The Breakdown - The Breakdown Weekly Recap | March 14 2020

Episode Date: March 14, 2020

The entire week's shows in one convenient file: Monday | What the Market Crash Means for Bitcoin, Feat. Delphi's Kevin Kelly Tuesday | Crypto Fundraising and the Nothing-Is-Safe Haven Wednesday | Ben Hunt on the Clash of Narratives in the Age of Coronavirus Thursday | 6 Good Reasons for Bitcoiners to Keep Calm and HODL On Friday | What Happens When Currencies Fail? Featuring Preston Pysh

Welcome back to the breakdown. An everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Saturday 314, March 14th. And today, as every Saturday, we are doing our weekly recap all of the previous week's episodes in one long form. peace. And man, what a week it was. This is honestly, guys, a week that will go down in history,

not just in the crypto industry, not just in the world of finance, but in just history, right? This is an epical time that started with a president denying that this was any worse than the flu and ended with a national emergency, multiple sports league shut down, areas of cities completely quarantined in the U.S. and everyone wondering what happens next. Not to mention the biggest single-day market fall since 1987, 40% dips in the Bitcoin price in a single day. I mean, this is just wild historic times. As you might expect, the podcast this week has been all about those historic times. On Monday, we had Delphi Digital's Kevin Kelly try to come explain what the recent market crash meant for Bitcoin and talking about how the equities markets were actually only one

part of the overall ecosystem that we needed to be paying attention to. On Tuesday, we got into the latest discussion of the Bitcoin as a safe haven asset. And the point that most people were making, which would be validated later in the week, was that in the type of crisis we were seeing, when companies need to stay solvent, nothing is a safe haven other than cash. And approximations of cash like treasury bills. And that is absolutely what we saw by Wednesday. On Wednesday, we invited Ben Hunt, Epsilon Theory, for those of you who follow him on Twitter, to come talk about narratives and how we were seeing a cascading crash of narratives. The narrative bubble of the coronavirus was actually popping the narrative bubble of an economy that was predicated

on asset prices rising further and further forever and ever. And we talked about what the fallout was likely to be as those narratives came crashing down around us. By the time we recorded, by the time that evening happened, Trump went on TV taking coronavirus seriously for the first time. Tom Hanks announced that he got coronavirus. The NBA shut down and all of a sudden this was a real thing. Thursday, as I mentioned, was the single worst in market history since 1987's Black Monday. The Dow fell 10%.

And Bitcoin, man, Bitcoin had a time. From when the president spoke, it was around 7,900, to by the end of the next day, 11 p.m. when I was recording Friday's podcast, it got down as low as 3,800. Now, it has rebounded a little bit,

but it has still been an absolutely devastating week in these markets. On Thursday, the podcast I released was called Six Good Reasons for Bitcoiners to Keep Calm and Hottle on. And in it, my point was to show that although everything was screaming sell and fear and panic, there were actually some interesting signs, not least of which was the fact that over the course of the day, if you looked at apps like Coinbase, there were more buy orders than sell orders coming in. Now, interestingly, some people took this to mean that I had drank the Bitcoin Kool-Aid and was saying, Hottle at any costs.

And I want to be clear. The point of this podcast is never, ever to tell you what to do with your money. It's never, even when I'm convinced of the long-term value of something like Bitcoin, to say that you have to feel the same way or have some set of behaviors to live up to that. What I care about is giving you a perspective that is more nuanced and less based on whatever the current narrative du jour is than you'd get other places. In moments of incredible fear, taking time to observe the counter-narratives is really important. That doesn't mean that I'm not saying sell to make sure you make rent. You do what you have to do in these types of times to take

care of you and yours. Period, full stop, end of story. But I want to make sure to say that because I don't ever want this podcast to make people feel like there's only one right way to be a bitcoiner or to be in the crypto industry. On Friday, I welcomed my third guest of the week, Preston Pish, who is the podcast host of We Study Billionaires, an entrepreneur, an engineer, and just a very thoughtful guy. And we zoomed out and we talked about, well, what happens after this inevitable huge wave of government intervention that's coming from the Fed and probably from Congress as well. That interview, which we called what happens when currencies fail is the last of our week. I don't know about you guys, but I am desperately in need of this weekend to regroup, to get away

for a second, to think about what happens next. And I got to tell you, I'm scared for our economy. I'm scared for our health system, but I'm glad that we end this week acknowledging what we're up against at least on a little bit of a level as compared to where we started this week when we were still in full on, it's just the flu we're denying it mode. You can't tackle a problem when you're denying that it exists. So to me, as agonizing as this week was, and as scary as it suggests, the coming weeks might be, at least we're going to start on Monday on the right foot to back what comes for us. Now, I'm going to throw it back over to the normal Monday through Friday run, as I do. But during the week, I asked a couple folks just to send in their 60 second or 90-second

impressions of what's gone on. So we have Alex Machinsky from the Celsius Network and Andy Bromberg from CoinList, who you're going to hear give kind of 60 to two-minute clips on some different aspect of the conversation that they thought this week was important. So let's dive into that. Hi, Nathaniel. Quite a day today. I think if you look at the different markets, people were for the last six months or so, we're trying to show how Bitcoin was not correlated. Today we obviously found out that it's completely correlated to the overall markets. And it's mostly because it's the same traders, the same risk takers, the same speculators that are trading in all the risk. markets as well as in the crypto markets.

And when they have liquidations in one market, they usually liquidate in others. And when they need cash, they go and get their cash. So today, unfortunately, the crypto market has the same movements as the traditional market because the underlying holders, the hodlers, are not the ones of moving the price. So it is not yet proven to be a safety asset because there's just not enough hodlers. And the speculators are the one dominating the price of the price of the price. asset. And again, there's a race to safety and everybody needs cash. We're seeing liquidations. We're seeing this type of activity. And again, for Celsius, it's a great place to be because

we provide, we lend the assets. So we yield, create yield for our depositors for the huddlers. And we're effectively getting the speculators to pay fees to the huddlers long term. Right? So it's the same business as a SEC lending business. It's just that Celsius, unlike all the other guys, pays 80% of what we earn back to the depositors in Bitcoin, in Ethereum, and so on. So what that does is it avoids having these dollars that earn dollars leave the community, and we're effectively increasing the wallets of the huddlers and depleting the wallets of the traders. Hey, Bracombeen listeners, this is Andy Bromberg, president and co-founder of Coinlist. Nathaniel, thank you for having me, as always.

It is a rollercoaster this week. I'm talking here. This is Friday around midday, Eastern time, which I say because I'm sure this will even be outdated an hour from now. I'd like to talk about Bitcoin as a safe haven. Bitcoin is a sore value. Because the thing I've been hearing most from my crypto-skeptic friends is that this market movement in this last week has shown that Bitcoin is not a safe haven't. haven and that that store of value thesis is dead and I totally disagree.

The important thing to remember is that Bitcoin is still early on in its life cycle. It's about a decade old. And what makes something a great safe haven, what makes gold a really good safe haven, is that people believe that it's a safe haven. It's a self-fuling prophecy. And Bitcoin is starting to get there, but it is not all the way there yet. Every one of these cycles amplifies that narrative, makes it stronger and makes Bitcoin more of a stable store of value than before.

But it does not mean that just because we think that it will eventually be one, it is one today. The most interesting signal to me that I'm watching for is when the market calms down, when people start reallocating their assets, do people move into Bitcoin? I think it's a sensible thing to do because it will not have been inflated. Governments will not have issued more of it like they will have of other currencies out there. It will have self-corrected and stabilized without the need for circuit breakers and government intervention. And if people notice that, if people believe that, if people move back into Bitcoin at the end of this down cycle, I think that's a really promising sign for its store value use case in the future. As you can tell, these are really interesting and slightly different perspectives,

but all come back to this idea of the more nuanced conversation that we're having now as opposed to the beginning of the week. So anyways, guys, that's it for me for this Saturday recap. I hope you enjoy the episodes to come. I think they're all important in different ways. I tried to make each one a little bit different in an important way. So I appreciate you listening as always. I hope that you are not devastated after this week. I hope that you are staying safe with the people that you care about most. I'll be back on Monday to break it down for you guys.

And until then, peace. Welcome back to the breakdown. An everyday analysis breaking down the most important stories in Bitcoin, crypto and beyond with your host, NLW. The breakdown is distributed by CoinDesk. Welcome back to the breakdown. It is Monday, March 9th, and it is a Black Monday. Yesterday, I got the dreaded blockfolio. Bitcoin is down 3% in the last hour text, and it has just gone worse and worse and worse from there. We're experiencing right now a huge confluence of problematic events. The markets are catching up to themselves with regards to coronavirus and the potential dislocations from everything being. closed, people stopping travel, all of these sort of second and third order effects are coming home to roost a little bit, while at the same time, we're also seeing other challenges like a global

oil price war that ignited last night. Now, one of the things that I love about crypto and Bitcoin is that it attracts people from all walks of life and background, right? Not everyone in this space was in traditional markets before. Because of that, however, when there are these large-scale global macro events that have an impact on the price of Bitcoin that have an impact on actions in our industry, it can be hard to figure out exactly what's going on and where you should go to get information. So to help with that, I've brought on Kevin Kelly from Delphi Digital. Delphi are one of the best research houses in the crypto space. Kevin has a background in traditional markets, and basically what we do for the next half hour is like a primer effectively on everything that's

going on, right? So we talk about the difference between stock markets and bond markets and what bond markets have been telling us that stock markets seem to finally be agreeing with. We talk about the safe haven narrative and what we might expect from different types of safe havens and why gold even isn't performing as well as you might think because we treat safe haven so monolithically. We talk about what other signals we should be watching for over the coming days to better understand what's likely to transpire. Hopefully this interview is a helpful, useful primer for you on what is a fast-moving, fast-evolving situation. Two quick notes before we get into the interview. The first is that this interview has been very lightly edited. I like having the feel and flow of the conversation

more natural. So hear that. If you hear the ums or the, you know, whatever the pauses, it's because we're doing a much lighter edit. And secondly, I need to be very clear. that nothing in this podcast should be taken as financial advice. These represent the opinions of myself and our guest only and should not be used as the basis for any financial decision. All right, that out of the way, let's dive into this interview. All right, I am here with Kevin Kelly. Kevin, thank you so much for joining today.

Appreciate it. Thanks for having me. So we were originally going to do this podcast on Friday. And then we were like, you know what? it seems like we maybe want to wait and see what actually happens. And I'm glad we did. A lot has taken place over the last, well, 24 hours, I guess. Yeah, I'm glad we waited too.

It's kind of funny. We initially push it back because of volatility. And now we've seen even more volatility creep into market. So, no, definitely, definitely very timely for sure. So I guess what I want to do is basically there are so many, there's such a confluence of events happening right now, right? And I think there are plenty of people in the crypto industry who have, you know, background and experience in, you know, other traditional markets. You obviously have experience in, in other parts

or other sectors. But there also are a lot of people who are really just trying to make sense of all this stuff, right? You know, crypto doesn't always react to global challenges, but it is certainly reacting now. So I guess let's start on a high level. What have we been seeing in the last couple weeks in the markets because obviously, you know, for a long time, there was no reaction to coronavirus and then it seems to have all hit. Yeah, no, absolutely. So if you kind of rewind the clock back to, you know, let's say the beginning of this year, beginning of 2020, I mean, we were just coming off of 2019 is what we deemed as something, you know, I consider the everything rally, where you had this kind of pivot among global central banks led

by the Federal Reserve and Jerome Powell and Co. And basically, you know, pivoting back towards a more accommodated monetary policy. And what that did was really ignited, you know, asset prices across the board, whether it was stocks. You know, you had the SEP 500 up, you know, 30 percent last year. You had treasury bonds, right, which typically, you know, people look at as diversifiers. Those were up, you know, double digits. Gold was up double digits. So you really kind of, you looked across asset classes. You know, it's kind of why we'd even the everything rally is because everything was pretty much up, right? You could have thrown a dart at a dart board of different asset classes and you probably would have made money. And so the beginning,

of this year started off, you know, somewhat similar in that you did have, you know, a rally, still a rally in risk assets. And as you started to see coronavirus and news start to break, right, initially, obviously in China. And then there was certainly some, some discrepancy or some questions around or people being skeptical around what was, what was actually being released. And as people started to kind of put two and two together and really understand the magnitude of this, you kind of saw, as you mentioned, a big kind of confluence of incidents. that really led to, you know, I think, where we are today. And to your point earlier, you know, we saw a pretty big divergence in the weeks leading up to, you know, the stock markets peak right there on February 19th, where you had the stock market saying, one thing, you had the bond market saying something else.

And so what we've seen now is that obviously risk assets like stocks have certainly caught up to the severity and the bond market narrative, what the bond market was trying to tell people. But I think, you know, it's largely a factor of what you think expectations are going forward, right? And for a while there, you saw stocks again continue to climb even as bonds are rallying and yields were falling because I think people weren't taking, you know, the coronavirus outbreak threat as seriously as they probably should have. And it's very difficult to really assess the economic impact of something like this because it's one of those unique events where you're hitting both, you know, kind of aggregate supply and demand at the same time, right? So there's so many different variables and parameters you're trying to understand. You're trying to get a good picture of. And again, you know, when it comes to something like this and you're getting, you know, different media outlets with different types of news coming out and one's a little bit more

optimistic. One's more pessimistic. I think it was tough for the market to really kind of, you know, disseminate that. And then finally, as things really started to escalate and it, it became almost impossible to ignore, you know, the potential effects of this and the severity of it. That's when you really kind of saw, you know, equity investors. a crater of it to what the bond market had been telling them, you know, for weeks, weeks at that point. Okay. So I want to touch on something important that you're kind of bringing

up in passing, but I think it's worth maybe focusing on, right? Most of our coverage of the economy looks at just kind of the top line stock market numbers as the main indicator, right? But obviously the economies are much more complex than that. So what are, what are the different markets that are relevant for people to be paying attention to and how have, you know, you're kind of saying that they maybe have been telling different stories over the last couple weeks. What have you been seeing? Yeah, no, it's a great question. And different markets are going to react, you know, oftentimes in real time, but to different,

to different extends to certain macro events, right? And so when you look at the bond market, for example, I keep bringing up, when I mention the bond market, I mean, right now what I'm talking about is U.S. Treasuries, right? Those are highly regarded as, you know, kind of the safest asset that's out there, even, you know, safer than gold. And we can get into why, you know, gold hasn't really kind of exploded higher as well on some of this news. Because this is more of a bit of a liquidity event and a real kind of near-term shock that you would actually not expect something like gold, like a hard scarce asset to actually perform well in. But I can get in that in a minute. But when I'm talking about the bond market and treasuries, you know, that's oftentimes viewed as kind of like the purest play on what you think or what the market thinks.

the economic outlook is going to be going forward. And so when you see, you know, treasury yields, which move inversely the prices, when I say, you know, treasury yields are falling, that basically means that treasury bonds, the prices themselves are rallying, right? So if you're holding treasuries, you're in treasuries, you're making money. The reason why, you know, we've seen such drastic moves and such downward pressure on the U.S. Treasury yield is because, for one, again, the safe haven kind of flight to safety, where people aren't necessarily under sure how severe this is going to get, what the economic fall,

it's going to be. Again, it's a perfect kind of safe haven to go to, to try and wait out the storm, I guess you could say. But the flip side of that is that the longer dated treasury, so the ones that have longer maturity, is typically respond more to inflation expectations and kind of what the economic growth outlook is. And so you've got this, again, perfect storm of, you know, something like coronavirus that hits, caused a lot of uncertainty. People flood into treasuries just because that's, that's That's an asset allocation or rebalancing type strategy. And at the same time, you've also got, you know, expectations for economic growth falling, which in turn has pushed inflation expectations longer term down, which again kind of pushes more pressure on bond yields.

Because inflation, when inflation is expected to rise or is relatively high, that actually is kind of one of a bond investors kind of worst nightmares, right? It's their worst enemy. And so you've got, again, you know, a confluence of factors that are really kind of pushing yields to, to unprecedented levels, really record low levels. You've got the 10-year U.S. Treasury yield that broke below, you know, 50 basis points, you know, overnight here. And what I think is also important is at this point at this juncture, it's really critical. One, I mean, if you're an investor and you just have kind of an average portfolio, you know, not making any drastic or crazy changes, things like that.

Because, again, it's very, very difficult at time markets, especially ones that are this volatile. But it's also a good time to take a step back and this something we're doing right now. here at Delphi is it's kind of reassessing what we think the economic outlook is and trying to understand what market consensus expectations are and what we think, you know, the potential fallout from this will be compared to market expectations. And it's not to say that the markets are necessarily completely pricing in some type of doomsday scenario, but they're certainly getting close when you look at the, especially when you look at the bond market. And so that's why you've started to see, you know, stocks have cratered a bit. They're down, you know, 18 percent. I think now

as of when the market reopened because we had a trading halt this morning because stock fell so much, down 18% from that February 19th high I keep mentioning. So you're right within kind of what the media considers, you know, correction territory of that 20% drawdown. And so again, there's a lot of different markets you can look at to try and figure out what is going on. But the bond market is one of kind of the purest ways in which you can get an idea of what kind of market consensus is for or how bleak the outlook is, you know, among market participants. So this is a good juncture, I guess, you know, it sounds like your answer is in part. It's too early to know.

But how bleak is the market outlook right now as compared to what we're actually seeing? Like, is this a, and then obviously this is just your opinion and, you know, disclaimer, financial advice, et cetera, et cetera. but do you see this as the markets finally catching up with themselves and pricing in a lot of uncertainty? Or do you see them pricing in an expectation of further problems and dislocations? Yeah, I think it's a great question. And I think it's not to say that we can't see yields go lower. And certainly, I mean, I think stocks, to your point about that catch-up trade, I think stocks are now catching up to, again, what the bond market was saying and where people

are kind of repricing, you know, risk at this point because there is so much uncertainty surrounding this. But when you do look at kind of the bond market, you look at even the shorter end of the curve, what you're seeing, too, is expectations for, you know, a lot more accommodative and easier monetary policy, right? What I mean by that is you saw the Federal Reserve with an emergency rate cut to their benchmark rate by about 50 basis points last week. And initially, you saw a bit of a reaction in stocks, a very small kind of bounce within the first couple of minutes, and then you really saw the market continue to fall, right? And I think what last week's rate cut did, if anything, was confirmed to, you know, equity investors and market participants in general

what they had had had had had didn't want to admit to themselves. And that was that this was actually a real risk and something that, you know, the federal reserve was was now watching and monitoring as a threat to, you know, economic activity. And up until that point, again, you know, every day we get new information and every day, the severity of this becomes more and more clear to people. But again, it's one of those things where a lot of people have had, obviously, this has been an incredible bull run over the last, you know, 10, 11 years in the U.S. equity market. And so people, you know, didn't necessarily probably want to believe what the severity of this potential impact could be. And I think that's what the Fed rate cut last week kind of signal was this emergency rate cut that took a lot of people by surprise. I mean, the market had been pricing in at least, you know, 50 basis points of rate cuts from the Fed at their March, FOMC meeting, which is set to take place next week. But again, you know, the fact that the Fed couldn't wait two weeks to actually, you know, put that into place,

certainly was a signaling effect. And now if you look at, you know, what the market's pricing in for future, you know, Fed policy, they're calling for another, you know, two rate cuts or 50 base points worth of rate cuts, you know, by the March meeting, by year end. At this point, we've got above a 33% chance of the Fed actually taking rates all the way to zero, right, which is what a lot of people have been calling for for some time now. And so I think where this gets into the uncertainty aspect and it's tough to say what's priced in is, do you have the Fed, you know, if the economy dips in or really rolls over, it turns into a global recession, which you're already starting to see across a number of kind of advanced economies

that are certainly standing on fragile ground, if the global economy and the U.S. economy do, you know, dip into recession, the Fed's likely going to take rates to zero anyway, right? So the question right now is, do they get ahead of that, try and cut and really get ahead of doing whatever it is that they can do from a monetary policy standpoint to curb some of this? Or do they wait it out, see how it actually ends up taking effect, and then cutting rates to zero if we do see, you know, the economic conditions worsen, right? And there's obviously a debate on both sides of what, you know, you think, they should do or what they will do. But I personally sit in the camp, you know, that the Fed will probably wait a little bit here. You'll get more color on the March FMC meeting. I mean, they could,

if things continue, if stocks continue to, you know, crater this week, you could certainly see another emergency rate cut that's not out of the question. But I think the Fed's in a very delicate position because the flip side of this entire argument, right, which again, it's, I view now is, it's not the base case. It's definitely a lower risk of probability outcome. But, let's say hypothetically, you know, things aren't not necessarily good, but not as bad as the market has started to price in. And we do see this as more shifting of the demand curve out a few quarters. And it's not something that really permanently pushes, you know, the global economy into a recession. Well, the Fed, the risk the Fed faces, if they cut rates to zero, right, and they

start up, let's say even, you know, revamping a quantitative easing and asset purchases, if they start pumping them that much stimulus into the economy and it actually turns out to be more of a transitory event, well, then they're going to be on the hook on the flip side of potentially stimulating or igniting, you know, consumer inflation and things of that and almost pumping stimulus into a market that doesn't necessarily need it right now. So the risk is to the downside in terms of, you know, what inflation expectations could pick up that obviously would, you know, treasury, treasury bonds that I've talked about have done really well recently. And a lot of people have a lot of exposure to, especially older retirees. And so, again, that the Fed sits between

this rock and a hard place that they're often found in, because again, there's two sides to every argument. There's certainly some tradeoff of facts or potential consequences that they have to weigh when they make these types of decisions. Lots going on. Let's add more to the mix. Oil. So obviously, this is another shock to the system. How do you think that's playing into the market's reaction this morning? Is it just one more thing? Is it or is it more significant than that? Yeah, it's certainly coming at a pretty poor time, right?

Just based on everything we were just talking about, especially as, you know, coronavirus concerns escalate again, you know, day by day. Throwing oil into the mix, it's kind of like adding fuel, you know, to this proverbial dumpster fire that's become markets because, you know, on one hand, you can make the argument that low royal prices aren't necessarily bad depending on. you know, what, what stakeholder you're looking at, right? For let's say the U.S. consumer, you know, if gas prices end up falling, obviously that can be a bit of a windfall at a time when, you know, a lot of people may be coming under pressure. The flip side, and I think this is where the market's more so sitting is, you know, you have this 30 percent decline in oil overnight. I'm looking at oil prices right now. I mean, crudes hover around $34 a barrel, which is, which is very low compared to, you know, where we've been for most of this cycle.

And what I think that's the market starting to price into is kind of the downstream effects of oil at these levels, right? And I talked a little bit about, you know, what could tip, you know, potentially having coronavirus be the catalyst to tip us a newer recession. And what I look at and what I'm really focused on is more so kind of the financial and credit conditions that exist today. And so what I mean by that is when you look at kind of a debt-based economy like the U.S., it's heavily reliant on credit the ability for, you know, companies, individuals to be able to gain access to cheap credit. And so what you're starting to see is the high yield corporate debt market is made up of, it has a significant portion made up of energy and oil and gas companies, right, that are issuing corporate debt that's rated, you know, high yield or junk.

As a lot of people like to refer to it. And so if you have oil prices at this level, obviously cuts into profit revenues, profitability, cash flow for some of these companies that are already pretty strapped with debt, that can start to cause some real kind of funding and credit dislocations within the high yield market, which again can have, you know, these kind of downstream and direct effects on the rest of the economy because if credit conditions tighten, oftentimes credit conditions will tighten, they'll tighten quickly and they'll tighten, you know, all the way across the board. And so now everyone from your small and medium size enterprises or businesses, you know,

are having a more difficult time where it's more expensive for them to borrow to fund short-term needs, the funding markets potentially can dry up in terms of liquidity. And again, these downstream effects can really, really affect companies that are not necessarily even directly tied to oil prices or are these kind of big behemas that are sitting in, you know, the S&P 500. So again, it's, it's tough to say exactly where the market's going to shake out right here. And again, you know, this, this drop in the S&P 500, for example, could be something where, you know, you have these trading halts in place specifically because oftentimes panic selling be gets more panic selling and you and you'd like to think that cooler heads will prevail and somebody will come in and market producers will come in,

digest the information, have more time to digest it and start to make more informed decisions that aren't just hitting the panic sell button because they're trying to get out at the same time everyone else is trying to get out. But, you know, the shock and oil prices. And again, what the geopolitical potential implications are of this kind of oil price war that's now starting to take. take place, certainly weighing on markets at a time like we've been talking about. I mean, could not be a less ideal time for this to happen. Okay, so let's shift a little and talk safe havens. So you mentioned treasuries and you mentioned gold. So I guess first is what's happening with gold and then maybe you can expand a little bit on your kind of point about what we would expect to see gold do in this type of scenario.

Yeah, so gold obviously, you know, falls in that safe haven bucket over over the longer term, right, right there with treasuries. It's a little bit different in terms that it's not, you know, necessarily a cash flow producing or income producing asset, right? Like treasuries, you clip a coupon or you get a cash flow, right, from actually holding the treasuries themselves. You capture that yield, whereas gold is more looked at as kind of like a portfolio hedge against especially, you know, central bank. policies or monetary policies, but a lot of people will watch for, they'll look at things like real yields and make that type of comparison. But the point I wanted to make about gold versus treasuries as a safe haven is that during times like this, and you actually saw this, not to this extent,

but you saw something similar in terms of the, in 2008, where gold initially actually, you know, dropped by about 30 percent between, I think it was March 2008 to October that year, as volatility share to pick up and as you started to see stocks, you know, roll over and essentially fall off a cliff because it was more of a liquidity type event, not necessarily people just, you know, rebalancing it to gold because they thought economic conditions were deteriorating. And so in situations like this, and we've started to see it, you know, within the last couple of weeks in that, you know, gold initially rallied, but then gold sold off a bit.

And really the only thing that's been a, that's been surging higher has been, you know, long-dated, you know, U.S. treasuries, I think a lot of that is because people are essentially trying to sell whatever is that they have, right? And gold's actually a relatively liquid market compared to a lot of other assets and asset classes. And so in a situation like this, again, you know, having a position in gold to fight, you know, the broad-based risk of currency devaluation, all these things we talk about with central bank policy and rate cuts, over the long term certainly makes sense. But in these short-term kind of windows, you know, it's also subject to these liquidity events,

where people are, again, trying to sell whatever is that they can. And so I think that's why you've seen gold still fail to break above, you know, 1700, you know, up until really, I mean, this week, and we'll see how this week continues to play out. But it's a little bit more of kind of a liquidity event where everyone's, you know, selling pretty much everything they can get their hands on to get into something like U.S. Treasury, which, again, is kind of the gold standard of, you know, the safe haven assets out there. So the point I think that is very basic but also incredibly important and is missed a lot in the Bitcoin narrative conversation that we have on crypto Twitter is that it's not like there's just one monolithic thing called, you know, safe havens, right?

That there are, that that timeframe matters, that context matters, right? So I guess with that, how do you see the state of the Bitcoin narrative in this context, right? I mean, I think for the last two weeks, that's what everyone has been discussing. Two weeks ago when the markets first started to react, or at least the stock market, rather, finally started to react to Corona. Bitcoin was moving in total lockstep. Last week, it seemed like it was trying to reclaim its uncorrelated crowd, and it hung real tight for a while.

but then obviously it took a total dump over the weekend that just seems to be continuing. Yeah, no, I mean, it's a great question. Obviously, something we focused a lot of our time on too. And certainly fall long term into the camp that Bitcoin will find its way into more of that kind of safe haven bucket alongside something like gold, again, longer term, right? But in order for it to get there, I mean, it has to accrue trillions of dollars worth of value because again, that'll suppress volatility and it'll allow a more institutional crowd to come in. And once you have this market be a bit more institutionalized, that's when you would expect it to trade more and lockstep with some of these other safe havens, right?

And I think that's one of the big reasons why, you know, Bitcoin goes back and forth. And it is uncorrelated, you know, for the most part, over the longer term to any asset class, including both, you know, your safe havens and, you know, your risk assets is because the incremental buyer of, you just think about, you know, at a basic level, the incremental buyer or seller of Bitcoin versus gold, for example, it's still very, very different. right. We talk all the time about how this market's much more retail driven. And yes, we are starting to see institutions come in and more sophisticated investors come into the Bitcoin and crypto markets. But again, you know, the gold market is much, much more institutionalized and you would expect to react more so in real time to some of these events. What I think is going on too is that, again, still in a nascent technology, you know, the track record isn't, you know, close to what gold or treasuries is. And so this idea that in these types of times, especially when you have really, really,

you know, quick spikes in volatility, you know, a liquidity event that I've been referring to. You know, it's obviously Bitcoin catching a bid or performing well in that because, again, the narrative's not quite, it's not quite big enough of a market yet. And the narrative's not quite there yet on a global scale to really solidify it. It's a use case in something like, a scenario like this as a safe haven. And I think it's suffering again from kind of the way in which people are viewing it in terms of a risk asset versus or further out the risk curve, I should say, then something like a treasury or gold, right? I don't necessarily think the macro narrative for Bitcoin as that long-term safe haven or

uncorelated kind of hedge on everything, really on everything going awry, which is what we're starting to see. I don't think that's necessarily dead yet. I, for one, to be honest, would have expected, I wouldn't have expected Bitcoin to be below $8,000, given where we were even, you know, two or three weeks ago and what's developed. So it has been a bit surprising to me. but at the same time, I don't think it necessarily kills the narrative because, again, if you look at something like gold and you watch the way in which it's reacted so far, you would expect gold to be up higher as well if it was more of a kind of slow moving deterioration of events and it wasn't these kind of quick volatility spikes, which historically, you know, if you look over Bitcoin's limited track record, but really the cycle, anytime you've seen really big spikes in equity market volatility, expectations for market volatility, Bitcoin is failed to perform well, right? Usually it sells off of stocks because it's, again, you know, it's not that gold standard, you know, U.S. Treasury type of safe haven

asset are viewed like that for the most part quite yet, right? So again, not necessarily in the macro narrative's dead, but it is certainly in a very interesting place right now, because again, you'd expect Bitcoin. And that's not to say that Bitcoin, this isn't, you know, an attractive, you know, entry price point for certain institutions that are now looking at this and saying, digesting all the information, digesting, you know, how potentially bad things could get from a global macro. an economic standpoint and saying this might be a good, a good point for us to allocate a little bit to Bitcoin because, again, it is that, you know, potential ultimate hedge on things really,

really going awry and you really starting to see both fiscal and monetary stimulus, you know, ramp up. So it's an in an extreme position. Certainly wouldn't have expected to be here yet, but I don't think that that macro narrative is dead necessarily. Yeah. I mean, I think your point to dramatically simplify it is that when things happen this fast, people sell whatever they can sell to be able to move into the safest possible thing. Yeah, exactly. Which, yeah, I think that's really interesting and a really important point. What do you make, if anything of the almost, it seems to me, at least, wishful thinking

narrative that this is just a plus token scale and are selling off? Yeah, I mean, there's, again, there's probably certainly a bit of credibility to the argument. This is also, I mean, what's something that we track pretty often is looking at obviously the amount of leverage is being used. And again, it's still a bit of a trader's market. So again, to the average kind of big corner out there or a person who's even just put it into their investment portfolio because again, they want to diversify a bit, you know, certainly not, not anything we, you know, pay a ton of attention to. If anything, it's more so. What do you think the longer term outlook is if you're, it all depends on your time horizon, right? If you're looking out

the next two weeks, you know, to be honest with you, anybody says they know where Bitcoin's going to be in the next two weeks is probably lying to you. But if you look out, you know, a year, three years, five years, 10 years, you know, we can certainly give you a pretty, pretty good argument, especially at these levels to be bullish, you know, on something like Bitcoin, just again, because of, even from a macro perspective, you know, what it presents. And you're starting to see, it's important to note, you're starting to see a lot of the more kind of global macro focused individuals, traders, fund managers, start to actually wake up to the potential of Bitcoin and you see them now advocating for it, you know, on, on, on, on, on, on, on, on, on, on, on, on, on, on, on, on, on,

Twitter and things like that. So the narrative is certainly growing for Bitcoin, especially in kind of a global macro sense. But again, you know, trying to trade this market and then looking at, you know, different factors that potentially could be applying, you know, selling or, or immediate buying pressure, you know, again, you could probably craft at least five or six six different narratives. Maybe ask five or six different people why Bitcoin's at this level, you'll probably get five or six different answers. I couldn't agree more. Okay, I won't ask you for predictions because I think that's kind of would be insane right now,

but I will ask this to wrap up. What are you watching over the next couple days? What do you think are the important signals? Or maybe just what do you think that the market is waiting for? Yeah, I mean, I think just general markets right now, what I'm watching pretty closely is financial and credit conditions. I think what you're starting to see and you had the Fed actually come out and tell the market that they're going to be increasing the amount, that they're willing to repurchase the whole repo intervention that's been going on.

They've actually increased those limits because, again, you're starting to see some pressure in the funding markets and the real, like, shorter term funding markets. So what I'm watching for is credit conditions because, again, you know, a lot of these financial crises that we've had in the past, yes, the catalyst that got us there was certainly not anything to laugh about. But at the same time, the severity of those crises oftentimes happen because there's a chain reaction. And eventually when credit markets, you know, tighten or worst case freeze up, I mean, you can literally watch the global economy come almost to a screeching halt. And right now at a time when, you know, demand is obviously in question, to say the least, it's really, really a time in which, you know, the market needs credit conditions and financial conditions to remain loose and for, you know, small,

medium-sized businesses to be able to have access to capital, to be able to kind of weather this hopefully potential short-term storm because it's going to hit, you know, bottom lines. It's going to hit revenues. It's going to hit profitability. It's going to hit cash flow and it's going to affect the way in which, you know, an already kind of debt-driven economy is able to service those debts, right, on multiple different levels. So long-story short, what I'm looking for is credit conditions because if those credit spreads start to widen and then you see lending standards really start to tighten up and even potentially credit markets freezing, that's when you get a really kind of doomsday scenario. And I think, you know, you'd be in for a lot more pain here in markets

going forward. All right, Kevin, crazy times. Thank you so much for spending some time with us today. Absolutely. Appreciate it. Thanks for having me on. So a huge amount to digest from Kevin there. I think one of the reflections that I have is that this is really perhaps the first time that Bitcoin and crypto more broadly have been on display as a macro industry, as a macro asset that is impacted by and interacts with the larger movements of traditional markets. What that means in the short term is basically by definition impossible to tell. We don't have historical precedent, which means we're on uncharted territories. Uncharted territories can be really, really scary, and everyone needs to do whatever they need to do

to stay safe first and foremost, but uncharted territories can also be very valuable and very lucrative. So here's hoping that the markets don't go into total free fall, that stocks don't fall off a cliff, that credit doesn't contract everywhere, and that we don't plunge into a global recession or even depression. For my part, I'm going to try to keep breaking down everything going on. I'm going to bring a lot of different perspectives throughout the week onto the show to talk about all these issues. So hopefully this is helpful. Hopefully this brings a little bit more of a sense of

at least understanding to what's going on. But for now, stay safe, everybody. Peace. Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to the breakdown. It is Tuesday, March 10th, and I got to tell you guys, yesterday was exhausting. And well, it should have been. It ended up being the worst day in markets since 2008, since the last financial crash.

It wasn't much better for Bitcoin. It was maybe a little bit better by percentages, but it wasn't much better around here. In fact, everything kind of moved in law. step down. Now, because of that, much of the conversation today has been about Bitcoin as a safe haven asset or even as a non-correlated asset and whether this just puts the nail in that narrative coffin. So I am going to touch on that a little bit to kick off today's show. However, at the risk of being polyanish about what we're facing next, I think that we're in for a very long, very extended challenging period, both in the context of this public health emergency as well as in the context

of not just the market's ability to deal with it, but the economy's ability to deal with it in general. Because of that, we're going to have to win some positivity where we can here and there. And so today I'm going to actually look at a slate of fundraising news from the last few days, companies that were fortunate enough to get their capitalizations done before the coronavirus really kicked in, I think are in a good position as long as they manage their treasury as well. So we're going to look at some of that news and hopefully remind ourselves that even as bad as this might get, it will pass and a whole new set of exciting companies and ideas and innovations will come out of it too. So that's where we're going to focus today. First up, like I said, let's look at

the safe haven asset narrative in the wake of a very bad Monday. Yesterday, Brian Armstrong from Coinbase tweeted that he was surprised that Bitcoin was going down at the same time as everything else was going down. He said he would have anticipated it going the opposite direction. For those of you who listened to the show yesterday with Kevin Kelly, you'll know that when we talk about safe havens, we're really talking about a lot of different things, and that even in the context of those words, in established markets, in traditional markets, there can be multiple different types of safe havens that can prevent or be valuable in different types of situations. What we've seen in the last period is that

all of the safe haven, all of the risk off money, has been flowing into treasuries, into U.S. bonds, as the absolute pinnacle of safety in a very challenging time. Well, in this morning's markets' Joe Wisenthal from Bloomberg expands on this point. He says, in a panic, your first priority is maintaining cash flow and paying bills. And since everyone has liabilities in fiat currencies, something like gold eventually becomes a thing to sell for cash. Hence lately, treasuries have clobbered gold in performance. Virtually nobody has bills that are denominated in Bitcoin, so Bitcoin becomes something else to sell for cash. So Joe's point here is that anything that's liquid is going to move at least to some extent at the beginning.

And that's what we've seen. And, you know, again, as you heard from Kevin Kelly yesterday from Delphi Digital, even gold hasn't been soaring because some selling pressure has been on gold as well to just get money into cash. Joe makes another point, which is really interesting, however, which has to do with the correlation of the actual buyers, right? the buying base. He says, In recent years, the crypto industry has made a major push to become an asset class owned by institutions. When Bitcoin was owned just by weirdos, I say that with affection, on Mount Gox, its price was probably totally disconnected from the rest of the world. But now it's owned by entities that have to write quarterly letters and sometimes get redemption requests.

So its correlation with other assets will rise. Ultimately, Bitcoin can be an uncorrelated asset or it can be institutionally owned, but it can't be both. And now, whether you agree, with that last statement or not, there's no doubt that it has moved in a much more correlated fashion over the last couple weeks. Coin metrics actually focused their state of the network newsletter on exactly this point, saying in the past week, crypto assets have been highly correlated with global equities, with a near identical reaction to the Fed surprise 50 basis point interest rate cut and a coordinated sell-off on Sunday as futures markets opened. So again, we're talking now about not just the diminishment of the safe haven narrative in the state.

short term, but also the uncorrelated narrative. Now, Joe does bring up in his letter that he actually believes that safe haven isn't a particularly good term because it doesn't have context for what it's providing safety from. In Joe's estimation, Bitcoin is a safe haven, but against payments that could otherwise be censored. So he concludes his piece, if you're worried about authoritarians deciding who can buy what online, that it can be seen as a haven against that risk. If you were in the business of buying and selling Samzadat literature in an impressive regime, Bitcoin offers you a safe haven. The bottom line is that every haven has different states where their ideal properties kick in.

In this environment, though, where people fear not having enough dollars, Bitcoin is just another thing that a distressed owner is forced to liquidate. Now, others are sort of repeating this similar line. Ari David Paul was on TD Ameritrade Network this morning talking about this exact question, and he likened Bitcoin a little bit to gold during the 2008 crisis, where between August and November of that year, it was off something like 30%, where institutions just needed to have that liquidity

that was ruling their decision-making above all else. Now, gold would go on to rebound a little bit, but it's an interesting analogy. From my perspective, I think it's a good reminder about why we should be a little bit less quick to let narrative shifts happen. We jump wildly sometimes between one narrative, or another based on one new piece of evidence, when really what the way that we should be viewing

all of this is that narratives are constantly competing to reveal themselves as true, and all of us are, of course, combatants in that battle. We're not unbiased observers, but at the same time, there's simply an evolutionary process in all of this. What the last few weeks have revealed is that Bitcoin, because it can be liquid, will be sold in real times of crisis, at least by some actors in the market. It also probably does show to Joe's point and to Ari's point that there simply are more traditional players who are in Bitcoin and that is going to have some impact. But the other thing is that we are just very barely into what the real economic fallout of this situation might be. The market is reacting on the basis of things they don't know. We don't know how bad

this crisis is going to get, although epidemiologists and people who do math have a better idea than others, it seems. We don't know what the real impact to economies is going to be, not just to markets that price assets, but to real lived economic experience, people's jobs, people's daily decisions. We're seeing Italy now, the full country of 60 million people is in quarantine, which is a thing that we wouldn't have believed possible two weeks ago. Nine days ago, Italy had half the cases of coronavirus that we have now by formal records. So there's just a huge amount that is truly and fully unknown in this situation. Point being, we don't know yet how Bitcoin is going to fare over the totality of this.

All we know right now is how Bitcoin did in the worst day of the markets since 2008. And it did basically what everything else did. That's the new piece of evidence. That's the new piece of information. We're going to keep debating narratives because that's what we do, and it's totally fine. But for now, like I said, I want to move into a grab hold of some positive news for some parts of the industry and focus on the raft, really, of interesting fundraising news from the last few days. All right, fundraising news.

I'm going to do these in kind of quick hit succession to show you just how variable the focus of these companies is, right? This is not just one subsection of crypto or one type of project. It's a really diverse array of projects that all touch this complicated space. So first up, Horizon Blockchain Games has raised $5 million in new funding. It's an extension of a $3.75 million seed round from last year. Now, this is the company that is building Skyweaver, which is a digital trading card game that uses the Ethereum blockchain and is designed to take advantage of the idea,

of truly ownable digital assets. So Skyweaver itself is kind of in the tradition of hearthstone or Magic the Gathering and is really about that kind of collectible card game experience. The people who are betting on these types of startups, the other one that's big and known in the space is God's Unchained, think that the actual, the true ownership of digital assets and the ability for that to enable secondary markets and all sorts of exciting, interesting things

is a real game changer. No pun intended. The round was led by initialized capital, which is the venture firm that was founded by Alexis O'Hanian, the co-founder of Reddit. And it also saw investors from both the crypto space and beyond. So polychain capital, consensus, and more. Next up, we have $12 million for the D5-friendly Argent wallet.

This was led by paradigm and also included compound, founder Robert Leshner and a number of other investors, index ventures, and more. Argin is based in London and is effectively designed to be a wallet that puts defy right up front. Now, the excitement around the wallet has a lot to do with usability issues. Compounds Robert Leshner said that Argin is building the simplest, safest, and most practical gateway to crypto and open financial products. And interestingly, in their beta test, Argent has something like 3,000 clients. using this wallet, and it ranges from very small amounts all the way to wallets with more than

$200,000 of value in them. Speaking of Defi, next up, we have a couple of investments out of Framework Ventures. Framework Ventures is a Defy-focused fund out of San Francisco. They were early investors in both Chainlink and Synthetics, so they have some pedigree. They've invested $400,000 into a decentralized futures exchange called Future Swap and $500,000 and do common labs who are building the proof-of-stake blockchain edgeware. So, again, these are smaller amounts perhaps, but show just that there's a ton of excitement around defy.

Now, over in a very different part of the market, there is a company called First Digital Trust that spun out of the Hong Kong-based custodian legacy trust, which is traditional financial custodian. They've raised $3 million from Noggle Capital, who is a telegram investor, based out of Taiwan. This is meant to effectively be sort of a silver gate bank but for Asia. So again, a custody startup, totally different domain in some ways than these other things that we've seen, also raising money in a completely different part of the world. Now last up, I just wanted to briefly mention Solana. Solana raised $20 million last year.

And they seem to be out raising again, although whether it's just a small extension round or a larger strategic round, it's not exactly clear. but a Coin Desk report, they've gotten their hands on Solana's pitch deck, and it looks like one of the things that they're touting is a major pilot with the DISH Network, which is a huge US TV services provider. So this is a little bit different because it's not a raise that's been completed. It's something that people are out doing. But it does show, again, that there is this excitement and energy around these new companies, given that they're out looking for something like a $125 million valuation with this raise.

Now, let's talk bullish and bearish signals for just a second. It's undeniable that all these companies completing rounds out looking for money and getting success is a good thing for the industry. Now, fundraising news tends to be a little bit lagging in the sense that these deals were probably completed before most people were paying attention to coronavirus, which is obviously resetting our expectations from the economy in a big way. We've seen the very impactful note from Sequoia last week, basically saying that it was time to batten down the hatches. But still, the fact that these companies have this dry powder is something to be excited about. One last little note again on the context of grabbing these positive moments when we can. Let's not forget that last week

crypto effectively became legal again, became viable again in India. Cracken wrote a note this week saying that over the course of this year, they'd be announcing a lot more about how they intend to get into that market, right? So even as we're seeing some of these challenges from a macroeconomic perspective, we're seeing the businesses that are in this space and continuing to build, look for new opportunities, look for new communities to go work with, and that's worth something. Like I said, I think yesterday was exhausting, and I think unfortunately we're in for more yesterday's, although hopefully not quite as rough and all at once. But as we see what's coming, one thing I know for sure, I will be here to keep breaking it down for you. So with that,

until tomorrow, peace. Welcome back to the breakdown. An everyday analysis, breaking down the most important stories in Bitcoin, crypto, and beyond with your host, NLW. The breakdown is distributed by CoinDesk. Welcome back to the breakdown. It is Wednesday, March 11th, and today we have a very special show. Ben Hunt is the author of Epsilon Theory. He is a market theorist. He is a political scientist. He has been in venture capital and hedge funds.

And he has an extremely acute sense of how the narrative is shaped by and shapes our actions in the world around us. Regular listeners of The Breakdown know that I share this interest in narrative. For me, narratives are the way that we make sense of complex phenomenon, and they're also the way that we try to project our beliefs about the world to other people and try to get others to see the world the way that we see it. Now, usually when I'm talking about narratives on the breakdown, we're talking about something like whether Bitcoin will act as a safe haven in a recession, or what the latest Ethereum narrative is, is it Ethes Money or World Computer or something else? It's something about crypto specifically.

Today, we're talking about something a little bit different. We're talking about markets and narratives in the age of the coronavirus. In early February, Ben wrote a post about the coronavirus called Body Count that argued effectively that the attempt to control and propagate a specific narrative was outweighing whatever the right policy was, in effect that policymakers at the time, just in China, were trapped by their own narrative construction. Ben further argued that this is what policymakers have been doing effectively

ever since the Vietnam War, where the narrative itself starts to dictate the actions that policymakers take rather than the other way around. Today we're going to talk about the narratives that have shaped the coronavirus, in terms of both our public health response and in terms of markets. We're going to get into this idea of policymakers being, trapped by their own narratives and ask what it means for our response. As anyone who follows him on Twitter knows throughout this crisis, Ben has been a rare, clear,

clarion voice actually speaking about what's happening in spite of and beyond whatever the current narratives are. So I hope you enjoy this conversation as much as I did. One final note, as usual with an interview, we've edited this very lightly so it stays true to the feel of our real conversation. All right, we are here with the man himself, Ben, Hunt. Ben, thank you so much for taking some time today. I really appreciate it. Oh, it's my pleasure. Thanks for having me on. So, you know, we were just talking a little bit about this before, but, you know,

coronavirus is, I think, obviously dominating every industry's topic of conversation. It's now finally after this weird incubation period in America dominating markets in some ways. But the conversation that I'm particularly interested in with you has to do with narratives and the propagation of information. And in some ways where I think it might be helpful to start is your piece that you wrote that kind of kicked off your engagement with this, I might say. It was called body count. And my read of that piece was effectively the idea is what happens when policymakers get trapped by the narratives they construct to buy themselves more time to figure it out, right? And the really interesting thing about that conversation for me, or when you wrote that, is that you had a conversation just after where you were talking about markets and how the kind of non-responsiveness of markets to the fact that there were millions of people quarantined in the supply chain capital of the world. And your contention was that that was actually just a byproduct of the fact of markets not representing what we,

they thought we thought they did anymore. And so I wanted to maybe we could start there, obviously, since that conversation, markets have started to react in a big way. So, I mean, take me into that body count piece and this idea of narratives capturing or shaping what policymakers have to do. Sure, sure. You know, I've written what I think are three important pieces on this. I mean, important to me.

I don't know. They're important to anyone else. But they start with that piece. you're referring to, which are called body count. And that was really looking at what I would describe is the way that I called it politically corrupt, and I actually believe that, but it was the way in which the Chinese government was using narrative for its own benefit, right, rather than the benefit of its citizens who were impacted by the virus. The second note I wrote was about the World Health Organization and the way that

that I very much believe that the response of senior leadership there was similarly a politically corrupt response, again, to benefit, not in the case of the World Health Organization, a country, but to benefit this bureaucracy, again, at the expense of the people, the world, that who is supposed to look out for. And then the third piece, to really bring up, at home was what I believe is and continues to be the corrupt political response of the United States to the coronavirus outbreak. So you're right. The first note was on this corrupt political response, and by that I mean a false narrative constructed on the basis of false data, false numbers, that came from the Chinese government.

And the, you know, the crux of that argument is simply that the numbers we were getting from the Chinese government. And frankly, I think the numbers we continue to get from the Chinese government in several important respects were constructed. They were constructed with a particular view in mind, that view being to project an image of competence and calmness, regardless of what the reality was. And in that particular article, I tied it back to the U.S. experience in the Vietnam War, where we similarly had constructed numbers. In the case of the Vietnam War, it was the U.S. made up the numbers around the body count. You know, how many North Vietnamese soldiers had been killed or wounded in the given day.

And that was a staple of every nightly news broadcast with Walter Kronkite, or the like, I remember as a little boy seeing those broadcasts. And what really is the worst part of this is that for all countries who engage in this sort of narrative construction for their own political or bureaucratic ends, what always happens is that the narrative tale begins to wag the policy dog, meaning that you start to make actual, in the case of Vietnam War, war fighting decisions based on supporting the narrative. And in the case today, we have actual disease fighting decisions that are made at every level in China, through the World Health Organization here in the United States, decisions made

to support the narrative rather than the effective prosecution of this battle against a disease. and, you know, to your point about whether markets take notice of this or how this always ends, what always is the case, whether you're talking about a war, like the Vietnam War, you're talking about a disease, is that the narrative ultimately collapses against the reality of the fight. In the case of the Vietnam War, the American narrative that we were winning the hearts and minds, that North Vietnam was on the verge of suing for peace, that was blasted into smithereens by the Tet Offensive. And in the Tet Offensive, which was militarily a disaster for North Vietnam and their Viet Cong forces in the South, in military terms, it was a disaster, but in terms of the narrative, it gave the lie to the

narrative. It was obvious after this offensive that North Vietnam was not close to surrendering, that we were not close to winning the hearts and minds of the South Vietnamese people. And once reality is injected into the markets or our politics or wherever these, narratives are playing out, this is how narratives break. This is how they collapse. It's very hard to collapse these narratives in a purely market environment, like the market around the price of Bitcoin, or the market environment around, actually, any stock market in the world over the last 10 years. What happens, though, is that there are these events, and the coronavirus outbreak is

certainly one of them, where reality gives the lie to these narratives that are constructed to further the advantage of a political party, a government, or a bureaucratic organization. So that's what I think's happening now, and I think there are lots of ramifications from that. the main one being, and this is what I'd love to discuss with you because I think it's so interesting for all of us, especially I'll call it the Bitcoin or the crypto community, is, well, once this big narrative collapses, and we're certainly seeing this narrative around competence and market calm and low volatility collapse. in the face of the reality of coronavirus, what are the ramifications of that?

Because what I'll tell you is that once one big lie gives way, other big lies tend to follow. So, you know, that's my story and I'm sticking to it. So this is fascinating because I think we're seeing two narrative collapses in real time. And it's almost sort of like potentially when neutron stars spin around each other and eventually become a black hole, right? And one of those is the health narrative and what this is going to do from a health perspective. The second is a fundamentals of the economy narrative. And whether this is the pin, not the balloon, so to speak, in the scorecard that has become our markets. And so I guess one of the really interesting things about the analogy that you make to Vietnam and both the situation that we're seeing now is that you have this weird confluence of the numbers with the narrative, right, where some type of number becomes the new goalpost, right?

So the body count in Vietnam was it was a narrative that was based on that number. And so the strategy became achieve that number, right? If winning is more people on that scoreboard, do it. I think that you could make an analogy to some extent with the stock market, right? If the stock market is going up, that means the economy is good. And certainly that's a conflation that has more to do with any one sort of type of policymaker. That's also, it's an easy number for media to report. I'll go farther than that.

It's not just an analogy. I mean, it's an absolute fact. I mean, you know, the Trump administration and Donald Trump himself has not been shot. about saying those exact words, that the stock market is my scorecard. The stock market is my scorecard. And, you know, I think to a large extent, every president has known that. It's just that, you know, this particular president, he tends to say the quiet part out loud, you know, and, you know, it doesn't even make a pretense that it would be anything but. but that, the stock market being the scorecard.

I think that's absolutely been, again, the quiet part, the unspoken part, really since the great financial crisis of 2008. And it's been reflected not just in the stock market, right? But it's been reflected in every monetary and fiscal policy that we've been, you know, subjected to since 2008. And, you know, I want to be clear. I think that in March of 2009, when the Federal Reserve started its policies of extraordinary support by buying stuff and by using their words intentionally to try to influence markets, look, I think what they did in March 2009 was exactly the right thing to do.

I mean, that's why we have central banks. We have them as that emergency liquidity provider of last resort. I like to use the example of, you know, pulp fiction where John Travolta gets that syringe of adrenaline and puts it, you know, right into the heart of the, you know, Odeed Uma Thurman. That's what the Fed did in March of 2009, and that's what Central Banks are supposed to do. What's happened since then, however, is what all of. happens, that these emergency government actions become permanent government policy, because it supports the power and the aggrandizement of these government organizations.

I don't say that's necessarily good or bad. I think it's kind of sad, more than a little sad, but I am saying it is. And it really requires, again, some sort of implacable reality, whether that's losing a war or whether that's losing a fight against a disease to give the lie to that. So look, I think you're right. We've got a lot of these big narratives, big stories that have been constructed for us over the last 10 years, 11 years, that are now really damaged. I will say this, though, because it's one thing to kind of talk about this stuff and the like. I, think we've developed some interesting tools over the last three or four years, really, to try to do more than just give our opinion on this stuff, but to actually measure the

strength and the impact of narratives to actually visualize the scope and the structure of these narratives over time. And while I will absolutely tell you that the, let's call it, the Trumpian narrative of control over the economy and over this disease propagation in itself is clearly been just demolished. The other narratives that are out there, for example, the narrative that central banks are still large and in charge, that narrative is still there, right? So I don't want to, you know, to say that, oh my God, you know, the dam. You know, the dam. is broken and all these old narratives are, powerful narratives are now down for the count. You know, what we're actually seeing is that you've got cracks in this dam and you've got maybe

little dams that are giving way, like the whole narrative around the Trump administration. But to date, at least, that narrative around what I like to call central bank omnipotence, not omniscience, not that they know everything, but that they are able to drive market outcomes, that's still pretty powerful. That may also be going away, depending on how much the reality of this war against a disease kicks us in the teeth. But for now, I think it is important to distinguish kind of the battles in this war. against narrative is taking place.

I completely agree. And in fact, I would actually characterize the period that we're all living through as not just passive observers, but active contributors, as this interesting liminal period of trying to rest control of the ability to shape narratives away from just the traditional institutions that do it. And I think in some ways what we're seeing, and part of what makes this such a a hugely important moment is that people are, people don't know who to trust and who to look to for real sources of information in any real way.

And in fact, I see every day as I watch Twitter, it's almost like you see this narrative battle played out, right? You have a meme war between it's just the flu or it's a media hoax or only old people get it on the one side and people who are trying to flatten. the curve on the other. And it ends up taking on this narrative battle that everyone's a participant in. And in fact, you can see how some of the power and authority in narrative propagation has shifted by virtue of the fact of how excited people were to see what the hell Joe Rogan was going to say about this yesterday, you know? Absolutely right. What you're seeing, I think, is a real transformation

in what we call it, you know, my academic background on this stuff, and I even hate to talk about it because it's become kind of a meme of its own and kind of a joke. But, you know, I really did get a PhD in game theory of all things, right? And, you know, again, I even hate to bring it up because I hear, oh, that's, yeah, now let's look at game theory, right? But the fact is that there really is a very powerful game that exists around, as you're describing, the propagation of these memes and ideas and the shifts that exist here. And that powerful idea is what's called the common knowledge game. And it really is a way of looking at how the crowd looks at the crowd. and it is such a powerful force in all of human history, right? And what really drives the common knowledge game is what we call missionaries. You know, someone who gets in front of a camera, someone who gets behind a microphone,

and is able to speak to the crowd. And it's not so much that the crowd is hanging on every word of the missionary. It's not so much that the crowd really is focused on what the missionary is saying. The crowd is focused on the crowd that is watching the missionary speak. So, quick example. You know, at every Trump campaign rally, because he really, you know, whatever you think is his policies, and for me it's, you know, not much, you have to give him credit. He's a very effective politician.

And he's a very effective politician, I believe, from his. his reality TV background, from his instinctive or learned mastery of the common knowledge game. What I mean by that is the very first thing Trump will talk about at any campaign rally is he will immediately say, hey, crowd, look at yourself. He will immediately compliment the crowd. He will talk about, oh, my God, this is the biggest crowd we ever had in auditorium X, Y, Z. We had a line, you know, two miles out the door. He immediately gets the crowd to pay attention to itself. And that's so crucial.

In the middle of his speech, he'll stop whatever he's talking about, and he'll say, you know, just look around at yourselves. What an amazing crowd you are and, you know, what a ton of people here. The very last thing he will say at every campaign rally is once again to call the attention of the crowd to itself. This is entirely intentional. It's incredibly effective because we are hardwired as social animals to respond to and to anticipate the crowd.

How is the crowd reacting to what is being said? So what we're seeing today, and Rogan's a great example of this, because he plays the game really well too. Right? Because it's, yes, we're interested in what Joe Rogan, the man is saying, but what we're also really focused on is, oh, my God, look at all the people who are listening to what Joe Rogan is saying. And it's that phenomenon of the crowd watching the crowd that is really at the heart of, you know, what I'll call our political or narrative entrepreneurs who, as you say, are trying to reshape a narrative or to create a narrative of their own. It's fascinating to watch

out, to watch for, but particularly if you get a sense of the mechanics of this, where what really drives the efficacy of narrative construction is first and foremost getting the crowd to look at the crowd. Super, super interesting. I feel like this is exactly what markets might be losing the plot on a little bit, right? You're seeing these cracks. I mean, they're more than cracks. You're seeing them manifest in populist political campaigns, but even to take a smaller example. So there was this viral tweet, I'm sure you saw it last week, where someone said that Bloomberg, instead of spending $500 million on his campaign ads, could have given everyone in America, all 327 million people in America, a million dollars and still had a huge fortune to walk away with.

And this would have been fine. It would have been fine. It would have been relegated. to a shot in for it a math mistake. Right. Except for the fact that then MSNBC had it as the centerpiece of this overly kind of wrought, poignant, you know, conversation about inequality and politics. And the most interesting thing about that to me was that the original author doubled down after when, you know, everyone, before she turned off her account, rightly so, because God knows she doesn't deserve whatever she was getting for a math mistake.

But her second tweet after this was the point still stands, Bloomberg could give everyone a million dollars. And it was this really interesting moment where it is so clear how much just on a gut level, a feeling level, people breeze through that math. They didn't even take the time to double check it because that's something that they want to believe. And there is this real rawness. And this, I think, is the real crack in the dam. And what I personally am watching for to see in the markets is there's this big crack between the idea of stock markets at all-time highs and people's sense that they are falling farther behind, rightly or wrongly.

And you can throw facts at them. In fact, again, another really interesting thing from Twitter. Orrin Cass did this tweet storm about new research that I think came out of the Manhattan Institute that actually finally put some numbers around this sense of economic dislocation that were that kind of validated the point, not in terms of the traditional terms of how economists put it, but in terms of things like how likely it was to, you know, how many paychecks it took to buy certain things that you used to be able to buy. And so this is a very long way of saying that, you know, we're, it feels like about to get the latest test in whether

the government's intervention in markets is enough to keep up the asset, prices as the determinant of market success, that political scorecard, or whether there's an actual reset and whether that reset actually comes with it a different type of political scorecard that needs to be constructed on the backside. Yeah, so, you know, Ben Shapiro, who, you know, God knows, we've got a lot of problems with Ben Shapiro, but, you know, he's got this famous line, right, that facts don't care about your feelings. And it's one of the things I, it's like, you know, I think he's kind of a silly guy in a lot of respects, including this one, right?

Because it's not that facts don't care about your feelings, right? It's just the reverse. You know, your feelings don't really care about the facts. And that's because that feeling, for example, of whether it's wealth inequality or whether it's being left behind and the like, you know, you can choose. whatever facts you like. And you can make mistakes in that fact pattern and choose ridiculous facts and mathematically impossible facts if you like, but it doesn't change the way you feel. It really doesn't. And the narrative here, everything is based on a story. It's the stories we tell ourselves. It's the stories we tell others. And when people kind of dismiss that out of hand,

And I think they're, you know, they're just misreading what it is to be, again, the human animal. And to your point, right, it's not that narratives and narrative construction ever goes away, right, to be replaced. Oh, here are the facts of the situation. What happens is that narratives, stories are replaced with another narrative and another story. So what I'm really focused on is not that, oh, the Trump narrative of, okay, we can prop up the scorecard of markets through words alone. It's not that, you know, I'm saying, okay, well, now that's going to be replaced by some, you know, fact-based, you know, understanding of the world. No, it's, okay, what narrative is going to take its place? And once you start seeing the world in those kind of terms, once you start seeing the world through that lens of stories that explain the world to you, you know, you start to see it everywhere.

You start to see that effort, as you're describing earlier, to construct a new narrative. And you start to appreciate, all right, well, this is the effective way of doing it. This is not the effective way of doing it. but you just see it everywhere. And I think what's so incumbent on all of us, and the hardest thing of the world, really, is to see others, but especially to see ourselves through this lens, right?

To say, you know, well, what are the stories I'm kind of telling myself, right, to get through the day or, you know, deal, deal with the world? And, you know, is that story one that I'm proud of? is that one that supports a healthy life? It's something I think we all have to wrestle with in every aspect of our life. Because as much as we want to talk about the stories that others tell us, you know, it's also so important to think about, well, what are the stories we're telling ourselves?

I mean, it's David Foster Wallace's This is Water, but in terms of construction in our daily lives, we, we, swim in these. We are all participants in these narratives, you know. When we are propagating any one of them, it's because we legitimately believe it's the right one. And we don't know that we're a foot soldier in that battle, but we are. I mean, I think even going back to your point about these cascading narratives where narratives aren't replaced by facts, but other narratives, you're starting to see the inkling of this. If there is a big crack in the market logic, which, by the way, has been completely bipartisan for the last decade, is you have to be. For sure. You have to be a bigling of

You have the MMT side and you have the Bitcoins side, right? Which is, you know, there's other people who aren't even Bitcoiners who agree, the sound money side, let's call it, right? Who have very different takes on what type of narrative should follow that, but both have a sense that and are strange bedfellows to say the least in the fact that something's got to give. But maybe let's bring it back to coronavirus and this set of narratives for just a minute. in a weird way we saw the first narrative battleground was around numbers and actually both sides were trying to use numbers to their advantage. On the one side, you had the people who were saying that this isn't a big deal and they were using first the flu analogy as a set of numbers and then real cases as their numbers.

Meanwhile, the other wing or the other perspective was trying to use exponential growth numbers, theoretical numbers, right? And it turns out, I think in a lot of ways, real numbers right there are going to beat math from a narrative perspective and future math a lot of times. But things seem to be shifting from a narrative perspective as it gets closer and closer to home. How do you see the current state of the narrative battleground with regard to, not the market response, but specifically the health response, and how does this play out? Well, so I think through a combination of forces, the U.S. federal response, and to an extent state and local responses as well, adopted a narrative of don't test, don't tell.

It's a variation of that Chinese approach to narrative construction that we were talking about at the very beginning. I mean, the Chinese, the CCP has such control over information flow, particularly what goes out of the country, but also inside the country, is that they can essentially make the numbers out of whole cloth, right? Yeah, so how many people, how many confirmed cases are in Wuhan? on, I don't know, you know, make up a number, right? And, you know, and this was the point of that first note, which is actually through, you know, the numbers that were being reported were actually impossible given the real world characteristics of any disease, that there was no combination of, you know, disease propagation and combined with quarantine and treatment controls

that could possibly come up with the very smooth function of numbers that was being reported by the Chinese government and then parroted by the World Health Organization. So the Chinese government had this advantage of, we want to control the narrative by controlling the numbers. Well, we can make up whatever numbers we want to. Now, that's much less possible. right, to just make it up out of whole cloth once it gets outside of China.

And so what you've seen, certainly in the U.S. case, and I'd argue in most countries around the world, I can give you some exceptions, but in most countries around the world, the immediate narrative response of government was to minimize the impact of coronavirus. How do you do that? Well, let's minimize the numbers. We're going to minimize the numbers. we're going to minimize the numbers and that's problematic right because you can't just make them up you're not China you're not the

Chinese Communist Party you can't just make them up out of whole cloth well let's maybe we just don't test right because if the numbers that are reported are confirmed cases right so you know if

you've got CV-19 spreading around and you know let's make a bet that it's actually going to be a mild impact, right? Let's make a bet that it's not going to be so bad. And to, you know, give us time to hopefully, you know, monitor that and, you know, God forbid it does start to get out of hand. Well, we need to respond. Let's really intentionally throttle down on the testing we do here so that the reported numbers don't get out of hand or don't

get ahead of us. Right. So when you look at, really this, from the top on down, this concerted effort to minimize the impact of the coronavirus, its main instrument has been in this effort not to test people. And, you know, how does that work? Well, first of all, it works through, unfortunately, a shortage of tests themselves. And that was kind of a self-inflicted wound. that's kind of classic bureaucratic bungling here in the United States. More important, though, in terms of limiting the testing, was to define the criteria for who can be tested. It's called P-U-I criteria, patients under investigation.

And really for about two months there, from all of January through February, call it 27th, the PUI, the criteria of who was allowed to be tested, required that you either had been in close contact with another confirmed case of coronavirus, or you had traveled to mainland China in the prior 14 days, and you were symptomatic. If any of those criteria did not exist. Yes, you had been to mainland China, but you were not symptomatic. Or you were symptomatic. You had all the symptoms of coronavirus infection, but we couldn't say for sure you had been next to another confirmed case, and we couldn't say for sure that you'd been in mainland China over the last 14 days. Well, no test for you. It's not that the test was not available. It was that the test was not

allowed. Now, that blew up on the 26th of February with the first case of what's called community spread in the UC Davis Medical Center in Sacramento, where a patient came in, a patient had been intubated, clear viral infection. The doctors at UC Davis Medical Center, they had treated coronavirus cases before. They took one look and said, oh, my God, we got to get a test. This really looks to us like CV-19. The CDC, which at the time had complete control over who could be tested, they refused. They refused because, yeah, you've got all the symptoms, but, you know, this patient has

not been to mainland China in the past 14 days. is it did not meet our PUI patient under investigation criteria. So this goes on for four days. Ultimately, kind of reading between the lines here, my sense is that the doctors basically kind of, they stole a test from the CDC, got the patient tested, said, oh, my God, yeah, it's rampant coronavirus infection, and, you know, publicize this. Now, the impact of this is not just this one patient got bad care for, a long time, the implications of this go so far beyond this, because the treatment protocols

for just an unknown viral infection, which was the required diagnosis prior to getting the coronavirus test, are different than the hospital's protocols once a coronavirus infection has been diagnosed. You move from what's called droplet protection to what's called airborne protection protocols. And because this patient at UC Davis Medical Center was without the airborne safety protocols for four days, 124 staffers at the hospital, including 36 nurses, are now in quarantine for the disease. The hospital where this patient was before the patient was transferred to UC Davis. An unknown number of hospital staff there are on quarantine, three have already tested positive for coronavirus, all from this one patient, all from the refusal of the CDC to test

based on these criteria that were so ridiculously restrictive and ignored or rejected the possibility that it was even possible to have coronavirus if you didn't fit these. narrow restrictions, these narrow criteria. Now, that's when reality meets narrative. And so what we've seen since that date over the last, gosh, it hasn't been that long, it's been 13 days, almost two weeks now. What we've seen now is just the crumbling of this narrative of don't test, well, I'd call don't test, don't tell. And this is now what has, was at the foundation of the overarching narrative of minimization to the point where people say, look, we can't know what the real world extent of this is, you know, how many people have it, what we should be doing if we can't

test and know what the reality is. So, you know, this has really been what's at the forefront of just of the last 14 days, and it's a great case study and how a narrative of don't test, don't tell, is blown up by the real world and how that changes. It's just fascinating and has such far-reaching consequences, I think. Where does, you know, the interesting thing is that it's been blown up if you're willing to go deep enough, but people have dug in their heels so hard. I mean, the big one now is that you've seen a shift from it's just the flu to it's just going to kill old people.

which is very black neighborhood. But I mean, this is really the most common response that I see from people who think that I am or someone that I know is blowing it out of proportion, right? On Twitter, on Facebook, on whatever. It's just going to kill old people. And I wonder at what point it, like, how far does it have to go for there not to just be another thing? Well, will people be doing math after a million people have died saying, you know what? we have 327,000 times, or 327 times that in America.

Bloomberg could just give them all a million dollars and they'll be fine. Right. So here's what I think in this, I know, this may sound a little ethereal, but I think it's very real. I think that many people, in particular the people who are the most strident proponents of the, oh, well, you know, the olds had it coming anyway. or, you know, oh, well, you had a pre-existing condition. Well, you were kind of asking for it, weren't you?

You know, I think that the most strident proponents of that, and this is true for so many people to a lesser extent, is that, look, let's be honest. I think a lot of people have some, you know, sociopathie in their psychological makeup. And what I mean by that is a lack of empathy, and I mean this in the clinical sense, a clinical inability to have, not sympathy, but empathy to put themselves in someone else's shoes.

And frankly, I think that most very successful politicians and CEOs and every really successful hedge fund manager I've ever met, is a high-functioning sociopath. In the sense that you have the ability to compartmentalize that what applies to you, you're not lying when you say whatever it is you say. You really believe it at the time because you have this incredible ability to compartmentalize

and to eliminate anything. feelings of empathy. Now, look, I think that's a rare phenomenon, what I'm calling that, that high-functioning, you know, sociopathie. But I think so many people, we have a stunted sense of empathy. And you saw it originally and, well, you know, why worry about it's just, you know, Chinese people die. And then it's, oh, well, he's over in South Korea. And now it's over here. Well, it's old people. What I'll call this kind of low-level lack of empathy. where that breaks down is when someone you know, someone in your community or someone who, in your circle gets sick and gets really sick and maybe dies.

So that's, you know, for the true high functioning sociopaths, nothing ever breaks through this, right? They'll be talking about numbers and making these horrific claims, like I say, that basically boiled down to, you know, the old's had it coming or, you know, pre-existing condition means, oh, well, you know, you're asking for it. I think for most people that breaks down as it becomes real to their lives. The sad truth is that I think that so many people in this world have such a stunted sense of empathy, that it requires a tragedy to hit them square between the eyes in the form of someone they care about before they can extend any sort of empathy to any other human being.

Sad but true. You know, it's really interesting. And boy, if you had asked me this morning when I woke up and I was going to do my daily Bitcoin podcast, if I was going to talk about my history thesis on Biafra, I would have said no. So when I was in college, I thought that I was going to go into global post-conflict development or conflict relief or something like that. And I ended up very much not doing that. But one of the things that I was really fascinated with was why people give a shit about people

far away from them. Because this seems like a pretty fundamental question to the superstructure of how you change systems. Because ultimately, development, I'm so glad that people do it. But it's, you know, if the choice is fixing a system in the first place or cleaning up the mess of a system that someone else made, I'm kind of more interested in remaking the system. But when I went out and looked at where this whole movement of people caring about people far away had started, like this is actually a relatively new phenomenon. The British abolitionist movement was the first time in human history that people had advocated for a group that was other than them. That's only a couple hundred years ago, right? And then if you get farther along, it really wasn't until the early 1970s that we had any sort of citizen, right, nonprofit humanitarian aid type of thing where Americans were sending relief supplies over to other places. And it was every book that I read, it was always Biafra. That was the starting point, the Biafra, Nigeria, Civil War, where Biafra tried to separate. And so I had all of these theories and ideas going into it.

And I went to a school that happens to have the biggest original Africa archive in the, the, you know, U.S. so I was able to actually go back and look at Biafran propaganda as compared to New York Times reporting from the same day. And so I first thought, well, this is the first time that we were talking about genocide in any real way and that the Holocaust was being referred to as a genocide. Maybe it was that. Nope, didn't move an inch, right? The Biafran propagandists were unbelievably good. They were hitting that note right from the beginning. Nothing, nothing, nothing. What happened is that Cameroon got cut off militarily and Biafra was now isolated. And the Nigerian government basically started starving them. They denied them all of

supplies. And for the first time, there were TV cameras that could go over there and actually send back these images of starving children. And that you can literally trace the first pictures that show up of starvation, not of armed conflict, not of some theoretical idea of disease, but of starvation to that moment. And all of a sudden, Americans are airlifting in supplies and probably unwittingly, you know, extended that conflict about a year longer than it might have gone otherwise. But it was so interesting to me because, you know, it on some intuitive level, the idea of being hungry is something that we can really empathize with, right? For parents, the idea of their kids being hungry is something that they can empathize with. Because it's an emotion that we experience,

although in a very small scale, every single day, it's like, hey, I'm hungry and ready for this. And, you know, I'm not a psychologist, so I can't say conclusively that that was the reason that those hunger images. But what I can say looking at it is that it needed that trigger to connect it to people's lived experience for them to care. And I feel like that's sort of what you're describing here is that there is going to be some set of people for whom, and it may even be evolutionarily that are, that we, you know, I mean, this is like the numbers that suggest we can only have 150 close friends or whatever, right? There are these things that may be programmed in. But the idea that it can stay abstract for a very long time is, I think, something that we're

actually seeing here. Well, you know, I, I, I wrote a series of notes last year called Things Fall Apart. Right. And I'm going to mispronounce as what name, Chinwa Chibi, you know, that masterpiece novel called Things Fall Apart. And, you know, if any of your listeners have never read that book, you know, you must. I'm sorry, it's one of those books you must read.

So it's about a lot, right? But Bichibi was from Nigeria. He was, you know, he was an ambassador for Biafra when it declared its independence. And I think what we are dealing with in the world today, a world of polarization, a world of at every level, right, a world of narrative construction, frankly a world of mass violence, right? And on a lot of different dimensions.

It's captured in that novel. This is written in the 50s, right? It's captured in pictures of what happened in Biafra, as you're describing in the 60s, the late 60s. Things are falling apart. And in what can, can, the only thing, right, that I think that can keep us together is to find these old stories, old stories of, I like to call it small ill liberalism of, you know, liberty and justice for all.

Imagine that, right? It's also small C conservatism, right? it's a sense of honor and shame, and there is a role for tradition and the people who came before us. We lose these things when things fall apart. And very destructive stories take their place,

very destructive narratives. And what I'm trying to do in my writing and what I think it's important for all of us as citizens, as, you know, freaking human beings, is to work, to relearn the old stories, and to apply them in our daily lives, apply them in our own communities, apply them as broadly as we can,

because the old stories are stories of empathy. The old stories are stories of extending to others the rights that you want to be extended to yourself. And, you know, I'm not a religious guy, right? But this is the golden rule. This is due unto others as you would have them do unto you. It's, you know, there's a reason why there's that's a really, you know, core piece of wisdom for a couple of thousand years. There's no more, I think, important aspect of education, and by that I include our own personal education of ourselves, the stories we tell ourselves, right, to use that phrase again, then the development of empathy, the willingness to extend unto others the same treatment that you want to have extended to your yourself. So you're totally right about how, you know, the Biafran conflict is such a,

such a starting point of kind of seeing the power of imagery, a power of stories. You're exactly right about that lived experience of, oh, my God, these children are starving here, how powerful that is to get people to extend empathy. I think that, you know, it's our job as human beings to not only learn that lesson, but to apply it in our own lives. So many respects empathy, I like to call, you know, clear eyes, full hearts. You know, that full hearts part, that's what we're talking about with empathy, and there's nothing more important in the world. So I've kept you now for about twice as long as a normal podcast.

But one more question that I think dovetails from that. I think I know your answer just based on, you know, reading your Twitter and seeing your writing on this, that you feel that we're probably in for more bad before it gets good from a health level and maybe even from an economic level as well. But in this period of narrative battle and narrative shift and this evolution, do you have any cause for optimism about where we might find ourselves far on the other side? So not in the immediate term, not in even the medium term necessarily, but really on the other side of this crisis whenever it ends. Absolutely. And I tell you, you know, when I started writing these Epsilon Theory notes about seven years ago now, I was starting from a pretty dark place. And I was really just writing to myself. And I, you know, tossed a note into a bottle.

That's what it's like when you, you know, hit the publish note, you know, the publish button on a website. And, you know, it's like the old police song, you know, you come in the next morning and there's a thousand bottles that have washed up on your shore. The outpouring of not support, that's the wrong word, the outpouring of engagement, the outpouring of engagement since publishing those notes, the hunger that people have for finding a community. that does believe in those small L liberal virtues, that really is trying to seek truth, right? And to see the world with clear eyes and to act with others with full hearts. Man, we're everywhere.

We're everywhere. We get, you know, a quarter of a million people coming to the website every month, right, to read and to read, and to connect with other people who are looking for the same thing. It's like Fight Club, except, you know, the first rule of this group is, yeah, tell other people. So, you know, you ask what I, do I have optimism about coming out on the other side? Damn straight I do. Damn straight I do. There are tens of thousands of us all over the world

who don't have some stunted form of empathy, but are really trying to figure this shit out. and really care about the sort of world that we leave for ourselves and our children and their children's children. Yeah, I've got a lot of optimism. It's going to be a constant struggle, and we've got to play the long game, right? This isn't something that gets fixed. This isn't something that in my lifetime I'm even going to see some sort of better society. take place. But I absolutely think that we can make a difference. And it's podcast like yours, it's writing like mine. It's all of that. It's a, it's a bottom up process. It never comes from the

top down, right? It never comes from a Bloomberg, say, you know, not a million dollars per person, but a buck 50 per person in the United States. That never happens. It doesn't come from the top down. It only comes from the bottom up, which is why I'm so delighted to be on your podcast. And, you know, it's these are the things that change the world. So thanks for having.

Thank you so much for being here. And I loved how in the find your tribe note, Rusty begrudgingly admitted that even the Bitcoin community was one of these versions. Because certainly certainly that's what it's been for me. and a lot of us to be able to find a group of people who are not content to surrender participation in their own future. Exactly right.

It's very powerful. Ben, appreciate all of the awareness that you're trying to spread on Twitter, and you've taken some time off from that and everything else you do to join us today. My pleasure. Thanks again for having me. Well, I certainly don't have much to add after that. You can find Ben on Twitter at Epsilon Theory. follow him if you want to stay up on the latest coronavirus, the latest narratives and markets.

As you can tell, he's a very unique thinker. All right, guys, that'll do it for today. Catch you back here tomorrow for The Breakdown. Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Thursday, March 12th, and life comes at you fast. Just a few days ago, we had President Trump on Twitter telling us that this was no worse.

In fact, it seemed based on the numbers much better than the flu to him. A couple days later, last night, he came to TV to make a national address saying that he was banning all flights from Europe, that there would be more than $50 billion of aid to small businesses, and a variety of of other economic measures to address the fallout of this coronavirus. The markets have reacted, as you might expect, as absolute and total panic sets in, with stocks falling as much as 9% on the day, and Bitcoin cratering from as much as 8,000 yesterday down under 6,000 today. Indeed, it is a scary time to be a hodler. It's a scary time to be anyone, let's be clear, but it's a scary time to see

this thing, which we weren't sure how it was going to perform in a financial crisis, lose as much as 30% of its value in less than 24 hours. So what are we supposed to make of this? Well, as is clear to anyone who's listened to the breakdown over the last couple of weeks, I do believe that things are going to get worse before they get better. However, I also believe that there are a number of reasons that should help keep Bitcoin huddlers calm and that there are reasons to not despair. So today on the breakdown, I'm going to go through six reasons that Bitcoin hoddlers should stay calm.

Number one, it's not just Bitcoin. What we're seeing is an absolute cascade of economic effects where one trigger provokes others. Now, the scary thing about this is that there is huge systemic risk across the markets. But what should give us some comfort is that this is not an indictment of Bitcoin as an asset. This is not an indictment of anything fundamental about the Bitcoin design. Mark Yusko, who is the founder and CEO of Morgan Creek Capital Management, wrote, In a financial crisis, liquidity vanishes. Liquidations begin and people are forced to sell.

You don't get to sell what you want to sell. You sell what you can sell. And unfortunately, that means places where there is liquidity of sorts like Bitcoin and gold. And this is important, too. It's not just cryptos that are down. Gold is down 4.5% on the day. We are in the very beginnings of a potentially protracted crisis, and right now what's happening is that people are selling anything they can

and anything that's easy to get liquidity and to get cash. Now, of course, this is small comfort as we watch the value of our blockfolios absolutely implode before our eyes. However, I do think that we should recognize that this is not about Bitcoin, and that in these moments, Bitcoin is subject to much larger forces. Second on my list of six reasons that Bitcoin hoddlers should keep calm is correlation means infiltration. So this is something that Joe Wisenthal from Bloomberg pointed out this week that I think is

really true, which is that part of what we're seeing is that over the last couple years, more and more institutional buyers have gotten interested in Bitcoin. This is not by accident. Many of us have been out recruiting this type of buyer, trying to bring in institutions. The challenge is that institutions have a different frame set, a different mindset than retail investors when a crisis comes. As we just discussed in Section 1, when there's a real liquidity crunch, you sell what you can sell to get the cash that you need. The fact that we're seeing such clear correlation between Bitcoin and other markets, suggest that at least some part of the Bitcoin holding audience is, in fact, these new big institutions.

This was our goal, right? We wanted this set of actors to get into this market. And frankly, the fact that Bitcoin is a thing that they're able to liquidate in short order to cover their margin calls and do what they need to do is a net good to the long-term likelihood of institutions being interested in Bitcoin. Now, there will be time to discuss later exactly what type of safe haven asset a Bitcoin might be as it matures. And certainly that's a conversation that is ongoing across crypto Twitter. But the fact of the matter is that we tried for a couple years or longer to get institutions into Bitcoin. They came.

And it just so happens that Bitcoin is like everything else around the office right now, one of the things that they're going to try to sell. Number two, correlation means infiltration. We have infiltrated these institutions. Third on my list of reasons that Bitcoin holders might stay a little bit more calm is the idea that we are in a moment of peak fear. Now, I am not an expert in understanding market signals, but what I do know and what it does feel like to me is that the equities markets are very much catching up on fear that many others have been feeling for weeks now, right? This is a panic as it becomes clear that the narrative that coronavirus was just the flu and not something to worry about has come crashing.

And what has happened alongside that narrative coming crashing is that the reality of airlines and restaurants and other types of businesses being offline for months or long. is now scaring the absolute crap out of the markets. They are at peak fear as they race to catch up with themselves and with many other parts of the world around what the actual fallout from this disease might be. Meanwhile, we are still barely into the era of our government actually responding and trying to calm the markets.

We had this very sort of piddling little monetary policy bump in terms of an emergency rate. cut last week. But it was only yesterday, last night, at 9 p.m. Eastern time that the president of the United States said anything to try to actually reassure the markets other than this thing isn't a thing, which is clearly now in retrospect, wrong at best and a lie at worst. Markets are in peak fear because not only do they not know what happens next, because there's this uncontrolled variable of a disease which doesn't care about political. positions or relief policies or anything else, they are also at peak fear because we haven't yet

been able to figure out how to price in response. We are seeing that markets are not sufficiently enthused by Trump's payroll tax holiday and his 50 billion to small business administrations, but we don't know what else they're going to do. So this is really a very challenging time because we are pre-information in so many ways. So, again, another reason to stay calm is that it's not necessarily that it gets better when we get more information, but what you're seeing right now is wild swings of volatility because people just have nothing to go on other than what's right in front of their face. It's hard to imagine for me that we don't see much, much more aggressive action, plans,

etc. from regulators around the world, but particularly from the U.S. government. And whether or not the market likes what they have to say, at least they'll know. At least they'll be operating with that information. Number four on the list of things to keep Bitcoin hodlers calm in this crisis situation is the potential of Asia on the upswing. So right now, there seems to be a recovery in many Asian countries that were affected by coronavirus from a public health standpoint. People are still cautious around the numbers coming out of China and perhaps not fully trusting them. They're worried about a follow-up spread or outbreak after the fact, even if they are reporting the correct numbers. But you're seeing positive signals from places like

Singapore, which has seemed to really wrestled us to the ground, and South Korea, which as opposed to Italy, is making major progress in actually fighting back this disease. When it comes to markets, of course, everything is interconnected and everything right now is reacting to the panic in the West. However, it's not impossible to me that if we truly do see a recovery from a health standpoint, a health recovery in many of these economies, which we had been so concerned about, that markets will start to follow at least a little bit because there's a light at the end of the tunnel. Now, of course, this has nothing to do with public health policy in America,

which I believe is going to be dramatically more important than clearly this administration is giving it credit for in terms of the economic recovery as well, right? We're still dealing, it seems, with a world where asset prices and the stock market are the only barometer of economic success, rather than looking at real economic fundamentals that are going to be impacted by this, such as these industries, which are effectively going to have to shut down and people who are going to lose their jobs or just at least not be able to be paid for their jobs because they literally can't go to them. So there is still a huge potential for further pain in the real economy in America. However, at least if other parts of the world

are starting to recover, it feels to me like it's likely that there's less fear ultimately and a better ability to understand where in the cycle we are at any given time. So number four, on the list of six reasons for Bitcoin huddlers to stay calm is Asia on the upswing. The fifth factor on this list, and one of the ones that I'm most enthusiastic about, is the buy-order behavior today. So we talked a couple segments ago about institutional behavior, right? Institutions having to flee from their positions in any liquid asset to get to cash, to get to safety, to be able to cover their obligations. We talked about correlation, meaning infiltration. But what have retail buyers been doing? Well, there's a couple interesting

signals already. The CEO of River Financial, which is a Bitcoin-only exchange, basically a Bitcoin-only buying and selling service, said that they'd seen, they were blasting through records of buy orders today. It was very clear to them that their market, who are admittedly hardcore Bitcoiners, are really enthusiastic about being able to buy on discount effectively, right? So that's one signal. A bigger signal just based on the size of the institution is looking at Coinbase's order book. Right now, 72% of transactions on Coinbase are buy transactions, not sell transactions. That means a significant amount more, right?

By effectively 3 to 1 margin, people are buying rather than selling. That's a really, really powerful and positive signal. That means that, again, going back to our first point, this is not about the fundamentals of Bitcoin. It is about the larger world's response to a very dangerous disease and an incompetent, inept, uncoordinated economic response to that. It's a good reminder, I think, between both of these, the correlation means infiltration and this retail buy order behavior,

that Bitcoin was, is, and will be a retail-driven market. Even as institutions come in, even as institutions help us grow and expand the market participants, this is a retail asset. And the reason for that is that fundamentally Bitcoin is a way that people express their unwillingness to let the world act upon them and have no agency in their own economic lives. Bitcoin is a way for them to assert agency over their own financial destinies. When 72% of people who are transacting on Coinbase in one of the worst days we've ever had in markets are buying, you know that there is a powerful, powerful base of Hodlers of last resort.

I honestly can't think of anything more bullish than that in the long term. Now lastly, and if you have been around for a while, you knew this one was coming, Bitcoin has been dead before. In fact, Bitcoin has died 380 times by 99 Bitcoin's count. 380 times Bitcoin has been pronounced dead. Its oldest death came on December 15th in 2010, 11 plus years ago, in a little post that said why Bitcoin can't be a currency. Its most recent death came from a Bank of England government.

who said last week, if you want to buy Bitcoin, be prepared to lose all your money. It has no intrinsic value. If you look at deaths by year, in 2010 there was one. In 2011, there were six. In 2012, there was one. In 2013, there were 17. In 2014, there were 29. 2015 saw 39 Bitcoin deaths.

2016, 28. 2017 saw 124 full Bitcoin deaths. 2018 saw 93. 2019, it kind of calmed down. we only had 41 pronouncements of Bitcoin's death. This year, we're at a measly one, but guess what? This time isn't it? And next time won't be either.

Bitcoin can't die. The sixth and perhaps most historic reason for Bitcoin hodlers to stay calm in all of this chaos is that Bitcoin has been dead before. All right. Bonus. As I was recording this, something happened on Twitter, where the Fed announced that it would be providing a huge injection of liquidity into the markets, up to $500 billion of repo action where we've been kind of seeing eye-popping $150 billion over the last

couple days. It's obviously an huge amount more than that, right? They're talking now about buying, expanding treasury purchases beyond T-bills and conducting purchases across a range of assets. This sort of policy is what has felt to Bitcoiners as inevitable and as exactly the type of thing that makes a non-sovereign hard-capped supply, global immutable, decentralized digital store of value appealing. It may help us through this crisis.

It may be exactly what the Fed has to do right now to not have the world fall into total meltdown. But what happens after? That's what Bitcoin here is for. So look at that. It's actually seven reasons. You got a bonus. All right, guys.

that's it for me today. Let me know what's keeping you afloat. I know this is hard times and there's nothing about this podcast episode that's meant to minimize the challenges that we're all going to face and face together over the coming weeks or months. But I do think that it's important to keep context and to try to remain intelligently calm, calm for good reason. So hopefully this has helped you on that. And hit me up on Twitter. Let me know what's keeping you calm in this sea of carnage and absurdity and stay safe out there, all right, everyone. Until tomorrow, I'll be back to break it down. Peace. You have other countries that have put up with dollar dominance for the last 80 years,

and that has not been advantageous for them. So imagine if you have one of these nations step in and buy $40 billion worth of Bitcoin, right? That can happen. and in fact I kind of expect it to happen. And if it does, you're going to see the price, you know, it's going to be kind of insane. Welcome back to the breakdown. An everyday analysis breaking down the most important stories in Bitcoin, crypto and beyond with your host, NLW.

The breakdown is distributed by CoinDesk. Welcome back to the breakdown. It is Friday, March 3rd. Friday the 13th, but how could it be crazier than yesterday, right? We are at the end of a week that will be written about for a very long time to come. Yesterday, in the wake of Trump's speech on TV and the NBA and the NHL shutting down and huge numbers of cancellations across domains and the country finally taking the threat of coronavirus seriously, the market had its biggest sell-off since 1987's Black Monday.

Bitcoin for its part had one of the absolute wildest days I've ever seen, going from nearly 8,000 before Trump's speech to at a low last night of 3,800. In fact, while we were recording this podcast, the price of Bitcoin veered between 3,800 and 5,100, and back and forth a bunch of times. So there's no doubt that it is just absolutely wild times out there. Now, my goal with the breakdown is to help you look at that from different angles and think through implications, think through what it might mean, and hopefully help you figure out how you feel about these markets. In some ways, my guest today, Preston Pish, is a great foil for my guest

earlier this week. When I had Ben Hunt on on Wednesday, we discussed market narratives and how the collapsing narrative around the coronavirus is going to actually have impact on a collapsing narrative around the ability for central banks to continuously prop up economies. My conversation with Preston is about what happens on the other side. It's about how bankers are effectively locked into mass-scale intervention just to prevent complete meltdown and about what sort of second-order effects that might have. Preston is an extremely thoughtful guy. He's an incredibly eloquent speaker, which makes sense. He runs the Investors Podcast Network and hosts the incredibly popular We Study Billionaires' Podcast. So this conversation was a blast to have coming off of such a crazy day

last night. By the time you're hearing it, you know, 12 hours or whatever after it was recorded, it'll probably be completely out of date. But I hope you enjoy it nonetheless. Now, a couple of caveats. One, as always, nothing that we discuss should be taken as any sort of financial advice or recommendations. This is more than just boilerplate. It's incredibly important for me. My goal is not to help you navigate short-term financial decisions. It's to help you make sense of a complex and crazy world. Second, this interview was one that I wanted to let be as long as it wanted to be, and so we end up talking for over an hour. Because of that, we've edited it, very lightly so you can get the full sense of our flow and our conversation.

So without any further ado, let's dive in. All right, Preston, it is so good to have you on the show. We're recording at 10 p.m. Eastern time on Thursday night, actually. And we're just kind of sitting here watching Bitcoin continue this spectacular in maybe all the worst ways action and talking about like, what's going on and how to feel. So I guess let me start there. First, thank you for being on the show.

But how are you feeling after this day, this week, the last couple weeks? I mean, whatever time period you want to pin it on. But how are you feeling right now? Well, I'm feeling pretty good. But I think that most market participants are especially younger ones. I mean, if you're probably 35 or younger, you've probably never seen anything like this. And I'm talking more just the market in general, not just specifically to Bitcoin or anything. I mean, this is, this reminds me so much of 08, but in my personal opinion, it's going to be a

little bit worse than 08. Well, it's going to be a lot worse than 08. So let's let's dig into this a little bit. I guess, you know, maybe let's start from the markets as a whole. As you've been watching over the last few weeks, you know, what has your thought? process bit about markets reacting or not reacting, right? Because we had this weird period for about, I don't know, I guess pretty much all of February, where we knew that this thing was happening in China. We were getting reports. We started to see millions quarantined, but we were still printing all-time highs over here. And they created this very interesting psychic disconnect in some way. So I guess, you know, let's go back to how you were thinking about this then. So back in January,

I recorded a show with Eric Townsend about the coronavirus because early on I started reading some stuff out of China. And then, you know, my modus operandi is who are some of the leading experts on whatever the topic is. And then let me follow those people. And let me try to follow people that have two different opinions on it. And so I started following some accounts out of China that were slipping videos and comments underneath of the firewall. And I saw really quickly that what we were seeing over there looked like a military biochem exercise as far as all the stuff that they were wearing, the dead bodies inside of the hospital, the fact that they were basically conducting a warlike triage on some patients and the other ones, they were letting them die. And so I was looking at that scenario, the fact that they barricaded a city with nine million people in it. And just to put that in context, New York City's probably around 7 million people.

So the fact that they barricaded an entire city of that size off and just cut down the whole supply chain and everything. I was looking at that and I was saying to myself and Eric Townsend was another person who was saying it and that's why we recorded our conversation back in January. We said this is going to be absolutely destructive to just the economy, the global economy because of the supply chains are going to totally melt down. And for anybody who conducts large-scale purchases, call it $100 million purchase for a system or whatever. I mean, there's massive supply chains that are all dependent variables on it, call it the iPhone or whatever. And so when I was looking at that, I said, this is not priced in at all. In fact, the market's at a total euphoric stage. You got the entire bond market is priced at a level that is obscene because there's no.

yield left. It's been bid at just epic levels and there was no yield left anywhere in the world. You know, a little bit of yield nominally here in the U.S., but as far as real yields, they were negative across the entire duration of the bond yield curve. So when I was looking at that, I was like, this is absolutely nuts. And so, you know, I wasn't to the point where I think you sell everything back in January, but then by the the end of February, I have a tool that, that, you know, we sell subscriptions to a tool on our website, and it's a momentum tool that I wrote the software for. And the tool really looks at long-term volatility trends and then provides momentum recommendations based on those momentum trends. And on the 27th of February, the tool turned red based on, which was basically saying, hey, this is a

two-standard deviation move on the volatility, on long-term volatility. And so that was on the S&P 500. And I was like, all right, well, that's a sell. And sure enough, this thing has just continued to cascade like we have never, ever seen, in my personal opinion, in financial markets. And I would even describe this maybe as being a little bit more monumental than the 1929 crash, simply because you didn't have this situation where you've got a virus that is literally shutting down everything. You know, when you think about how your body works and how it basically exchanges the chemical ATP, which is your energy chemical throughout your body, you know, if you have an organ that seizes up, whether it's your lungs, whether it's any one of your organs, right, your kidney, you name it. If one of those organs seizes up, it's pretty much the death of the body of the person. And what we saw happening in China initially and now what we're seeing pretty much around the world, is for me very similar to like how your body works where you that exchange of currency amongst

the organs and amongst the cells in your body are seizing up and they're saying hey no more flights hey we're not shipping anything to this country now and that is that is a absolute recipe for disaster that's just further laid on top of the currency I'll call it a currency crisis is because you're at the end of this long-term debt cycle that's been running for 80 years. You're laying those two things on top of each other. And I just, I don't think anybody who's participating in the markets, I don't want to say anybody, but a significant amount of people that are participating in the markets have no idea what's on the horizon from here. Yeah, well, so this is the interesting thing, right?

You had even up until Monday of this week, right, people saying this is a short-term correction. government will step in and fix it, right? In some manner of speaking, there's some version of that narrative. And the question is, so far, the market has rejected what they've seen. And we haven't even begun, I think, to your point, to deal with not sort of the market and security ramifications of this, but the actual economic follow. out from entire municipalities being shut down for weeks or months at a time and what that means for people's real lived lives.

Right. It's actually, so one of the things that I think we will look back at this time on as a time when narratives broke down. And one of them that I think is quite poignant is the idea of an economy as something that is separate from the political score. card of the stock market or asset prices. I think those things are going to unravel in a big way. And unfortunately, I think that we've only barely begun to start to see that. Yeah, I think one of the things that's happening right now that so few people, and I mean so few

people understand, particularly people in academia and people on Wall Street, do not understand the fact that currencies fail, in my opinion, currencies fail when three conditions are met. First, when you have a currency that is not pegged, okay? That's one of three conditions that have to be met. The second condition is when you have the currency, the, I'm sorry, the government is spending at a rate that far exceeds the tax rate. revenues. Okay. That's the second condition of three conditions that all three have to be met. The third condition that has to be met is that the debt that's denominated in that currency. So for the U.S., this would be their treasury in our bond market, right? That debt has reached a yield of 0%. When you have those three scenarios that are met, that's whenever you start to see the currency that's underlining all.

that starts to go into a failure. Now, academia has said for, you know, decades that fiat currencies, they don't need to be pegged to anything. And they're right, but they're not right in the long term. They're right in a certain time frame. And so we've watched, you know, whenever we came off the gold standard in 71, you saw interest rates peak in the 1981 period of time at around 16%. And you've seen them progressively go down, which the Fed has completely. completely managed that, right? They've managed that drawdown and now we're at zero percent. We're not just zero percent here in the U.S. We're zero percent globally. And there's nowhere for Japan's money to basically flow into these other markets where yield existed. And so when you have

all of these Fiat currencies, none of them are paid, all of the governments have a habit of spending way in excess of what they bring in for their tax revenues. And you have interest rates at 0%, you have a currency failure. And so I believe we're there right now. And I think what you're about to see is printing an economic stimulus that has, like, people cannot even comprehend the amount of stimulus they're about to pump into this thing. It's going to be, and I don't think they're going to do it just at the QE level. I think they're going to do it through UBI, universal basic income, where, hey, you filed your taxes last year.

Congratulations. Here's $5,000 into your checking account that you. used for that. Whatever the form is, it's going to be something that has to stimulate and it's going to stimulate in a way that we just, we can't even comprehend because we've never seen it in our lifetimes. So let's actually play this out a little bit in terms of what that might look like, right? Because I think that this is a feeling that more than just you in this space have that we're

effectively going to get sort of some version of MMT by default almost. necessity. So in the short term, what does that look like? And then, you know, one of the things that I want to make sure of is that listeners from this show, just like participants in crypto markets, don't all come from a finance background. They come from all over the world. It's one of the things I love about Bitcoin is that it's a place where it collects people who want to have sovereignty over their economic futures, right? So what does it actually look like? Why can't? will go really rudimental. Why can't governments just print money to infinity to solve this and then we'll sort out

what happens on the backside? Because another way of saying this is what happens on that backside. Well, they can and they will. I mean, they're going to have to because that's how when you don't have anything pegged and you're in this situation, like I've described as three factors, they will not allow a deflationary bust. There's a book called This Time is Different. And it profiles all these cases throughout history where, you know, the currency fails and you get into these situations.

The book has, I don't know how many examples, probably 50 more examples throughout history where this has happened. So this is nothing new. So when this happens, the governments get into this situation where right now, right now we're experiencing a deflationary bust, okay? But they're going to print. and they're going to print until they actually get reflation, and then they're going to print beyond that, and that's where the thing just comes off the rails, is you're going to get,

they always end through an inflationary bust in the end when you're in this situation where all the currencies have failed. So, I mean, my expectation is that the coming week, you're just going to see just crazy stimulus packages. They're going to somehow, they're going to start buying the stock market. You know, I think that's something that people aren't even prepared for. I think that they're going to have meetings in Congress.

They're going to have to change the laws. They're going to have to start buying the stock market to bid the price in order to stop mass chaos, right? That's that's kind of what they're going to have to do with this because of people not working. People, I mean, think of it from like the airline perspective or, you know, these cruise ships or the small businesses in Main Street that have no one walking past their store anymore. more. Like all of those businesses and people are going to have to be subsidized just to survive. Yeah. I mean, I think this is the part. The fascinating thing about when we're having this conversation is that literally up until last night, there was still this debate popularly around whether this was just the flu or whether this was just a thing that hurt old people.

And now we're having this conversation. And obviously, those of the flu, of us who have been paying close attention have been kind of fighting against or bristling against that level of discourse. But it really, we are basically 24 hours or so, now 25 hours, you know, 25 hours post Tom Hanks, 25 hours post-NBA cancellation. And it feels like a lot of folks out there are still really just trying to wrap their heads around what this might mean for, you know, for us collectively, but for them individually. as well. I totally agree with you. So let's go back to the flip side. So we continue to,

or we have this massive government intervention. What does, you know, for those of, for folks who haven't spent a lot of time on what happened in 2008 with sort of the QE, a lot of the problems came when after, you know, saving the markets from themselves, basically, the markets wouldn't allow that stimulus to go away, right? So what was a crisis time policy became a permanent policy? Is that the fear with what comes next and this sort of increasingly exotic forms of intervention into markets? Absolutely. And the thing that I think people kind of got lulled to sleep over the last 10 years with the QE stuff is because when you go back to 2008,

there was a ton of credit in the system. And so the tool that they were using was, hey, let's swap $1 of real cash. You know, let's increase the monetary baseline. Like you have a certain amount of money in the system that's monetary baseline and everything else's credit. The thing is, is both of those spend exactly the same. So people think that the credit is actually money

when in fact the monetary baseline is, is the money. And you're watching that liquidity crunch to the baseline money right now. But back in 2008, what you had happened was the central bankers are like, all right, there's an absolute tankload of credit in the system. So let's do this. Let's swap real dollars for the credit, and we won't see inflation if we do that because it's a one-for-one swap. And they did this through the bond market. So if you are a rich company or a highly capitalized company or a rich individual when you sat on a billion dollar bond tranche, what you learned over the last 10 years is that here comes the Federal Reserve. They're a buyer at pretty much any price and they're going to bid that bond market up to ridiculous levels,

which means the yields get pushed down to nothing, right? And they make out like bandits. And so your liquidity insertion point was straight to the top. And that's why you're seeing the political dynamics play out that you've seen play out in the last 10 years. The problem is, is now after they've exercised that tool of this swap of real monetary baseline for credit for 10 years, and they've pushed rates to 0%. And this has happened globally. This just isn't in the U.S., right? They've done this and they've exercised that tool to the point where you can't use the tool anymore.

It's like a video gamer that uses like a Zelda sword, right? They've used it so many times and then the thing stops working and you can't use it anymore. Well, that's that's kind of where they're at with QE. So now they have to transition to a different instrument. Well, so here enters the universal basic income where instead of providing all the liquid to be to the top, let's start just putting it into the hands of all the citizens, which is an insertion into the bottom. So where this gets crazy is that everyone hearing that is like, all right, I'll take $5,000, or I'll take $10,000 or whatever they're willing to give me.

I'll take that right now. But when you look at your inflation gauge, it's based on all those metrics of spending that's going to happen at that level. And here's another important point. They're not swapping a one for one at this point like they were doing during the last 10 years, where if they pull a dollar of credit out and they put a dollar of real money or newly printed money into the hands, you don't see inflation. But now that that tool has been completely utilized,

and now you're going to transition into the masses. Now what you're going to actually see is for every dollar they put into the system, it's going to be inflation. And so what is the one thing that the bond market hates more than anything? It's inflation. Because if you have a bond that's yielding 2%, and there's 2% inflation, congratulations, you made 0% with respect to your buying power at that point. You have zero gain, but you're locking up your country.

capital into whatever the duration of that bond is. So I think where the Fed is looking at this and they're saying, all right, this is going to be catacalismic is they're saying every dollar we now implement via UBI is going to be inflation and it's going to melt down the bond market because all that inflation is going to start getting priced into the bond market and you're going to have this just a neutron star explosion in the bond market. And I don't think anyone is prepared for this. I mean, hell, you've seen all these, you've seen all these Wall Street experts

bidding the living hell out of the, out of the 30 year. And every, every duration in the bond market has been bid over the last three weeks, up until the last three days. And all of a sudden, the bond market's starting to sell off here these last two days. And I think there's a few smart people that are starting to get it. Because they're going to try, when I think about the size of the bond market, it makes the stock market look like a freaking pimple, right? And so when you're trying to push a bond market the size of a flipping elephant through a pinhole,

you're going to see the biggest limit down sell in that market that the world has ever seen, in my extremely humble and personal opinion. Do you think, so going to who is getting this now, is there anyone, are there any kind of clarion voices in the traditional markets that have either been sounding this warning or at least coming to it now? And what are they saying if so? I mean, most of the people that are in the Bitcoin space for the most part, I think know that what I'm describing here is like you just can't keep printing, right? I think everyone's got that into it. They might not understand the mechanics of it, but I think they understand it, and that's probably why they're own in Bitcoin, right?

As far as like some people that I would consider huge influencers in the space, like Raul Powell, that dude gets it. Grant Williams, he gets it. Pomp, I mean, that dude gets it. And there's many more. And you know, you look at Adam back. He's very technical, but the dude gets it. So there's people out there that are, in my opinion, voices of reason. But unless you've kind of really studied the living heck out of this,

and you come to the table with the mindset that what is being done is not fair and not necessarily, you know, the universe doesn't necessarily really give a crap about whether something's fair. it's functioning in a way that should align with the greater good of the whole. And so I think people that are approaching it with the mindset of saying, hey, this is not good for the whole. This is good for unique individuals based on the way that it's configured, are looking for how is this going to be resolved? And I think a lot of them are arriving at the step of Bitcoin.

How much do you think that? This is a crisis born of almost a normalcy bias or something, where the traditional markets are full of actors who have just come to assume that this is reality, right? Where they just have become convinced by their own narrative in some way. So Icarus paradox, the thing that made you wealthy, the thing that puts you at the lap of luxury is the same thing that will. that will cause your undoing. And so think about how many people, especially on Wall Street, they have absolutely benefited from this model more than anything we've ever seen. And so that's their Achilles' heel, is that they've benefited from this

because they're looking at something like Bitcoin and saying, that's for a bunch of idiots. Like, who actually thinks that that could possibly hold and, like, oh, that's going to get slaughter? They just totally write it off. They don't want to learn the technology. They don't want to, they just see it as a joke. And, you know, in my very humble opinion, that's going to be the downfall for a lot of people is because their success in what has led to their success isn't necessarily their skill or their talent.

It's more where they sat for that moment in time. and if they don't start questioning some of their underlying assumptions, it could get pretty crazy for them. I mean, can you imagine if, and this is something people lose sight of a lot, is you have other countries that have put up with dollar dominance for the last 80 years, and that has not been advantageous for them. So imagine if you have one of these nations step in and buy $40 billion, dollars worth of Bitcoin, right? That can happen. And in fact, I kind of expect it to happen.

And if it does, you're going to see the price, you know, it's going to be kind of insane. So let's actually talk, let's shift over to Bitcoin a little bit from the larger markets. One of the big points of conversation over the last few weeks, right, has been the, this back and forth debate around the uncorrelated narrative or the safe haven narrative, right? And so first it was, all right, well, we didn't actually mean safe haven. We meant uncorrelated, which I think I actually even did a podcast about how these two narratives got conflated and why they might look the same in practice, but they're actually very different in terms of what you would expect them to predict for an asset's behavior in any given situation.

And then Bitcoin obviously started following along with everything else that was liquid and where people are now in kind of the state of the conversation in the Bitcoin world is, well, look, what we're dealing with is a crisis where absolutely everything that can be sold is being sold, you know, and so Bitcoin is a part of that. But how does or how has the behavior of Bitcoin over the last couple weeks or last 24 hours, whatever period you want, either defied or reified your expectations in this type of scenario? So I've felt like for a long time, most people do not understand kind of the mechanics of what's taking place right now. So mechanically, what's happening is you have everybody bidding fiat, whether, you know, and I think a lot of people in the Bitcoin space are saying they might have to rewind the tape.

Did he just say that they're bidding fiat? Yes, everyone is bidding Fiat right now. And so what I mean by that is if you were a bond holder and the bond market was selling off today, right, that's denominated in Fiat. So if you took the wrong side of that position and let's say you were in the derivatives market, well, all of a sudden you have to come up with the underlying Fiat in order to make good on that poor investment and that margin call. This goes for anything, whether it's the stock market or anything, it's always. denominated in Fiat today. So as those positions are unwound and they're going in the opposite direction of what people were expecting, that's malinvestment, it's total impairment. And in order to adjudicate that, you have to come up with Fiat. You have to come to the table with that Fiat in order

to deliver and adjudicate that transaction between both parties. And so what you're having right now, because central banks haven't stepped in yet, you have a total bid on Fiat. There's a total demand for the underlying Fiat, not the credit. It spends like the real monetary baseline money, but it is not. And when it dries up, it causes impairment on the other person's balance sheet, and you're set in this position. So now when the central banks step in, you get the exact opposite situation play out. instead of the the fiat getting bid,

now you have just a total overabundance of it. And then all that fiat infusion goes into the scarce resources, currencies, if there are any, call it gold, Bitcoin, right? All of that starts getting plugged into those locations. And that's when you have this whipsaw effect. And so you can understand why so many people don't understand what's going on is because you go from a total bit of Fiat to a total, how can I get rid of this and own something that actually has some scarcity to it

because it's gotten totally debased in the blink of an eye. It happens literally like at the snap of a finger. Now, as far as like market time that it plays out during the 2008-2009 crisis, you had this liquidity crunch, right? The government steps in, they print like crazy, and you saw that all get adjudicated within, I don't know, I would call it two months, that flippening of getting bid and fiat to total debasement happened very quickly. And you saw gold, people don't realize this, but if you go back and you look at gold in 2008, it went down 30% during this liquidity crunch that occurred. But then as soon as that flippening of the QE and all the easing that the central banks did, as soon as that bottomed out, which

took a couple months. As soon as that bottomed out and it flipped the other way, you saw gold go, I think gold went 200% plus. So that's what's playing out right now. And it's going to continue to play out until the central banks step in in a major, massive, unprecedented way. Let's, okay, now let's flip back from Bitcoin to the larger markets. Because I still am so interested in this. Like I said, I think people are going to be spending a lot of this coming weekend. trying to game this out in their heads, right? So it feels to a lot of folks, like central banks are going to have to step in even faster than they did in 2008 with this massive action.

And to your point earlier, in very different ways that aren't just the toolkit they used before. How long, I mean, the thing that's crazy about this is we're still experiencing the underlying catalyst, right? We're still coming to grips and barely coming to grips with the underlying catalyst in this disease. How does that factor into what the timescales for these challenges actually even look like? So this is really hard to answer, but I'll tell you how I see things playing out sequentially, right? First, what you're going to see is you're going to see the

massive stimulus that we've mentioned, right? Next, you're going to see the bond market blow up because all that stimulus is going to start creating this inflationary piece that, you know, if you ask any person on Wall Street right now, whether there's going to be any inflation in the next 30 years, they'll laugh at you. They'll say, no. That's why, you know, that's why you can go out and get a mortgage right now at 3% or less, right? Okay. So they're all, they're all pricing as if, and that's be, and that's nominal. That's not even real, right? If you account for 2% inflation, which is going to be way more than that, okay? And that's a very highly controversial statement that many people will disagree. agree with. But if you account for that, like, I mean, that's one percent that the bank's making on a 30-year mortgage. That's the, how, how can they possibly stay in business with that, right? So for me, the next sequence of events after they start printing, then you're going to see the bond market start just selling off like you have never seen a sell off. And then you're

going to get into a point where people are saying, hold on, there's something wrong with this currency. Like, this is a currency failure. And then you're going to, and then it's just going to be like, holy hell. What can I own that doesn't, you know, and I think you're going to see, you're going to see some countries that start stepping in and start seeing what in the world's happening. And I think they're going to actually start taking, even if they take for a country, it's a small position to go ahead and buy, you know, a billion dollars worth of Bitcoin, right?

And that's a hedge if that becomes the next global money. I mean, what else are they going to buy? What else, what other, what other currency, settlement, let me rephrase that, what other settlement currency is there other than gold, okay? So they can do that and they have been doing that. But now you, you've, you've got a wrinkle in the equation because you couldn't go to Starbucks and spend an ounce of gold, right?

Like, or a small portion of the gold. So now you've kind of turned this on its head. and where you even turn it on its head in a way that's so different than anything we've seen in history is I can take physical possession of it immediately. I don't have to wait to receive it, right? So I think central bankers in some other countries that are looking at this and they're seeing a meltdown in Fiat, and specifically the dollar and the euro are saying, wait a minute, maybe we just have some small exposure. then all of a sudden it just kind of starts going in a direction that nobody was expecting, at least people that are outside of the Bitcoin space.

So this actually segues into something that I wanted to ask you about too, which is we are, again, based on just our proximity to where in the crisis cycle we are, thinking about this largely from a U.S. standpoint. But this is a global crisis. and obviously it is revealing and reminding of just how interconnected things are. How does this play out in other parts of the world, right? Like, we're looking at these major economic dislocations and potentially fundamental changes to the way that the economy is run.

But it stands to reason that some of these fallouts could be even more disastrous in other parts of the world. Yeah, that's hard for me to really speak intelligently on. I totally agree with you. I think it's really hard to pinpoint where the most pain is going to be felt. I think from a, I will say this, from a medical standpoint, I think that the people that are handling this probably that are going to come out of this the best are the ones that are the healthiest, from a generalization of the population, the ones that have great work ethic,

the ones that are equipped medically to be able to handle all this from the cost of medical and all that kind of stuff. And so when I look at the U.S., unfortunately, I hate to say this, but I think that we're in a pretty precarious situation to handle this medically. You know, if you have preexisting conditions, this virus is, you know, from my vantage point, this virus is kind of like a war of attrition. If you get it, and this is from some of the stuff that I've read out of China, if you contract the virus, you kind of hold on to, you have those symptoms for a month or more. And then all of a sudden it starts to take a toll, this war of attrition on your body, and then organs start to fail, call it your kidneys or your lungs.

But your body can't continue to fight it for that long period of time. and that's what's causing the delay. So I think you got tons of people running around with this thing in the U.S. already. And for a healthy person who has a great nutrition, is in shape, they can continue to fight it for a longer period of time. But for people that aren't necessarily what I described, they're going to have a much harder time surviving this thing. And the toll that that's going to have on our medical facilities,

the toll that's going to have on our insurance industry, my God, I can't even, and I know I sound like a total doom and gloom, but, dude, I live in reality. I just look at the numbers. I look at the facts and the stats. And, you know, I position myself on the market based on that and I move out. And so when I'm looking at this, I'm saying, this is nuts, absolutely nuts. This is a once-in-a-lifetime kind of situation. Well, we hope it's a once-in-a-lifetime kind of situation. Yeah, yeah, we should. It sure do. Yeah, I mean, if I'll tell you this much, if South by Southwest survives, they will buy a very different type of insurance from here on out. So I, you know, let's, let's actually, so you kind of meet me. I want to say something about real fast.

I'm sorry to interrupt you. No, no, no, no, no, no interruption. So when you look at how, so I follow Berkshire Hathaway really closely, right? And so Berkshire Hathaway, Warren and Charlie talk about this every year at the shareholders meeting. about how competitive the insurance industry is, right? And how, where the money is to be made is on their float. So they get all this money, they invest the float into safe investments.

And so they've been complaining in recent years because a lot of the times you'd put that into fixed income securities, right? And back before 2008, they were yielding higher than 5%. Right. And so now the fact that you got zero percent interest rates and you've got this, this like, insane amount of competition at the primary dealer insurance level, right? I don't know how they're going to be able to cope with the claims that are going to come out of this. Like, dude, it's insane.

Well, I mean, this scares me a lot. I think about, I've thought about this from, even just from a small consumer dimension, right? So we have a family member who's supposed to get married in New York City in April. And my wife was like, well, what if we, what if they have to cancel the hotel will have to, you know, reimburse them, right? It's like, well, but who, like, the hotel is, is they, do they have to do that for everyone? You know, like, I was like, there's no scenario. And I was looking at the smallest micro example of this.

There's no scenario in which everything doesn't go to litigation to figure out who has to pay for what and who's responsible because it's so outside of the norms of everything, right? This isn't in the normal cancellation policy. And think about it from the hotel standpoint. This is not their first rodeo for. that scenario of a cancellation. So when you sign their contract, you better darn well believe that thing's wired tight that says whatever the terms and conditions are. I mean, I've dealt with quite a quite a bit of contracts in my life, some very large contracts, $100 million

plus type contracts. And let me tell you, there are no dummies. Like the Hilton's and the Marriots and all these companies are not stupid. So are they going to be forgiving with some of the of the coronavirus stuff at first, maybe. But in the long game, when it comes down to their survival, dude, they are going to stick to the T's and Cs, the terms of the contract. Exactly. I mean, that's the, that's the thing is there's,

there's a point at which it's not a question from a, from a financial standpoint about whether they can have forbearance around hardships. It's a, if we do, we die, you know? And so, like, I mean, that's, That's the scenario that I can't, it's just going to play out. So, I mean, everyone should just get University of Phoenix law degrees or something right now. You know, use this time for like, yeah, it's a, I just, that's the kind of scenario that I just keep thinking through.

And that's, I feel like that's where a lot of people are now is really trying to play this out, right? Because there's, think about one of the things, one of the hallmarks of this, this type of expansionary period we've had since 2008 is the discons. between the asset prices and perception of economic gain as related to the feeling and reality of economic mobility that people who aren't able to own much of that pie feel, right? And so you have all these folks who are not watching the markets right now because they don't feel at least yet, you know, maybe they have a 401K through their job or whatever, but they're still young who are thinking about what happens to their jobs, you know, or scared because they're, they don't want to go to work at the place that they're physically in contact with people,

you know? One of the things that when you get into financial valuation that you were talking about and how the market's been pricing things over the last 10 years, the thing that your CAPM models, and this is discount cash flow cap M models, right? That every business school in the world teaches us. the one fundamental flaw that every one of these have is it's based on the assumption that you're dealing with a sound currency. Right? All of this is based on the idea that you're dealing with a sound currency, all these valuations.

And so you have people that have been watching the bond market. And so when you price this stuff, it all goes back to the bond market, right? The bonds are yielding. Let's go back to the 2008 time for. And they were yielding around five, five and a half percent back then before the crash. So if the bond yield is 5 percent, well, your cap M, your discount cash flow models on how stocks are valued are based on a premium to those interest rates. Well, as those interest rates go lower and lower, guess what happens to the asset price

under this cap M model that they teach in business schools? The value goes up. So as these bond prices get pressed to zero percent, the asset prices of everything in the globe, whether it's a bond or a stock, goes up. But no one in those models is assuming that the currency is about to fail in those models. Right. And that's that is the biggest, if I was going to say there's the biggest misconception in the market. markets today, that, my friend, is it. So here's a question.

I'm trying to think of the right way to phrase this. So bear with me for a hopefully not too extended analogy. There's this episode of West Wing when Martin Sheen, President Bartlett, has just become president. And he's dealt with a military issue for the first time where an asset has been bombed or an airman has been killed. And it happened to be someone that he was personal close to as his personal physician. and he has a very emotional response where he just wants to bomb the hell out of the place.

I can't remember if it's Iran or wherever, right? And the Joint Chiefs bring him a plan, and it's basically taking out a few kind of low-target assets or whatever, and they call it a proportional response. And he freaks out, and he's like, I don't want to do this. I want to do something else, and I want to, you know, bomb them off the face of the planet and all this sort of stuff. And where this all lands is effectively the head of the Joint Chiefs of Staff telling him, the proportional response isn't good. It's not that we like it. It's not that we think that this is a wonderful thing. It's just the only thing. This is the only thing you do as the world's power in the

place that you are. And I wonder, is there anything, is there a right thing to do for policymakers for the Fed Next? Or is there just the thing? Are we in a scenario where there is, is no choice. There's just only the thing to do is the thing in front of us in terms of these massive interventions. Yeah, I think that's a good analogy. And I think you're right. I think that they have to. They are in a situation where they have to print in order to, I mean, I use the analogy. It's like an engine, right? If you don't have any oil in the engine, you can run it. But then eventually it's going to seize up. And so what you have happened in the economy right now is the oil in the engine is the liquidity and you have that seizing up right now

because all that liquidity has nested itself into these into all these securities and you know it gets to a point where when you have so few people that are controlling all that liquidity and they're they don't need to sell because they have let's just say it's a stock and they own it long, they don't have to sell that position. And so that starts seizing up the, and when you see all this volatility, especially in the derivatives market, that seizes up and that takes the oil out of the engine, right? And so they're in a position where they have to provide that liquidity. They have to put the oil back in the engine or else it will seize up. And so, yeah, they're in a position where nothing is going to be the right decision. But it's,

going to transition, this will transition to a new form of currency, whatever that is. My opinion is that Bitcoin's going to have a huge part in that. I could be wrong, but at the same time, I don't know what else there is out there other than them, other than all these countries coming to the table and agreeing that an SDR is pegged to gold or something like that or you have a new Bretton Woods. And I think that the reason that those two scenarios are not highly probable, but could happen, is because you have to have all these countries that come to the table and agree that they now are going to be fiscally responsible in the way that they're spending. I think that the habits that have been established from a

macro standpoint, congressionalally fiscal spending-wise, has grown to, it's almost like a person who just has a really bad eating habit, right? They just eat nothing but junk food. And they've been doing it for 40 years. That's where you're at with the spending habits, not just in the U.S., but globally, they have been spending at a rate that is uncontrollable at this point.

So I just don't know how they're all going to come to the table and agree that they're now going to be fiscally responsible, and they're all going to agree on a common currency that's all pegged like we had back with Bretton Woods. I think that was a different scenario than when we got now. Well, you know, it's fascinating. Just even to game theory this out is I would actually say that it's highly likely that they try to do something like that. Yeah.

Right. And the fascinating thing is that there's going to be, there's going to be some portion of people that watch that effort. And by people, I mean, not just individuals, not just institutions, but actual governments as well, who the difficulties, the follies, the in, The unlikelyhood of that process actually working is what drives them to go seek kind of market-provided alternatives. So this is important. You've got to think of the time frame. So Brentwood's happened in 1944. You had the Great Depression back in 29. And I think it bottomed in 33. Was it 31 or 33? I think it was I think it was 33 that you had the bottom of the Great Depression there. And so you had literally 11 years after the bottom hit that Bretton Woods occurred. So to think that and think about, look globally, look globally at the leadership that's in charge right now.

And I'm not calling any specific country out. I'm just saying globally, look at the leadership in charge. And look at the anger of the population and the, the, um, aggressive self-interest of every country, I think by 44, you were at a different point in time where everyone was like, all right, maybe we need to all get along here and we need to start being conservative with our spending habits, right? Like, you had a whole decade that played out of just severe pain on so many different fronts before you got the Bretton Woods.

You don't have that at all today. Not even close. Yeah, I think that's an interesting point in terms of the preconditions for something like that having any chance of working, right? Especially because it's hard to imagine that scenario. And I feel like we're now in minute 48 of this conversation, which means we're allowed to get into a weird political science theory and stuff. And anyone who's done with us can be done with us. And that's very reasonable. Thank you for listening.

We'll see you on Monday. No, but it is interesting. You have to imagine that any scenario in which other players came to the table, it's hard to imagine a scenario in which they weren't negotiating for lesser power of the dollar, which is going to be an a priori non-starter, right, for the U.S. to some extent, right? It was sold on the premise that all the other countries were pegged to the dollar and the dollar was paid to gold. and therefore the dollar doesn't have an advantage over us was how it was sold. But the way that it was gamed for the next 40 years after 1944, well, not 40 years, 30-ish, right? Was that the U.S. took advantage of the basically spread the dollar

and created economic growth by adjusting the money multiplier, which was a ratio off of, the gold. And so all the other players that continued to peg their money to the dollar were laggards in that policy. And that's why you saw such, you know, I mean, historians will tell you it was because of all these other factors of how great, you know, I think it's interesting when you go back and you read, you read some of the narratives on why America had such a boom throughout that period of time. And some of them are valid. But you, can't neglect to look at the fact that the dollar was being manipulated through the money multiplier

and how much reserves the banks had versus the amount of gold in the coffers. So, you know, and then in 71, it got, it got so out of control that if all those dollars that were out there that had been created came back home and were swapped for gold, there wasn't enough gold to do the swap anymore. So that's why they came off the gold standard. And so, So when the U.S. came off of it, well, guess what? All those other countries that were pegged to the dollar, they now had to come off. They were off the gold standard too. And then you just had this floating fiat.

Right. And so that can work. Remember, I said there's three things that cause a currency failure, and one of them was 0% interest rates. Well, if you have positive interest rates, and I mean, go back to this period of time, you're talking double-digit interest rates. there's a lot of room to maneuver to take those interest rates lower and keep everything still afloat. But once they get to zero, well, then the jigs up.

What do you think, if anything? So we're talking about the currency ramifications of this when currencies fail. How do you think this shifts in the short, medium, or long term, the conversation around basically digital fiat, government digital currencies, right? bank digital currencies. Well, it's based on how much you trust them done to the base it. So as long as they control the protocol, it's no different than what you got today. Now, there's going to be tons of people that think it's different because it has digital money or it has crypto in the name of it, like the crypto dollar or whatever.

Like people are going to say, oh, it's all fixed, right? But it's no different if there is an entity that can tap into the protocol. and adjust the unit new mayor, meaning the monetary baseline inside that protocol, congratulations, it's no different than what we've got right now. Absolutely nothing. And so the fact that you have this alternate digital currency that does not have a controlling entity that can manipulate the monetary baseline, Bitcoin, they're going to be held accountable to that.

So they can create their digital currencies, and they will. They're absolutely going to do that. they're going to force people to make their tax payments at the end of the year in that currency. But lo and behold, their buying power as a nation is going to be completely based on how much debasement occurs relative to Bitcoin. If my underlying thesis and assumption is valid that Bitcoin becomes the new currency. Do you think Bitcoin is ready for this? I sure hope so. A very honest answer.

And to be honest with you, my least favorite word in the dictionary is the word hope. You know, I look at this as being everything that I can look at from a technical standpoint, yes, it's ready, right? I mean, we're looking at today from a price standpoint, just total meltdown in Bitcoin. I mean, this is disgusting what this chart looks like. But as far as the protocol functioning, I mean, it's looking at this like, this is, there's nothing abnormal whatsoever about today to the Bitcoin protocol. There is, in fact, when you look at the difficulty adjustment, this is the thing that I found really fascinating about today. So I'm looking at the price.

I mean, it's down like 40% or whatever craziness happened today. But when you look at the difficulty adjustment that's coming in for the next two weeks, it's at a plus six. And it just in the two week period just started. So although the price is getting absolutely bludgeoned, you have all these miners out there that are basically saying, you know what? The price went down 40% today. But I'm still willing to spend all of this money, all this Fiat money for this electrical power that I'm receiving.

in exchange for whatever probability I have of actually receiving so many Bitcoins as the block reward. They are turning on more mining rigs in this scenario. Your tweet from earlier tonight where 76% of the people participating in the buying and selling, you have 76 people that are willing to buy for every 24 that are selling. Okay, and the price is going down. So that tells you those 24 people have very large positions, and the 76 people that are buying do not have nearly as much capital as those 24 had. But the numbers of people that are buyers versus sellers tells you something very important

that is very abnormal for that type of price move. Extraordinarily abnormal. Now, I mean, this was so fascinating to me. And I actually have to give it to Hunter Horsley from Bitwise who caught this earlier in the morning when it was at 72%. So it actually went up over the course of the day, which is really another important wrinkle on this, another important note. That means that it has gone. And we'll see what it is in a couple hours when they update it again. In the span of this conversation while we've been on the call, by the way, we've been between 3,900 and 5100 where we are now.

And so what does that remind you of? For me, it reminds me of the 2017 top, right? We saw the exact same thing. We saw the price go from 200,000 down to 16,000 or something like that. Like the moves were astronomical. So if you see those kind of moves on a top, why wouldn't you see those kind of crazy jumps on a bottom, right? it's just so similar but inverted.

Yeah, I mean, I think what's profound to me, and, you know, one thing that I obviously nothing that we say here, you know, normal caveats, there's no financial advice here. It's just opinion and conversation. But I do think that one of the things as I was doing my podcast today that was profound was to look at that one statistic as one of a number of indicators that part of the the maturity, the growing maturity of Bitcoin as an asset is this set of people who, you know, they've been called huddlers of last resort, right, who are convicted and strong in their conviction of this system and in its relevance in the future that they're literally, I mean,

I'm in lots of telegram groups where people are kind of posting their war buys as we've been going down the chain today, right? They're like, you know, look, I've got conviction. And I think to your point, it's exactly right, that in a weird way, part of the fact that so much of the top has blown off is an indicator as well that the last couple years of evangelism for this asset inside the vaunted halls of traditional institutions has been working, right? That argument that people should get off zero, as Morgan Creek talks about, is working. But the problem of that, or one of the challenges of that is that in this type of scenario, you're going to see that, right? reflected in the price as that set of actors with a very different set of priorities has to

move and do what they have to do. Think about the people that are buying right now. They have massive conviction, massive conviction to be buying it after a 40% drop. Think about the people who just sold it. They had, nah, so-so conviction. So as these buyers step in with that much conviction, and they eat up all of those sale orders, right? You even get a semblance of an upside.

All those speculators, those weak hand speculators, are coming back into the market to try to run this and capture their loss back, right? And so that, I mean, that's just how markets function. This is just normal stuff. If it feels absolutely gut-wrenching terrible, well, then you probably should be doing the exact opposite of how you feel. on whatever it is. Well, I actually think, too, to your point about those institutional weak hands, you got to think, too,

that there's actually a bunch of folks in there who press that buy button, you know, or sorry, that sell button with the heaviest of hearts because they just had to do what they do. And that they actually are strongly convicted. And maybe that's, even if that's only 10%, that's still a powerful, you know, countervailing force at some point. And so what in the world are they going to do whenever they do get their next liquidity injection via Fed ops, right? They're coming straight back to that thing that was so painful for them to sell, but they had to. This was forced selling today, whether people want to, you know, call it that or not. It is.

If you have a margin call, well, guess what? You got to cough it up from somewhere, regardless of how good of an investment you think it is. you have to supply the fiat money that is demanded of that denominated security that you that that went the wrong way. So we've now, we've run an hour. I could pick your brain and talk about this for, you know, a long, long time. But just kind of for for those who are listening who are, you know, they're not worried about their conviction in Bitcoin. They're worried about the kind of world that they're seeing. What gives you a sense of optimism at, at a time like this? You know, it's almost like, I guess I look at everything in cycles. I think that's how the universe functions. I think that

when you break it down into the most subatomic level, everything kind of revolves and works in a, in a manner that's in a cycle, right? And so, I mean, just look at like an electron rotating around a, a nucleus. So when I look at this situation right now, especially for Bitcoin folks, they're looking at this and saying, my God, this is the end, right? This is,

this is midnight. This is the darkest part of the night, right? And the way the universe functions is it daylight is coming. It's going to start getting lighter and then it's going to go through that cycle. You have to understand where you're at these cycles. When I look at where we're at right now, could it get worse? Actually, I think it can.

I think that from a market perspective, I actually think it's going to get a whole lot worse than where we're at right now. But the night is getting darker. We're going to eventually get to a fever pitch where it's pitch dark. And guess what? The light's going to start showing up. And so I think having faith, which is a much more powerful and important word, much more, it's the antithesis of hope, right? I think people have to have faith that they're being led in a direction that is for their own good, that you are going to come out of this better, you have to have that faith that, you know, the good Lord has better things for you on the horizon.

And I think when you have that and you think in a positive direction, the universe has to set itself up and function in a way that it supplies it to you. And I think that that's going to happen for a lot of people. Can't imagine a better way to end than there. So Preston, thank you so much for hanging out late night. And I'm sure that we'll have to come back to this conversation in probably a week because it'll be out of date by then. The biggest thing that stands out to me after that conversation with Preston is the enormity of the times that we are living through. No one can truly claim to know how the next few months or even years will play out.

All we can do is use our models both mental and economic and mathematical to give our best guess about how we see things playing out. But the world is ultimately full of people, and people have agency, and people make decisions, and often those decisions counteract the models that we expected to work. The point of this is simply to say that the best thing you can be doing in this situation is exactly what you're doing. Educating yourself, thinking, taking in different perspectives, and trying to form your own thesis about how you believe the world is going to change. I hope these types of conversations are a useful tool in that process.

So until next week, thanks for listening, and I will be back to break it down for you on Monday. Peace, guys.