The Breakdown - Preston Pysh on Why We’ve Entered a Fundamentally New Era of Bitcoin Accumulation

Episode Date: August 14, 2020

The Investor’s Podcast Network cofounder Preston Pysh last recorded with The Breakdown on Black Thursday in March. As NLW and Pysh discussed the potential of future currency crises, bitcoin smashed all the way below $4,000.  In the five months since, bitcoin has risen 200%. It has attracted the devotion of leading hedge funders such as Paul Tudor Jones II and more recently has become the reserve asset of choice of at least one publicly listed company.  In this conversation, Preston and NLW discuss: The significance of halving coinciding with central bank printing The inevitability of negative interest rates Why it’s the dollar, not the stock market, that is inversely correlated with the price of bitcoin Why Preston believes in the stock-to-flow model Who pays the price for inevitable currency debasement Why we’re dramatically underestimating the precedent set by MicroStrategy’s $250,000,000 cash-for-bitcoin reserve switch Why MicroStrategy will be worth 10 times what it is today a year from now  Find out guest online:Website: theinvestorspodcast.com Twitter: @PrestonPysh

It's all a matter of your perspective. You can look at this and say, hey, this is going to be an extremely concerning and terrible, devastating. Dude, flip that on its head. Start telling yourself you're going to crush this and start doing whatever you got to do in order to get as smart as you can and leverage the opportunity that's being presented to you. At the start of the book, The Intelligent Investor, Warren Buffett writes the prolude to the book, and he says, your ability to amass a lot of wealth, and I'm totally paraphrasing this, comes down to how many market cycles you get exposed to. And I think that when you look at this

and this might be ignorant of my history, but I think this is one of the biggest market cycles the world is ever going to see. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by Crypto.com, BitStamp, and nexo.io, and produced and distributed by CoinCoy. desk. What's going on, guys? It is Thursday, August 13th, and I am so excited to share this interview with you guys today. Exactly five months ago to the day, I was joined by Preston Pish on this show, and we recorded actually during the literal hour and a half two-hour period where Bitcoin hit its cycle low on Black Thursday. In that conversation, we discussed what happens when

currencies fail and what the preconditions for those failures are. A lot of what Preston discussed, in particular his prophecy that we were about to see money printing on a scale that totally knocked our socks off absolutely came true. Five months later, Preston is back to continue that conversation, to look at what has transpired since, and to ask the questions about what happens next. We spend even more time in this interview talking about how Bitcoin has cemented its place as an essential asset in the context of hedging against inflationary risk, getting into, as you might imagine, this micro-strategy news from earlier this week. We also discussed Preston's thoughts on the stock market, as well as his opinion of the stock-to-flow model.

Preston mostly does need an introduction, but for those of you who don't know, He is the co-founder of the Investors' Podcast Network, a prolific content creator, a coder who has built volatility tracking tools. He's an all-around great guy as well. So I hope you enjoy listening to this conversation as much as I did having it. One last note, because this conversation tops out over an hour and a half, I'm not doing a brief today. We will be back tomorrow with our regular brief and on Saturday with the weekly recap. All right, guys, enjoy this conversation with Preston Pish. All right. I am back with the much awaited return of Preston Pish. Preston, how you doing?

Doing great. Great to be back. Thanks for the invite. So I was thinking about this. I actually went back today. I didn't realize or I didn't remember just how crazy the timing was on our last conversation. We were literally recording as the Bitcoin market was totally bottoming out on March 12th. Right. So it was the actual, it was jumping between like 3,800 and 5,100 while we were recording. So I was thinking about just all the different ways to get back into this conversation. But here's what I came up with. If you had a friend who had been, I don't know, fell off their bike and was in a coma from that day to now,

how would you even begin to explain what has transpired in markets and beyond from March 12th to where we are today? You know, when we were talking about it back then, you know, anyone can go back and listen to the conversation, but you're right. I mean, while we were talking, I think the price of Bitcoin in particular was at $4,000. And I think you can tell just by the conversation the two of us were having, neither one of us was very concerned about it. And in fact, I think we looked at it as a huge opportunity. Simply because if I remember right, I think in that conversation, we were talking about how this was, an impairment of the dollar across balance sheets and the capitalization of various companies and how you were you were basically seeing the credit side of the dollar which spends just like the monetary baseline side of the dollar was exploding and so when you have that everyone has to sell whatever they've got in order to offset that impairment that they're having and so i guess from my vantage point i was just looking at it as a very um it was a non-event but it was a huge opportunity to double down on whatever positions you got.

And obviously, that's, that's how I was playing it. And it's been a nice 200% return in less than a year. So, I mean, it's been, it's been, it's been a fun little ride to be on that wave. I mean, we knew it was going to be a massive title wave as, is all those dollars were blown up. So, you know, it was great to see that, I mean, the Fed had to step in. All central banks had to step in in order to offset that massive, massive amount of impairment. And they did it. to the tune of around $5 trillion if you were denominating it all on dollars. So it was expected.

It's what we talked about. We had talked about what a tsunami looks like and how the, how the tide gets sucked out. And that's exactly what we saw. And then the central banks came in with their massive amount of liquidity. So no surprise here, man. It was, it's interesting. I was going back and listening to it. And I think something seems so obvious in retrospect, too. But one of the things that's been so notable, is the power of the narrative market fit of the Bitcoin having, which all of a sudden took on such a tremendously more significant meaning, right? Like the Money Printer Go Burr meme, I think is the most relevant.

When historians study memes in the future, because they absolutely will. Money Printer Goes Burr will be the meme of at least the first half of 2020. Maybe the whole thing. I mean, who knows, we still got a lot of time left. And it wasn't just the Bitcoin community. In fact, it wasn't even primarily the Bitcoin community that was pushing that meme. All of a sudden, FinTwit started looking like Bitcoin Twitter, right? Because everyone was seeing the same thing at the same time.

And you have this asset here just humming along so predictably, so boringly, right? That it just is like, oh, by the way, I'm going to spit out half of what I was before. How much is what's the balance sheet? Well, you know what? I don't care. Whatever. I'm just going to do my thing. It was such a profound moment from a narrative perspective.

Yeah, I think the halving's really going to throw, for people that aren't intimately familiar with what's going on with this protocol, that's where they're looking at the historical performance and they're saying, well, this thing went to 20,000, you know, at the end of 2017 and to 2018. And then it went through this massive volatility chop. And then it went back down the 4,000. And they're just looking at it and they're saying that's just total gambling, right? That's how you're outsider who's not intimately familiar with what this is from a code standpoint. standpoint, they're looking at it as a total gamble. And what they're, what they're going to totally miss here in the coming 12 months is we had all that chop. We had all that volatility. And then in May, we had a halving event. And historically, a quarter after the having event, you start to see

the price run. And that's exactly what we've seen. You know, there's people that agree with the stock to flow model. There's people that don't agree with the stock to flow model. I'm one that firmly believes that it's an accurate model and that it's going to continue to produce fairly reasonable results moving forward. And I mean, the price is right on path. I mean, on the money for what the stock to flow model was predicting post-havening. And, you know, it's no surprise that we watch the price kind of go sideways for a quarter. And then after that, you know, the balance sheets for a lot of these miners get protruded and now you start to see it run. So. There's a lot of a Bitcoin talk that I want to get into. I think what I want to do is actually

kind of go kind of big, go macro a little bit, and then maybe spend some time at the end. We were tweeting out earlier, asking people for questions, and maybe we'll do like a rapid round of questions towards the end, just because there's a lot of really, really good ones. And, you know, I think we'll cover a lot of it, but it'll be fun to do some of those towards the end. But I want to come back to where we left off last time a little bit as well. And so the last interview I called What Happens When Currencies Fail? And what I'd like to get to is your sense of how the last, I guess, call it four months or five months, has or hasn't changed your take on these things, what new information you've observed. But to get into that, I would love for you to just quickly reiterate, if you could, your framework for the three preconditions for a current.

currency failure to happen. Yeah, so when you, when you're thinking about the end game for a currency, and I mean, there's, I don't know that you're going to find this in any type of textbook, but I guess for me, when I'm thinking about, the Preston Pish model, which should have everybody concerned and they should go and troubleshoot this as much as they can. But, you know, I think one of the main things that, uh, you get at is when your interest rates start getting down to zero I think that's like one of the big telltall signs of something that is is not in good shape. Now, for people that would hear that, almost the immediate response I always hear is, well, look at Japan.

They've been at zero for two decades. Well, why have as in it failed? Well, it goes back to this big long discussion, financial history discussion about how everything's pegged to the dollar going back to Bretton Woods. Right. So when you look at the countries that got there first, call it Japan, and then countries that followed call it Europe, the ECB with the euro. And now you're starting to get at the root of this currency, which is the dollar, which is everything's pegged around the dollar. And when you look at the total units that are in circulation, the dollar is the dominant player and all this. When it starts pushing its interest rates down to zero percent, you're at a break point.

where they're in a very precarious situation. And most of this reverts back to the second piece here, which is the fiscal side of it. You have fiscal spending that is far exceeding the tax receipts. I mean, just this year is a great example, but it's been like this for a while. And the thing that I like to focus on is the habit of those fiscal spending habits, right? it used to be a political thing here, at least in the U.S., that one political party was viewed as being fiscally responsible, where the other one was much more lenient and wanting to spend. But now it's, you don't have anybody that's championing the idea of fiscal responsibility. Both sides are just saying, hey, we need to, we need to print as much as we possibly can.

And we need to, you know, have these debt obligations at, you know, the debt ceiling. It's just straight up laughable on both sides of the spectrum. So when you have that habit from elected officials, that there's zero fiscal responsibility combined with a yield in the debt market, in the government debt market that's pushing down the 0%. My opinion is that now you're starting to get to this point where the currency, the only way you can offset that is through printing so that you debase the currency. and that you can continue to just going on these spending binges on the fiscal side. So that's where I don't see this is having a solution because the solution is austerity. And last time I checked, that's not a really viable solution for any politician who has an incentive to get reelected.

So the least the least American thing you can imagine is accepting austerity. And not just American. I mean, globally. I mean, I mean, Greece was a prime example. I want to say back in 2015 and they were, you know, the European Union was trying to make them conduct austerity measures. And I mean, come on. That was that was not happening. Right.

It was just their population was not going to tolerate it. And I don't think any population throughout history just based on human nature has ever accepted. that is as a viable option. So what does what have we done historically throughout time? You you print and you debase the money. So that's that's where we're at. And we're we're there on a global scale. That's what I think which makes this one so interesting is when you think about how dominant the dollar's been since you know back whenever we went through Bretton Woods, it's it's been a very dominant currency. The fact that we came off a gold standard. in the 70s and they were able to maintain the trust in the currency throughout this entire

four decades has been good. I think it's been managed quite well considering, you know, you talk to people, or you listen to a person like Ray Dalio, he'll tell you the default happened back when we came off the gold standard. It just hasn't been realized yet because there was enough interest rate arm left to adjust. And that's how you can basically sustain the stability in the system is by adjusting interest rates lower. They did that through the federal funds rate for many years. And then when you get to 2008, 2009, that's when that wasn't enough. And then you had to start doing QE. They did the operation twist where they start going out in the long end of the bond yield curve. And they're even buying that up because they have to, they have to

keep adjusting this in order to keep markets and prices for all financial assets, particular equities and bonds in check so that we don't have social unrest. Well, now I'd find it as no surprise that as we're seeing this endgame play out, that you are seeing social unrest. And unfortunately, I think the trend in the short term here is that you're going to see that continue to get amplified, especially because their primary means for injecting more liquidity into the system is through the bond market. And it's going to continue to be that.

They can't turn that off because. they can't afford for interest rates to go up because if you spend on the fiscal side the way that they're spending and accelerating their spending, guess what? You can't allow interest rates to go up. They have to go down. They have to print more. And so eventually you're going to get to a point where, and we're already starting to see this, and I'm sure we're going to talk about the micro strategy. You know, you're going to start getting businesses that are saying, all right, there's way too much debasement going on. We're obviously not seeing it in this small basket of things that we measure inflation by. But where is that money going and how is that going to impact my risk in the long term?

And I think a lot of people are starting to wise up to the idea that the risk is in the bond market. If they continue to print, because in nominal terms, you know, you're getting in the U.S., you're getting half a percent on the 10-year treasury and then some premium above that for corporate bonds. but in real terms, you're in a whole different ball game, right? So you're basically signing up to lose money in real terms. And I don't think that there's too many people that are going to play that game for too long before they wise up, especially if they look over and they see something else that's going in a meteoric rate, like a rocket shooting off into outer space. it doesn't take a genius to say, hey, maybe I should just have a half a percent of allocation to that thing over there. It's better than this thing I'm guaranteed to lose money on in real terms and in buying power terms by continuing to hold this debt instrument.

Right. So you're going to start, you're going to start see that transition. I think it's going to really start to escalate here as we go into 2021, where that's going to start to become a very popular idea, I believe. So I do want to come back to that. I do want to come back to micro strategy. I think it's a even now, even as Bitcoiners are interested in excitedly tweeting it, I think we're still dramatically underestimating the potential narrative relevance and sort of a precedent that it sets. But before that, one of the things that I found so interesting about this period is that on the one hand, everyone is sort of clamoring to explain things with a very limited set of data,

Right. I mean, even, you know, you and I are talking like it's been 100 years since our last conversation because that's what it feels like. But really, it's been four months, right? Three and a half months or something like that. Or I don't know, maybe longer. Who knows? But it would be 100 years if you invested in something that gives you a 3% annual return and we just banged out 200% since we talked last. Yeah, right? There you go. So, but one of the things that's interesting or has been fascinating is the way that there's this. big expansion of the conversation around possible futures, possible outcomes of the way to look at at this. And I think one of the reasons that the dollar and the inflation and deflation kind of conversation is so fascinating right now is that you have such different interpretations, right? You have on the one hand, the sort of the dollar milkshake proponents who are looking comparatively about other sort of places where you can put money and think that it's going to suck liquidity out of the system. You have the Jeff Snyder-esque kind of the Fed is all mirage and self-fulfilling

prophecy because it doesn't actually have power to influence things in the context of the Eurodollar and the shadow banking market, which is so immense that they just can't really do anything. You have the Luke Gromman stock market prices staying highs becomes a national security issue, so it can't be allowed to go lower. So you have all these really interesting lines of conversation. You obviously spent a lot of your time talking to these folks. What has been most interesting from you, either in terms of people or perspectives that you've seen emerge over the last few months? So I agree with all three of those theories that you just said. And I think that I think all three of those folks find Bitcoin interesting, but I don't necessarily know that they pull it into the, into the,

into the end game as much as I think I do. And that doesn't make them right, wrong or in between or me right wrong or in between. It's just, I think, a difference in how we see the importance of Bitcoin kind of playing out going forward. I don't know why. First of all, I don't even know if that's true, but they'd have to speak for themselves. But if I had to guess why maybe I'm thinking that, I think it's how much emphasis I put on the having event and how much, how much of a psychological impact I think it's going to have in the next 12 months. I think it's going to be massive. And I think that when Bitcoin goes through its previous all-time high, which I expect near Christmas time frame, I think that it's just going to be this major marketing branding all over CNBC.

And in the backdrop, you've got central banks printing at ungodly levels. I think it's going to be that moment where most market participants say, what is this? And I think it's going to be that moment where they say, what the hell is going on? And what is this thing that just won't go away? So do I agree with this dollar milkshake theory? Yeah. I mean, at the end of the day, all these currencies are relative to each other. them are pegs. So yeah, I agree with that idea. Luke's idea, he's exactly right. Like,

we can't allow interest rates to go up, not only for the, from a strategic, military, whatever standpoint, but just from a pure fiscal spending standpoint, right? Like, you can't allow interest rates to go up. That's just a fact. If you're going to continue to spend like that, and let's, let's all be honest, like the spending train is accelerating. It's not slowing down. It's drastically accelerating. So like all these ideas are reinforcing of each other. I think they all complement each other really well. And I think that one of the major missing pieces for a lot of people,

especially on Wall Street, is the Bitcoin thing. I think when they're looking at the chart, they're looking at it from a chart standpoint, right? They're not looking at it from a technical standpoint. They're not looking at it from a code standpoint of how this four-year cycle plays out and having an appreciation for how the reduction of that flow has amazing, economic impact to the price action. At least that's my opinion. I think on the I think on the naysayer side of the stock to flow is this idea that the labor theory of value is a very invalid idea and the people that are saying that the stock to flow is a valid model are

ignoring this idea of all the things that are wrong with the labor theory of value. I think that I think that the that the labor theory of value can be a very valid theory at certain if you if you look at it from the right aspects right and so I think a really important two really important aspects to look at this in order for it to be valid is you have to be pretty much talking about something that is commoditized and you have to be talking about something that the market actually values the work that's being performed by whatever it might be. And I think in both in both of those scenarios, Bitcoin is a thumbs up in those two categories. So therefore, I think the labor theory of value is valid to Bitcoin.

So, and I'd be more than happy to get into the specifics of that. If people would, if you think anybody would be interested in those ideas, I can, I can expound on those in great detail. I do think I want to maybe let's let's put a pin in that. I do want to come back to it because I think it's really important, but I want to stay on the, I want to get your take on a few other kind of macro things before we go fully down that rabbit hole. Although I think it's really important. Yeah. So, you know, I also do think I want to validate your initial point. I think it's also really important to view perhaps a lot of these folks and where they sit vis-a-vis Bitcoin in relative context to where they were. So you have folks like Rao Paul who,

you know, he's been on this Bitcoin train for a while. But I don't know if you caught his last, I guess last Friday, his The Real Vision kind of weekly update they do. But he was indicating that of every asset, including gold and everything else, it's, I mean, his conviction around Bitcoin continues to grow, which is, I mean, he was even throwing around number. in terms of the percentages that he has allocated to Bitcoin, which were really immense. And I don't want to quote them here because I might have been misinterpreting him on Twitter, but go look on Twitter if you want to see kind of where he was indicating his personal allocation is. So you have a growing, you know, deepening conviction there. You also have folks like

Lynn Alden who, by the way, I think probably the like breakout macro analyst star of 2020, I think for a lot of folks. I totally agree with that. I totally agree. who is shared very publicly the kind of the phases that she's been through in terms of understanding Bitcoin, but has become a much more involved, active kind of invested participant in this. So I think you have this happening. So you have, interestingly, that kind of emerging from the analyst side. You certainly have the example of the Paul Tudor Jones kind of creating, you know, narrative cloud cover for institutional money.

but then you also have these sort of this interesting thing with micro strategy, which again, I'm going to delay for just a little bit, where they're not just saying they're interested in it, they're showing what that could look like for a corporation. Actually, screw it. Well, let's get into this now and then I'll come back to the macro stuff. But, you know, I have my feelings about micro strategy. And like I said, I kind of intimated that I think it's a bigger deal even than some people are kind of seeing. But how? How are you reading that situation? What do you make of it? So I totally agree with you. I think this is a way bigger thing than most realize or maybe most give credit for. And I think because it's going to be this, I think it's going to be this thing that, yeah, I remember that news story. But then a quarter later, you're going to watch the stock price explode, right? And then six months after that, you're going to see the stock price even explode harder.

And then it's just going to keep going, like right there with Bitcoin, right? A little bit about this. So I've done a little bit of research and I find this to be really exciting. So Michael Saylor, MIT grad, founder of the company, chairman of the board, CEO. What I find really surprising about this, because whenever I saw this deal, my immediate thought was, Oh, that dude running that company has all the voting rights, right? That was my opinion. That's what you'd think, right?

That's immediately when I thought. I was like, that dude has all the power to do whatever the hell he wants for a billion dollar, $1.3 billion market cap company. And when I did a little research, I was really shocked to find that that's not the case at all. In fact, 97% of the ownership of this business is institutional ownership. So from a voting rights standpoint, him and his board, I think there's only four other people on his board. Most of them have been on the board for many years. I mean, these guys just straight out, went out and turned all their current assets on their balance sheet for the most part, straight in the Bitcoin.

$250 million straight in the Bitcoin. Now, when you look at the balance sheet of this company, the balance sheet, I can't remember. exactly, but I think, well, here I have it pulled up on. That's around $400, $500 million was their close out last year for the equity on the balance sheet. So think about that. Half of this company's equity is Bitcoin. $250 million of a balance sheet with a bottom line equity of $509 million is Bitcoin. So, you know, so now this is where this is going to get really fun for anybody who enjoys accounting and finance. They're going to just laugh at this. So next quarter, their income statement should be, in my personal opinion, unchanged.

They're not realizing any of this. These, these, this Bitcoin's just sitting on their balance sheet, right? The company is a, let me pull up the income statement. So the company's making about 500 million a year. year on revenue. So their top line, all the products, everything they sell, they're bringing in $500 million. Their bottom line, on average, their net income of the companies around like the close out last year was $34 million. The year before that was $23 million. The year before that was $18 million. So you're like, let's just call it a $30 million company. So their profit margin is, I don't know,

7%, 10%. Next quarter, you should not expect to see any increase on the top of line or on the bottom line, but you're going to watch the stock price on this company explode, right? And then they're going to go through another quarter. Top line's going to be exactly the same. Bottom line's going to be exactly the same. And the stock price is going to explode higher yet again, right? And this is going to continue to play out for the rest of you. In a year from now, this company, I expect the market cap on this company to 10x from where it's at right now. So today, it's a $1.3 billion company. I would argue in a year from now,

we're going to see this be a $10 billion to $13, probably a $13 billion company, right? And you're not going to see their top line or their bottom line change whatsoever. I just, I find it hilarious. I think it's going to be amazing. I think it's going to be the shot across the bow of just, tremendous growth. I mean, for somebody who owns their own business, for for you to take your

equity, and I'm not saying that this, there's no guarantee that this is going to happen. This is just what I expect to play out, right? But to take a company with $500 million in equity, and for that to grow 10x from where it is today, do you know how long that would take for this company based on their net income to accumulate that much net income. I mean, dude, you're talking. I mean, I can do the math real fast. You're in excess of 10 to 15 years for that company to do something like that based on their bottom line. So for them to do that in a year is just unprecedented. And it's going to send a message to all their competitors real fast. Like what in the hell is going on over there? So, what?

Where I was a little surprised with this deal as well was, and I talked about this, I have no idea which show, but I was talking about companies starting to do this where they're going to treat it like a marketable security. They're going to stick it on the current assets of their balance sheet. And but what I expected more of a probable scenario to play out was that they're going to take 1% or they're going to take 5% or 10% of the liquidity that they've got and they're going to denominate it into this as just like a marketable security. If this company would buy Apple, that's how they would do it. They'd buy it as a marketable security. It sits there on their current assets. And then whatever dividends it kicks off that gets realized. With this, dude, this is crazy.

This is nuts, especially when you have 97% institutional ownership. And then when you look at who the institutional owners are, you got BlackRock owns approximately 15% of this company. vanguard's the next with like 10% first trust of dude you can go down the list and it's crazy it's crazy Ameri a AmeriPrize financial Russell investments I mean JP Morgan Chase they've got 8.7 million dollars worth of the market cap of a billion dollar company I mean these are these are crazy owners I not crazy owners but it's crazy that these are the owners and that something like this was conducted. So my immediate thought is, well, who else is doing something like, because they don't have to, like that news article came out kind of at a weird time. I would have expected to see that

at the close out of the quarter because this company in particular, they close out on the, you know, the start of their annual filings are the first January. So I would have expected to see this roll out at the end of the third, the standard third quarter. And you didn't see this news roll out then. So that's a little unusual because typically the way that a lot of these deals go down is you don't find out what kind of marketable securities have been purchased until you kind of get near the end of the quarter and they start reporting. So I'm kind of curious who else is maybe doing something like this, especially if it's anything Fang related, right? Because we all know the size of the marketable securities on Apple's balance sheet. it's insane or Berkshire Hathaway, which would not be a candidate for something like this, in my humble opinion, right?

But I think when you get into the tech heavy and when you look at Michael Saylor, who's the guy that, you know, the founder of the company, the chairman of the board and all that kind of stuff, when you look at this guy, here's a guy who wrote a book called the mobile wave, how mobile intelligence is going to change everything. He's an expert in network effects. He's an expert in, you know, communications intelligence and building these, these information boards for big data. Like, how many other companies and how many other people out there understand tech, understand network effects and run these big multibillion dollar companies or even multimillion dollar companies that are going to step in and say, hey, I want some exposure to this. Like, they shouldn't be able to print $5 trillion with no economic impact.

there is going to be an economic impact. And a lot of these people are starting to wise up to it. There's an interesting thing. So one of the counterpoints, I'm sure you've heard this ad nauseum in the last three months, is the inflation argument, the inflation argument, the inflation argument. We all said this after 2008, 2009. And look, it didn't happen, right? And there's a million responses. So I'm not even winding you up to kind of give that. But one of the things that I find interesting about the micro strategy play is that. that it's a response to the concern of inflation that doesn't particularly care to wait to have to have it show up in numbers in some particular way. And in that way, it almost is a self-fulfilling prophecy that kind of that creates the momentum for a hedge against that possibility, even if it's in the realm of possibility in some ways. And I think what's powerful about this, the size to your point of how they did this is that it's almost like, it's almost like they skipped the right over the phase where you might have seen a few people get pressed by putting into your point one, five or even 10% in this way, right to throwing down the gauntlet of saying, you know, how many more, how many more times do you have to see companies of our size do this before there's no Bitcoin left, you know? And maybe all of a sudden the boardroom conversations that were happening around that 1% or 5% allocation are all of a sudden jumping up real quickly. Yeah. What I like about this is the effect of the decision is going to be very dramatic.

Where is if this company would have done a 10% allocation, we would have saw the news and all of us would have got excited with this. It's going to be extremely noticeable that this company is going to become a major player in the space because they're going to have the capacity to conduct. acquisitions of competitors. They're going to be able to acquire very strategic things. And if they're really smart, they're going to hold off on that as long as possible. Because I think that the, you know, when we're talking about there's a 10x between now and next summer, what we're not talking about is what's beyond that. And if they continue to hold this position, especially with everything that's playing out from a macro standpoint, I think that there's there's incredible upside even beyond that.

And yeah, I mean, this is a, this is a great case study for everybody on Wall Street to understand what in the hell is actually taking place right now. And this company couldn't have done a better job of providing the example of what's to come. So their bet, their hedge, their concern, their stated concern has to do with all of the factors adding up to the potential for fiat currency to not hold its value when you really come down to it. They said it explicitly, right? I made it very clear that that was the point.

It wasn't just, hey, Bitcoin seems like a great asset, you know? It was that this was the context. How have you, what evidence have you seen or what new evidence do we have from the last few months around how the dollar is responding to all of this stimulus? And I guess the question is, is it too early to see things really show up? Or are we actually getting some indicators that go beyond just companies being spooked like this one? I think the biggest indicator of all the printing is so like they dropped $5 trillion worth of printing into the system. And where did it go?

Well, it went into all these tech companies that hold a ton of IP, the intellectual property that has an impenetrable barrier around it that is very difficult to defeat. And when you look at, well, why does some of this technology have such a strong moat? You know, the terminology that Warren Buffett famously uses all the time for having a competitive advantage. I would argue that the ones that have performed the best are the ones that have the biggest network effect. The technology that has a network effect that's very difficult to replicate. And you can see that's where all the money, that's where all the fresh printing is going. So why would somebody not think that that's going to somehow not manifest itself and nest itself

into currency itself that has a strong network effect? To me, it just seems super obvious, but there might be something I'm missing. So, you know, when I look at the fang stocks and I'm not a big Netflix, you know, fan, but a lot of the other ones that I'm looking at, like, they have such strong network effects in place. I just don't know how anybody thinks that they're going to be able to compete with some of those moving forward. And I mean, when you look at the price charts for those companies, dude, they're just straight up going parabolic, right? But if you look at the S&P 500, it's barely back to where we were before the big credit crunch. And to say that the NASDAQ is performing, I would argue the top 10 companies in the NASDAQ are carrying the entire index, right? I mean, it's not even arguable.

That's what it is. You strip those companies out. Well, it's abysmal performance relative to the previous high and relative to the things that do have network effects. call it Bitcoin. That's where all the money's going. It's just getting capitalized straight into those things. I mean, this is really interesting because from a kind of a narrative mirage perspective, it's hard not, you know, there's been such sort of triumphalism of the kind of massive kickback of the stock markets post crash. But to your point, I mean, it's basically incontrovertible to see this as a tale of two markets, right, with tech and absolutely everything else.

Plus, I guess, you know, I guess if you add in the vaccine rumor trade and and SPAC speculation, right? But that's, that's it. You've got those are the things that are driving this, you know? No doubt about it. So it's just, it's been wild to see. I mean, I guess, you know, how much of that is also being driven from a narrative perspective by the Robin Hood crowd, right? The Davy-Da Trader crowd. I don't, you know, I have a firm opinion that most things are reflexive, right?

So I don't, it's really hard to step in and say, oh, yeah, that's what's causing it or this is causing. And I think that you have reflex of properties that are, that are self-reinforcing of each other. So how much of a magnitude is the, is that crowd? I don't know. I kind of suspect it's a little bit less than what everyone's talking about. But, you know, I don't know. I really don't know. So different topic entirely, just because I, thinking about it.

I want to come back to the sort of idea of currency and relative strength of the dollar. So in our last conversation, one of the things that we talked about was where this currency failure is likely to show up. And I think, you know, we talked explicitly about the fact that there's a wide space between being more willing to be open about changing future possibilities of the dollar than saying it's the dollar right away. And in fact, I think we talked about, you're more likely to see some of these problems show up in emerging market currencies, for example, first. What have, has anything been noticeable to you in the context of other currencies potentially besides the USDA, you know, since March, or even in the context of the dollar?

What has anything happened or played out differently than you would have expected? Nothing yet. To be honest with you, it's kind of playing out. I don't know that I saw the the stock market coming back, at least the major indices coming back as fast as they came back. That was a little surprising to me. Now, they put in a lot of money in relative terms to the amount that existed. And, I mean, it's just, it came soaring back at least those top companies that drive the indices. But, you know, hindsight, yeah, I think it makes sense, obviously.

Yeah, I don't know that I have too many things that have played out too differently yet. I fully expect another big credit event to kind of play out like we saw. That's going to be a massive, just bone crushing drop. Now, when it happens, I mean, come on, I have, you know, the third quarter is usually bad, but that doesn't mean that that's going to be what we see. But it would not surprise me in the least bit to see another big bone crushing credit crunch like we saw. And then the response that's going to be required if something like that would happen is going to be, it's going to make the $5 trillion look small. Like they're going to have to come in at a very aggressive level at that point, even more aggressive than we've already seen. to reflate that credit that became impaired. You're at the end of this cycle that you just can't apply enough liquidity to it because the location that the liquidity is going to is not to the base citizens, the mass population of people.

It's getting bid into market capitalization of securities. So when that happens, like the people that need the money to go out and spend to just sustain their livelihood or not receiving it, it's not trickling down. I mean, everyone's familiar with the idea. I think at this point, at least the people in the Bitcoin community are. And, you know, I think that the volatility of the market and this recursive type activity of central banks to provide more liquidity is just going to continue to amplify itself. I think the opt tempo, the, the, the intervals at which it happens is kind of the hard part to kind of understand. And I mean, going back to another piece that we talked about, part of it sounds like to me your concern is that this is, this is predestined

at this point. It's not like the Fed has a variety of different options to choose from. They have the one instrument they have, plus maybe some extended versions of it, But it's not like, again, to your point, there's some political will that could be found somewhere to do anything other than just more of this, right? Well, you got to look at the momentum of it. So you're talking about something that has 40 years of momentum in one direction and then 40 years of momentum in the other direction. And you're trying to stop that. So, I mean, you got 80 years of quote unquote manipulation that you're now trying to say, hey, let's. let's let's have free and open markets.

So you're talking about a ball of momentum that is supercharged. And yeah, so I, yeah, I do see it as pretty much predestined as much as I see the possibility of day turning to night, right? Like, good luck trying to stop that. So one of the things that I've been thinking about a lot lately is if we, I've been thinking about Bitcoin in the context. of Fiat really embracing its role as just this sort of like pure liquidity machine. Because one of the interesting things is that you're seeing from folks these arguments that

maybe what the Fed should do is go even more extreme, right? I had Hugh Hendry on the show earlier. And, you know, a lot of what he's talking about is basically what if the Fed basically mandated, as Japan did between 1986 and 1989, the commercial banks had to go lend more, more, more, right? That they said firmly, they want to see the, you know, the Dixie at 60 or 70, right? And they just wanted to see that happen. And so, boom, all of this money flows into the system. Maybe the idea, maybe the thing that we should do is not kind of dabble in negative interest rates, but look at negative 3%, right? Talk in terms of percentage points,

not basis points. And I don't think he's necessarily going all the way to saying, like, this is definitely the prescription right now. It's more he's allowing the intellectual space to explore that. I think a lot of folks are kind of in that space. maybe not so much in the overlap in the Bitcoin community, but certainly we're in an era of unorthodox, heterodox ideas that might become mainstream very quickly. In that context, does Bitcoin just become the default savings technology for, even if that is the right thing, quote unquote, to do based on what we need,

doesn't it still leave a gap for a meaningful actual savings technology that something's got to fill? So I think the suggestion that he has, and, you know, I have a lot of respect for Hugh. He's a very smart guy. I just think that that idea is ludicrous. I think all it's going to do is just accelerate everything that's already on this trajectory. I think it's more of the same. It's going to amplify what we're already, the trend we're already on.

You know, the way that this gets solved is you have to have austerity, right? You can't pull time to the left. And the way you do that is through borrowing, right? You can't pull time to the left for as many decades as we've done it without there being some type of reversion to the mean that's associated with it. Well, the reversion to the mean is you have to let businesses fail. You can't provide even more loans to the zombies, right? Because that's pretty much what the idea he's suggesting is. Let's give the zombies more money.

Let's let's, let's in debt the zombies more than they already are, which, you know, come on. That's, for me, that's just crazy. So when I look at a solution to that, so where in this, you know, everyone wants to talk about, what's the end game? What's the end game? For me, the name of the name of. That's the, that's Kranstairs, right? That's Grant's podcast, right? And he's doing a bang up job of it.

But for me, when I look at austerity, where's the austerity? where's the austerity going to come from? Well, from my vantage point, the austerity is going to come from the bond, the people that are owning debt. They're going to be the people that provide the austerity measures because they're going to lose all their money. That's pretty much what it comes down to,

because if you own the debt, and that debt is a contract that's denominated in Fiat, and Fiat blows up, and the way it blows up is they overprint. Who wants to own that? right? And if you're going to try to sell it in a time of a panic when something else has a meteoric rise, which is the replacement currency, good luck selling that for anywhere near the price you paid. So if it's a thousand dollar bond and you're trying to offload it, well,

you might get $10 for it or you might get $100 for a thousand dollar principled, you know, debt instrument that has a half or 50 basis point coupons for the next 10 years. That's worthless, right? And so who's going to pay for the austerity? Well, all those people that are the bagholders of that, they're going to basically blow up and, you know, they're going to provide the austerity that's needed in order to reset the system. It's hard to imagine that all playing out from the dimension of it that's so hard to even get your head around too is the political dimension.

Yeah. Because it's a, it's a trap cycle. There's no room for boldness and heroes, right? now. You know what I mean? No, I agree. You know, and by that, I don't even mean like heroes in sort of the classic cheesy sense. I mean, people who are willing to do things that are massively unpopular, you know. No one wants to believe it because it's very uncomfortable to believe any of that. But I just look at it from a pure, you know, like, let's have an intellectual discussion about it. Let's dig into the finer details of what I just said, right? And whenever I have those conversations

with the smartest people I can find, I can't find somebody that can come to the table with something that is a very high probability event that that is a counter opinion to that. So that doesn't make what I'm putting forth as being right. I just think that it's a higher probability than what the market is pricing in at this point. And so those are typically your biggest opportunity positions they have is whenever you have a position. You think it's well argued and you can't find somebody that can provide a really strong counter opinion to it. That's where your opportunity is in the marketplace. So, yeah, I think it's going to be painful for a lot of people, but I think the people that it's going to be most painful

for are the ones that are holding all of those instruments. And today, the people that are holding a majority of those instruments are the people that have a very high net worth for the most part. So, you know, how is this going to fix itself? Well, it's going to fix it. Well, it's going to itself because the people that are holding a majority of the net worth in the world, or if some of that net worth, a significant amount of that net worth is debt, they own the debt, and if it blows up, it's going to get effectively redistributed back to the people who were the borrowers of that debt in some form or capacity, right? So if you have skilled labor, that will be valued in the marketplace and you have a lot of debt on your house,

And this event that we're talking about plays out and there's a new currency and your house is denominated in the old currency, right? It's a fixed rate loan. The person who wrote that is going to be the bag holder, the person who received that advance and is paying it back with the worthless money that the contract says it has to be repaid in at fixed rate. And they're in the marketplace and they have skilled labor and they're being paid in the new currency, they'll just swap it and pay back the pay it back in the worthless money and they're going to be the beneficiary while the other person is the bagholder. That's just, that's kind of how I see this playing out. One of the funny things. Yeah, go ahead. No, I was going to say one of the funny things is,

I'm sure you've seen this too. If you ever hang out on Bitcoin Twitter, you have some of the lowest time preference people in the world, right, who are really not about debt. who are all about fiat denominated housing debt, you know, or real estate debt or things like that, right? Who are like, maybe go ahead and take that, you know, for that exact reason that you just described. What's going on, guys? I'm excited to share that one of this month's breakdown sponsors is crypto.com. Crypto.com offers one of the most cost-efficient ways to purchase crypto out there,

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Let's do some questions that we got from the crowd, because I was looking through them, and a lot of them hit on other topics that I wanted to ask you. Actually, I guess just one more from me first, and then I'll turn it over to this. How does geopolitics, and I guess in particular the relationship with China, play into your calculus about how you see all of these issues playing out, if at all? Yeah, I mean, I don't have much calculus. Most of mine is just adding and subtracting. I think it's just an amplification. It's accelerating the trend because any time two entities.

T's are kind of beating their chest at each other, it usually involves administrative friction and administrative costs and fear drives those things. And I think that when you look at what's playing out, you have fear on both sides. And so you have an increase in fiscal expenditures and that's just accelerating everything that we're talking about. So I just see it as an amplification and just speeding everything along. Which is kind of what, if I remember correctly, you felt about a lot of the coronavirus-related things in the first place, too. It wasn't like this was introducing some massive new force that was unseen. It was a surprising in the moment kind of tail-risk event that was just amplifying what was already, you know, the problems in

the system. Totally. So, okay, so Price Smith asks, in the Lacey Hunt interview with Grant Williams, Lacey mentioned that when the Fed starts monetizing their liabilities, and that was in quotes, then that would be a harbinger for significant inflation. Can you try to delineate what he meant by that? Because in many ways, one could argue they already are. Or rather, he says, make the Fed's liabilities legal tender. Why is that practically different from some of the things they are already doing? They're already doing it.

He's right. It's already happening. And, you know, I would enjoy talking to Lacey specifically about how he's defining inflation because I think he's very Austrian. and I listened to that interview. And I think that when you plow into the definition of inflation, that's when you really start to fully understand that inflation is happening. It's just happening in areas that aren't in the basket that's defined.

And everyone knows I'm talking about security prices, right? That's where all this printing is nesting itself into. And so, yeah, I think that we are seeing that now. seeing that play out and we're seeing inflation, but it's just not necessarily in the basket that they're telling you to look in. So, yeah, by the way, I would also recommend Lacey did a really good interview with Dmitri over at Hidden Forces right at the towards the beginning of the COVID-19 crisis. Oh, okay.

I wasn't aware of that. Yeah, it's another really good one. Another actual one about that interview. Lacey mentioned a scenario where equities collapse. and commodities spike. Can you explain how you see this playing out, should the Fed do, as Lacey mentioned? I think you've alluded to this previously. Say that again?

I missed your question. Sure. A scenario where equities collapse and commodities spike. Can you explain how you see this playing out, should the Fed do, as Lacey mentioned? Yeah. And I see it's, you've got to be really specific when you say equities collapse. I think when you're talking, you know, in very broad strokes, yeah, I think a majority of equities are going to be repriced based on, you know, eventually it's going to come down to are they earning money, which is a huge if these days. But whenever that realization comes back into play, which I don't think you're going to see that until you see a currency collapse because as they continue to print, it's going to continue to nest itself into these technological network effects-based companies. So I don't necessarily see that playing out here in the coming before years end for sure.

As far as commodities going up, what's going to eventually happen is you're going to get to a point where I think you have so much social unrest and you have so much need at the base level of citizens in all of these countries that they're going to have to amp up their UBI. And when they amp up the universal basic income that's going to be required by people in order to just keep calm among, and not just in the U.S., I'm talking all over the globe because everyone's tied to the dollar. right. So this is a global thing. I think when they amp that up, you're going to start to see that take place. And in fact, I think you've already seen a little bit of that start to play out with the increase in incomes that we've seen here in the U.S. where like food prices are up 6% since COVID, which that's a lot, especially if you're, you know, if you were going to just base your inflation gauge on that. That's that's some major inflation, right? And I think the reason that you're seeing that is you have. have people that not only lost their job that were collecting unemployment, but then they got the COVID unemployment kicker of $600 a week. And their take-home salary actually increased through that period of time. And now that those benefits seem to be being extended, you're going to have a continuation of that. And so where did we see that that increase go? I find it is no surprise that You saw people going and buying steaks now and buying some foods that maybe they weren't buying before because now they have a little bit more disposable income through all these programs that are being launched.

So I think Lacey's exactly right when the government transitions to a larger UBI check than where we're at. Because when you're looking at the way that they're inserting the liquidity right now, most of it's still going into the QE and through the manipulation of the bond market. And a small sliver of that, if you're looking at it from a percentage wise, is going into the UBI. I think you're going to see that transition more over into the UBI side, particularly if you would see a Democrat win the office. I think that you would probably see that maybe transition even harder than you're already seeing it. I don't know.

That's, I don't know if that would politically, I don't know that the Republicans are that far, far apart from the Democrats on the whole UBI thing anymore. So maybe that might be true. I mean, once, listen, once the, once the floodgate is open, I think. I think the most, I find in conversations with people, even who are very for UBI, the criticism or even concern that they spend the most time with and pay the most attention to is the fear of the implications of political capture, right, in the sense of once you open that floodgate, who votes for the party, like, who votes for anyone other than the party that's promising the most

way. Oh, no doubt. No doubt. You know, and I think that even really thoughtful people who are big proponents of UBI, that is a concern. Now, some of them have ways that they think it's addressed, but that's still, it's basically it's a concern not just for people who aren't for UBI, but for R who are for UBI. I'm not looking at it from a political dynamic. I'm not looking at it for like how that plays out in American politics or any country's politics. I'm just looking at it from from a mechanics,

the math that is going to be required in order to keep social unrest from happening. I think that you're going to have to have a major transition into the UBI side in order to just keep things calm. So I think that you're going to. And what's fascinating? So now you get into, so what's the impact of that? So like if Lacey's right and you're starting to see commodity prices go up, what does that mean for how they're printing and controlling interest rates? Because if the basket that they've been measuring that is showing no inflation today, all of a sudden starts showing inflation. because they're printing and handing it out down into the masses through UBI.

Guess what? They have to print more on the QE side in order to continue to buy the bonds in order to push the yields lower. So what's fascinating is now you're at a point where they've been able to get away with just doing QE for 10 years, right? And they've already just conducted their ammunition, like they shot all their ammunition on the QE side without balancing. it with UBI. And now that they've pushed rates already down the zero, and now they're saying, oh, we got to pump more into this UBI stuff to keep things civil, right? What they're really doing is now they're having to continue to do the QE at even larger

scale in order to keep the interest rates low enough, even though that they're seeing the inflation. That's going to be the thing that's really fascinating, that's going to blow people's minds. And it's going to cause the printing to accelerate. And I think people that are looking at it today are saying, how could we accelerate the printing from where we're already at? Well, that's how you're going to do it because once the inflation starts setting in, they have to offset that on the yields. And the only way they're going to do that is through even more QE in addition to the UBI. And I mean, interestingly, potentially exacerbating that positive feedback loop too is the shift that they just announced where they're no longer focused on, basically, they're only interested in,

observed inflation rather than projected inflation, right? So they're rejecting their previous measure of projecting out what they think inflation is going to be. Instead, they're waiting until they actually observe 2%, or even higher they've said, inflation before they think about doing anything about it, right? That's what they've said, which is a meaningful shift for them. And then the step after that is going to be how do we redefine inflation, how do we change the basket of what we're measuring? I mean, we've already seen that over the last couple decades, but it's just going to get amplified. You know, when you want to see what you want to see, just change the definition of it. Well, I mean, this is particularly the case with inflation.

I think one of the, it's one of those areas where I think the average person has a better sense of what it actually means and practice to their life than the official measures recognize. You know what I mean? It's like, okay, it's cute that all these things that I have to spend money on are not in the basket that you consider. but meanwhile, my life got more expensive, you know? Yes. Yes. Okay, here's another question from Brent KT. Does Bitcoin at 100K mean the U.S. dollar has gone to shit, or is it possible for both to happen?

And maybe I'll expand that to, is there a scenario in which golden Bitcoin and these sort of alternative inflationary hedge type assets can go up at the same time that either A, the dollar goes up or B, equities go up? If you're measuring Bitcoin in dollars, it's impossible for them to both go up, right? Like one's going up and one's going down when you're when you're using two things to compare it. So I mean, if Bitcoin's at 100,000 measured in dollars, my opinion is that the dollar is having a total meltdown. I don't know how else to really kind of define it. You can tell me two things and we can look at whether, you know, the one is going up or down in terms of the other. And I just don't really know how else to define or answer that question. Sure.

I mean, that was an answer. So you did it. You did it just fine. The answer was no. And here's one. So, okay, great. a ton of interest in micro strategy. And I think the implication, so a lot of the questions that were coming in had to do with should we be, well, all of the first part, and I mean,

obviously you and I reflect this earlier, is excitement in some ways at, hey, this is a company that gets it. This has potential ripple effects in the industry, no pun intended, in terms of how people look at shifting into Bitcoin as a reserve asset. But a lot of the questions are maybe, if I could summarize, what should we be concerned about? So there was one question about who within these companies will hold the wallets, how will these businesses ensure their BTC couldn't just be transferred to others? Another question had to do with, effectively, the risk of big whales,

whether these companies or individuals, buying up large portions and therefore having significant power in shaping a future BTC-based system. And then the other kind of question in this set had to do with when institutions get involved, how worried about re-hypropication issues should we be? So maybe you can take that as a set and take it in any direction that makes sense. Yeah, I love all those questions because I think they are substantial risks, especially this early in where we're at because, you know, you're going to have to get to something that that validates that they still have possession of their private keys on a quarterly basis in some in their in their report like they're going to have to do some type of very small transaction or something that just

verifies that where their coins are at or or they still got control of them or something I mean as a shareholder I would want to know that um you know I if if a year and a half went by and I was still holding this company and there was no validation that those coins had moved I would want some type of validation that somebody's got a private key. And I think that there's a lot of concern around that. So like if I'm going to own this company versus just owning Bitcoin, I, you know, if they're pumping out major free cash flows and then they're turning those free cash flows into Bitcoin, right? They're just straight every, every month at the end of the month, they know how much free cash flow they basically produced in that in that month or quarter.

and they're just straight turning that into Bitcoin, that company will outperform Bitcoin over the long haul. It should based on a company with positive free cash flows. So if you have a company that has a large margin, which means the free cash flows are fat, it should substantially outperform Bitcoin if they are converting them all into Bitcoin like this company is doing. But then you get into all those risks that you just talked about, which is the custodial risks. And then who's to say that they're not taking their treasury and then earning their 5% interest on top of their treasury of Bitcoin's as well. And then introducing that risk into another company that you're just not seeing in their reporting necessarily at face value. You didn't really have to dig into

the specifics to understand where all those risks are. And I think that those are major concerns for shareholders. I know myself personally, will I have some exposure to companies like this? You know, let's say Jack Dorsey says he's doing this with Square, right? Am I going to own some of that? Yes, I am. Am I going to have it as a substantial portion of my portfolio? Probably not, mostly for all the risks that we just talked about. And so I look at it just as a straight expected value problem, right? Anybody that goes in, you know, in school when they make you do these expected values, if you think the value of this company is 10,000 percent and you think the value of just holding straight Bitcoin is 5,000 percent, how much of the 10,000 percent that has risk

versus this one that doesn't have as much risk should you own, right? And so then it comes out to be some type of expected value problem. Now, how do you calculate that? I don't know, but I can tell you just off of my gut, this is going to be, you know, much smaller than what I think I would hold in just straight Bitcoin, like way smaller, substantially smaller. So everyone has to do that risk assessment on their own and they have to figure out what they're comfortable with in outsourcing custodial risk and rehypothecation risk and all those kind of risks. Well, and I think in some ways, this is just the new reality. that we're moving into, where in the same way that Bitcoin forms social consensus around

a variety of issues, there's going to have to be a social consensus around the norms of companies holding this in terms of how they demonstrated and all those types of questions, right? It didn't matter before, but now it does in some ways. Yeah. And what's so crazy is it's not like, you know, the days of just, hey, somebody stole my credit card, I want all that money back that they went to Walmart and bought a TV with. Like, you're getting into this transition where, I mean, it's really the big boys club. And you got to really think about assuming full responsibility for pretty much everything and anything that could go wrong.

And some things are going to be completely outside of your hands, outside of your control. If you go down the path of buying equity in a company like this, and let's say they mismanage the keys and the stock price plummets. massively. Like, that risk was there. You should have known that risk was there the whole time. So why such a large allocation to it? I think is really kind of the question. So it's, we are seeing a drastic change in personal responsibility, which doesn't surprise me because that's, that's the name of the game when it comes to Bitcoin, man. Fascinating how forces happen historically at the same time, dramatic increase in the need for personal responsibility at the same time as it's almost

impossible to view five years out, 10 years out, and they're not being more state rather than less state everywhere in the world. Yeah, because, you know, if you looked at what, what's the trend today or like where are we at on the scale of personal responsibility? I tell you, you're pegged out at not being responsible for anything right now. And you're about to go through a black hole of, of gravity that's going to throw that to the exact opposite side. And, you know, it's going to be interesting. You better be able to step up your game and start looking internally as to all the risks you're assuming and the ones you aren't assuming. Just a couple more.

But this one has to do with, I think, playing with the big boys. So another question that came up a lot in almost a similar vein to the flip side. to the individual companies deciding to own Bitcoin, there's a question of governments, right? And this is one of the things that we talked about on our last show, how plausible it is to see a scenario where some government decides to put some hedge in Bitcoin that all of a sudden has a meaningful move in the market. But a couple people ask versions of this. So I guess I'll give two questions that are kind of the two sides of this. So first from a name that I can't pronounce, but it's got a one and a nine, seeing as the U.S. government have mentioned,

magic money and control of the printing press, and they have the most to lose from Bitcoin, is it possible for them to short Bitcoin in any way? Another person asked the same thing if China and Russia tried to do something with Bitcoin or against Bitcoin. But then another person asked, let's say a certain government, Treasury starts buying crypto, let's say that government is China. Aside from almost the bidding power, is that fundamentally good or bad for crypto? I think so much of this comes down to the personality of the very few people,

people that are in charge of these big organizations. So it's really hard for me to say, well, this country, I think, has the highest probability of doing this. I think you could have a country that just, you know, I look at the micro strategy. If you would have told me the first company that would have done this, I would not have told you micro strategy. And it really comes down to Michael Saylor and his foresight and his control inside of the company that led them to make this decision. I think you're going to see the same thing on a country scale. I would push back on the idea, and a lot of people would, I think everybody would disagree with me on this, that the U.S. has the most to lose. I think that that's all in the eye of the beholder. When you are printing at the levels that the U.S. is printing, who could guise their position better than the U.S. based on the amount of power that they have in their printing press to start amassing and accumulating Bitcoin at an unprecedented scale? So, I mean, it really comes down to who has the best critical thinking and who has the best leadership to go in there and challenge such basic assumptions that have been conditioned into everybody's brains for the last 80 years as to what money is, what economies are, you know, debt.

I mean, dude, all of this is about to be flipped on its head. And, you know, it needs to be because we're at a point now where we are just straight up keeping zombie companies alive that are not providing value in the marketplace. And you're seeing the polarization of buying power put into the hands of these technological giants. And I don't have a problem with technology growth. I just kind of have a problem with the speed at which this is taking place and it's not becoming a competitive marketplace that has this homogeneous, the citizens of these countries are not, the wealth has not spread in a manner that you can go up the ladder, right? Like that, it's it's a ladder with 40 rungs removed between the bottom step and the top step and you're expected to somehow be able to climb that. And that's where I think this is really starting to come off the rail. So I think that everything we're talking about, Bitcoin related, supplies that change that's needed in order to create an incentive structure for all market participants to eventually be able to all compete and have opportunities to go up the scale depending on their work ethic.

So I think it's a very exciting time. And I think it's all matter of your perspective. You can look at this and say, hey, this is going to be an extremely concerning and terrible, devastating. Dude, flip that on its head. Start telling yourself, you're going to crush this and start, you know, doing whatever you got to do in order to get as smart as you can and leverage the opportunity that's being presented to you. You know, at the start of the book, The Intelligent Investor, Warren Buffett writes the prolude to the book. And he says, you know, your ability to amass a lot of wealth. And I'm totally paraphrasing this.

But it comes down to how many market cycles you get exposed to is pretty much what he says. And I think that when you look at this, this is probably, and this might be ignorant of my history, but I think this is one of the biggest market cycles the world is ever going to see. And so I think it's a massive, massive opportunity depending on how you approach it and how you look at it. I don't know if you want to go back to the labor theory of value discussion. I do. I was going to close. There's a lot of S2F junkies in these comments who really want to talk about it.

So that's where I was going to close. I just want to say one thing kind of validating the point that you were just making or one, which will leave for a future conversation, which has to do with the big tech companies. I think that we have barely grasped. We have no concept of how to do. deal with network effects applied at scale when it comes to business. And it's cute to me how much time we're spending on questions of free speech on Facebook when Amazon is just absolutely obliterating the idea that anyone can compete with them, right? Private labels, private labels powered

by data that comes from third-party sellers just churned out to make the most perfect Amazon-owned subsidiaries to make your Amazon basic label goods, right? I mean, it's just, and by the way, This is not a, it's not that I'm saying a priori we should be upset at Amazon or Bezos or anything like that. But in a world, that is a new possibility of this time that was completely impossible before. And our sense of what, basically we're overdue for an update on how big we think a company should be or how it is allowed to grow. Because otherwise, it is inevitable that it's just Amazon's world, right? And we're all playing in it in some ways. The speed the technology is moving at is totally.

outstripping policymakers's ability to counteract it in any kind of way. And that's something that we've never seen in our lifetimes or our parents' lifetimes is you're just, you're watching technology move at a pace that is so unprecedented that, I mean, I would argue the people that are elected officials that are sitting there, they're looking at it, they're asking questions, but the architecture that they're working under in order to do something about it is so antiquated and so slow relative to the speed at which this is moving out, that it's, it's borderline laughable. Well, and there's also a whole legitimacy question of who gets to question these companies, right? Amazon and, I mean, honestly, all of these companies still enjoy extremely high popularity

relative to other types of companies that people interact with. But that, like I said, maybe that's, that's for part three of this conversation. I look at the solution to a lot of that stuff as being really quite straightforward. There needs to be some type of policy mandate that that forces these tech companies to consolidate all data that's been collected on any individual. And then it's built somehow into the navigation that it's standardized, that websites, that any websites that collect data have some type of button on the top right or whatever that any type of person can go to and they can immediately start going in there and they can literally wipe and delete all data that's collected on them. If that became a mandate, I think you'd see some major changes

with respect to the power that they wield. But I just don't know that you have policymakers that can think in that direction. The only, weirdly, one of the bright spots right now with the whole TikTok bust up is a serious surfacing of a lot of these data collection practices. And now obviously it's in the context of a fear that data is going to CCP, you know,

rather than just a general fear of data. But I do think that it could open up a larger conversation about like, hey, it's like, you know, the Wall Street Journal study that was published earlier today found that for 15 months, TikTok had been using this kind of workaround to get media access control identifiers from phones after Android had banned that practice, which was in 2015. And then you'd have to have some type of intention clause that if they're just taking the data and scraping it into some other server or whatever, they're completely liable up to, you know, ridiculous levels for such actions, you know, like it's the intent of not

collecting the data long term on the specific person that the individual holds that power. And I think, you know, in the long run, I think that you're going to have the technology, I think, is going to ultimately take care of that through these decentralized authorizations that, you know, many different podcasts have talked about this idea of being able to sign into a platform based on a decentralized authentication network. I think that something like that's going to go ahead and take care of a lot of this. and then you're going to have some type of optionality in that authentication that's going to allow them to collect data on you or not. So I think eventually the technology is going to solve this.

But in the meantime, I mean, dude, it goes back to the original statement technology's far outpacing policy. And even the, even the quasi solution, I guess I'm proposing, probably has a lot of holes in it. Yeah. So let's let's end on stock to flow and kind of what we're. we started, just because like I said, there are a huge number of folks in here who are asking. I guess the two types of questions, really they come down to the inverse of each other. One, what is the most, the part of the, the critique of the model that is most compelling to you? And then second, what is your response to that critique that has you bought into the idea?

You know, I, the fundamental question I ask myself when I look at Bitcoin's price, is why is it taking on the shape of Metcalf's law? And I know Metcalf's law is talking about a network and communication network and all that kind of stuff. But when you look at the shape of the price action on Bitcoin, and you zoom out and you look at it on a log scale for the last 10 years, what is driving that perfect, in my opinion, a perfect shape that looks just like Metcalf's law? And so I have thought about that question for a long time. And I've tried to understand what's happening throughout this four-year cycle at this point. What's happening at this point? You know, 70,000 blocks later, what's happening at this point?

And my fundamental thesis, and I'm sure a lot of people out there can come up with whatever arguments they've got or why they disagree. But my fundamental thesis is that at certain people, points of the four-year cycle, when you look at the base of the curve that it's on, this Metcalfe law type curve, when you look at the base of it, not the spikes, not the bull spikes, but the base of it, I think that foundation is being laid by miners. I think that that is miners that are setting that floor and that foundation, based surely on the, the fact that there's only so much supply that they're willing to sell into the market. And I think that that's kind of laying that foundation.

So an argument that I hear that's against that is they say, well, you're just saying that the labor theory of value is valid. And so this goes back to the point that I made earlier, which is, yeah, I think in this scenario, I do believe that the labor theory of value is valid. and here's why. You're dealing with this Uber commoditized thing. And at the heart of it, it's just energy cost, right? It is a commodity.

So you're not dealing with anything with margin. I think when you start talking about the failures of the labor theory of value, which was put forth by Adam Smith and the wealth of nations back in 1776. In fact, Lacey in Grant's interview was talking about the failures of the labor, labor theory of value. So when I look at this, I think that in order for the labor theory of value to be valid, you have to be talking about something that's commoditized, something that does not have margin to it. So like when you look at a lot of these tech companies, they've got fat margins because they've got a lot of intellectual property. And so when you're trying to apply a theory like

this to it, it's just not going to work real well. But if you're talking about a commoditized company, I think it works well. The other thing that has to be true in order for, in my opinion, this theory of labor theory of value to be valid is you have to be talking about something that's being produced and manufactured. In this case, it's the securitization of the protocol through the expense of energy. Through the fiat expenditure of energy, you have to have something that's actually creating value to society. Society has to be valuing that good and demanding that good. If there's a demand for the good, well, then this, I believe this theory will be valid. So let me give you an example of this.

Let's say I went out in a field and I dug a hole and I found a particular rock that was different than most rocks. And I would just call that a Preston rock. And I came back into the marketplace and I said, this rock is valuable. And it took me one hour. I can dig up one of these Preston rocks every hour I work in my labor, since I'm an unskilled labor. my labor is $10 an hour. So therefore, I demand $10 for this Preston Rock. Well, if I step into the market and I try to sell this and there's no demand for the Preston Rock,

is the Preston Rock worth $10? And the answer is absolutely not. It is not. Let's say I step into the market and I immediately have a buyer for the Preston Rock. Right. And so then my neighbor sees this and they say, oh, well, I'm going to go out there and dig for Preston Rocks too. And so they start digging and they're a low skilled, low skilled laborer. Right.

And so they start digging for Preston Rocks and they're pulling them out of the ground every every hour, one rock. And they're putting them on the market and there's still demand for this. So in that context where the market is valuing that activity, the labor theory of value is valid because we're dealing with something that's commoditized. We're dealing with all those things that I described earlier. Right. So when I look at Bitcoin and I look at the fact that the hashing rate,

keeps going higher, right? There are more miners that are willing to step in and hash these blocks. That tells me that there's demand for the tokens, these digital tokens that they're digging up. Right. And so whenever I look at, well, how can I determine what the value, the core, the most basic value of something is for a commoditized product, which is this, as energy, right? Bitcoin fits the bill perfectly. And so what I think you have happening is I think that the miners are stepping in. They are providing the floor that we see in the market. And that's why I think you see the curve in the shape that you see. And that's why I think the stock to

flow valuation is getting at the heart of, you know, when there's only so much flow being dropped into the market, when there's only so many of those rocks that are being put onto the market. And then you go through another four-year cycle and you used to mine one, one rock per hour. And now, a sudden, you're only mine in half a rock per hour. And the demand is still there driving that. Well, guess what? I think that that's why you see these curves. That's why I think you see these jumps in these four-year cycles the way that you're seeing them.

Do you think that part of the problem that people have is that it's hard for them to, I mean, basically, you just sort of accounted for, you explained that there has to be this demand. And then once a demand is established, then this sort of supply creates the context for how the price changes over time. Is it is basically the part of this that just the demand is kind of, the narrative keeps expanding, right? And the demand has been there. Yeah, well, the market is effectively saying, we value this coin more than we value the other ones because it provides the most security for the amount of transaction size is really kind of, I think, the value proposition and the fact that you got something that, you know, is decentralized. Everyone can run a full node.

Like all those things that we talk about that we like about Bitcoin is what I think the market is saying, yes, we value that work that's being performed. You're not just going out and digging a hole in the middle of the of a field and expecting to receive value for that work that was performed. There's actually somebody that's valuing what's being produced out of that work. And I think that's why. And you know what's fascinating is when you look at light coin, you don't see stock the flow work on that. And guess what? You don't see the hash rate being consistently going up like you have in Bitcoin.

It's very volatile. It's all over the place. So that tells me that the market is kind of valuing it at certain points in time. And then other points, it's not. And so that's why you're getting a different price curve result. And I think that you have a lot of, I look at a lot of those coins as being like sucker fish off of the Bitcoin protocol where you just have speculators that are stepping in. And as the market cap of Bitcoin expands, then the speculators are stepping down into these smaller coins. But in general, I don't think that this labor theory of value,

holds up for these other coins at all because you're not seeing this progressive step function in the hash rate. And so I get asked a lot of times, Preston, how would you know you're wrong? Like, how can you be in a position without knowing you're wrong? Well, I think that I would start to feel like I was wrong if I saw a lot of the miners start going away. And I saw the miners start mining other protocols. And I think that would be a real good indicator that, uh, market, sentiment, there's more money to be made in other protocols because the market is valuing the value proposition of that protocol more than if it was Bitcoin. And we haven't seen that. But I think that that would be a way that I would look at a potential indicator that I'd be

wrong. My strong guess is that once we are a little bit more firmly into this next bull market that seems to be emerging right now, it's going to become clear that it was, in fact, the last bull market of 2017 and 2018. That was the last shot for the layer one competition protocols, not this one, you know, even where even the excitement and energy and capital that's flowing into not Bitcoin is not even close to going into things that are Bitcoin like, right? It's a whole different set of second order financial experiments that, whether, you like them or not, they have almost nothing to do with the value proposition that Bitcoin is offering.

Well, you know, when I look at this entire movement, it's, it starts with the most fundamental thing, which is we've got to get away from centralized money. We have to move to something that a human is not in the loop and a human is not playing favors as to where the flow of newly created funds go to. And so when I look at Bitcoin and I look at the fact that they've kept the blocks small enough that any person can go in there and run a full node, that's like, that's huge, man. That's absolutely huge because that's what allows this protocol in particular to ensure that the 21 million coins that'll eventually be mined is sustained. because every single person, whether you're a big shot or you're a person with pretty much no position, you have a vote. It becomes a democracy type situation or it has voting rights.

I equate it similar to in a company when you're a founder and you've done it a few times, right? You get really smart in realizing that it all comes down to the voting rights, not necessarily the earning rights of your shares. So, you know, a first time founder will make that mistake and they'll lose the majority vote of their shares. The second time a founder goes through this, what they do is they break out and they split apart their voting rights and their earning rights. And they create two different classes of shares. And you see this a lot on the venture capital side because they've done this many of times where they want an increased amount of votes per share and they break that part out. right. The reason they want that is because they want to be able to control the direction of where the company goes. They want to have the power to call the shots and not be working for some

CEO working for some chairman of the board. And when I look at cryptocurrencies and I look at Bitcoin, it has the best governance because everybody that can run a full node, it's almost like everybody's on the same playing field here where you're not, if you think you're going to step in and outvote everybody else because you have some type of self-serving incentive structure. It's not going to work. So whenever I look at Ethereum, like, come on, that's a major concern for me. If I'm a person with a very large net worth and I've done my homework and trust me, these people with a very high net worth, they're going to do their homework. They're going to do their homework or they're losing money real fast.

And for those folks that are doing their homework, they're looking at this and they're saying, all right, this is the one that's not going to be able to be adjusted. This protocol is not going to be able to adjust it. I mean, look at, look at Michael Saylor, $250 million straight office balance sheet investment in the Bitcoin, not something else. And this is a guy that understands network effects and has, and he owns, or he's the, he's the founder of this $1.3 billion company. But what's not said is he also created another company called Alarm. which has a market cap of $2.8 billion. He had another company called angel.com, which he sold. This is not this dude's first rodeo, right? And I think that when you really start getting around some of the smart capital allocators and they start coming around to this idea, which I think is all going to happen after you get a new all-time high, it's going to open up a lot of eyes and you're going to have some smart people that start asking these really hard questions of, all right, so who can change this?

Because they're going to look at it from that lens of, where's my voting rights? and they're going to start asking those really hard questions. And I think they're going to arrive at the protocol that I have a lot of faith in. And I think it's an exciting time. You said earlier something that I agree with wholeheartedly, which is that, to paraphrase, this type of moment of incredible transition rewards the adaptable, rewards people who don't get wedded to the way things were and instead navigate. and try to orient the future towards themselves or themselves towards the future.

In that context, what should people be watching for? And this will be our last question so you can have your kind of big ponderous answer or your prediction or whatever you want. But what should people be watching for paying attention to for the rest of this year, the rest of 2020? You know, I just, I don't know how you can create something that has better fundamentals,

than what we've got with Bitcoin, mostly because of the size of the transaction you can make in the speed that it's basically conducting it. So when you're looking at something that's going to step in to potentially replace a global reserve status currency, that I think has to be one of the top, the security of the transaction and the size of the transaction and the clearance of the transaction is going to be way up there on the top of the list. So I would watch the best indicator for an up and rising stars just pay attention to the market cap. And then as you see things that are supposedly competing with Bitcoin, you go in there and you analyze it and you assess it and you ask the hard questions and you challenge your assumptions and you dig into, well, what is, is it outperforming Bitcoin at those tasks that I just described?

And if it is, well, then maybe you start taking a small position of it. I don't know. I don't see any of that right now. I don't see a competitor to it right now as far as stepping in to become a new global reserve currency because I don't think there's anything else out there that's as decentralized that has that value proposition. But that doesn't mean it can't happen. I think people just need to keep their eyes open and look at market caps and as they're watching that acceleration of maybe a competitor go in there and dig in and try to understand what what they're saying is better. And then really kind of ask yourself, is it truly decentralized? That's going to be the hard one to find. Preston, it is always awesome to talk with you. I could ask another hour of questions, but it's getting late here. So I want to let you go and be respectful of your time. And, you know, your open invite, always come back whenever you want. Hey, I love these chats.

You ask some awesome questions. It's always fun to talk about this stuff. So I really appreciate the invite to come back on. Cheers. We'll talk to you soon. two things to highlight reflecting on that conversation. The first is a question, which comes down to simply, in the context of this radical transformation of monetary policy and this great money printing experiment, who's left holding the bag?

Preston got into that a little bit saying it was the bondholders, but I think it's a really important question to explore, because a lot of our policies might amount to having the impact of shifting who's holding the bag, and my guess is that if we're not careful, that answer might not be exactly what we hope. The second thing that I wanted to highlight, which I'm sure did not elude any of you, is just how strongly the Bitcoin narrative has cemented and solidified over the last five months since that first conversation with Preston. As he said, he might not have been that surprised at what came to pass, but many people were. Many people saw economic orthodoxy that they had held deer thrown out the window. They saw a complete shift in the Overton window on

what our economic policy consists of. Meanwhile, this asset that had just kept not dying despite reports to the contrary, plugged along, saw 200% gains, and had a programmatic supply issuance reduction at the same time as the money printer engines were revving up. I still don't think we're fully appreciating just how powerful a signal and a narrative that is. But if you've made it this far, I bet you do. Anyways, guys, thanks for listening. If you like this show, please go rate and review it on iTunes. It makes a huge difference for more people discovering it.

And as always, I appreciate you listening. Until tomorrow, guys, be safe and take care of each other. Peace.