TFTC: A Bitcoin Podcast - Tales from the Crypt #85: Paranoid Bull

Episode Date: July 16, 2019

Join Marty as he sits down with DAL, AKA Paranoid Bull, to discuss his journey through the markets, systemic risk, political risk, the world's current disconnection from reality and how Bitcoin play into it all. Check out Odin River's mission: https://medium.com/odin-river/odin-river-31ddc131a22 Follow DAL on Twitter: https://twitter.com/paranoidbull Follow Marty on Twitter: https://twitter.com/MartyBent Shoutout to our sponsor, Cash App. Head over to the App Store or Google Play Store, download cash.app and start #stackingsats today. Use the promo code: "stackingsats" to receive $5 and contribute $5 to OWLS Lacrosse you download the app.

Well, hey there, freaks. It's your boy, Marty Bent, here to introduce this week's sponsor before our incredible discussion with Paranoid Bull. This week's episode of Tales from the Crypt is brought to you by the Cash App. You freaks already know all about them. They're helping you stack sats. They're helping you save money with their boost program. And their number one finance app in the App Store for the last two years. On their Bitcoin side, they've been opening it up. Their functionality's up recently. They're BEC32 compatible. That rollouts happening now slowly but surely for users there's a couple users tweet at me that they were able to send to wasabi so they're getting back 32 compatible deposits are enabled

for everybody on the cash app you can send bitcoin from your personal wallet to the cash app if you so please and then on top of that we've got a a promo code stacking sats if you freaks download the cash app using the promo code stacking sats you're going to get five dollars free and then we're going to give five dollars to a program very near and dear to my heart that's al's lacrosse in chicago it's helping inner city youth there uh via the sport of lacrosse um so yeah go to your local app store download the cash app today tell your friends tell your family tell anybody that's interested in bitcoin and then payments apps uh to download the cash app and use the code stacking sats one word stacking sats get that five dollars and give five dollars

ow owls excuse me um hope you guys enjoy this conversation with paranoid bull i know i certainly did a man who uh has thought a lot about systemic and political risk very thoroughly enjoyed this conversation i think you will too what is up freaks welcome back to tales from the crypt it's your boy marty here back in the studio uh the home studio back in the home home field sitting down with somebody i'm extremely excited to talk about talk about talk with excuse me because i've been following on twitter for years now uh you freaks may uh have seen me retweet him if you follow me on twitter i'd like to introduce you to dal aka paranoid bull welcome to the podcast it is great to be here and

uh nice to meet you in person no it's uh been a very great pleasure speaking for the last 15 minutes here uh i'm very excited for the conversation we're about to have um i guess here we'll start so we were talking earlier you're touching you've been in new york since 2001 you said yeah on and off you know i first i first came um actually as an intern in 2000 during the dot com bubble and uh then after graduating from undergrad in 01 i moved and lived right across from the world trade center uh which is now battery park city at the time it was just a couple buildings um so i actually lived kind of within distance of feeling the impact on 9-11 um from the uh the planes hitting the towers that was a really intense painful not um not good

experience but i i've had you know some really really great experiences being in new york on and off since then i did spend a couple years in la which was amazing and then uh spent a few years up in boston doing grad school um and you know kind of during that time frame as well and have been back full-time for a decade now damn yeah damn decade i'm putting i'm about to get them up on half a decade in new york and i feel like it's aged me quite a few decades at this point congratulations i don't know if i should get a congrats or what the hell are you doing yeah um but in 2015 you started was it 2015 started odin river i did yeah so i i'd kind of um you know been you know in in various different ways kind of in the legacy wall street world since the beginning

of my career started out in investment banking actually doing tech m&a during the bubble and then quickly kind of shifting gears to doing other m&a stuff and then um kind of since early 2000s been doing various things related to the quote unquote buy side of legacy finance um private equity and hedge funds and and kind of worked um last cycle you know i was i was doing my jdma mba at harvard i started my first blog called paranoid bull which is now exclusively a twitter account because who blogs i think people still blog but um so yes i kind of you know was was working and actually worked for the guy who did the subprime trade this guy named john paulson like you know um big short guy uh uh for a while but i i you know on the way up this cycle i became very

um convinced that progress is inevitable i developed this philosophy um and the philosophy is kind of the opposite of paranoid bull meaning paranoid bull is based on the idea that cycles matter but in the long run things will be good um odin river is the opposite odin river is based on this philosophy that progress is inevitable but cycles matter and uh anyhow so so i've kind of like leaned into the latter part of that um you know the last year or so on the paranoid bull twitter handle but yes the short answer is i i kind of i founded Oden River 2015-2016 time frame and

you know I've been spending most of my time living the philosophy of Oden River the last few years so it's a bit of a yin and a yang very optimistic yet very pessimistic about the short term effects of the cycle that's right I mean in a way so I'd say

for people who know the term I'm a definitive optimist I have faith in progress and I choose these words intentionally i have so much faith in progress that i think the legacy system must collapse not even might but must and i think that what we've witnessed in the last few years this cycle is kind of the culmination of what what i think is going to be a systemic risk type event um series of events in, you know, in the kind of way that the legacy system collapses.

And, you know, so that's, I guess, in the short run, quote-unquote pessimistic. Like, I'm pessimistic about the prices of things. I'm pessimistic about, you know, certain aspects of the legacy system, financial system, political system. But I'm massively optimistic, you know, about what will emerge on the other side. I would agree. I'm as well. and let's dive into sort of all the risks so you tweet out a lot systemic risks exist political risks exist and we were talking about uh the uh interaction of the new digital age with the legacy system and that's a huge theme on this podcast is the fact that we were born at this inflection

point and our monkey brains are trying to sort of discern what's going on with all the technological change that's going on the change excuse me the pace of change is is quicker than it's ever been at any point in human history and us as a species just trying to adapt to that and and like you just described there's a legacy system sort of holding us back a world full of anachronisms if you will um and and we sort of need that to collapse before we can move forward so let's get into the the political and systemic risks that exist today um because yeah that's another topic like everything's disconnected from reality from the cpi to to justice to to things like the jeffrey epstein case that's going on right now

and uh how much injustice was served years ago when he did his original sentence um and stuff like that yeah so um i think that let me let me kind of let me lay out a framework and then you know glad to dive in to any and all aspects of it um just as a way to frame um frame the dialogue So I think that, you know, one of the facts about history, and, you know, kind of there's two ways of thinking about this, and I'll describe both. There are, factually speaking, and one of the most important books I think I've ever read is Hegel's Lectures on the Philosophy of History. Really important book. you know he traced up until that point in time the 1850s the fact that that many civilizations have risen and fallen so there's been a history of political cycles going back in time forever

and you know the rise and fall of of political societies often you know there's often violence that that happens there's often kind of a lot of loss that comes from it but over time we've progressed in a really good way um you know and i think you know post-world war ii america is is the best i and i think it's just a fact um you know country in the in the history of civilization but as you said today we have a lot of of negative things um going on and even even martin luther king the day before he died was assassinated he has this great speech where he talked about the mountaintop. He'd been to the mountaintop,

and he knew that we would reach the promised land. It was a very optimistic speech, even though he knew his life was in danger. And he said in that speech that even though he was literally marching about how horrible civil rights were at the time, he's literally in a hot room in the South. His life's in danger. He gets killed the next day.

He said if he could choose to be born anywhere in history, he would be born in that room you know in that time in this country so this the history of civilization is such that we have rises and falls but but things kind of move in a direction so progress is inevitable it takes time it takes it takes cycles politically but the other kind of like really important set of cycles at least you know important in the sense that it impacts most people's lives and that we have this this thing we call money which is really like the the representation of all of our energy and time here on on earth and we kind of put all the effort and energy that we have um into the world in the in the world hopefully gives us back this thing

we call money the money is part of a system the financial system and the financial system has very clear cycles it's just a fact it's not even really that controversial um you can look at you know, equity markets, credit markets. And so the way that cycles work in financial markets is primarily through credit cycles. And so when we look at risk, whether it's credit risk, political risk, you know, individual company risk, one of the important, I think, important dimensions for kind of framing that is to think about, okay, well, how does that materialize in the financial markets? And specifically, you know, why do these cycles happen? How is it the case that they keep happening? And, you know, kind of how does that impact the way we look at the

world today? And I think it's just a fact. Like if we look at just the last few years, like even since you know since not not to be egocentric but but you know kind of my time here in new york i arrived at dot-com bubble boom collapse 2008 massive collapse and here we are again um you know 2019 it's it's truly insane that they've been able to you know extend the cycle so long but by by any metric you know the prices of things are higher than they've ever been when you look at you know equity markets uh credit credit markets are obscene we've got more than 10 trillion like 13 trillion dollars of negatively yielding credit which is literally insane it should not exist right it's literally a contract to lose money that is what negative

yielding bonds are because all a bond is is is a contract a piece of paper that says hey here's some money like give me some interest instead you're signing a piece of paper that says here i will lose money like take my money it's crazy it should exist right what's the german uh tenure you're at right now isn't like this is negative 120 bps or something you know i don't i don't i didn't look at it this morning i should have you know but it's it's it's negative past 10 years in germany um you know it's probably near one percent it's probably 70 i don't know the exact number but it's negative something that it shouldn't be um and you know the fact that you know italian two-year government debt has been negative is totally insane um so it's like we're we're you know but

but we've seen this before right we've seen this before and even going back to prior to you know our time like you know there was a savings and loan crisis and the you know in the in the 80s and 90s there was other cycles and so so risk has been mispriced consistently um at the peak of cycles and and you know and and so we're kind of in that dynamic again the reason why political risk is so important this cycle is that so in every cycle you know in order for there to be a market collapse or systemic risk to emerge there has to be something that's totally obvious that people are staring at and in retrospect people are like wait how is that possible we didn't like pay attention to that thing right so in dot-com the dot-com time it's like it's crazy

to think like how was pets.com this shitty website right like worth a billion dollars like how are these websites worth what they were we knew at the time it even seemed absurd but now in retrospect it looks insane in 2008 housing prices were already in free fall like it was not even like like subprime like the subprime cycle has started to turn like 06 housing pieces peaked in 06 by 07 it was clear right you had bankruptcy you had like stuff happening um bear stearns having issues you know countrywide like a number of these um subprime lenders going under you had a number of issues yet you had you know chairman bernanke saying things like subprime is contained right the uh i think he said the overall potential uh impact it would have would be like 50 billion

dollars on the economy which is also just bad math by the way because the housing market is 12 trillion, right? So you have 12 trillion in mortgages. Housing prices go down. I mean, the math isn't that complicated, right? You have housing prices decline 20-something percent on 12 trillion. That is trillions of mark-to-market, right? Plus you add leverage, and it's just math that they just were assuming

wouldn't be interconnected through the system. The main mistakes made last cycle were kind of that and then leverage in the CLO market, which is back again now, collateralized lending for private equity transactions. levered levered you know levered loans another way of describing that um that market which is which is today you know a lot of people are saying kind of the the biggest issue um it's it's 1.4 trillion ish but it's not the biggest issue the biggest issue is government debt it's it's a total obvious fact it is just not even close to controversial that political risk is

off the charts right like it's it's it's hard to go a conversation without talking about Donald J the real Donald J Trump right it's nausea it really is and it's like nauseating and it frustrates the hell out of me because I'm obviously a bitcoiner and I'm one of the one of the types like all right let's just focus on building this new system I don't even want to hear about the old system because I've given up on it uh well you know you're a smart guy so what does that say all right what does it say that so many smart people are are giving up on the legacy system right so I think you know it's just a fact that political risk is is completely off the charts you know the the democratic i call it the red and blue you know the the dying red and blue

which is the gop and the dems they've collapsed like they've self-annihilated how do we make more people realize this though it seems like uh now more than ever you have people calling for more government and the state to come in and yeah so it's a natural response unfortunately the self-annihilation so so the collapse of the old system is not comfortable right like systemic risk it's like a catchphrase it's a word it's not comfortable right like 2008 was quite painful and in 2008 the systemic risk was based on leveraging housing in the u.s and leveraging the and kind of the the you know corporate debt markets um you know that brought down the system this time because it is the entire system including government debt that is mispriced

you know what's what's what's likely the case is that this type of collapse will be worse than last time um i think that is what like deutsche bank's kind of like a canary in the coal mine for what is probably coming in the european financial system what about the bad bank they're about to spin out you think that will save them well think about we'll think about like just just think about the prices of things today right so like um right now there are a lot of people you know who are kind of like celebrating that the s&p 500 quote-unquote reached all-time highs you know or or you know the dow quote-unquote reached all-time highs even though the dow by

the way just passed where it was last october you know people leave that part out and s&p is up two percent since january 2018 you know it's not that much higher right i thought it would have been up much more percentage wise if you listen to the president's tweets you would think that right but if you look at the math it's actually up you exclude dividends right at the peak at the end of uh june was two percent higher than january 26th 2018 which is kind of interesting and less than one percent higher from august of 2018 so it's it's you know the markets are quote unquote at all-time highs but that is also on the backs of an even bigger negatively yielding credit bubble even bigger um leveraged loan bubble and and now you know threats uh you know and kind of

what i'll call like um the president berating the chairman of the federal reserve to cut rates and and, you know, ECB, ECB saying things that they are going to do, which they're legally not allowed to do today. What's that negative or negative interest rates? This is so fascinating. So this is, this is, so in order for, so there's a few things that have to be true for a systemic risk to emerge. One is there has to be something that's very obvious that later that at the time people kind of ignore at a very large scale and then later it turns out to be obviously a mistake so housing was that the dot-com bubble was that this this this um cycle is government debt it's it's like you know how can like brexit like people think a hard brexit might happen like in october

but somehow european government debt is so safe that it's negative it's it's totally insane right and and there's there's so many different reasons why it's insane in europe probably the most obvious way to frame it is so that so in order for these things to these mistakes to be perpetuated there have to be myths you know and i've heard you guys on this podcast talk about narratives myths are narratives right and myths can be true myths or they can be false myths so there's this one very deep myth that i call the myth of the infallible central banks the myth of the infallible central banks is based on the idea that there's some curtain and behind the curtain there's some magician that is a central bank that will control the whole system and somehow keep it propped up

because don't fight the fed right don't fight the boj don't fight the ecb like and there's certain truth to that and that if you had been assuming that the central banks would fail in their endeavors over the last period of time you've been wrong right in the same way that prior to 08 if you would assume that housing can't go down all at once across the united states which was kind of the key assumption embedded in credit derivatives you would have been right prior to so so today the myth of the infallible central banks is alluring right it's like oh wow they're magicians they have the ability to print infinite amounts of money and stuff but the but the truth is central banks are fallible not only are they fallible

meaning they're just people like i've met some of these people they're probably very well intended you know but they're oftentimes academics right who haven't even worked in the real world they are also limited in the united states by law in in every single country by politics and in europe literally today europe has an issuer limit that is in the law that says they cannot buy more than 33 percent of any government bond any issuer they cannot buy more than 33 percent of government of any government's debt they cannot buy more than 33 percent of german government debt today it's just a law now the market quote-unquote is pricing quote-unquote meaning the negative yields that are kind of being implied um not being implied but being priced

in the european sovereign credit market many people have calculated that that pricing implies way more QE than they legally can do today. Not only that, the German Federal Constitutional Court never ruled that QE is legal to begin with. They reviewed it. They said, we're going to pass this to the European Court of Justice. We will not rule on it. We'll defer our ruling until later. On July 30th and 31st of this year, this month, there is going to be a court hearing in Germany to determine whether QE is even legal. Okay, these are just facts, right? So if a German constitutional court

could in three weeks say that QE has been illegal, which is possible, I don't know what the rule, we'll find out. There are German economists and business people that are fighting QE, saying it's illegal under German law. If that is the current state of affairs,

meaning that there's a German court review pending, the european central bank is not only fallible it is legally restricted in like a very clear way not even like theoretical this isn't stuff i'm like speculating about these are just facts yet people are assuming they can buy bonds forever they can buy infinity bonds they can do whatever it is they want to do but they can't they can't there's legal limits i didn't know that that's crazy it's a it's a fact no people don't people don't talk about it and people don't focus on it because they look at the prices of the government debt because you know whenever you have negative yields that means the price is going higher and higher and higher so bring it back

to deutschbank deutschbank is basically selling 300 billion dollars worth of assets right into this quote-unquote bad bank at a peak right the government debt markets credit markets in in europe and in the global markets are quote-unquote at peak they're packaging that stuff up and they're Like, get it off our balance sheet, right, while markets are still at peak. But imagine how bad that situation would be if markets normalized. That's why I think it's just the beginning. Yeah. And going back to, like, political risk, too, you see yesterday they slashed 18,000 jobs.

And the headlines come out earlier this week that executives took the highest bonuses at Deutsche Bank they have ever. so this is so to your back to your comment about the like wouldn't it be great if people didn't want socialism for all like wouldn't it be great if that wasn't the solution of course it would be great right i think it would be better if we could avoid socialism it doesn't seem like a good you know economic system it hasn't ever worked you know look at venezuela look at other examples um there aren't really any good examples of socialism working in an economic system the problem is that we have in our current system socialism for the rich that is what qe is qe is free money for the wealthy and for large corporations and so if you have socialism

for the rich which is what we've had in this basically the global economy it's natural that people are going to be upset about that this this is actually kind of why trump won right in 2016 Yeah, that's why I can see a dark horse in Andrew Yang winning this time around. I do not believe he has a real shot. But I do think that people like Senator Warren and Bernie Sanders have a lot of resonance because they're talking about economic populism, which is really what propelled Donald Trump to win 2016. Now, his policies have probably been more corporatist than populist, which is why he's probably vulnerable in the election. We'll see. um but the economic populism argument it's it's like people say bernie sanders is a broken record

it kind of is he's literally been saying the same thing since 1970 it's just the country has moved in a direction where him saying the same thing is now mainstream because things have gotten so extreme right no exactly so the pendulum is swinging how do i want to describe it so the pendulum is swinging we have socialism for the rationale qe and cutting rates that's obviously the cantillan effect comes into effect there uh which allows the people closest to the spigot of money creation to benefit before inflation goes throughout the economy and then it's kind of it looks like as if it could potentially swing the other way where you have sort of socialism for all you get free health care free schooling potentially a thousand dollars a month

and i think just that framing like i think the world in this country in particular just stuck in this terrible framing like everything's about narratives and framing and they have to think red versus blue that's right and this is why bitcoin comes in the conversation like do you believe a sound money sort of metric system for money is preferable and could sort of get us out of this framing of socialism for the rich for socialism for the poor so i think um so so bitcoin represents a um a number of things in the current environment and So one of the major problems with the legacy system is this fake kind of dichotomy of the only choice is an elephant or a donkey. Are you a donkey or are you an elephant?

Like, that's it. Like, one or the other. And people, you know, there's like a tribal instinct that kicks in. And, you know, people feel like they have to be against the whatever, the red team. And it's like, it's really silly. It's pretty absurd. you know and and then you know there's a lot of structural reasons for that in government and people say well you know it'll never be the case we won't have dems and republicans i i don't

believe that so i think there's just like a kind of a collapsing stupid way that our government's been constructed and i do think that the global digital um autonomous nature of bitcoin meaning you know in a way it's kind of borderless it is um you know it's about the sovereign individual it's about kind of an alternative to thinking about not only political parties but even borders and countries um in a new way i think there's a way in which bitcoin kind of stands for some of that um but i would broaden that to say that you know i think that you know bitcoin is really part of a broader wave which is so one of the things i believe is inevitable is transparency that's why i love this podcast i love kind of you know the various different ways in which information is

becoming more accessible um because i think that is just inevitably part of how progress emerges so so bitcoin and kind of other you know modernizing forces in the financial system bitcoin is is kind of a little bit more than just the financial system but it is primarily about money and so therefore connected to the financial system these various different forces are part of this this this permanent wave of transparency and modernizing finance and so i do think that um you know the technology of having an immutable decentralized um kind of sovereign individual focused form of money is consistent with a with the future um you know where transparency and and kind of you know a more open society

is present i think bitcoin is is kind of built for that in a lot of ways um but i also think it's just one of many things that are happening right and bitcoin's kind of an example that um you know it's also coming back to memes and myths you know it's also a hope one way that i that i kind of frame bitcoin is there's there's like a call option on on a future technology which is really this notion of of kind of bitcoin as the decentralized network and bitcoin as this secure immutable thing that you can transact in and maybe even some space in a network like the technology aspect but it's also a put option in in on the fiat system there's a myth around the notion of we need something better than this dying legacy system and people

are screaming you know they're they're they're rightly very upset about the collapsing old system financial system and so bitcoin also stands for that which is this kind of maybe put option hope that we can have you know a new form of money that is stable no i really like that framing um recently dal dal had a an interview with real vision with ral paul from real vision and that's where i first heard you uh explain that call option on the tech and put option on the collapse of the fiat system uh it's focused on the call option right now that's a little over a decade in like where do you think the tech is are you impressed with it or do you think it's lacking are you surprised where it is right now so i think it's um

i think what's been really great about it is you know so one of the one of the facts about the future being transparent is an open source community therefore is part of that future and the open source nature and kind of decentralized way in which even the technology itself has been developed from the beginning is by its nature consistent with progress in my opinion And the way that the community has been resilient through things like fights over block size or whatever the kind of controversy may be in this decentralized way is also really interesting and consistent with the future of how things will be built. it's also great that there's no pre-mine and there's no like mooning ico bullshit like um around the the genesis of it because if you do that you pollute it forever you can never come back from that in my opinion that's one of my uh big beliefs is that bitcoin's quote-unquote

immaculate uh conception is is not replicable because there's just too many eyes on the space at this point i don't it's very hard to not take the bait of of selling out there's another way of saying what you're saying i think it's possible i wouldn't say that it's not possible to do things that are pure right which you're saying it's it's very very hard to not it's very hard to be pure when there's a lot of incentive not to be pure meaning consistent with values and build in a way well it's not even be pure right it's like it may be impossible to be as pure as bitcoin was because there's so much focus on it like like you have vc funds and hedge funds popping up They're solely focused on getting as much stake in these systems as possible at inception.

And unless you, do you think you can ninja launch like a Bitcoin competitor? You and I today, right now, could launch a new network with no pre-mining in this room. We could, right? there's there's the possibility it is very hard for all sorts of reasons including you know why would you like if you have bitcoin why do you need to create something like bitcoin so i'm not like well i think there are for for instance in my opinion not to diverge from bitcoin i think we need to build a new kind of social network right that isn't you're talking about this before we hit record let's let's dive into this a little bit why so the fundamental the fundamental nature of

the way these networks monetize and the reason why Facebook's a very good business is that that like the legacy advertising business is totally stupid like it's fucking dumb it's built on killing trees like you have to kill some trees like put put like ink on a piece of paper and then people pay money for for like human beings to stare at ink on dead trees like that is advertising right or like like sit in there in the in the in a living room in front of a machine and fake like you can't change the channel like the legacy advertising system is so completely dead and broken that something as basic as like a database with your friends and their pictures is like the most profitable advertising business ever right so so it's it's great you know like in some sense

that you know that that facebook and and and twitter like have you know and i i have been tweeting for like 12 years, and I prefer Twitter for many, many reasons, you know, but it's great that these new networks are kind of like riding this dying advertising trend to create a business model, and, you know, and so that's progress, but that's a fundamental tension between what social networks are about and how they make their money, meaning you and I are connected through Twitter because we like to share our ideas, not because we want to look at an advertisement, right we have and there's a great community on twitter around crypto around bitcoin that is genuinely about learning it's about sharing it's about collaborating it has zero

to do with staring at advertisements to buy a volvo right you're gonna get one you know like as you get older in life and we reach different milestones in life we get new kinds of advertisements right and so i think that like that fundamental tension between the way that the business model's function today and what the networks are about has to go away. Now, how can we come up with a different structure?

Well, one is to say that the users own the network. Period. From the beginning. You and I start a social network today and who owns the network? You and I. In our interactions,

there's a genesis block. Right now, let's generate the block. I'll quote unquote tweet to you and then your retweet gets a token. Now, the problem with this type of thinking is it usually leads to the mooning and the ICOing and the bullshitting and like we're going to trade it and moon it and make a lot of money from trading it. And so you've got to do things like restrict the trading.

You can't convert it. You own it. You own a part of a network that's connected to you in an authentic community where we're sharing and collaborating through values like generosity and through a network that has authentic values and an authentic genesis story maybe we could build a network that is owned by the by the community from the beginning now bitcoin is that in a way but bitcoin's about money it's not really about social network it's not intention it's intentionally not about kind of sharing ideas it wasn't built for that but i do think it's quite possible that we could build a

network that's owned from the beginning by the people with none of the bullshit that's built into you know and i shouldn't denigrate all icos they're probably not all bad and you know i'm not one to say that like there's hard problems like how do you bootstrap the tech like can you really rely on the open source network to do that like i kind of think you can get past that now it's pretty easy to build apps like we have these like supercomputers in our pocket like i think there are ways to do things like hashing on the device you know to have the you know the network be be bootstrapped from the beginning there's there's hard issues embedded in this idea but i think it'll happen what do you think about uh federated networks like mastodon

or now gab's master so i really like what they were trying to do so like i you know i obviously have kind of you know as one of the early experimenters on that network and like i enjoy the aspiration of what they're trying to do i think is great um but coming back to the origin story like you can't like i really think it has to be in the same way that bitcoin has that like it was intentionally built from the beginning for what it is i don't think you can kind of like And Mastodon did intentionally from the beginning try to build this decentralized system in a way, but it's not owned by the users.

The incentives aren't built in a way to encourage the right type of behavior on the network. There's certain hard things that you have to get right at the beginning. I admire very much what they've been trying to do, and I hope they succeed at it. But I think you kind of have to, you know, it has to be done.

And also the user experience has to be beautiful for consumer-facing apps. There's so many hard things built into this idea, but it's it's possible yeah and the uh the mental switching cost of going from like a quote-unquote free internet which people think it's free but the the the price you pay is abstracted and data that gets sold on the back end going from that to something where you pay for content or pay to interact with content i think about this a lot too like is it is it too much of a mental switch of too much of a switching cost at this point uh to become a reality like so it it again it

just depends on it depends on you know so like the open source community today and including some very public people that are part of bitcoin they did it they didn't do it for the money they didn't do it for the bitcoin money from the beginning right and there there are some you know famous community members to this day that do it because they believe in the open source nature of what it is about period i think laszlo is a great example of that there are many right and in their mini we don't even know because their their github is like maybe they don't even like attach it to their identity because they genuinely don't care right and i think that twitter the reason i like twitter and the reason why you and i connect

on twitter and there are other people a lot of really great people who are on twitter is there's that same generous intent right which is like let's share ideas let's be in this together and it's really not about the money it's about let's let's kind of live these values and be in this this world together so that that kind of open source or open source ethos that is present in the software community today it's already present in many different kinds of technologies including bitcoin along with the kind of generous and open source nature um you know of twitter in the sense of how the interactions exist to me kind of point in the direction of what social networking will be you know in five or ten years from now meaning it'll be supported by an open source community

that community will probably own the network the users will own the network we don't need to have advertising and there's there's cool stuff like sent.co c-e-n-t.co they're doing some cool stuff where it's like you know around it's kind of like a reddit where you vote up ideas but you pay a little bit of eth or something i i don't think those are the right solutions but those are kind of gesturing in the direction towards what i think you know where we'll where we'll up which is you know a more more pure and user-owned social network we'll see yeah but we shall see there's one uh quote-unquote third layer solution that i've i've read about and had explained to me which is the fabric protocol which is the lightning network is like a

a mechanism through which to to incentivize value transfer when you're transferring messages as well so you get paid a little bit satoshi's for transferring data on a network whether it be a social network or yeah just uh sort of like a bit torrent like system and that's cool and so so like bring it back to bitcoin like i think that i'll put that in the bucket of kind of quote-unquote tech and quote-unquote medium exchange medium of exchange built on top of like store of value right and i think that like bitcoin doesn't have to be everything you know in my opinion and and i think it's cool it's great i love the experiment so cool if it happens great you know and if lightning network becomes like a really functional medium

medium of exchange on top of the store value great i think there are these kind of potentialities um you know built on top of a bitcoin but i think there's other ways to do things like it doesn't necessarily have to be about bitcoin you know and i think we can have alternatives that that aren't that aren't shit coins right it's not a mooning like like speculative fraud situation that's trying to like get rich quick and like like lie and like do illegal things and there's all sorts of problems with alternatives to bitcoin um so i'm not saying it's easy but i do think there there will be continue to be new innovations right because this is alien technology and it's trying trying to figure out how to work within it and the limits uh that exists within these networks

and protocols and then i think going back to what we were discussing earlier creating incentive systems i think that's what satoshi did beautifully with bitcoin is create a perfect incentive system in my mind between stakeholders developers miners uh full node operators whatever like every actor within the system and that's what i question a lot that's why i'm inherently very skeptical of anything else because it's a beautiful incentive system that was designed and can you replicate that and with with different factors and different variables i mean it's just i think it's a fact that you can it's just like i think that like how many incentive systems do we need to create like a good store of value i don't know maybe one maybe maybe we need one and maybe bitcoin's it

you know i don't know that we need to kind of recreate a beautiful wheel if it turns out to be the case that bitcoin it looks like it's actually gaining institutional adoption which is a huge important test over the next couple years um for the sort of value component let's see like if i'm right about systemic collapse how does bitcoin fare in that i you know i don't know like there's going to be some real tests but that it's not the only challenge in the world like like i think that there are many other like incentive systems that we can create to do other things like interact in a social network like why you know we're like new media models like it's cool i love the civic guys are trying to do new things guys and girls you know shouldn't be gendered but

there's like there's people trying to use incentives and even i know people don't like basic attention token i think it's super interesting they're trying to disrupt the media industry by using incentives like i don't know if it'll work or not but i i think that there's so many legacy industries that are just so bad and broken um that you know the the not not to mimic or copy what satoshi did with bitcoin but just the notion that we can create new incentive ecosystems and buildings in a decentralized way i think it's it's just a fact so i think we'll see more of that yeah and as we've been alluding to it might be necessary to the the collapse of the legacy system does come to fruition it's let's focus let's move this focus to the collapse like

is there a way for it to be orderly does it need to be painful what does it look like so unfortunately like i think that i'm i'm you know i'm i'm reminded of this book anti-fragile by And I seem to have a lot of people probably read that, you know, I see you have here in the studio. And, you know, I think that, unfortunately, you know, I think there was probably a window in 2016 when, you know, there's normal cycles and the credit cycle is a very important cycle in the financial markets. And there was probably a window in that time frame when, you know, the quote-unquote powers that be could have enabled a proper credit cycle to happen. But instead what they did is they tried to prevent the cycle from turning. And that's when the ECB went negative. That's when they started buying bonds.

That's when the Fed paused. China did this kind of giant monetary stimulus. BOJ went to zero all the way out to 10 years. And so I think what happened was what would have been potentially a relatively orderly cycle was transmuted into a systemic cycle. Like, I don't think, given the scale and the interconnected nature of what's going on right now in the financial markets, it seems quite unlikely that this can be orderly because it's kind of been pushed to such extremes. The prices of things are at such extreme levels. There's this very simple notion in credit markets that has to do with what's called duration. so duration simply means the sensitivity of a bond or credit instrument to interest rates

the higher the duration the more sensitive it is to a move in interest rates right now duration is at peak it's above eight meaning a one percent move in interest rates is an eight percent move in the price of bonds government debt right now is a 50 trillion roughly 50 trillion dollar market and let's say that it's mispriced i don't know by two three percent all of a sudden you're talking about let's say it was three percent and eight eight the duration of eight all of a sudden you're talking about a 24 move if interest rates were to normalize a 24 move in a 50 trillion dollar market that is literally the most connected market in the entire planet it's on every single bank's balance sheets because

basel iii in europe literally made it the law that you don't have to have equity reserved against government debt and so the system has you know in a way through the way it's been constructed in the resistance to for kind of volatility the you know the resistance to fragility what what it's done is it's made it like extremely dangerous like it's so asymmetric like a two to three percent interest rate move would collapse literally the entire financial system if if if the european government debt market were to move three percent we would like the banks would stop working in the united states in a week jesus christ that's just a fact it's not even like that's not the reason why people so if interest rates move three percent in europe

the banking system in the united states would collapse and banks might stop working true statement counter argument but don't worry myth of the infallible central bank there's no way that interest rates can move three percent that's the counter argument right there's no way that's the counter they'll come in they'll come in and save the day the magicians behind the curtain they quote-unquote know they quote-unquote have a plan so the conspiracy theorists are kind of like in cahoots with the mainstream like asset managers and like the people who worship the myth of passive magic like the people who kind of like take the current system as you know stable that the conspiracy theorists believe there's some secret conspiracy you know

i don't know who it is pick your favorite group that you want to denigrate they're behind the scenes manipulating the whole thing and they have a plan the plan is they're going to collapse it and then re you know reinstate it and then like that's the Bilderberg council whatever pick your favorite theory right like that's complete and total bullshit right it's like there's no there is no one behind the curtain yeah Occam's razor comes into play it's just impossible it's incredibly I think you said this on on your car in your conversation with Dan Held like the math or maybe he said it the math of of kind of modeling the entire economic system is just it's truly impossible right to be able to control a system as complex as our global economy so the conspiracy

theorists are totally full of shit but what's crazy is that like the entire financial market is right now predicated upon this myth or this faith that there's someone who can control it and keep it contained it's baffling because it's been proven that they cannot like if you go back and read the fed minutes you can clearly tell that what they were predicting you just look at gdp predictions like a few quarters out and they've been consistently wrong the medusa charts that we that we mentioned uh on this podcast before like it has been proven with hard data that they actually do not have any idea what they're doing and that's like that's what worries me like about systemic collapse like how bad will it get like no and that's

That's – I don't want to say I'm, like, pessimistic, but it's just, like – I've got to stop saying like. It's – we live in a world – I feel like everybody's distracted. Everybody is – we live in a world of conspicuous consumption where you're either watching Bravo, you're out drinking, you're partying, and nobody focuses on these problems, which will affect everybody on the world. And it's hard for me to see like a world without chaos in which this financial system collapses. And how chaotic will it get? Yeah, it's here's something that some of these things are just so staggering when you think about it. Some of the smarter people that I know, quote unquote, in the sense of they're very accomplished in the legacy financial system. They're very intelligent. Their baseline consensus theory today, this is kind of mainstream, I would say, probably consensus today is that Donald Trump will either collapse the markets and then reinflate them just in time to win the election or somehow keep them propped up so that he can win the election in 2020.

This is kind of what the consensus on Wall Street is today, which is completely and totally absurd and insane. If I had said to you in 2015 or 2013, 2014, the real Donald J. Trump is going to be president of the United States and the mainstream thesis on Wall Street is going to be that he's going to tweet threats against China and then not tweet them at the right time and avoid war with Iran and keep everything magically contained through his Twitter account to manipulate the stock market up and down just in time for him to win the 2020 election, you would say that's insane because it's totally, completely crazy. But that is our current world, right? We are in such an extreme state of political risk,

we've just become numb to it, right? And so, like, it's kind of, I think there's a way in which, it's like the frog boiling, you know, where there's an incremental, like at first you know whenever we don't get the russians hacked our election that's that's probably pretty bad you know that like there's a lot of violent rhetoric on twitter that's probably pretty bad there's tariffs there's probably pretty bad there's potential war with iran there's probably pretty bad it's like the sovereign credit markets at 10 trillion and the stock markets at peak and the pmis are globally rolling over we're in a recession in germany and france

in italy and china's economy's rolling over in the hong kong real estate like there's riots in hong kong and france it's like it's it's kind of bad like you just add them up cumulatively and it's not like we literally learned 2008 that systemic risk isn't a theory it's an actual fact right it was like 2008 before that time you know it was like maybe you know we probably didn't in our lifetimes and even our grandparents or parents like post-world war ii let's leave world war ii out of it great depression out of it post-world war ii there hadn't really been systemic risk you know there's been some cycles and stuff and so maybe before 08 we didn't know systemic risk was a thing 2008 fact proven systemic risk exists how do you get it well if you have big

credit bubbles then you could have systemic risk especially if it's interconnected through the whole system and through the banking system okay today we've got gigantic bigger credit bubbles the leveraged loan market and the sovereign credit market are way bigger way more interconnected and Way more mispriced than ever the housing market was in 2008. Not to mention all the other risks that are greater today. So it's, I think part of it is like the, to your point, most people are happy. You know, they're in their stupor, quote unquote happy. You know, they're not paying attention.

There's another really pernicious and deep and probably dangerous, maybe most dangerous myth is the myth of passive magic. The myth of passive magic is the myth that passive investing is magical. and you just buy vanguard and then magic happens and it goes up and up and up and up for forever and ever and it's like of course it's better to pay vanguard zero than to overpay for things that lose money that's just true and so there's some truth to the myth of past passive magic that passive investing is probably better than active investing on on balance but the myth is that passive investing is magical and will go up forever and ever and ever so people especially after 10 years of the markets going up you know they look at their like 10-year performance and

their five-year performance they're like oh this is great my vanguard is is it's amazing it's it's magical my magic box is working and so they don't they don't really care to kind of question this you know the things that we're talking about well isn't it funny that they don't question it and then oh yeah but if you look at like the slow effects of this over the last couple generations in particular where the family in the u.s was able to live off one income and then the person providing that income had to go get two jobs and then the other person that household at the end the job market as well and now they're both in the job market everybody's struggling living paycheck to paycheck most people are and so there's a book about that and the book is called

the two income trap and i was a research assistant and teaching assistant for this professor at Harvard Law School named Professor Warren, who wrote that book. And so her entire life was dedicated in her career to this issue, which is kind of the consumer finance and the hollowing out of the middle class. So now Senator Warren is running her campaign based on notions like this, right? That this is the economic populism argument, right? The middle class has been crushed. The wealthy have benefited, but most people are living on kind of a similar wage to what they made 20, 30 years ago, roughly speaking. They haven't participated in the bubble. And to your point, there's like a two income trap that most families have fallen into. And so I think

that that understandable frustration of the average person is what, you know, it fuels this global populist backlash right it's not just the united states it started with greece and then we had brexit and then italy right now is run by a combination of the bernie sanders and donald trump party like in the donald trump party like which is right of donald trump um is is pulling ahead are they the black star um the five star movement five star yeah um is is on the left they're the they're the they were started by a comedian super interesting uh that's right that's but they're actually the number two party and Salvini on the right which is Lega is leading now and Salvini he's a little he's kind of right of Bannon like he's a little troubling

in terms of some of the nationalism and anti-immigrant stuff that he says you know maybe he says it for political reasons but that's the number one party but those two combined run Italy right now so that's populism then obviously in the United States we've got you know Donald Trump who's not a republican the guy you know was a lifelong democrat he apparently his him and his daughter both donated to kamala harris in 2013 so that fact come out it's been already publicized um you know so lifelong democrat now republican beats all the republicans and democrats in 2016 because of economic populism and now you've got you know the establishment democrats are in my opinion done like there's no way that biden in my opinion has a chance to so out of touch

yeah on both sides though everybody's out of touch well i think it's the establishment right and if we think about what does the collapse of the establishment mean it means that the establishment in a way we can think about it in the context of like innovation right and think about it in the context of like old media is a great example but many different industries the old media industry it's really crazy right that the old media industry is continuing kind of like the cable bundle like how did that last so long it still exists we will be paying for a quote-unquote bundle of cable like what is like how does that exist right and the reason is if you have the establishment kind of legacy powers that be and this is legacy wall street this kind

of legacy media legacy powers pull that out from under your name i can see distortion there i'm sorry about that no it's okay the legacy powers that be i think you know have every incentive of to continue to maintain the system the way it is because it works for them and i think that's what people were so surprised in 2016 when you know hillary clinton lost because people thought it was quote unquote her turn right she's the establishment chosen candidate like how could it possibly be that this reality tv guy with no real no political experience could beat her and the reason is because people were fed up with the establishment that's why she lost right and people yeah some hacking and packing is very very bad and of course from a national security perspective

like we need to take care of that so i don't want to diminish the tax on our country which is very serious but that's not why she lost like she lost she should have it shouldn't have even been close right she lost because she's the establishment and people are against the establishment on both sides um and i think it comes back to a lot of what we're talking about with regard to the you know the system you know if you keep the system propped up and you keep inflating it inflating and inflating it what's going to happen the wealthy will get wealthier and wealthier and wealthier and wealth inequality will go up and up and up and up and up to the point where now it's at peak you've got peak wealth inequality and the rest of the people in the country who've like

lost their jobs let's let's kind of either blame globalization and china beating us strategically or blame tech or both so you've got like a ton of people who are unhappy because they don't have a job and they're fighting this two-income trap and maybe they've got addiction you know their families because they've got either veterans who've come home and and have mental health issues that aren't being addressed or they've got um you know addictions uh based on just you know being addicted to to other kinds of uh drugs or painkillers or whatever so you've got like real malaise in in in the middle of the country while the top of the country's celebrating so it's you know i think it's understandable why there's this backlash um but it's all part

cycles man on the other side of it progress is inevitable progress is inevitable so what is uh what does it look like when the system collapses and the ashes the dust is settling what does a restructuring of a new system or a structuring of a new system look like so does the legacy completely die off or so i think um i think it depends and i think that you know i'll say what i what i pray i pray that we can avoid war like i really pray me too that we can avoid war um i'm concerned about some of the things lately between you know the stuff going on in the middle east and in the conflicts in the south china sea and now you know the military industrial complex like you know for it's probably the most powerful of the legacy systems

and there's all sorts of kind of like you know we don't want Iran to have nuclear weapons it's probably important they don't so you know in China's aspirations South China Sea are really strategically dangerous and so I don't want to diminish the military threats I think it's important for the U.S. to remain strong militarily so I don't I don't kind of think it's easy to avoid military conflict i hope we can so i pray that we can avoid it i think most likely you know and deutsch bank is further confirmation of this this likely scenario is that you know things in europe really break down the financial system seizes up in a way it's kind of like an inverse lehman situation where the european financial system seizes up that causes our europe our

financial system to seize up depending on how bad it gets if they lose control like in a violent way meaning if let's say the german constitutional court rules qe is illegal or something like that where there's a quick breaking point um you know maybe maybe banks could get shut down you know in the u.s i think if that's happening during an election year which is possible that it happens during an election year maybe there's like the antifa stuff gets more violent and then you get some violence on the right like get some kind of political unrest if the banks are shut down people might panic a little bit you know markets could be down significantly more than they you know have been in the last period of years on the order of what what happened in 08 um so i think it could

be very bad um you know maybe maybe some some you know main closures markets collapsing political unrest i'm hopeful that you know what will happen in that environment is that we'll be able to find some unity you know in our common values and you know that leaders will emerge to remind us of that and kind of beyond this red and blue bullshit and that the majority of people, I think, are good. I think the majority of people, you know, recognize that this red and blue bullshit is noise and will kind of see the violence of Antifa

and whatever's happening on the right, if the sort of scenario I'm talking about materializes, we'll see that as beneath them. I'm hopeful we can have, you know, some unity in common values. we can kind of avoid MMT, avoid the extreme, you know, like helicopter money scenarios, which is bailing out the old system. Let the markets collapse. I think it's fine. I mean, let companies fail. Let's have the old companies go. That's fine. I think it's great. You know, we could kind of, then we'd have, you know, I think a resurgence in entrepreneurship.

You know, I'm actually very optimistic about, you know, ingenuity in the American economy. I think that startup formation has been down because of the the kind of we've left out a little bit the political consolidation in the sense of like industries have been so ingrained in government that they've been able to create oligopolies across pretty much every industry but let them fail i think it would be good i think it would be healthy and so i'm hopeful we could have kind of like a you know market collapse deep you know maybe deeper than 08 you know maybe some political unrest that would avoid violence maybe unfortunately probably be some violence kind of like what's been happening already in oregon um you know i i'm hopeful that the new system will be we're

seeing glimmers of it i mean bitcoin is one example of of the new system being architected but there's there's a lot of innovation continuing to happen um and so i'm hopeful that you know if the old old system's failing in a kind of a healthy way with some you know discomfort it won't be comfortable to lose trillions and trillions and trillions of of quote-unquote money in the old system and and have you know many many jobs lost in things i don't want to diminish you know the the discomfort of 08 and if it happens again how that could be uncomfortable but i'm optimistic that you know we can come together in our common values i believe in american values and i think that you know we can have growth again we can have innovation we can

have new you know why can't we build new systems why can't we build new cities you know more purpose built for the modern era why can't we have you know like we were talking about social networks but there's many other industries why can't we have decentralized media companies right like why can't we have we should have true news we'll have true news right we'll get through we'll figure out this fake news stuff well i think maybe we could have some innovation beyond the iphone again how cool would that be right right some hardware innovation like this there's going to be good stuff you know on the other side well that's what uh that's what sort of drives me towards bitcoin is it's like like i was telling you before um we hit record like i worked at a

managed futures fund and it was task was following the fed and all this and just got really jaded by like these people have no idea what's going on like they're just going to keep feeding money markets are going to keep going up but it's all bullshit i got really jaded like really pessimistic and luckily found bitcoin at the same time and bitcoin is one of many common missions that exists that i think could make the world better and and finding a common mission post collapses like you said it could lead to more ingenuity people be like oh we fucked up really bad like we should fix this i think that's a great way the word shared mission is a way to describe that and i think it's a great way to think about it that with a shared mission and shared values i think

that we can't architect in the future and that's i believe that deeply i think every single company in the future must be mission driven and have values-based culture will not exist and i think bitcoin the community around it the way it's been built um related kind of decentralized companies and technologies but all sorts of companies are being founded in that ethos today i think generation z gets it i really i don't think generation z will ever work for your company if you're not mission driven like in the millennials will quit you know that's just i the fact i'm an example that i've quit many jobs right in the last decade because i did not believe with uh what was going on that's why we're going to build the future together man that's why

we're here having this conversation i think it's i'm very grateful that you invited me and um you know i appreciate the work you're doing sharing you know sharing this wisdom with the community like this i think it's really uh meaningful that you spend your time doing this thank you It's a labor of love And I appreciate you coming by the studio On this random Tuesday What is it, Tuesday? It's Tuesday On this random Tuesday, it's been a great conversation

Is there any Parting notes or anything you want to End it on here? I mean we've been pretty Pretty optimistic here at the end Yeah, you know I think that I think that one of the things that

like maybe one of the worst I'll kind of like I'll lecture a little bit I'll lecture the Bitcoin community a little bit because I like to troll the Bitcoin community I'll lecture those

listeners out there today and friends of mine who you know who I'm talking about the intraday trading of the thing and the short-term kind of financial motivation of the you know the up up 10 down 10 kind of price movement of the thing um i think it's super fun and i i admire the folks that are doing it i think it's it's really a direction towards like what the future of finance will be

in that it's an open source kind of, you know, development of and collaborative, you know, learning about things like technical analysis and risk management and things that, you know, that's happening in the trading of Bitcoin and other cryptocurrencies. But I think one of the key problems with the old system is the myopia and the kind of short-termism and the greed and the you know i'll call it like a selfish nature of the legacy finance system and so i think it's important that the long term stay in focus and that's what the hodler is about that's like really what kind of the 10-year story and the 15-year story of bitcoin's about and and kind of the you know the hope for the quote-unquote shit coins you know the hope for

new innovations that aren't about flipping and mooning and making you know a short-term profit so you know a short a short not a piece of advice but suggestion that well it's great to trade and make money in the short term i think it's it's it's a lot of really talented people doing that and like i said i think it's great learning that's happening especially about things like how trading works and technical analysis all these things there's many positive aspects of the short-term stuff that's happening but i hope folks don't become like the old system and don't become myopic and don't become selfish and short-term and kind of um you know greedily focused in the architecting of the new system i hope we can have some you know real mission

orientation and long-term focus and the way things are built and i know there's great work being done in that way um so that's that's my hope my hope is that as we build the new system together that we can build it in a way that's consistent with values and admission that we want want to have emerge in the long run yeah no i completely agree and i'm one who believes we need to adopt more of the seven generation thinking that the iroquois nation had and bitcoin provides that opportunity right uh that's awesome i can't wait to hear more about the seventh generation you act thinking of the seventh generation ahead of you um how will how will your actions today affect them it's beautiful thank you for sharing that and i never heard that one you know i'm sure i have and then

i forgot it well again thank you for coming through it's been an incredible conversation thank you so much once you get on with your afternoon here peace and love freaks