-capital.com slash vaults. We'll throw a link here in the show notes as well. Go check that out when you get a chance. And I hope you freaks enjoy this conversation I had with Nick. I know I certainly did. Tales from the Crypt Sort of an idea and a theory around developing lightning network reference rates. I'd like to introduce you freaks to CFA charterholder, Nick Batia. Nick, welcome to the podcast.

What up, freaks? Thanks for coming by, man. It's been almost a year since we last saw each other. We hung out last July in Dallas, had a great dinner at the Nakamoto Institute dinner at the Big Block Boom Conference. Very excited to go back to that this year. but yeah we sat across from each other at that dinner had a great like three hour conversation and we decided then that yeah we would have you through the studio and i only like to do this in

person so you're finally in new york it took so much to year but here we are thanks for having me man yeah that was a great night uh one of the most memorable bitcoin experiences i think i'll ever have being in that room with those people and the energy great vibes amazing vibes right and made a lot of friendships as well that have lasted since then and excited to be here in New York in the studio with you. Yeah, so let's jump into your tale before we jump into LNRR

and node accrual rates and stuff like that. How did you find Bitcoin? You're coming from the traditional financial background. I'm excited to speak with you because we can jump into traditional reference rates and stuff like that. But how did you find Bitcoin? so for me i studied economics in high school and college and the financial crisis was happening

when i was studying econ in college and i wasn't getting any of the answers that i was looking for and i found the austrian school of economics right around then and just dove deep in and tried to understand everything that I wasn't being taught in college and, you know, found Hayek and Mises and I started reading some of that stuff and it clicked with me and I discovered that the gold standard was a very important part of history and monetary history and something that i really dedicated myself to learning about fast forward a couple years qe2 and you know i got this feeling that you know the fed is just printing so much money and what does it mean and how can i learn about this and at the time you know i wasn't in the financial industry i was still a student

and i found this website that many bitcoiners know called zero hedge zero hedge shout out to zero hedge shout out to zero hedge and zero hedge has changed a lot over the you know last several years but back then um it was just one guy writing a bunch of fixed income currencies and commodities research and also linking to wall street research of the same type yeah now zero hedge back in the day like post-crisis right when it was raw when occupy was going on was was one of the best information sources for i was very similar situation i was in college as well 2011 like learning about this stuff in zero hedge was uh was like one of my go-to sources i actually vividly remember using zero hedge charts uh on student loan debt and my senior year and on an

economics project and got yelled at by the professor because they're not giving you good stats uh typical right it's uh it back then it was a taboo information source you were a little you're a little out there if you're reading zero hedge but and now it's become you know mainstream as it gets in terms of the markets and you know as far as zero hedge breaking news in the markets it's if you're not on zero hedge twitter you're going to be behind the curve in in fin twit in the markets yeah and all that so yeah uh i started to learn about you know what was what is this quantitative easing thing and how did it work functionally and zero hedge was the only place on the internet that was actually posting the QSIPs, and QSIPs is a way to describe a bond

identifier number, right? So every bond has a QSIP. And they were actually posting the QSIPs that the Treasury was issuing, followed by the open market operations that the Fed was buying those Treasuries, maybe one, two, three weeks lag. And I'm thinking to myself, the Fed is saying that they're not monetizing the debt but the treasury is auctioning debt and the fed is buying it two weeks later so you're not monetizing the debt really only by semantics but you know in my opinion they were and zero hedge was disseminating all this amazing information about that that i just couldn't get anywhere else i didn't have a bloomberg terminal at the time i didn't have access to fixed income research on wall street and so that was my best source of information

now zero hedge also covered bitcoin through the years but it was something that i never really took the time to understand what it was and so it was always just in the background bitcoin articles the gox situation they covered it well and i read about it but i still did not know what bitcoin was fast forward a couple years more and you know i have a strong background in Austrian economics, understand the gold standard. And so I was well positioned to understand what Bitcoin was and the power of Bitcoin. And I started to see the charts look very, very constructive. This was when Bitcoin was still below a thousand, but creeping back up towards its all time high. What do you mean by constructive? So by constructive, I mean that the price action

looked good it looked like it had based it looked like it had started a new uptrend and so you know right around bitcoin was five six seven hundred dollars um i believe this was 2015 2016 early 2016 um you know i was looking at the chart and i said i want to be long bitcoin what is bitcoin and at that point that's when i did the you know Andreas Antonopoulos, YouTube videos, learned about Bitcoin, learned about Trace Mayer's seven network effects, saw a lot of Tour de Miester's early work, and Bitcoin pretty much clicked immediately for me. And then I really took the time to get into one-way cryptography and proof of work and really start to understand the computer science as much as I could

from somebody who is not a software person or coder but i did you know i did a lot of self study to try to understand how this thing worked the power of the protocol what proof of work is and how important it is as you know a core tenant of bitcoin and uh yeah i just i just fell in love and so you know at that time it was i want to be long but once i learned what bitcoin was i felt the empowerment vibe from bitcoin and that registered with me because you know human empowerment is something that i'm passionate about and uh yeah here we are now i think that's an incredible way to come to bitcoin and i very much agree with your last point that it empowers you as somebody who has like a visceral physical reaction to authority growing up like i never

liked authority like in high school uh and or being told what to do in particular especially if i did not think uh what i was being told to do was was not in my best interest and and if tupac is your favorite rapper growing up you're i think you're predisposed to liking bitcoin and the empowerment aspect of it yeah well let's talk about that why why tupac in particular by the way we'll get to this at some point in the podcast but nick has a very very uh dope uh career in rap uh producing in particular yeah tupac um you know for me tupac was somebody who really spoke to me in terms of his political angle that he rapped with he was he was looking out for the little man he was always trying to raise people up he was talking about you know

on keep your head up he's talking about women and how they have to deal with aggressive men and this whole culture that you know that rap music is really you know very deep into brenda's got a baby you know he told an amazing story about what it what it's like for a teenage girl to you know you know have a baby out of wedlock and you know at a very young age in the hood and um you know me against the world and that whole album he he really is talking about you know poor people and um you know impoverished people rising up and doing what they can to recognize the beauties in the world and you know how they can improve their lives and that just always spoke to me as a young kid um and you know i love tupac's music for that now this

circles back to earlier what you're saying about the gold standard the part of it being an important part of history that's something we've been talking about a lot more recently on tftc is or at least i have on tftc and in the bent is that i think a lot of the problem societal problems that people sort of feel anxiety about today are driven a lot more by the money system that we live under than the sort of political polarity that we see in the news and the mainstream media.

It's sort of a misdiagnosis of the problem. And I think what we're trying to do here at TFTC and Bitcoiners the world over are trying to say, hey, we believe that sound money is something that we should probably get back to. And I would argue that the woes of the Cantillon effect are probably driving the inequality more than any one political party's decision in policymaking. Yeah, and if you even think about left versus right in our political environment,

neither one of them address, I think, what Bitcoiners are passionate about, just sound money and uh how to empower people through uh removing monopolistic money creation powers from central banks right and this is a thread i wrote i think a couple months ago but like bitcoin is the currency for the common man like you're saying tupac was a voice for the common man the the man in the hood looking to get get his way out of a world against him and um that's right like bitcoin is the currency for the common man it's accessible to anybody who has access to the software if you're able to work for bitcoin you can you can work for bitcoin except utxos and and know that that your percentage of the overall utxo set or the overall amount of

bitcoin excuse me it's probably more technically sound the overall percentage of uh bitcoin will never decrease in in that in a world in which uh so this is probably a good segue into traditional finance and in the world that you work in the world of which people are forced to chase yield to sort of save their purchasing power over time this like you said is a very empowering technology so i guess let's just jump into to how sort of the regular economy works uh with reference rates in particular and how and how a bitcoin world sort of uh counteracts that or or how it interacts with that world yeah one of the things that i i do think about a lot is how early stage bitcoin is and one of the reference points is that you know i work for an investment manager in la and we are

a large investment manager but nowhere near you know the top hundred in the world let's say we're outside the top hundred and our assets under management is larger than bitcoin's market cap you know lowly you know asset manager that i work at uh you know has more aum than bitcoin's market cap we're about you know above 100 billion and bitcoin's a little under 100 billion at the moment and you know it's always a reminder as to how early we are and i trade u.s treasuries for my firm and uh on behalf of our institutional clients um so i you know my market is the benchmark rate for U.S. dollar capital markets. But there are several reference rates that exist in U.S. dollar capital markets, U.S. treasuries being one, Fed funds being another, OIS, which is a derivative

swap market that looks to Fed funds, so another way to play the Fed funds market. There's LIBOR, which is the interbank funding rate. LIBOR is starting to be questioned in terms of its long term legitimacy, you know, coming off of the manipulation scandal that we had several years ago. And now you have a new rate called SOFR, which is a reference rate that is looking to repo rates for the treasury market itself. And SOFR may or may not become something in the future. But yeah, there are a bunch of reference rates in the U.S. dollar market, and they all have their place. As far as how does Bitcoin tie in, I don't think that Bitcoin is even close to needing these types of reference rates yet, which kind of goes a little bit against my work. But my work is more an idea.

And like you said, when you mentioned it in the bent, it's just a conversation starter that we need to think about Bitcoin as a home currency. And to talk about that home currency in relation to other currencies or in relation to itself through time, we need time value. We need that interest rate calculation that the dollar has and the euro has, et cetera. So Bitcoin, yeah, Bitcoin interest rates, not something that we really need yet, but something that we should be thinking about so that we can start relative value comparisons between currencies and different assets. Yeah, and one thing that excites me most about it is that these reference rate, the ways in which you arrive at these reference rates are more emergent than the current process of setting rates. Like the Fed's fund rate is just arbitrarily chosen in every Fed meeting. And then Libra, like you mentioned the Libra scandal. Let's talk about that a little bit.

This is the Gchat scandal, right? That's right. They were fixing Libra and Gchat. That's right. Yeah, which is crazy. Libra is seven people sort of meet? So it's a couple dozen banks. A couple dozen banks.

And they'll take out the tails. Seven people is the gold fixing, I think. Yeah, the LBMA. Yes, that's what I'm thinking. The bullion banks. I don't know if it's seven exactly, but it's single digits. so yeah um yeah it it it is emergent and and that is very exciting because it's just the transactions that you're observing and you're you're deriving interest rates from

the transactions themselves um the fed funds rate is obviously set by a group of people in a room um libor is set by a couple dozen banks on gchat on gchat and um the and you know this is actually the interesting thing about the u.s treasury market is that the u.s treasury market i would say is more emergent than those other two where it's actually set by people in a room on a daily basis or fed funds uh you know every six to eight weeks but the u.s treasury market is still a live market right the front end we're talking about bills through call it the two-year note is going to trade very highly correlated to fed funds but the long end fives tens and thirties are going to trade based on where the market sees

those rates and so those types of emergent rates i think are um i think they're more interesting to me because it's a market derived rate and not something that people are just setting in a room well let's talk about the yield curve it inverted a little bit is it still inverted The yield curve right now is pretty flat from the three-month out to about the five-year, and then it steepens out a little bit. But yeah, certain parts of the yield curve are still inverted, and I guess whether or not they are above or below zero, the fact that they're near zero I think is something that has a lot of people's attention.

Yeah, a lot of people's attention. We're finding the normalization of NERP becoming a thing. The IMF wrote a blog. I'm starting a thread now to track the normalization of NERP in the mainstream. So the IMF wrote a blog in the ECB. Mario Draghi came out last month and said that negative interest rate policies have been working, quote unquote, working with air quotes around it. I added those air quotes. But we find ourselves in an interesting position where we're sort of straying to this somewhat unexplored territory of negative interest rate policy.

Obviously, Switzerland's been doing it for a while. There's other banks out there. But it seems like it's becoming more of sort of an accepted future reality for most central banks is that they will break the x-axis. So what does this mean, and how does this affect the world that you're in, trading treasuries and stuff like that? So one of the things that I've been reading a lot about and trying to theorize a lot about over the last couple years is this idea of the tug-of-war between inflation and deflation. the arguments for that we are in a deflationary environment are very strong as well as the arguments for the fact that we're in an inflationary environment and so somebody that sits on the desk with me he's he famously said to me everybody's inflation rate is different and i think that

that's very important to understand because if you're focused on asset prices you're looking at an inflation rate that is quite high if you're looking at the traditional definition of inflation which is an increase in the money supply obviously it's very high but if you're looking at other metrics like consumer price inflation the statistics aren't there now i do recognize that uh you know the substitution effect has a has a big let's not bring the cpi has a big role in all that but it is it is true that you know capitalism allows for you to buy the same honda accord at twenty thousand dollars 15 years ago that you can buy today when the technology is you know 50 times better that's deflation right and so deflation does exist

uh in a lot of segments of the economy in a lot of parts of the world especially technology right your laptop keeps getting better and the price is sticky as hell yeah and that's so that brings us to like the discussion of so like technology uh clothes sort of what you find is like markets that aren't as heavily regulated or um intervene or subsidized by the government tend to exude these deflationary properties that you just explained but once you get into like health Health care, schooling, housing. But those are the cornerstones of the American dream, right? Being able to live a happy, healthy life and get a good education.

And we're basically forced. Yeah, we are forced in a way. Pressured. We're pressured to sort of follow this path of get a college degree, take a loan out, get a house. And we're finding that it's becoming harder and harder and more and more expensive. of like, this is the area, the most important areas of the economy are the most inflationary. Right. And that's why I brought up inflation and deflation to answer your question about NERP,

because the central banks are able to look at some of these deflationary things that I'm talking about as justification for NERP, that they're going to drive down interest rates and keep interest rates low because they can always find an excuse for lack of inflation. Even though you and I and millions of other people, billions of other people around the world are dealing with intense inflationary pressures and, you know, cost of living issues, the central banks can look to certain CPI metrics and substitution effect and say, hey, we don't see any inflation. We are going to make monetary policy easier and lower rates potentially below zero. So to answer your question, I do feel that the central banks will continue to be able to find these excuses

because they'll be looking at inflation rates that they choose, and those rates are not very high. Is this them sticking their heads in the sand, do you think? Do you think they don't want to face the reality of the highly inflationary cornerstone assets that we're sort of forced into? I think they really believe that their definition of inflation is the correct one. But it's not the case, right? Everybody's inflation rate is different. And I know that my cost of living is much higher than it was 10 years ago. yeah and that's just the nature of it mine as well mine as well um so sticking on nerp

who does this affect first right so if they they institute negative interest rate policies are they going to start with uh accounts with deposits over a certain threshold like five hundred thousand dollars or something i believe that's what switzerland does uh they have nerp policy on on deposits over i believe it's 200 000 krona or something like that um Yeah, it affects the savers, right? This is also known as financial repression. And the financial repression is actually a policy tool for them, right? Their intent is to make sure that people that have a lot of money don't keep it in a depository institution, and they actually go out and stoke the economy by spending it. And that's, you know, that's their goal. And so it does affect savers. That's the number one, you know, set of the population that it affects. And unfortunately, these savers are going to go out and chase for yield. they're going to invest in risky things that they probably shouldn't be doing and you know you would hope that they could invest their savings at you know at minimum a three or four percent coupon

and clip their retirement for the rest of their life but they're they're just not going to be able to do that uh going into the future especially if rates stay you know extremely low and it's unfortunate it really is and it's uh i mean it really drives home the need for bitcoin like i guess that is another big question the bitcoin realm nerp's been uh becoming more and more of a uh a popular topic like is that the catalyst that that drives uh a portion of bitcoin adoption these savers saying oh my god i'm losing 75 bipsy or using 75 bips holding it in this account why no i'm not holding a bitcoin and keep my percentage of the overall pie absolutely and if you think about a saver that's going to look at a depository situation at negative 50 bps

or putting it in a house or a real estate investment trust for example they're going to choose the latter because they see that you know the appreciation in price is going to be favorable to them right but then you start to look at what's the liquidity what's the liquidity in your house or real estate investment firm uh that is maybe close and the liquidity is not even close that's the one thing that really got uh that really got driven home to me after reading parker's ender's game and having that conversation with them is liquidity when you need it most hasn't been there in the last couple decades. And that's something that I have become very familiar with as a treasury trader, is that when we are in periods of risk off in the markets, no matter how short

they are, whether it's a day or a week or a month, like we had a pretty risk off month in December last year, the liquidity of treasuries is unmatched. And it really serves as that safe haven asset that everybody talks about treasuries of the safe haven that's why they rally when stocks crash and it's really true because um the world is actually short treasuries on a net basis what do i mean by that if you if you are a saver right and you uh have you do not own treasuries because the yield is too low and you you know would rather invest in corporate bonds or mortgages at a higher yield you don't own any of the liquid product which is treasuries and all of a sudden if the assets that you own start to go against you in price you have to sell them and buy

treasuries to escape the the price decline right and to protect yourself you need to own those treasuries so i do actually feel that the world in on net is short this liquid asset right then you bring in bitcoin to the situation and once people understand the liquidity um and the safe haven potential of bitcoin they're going to realize that they are not long when they need to be therefore they're short and they need to cover that short by buying bitcoin and i think over the long term you know we're talking about multiple decades that is the scenario that allows bitcoin's market cap to rise to the multi-trillions because we have dozens and potentially hundreds of trillions of dollars around the world and a lot of it is not owning the liquid safe haven thing

that they need right it's uh it's fascinating so how long do you think this this takes uh it's uh Another hot area of debate more recently is you have the Bitcoin teens of the world who think it's going to be rip your nads off like happen almost overnight and it's going to be imperceivably fast. It could happen at the turn of a dime. And you have others who think this could be dragged out over decades, generations. I'm sort of leaning more towards Bitcoin Tina these days, especially more recently. and i have a public service announcement from bitcoin tina he says do not call it an experiment bitcoin is not an experiment it is live and i i appreciated him him reaching out to me on that uh and reminding me that i shouldn't use that word um because he's right actually that it's

not an experiment bitcoin is live and kicking and it's working exactly as it is intended to And the proof of work alone, the hash power that is dedicated to the Bitcoin network, tells us that this is not an experiment. This is something that is very real. And if you think about it from the 51% attack perspective, the cost of doing something like that for even one block, let alone actually affecting the ledger, is just not feasible, right? I don't want to jinx it or say that Bitcoin is, you know, in the clear and it's safe from 51 percent attacks forever. But let's be honest, it's very hard, very difficult. And so, you know, I would say that I'm probably not the, you know, in the overnight camp, but I do look at the Internet adoption curve and I feel that that is the best comparison that we have for Bitcoin's potential. and you know you go from nobody using the internet in the early 90s you know just a handful of people

um i think that maybe that's where we are in bitcoin as uh maybe early 90s internet and you know within a decade it could be mass adoption yeah no that's it's users right yeah i mean it's users that's the number of people that use it yeah this and this is when i tend to like agree with bitcoin tina though because i think the internet like a lot of people like to compare it's like internet adoption but i think the internet being ubiquitous as bitcoins being a thing can actually make this adoption curve uh shorter i agree all right because there's like easier access you can access the information better than even when the internet was being built out you could learn about it on the internet which was janky and right and not uh not fleshed

out yet so i think like when people uh just just market to like the internet adoption curve i'm like take into consideration that the internet's almost ubiquitous now and that i think that that helps like put it on steroids a little bit and if you talk to young people about bitcoin i mean like teenagers and i have a lot of younger cousins and nieces and nephews um they understand it they might not be long yet or they might not have read safe's book or anything like that but they understand a digitally native currency that has a fixed supply that governments can't control and i had a you know a cousin of mine asked me a brilliant question when he first started to understand bitcoin when i was teaching him about it he goes um

he said if governments can't control bitcoin supply and privacy improves in bitcoin and people are just transacting in Bitcoin with each other, doesn't that completely eliminate the government's ability to collect taxes and sustain themselves? And I'm like, ding, ding, ding, ding, ding, ding, ding. Cousin's got a galaxy brain already. Right. And I think that that's awesome because for young people,

I think that they understand that this is groundbreaking and that it can really change the world that we live in. It could really change governments. it can and you talk about this a lot you know bitcoin is changing us yeah it is and i think for the better and i guess that goes back this is a question or a topic that you that we were talking about earlier is growth in particular and and that's one thing i think bitcoin offers an opportunity to change this mindset is that growth growth at all costs and i guess earlier I wanted to ask this question now it's probably a better time to ask but like and I asked Johnny

Dilley and Tom Garambone this a couple weeks ago like are we are we fine-tuning our economy at the moment for the towards the right KPIs like do we want growth at all costs growth for growth's sake uh I would argue that it adds to or that um incentivizes a misallocation of capital which could otherwise be spent more wisely um so just interested to see your thoughts uh to hear your thoughts on growth for growth's sake and whether or not slowing down the economy in a bitcoin run world is a good or bad thing yeah the the desire for growth actually ties into the fundamental problem with fiat inflationary money itself is that you you can't sustain a fiat inflationary system without the growth and so they need the growth they're desperate for it because deflation

it you know makes their whole system collapse we see that in japan where you know they called it the lost decade but now it's a lost three decades right they can't get anything going and uh you know their their long-term you know their long-term goals of growth they just haven't been able to realize anything and the fact that most of the world doesn't realize that now all the other central banks are basically repeating the bank of japan playbook from the 90s to today is like baffling just google we are japan and you will see some of the smartest people in finance talking about this right and it's japan is at a point today i think new stats came out last week like the amount of the overall etf japanese etf market they don't think it's like 75 which is ridiculous

How do you have a central bank owning three quarters of a whole market? And what is that? What is the reason that they do it? They are trying to push people out the risk spectrum, right? If they own all the JGBs, by the way, JGBs don't trade. No, they don't trade because the Bank of Japan owns them all, right? So you've eliminated the Japanese government bond market from the public's wheelhouse. you go out the risk spectrum and now you're owning all the stocks what what are japanese

people supposed to do well they're gonna buy bitcoin by the way and they are they are well luckily for them it's a legal tender there and luckily for them the government's open to bitcoin maybe they slyly recognize like yeah we fucked up pretty bad we should we should at least give our citizens the the benefit of a bitcoin world and like how can anybody see that and not call bullshit and like i guess i mean this is the question that's been going around like anybody who's read zero head for the last decade is like when when is when is this crash and all crash is going to happen you can never predict it kane said it most famously the one of the economists most hate it in this space uh has one of my favorite quotes of the market markets can stay irrational

far longer than you can say solvent and so again we're not trying to time markets or anything but like it's like the bit in the nagging question in my head is what is the catalyst like is there a catalyst will people ever wake up and understand that that's what another thing I think there's everything so abstracted in obscurity and complexity that that nobody even understands that this is a bad problem or this is not good yeah I think that asset prices adjust slowly but that capital will flow to where it can be most productive and you know i hope i hope that that direction the capital flows is a bitcoin denominated world i'm not talking about people speculating on bitcoin and going long i'm talking about people having you know dedicating their

economic um environment to bitcoin denomination right where it can be that closed loop that we talk about so often and that closed loop i think is the goal and i think that people will go towards that direction the more time that they stare looking at this system of you know fiat inflationary money. So one of the things that I think will happen is that Bitcoin as this settlement currency, as the settlement layer, as this digital gold, I think it'll take a very important role in large asset transfers. What do I mean by that? Real estate, let's say real estate transactions, Right now, we go through escrow companies and you trade USD for real estate title and it takes 30, 60, 90 days depending on your escrow and that transaction is complete. I feel that Bitcoin will serve a very important role in real estate title transfer in the future.

And that will help towards this Bitcoinization or the monetization of Bitcoin is that once people view it as a good reserve asset, that if I'm going to sell my house, I can take delivery of this Bitcoin, take delivery into the blockchain, know it's mine, and that can be my interim store of value until I decide to allocate that in another way. And so I feel that the monetization process of Bitcoin will have a lot to do with these large, you know, not coffee, but real estate title. And we're starting to see that, by the way. You see these apartment buildings and condos in Dubai. And, you know, there was a listing in Manhattan Beach in Southern California that they took Bitcoin delivery for the transfer of title. i think that that's going to be a trend that will definitely catch on especially with cross-border transactions um and uh you know countries that don't have the most reliable currencies i think that bitcoin will be used in those types of transactions and it'll really help

uh bring bitcoin to the masses yeah i got a a dm from somebody this weekend asking if i wanted to buy uh like a hotel somewhere in canada with bitcoin um so people people are looking for it and then so this drives uh this topic of conversation drives into what i wrote about in the bent this morning which is bitcoin uh again it's an alien technology we're discovering its limitations every day as more people come on so like you said it's a drop in the bucket uh right now in terms of market cap so at this stage we don't really know how bitcoin is going to react as as we as we have more and more people come onto the network and so we're in like 2014 2015 with the fork wars we found that yes with a block size limit uh there is scarce

uh block space and high demand for that block space will drive fees so uh what i'm trying to get at is uh this sort of bitcoin as a big settlement layer for bigger transactions seems to be uh the most logical uh progression of the system in my mind and then so that ties into all right what are the limitations and then how do we work within those and what you're doing with the lnrs is sort of the the beginning conversations of this so um i guess what i'm trying to get at here is like do you see lightning as the only solution to sort of squeeze out as much utility from the protocol level or are you excited about side chains maybe interoperability between protocols stuff like that as well well if you think about things like

coin join or the wasabi mixing um these are also time value abstracts what do you mean by this so when you when you mix coins right you are basically putting coins into a multi-sig and there's a time lock on them right and when the time lock expires you get a new utxo set into your wallet you pay a fee and the transaction is done there is time value in there Because you're paying, you know, that fee that you're paying is actually the time value, you know, including the risk premium for, you know, your coins to get mixed and then come back and get delivered to you. And the time that it takes and the fee that you pay, those two things have a relationship with each other and we can call that an interest rate. So it's not just Lightning Network that allows us to calculate time value. It's anything that uses the lock time, right?

So this block time construct that Bitcoin has, and HTLCs are what I focus on, right? So let's break down each letter. The hashed time lock, right? So the hash is your security, right? And it's your cryptography. And that's what allows you to trust in the process. The C is the contract, right?

So that's what you're agreeing to. The time lock is what gives us a rate because you have a before value and an after value. And the difference from before to after is your time value. And you can just calculate an interest rate from that. So HTLCs were the, I think, the most exciting way for me to describe this idea to people about how we can calculate interest rates

from Lightning Network transactions. but in reality it's nothing to do with the lightning network itself it's the time lock aspect of the htlcs in lightning network so anything that you can have a time lock can give you an interest rate and so yeah lightning network is very exciting because this construct that people are going to be transacting you know at a much higher velocity than they can on the base layer allows us to have essentially millions and infinite number of data points

to calculate interest rates, but it doesn't just have to be lightning. It can be from anything. That's fascinating. I never thought of it that way. That's wasabi coin joins having a time value. I've wanted to write about this, but I haven't yet.

But so, you know, an announcement, breaking news on Tales from the Crypt. Boss. We are going to be taking LNRR to the next level. Now we're going to level up. So we're going to go from theory to practitioner. And so, you know, this is something that Matt, Odell, and I have chatted about a little bit with your Tales from the Crypt node and how he's thinking about, you know, optimizing the channel. And, you know, Matt, you know, said, you know, point blank

that the rate is quite negative when you factor in the cost. You know, even if you don't want to calculate the noddle cost of 400 bucks, you know, you still have bandwidth costs, electricity costs, you have on-chain fees, and even if you want to amortize the cost of the node over a long time period, your net rate is negative, right? So, okay, that's not tremendous news for people that are excited about Lightning Network reference rate being, you know, an anchor rate for time value of Bitcoin. But we're going to start looking at the breakdown between a gross NAR, right, which is what you can earn just from a pure routing perspective.

And then what are the true costs, right? Let's factor in all the bandwidth and electricity costs, the cost of running a node. the on-chain fees and let's net that out and let's break it down and let's show people um you know each aspect of that calculation so um you know i'm going to be you know making some announcements in the coming months i'm uh partnering up with a few of very smart bitcoiners uh to help me do some of this stuff because software isn't my expertise um i'm more on the financial theory side but i really want to see some of this play out and i want to encourage people like matt and others to start sharing this data with each other so this is not about making

money right this is not about you know creating millions of dollars of uh revenue by routing lightning payments we're not at that stage yet and we might not be there for many years but trying to calculate where we are in this framework is something that we're going to try to do yeah i think as i've said before like the the earlier we start thinking about these ideas the better because in a fully mature bitcoinized world uh in a in a world in which bitcoin has become fully mature and adopted uh these these reference rates through utilities they're they're going to be needed they're going to be wanted and again the earlier that we're thinking about this fleshing this out the better and again lightning network presents this very unique uh weird sort of

reporting scenario where people do have to report you have to trust that they're reporting truthfully and honestly and there's a world in which i can envision just like a black market rate uh normal market rate what's the opposite of a black market just a free market or a regulated market rate. And so let's jump into that. So I would imagine that companies looking to work within the lines of the law would be more willing to share data and would actually be sort of chomping at the bit to provide this data to prove that they're sort of acting in good faith and stuff like that. Well, I think you hit the nail on the head with the word utility. That really is the

way to think about this yes right um it's a utility because it's merely observed this is not something that now we have people like um you know alex bosworth for example brilliant engineer and he is on the cutting edge of how you can maximize the bitcoin that you've staked to your node in terms of collecting routing fees channel management inbound and outbound capacity and how to optimize all that kind of stuff so he's going to be able to maybe out earn the the utility level but the utility level is just that it's just an observation of what you can gain out of just normal lightning routing activity and so i'm excited to see uh more people disclose that more of a utility rate as opposed to the expert rate right that bosworth and you know the bitmex

research piece that came out which was you know an amazing description of how they're routing and some of the techniques that they're using but again these these guys are the experts in the field and not all of us can be experts and so we just have to look at kind of the baseline rate and that's where reference rates kick in yeah no and certainly at this stage of the lightning network it's not user-friendly to set up these nodes to set up channels to manage the channels to have liquidity on the right end of the channel at any given point in time it's a it's a work in progress that needs considerable amount of improvement i believe that improvement is coming quicker than i ever expected and let's shout out you know pierre jack mallers the casa

team you know the people that are making this process a lot more user-friendly but still you know it's difficult it's very difficult but seeing things like zap ride the lightning those dashboards coming in it's like you can see you can see the vision coming together in my opinion a lot of People like to knock Lightning Network for not being ready for being vaporware or whatever. But it's like, come on, people. What do you expect? Again, this is another theme here on Tales from the Crypt. Do you expect this stuff to be perfect out of the box?

No. It's an iterative process. It's going to take time and energy and resources to build this out. And how about the Hodlnaut donation campaign using Lightning and working with hundreds of people donating? working in this legal fund yeah and that and then again and it works it works and the possibilities that it enables is mind-blowing like matt and i were talking about how he opened channels with bitcoin rabbi so he could sell his book and give him liquidity to sell his book and that's just two random brooklyners like dming on twitter like yo i need liquidity on this obscure financial

network can you provide it to me it's like yes have you seen that book by the way i have yeah in in real life uh i have not uh held the physical copy i got uh i've read the uh the pdf yeah um very exciting stuff i mean just education is so important and uh you know so you have to start with the youth yeah i think uh i think massir mamadov said it on twitter that that children's book has provided more uh credible bitcoin information than all the mainstream media combined over like the last decade and what did uh you know the cash app team did that little storybook same thing amazing and that's uh again that's educating people about these problems do you think people want to know about these problems do you think they obviously there's a lot of

polarization in this country right now and again we touched on it in the beginning of the episode but that's again something i've pontificated about before too is my biggest worry about bitcoin is overall apathy um is that something you worry about at all i have the same worries about apathy um and i'm not convinced that people are going to get angry about a fiat inflationary system um with any haste so yeah it does worry me yeah yeah i get pushback on this like it doesn't matter if people are apathetic like it'll it'll come to be i'm not sure if i agree with that though um i don't know it's the monetization might happen without the apathetic you know whether they like it or not and then they'll have to wake up and just adjust to reality

yeah i mean that's matt odell's uh and you said it earlier like you you want to get bitcoin when you don't need it because when you do need it it'll be very hard to get and very expensive um so we'll see um let's take a little a little uh tangent here let's talk about your your rap career so um i had just started college and my best friend who was also in college at the time at another california school he emailed me three or four mp3s he's like hey i found this guy who makes beats and i wrote some raps and we recorded it what do you think and i listened to them and i was like this shit is dope what are you trying to do here he's like he's like i want to make a rap album. And I said, okay, do you want my help? Like, what do you want to do? And he said, yeah,

let's, he's like, can you help me, you know, manage it, put it together? And I said, okay. So, uh, we started a record label. Um, I was 19 years old and, uh, we ended up, we ended up making four albums two of which i executive produced which means i you know helped pick beats and do artistic creation and uh sat in on every recording session um helped with the mixing mastering uh marketing booking shows um you know dealing with the producers and um yeah you know we made a few albums that still i listen to this day that we're very proud of um after about three three and a half four years we realized that um although we broke even more or less uh it it wasn't going anywhere you know financially and we had to leave that project to the side

and now my friend the rapper is uh is an attorney passed the bar in two states um um and you know here i am with my cfa charter holder and writing bitcoin research so we've come a long way since then but a very fun and exciting time in my life something that i look back on with a lot of joy actually for a few years after we shut down the label i was not able to listen to our music because of the pain of you know loss failure and also the feeling that i let some people down because i was the leader right i was the ceo of the label and so um yeah it was tough but then you know time goes by and those you know time heals all wounds and you know now i'm back to being able to think really fondly of those times and uh yeah it was a special

time in my life for sure no i wanted to bring it up because you were so passionate about it when we first talked about dallas last year and it just reminds me of like why i'm into this space like something you were like overly passionate about went for it had a lot of fun doing it and it seems like you sort of rekindled that that passion with bitcoin and i would argue i have that passion for bitcoin as well it's why we're doing this podcast that's why i do the newsletter and it's i i want to bring it up because i want to talk about like when you find something you're passionate about you're working on it what's what's that feeling like to you yeah it's electric um i do feel that way about global macro and that really plays into my job and uh studying finance and i i really do

love markets and um have been passionate about hip-hop for many years um and you know really did enjoy that time of you know living in that moment of passion for music and and doing everything we could to succeed there and i definitely 100 feel that passion once again with bitcoin and that's why i decided to start writing because it was something that um you know i just felt that i had to get involved with and i had all these ideas about time value and interest rates and you know they weren't maybe some people view them as very original i more view it as an observation and something that I can contribute to the Bitcoin community, which I think the Bitcoin community is so amazing

because everybody is really trying to contribute what they understand best, right? The devs are contributing, you know, guys like you and, you know, for example, Steph Lavera, you know, putting out great interviews and helping us have access to all these smart people in long form. And, you know, we really appreciate it. And then you think about some of the entrepreneurs that have started exchanges or starting companies that have to do with multi-sig security, Unchained and Casa, very passionate people from all different walks really contributing.

And so, yeah, contributing to Bitcoin is something that I'm very thankful that I've done because of, you know, all the people that I met and having something to be passionate about day in and day out. you know i think i vividly remember the uh tweet you sent out of the picture of a safe plane with your daughter while you and tour were having a conversation at bit block boom and you're like i think you wrote the first lnr piece like three months before and you're already at a conference speaking with tour and and safe about this stuff it was surreal because you know i was a twitter lurker for many years you know fin twit uh especially and learned a lot from guys like safe and tour and then to just be chopping it up with them and safe making funny faces at my daughter and uh it really was surreal but it was you know a great uh welcome to the bitcoin community in

dallas by the way i'm super bummed that i'm not going to be there this year uh some travel conflicts dicks um we're gonna miss you yeah i'm gonna miss you guys too uh last year was just a last but i'll be in san francisco for the bitcoin 2019 conference in june which uh a lot of bitcoiners are going to be there so i'm excited to meet some of those people yeah we'll be there as well i'm excited for that too quick shout out by the way to dj dahi um he produced several of the beats on those two albums that i executive produced he has gone on to some raging success over the past few years making records for Kendrick

and J. Cole and they just won a Grammy was it last year or the year before for the song with Rihanna, Loyalty on the Damn album Love that album. That was produced by Dahi and he did No Role Models for J. Cole

a few years ago. So he's had some huge hits and big shout out to DJ Dahi for continuing that legacy on I don't take any credit by the way for his success because none of the beats he made for us went on to uh you know make the radio or anything like that but yeah he's he's done really well for himself no that's awesome let's uh stick on rap what uh you're a big kendrick fan correct yeah i like kendrick a lot um kendrick

is one of my it's one of the few new rappers that i like uh i'm still stuck in the 90s to be honest When it comes to hip hop, I'm a big Nas and Jay-Z fan. And yeah, it's hard for me to get out of the 90s, but I do appreciate some of the amazing music that Kendrick is making. And, you know, congrats to him for that Pulitzer Prize. I think it's it's awesome that hip hop has made its way all the way to the Pulitzer level. And if you listen to that damn album there, you can tell why he was recognized for some of that work. yeah it's crazy i've been getting into the debate of uh i'm a huge kanye fan of kanye love kanye and kendrick people trying to compare them i say don't compare them

kanye is more about self-actualization and kendrick's talking about more societal issues i would argue and kanye is also a musical genius you know in addition to his very inspirational lyrics and you know um very influential music but as a musician as a producer as a producer and as a beat maker and as a sampler uh he really is a genius and you know going all the way back to pre-college dropout days the blueprint album jay-z um talib kweli a lot of records that you know happened before um dropout yeah i love kanye his music in the past few albums i would say i don't love it as much as the first few albums um but i still am able to appreciate you know that musical genius yeah kanye he's tweeted about bitcoin before you think he has

bitcoin i think he's long bitcoin yeah i would imagine it's uh it seems like he's becoming more woke in his in his old age or older age he's not that old he's what like 42 um all right let's bring it back to bitcoin what uh obviously you you're working on this lnrr outside of the reference rate what excites you about lightning uh we were talking about like matt being able to provide liquidity the bitcoin rabbi like what use cases are you following and looking for as uh as we build out this technology i think it's kind of taboo to talk about but merchant adoption via lightning is something that's very exciting to me you know i talk about the real estate title and how coffee is not really you know the thing that we should be worried about but now you start

to get more into uh bitcoin in its second decade and in a i would actually call it in a post legitimacy era um now being able to very easily explain to people the common person look at what's happening in venezuela iran etc can't you understand that bitcoin has a function here and the the disasters with fiat currencies around the world and not all of them but some of them is making it very very easy to pitch bitcoin as freedom of speech money and freedom of speech money is now my favorite narrative not the sound money even though the sound money is my background the gold standard is my background and what i understand more um the freedom of speech thing is that's definitely the most exciting thing

because it's a mentality shift for me when I'm talking to the newbies, right? I'm able to pitch it in this new way and I don't have to get into fiat. I don't have to say the word fiat. Right. Because people don't know what that word means. So why even bring it up and have to define it?

People understand tyrannical governments. yeah and the gravity of the lightning network torch going from wales to iran to israel it's mind-blowing like if you ever try to do that in the traditional financial system it would never happen did the torch ever make it to gaza uh it may i think there was there was a palestine hop in there somewhere yeah when israel i believe they try to go to palestine after that and then um And that, you know, that goes back to, you know, people like I'm of Indian descent. Right. And so I talk to people of Pakistani descent or Bangladeshi descent. And we're all brothers. There's that just that brotherhood. But the politics, you know, is completely, you know, separate from that. They're always divide and conquer, you know, butting heads.

But the people don't feel any of that, right? The people just feel love towards other people, brotherhood, right? And so I think that's great that the lightning torch is able to show the governments above them that the people don't actually care about your borders, your wars, your conflicts, um your religious conflicts etc thank you for saying that because it's something that really pisses me off it's like especially so like obviously there's a huge russia phobia in this country right now i used to work for a russian he's like one of the best men i've ever worked for and ever known like an intellectual perspective uh i did a digital design boot

camp and uh one of the the kids i became close with at that boot camp cena he's an iranian national was studying studying college uh in illinois when i was there and uh we took this boot camp together he's like a great person just an individual and that's like the geopolitical mess we find ourselves in it's a bunch of bureaucrats and politicians basically pitting us against each other when like you said like most people just want to show love towards each other like most people have very natural similar problems and everybody's just trying to get through life raise a family not go hungry have a little shelter like we have that that common denominator and that gets lost in the polarity of our politics and it's not everybody right people

are still uh i don't want to be demeaning to them but people still are brainwashed by a lot of these artificial constructs of you know borders and religions and that's okay but i do just in my experience of traveling the world most people don't care about that stuff no they're just humans yeah and i think i like to think there's somewhat of an awakening happening and most people i agree twitter enables twitter is a big empathy creation tool in my mind like being able to see somebody's perspective via picture on twitter via tweet doesn't even need to be a picture it's very powerful in my mind and as somebody who grew up in middle school uh and went to middle school like throughout the iraq war years and i remember freedom fries and

like all that militaristic sort of propaganda was fed into schools like i remember like having to make a choice as a fifth grader about like what side of the war i was on i was like what not at that that point i wasn't like what the hell but like looking back is like how are you like forcing like little kids to think about this stuff well the funny thing i want to bring this up too is that i like to say that i was woke but before woke became a meme and now is this and now you know woke is this meme i'm not exactly sure what the kids mean when they say that they're woke but i do think that people understand now more than they used to that um you know governments divide and conquer and that uh you know we're we're all the same you know humans around the world and that

whole kind of woke mentality is it's now cool right it's cool to be woke and to understand you know that the government propaganda that's dumped on you is something that you should be able to skirt around very easily and i do see that more and more and you know i hope that that will play into uh you know a more friendly world more peaceful world right you'll say peace and love peace and love and you know i hope we go that direction i think bitcoin plays a big role in that going into the future and that kids will understand that yeah it's the only thing i'm worried about is the transition to that peaceful world obviously governments don't want to give up that power and the one thing uh i've repeated many times on this podcast is bitcoin sign guys uh

description of bitcoin being acidic like it's just like sort of corrodes the the pillars of the system the current paradigm that we live under and and that acidic corrosiveness is also building a system in parallel and i guess that's just like me rambling right now but like how does it happening and you you just brought up uh merchant payments via the lightning network too like i i can also see a world in which this adoption happens for both ends from from venezuelans and people in dire need of a system that works and using it uh maybe at the merchant level and then on the other end uh your your global billionaires who are looking to save their money from uh negative interest rate policies it's going to be both i mean it

definitely will be what do you think that those uh saudi princes that got locked up in the ritz carlton are thinking about their depository situations yeah what happened they got uh their accounts frozen and seized billions of dollars that's right and we you know the details obviously are something that we'll probably never learn because of the the closed door nature of what goes on in that country but you have to think that billionaires around the world are starting to look at treasures and ledgers as a ticket to or a ticket away from the oligarchs and the presidents or the governments that are trying to seize the wealth that they have earned whether it's legitimate or illegitimate, right? They're going to have to look at alternative stores of

wealth in order to protect that wealth to future generations. And a multi-sig Bitcoin setup could be more advantageous to them than anything else. And if you think about gold bricks, This is what I like to – I think that this narrative will become – this narrative will – Bitcoin will, in addition to this freedom of speech money, this whole digital gold narrative as well will be something that people will easily understand where they might be able to grasp why gold is good money. and being able to point out the faults of the gold system it's physical in nature it's clunky it's heavy it's you know not very easily divisible all these faults with gold are solved by bitcoin so i think that these billionaire types are going to recognize that and then the people that are observing what the billionaires are doing are going to start to recognize that oh yeah they think of this as digital gold and probably for the right reasons and maybe

I should think about getting some of that myself right and going back to our earlier conversation of will this happen very quickly or over a more extended period of time the access to the access to on ramps between the last bull market in 2017 to now is a completely different landscape but you have fidelity coming online back coming online ledger x is about to launch or i believe they're already launched um and uh yeah ledger x has been out for a bit um so like the amount of capital that can move into this space uh at any given moment in time is what would have taken three weeks in 2017 could probably take three hours now in 2019 um so the uh the i want and i won't even say the

the on-ramps specifically but the investment guidelines so this is something that i deal with a lot right at my firm we are a separate account manager and we do have some mutual funds which are commingled vehicles. But most of our clients hire us with a specific mandate, a specific benchmark, what you can and cannot do, and what is allowable in your universe, right? Certain companies or universities will say, we don't want to own tobacco bonds, we don't want any bonds related to Iran, Venezuela, you know, things like that, where the board of directors has made some decision 12 months ago that now filters into the investment guidelines and what they're allowed to do or what they're not allowed to do i promise you that some of those investment

guidelines at those boards of universities we've seen that from some of the ivy league schools where they've started to allocate to vc funds that allocate to bitcoin or even corporations or governments themselves have written in bitcoin to their guidelines whether it's no bitcoin or okay to bitcoin those types of clauses have crept their way in over the last couple years and so that is what allows the institutional influx of capital because the on-ramps okay the on-ramps are getting better and i totally agree with you on that side and the fidelity avenue i can't even you know talk highly enough about that's going to be incredible for just the brand name recognition for some of these institutions but it's more the board meetings

that happened 12 months ago and what what was said what you know what they thought about bitcoin at that time and how they're going to allow it as a portion of their portfolio going into the future because these guys are all highly diversified and when they hire us we're only one of a handful of managers as well so there's going to be some some allocation due to uh conversations that were had maybe when the price was at 19k due to green lights from from board members it's interesting like what was do you think 19k was the catalyst um seeing it go that high do you think maybe i think the decade mark hitting a decade of production i think psychologically that was huge for bitcoin like passing that mark this year and i think just humans are dumb and thinking

like round easy numbers like 10 years is like okay a decade is is a good track record and i think one of the nail in the coffin there is going to be the rise back above 10k when people realize this thing is not going away what are we doing about bitcoin right and that's probably going to happen the next time we cross 10k whenever that is because i 2000 be that max fomo institutional level fomo where they're like okay harvard and yale involved japan legal tender irs property cftc belarus is mining it belarus is mining it now like it's uh it's again it's because 2015 2016 people legitimately thought it was going to zero like now uh four or five years later or four years later three years later uh that's what that's what like gives me pause like am i

overconfident like there's like not enough people being like bitcoin's going to zero bitcoin's going to zero um and just like the contrarian me wants to be like all right maybe maybe it could go to zero now that nobody's saying that that it will but uh i think that's just me being foolish and And not being able to accept the fact that, again, this is something with a decade, a decade with 10 years of a track record. It's getting more legitimized by the day by countries and institutions. And it's just a matter of time. Can we talk about technical analysis? Let's jump into TA.

Let's jump into that because. What are your thoughts on TA? All right. So. I'm a hodler, so I don't trade. And as am I. I don't trade Bitcoin. one of the first things I said to you is that I was looking at the price as very constructive

back in that 2015 time period so I don't call myself a technical analyst I'm a chartist the reason I like to call myself a chartist is because I'm a price is truth kind of guy And to me, technical analysis or charting is simply a study of past prices. That's all it is. It's more descriptive than prescriptive.

That's right. Technical analysis is not a predictive tool. It is a way to analyze price behavior looking backwards. Right? So the technical analysis Bitcoin community is rampant. And actually all of Twitter technical analysis, it's kind of out of hand, to be honest with you. But at my core, I understand why technical analysts or chartists are doing what they do. It's to set a risk management framework for what they think may or may not happen in the future.

And so the reason I bring it up is because I'm looking at the chart in 2015 and feeling that price is telling me that the sellers have exhausted themselves and we're heading back up. And I think that if 3K was the bottom for this cycle, once we start to get back up to 6, 7, 8K, the chartists themselves are going to be looking at that chart and saying, the sellers have been exhausted. and that's when you'll get you know the next round of board approvals to say okay it's okay to go long because they'll look at the chart and they'll say this thing is not going back to zero price is price is truth and the price has not visited that level in months now and you know the bottom is in so if if if we can you know officially call the bottom and we'll only be able to do it after the fact, right? Nobody can call the bottom at the bottom, but I think that that could be, uh, you know, the next green light. Um, so yeah, I just want to bring up TA cause

there's a lot of, there's a lot of stuff out there. I, I, I look at charts all day, um, on my terminal and, uh, I'm not that I'm not like a four hour candle guy or I like to look at weekly candles and just, you know, when in doubt, zoom out. That's great advice. When in doubt, zoom out. And put it on log scale with Bitcoin as well. Only log scale charting, guys. Otherwise, you're missing the adoption curve.

Yes. But this also begs, like, another question. Like, how many more... I mean, this is another huge debate in Bitcoin and quote-unquote crypto overall. Like, how many more boom and bust alt cycles happen, like with the altcoins? Is there a threshold Bitcoin price

where people say, all right, the likelihood of a Bitcoin 2.0 coming and usurping Bitcoin is probably not very high, at which point maybe the proliferation of altcoins slows down at least. Do you have any thoughts on that? I do kind of believe in the 80-20 rule. So maybe that 20% will always be around and people will always be trying to copy. One of the things that I'm very thankful for, and I'm reminded of this all the time on Bitcoin Twitter, is that I came in as a Bitcoin maximalist almost immediately.

Like, I had a brief blockchain all the things phase where, you know, I... Only natural. Yeah. You get so excited about this. Exactly. But it was very short-lived, and so I don't even know who these people are, what these coins are called. I don't pay attention to it, but I see Bitcoin Twitter, they get so amped up on trying to trash talk the other projects or the people that have left the project or total scammers. And I am thankful that my brain space is not dedicated to that.

And I just don't spend any time or energy. I'm very similar in that regard. I'll shit on Ethereum every once in a while. And I like your Ethereum thread because it's, you know, with the Constantinople stuff, it's a way to remind people like me who don't follow it, like, really what trash some of this stuff is. I do believe that the people in those spaces, most of them have good intentions and they're just confused. But, yeah, I don't engage with them at all. no um this like i became it took me it took me a little bit longer to like come around to like oh bitcoin that's probably gonna be winner take most at least if not all bitcoin

has the best likelihood of of attaining that at this given juncture um what was i gonna say the uh this is the third forgetful comment of the uh the podcast give me three seconds oh the it gives me but the one thing that gives me like a a sense of calm is like going back and reading things like the nakamoto institute reading tor de meester's early bitcoin valuations like the people that have been bullish bitcoin for the longest have been consistent in their views and very like the consistency of what most bitcoiners have been saying for for five six years now is something that gives me confidence in Bitcoin overall because it rings true today it's not a shifting narrative like you brought up my Ethereum thread which I basically took a snapshot of a part

of the black swan I believe talking about the reverse Lindy effect the longer it takes there the longer your deadline extends into the future to finish a project the longer you can be expected to wait and Ethereum's transition of proof of stake is a perfect example that I believe they want to transition 18 months after they launched and have since pushed it back they don't think it will be possible for like another eight to ten years um but the one thing with bitcoin is that that really gives me a sense of confidence and a sense of calm is the consistency throughout the years that's the one thing again that principally drives me to bitcoin as a project is it's very consistent in its principles and its ideology and and what it preaches yes some people were

misguided about what a peer-to-peer cash system is and bitcoin was mismarketed as fast and very cheap at the protocol level in the early days by some confused individuals but i think hal finney with his bitcoin banks post in i believe it was february 2010 a little over a year after bitcoin was incepted that narrative and that sort of mindset of bitcoin as a settlement layer protocol all has been consistent for for almost a decade one of the foundational quotes to my investment thesis uh and my excitement about the lightning network was that hal finney quote about second layer right it's uh rest in peace how the the prescience he i mean maybe satoshi that's up for debate it's not up for debate we'll never know but or who knows we'll never know i don't think

but the pressures that he had to to again going back to a big theme of this episode of our conversation to date is noticing the limitations and and the boundaries with which will be given to work with the bitcoin protocol and going back to utility that's what i think more people are beginning to come around to like yes bitcoin at the protocol has these limitations due to scarce block space fees are going to go up as demand for block space goes up and we are just tasked with building tools on top of and next to bitcoin that can sort of leverage that the assurances of the protocol level and and again squeeze out the most utility possible it's incredibly beautiful in its simplicity and that's something that you know you you like to talk about

the dumb the dumb protocol it it's it's so beautiful and i think it um it really allows people to understand Bitcoin's properties very quickly, right? Limited block space, 10-minute targeted difficulty adjustments, block time, the supply schedule. That was one of the main things that hooked me was, oh, a defined predetermined supply schedule with approaching 21 million uh with an asymptote like it's so beautiful right and and and it allows it allows you to go all in mentally as opposed to all these other fancy bells and whistles projects where they're trying to toy with this and that and you're looking at the hash power of bitcoin and you're like why are you even bothering it doesn't make any sense for the gains bro for the gains one of

the things that um a younger colleague of mine the the light bulb went off in his head he goes this was recently he said wait so when you're long bitcoin you're really just long this proof of work in game theory and i was like again ding ding we actually have a bell on our trading desk when somebody says really insightful comments like that, so I rang the bell for him. Oh, yeah. It's a ring-the-bell-worthy moment. We had to buy a bell, an actual bell,

because we like to have fun on the desk. That's one thing I miss about working in the office, is fun stuff like that. But, again, it's been said many times, the game theory is perfect. The incentives are perfect. Satoshi may have designed a perfect incentive system. Bitcoin has contracted us humans out to keep it alive, and we're gladly doing that in return for freedom of speech money and sound money.

And can I just segue real quick to the rabbit hole recap? So this young colleague of mine has, you know, he asked me for a list of pods recently as, you know, maybe the price has bottomed and he wants to get more involved again and learning about it. and i said you just got to listen to rabbit hole recap every week because it's a great way and he said he goes man that these guys are great but you know for about a third of the episode i have no idea what the fuck they're talking about but it's good because you know it will have him learn you know as it goes and he'll google things and and you know keep absorbing it so you know shout out to you guys and what you and matt are doing because that that new show um it adds a lot of value to our day and especially people like me who are busy and i'm on bitcoin twitter all the time of course and reading all the articles but just to hear you guys talk about the five or six

things that matter every week and uh give your takes you know we really appreciate it thank you i appreciate you saying that and i am uh very lucky to have matt as a co-host he's incredibly knowledgeable the breadth of knowledge that he has you guys have a great balance yeah i think uh i think the rapport is great lucky to have him uh close so we can do it in person and we have a lot of fun doing it again like we do it because we want bitcoin to succeed and we want to help people overcome these hurdles uh education hurdles in particular and um like i said we we often talk about that balance of uh speaking to bitcoiners and speaking to newcomers and i think any of you newcomers that are listening to this like over like this is something going

to bit devs meetups here in new york when i first moved here was incredibly daunting is that you sit there and it's just like a dense overload of information very highly technical information but slowly over time it's taking me five years via osmosis of just going and being exposed to these concepts and the vernacular and the the interaction of everything uh it sort of makes sense it may not make sense right off the bat but these things will be floating around your head the more you get exposed to it and you'll you'll be able to make connections uh over time yeah and actually took me a long time to understand the security mechanism in lightning network even though i got into bitcoin in the segwit uh build-up era where segwit was at the forefront of everybody's

conversation and i did understand transaction malleability uh early on and you know i was able to grasp that easily but you know how the the justice transaction works and lightning and you know you know publishing a false state and then you know the the person being able to basically have that call option where they can call back their funds it took me so long to understand but you just kept keep learning keep watching keep listening and eventually you'll get it if you care enough to get it yeah admittedly i had uh an aha moment listening to your two episodes with stefan uh in preparation for this interview is is we talk about bitcoins at the protocol level the incentives making it run but with lightning it's the disincentives to to cheat

that that sort of keep everybody honest there's a we talk about incentives but the lightning disincentives sort of drive the honesty yeah the lightning security mechanism is completely different than the bitcoin security mechanism yeah which is crazy let's but maybe one can't function without the other yeah exactly so let's let's end on that how is how is that uh how is that different uh the incident what is the disincentive uh to to cheat on lightning you lose all your money yeah it's that simple you've you've given you've given your counterparty a call option you've sold you've sold a call option and so you not no longer own the option you no longer have the call on that right and so the optionality uh the optionality is what

powers the the game theory of the lightning network yeah and optionality is not present on the base layer there's no optionality there yeah so they're they're they're very different from each other now it's fascinating and it's uh it's fascinating to see what you've been developing uh particularly around the lightning network reference rate i'm excited to see more people participate that participate in that uh at the end of your most recent episode with stefan uh you said you're actively looking for for people who are sharing data so if anybody wants to share their data where can they do that with you yeah just reach out to me on twitter at time value of btc and um don't be shy if it's literally like three bips that you're making

because that three bips is not zero and it's material and we want to know what lightning routing activity can earn whether it's three bips or 300 bips it really doesn't matter from the financial theoretical perspective what matters is building a risk spectrum in bitcoin that is native to bitcoin so if it is the case that lightning network routing is on average 10 bps across the network then that's what it is and guess what you're yielding more than you would at a european central bank depository institution at negative 40 bps overnight rate um but you know that that's not the point right this bitcoin is its own denom and in this denom we have to think locally and natively we can't be thinking about what are you know a potential interest rate that

would make it attractive for me to invest no this is just an observation of transactions and pulling math out of it yeah and again thank you for putting this stuff forward for stepping out i think you're again like we discussed incredible example of somebody who was a lurker i was a lurker at one point myself to develop the confidence to put your thoughts out there and people picked them up and have been running with them for the last year and it's it's been great to see and i'll tell you actually why i published at the time that i did i was working on this idea for several months and the price started to go lower and lower and lower and i said this is my chance to enter the bitcoin community with people that care about bitcoin and not about price

and let me reach out to these people and disseminate this idea and see uh i know that the people that read it and like it will be interested for the theory and not about making money and this is something that a couple people have reached out to me actually uh jeremy from casa um reached out to me after i published my latest piece and he said you know i love it great work but i don't want people to be focused on making money from their casa notes i don't want that to be the focus i want them to be focused on the routing and the health of the network and so i will 100 echo what jeremy you know reached out to me to say because again you know 10 bips on 100 bucks in your lightning node is not any real money it's just theoretical yeah

and but it's exciting to me you know no i hope it's exciting to other people it's extremely exciting to me and again going back to the fact that it's completely emergent and it's not decreed by the network or the people on it it's it's sort of emergent via the economic activity which is fascinating and i think presents a very very different paradigm than the one we've we're used to um nick about an hour and 40 minutes in here do you have any final thoughts you want to share any words of advice for the freaks out there before we part let's keep

growing Bitcoin because Bitcoin gives me hope I think it gives a lot of us Bitcoiners hope and you know although my work is focused on the lightning network

and interest rates that's not why I'm involved i'm involved because i think that bitcoin can help the world and you know it's a very idealistic vision but without that idealism at least in some aspect of your life uh you know without that i think you're missing something yeah on this earth so you know let's just keep on bitcoining let's keep bitcoining it is uh provided an immense amount of sounds cheesy but purpose to me and uh Again, the people that you meet along the way, the conversations that you have

and the connections that you make are something that, even if Bitcoin fails, which it's not an experiment. And if it's not as successful as we envision it could be, it doesn't matter. This has been an incredible experience anyway. Nick, thank you for coming by. You freaks out there,

find Nick on Twitter, at timevalueofbtc. Anywhere else we can find you? medium same handle that's where i posted my articles yeah we'll post uh we'll post all the links to uh the four-part series in in the description um if you guys are liking this please subscribe share rate review tell your friends tell me uh what you're liking and not liking uh nick thank you for joining us thank you marty appreciate it man much love peace and love freaks