The Breakdown - The Breakdown Weekly Recap | May 16 2020

Episode Date: May 16, 2020

The complete week's shows in one convenient file  Monday | The Great Monetary Inflation: Paul Tudor Jones' Complete Case For Bitcoin Tuesday | How We Future Now - Live With Kathleen Breitman, Caitlin Long and More Wednesday | A Coming Reckoning: Why The Fed Can't Outspend Deflation, feat. Jeff Booth Thursday | Surveying The Carnage: Movies, Sports, and Education in Crisis Friday | The Great Inflation Escape: Where Bitcoin Fits In the New Monetary Order [Money Reimagined Pt. 3]

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 CoinDisc. Welcome back to the breakdown. It is Saturday, May 16th, and as with every Saturday, this episode is a complete run of the week's episodes all with one convenient file. And just like every week, I'd like to start this episode by talking. through kind of what I think the main themes of this week were. And interestingly, this week almost started at its end, right? The halving happened on Monday and was really a crescendo on

a narrative that we've seen bubbling over into the mainstream since the beginning of the economic crisis around COVID-19, which is the idea of Bitcoin's regular supply issuance decrease, aka the having, contrasted with the unlimited fee. printing of central banks around the world who are trying to stem the bleeding in their economies, right? This is the narrative that's made it to CNBC that started to capture people's attention more broadly, that has brought people like Paul Tudor Jones into this space. And so in some ways, this week almost was the crescendo of that. The interesting thing is that we had talked about the having so much that we actually had kind of burned it out by the time we got there in a good way, right?

We didn't have some dumb conversation about whether there should be immediate price action following the having. Instead, what was notable about it was the most boring thing, the fact that it was just the most predictable, expected event. And that is in itself what is so contrasting with, again, monetary policy from central banks around the world. So I think in a lot of ways, if you are a member of the Bitcoin community and looking at the having and its relevance, its cultural relevance even beyond this, just the fact of its boring predictability is so powerful relative to these increasingly exotic forms of intervention that central banks are taking to try to right side their economies. So that was the beginning of the week. That was the halving.

Of course, we saw the kind of replacement of New York blockchain week. Coin desk did its consensus distributed last week towards the end of the week and rolling into this week. Consensus did Ethereum. So there was a lot of that, a lot of chance to reflect. And I think that that reflection makes sense because in a lot of ways, what happens now is there's going to be some quietish period maybe where the having is no longer the main focus of our narrative. And instead, we're going to be talking about something else. And we'll see what that is. I've already seen an uptick in what I think

and have gone on record as saying is the unbelievably time wasting continued battle between Bitcoin and Ethereum. So you're seeing more of that flare up as we get past the having and people are looking for other things to fight about again. So anyways, we'll see. It's going to be a kind of an interstitial moment for narratives for a little while. But in the meantime, important things are still going to happen. Telegram gave up the ghost on its battle to launch a token this week. I don't think that's the end of that story. I think we'll probably see lawsuits coming out of that. But there's some interesting implications for power and how power is distributed vis-a-vis the crypto industry. Reddit is experimenting with Ethereum-based tokens for two of

its subredits are slash cryptocurrency and the Fortnite subreddit, which is interesting. Cool. Could be something there. So anyways, there's things going on, but it is honestly kind of a come down, I would say in some ways, after the incredible alignment of the having coinciding with this broad-based financial crisis. So that's kind of what I was seeing for this week. Now, in terms of the shows throughout the week, on Monday, I did an episode called The Great Monetary Inflation, Paul Tudor Jones' complete case for Bitcoin. The goal with this was to, instead of just looking at these headlines about this famous hedge funder who had gotten in the space, to actually dissect his logic, the reason that he got involved,

the methodology that they created to review competitive stores of values. He articulated this all in the investor letter that he wrote where we all discovered this. So I really go deep on what he was thinking and why. So hopefully that was useful. On Tuesday, it was a fun live episode, four different guests, Kathleen Brateman of Tezos and Now Kos, which is a game studio, Caitlin Long of Avanti, Munib Ali, the CEO of Blockstack, and Junie and Wang from CoinDesk, all talking about how we future now. So we looked at gaming, identity, banking, events and really kind of tried to zoom out into the future about what's changed. That was Tuesday. Wednesday was a really awesome episode with an extra special guest. We had Jeff Booth on. Jeff Booth is the

author of The Price of Tomorrow, why deflation is key to an abundant society. And so that episode was called A Coming Reckoning, Why the Fed Can't Outspend Deflation, and really talks about how there are these two huge macro forces. Technology rot deflation on the one hand and inflationary economic on the economic policy on the other that are competing, right, and at odds with one another. On Thursday, I did a second in my series of surveying the carnage. So I looked at the movie industry, sporting industry, advertising, and education and how the economic crisis was impacting them. So again, these are no longer just in the realm of speculation about second order effects, but actually seeing what those second order effects are. And then finally, yesterday on Friday,

we released the third part of the Money Reimagined micro series. So this is an actual narrative documentary style podcast that has, you know, rather than one guest talking about a variety of topics, it has a complete narrative arc that uses multiple guests to kind of get there. This one is called the Great Inflation Escape, where Bitcoin fits in the new monetary order. So episode one was all about the dollar. Episode two was all about competitors to the dollar.

Episode three was about Bitcoin and stable coins. and whether any sort of permission lists outside the system alternative has a chance. So I really have loved producing this. I hope you enjoy it. And as always, guys, I appreciate you listening. So wherever you are, hopefully you're having a great weekend. Up here in the Hudson Valley, it finally is feeling like summer. Anyways, until Monday, guys, be safe and take care of each other.

Peace. Support for this podcast and this message come from Eris X. With ErisX, you can trade spot and regulated futures on cryptocurrency. through a licensed U.S.-based exchange. ArisX believes in fair access for all. Sign up today to take advantage of zero fees and learn more at ArisX.com slash consensus. This episode is also sponsored by the Stellar Foundation.

The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power or payments application or issue digital assets like stable coins or digital dollars. Stellar is easy to learn and fast implement. Start your journey today at Stellar.org slash coin desk. Support for this podcast and this message come from Grayscale Digital Large Cap Fund. In times like these, diversification is key.

Consider Grayscale Digital Large Cap Fund, ticker symbol GDLC. It's the only publicly traded investment product that offers diversified exposure to large-cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash CoinDesk. That's G-R-A-Y scale.co slash CoinDesk. Paul, do you see this, though, in relation, and I'm thinking about tech stocks now, because one of the things we have seen over the past two months is just the move towards virtual. Anything that can be done virtually has had great success, whether it be Zoom or any of the big tech companies in the Valley, because we're all able to do that virtually. Is that the way you see Bitcoin and separately do you own gold? I was going to ask at the same time. I have assets in gold also. I think gold can go substantially higher.

And yes, the digitization of the world clearly benefits Bitcoin. I mean, we wouldn't even be talking about Bitcoin if we weren't seeing First Cousins like Venmo and a variety of other ways. My children don't even carry cash. They barely even know what cash is. So we're clearly digitizing the global economies. You've seen some countries do it explicitly like India. You're seeing other countries on the way to do it like China. So we're getting in an increasingly digitized world,

and Bitcoin will be that much more accessible by that universe of people that could own it as a store of value. When you think about every bull market, every single bull market, has one common threat, an ever-expanding universe of people who own it. So there's probably the estimates are between 55 and 70 million people on Bitcoin. We really, if you're buying Bitcoin, your bet is that number is going to go to 120 million or to 200 million. And it's kind of hard when you look around and you see that the world's becoming increasingly digitized, not to think that the preponderance evidence at this point in time doesn't point in that direction.

Welcome back to the breakdown and everyday analysis breaking. down the most important stories in Bitcoin, crypto, and beyond. This episode is sponsored by AresX.com, the Stellar Development Foundation, and Greyscale Digital Large Cap Fund. The breakdown is produced and distributed by CoinDesk. Here's your host, NLW. Welcome back to the breakdown. It is Monday, May 11th, and yes, it is halving day. Excitement abounds. There are about a trillion in different having live streams. Coin Desk's consensus distribute is happening for the next 24 hours for their first part and then throughout the week.

I'll be hosting a session tonight at 6 p.m. And then again, tomorrow I'll be doing a live breakdown at 8 a.m. Eastern time. All in all, there is a ton going on. And it really caps a pretty incredible week last week. Now, obviously, last week was defined in some ways by Paul Tudor Jones, the famous hedge funder talking about his Bitcoin thesis. And what you heard in the clip at the beginning of this episode was him on CNN this morning talking a little bit more about it. But I think that one thing that Twitter does poorly is actually help you understand the story behind the headline.

It's good at the headlines, it's bad at the stories. And Paul Tudor Jones getting involved in Bitcoin is not just a whim and it's certainly not reducible to a quick Twitter soundbite. Now, the investment letter that he released last week to his investors to help them understand why he was authorizing his $22 billion fund to potentially allocate low single digits into Bitcoin came out. So we got to see the entire letter. So what I want to do for today's episode is actually bring you into that letter, help you understand the motivation, help you understand how he came to this conclusion, both in terms

of the larger environment that mandates it and specifically what is interesting or what is challenging about Bitcoin itself as an asset. So we're basically breaking down the Paul Tudor Jones complete case for Bitcoin. All right, let's actually start with who wrote this letter because Paul Tudor Jones in fact had a co-author, Lorenzo Giorjani. And I think it's really relevant to understand what his background is as well. At the end of last week, Adam Pokernickey, who who is a partner at a registered investment advisor for Bitcoin, dug into this specific question and actually went to Lorenzo's LinkedIn profile to figure out what his background was.

It says prior to joining tutor investments in 2013, Lorenzo held several senior positions at the International Monetary Fund in Washington, D.C., between 1996 and 2013, where he took a leadership role in the IMF's efforts to revamp the international financial architecture and resolve financial crises. He has been directly involved in managing financial crises in Asia, Argentina, Turkey, and the Eurozone. Lorenzo has published academic research and refereed journals and authored numerous IMF reports on the international financial architecture, including the role of IMF lending, global capital flows,

sovereign debt restructuring, and bank rescue operations. He also authored several IMF country reports. The point here is that this is someone who is deep inside the establishment of the global monetary order, right? This is not an outsider by any stretch of the imagination. That's part one. That's one of the co-authors. What about Paul Tudor Jones himself? Well, those of you who hadn't heard of him before probably have gotten the gist of the details now.

Legendary Wall Street Trader worth more than $5 billion, seventh on Forbes list of top hedge funders right behind people like Ray Dalio, got famous for predicting the 1987 crash. And importantly, here's how he describes himself vis-a-vis Bitcoin. He says, advertising, I am not a hard money nor a crypto nut. I am not a millennial investing in cryptocurrency, which is very popular in that generation, but a baby boomer who wants to capture the opportunity set while protecting my capital in ever-changing environments. One way to do that is to make sure I am invested in the instruments that respond first to the massive increase in global money.

And given that Bitcoin has positive returns over the most recent timeframes, a deeper dive into it was warranted. I did have some experience with it back in 2017, having a tiny amount in my personal account for fun. Amazingly, I doubled my money and got out near the top when it was apparent to any market technician we were blowing off. It is amazing how well one can trade when there is no leverage, no performance pressure, and no greed to intrude upon rational reflection. When it doesn't count, we are all geniuses. Basically, he is saying that he is not someone who's coming into this as a Bitcoin enthusiast. He's dabbled on a personal level, but never really considered it from his portfolio standpoint. But, and this is a key line from his letter, he says, quite often how the

markets respond will be at odds with your priors. He's basically saying you got to throw aside what you think you know to watch what actually happens with the markets. So let's get into his argument and what brought him back two and a half years later after his first dabble into Bitcoin. To understand Jones' Bitcoin thesis, you have to understand his assessment of the global macro environment. Now, this letter was called the great monetary inflation, and the first paragraph reads as such. COVID-19 is a one-of-a-kind virus that has triggered a one-of-a-kind policy response globally. The depth and magnitude of the economic drop-off took modern monetary theory, or the direct monetization of massive fiscal spending, from the theoretical to practice without any debate.

It has happened globally with such speed that even a market veteran like myself was left speechless. Just since February, a global total of 3.9 trillion, 6.6% of global GDP, has been magically created through quantitative easing. We are witnessing the great monetary inflation, GMI, an unprecedented expansion of every form of money unlike anything the developed world has ever seen. The long and the short of it for Jones is that there is this moment of a real potential crisis where we get back to inflation. So what's the setup for this? Well, first it has to do with debt. As he points out, the CBO, the Congressional Budgeting Office, is projecting that U.S. government debt ratio to reach above the World War II peak. He says that it's not inconceivable that economy-wide debt ratio will increase by 50% of GDP over the next year and a half. importantly, he points out that, quote, central banks are on the hook to help fund this debt

increase and then goes to explain how that looks in practice. The Fed's balance sheet has grown 60% since the end of February and is on track to double by the end of the year. And importantly, this isn't just the Fed, this isn't just the U.S. The Bank of Canada has tripled its balance sheet. The Reserve Bank of Australia has increased its balance sheet by 43%. What does this look like in terms of the monetary supply. Well, M2, which is basically all the cash and liquid money plus savings deposits and other slightly less liquid but still available monies, has increased 18.5% since a year ago and is likely to get to between 20 and 40% by the end of year. A key question maybe is how does this relate to history, right? How far away from the norm is this? Well,

during the great financial crisis, M2 never grew by more than 10% a year. So that's what. one data point. Another data point has to do with the relationship between M2 and the growth in real outputs, right? It's not just about the growth in the money supply. It's about how the growth and the money supply compares to growth in real economic output of the economy in general. Milton Friedman, and this is a quote that Jones puts in his letter, said, inflation is always and everywhere a monetary phenomenon that arises from a more rapid expansion in the quantity of money than in total output. So the point is that there's a disparity,

there's a gap between how much money supply is growing compared to how much the output of the economy is growing. Well, the only periods where M2 growth exceeded real output growth over a five-year period by the same or a faster pace as now were the late 1940s on the tail end of the Depression at the end of World War II and the inflationary periods of the 70s and 80s.

So that's the historical context. Now, importantly, when it comes to these inflation predictions, Jones doesn't think that it's going to happen right away. He thinks that we're going to see asset price reflation much more quickly, which we're already seeing, right? This is the supposed V-shaped recovery that we've seen or heard talk of. But there's a second piece of this which has to do with consumer demand. And there is a demand shortfall right now, which he believes is preventing goods and services

from inflating in the short term. and actually expects that to continue for some period of time. His question and his most important question in some ways is, quote, whether the large monetary overhang in the recovery phase will eventually stoke consumer price inflation. What this comes down to for him is, will the Fed have the political willpower to do what it takes to avoid that inflation,

which would be to massively increase interest rates to incentivize savings and disincentivize spending. and he believes that it just seems unlikely based on where we are now. He said, when the time for liftoff finally occurs, any hiking is likely to be delayed and unambitious. Furthermore, the risk of a complicit, i.e. politically appointed, central bank chairman cannot be easily dismissed, given that central bank independence is no longer a sacred cow. This is a really important part. And for people who watch the relationship between the Fed and the Treasury, which are supposed to be,

highly independent of one another, that has been one of the most concerning signs of this crisis is just how fully the Treasury has sort of absorbed the Fed into its sphere of influence. If you go back and listen to my episode with Danielle DiMartino Booth, that's a big part that she talks about. She talks about how it's gone from corrupt to broken, and that's basically what she's talking about. On top of all of this, he also worries that there could be other reasons for inflation that have to do with basically geopolitical changes. He says there may come a tipping point when a breakdown in global supply chain spills over to goods prices undoing two decades of disinflation attributable to globalization. All in all, let's summarize this. You have a situation now where the Fed is printing a huge amount

of money. The money supply is increasing much faster than the total output of the economy itself. This compares to other inflationary periods in history. It seems unlikely that the Fed will have the political ability to actually raise interest rates in a way and at a level that could, in fact, stop inflation. And hanging over all of this is the potential that the geopolitical landscape shifts in such a way that there's a different type of inflationary force. This all totaled up is why he called this letter the great monetary inflation and why his investment strategy is focused on how to deal with this, what to buy in this context. So that's the section that will shift our attention to next. What do you buy inside the Great Monetary Inflation? So let's introduce the contenders

of assets that you might want to buy during the Great Monetary Inflation. This section was called Seeking Refuge from the GMI in the paper in the letter. He rank ordered a list of inflation hedges, or rather his firm, rank ordered a list of inflation hedges called the inflation race. So here's what those lists look like. At one was gold and the way that they first, framed it was a 2,500-year store of value. At 2 was the yield curve. Historically, a great defense against stagflation or a central bank intent on inflating. For our purposes, we use long two-year notes and short 30-year bonds. Number three, NASDAQ 100. The events of the last decade have showed that quantitative

easing can rapidly leak into equity markets. Number four, Bitcoin. And they say, there's a lengthy discussion of this below, which will be our next section. Number five, U.S. cyclicals long over U.S. defensive short, a pure goods inflation play historically. Number six, AUDJJPY, long commodity exporter and short commodity importer. Number seven, tips treasury inflation protected securities, index to CPI to protect against inflation. Number eight, GSCI, the Goldman Sachs Commodity Index, a basket of 24 commodities that reflects underlying global economic growth. And number nine, JPM emerging market currency index, historically when global growth is high and inflationary pressures are building. Emergent market currencies have done

quite well. So what the firm did then with this inflation race was put all these things on a table and look at their performance comparatively over the last week, the last month, the last three months, and the last year. And Bitcoin is at number four for actual productive outputs, which basically is what got him to think about this more. So this is the setup to why they actually thought about Bitcoin, why they put Bitcoin into the fray as a contender. This is where he starts to say, or he comes back to this idea that he's not a hard money nut or a crypto nut. But, and this is as he put it, the GMI caused me to revisit Bitcoin as an investable asset for the first time in two and a half years. It falls into the category of a store of value and has the added bonus of being

semi-transactional in nature. The average Bitcoin transaction takes around 60 minutes to complete, which makes it, quote, near money. It must compete with other stores of values such as financial assets, gold and fiat currency, and less liquid ones such as art, precious stones, and land. The question facing every investor is, what will the winner be in 10 years' time?

Support for this podcast and this message come from Eris X. With ArisX, you can trade spot and regulated futures on cryptocurrencies through a licensed, US-based exchange. ErisX believes in fair access for all. Sign up today to take advantage of zero feet and learn more at erisX.com slash consensus.

This episode is also sponsored by the Stellar Foundation. The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power a payment application or issue digital assets like stable coins or digital dollars. Stellar is easy to learn and fast implement. Start your journey today at Stellar.org slash coin desk. Our final sponsor is Grayscale Digital Large Cap Fund. In times like these, diversification is key.

Consider grayscale digital large cap fund, ticker symbol GDGDG. It's the only publicly treated investment product that offers diversified exposure to large-cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash coin desk. That's g-r-a-y-scale.co slash coin desk. Bitcoin is a store of value that is semi-transactional in nature. Well, what does he mean when he says store of value? He calls it anything that holds its purchasing power in the future.

It is completely a function of people's perception of. of its worth. Well, what about Bitcoin in the context of other crypto assets, right? He says in the context of stores of value, the newest entrant is Bitcoin, which seems to have emerged from the Crypto War of 2017 as the clear winner with a market cap 10x that of its closest competitor. All tracking so far. Bitcoin is clearly at the very head of the cryptocurrency industry and has a number of features that make it particularly interesting in the context of this particular question that he has as it relates to the great monetary inflation. They looked then at what makes for a good store of value and graded them on four characteristics. The four characteristics were purchasing power,

trustworthiness, liquidity, and portability. Now, they gave each of these a different weighting. So purchasing power and trustworthiness were each given 30% of the weighting of a score of 100, while liquidity and portability were both given a 20% score. So they basically are saying, purchasing power and trustworthiness are even more important characteristics for a store of value than our liquidity and portability. Importantly, they removed real estate art, precious stones, and things like that because the liquidity and portability makes them just sort of not even on the chart. And because of that, they focused just for the sake of this discussion on financial assets.

So in the final accounting with all the grading done, the financial assets got a subjective score of 71, gold got a subjective score of 62, Fiat Cash got a subjective score of 54, and Bitcoin got a subjective score of 43. And again, this is grading assets by their ability to store value. However, and this is important, to quote Jones, what was surprising to me was not that Bitcoin came in last, but that it scored as high as it did. We'll come back to that in just a minute. Let's look into how they actually graded in these different categories, purchasing power, trustworthiness, liquidity, and portability. on the purchasing power front, he said that many on his team focused on financial assets. So basically they were looking for carry.

They were looking for yield as a way to beat inflation. Jones was less focused on that or had more skepticism there and pointed to the 1970s inflation during which most financial assets yield couldn't keep up with inflation. Instead, for Jones, what he was interested in was, quote, the scarcity premium. He said, I also made the case for owning Bitcoin. the quintessence of scarcity premium. It is literally the only large tradable asset in the world that has a known fixed maximum supply. By its design, the total quantity of Bitcoins, including those not yet mined, cannot exceed 21 million. Approximately 18.5 million Bitcoins have already

been mined, leaving about 10% remaining. On May 12th, Bitcoin's mining reward, the pace at which the supply of Bitcoin is increased, will for the third time be halved, falling from 12.5 to 6.25 Bitcoins per block of transactions added to the blockchain. Future halvings will likewise occur approximately every four years consistent with Bitcoin's design, thus continuing to slow the rate of supply increase and causing some to estimate that the last available Bitcoin will not be mined for another 100 plus years. This brilliant feature of Bitcoin was designed by the anonymous creator of Bitcoin to protect its integrity by making it increasingly near and dear, a concept alien to the current thinking of central banks and governments. That one paragraph describes the

argument for Bitcoin in the face of unlimited money printing better than any amount of our best tweets ever could, which is why I wanted to read you the whole thing. So again, in the context of this grading assets by their ability to store value, for purchasing power, many on his team were focused on getting yield from financial assets, but Jones was really interested in the scarcity premium of Bitcoin. What about trustworthiness? Well, in that, you'll probably not be surprised. Bitcoin scored the lowest simply because it's the youngest, especially in the face of something like gold, which has been around for 2,500 years. With liquidity, it actually is a really strong area for Bitcoin. In the letter, he says, Bitcoin is the only store of value that actually

trades 24-7 in the entire world. This is something we've talked a lot about before, how Bitcoin is the only free market. Well, it's, as he's pointing out, it's the only one of these assets that really trades 24-7 across the entire planet, no matter where you are. The market doesn't close. Lastly, there's the question of portability, and I really like the way that he described this. It's something that you'll have heard a lot from me here. Jones says, finally, there is portability. Like liquidity, it is not an issue until it is. Imagine a geographic upheaval, whether it be caused by war, an epidemic or change in government that becomes hostile to holders of wealth. A great store of value can be seamlessly moved from one jurisdiction to another with little or no transaction costs. Cash is obviously

good for that. Gold is okay but clunky, but of course, nothing beats Bitcoin, which can be stored on a smartphone among other options. So on both the liquidity and the portability front, Bitcoin is doing really well. So that's kind of a flavor of the overall exercise that they did. And as I said, Bitcoin came in fourth. But the key conclusion for him had to do less with where on the list of assets it fit, but more its price relative to those other assets. So he basically comes to the conclusion that Bitcoin is currently mispriced. He says, again, what was surprising to me was not that Bitcoin came in last, but that it scored as high as it did. Bitcoin had an overall score nearly 60% of that of financial assets, but has a market cap that is $1,12,000.

hundredth of that. It scores 66% of gold as a store of value, but has a market cap that is 160th of gold's outstanding value. Something appears wrong here, and my guess is it is the price of Bitcoin. Now, all it takes for a smart investor to want to hedge into an asset is to believe that it is fundamentally mispriced in such a way. But there's another part of his argument, one kind of last almost presented as a throwaway piece, but really reinforced on the CNBC interview this morning, where he believes that it's much more commonplace or it's likely to become much more commonplace to have access to Bitcoin going forward. So what he says about this is, quote, the most compelling argument for owning Bitcoin is the coming digitization of currency everywhere,

accelerated by COVID-19. Bull markets are built on an ever-expanding universe of buyers. Central to the price of Bitcoin is how many more or less owners of Bitcoin there will be beyond the 60 million who currently own it. The probable introduction of Facebook's Libra, whose value will be pegged to the U.S. dollar and will not be a store of value in that sense, as well as China's DeSep, also tied to the yuan, will make virtual digital wallets a commonplace tool for the world. It will make the understanding utility and ease of ownership of Bitcoin a much more commonplace option than it is today. So this is really interesting because these parroting basically arguments that many in the crypto space have made that Libra,

and China's DeSep and other central bank digital currencies effectively create an onboarding mechanism for new users to get comfortable with digital wallets, that might lead more easily to some different type of asset like Bitcoin. So by way of wrapping it up, let's take his words themselves and to the key point. He says, owning Bitcoin is a great way to defend oneself against the GMI, given the current fact set. As Satoshi Nakamoto, the anonymous creator of Bitcoin, stated in an online forum around the time he launched Bitcoin, quote, the root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency,

but the history of fiat currencies is full of breaches of that trust. I am not an advocate of Bitcoin ownership in isolation, but do recognize its potential in a period when we have the most unorthodox economic policies in modern history. So, we need to adapt our investment strategy. We have updated the Tudor BVI offering memoranda to disclose that we may trade Bitcoin futures for Tudor BVII. At the end of the day, the best profit maximizing strategy is to own the fastest horse. Just own the best performer and not get wed to an intellectual side that might leave you weeping in the performance dust because you thought you were smarter than the market.

If I am forced to forecast, my bet is it will be Bitcoin. So like I said at the intro to this, the reason to do this full breakdown is that on Twitter we can capture the headline. and some of the excitement, but we don't capture the full logic. And as you can tell, a huge amount of thinking went into this, right? This whole methodology for looking at stores of value, these rank orderings of the different stores of value or assets on their ability to store value. These are really important parts of this argument, especially if you want to go turn around

and use the Paul Tudor Jones case for Bitcoin when you're talking to your friends, to your family, to people you want to co-invest with, whatever it is. You've got to understand the actual logic going into this beyond the headline. Hopefully this was helpful. Like I said last week, and I'll say it again, I think this is a massively significant moment. And, you know, it's not without complications. I'm sure that over the coming weeks, we'll talk about what it means to have institutions actually coming into Bitcoin, what the risks might be. Many have pointed out that they're not talking about getting exposure to Bitcoin the underlying asset, but to making bets on futures, which is a very different process. So it's not an unreservedly good thing, just as any institution. is not an unreservedly good thing, but it is a significant signal to the market. So hopefully you understand that signal and where it came from a little bit better today than you did. As always, guys, thank you for listening. I appreciate it. Welcome back to the breakdown, an everyday analysis breaking down the most important stories in Bitcoin,

crypto, and beyond. This episode is sponsored by ErisX.com, the Stellar Development Foundation, and grayscale digital large-cap fund. The Breakdown is produced and distributed by CoinDesk. Here's your host, NLW. Welcome back to The Breakdown. It is Tuesday, May 12th, and today we have something a little bit different and very cool. At 8 a.m. Eastern time, I helped wrap Consensus distributed a 24-hour virtual event with a live episode of The Breakdown.

The theme was how we future now. It is all about things that are shifting around us in the, context of COVID-19, but maybe in just the world at large. And so we had four different guests over the course of an hour talking about different domains in which the future was shifting. We started with how we game and entertain now with a conversation with Kathleen Brateman. Kathleen was a co-founder at Tezos and is now working on Coase, which is an organization focused on digital and collectible card games. Their first game is called Emergence and has Magic the Gathering Hall of Famers working on it, and we talk about what blockchain can do to help game designers

design entire ecosystems and economic systems around their games. Next up, we talked to Munib Ali, the CEO of Blockstack, about identity and really about what it means to have true digital ownership over the networks that you participate in and the networks of content that you build. So that was the second clip. On the third segment, we talked to Caitlin Long about how we bank now. and what it means to try to build a bank for a new era in which maybe we prioritize different things. Caitlin Long is founding something called Avanti, which is a bank that can actually custody crypto assets,

but doesn't take title to them. So there's 100% proof of reserves at any given time. They can't lend out those assets unless it's you authorizing a direct lend to a specific person. So basically they are a very kind of old world in some ways version of what a bank might be. Finally, we talked to June Ian Wong, who is one of the lead producers of this event, of consensus distributed, about how we event now and about why events are, in some ways, proxy for the shared consensus that we need around money systems, around economic systems. It's a really cool, very varied set of conversations. It was super fun to do live.

CoinDesks Consensus has events throughout the week. There's something like 112 different sessions that you can go check out, from the technical to a focus on markets that will be going. throughout the week. You just have to go to their page and go to the events tab and then you can sign up and register for free for all this. So a really, really cool set of content for you there. And I was glad to be a part of it. I was glad to help them wrap it up. So anyways, guys, that's going to be the episode for today. I hope you enjoy all of these guests. And we will be back tomorrow with another episode of The Breakdown. Until then, be safe and take care of each other.

Peace. Welcome back to Consensus Distributed and welcome back to The Breakdown. For those of you who are new who are fresh, The Breakdown is a daily podcast by me, Nathania Whittamore at NLW on Twitter. That is all about how the world and the economy is changing. Today we're going to talk about something that I think is on so many people's mind, which is where the world we're headed into next is going. We've had this kind of pivotal inflection moment around COVID-19,

around the economic shutdowns that has made us question a lot of things that we thought we're sacrosanct, we're fixed, we're going to be the same way they were forever. And so what we're going to do on this show is explore what the future looks like across a number of different dimensions. We're going to talk about identity and how the relationship between citizen information

and government's works. We're going to talk about banking and the fundamental way in which people can interact with their money. We're going to talk about events, right? This experience that we've all been part of and how coming together might look different in the future. But we're going to start with something that has been particularly important during this time of quarantine, how we game and entertain now. And to do that, I'm joined by Kathleen Bratman.

Kathleen Bratman was a founder at Tazos and is now leading a very cool startup focused on bringing blockchain gaming to reality. Kathleen, thanks for hanging out. Thanks for having me and thanks for the gracious introduction. Sure. Okay. So let's start with the context and how you go. got from point A to point B. You built a base layer protocol and decided for your next act to focus on a blockchain game studio. What was it about games or the particular type of game that you're building that seemed like such a good fit for the blockchain? Oh, thanks for asking. And yeah, no one does any of these things alone. But I do get credit

for co-founding the TISO blockchain, which launched back in 2018. You know, once the network and the prevailing blockchain kind of got its sea legs in terms of seeing an ecosystem system built around it, I began to think like, hey, you know, what's the coolest application that I think could be built that would, you know, be expedient and kind of testing out the virtues of a cryptocurrency. And I think that smart contracts in particular do do one thing really, really well, like help people coordinate, and they can facilitate better secondaries markets. And so I wanted to kind of tell you. that thesis out. And I thought that the most broken, fully digitized economy would be in gaming,

which tend to have like sort of natural areas where people converge and try to coordinate themselves, which sounds like a traditional economy, but has the benefit of not having to interact with the quote-unquote real world and, you know, had this night tight digital loop. It's funny because one of the largest contributors to the Tessus Foundation's 2017 fundraiser was actually a gaming company. And so I had a little bit of a head start in the sense that I was familiar with some of the working feces that this company had when they started to look at a public blockchain as the source of potentially addressing some of the ills in their native economy.

But I wasn't super convinced. So I did a little bit of an informal survey of my own. and I looked at the different types of games that exist, and I thought that collectible card games in their digital format suffered the most from, I guess, the break between how people understand their analog economies and games and their digitized models. So at Coase, you know, I like to say that we're not necessarily a gaming studio, but we really focus more on facilitating better secondaries markets,

and the way we've decided to choose that is through, the production of an original collectible card game, that we're also looking at other aspects of collectible models and trying to create better secondaries markets are using smart contracts. So it's a bunch of interesting follow-up questions, but for people who are familiar, let's take it back to collectible card games

because there's precedent. And a lot of what I just heard from you is that this has to do with trying to bring into digital parallel the analog experience, right? And so the history of collectible card games has this interesting kind of two-part function, where on the one hand, there's players who get these cards and they play games with them and they make decks with them and they do all that stuff. But then there are these markets that form around them.

And in fact, the markets have been a lot of how people have gotten interested in this domain, right? NPR doing series about the Black Lotus and Magic the Gathering. So I guess one of the things that's really interesting to me listening to you speak is that the logic for for blockchain-based gaming has been kind of argued on a couple different levels. People have talked about both true digital ownership of goods and they've talked about this idea of making easier secondary markets. So maybe you could speak to, it sounds like for you that the secondary markets piece is really important, but maybe that implicates the first part true digital ownership by definition. Could you speak a little bit to to kind of why that secondary market piece is such an important part of the thesis?

for games on the blockchain? Yeah, absolutely, and that's a very astute summation of a lot of the ideas that I've had. Yeah, no, basically with traditional collectible card games, such as Magic the Gathering being the most famous and the most notable, you know, typically in their analog versions, people are at like 50-50. You have this notion of like battle and, you know, actually playing the game. And then almost equally you'll find if you go to a magic convention or something like this, people are just really into collecting the cards and being able to trade and barter with people and kind of make friends to some extent.

Like I think really what's striving this at the end of the day is the community around it. You know, Fortnite now has 350 million players, which is insane. And, you know, 3.2 billion hours played in April alone. You know, people don't just come for the game itself. They also come to be with their friends. They come to show off. They come to express themselves. And I think, you know, one consistent line between.

Tezos and my thesis around coast has been that if you empower people to kind of be able to make their own lot and to express themselves with using, you know, sort of the mechanisms and the incentives that you give them, like you really do wind up getting an impassioned group of folks. And so, yeah, to your point, you know, there's two axes of this. There's like the notion of actually owning a card, which a blockchain only allows you to do it allows you kind of port from one place to another. One really cool thing that we can do with our game is, you know, publish an SDK and have you run alternative, you know, rules engines, right,

and explore the same way that you could with a physical asset. The other aspect of this is better coordination. And, you know, typically where digital, pleasurable card games have struggled, is in making people feel like they've become smarter for putting money into the game or for, you know, buying a card because they, you know, typically can't trade these assets in a very, I guess, seamless fashion, but a blockchain might allow you that better. And using smart contracts, for example, to facilitate a secondaries market for these assets

makes it a lot easier and programmatically liquid in the model that we've proposed for our first game emergence. So it's really interesting. I'm going to out myself as a geek here. Obviously, you and I have talked about this in the past, and I started playing magic in 1994 when I was 10 years old. Took a very long break, but then came back to it later in life, and have always been interested in the resilience, the resonance, the long-term growth, right?

This is a game that's lasted now for 27 years or longer, which is really unheard of in a lot of game dimensions. And one of the things that's fascinating, if you look at historical antecedents in that ecosystem, is the way in which the simple fact of it being this card game, right, with physical things, it have invented a huge number of the most important parts of the ecosystem now, right? Wizards of the Coast, which is the company that publishes Magic has said numerous times that

one of the formats, so there's multiple ways to play Magic the Gathering, and one of the formats that is most popular, perhaps the most popular, is called Commander, which was invented by judges and later became kind of pretty much one of the biggest moneymakers for this company. The problem is that when you move from the offline ecosystem where the rules are inherently kind of open to you doing whatever you want to the closed ecosystem of an online game, all that creativity goes out the window. And so one of the things that it sounds like to me listening to you is that you're almost trying to use some of the features of blockchain to build the capacity for people to

design the system, to reinvent the system, to reimagine the system into the actual rules of the ecosystem. Is that accurate? Oh, yeah, absolutely. You're picking up exactly what I'm putting down. So, yeah, I think it comes from, one thing that Hasbro does really, really well in the context of Match of the Gathering, it has a tremendous amount of humility towards the people who constitute its core demographic. Like, it has a lot of reference for its end users.

And they've really preserved the Match of the Gathering brand by listening to the community and working largely in tandem with them. And so, you know, Hasbro gets the benefit of being able to publish new cards. and to kind of add to this ecosystem, you know, facilitate tournament zone and so forth, but they listen just as much as they write. And with the benefit of having, you know, this analog format is that they've picked up some really good tricks. They haven't been able to, I think, thread some of the needles when they've gone to digital formats by facilitating the same creativity. You know, maybe if they went to a blockchain, they would find that a little easier.

But yes, the idea has been to allow, you know, to basically work really hard on creating original and compelling cards and, you know, cool stuff about the game in general. Obviously, I have a lot of faith in my co-founders who know far more about this than I do. But the main concession that we want to make and the main relationship we want to have with people who play the game is to facilitate the type of creativity and self-expression that Magic and other CCGs were able to do seamlessly in the physical world, but to add on better economics through the use of a public blockchain to coordinate with the second part of this, which is the facilitation of moving assets around in the game.

So just for briefly, I think, for people who are listening who are just thinking about this for the first time, what does it mean, how does a blockchain mediate for real asset ownership and how does that allow for formal secondary markets to develop? Because I think that's a missing point, right? Like, what's different about a card in one of your games versus a card in Magic the Gathering online or Heartstone, for example? Oh, yeah, sure. So basically, I suppose when these games were digitized or brought to the four, they did so using a sort of free-to-play model. you know, basically you would grind and complete tasks in order to earn credit towards purchasing assets in this game. Largely, the publishers of these games have restricted the movement

of these assets once they are, you know, seized or purchased or whatever in the game. And so, consequently, you have a massive tax on any sort of creativity. You have a strong incentive to be very conservative in how you express yourself with these, I suppose, strategy is because you can't opt in and out of a card as easily because there's really no secondary use market or if there is one it's taxed, you know, they were at order of like 70% on the, you know, value of the card from when it was purchased. Got it. So with your game, basically, you officially make it, you make it easier for people to actually that once they get a card, it's their asset, they can do whatever they want with

it. And that's sort of not just enabled, but supported or encouraged. Yeah. What's more, we also have, you know, an auction and rental model that is tied to a token bonding curve, right? So we also use this sort of novel piece of technology that's been proposed from, you know, thinkers largely in the Ethereum community to have sort of like programmatic liquidity. So basically you can buy a card, you know, for 20 bucks and you can, you know, theoretically sell it back for like 1995 or whatever we, wherever we programmatic. decided for it to be. But the idea is you don't feel dumb for having kind of put your stake into like one card or another. You know, you have the assurance that you can kind of experiment and move around freely. And we think that that's really going to be appealing and actually addressing a huge problem in the digital space for these types of games. Well, it's interesting. So bonding curves are one of these constructs that people hear about and it seems kind of like the peak of theoretical but not applicable to the real world or maybe

like a solution in search of a problem. But when we spoke previously, one of your co-founders, JV. Maslowitz, who's a magic hall of famer and is widely known as one of the most interesting thinkers in the history of the game, had basically come to a structure, something like a token bonding curve without knowing that that was what it was called, right? Yes, Zvi is a genius. And so no one is surprised that he would independently come up with all these ideas anymore in the beautiful space that is his mind, which is pure and brilliant as it is.

But yeah, Zvi is not just a professional match. The gathering player, he also actually has a background in financial economics. And so what I really like about Zvi's background is if you're going to be introducing a marketplace into some place that typically hasn't had a free marketplace, you need a sort of way of thinking that's very adversarial. And Nathaniel, you would know more than most people who are probably tuning into this. Netsvi is sort of famous in magic circles for being just a ferocious competitor and thinking 15 steps ahead of everyone else who's around him.

So I feel like I'm in good hands on the design of the economic model and system. Obviously, the proof will be in the pudding, you know, once we hopefully launch. Okay, so let's zoom out a little bit. You mentioned Fortnite. You mentioned community happening. How have you seen COVID-19 in these economic shutdowns shifted or accelerated our conversations around gaming and entertainment and community and what it all means? Yeah, I mean, you know, the sad part is that, you know, many people are stuck at home. A lot of people are, I guess, looking into ways to preoccupy themselves that are wholesome and nice and kind of take away from the dreariness that is the world right now.

And so at least in the context of paying attention to collectible card games as a genre, there's been a bit of a resurgence in tabletop games and these types of formats. And so I suppose it ties back to community, it ties back to like feeling human again. And I think gaming has always been like a social network in some ways if you're part of something sufficiently big and interesting. But what's nice about the internet is it can. can give you a reprieve from the rather depressing situation that we're all facing right now. And it gives you something to talk about other than fake news articles

on Facebook or whatever people do on social network these days. Well, it's interesting too, because even going back right from the beginning, when you're talking about the design of this game, which your first game is called emergence, right? I don't think we even mention that. It really is, you're designing an entire ecosystem, right?

You're designing an entire economy that happens to be anchored by, a set of assets, a set of cards, and a set of rules that dictate gameplay. But you really have to think about the design of the whole ecosystem. And it reminds me of how one of the things that we've seen is Fortnite, for example, moving into this variety of other different experiences, right? So, Fortnite ceases to be just a game, you know, a Battle Royale game, and instead becomes a whole set of things where you can take your avatar, you can take your character into this virtual space, into this shared virtual space,

and do interesting things, right? And so we've seen concerts. We saw marshmallow before the crisis. We saw Travis Scott during it. But now I think that they just, didn't they just release a new world, I think, or a new plane? I'm not actually that super familiar with Fortnite and how it's organized. But they introduce an area that's not for guns at all, right? It's for literally like hanging out.

And I just wonder how much this time is going to provide kind of the accelerant for people to think about these virtual spaces in a different way. Yeah. Yeah. Yeah. you know, I explicitly didn't want to get involved in anything that was sort of an RPG because effectively you're running a movie studio and I just don't have enough money on hand to play that game. So obviously it appeals to a certain demographic. In some ways, it's more widely appealing than collectible card games, which, you know, have a pretty high, have a pretty high

tax upfront in understanding how to play. But if you do, you get like, you know, sufficient depth and, I suppose, user engagement at some level. But yeah, no, I think sort of breaking this down and giving people a forum where they can have this sort of collective experiences that we, you know, a few generations back would often have through kind of television and more traditional means is kind of like the 21st century, you know, watching the man, you know, walk in the moon type of thing that everyone can kind of reference together. And having these shared experiences like, you know,

the massive Travis Scott concert in Fortnite, right? And it's kind of nice that we're able to have that as a society again. So by way of wrapping up, just kind of one more ponderous question, I guess. What's one thing, when you look at the reality of entertainment or gaming in the time of these COVID-19 shutdowns, what's one thing that you think will go away, maybe retreat and go back to normal, some experience that people have? or some way that people are acting. And what's one thing that's a more permanent change

about how we think about entertainment or gaming? That's a great question, and I wish I had more conviction in my answer, but I guess I'll just kind of back into the more milk-toast observation that I think people didn't think of games as social networks as much anymore because there are basically social networks like Twitter and Facebook that have come to the four of the last few years. I think games are kind of a unique opportunity,

need to bring back a more wholesome version where your interactions aren't solely expressing your opinion. It's also like going through problems together. And I think that can be quite nice. And I do hope there's more of that because I think it's more family-friendly, for starters. And it also kind of reflects the reality that we're all in this together. And I think now more than ever, we're acutely aware of how dependent we are on our neighbors and sort of communities to keep ourselves safe.

and to protect people who are more vulnerable. And it's kind of nice that gaming can be part of a more positive story, whereas I think culturally over the last few years, it's gotten a pretty bad rap. Yeah, it's a, it is interesting to see this big shift from, you know, again, going back to those early days when my parents are seeing stories about magic being satanic to this very different place that gaming has in the world. Kathleen, where can people find?

I don't know. Because that just makes it more appealing to 13-year-old voice. I know. Seriously, it's like you guys don't know. This is like the best branding that you could possibly have. For people who want to learn, what's one thing that people should know about Emergence itself, about the game? And for people who want to actually experience this, where can they go for updates and to pay attention? Oh, yeah. Please sign up for our mailing list at Emergence.g.

As in good game. And if you want to learn more about the philosophy behind its own, and so forth, you can visit our main company website, which is c.oa.c. So, Coase and the economist, Ronald. So thank you very much for giving the opportunity to plug it. I feel like a bad CEO for not even mentioning the name of the game several minutes into the interview, but I'm learning, I'm iterating, trying my best. Thank you for being here, Kathleen. We'll talk to you soon. Thanks so much. Take care. All right. So from the world of gaming and entertainment to a world, which is in some ways overlapping because I think identity overlaps with everything.

Our conversation about identity has to do with, as I mentioned, everything from gaming and who we are and these sort of avatars we create to much more kind of pertinent social issues like contact tracing and how we validate to the government that we are not corona carrying, right? So now we have an interesting conversation with Munib Ali. Munib is the CEO of Blockstack and a very wide-ranging thinker. Uh, Munib, thanks so much for being here. Thanks for having me. So nominally, we'll start with identity.

I'm sure that we'll go way off the beaten path. Uh, but let's start on the biggest level. I know you have to structurally think about this in your work with Boxstack, but for someone who isn't used to thinking about identity as a discipline or as an entire area, how does identity, uh, or the construction of identity play into our daily lives? Yeah. So I think, uh, in a very, broad sense, the way I think about it is our lives are becoming more and more dependent on

the internet, right? Like, imagine even during the virus crisis, everyone's kind of like sitting at home and realizing that they can do most of their work online. They can even like hang out with people or Zoom or something like that. And I think one thing people haven't really realized is you don't have the same sense of who you are or what kind of assets you own. the internet versus the physical world. In the physical world, you'll have your ID card in your wallet and you can pull it out whenever

you need to or you can own a house, you can kind of like keep all of your belongings in it. And we haven't reached that level of maturity in the digital world. And I think we're getting there. And that's where blockchains play a big role because they really introduce at a fundamental level property rights. And I think you just had that conversation with Kathleen about gaming and how gaming assets can be defined using blockchains. And I think you can make it even broader than that.

Like, internet assets in general would be defined through these blockchains and identity is a big part of it. Because you first need to kind of define who you are before you start owning other things online. Yes, I think this idea, this property rights piece is, it's interesting. the conversation around identity, especially for folks who just start to think about it, it seems super abstract, right? It seems like this set of things that you haven't really thought about, but then they're also so intrinsic, so obvious, right? So you brought up the concept of property rights. And so the idea of a property right, like if you own something, well, who is the you that owns that thing? That's what the kind of identity mechanism is. That's what you were bringing up in the context of, of blockchains.

Outside of gaming digital assets, what are the other types of digital assets where those property rights matter? and how does blockchain solve for that? I think some of these examples are like right in front of us, but it takes a little while to realize that. Let's take Naval, for example, right? Naval, the handle on Twitter. I mean, in some ways, it's an internet property. It's very valuable.

It might be worth a lot more than, you know, other distribution channels or even brands that exist on the internet. But right now, like, it's basically just an entry in a database, on Twitter somewhere. And it's entirely possible for someone like Naval or others to directly be owners of their own assets. And these such assets are going to become more and more important, even from an economic perspective, right?

Like more and more people are now making a living online, right? So if you're, it's a little bit like, you know, when people realize that they could rent out their house on Airbnb. and start making money of it. Now, convert that into something digital. Like, let's say you have a skill online or you have a reputation online or you're trying to monetize your attention. And all of these things will be linked back to your identity and who you are.

And those things, there would be like real dollar values on some of these things because these are your real assets, right? The private keys that owns a username like Naval, there's a real dollar value to that internet asset. Well, so the Naval example is a really interesting one because we've come up in this paradigm where basically when Web 2 came about, when social networks came about, we were kind of sharecroppers on someone else's digital property, right?

We were allowed to accumulate audience on the basis of having interesting things to say or figuring out the rules of the system in terms of what was, you know, the algorithm was going to promote. but we were allowed to use that territory, right? The audience that we built so long as we continued to play by that set of rules, and so long as the system or the kind of the property holders didn't actually change what they wanted the system to be. This has led to issues around or questions of deplatforming and all these sort of things, where we realize that we're actually just kind of renting the space that we have.

And the interesting paradigm shift that is, I think the potential that gets a lot of folks in blockchain exciting is Nival has the followers that he has because they're uniquely interested in his insights. And it would be a shame for all of a sudden all those people, all of that energy to just dissipate into thin air because of a seemingly arbitrary decision on the part of the platform. What if you could design something different? Now, the way that I think most people have tackled that question right now, I think you see it in the shift. email, right? This radical shift to holding email lists, which can be easily exported to CSVs. But, you know, you've seen experiments, I'm sure, on Blockstack and through other protocols. Do you think that it's possible that we actually have these kind of, this different type of social networks, different types of social channels where you actually own the audience

that you build or at least the distribution channel to those audiences? Yeah, I think this is a very important point. Anyone who is basically a content producer online, they realize the importance of distribution channels, right? I think Twitter recently did a very small experiment where they slowed down the distribution rate of tweets. That's, I think, my guess that that's what they did. So what would happen is that you're actually getting less impressions early on. And it felt a little bit like, you know, someone has muted you, right?

Like you might have like 50,000 followers, but only 500 people are even seeing your message. in the initial hours or so. And I think there was a reaction to it. And moments like these, they make you feel as if you have no control over your own content and your own distribution. And in my case, like, you know, I'm, I just like randomly blab on Twitter or sometime I post about Blockstack. But for some people, like, that's their livelihood.

Like they're content creators on YouTube or, you know, they have these distribution channels where their monthly salary actually comes from those distribution channels. And if you cut them off, it's a very devastating situation for them. And I think this is a fundamental issue where we're moving more and more in the direction of digitized lives, more and more people are information workers, and at the same time, we're missing this fundamental layer of owning your own distribution channels basically having the similar structure to what exists in the physical world in many ways, it's not really there.

I think the analogy would be that we are all kind of like, you know, there's some feudal lords and we all kind of like work for them. And at the whim of someone, they can take something away from us or kind of like re-disputed somewhere else. And it makes everyone feel uneasy. So I think people do have understanding of what the base problem is. they can feel it in their gut, but they don't see a practical, easy solution to any of these things, right? Because starting social networks or starting any sort of a large movement is a little bit of a network effect. I'm pretty sure that most people on crypto-twitter, they realize at a fundamental level,

like what kind of problems we're talking about, but we haven't seen a crypto-twitter emerge because everyone just wants to be where everybody else is. And I think somehow there could be some clever hacks around these initial network effects problems. Like, for example, you could potentially just extend the Twitter protocol in a decentralized way. So you can bootstrap the existing system to be able to launch something else. And I think there might be some interesting experiments, even on top of Blockstack that we might see in the coming months. Yeah, it's interesting. The first wave of answers to this problem, I think theorize that you could use tokens to overcome that an initial.

period, right? The bootstrap problem. I mean, this is what Chris Dixon was writing about in 2017. And it turns out, problematically, that tokens were so good at being a financial asset, that it's not even necessarily that they wouldn't have done that as well, but they were so tradable, so instantly liquid, so powerful in that context that it kind of subsumed that other bootstrapping probability or possibility. Maybe just to kind of wrap up, how do you think has COVID-19 impacted how we think about these problems, how we think about identity? Do you think either on the side of there's going to be new things included into our identity profiles, such as, you know, test results from COVID-19 tests as we want to enter buildings,

or on the other hand, just an awareness of the problems of, you know, that maybe in certain cases where the frogs in the pot with boiling water when it relates to how much information we share about ourselves. Yeah, so I think I'll separate the two. One is more about the virus crisis itself. And I think my worry here is that if you look at history, a lot of times, it's the times of crisis where certain kind of like fundamental rights are taken away from people never to really come back. And this might be one of those things where, you know, if governments want to really track all of the citizens and even like large tech companies are stepping up to help them, and it becomes very hard to argue against that, hey, wait a minute, what, about my privacy, right? Like, it becomes a very tricky argument.

But once you go down that road, and once those systems are in place where there is full-on surveillance happening, initially for good intentions, I worry a lot that if you're not thoughtful about some of these solutions, the same systems can later on be used to basically build a surveillance state almost

around the citizens and take away some of our freedoms, right? But it's a very tricky topic. So my hope here really is that we can be thoughtful about the kind of solutions that are being implemented, especially around, because there could be like all sorts of burner IDs, right? Like I'm willing to share certain information about myself or a certain time period

without really attaching it to who I am. And also like instead of coming up with these large data sets that are sitting with a large tech company or a large government, it could be something where this data is actually distributed and it mostly stays with the users and is used more on an as-needed basis. And I think the time to think about those solutions

is kind of like now. And on the other side, I think what you're asking is I guess more on the what's the impact on society, given that everyone has been forced to stay at home and just interact with the rest of the world through computers. I do think that it's a fundamental shift because it's a cultural shift, right?

And I think culture shifts are the hardest, but once they happen, it's basically, it just unlocks a new type of behavior and a new type of thinking. And it will remain, it will make a permanent mark in my view, right? For example, like I'm a tech geek, right? I spend so much time in front of computers anyway, but during COVID, I'm actually for the first time paying attention to what my home setup is like. Should I get like, you know, a better recording equipment or how much time and am I actually spending online and what kind of different distribution channels are there for even

getting some of the educational information about Blockstack or other places out? I don't think it really hit that hard earlier when we were mostly in the mindset of like, hey, we're going to office and we are kind of like putting our heads down and doing work that way. Yeah, I think that conscientiousness and understanding the context that we operate in is hopefully something that's rising right now. So, Muneb, thank you so much for sharing your insights today. Really appreciate you being here. Absolutely. Always happy to be part of the consensus.

Thanks, Meneb. All right. So we've now talked about gaming, entertainment, identity, the state of social networks and deep platforming. And after the break, we are back with a topic that is top of mind for many in the crypto world, many in the Bitcoin world, what the future of banking and money services look like. So stick around. support for this podcast and this message come from eris x with eris x you can trade spot and regulated futures on cryptocurrencies through a licensed u.s based exchange eris x believes in fair

access for all sign up today to take advantage of zero fees and learn more at erisx.com slash consensus this episode is also sponsored by the stellar foundation the stellar network connects your business to the global financial infrastructure whether you're looking to power a payment application or issue digital assets like stable coins or digital digital dollars. Stellar is easy to learn and fast to implement. Start your journey today at Stellar.org slash CoinDest. Our final sponsor is Grayscale Digital Large Cap Fund. In times like these, diversification is key. Consider Grayscale Digital Large Cap Fund, ticker symbol GDLC. It's the only publicly traded investment product that offers diversified exposure to large

cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash CoinDesk. That's G-R-A-Y-Scale.cale. slash coin desk. Everyone is trying to build the banks of the future. And by everyone, I mean everyone. Tech companies are trying to build the banks of the future. Crypto companies are trying to build the banks of the future. Today's banks are trying to build the banks of the future.

But for one new Bitcoin and digital asset bank, the question goes far beyond the digital experience that I think is the end of a lot of those conversations. I'm joined by Caitlin Long, a 22-year Wall Street veteran and founder and CEO of Avanti. Caitlin, thanks for hanging out. Hey, good morning, good afternoon, good evening, wherever you are in the world. It's nice to be with you. Man, it's, I was thinking back, the last time we talked was the day that you announced Avanti, which I think was February 24th. And I remember because it was a Monday and it was the first day that markets in the U.S. even recognized that COVID-19 was going to be a thing, even though people like you had been talking about it since the end of January and talking about, you know, what the potential might mean.

But we'll get to that. But let's come back to Avanti first. What is Avanti? Why did it feel important to focus on this to start a new type of financial institution? Well, first of all, Avanti is in the process of applying. So we are not yet a bank, but we will be applying for a bank license. And that's what's new and different. And it will be the first truly natively crypto industry-owned bank that will be serving exclusively

the crypto industry. And it will be a chartered bank, if we, assuming we do get our charter, with a Fedmaster account. That's, the real aha of this is that there are no banks in the U.S. that are allowed to custody crypto assets because they're being blocked by their existing regulators. And the exchanges and custodians that do custody crypto assets do not have direct access to the Fed. So here's the aha. It is not possible to do delivery versus payment, atomic swap, et cetera, against a digital asset and a dollar, but Avanti will be able to bring that to the U.S. market for the first time, assuming we get our charter. Yeah, so it's really interesting. Like I said at the top of this, you know, everyone's trying to reinvent banks in somewhere or another,

but I think a lot of those things have to do with simplifying user experiences, right, trying to kind of cater to the most basic kind of day-in-day-out functions where you guys are kind of designing from the ground up for a new type of ecosystem, a new type of asset. And I know that one of the things that makes you different is that you and Avanti and the state of Wyoming where you're based have a pretty different set of beliefs about issues like property rights and reserves than today's financial institutions. Can you speak a little bit to just how you actually think differently, what the different belief set is, even beyond just the assets themselves?

Well, it's a belief set that is consistent with the core philosophy of crypto that individuals should be able to have a direct property right in their financial assets. It doesn't exist in traditional financial assets today. And Wyoming law was, we created this special purpose depository institution, which is a new type of bank charter. It's a narrow charter that allows the bank to accept deposits but not to lend. So it's essentially a bank that is a payment services institution, and it is therefore able to both provide custody services and payment services within the same legal entity. So you don't have to settle those two legs of the trade sequentially, which is exactly what happens now. Even those that are claiming there's direct settlement of the payment, they're still not direct settlement of the payment because you still have the counterparty risk that the bank might fail. And so this philosophy of property rights is really important.

And it's ensconced in the Wyoming law, we will be able, assuming we get our charter, to offer custody services on a legal term that's called a bailment. It doesn't exist today. But when you store a Bitcoin at an exchange or at a custodian, you don't actually own the Bitcoin. It's an I-O-U. But what's going to happen in Wyoming when the speedy banks, the so-called speedy banks, special purpose depository institutions open their doors, is that we will actually have the ability to have the same legal regime as a coat check or a valet parking regime where I'm giving up temporary possession of my property, but it's not, I'm not giving title to the custodian. Right now, you're giving legal title when you hold your exchange, your coins at an exchange or a custodian. They're not only in possession of the private keys, but they also have the legal title.

We're making the distinction that those two things are not necessarily the same thing. You can like a valet parking arrangement or a co-check, a handover temporary possession, but not actually ownership. And as a result, when you put your coins into a third party custodian, you actually still retain the legal title. And all they are doing is just being a money warehouse for you, just providing a service. They're not a counterparty. And if they go bankrupt, you're not stuck in a nasty, long, drawn-out bankruptcy process. That's a huge difference from what exists today. It doesn't exist in the market today.

It's really fascinating. I think that it's almost easy to be reductive about something like this in the sense of it being like, oh, cool, it's a crypto native bank. It works on top of crypto in a way that's very different. But I think that in some ways, if you watch kind of the larger macro conversation about how the economy is structured, the conversation that people are starting to have more and more, which is a conversation that's very, very fluent for the Bitcoin world, but not so much for other areas, is the conversation about the fundamental nature of, the system as inflationary versus deflationary. So Jeff Booth recently wrote a book called The Price of Tomorrow, which is all about moving to a deflationary system that reward savings rather than disincentivized savings. And in some ways, the crypto community, the Bitcoin community that is the hodlers are at the vanguard of that shift where they've invested in an asset that is meant to grow in value over time to reward savings rather than be something that to participate in the economic system, you just have to lend it out, relend it, and get further lines of credit. And in some ways, it feels like Avanti is maybe the first native institution to that

different way of looking at the economy in general. Yes, I think so, first of all, I want to clarify, we're not a crypto bank. That phrase is easy to use, but the services that we are providing on our balance sheet are exclusively U.S. dollars. We are allowed to custody crypto through the trust powers of the bank. That may sound like a distinction without a difference. but to regulators, it's a big deal. So I don't use that phrase crypto bank.

We are a bank serving the crypto industry that can provide custody services off our balance sheet. But to answer your question, yes, we are as a bank that's not lending. We're obviously not what a lot of folks think as a normal bank. And again, we don't have our charter yet, but the Wyoming Speedy Banks in general, these are banks that have full access to deposit taking. capabilities in the way that money transmitters or trust companies do not have in the United States. But we cannot make loans.

And as a result, everything on the Speedy Bank's balance sheets is 100% backed by definition. The dollar deposit liabilities are 100% backed, required to be 100% backed under the law by either deposits directly at the Fed or a trust. Treasury bonds or other so-called risk-free assets. And then even in the trust business, lending is permitted by the statute, but re-appification is not permitted. That's where so many of the games are being played. And frankly, I've been pretty critical of the existing infrastructure in the crypto industry

because we have no clue whether any of the exchanges or custodians are solvent. I think the ones that actually do come into Wyoming will be making quite a statement when they come in, because if they can comply with that requirement, then that'll tell you that they're actually, well, it's at least another indicator among many potential types of indicia that the exchange or custodian is solvent. But right now, you really don't have any of them. None of them are audited. none of them are publishing proof of reserves, and none of them are subject to legal regimes that require 100% reserves.

And even, you know, in the state of New York, where a lot of the regulated ones have trust companies, there is no requirement not to re-hypothecate assets. In Wyoming, there's an explicit requirement that the Speedy Banks cannot re-hypothecate assets. They can lend, but you can't relend the same collateral a second time. It's really interesting. One of the things that's been fascinating is seeing how much this change, this different type of institution that you want to build goes hand in hand with redesigning. I mean, you literally, this came out of in some ways you designing or helping design a different regulatory regime to enable this type of thing, right? It's a different way of thinking of how to design it and then a different

application of the business. So I wanted to go back, I guess, to what we've lived through in the last couple months. You announced, Devante, like I said, just as it was really starting to hit home in the U.S. that this was going to be a thing. How has the narrative for this, the motivation for it, or just the way that people perceive it, changed since that announcement? What are new challenges or what are new tailwinds that are helping your cause? Well, actually, it's been a tailwind. I must say on the engineering team hiring, our CTO, Brian Bishop, who's amazing, has said it usually would take three to four months to find the engineers with the skills that he's looking for, and he's able to find them in relatively short order.

So that's been something that's been an advantage to us. The other piece of this is, I think, the idea of having a non-lending bank, you know, when I first started talking to folks about this in January, a lot of folks were saying, you know, how would that be able to compete with a bank that can lend? Because a bank that can lend can make money off the leverage and can subsidize the cost of doing business in a way that you would not be able to because you're not making a spread on your customer's deposits. And so ironically, the fact that interest rates are back down at zero now, and in fact, now we actually have some interesting questions, what do the balance sheets of traditional banks actually look like? The truth is no one

knows. The decision has been made that the loan losses are not going to have to be recognized this year. So 2021 is going to be the time when loan losses are, you know, when the actual cash flow losses are going to have to be recognized, even though they're not going to be recorded as much on an accounting basis up front. So we won't know how well capital, the banks are until 2021. And that's about the time when the speedy banks will be hitting the market. And so the customers are going to have an interesting choice. Would you rather deposit your money at a bank that's not paying you interest but is leveraged?

Or would you rather deposit your money at a bank that's not paying you interest but isn't leveraged? That's a pretty, in my view, pretty easy choice. Hey, I want to go back to the point on lending because I may have confused faults when I talked about the no re-hypothecation because, yes, a Speedy Bank can lend, but it's a non-lending bank, and that may seem like a logical contradiction. Here's the difference. And it comes down to the fact that the crypto custody business is done out of the trust department of the bank. It's not lending for the bank's own balance sheet. So a customer can direct that its deposited

crypto be lent out to a willing lender, but the lender will not be the bank itself. So essentially all the bank is doing is basically just providing a marketplace to match borrowers and lenders. We don't intend to have a lending product up and running immediately. I'm laying out, though, that the statute in Wyoming does permit that. I wanted to make that clear just in case. I was assuming there'll be Twitter questions about that. Wait a minute. How do you lend out of a non-lending bank?

So hopefully now I answered it. Yeah, sure. It sounds like it all comes back to the same principle of your money, like the property rights. It's like the assets that you deposit with us are your assets, and we help you do things with them, but we don't take the title to them. So, but maybe a last question to wrap us up, do you think the country is ready for this fundamentally different conversation about money and banking, or at least more ready maybe than we were before this crisis hit? Oh, yes. I think actually one of the things that a lot of folks have been talking about and leading up to the halving is how many. of their friends and family have been asking them

about Bitcoin for the first time. Now it's been in the news, in part because of the having, I get that, but I actually think that it's not as much in the news as it was, you know, in the prior having and the prior soft fork and the bull market, obviously. This is different, it's a different level of conversation with folks. And the other piece of this is the institutional interest

when Paul Tudor Jones came out and said that he's got 1 to 2% of his portfolio in Bitcoin. Wait till you see what happens with institutions. There are more coming. We will have some announcements. Avanti is an institutionally focused bank, or will be, assuming we get our charter. And we're very focused on bringing in a new type of investor who hasn't been in this asset class before, in large part because the services around the asset,

asset class, the infrastructure that's been built, was built for a retail customer base, and it's not up to par on institutional standards. If you just go look at the legal terms and conditions, some of them are just a joke. And institutional attorneys for the by the side for big pension funds, big foundations, big endowment, sovereign wealth funds, right? I'm not talking about hedge funds. Hedge funds are known to take more risk and hopefully have higher reward. pension funds and the like have much higher standards and they just can't touch a fly-by-night

organization. They want their custodians to be banks and they need serious institutional quality, legal terms and conditions and legal certainty with regard to whether their transactions will be final and will be recognized in a legal dispute. Those kinds of things we've been very focused on. Those are the bricks and mortar in Wyoming that we've built, that other states just can't. can't offer. And so I think the fact that we will hopefully now have an institutional custody bank that can custody crypto and have direct access to the Fed and service institutions with the standards that they require, that is likely to bring in big institutional money. And we're seeing it step by step by step. And that's what's different. It's not just the friends and family.

It's also the big institutions. Well, it's going to be super exciting to watch. I wish you nothing but luck, Caitlin, I'm sure I'll talk to you again soon. Thank you. Take care. Nice job on this conference, by the way. Yeah, well, speaking of, that's a perfect segue. So this is, we're wrapping up the end of the first phase. I mean, this conference is going on all weekend. There's a million other tracks.

We'll talk about that at the top of the show or the end of the show. But we're kind of coming to the close of the 24-hour non-stop virtual event. The team who put this together knew as soon as it became clear that New York Bachain Week and consensus were going to have to shift, that they were going to have to reimagine something. So to wrap this up, I'm joined by June Ian Wong, who is one of the lead producers on this event, who's been with consensus for a long time, doing this event, thinking through this event. And I want to actually kind of just get into how, I want to put this in historical perspective, basically.

So June, let's go back to the beginning. What were the first CoinDest consensus events that you worked on? And maybe how did it even come about as an institution? Yeah, sure. So, you know, we started consensus back in 2015, which makes it this year the sixth edition. Although it feels far longer than that, I guess, you know, crypto time is much quicker than human time. We started in 2015, you know, really on a shoestring. You'll recall that the Bitcoin, that was the year Bitcoin had a big run-up and a subsequent run-down. And so, you know, the markets were not very frothy, and there wasn't actually that much interest or hype around cryptocurrencies, right?

This was one of those times when, you know, again, the obituary for Bitcoin was being written. And so we really did it as a response to the fact that up until that point, there had been a big annual conference put on by the Bitcoin Foundation. And that year, there wasn't one. And so we really tried to fill that gap a little bit and we thought, how can we create a platform for people to meet that reflects the diversity of fields that cryptocurrency and blockchain is, right? It's not enough to just get, you know, say, software developers in a room. You have to get the software developers and the economists and the whales and the day traders, all of these people. regulators, all of these people in the room for this thing to really work. And so that was the thinking behind the first consensus.

And it turned out that people were looking for this kind of diverse space. And it turned out that Coindus was the entity that could convene all of these different, very hard to convene groups. So take us through. I know the events grew in size precipitously alongside the industry. was crazy, right? I mean, that was notable. That's where a lot of people started

to kind of had their first consensus experience. It's one of the craziest, most overcrowded, overwhelming, but really exciting things ever. Was that a high point, a low point, or a both on the consensus journey? So I'll caveat that by saying, so I started consensus back in 2015, but 2018, I attended it as an attendee, right?

I had left Point Desk. I was a reporter with courts. I attended that, like any, normal attendee. You know, from my perspective that year, I thought it was kind of the perfect encapsulation of the industry, right? It was a perfect proxy for what was going on in the markets, how people viewed the whole space.

It was crazy. It was wild. You know, people were parking lambos outside. You know, in my view, it was a highlight, really. Yeah, yeah. Now, I think that's a great way to put it. Okay. So when you think about, when you guys switch to this move to virtual,

what was most important to preserve about the offline experience versus what had to be rethought? Yeah, you know, I'm just thinking back to the soft money show I hosted earlier with Annalise Milano. And we were talking about a lot of these issues, right? You know, what makes money? This is a multi-century, multi-thousands of years debate, right? Is money valuable because of the thing it is made of, right? The metal ore that is dug out of the ground like gold? Or is it valuable because of the credit value theory of money,

which says it's as good as the other person's word, right? And I think this is where events in particular and in our industry in particular plays such a pivotal role because what is a new form of money except for the social consensus around what that new form of money should be, right? You know, in the 19th century, people like John Stuart Mill

talked about the veil of money, right? Which is this notion that money is really a neutral thing which hides the true economic activity of people bartering and exchanging goods and services. And then down the line, people thought, well, actually, maybe money isn't that neutral. Like, you know, money has its own agency, right? And this is the notion that people like Robert Schiller say put in place,

which I think you'll agree with, this notion of narrative economics, contagious ideas are the things that cause economic activity, right? It's not just some kind of rational calculation of this or that. And so putting all of those things in the context, money is a deeply social activity. And conferences are, you know, one manifestation of this attempt for everyone to agree on what this money thing is.

So for us, really, this social dimension, you know, this sort of shelling point for the industry was critical, right? needed to make a thing that was big enough to be seen across the internet and big enough that lots of people could convene, coalesce and fry and form some kind of consensus based on, you know, Brownian motion. Well, listen, I, you know, I've had a front row seat to a lot of the production and seeing you guys shift into this different model has been incredibly impressive. of kudos to you to Joanne Poe, to Michael Casey, Nolan Bowerley, Dasha, Aaron Stanley, Bailey Roetzel, Lauren Lano, so many people on the team who figured out how to shift this. And I want to make sure that people understand as we wrap up this special breakdown session that there is contested distributors being going on programming throughout the week. You can go to the coin desk homepage and up to the top to the events button.

You can register. And once your umbrella, you can go through a huge array of. of content. There's something like 112 sessions going on between now and Friday. You can find discussions about protocol developments in the foundations track. You can watch panels on investing in the markets track. You can get technical instruction in the unlocked track. So a huge number of different things to extend your consensus experience. And even more, there's online workshops and programming for partners, the World Economic Forum, the IEE, the Oxford University. And I guess the last pieces, there's actually even networking through this platform. So you guys have left no detail

on turn. I'm super impressed. And June, thanks so much for hanging out and to the whole team again, congrats. Thanks so much to Hill. If I may also call out the great work of Stephanie, Rio and Peter Borders helping to... Welcome back to the breakdown and everyday analysis, breaking down the most important stories in Bitcoin, Crypto, and Beyond. This episode is sponsored by ArisX.com, the Stellar Development Foundation, and Grayscale Digital Large Cap Fund. The Breakdown is produced and distributed by CoinDesk. Here's your host, NLW. Welcome back to The Breakdown. It is Wednesday, May 13th, and today we are looking at an incredibly interesting challenge for the modern economy, two conflicting, contradictory forces

that are shaping the economy in two totally different directions and are increasingly at odds with one another. On the one hand, we have an inflationary economic policy that makes currency worth less over time but assets worth more, benefiting people who have the ability to invest in real estate and stocks and other financial assets over people who save, whose savings are inherently worth less over time. That's force one. Force two is the inevitably an inherently deflationary power of technology. As technology grows exponentially in terms of its capacity, its processing power, it drives prices down everywhere it touches. Think about phones which didn't even exist, cell phones and mobile phones, which didn't even exist a couple decades ago, that now give

people more power than anyone had in the world, any leader had even just 20 or 30 years ago. These things are now affordable by everyone. And if technology were allowed to, wreak its havoc to have its way on every industry would have a similar deflationary force on all of the prices around us. These two forces are in huge contrast with one another and they are headed into a collision course to the extent that they aren't already colliding. This is the subject of Jeff Booth's new book, The Price of Tomorrow, why deflation is the key to an abundant future. Jeff is an incredibly experienced entrepreneur. He spent the last 20 years building companies like Build Direct, which grew to over a half billion in market cap through the dot-com meltdown, through the 2008 financial crisis.

He is advisor to a huge number of companies. He sits on the board of a huge number of companies. He's an investor in a huge number of companies. So he comes at this from a technologist and entrepreneurial background. My conversation with Jeff today is in some ways the crib notes to that book into the argument that animates that book. It is an argument effectively that government policy of backstopping every part of the industry is not only not capitalism. It is putting us on a terrible, terrible collision course with revolution, social unrest, you name it. It is an inherently unsustainable scenario in which every new dollar of debt is producing less and less value, less and less real economic growth.

We're experiencing diminishing marginal returns on how much debt can create growth, and eventually it just drives off a cliff. Now, underlying all that is this incredible, unstoppable deflationary force of technology, and in Jeff's estimation, if we were to allow this force to do what it would, we might find ourselves in a scenario

where, yes, people had less money. There were less jobs available. But people would be working less time to have the same benefit, the same quality of life, because prices would naturally come down on the things that we needed because of the deflationary force of technology. We would, in other words, not have the scorecard of our careers or our salaries that go with those careers or the price of the assets that we own, but instead we would have a quality of life equal to or exceeding what we have now without the fundamental chaos that might ensue when this musical chairs game ends. This idea that inflationary economic policy is at odds and on a collision course with the

inherent deflationary power of technology is an incredibly important topic, and Jeff is a wonderful guide to that. I hope you enjoy this conversation as much as I did. Now, one note, as always, with these types of long interviews, we edit it very, very lightly, so you experience the conversation almost exactly as it happened. All right, I am here with Jeff Booth, author of The Price of Tomorrow, why deflation is the key to an abundant future. Jeff, thanks so much for hanging out today. Thanks for having me.

So I'm super excited about this conversation. I think that there's so many ideas contained in this book that are so different than the way that we look at the world, that it's sort of a classic red pill for a lot of folks. I think that it's going to be a red pill for a lot of folks. But I want to, for listeners who haven't had the chance to dig into this yet, who haven't had the chance to read this, I want to take some time to really set this up,

to set up some of the big ideas. And so let's start with kind of the terms and the stakes of this conversation about inflation and deflation. What does it mean that our economic policy is inflationary, And what does it mean that technology is deflationary? Yeah, and most people have an emotional response to deflation. We were taught deflation is a bad thing through school. And we have our heads in the sand and say, okay, that has to be bad because we were taught that.

It's not good or bad. Deflation is simply when goods and services go down and your money gets more valuable. and inflation is the opposite. Your money gets less valuable and goods and services get higher in price. And we've grown up in an inflationary environment. So it's all we know. So in an inflationary environment, I buy a house. I use dollars today.

I use a deposit today. I borrow money for that house today. And then through inflation, it rises in price. through my life and I pay back the debt in cheaper dollars tomorrow because I make more all of my life through inflation. So the dollars that I borrowed today get paid back with cheaper dollars tomorrow. So for some asset classes, it works really well. And in some asset classes, if you take leverage and you have an inflationary environment, it's a good thing. And those are opposite. So if you have savings in a deflationary environment, it's a good thing. So not good or bad,

different, different winners and different losers on both sides of that coin. But we've grown up in an inflationary environment, and it's hard to question because the rules are upside down compared to the rules that we've grown up with in a deflationary environment. So that's kind of the inflationary side. And I think the point that's really salient here and to take away, and honestly, for those who are listening, they know my style, we're going to construct this whole argument, basically recreate the book in some ways here. The key part here is that it's neither good nor bad, but there are tradeoffs. And there are different categories of winners and losers, not just in the context of people,

but also in the context of asset classes. Certain types of economic behavior, namely savings, are disincentivized by an inflationary environment because the money that you're saving is worth less tomorrow than it is today, whereas investments in capital assets that can appreciate alongside the inflation can be valuable, right? What does it mean then switching over to the deflationary side? What does it mean that technology is inherently deflationary? Well, so first, anybody who sees technology, and in fact, anything you use today, the monopolies are all created by that same kind of use. of deflationary technology and deflation.

Google's free, right? All of the things that you use on it are free. Yes, they get advertising, but their benefit, creating a monopoly and an AI monopoly on top of that free information for you is free, whereas before you paid for that information. And it destroyed countless businesses as it created a monopoly. Amazon gets cheaper every year, and then they add movies. And those are free.

And so your phone, everything on your phone, it gets better every year. I don't buy a camera anymore. I don't buy my guitar tuner anymore. There's a whole bunch of things today on my phone that I don't buy anymore, and it gets more powerful every year. Technology does that. And it's so you get more for less on an exponential trend because it rides on Moore's Law. And even if you question that Moore's Law won't go on forever, it will feel like Moore's Law goes on forever because of what's coming next in AI or quantum computing and everything else.

So we can expect into the distant future that we're going to get more and more for less and less using technology is it becomes a backbone of everything. for those who haven't actually come up through technology so your your background obviously which i shared in the intro is in the technology space i spent 10 years in san francisco both starting companies and as a VC for those who haven't or don't have that background what is more's law and what is the the cause of this this kind of exponential growth is it about the cost of inputs or is it about the actual rate at which technology evolves yeah so more's law is the doubling of computer the compute power every 18 months. And if you think about doubling and doubling and doubling every 18 months,

I'll use an analog here that I've done to countless people all over the world and very rarely the people get the answer. If you fold a piece of paper on itself at 50 times, and you can only fold it seven, but if you could fold it 50 times, how thick is the piece of paper? of paper. And if you ask that question to people, the average answer is about two inches. Very rarely will you get an answer that's higher than the roof or the ceiling. The answer to that question is the piece of paper would fold to the sun, from the earth to the sun. And if everybody got that answer, right, or if half the people got that answer, then you would think,

People understand exponential patterns, and this is no problem, at least enough people understand exponential patterns. Because nobody does, including me, what it says is human beings are really terrible at understanding exponential patterns. And why that matters a lot is Moore's Law as an exponential pattern. Again, even if you don't use Moore Law, but you use it as a framework for what's happening in technology, you have an exponential pattern. If you equate those two things, we're on Fold 33. And Fold 33 would travel from, say, Boston to Detroit. But we're in a thick steps of technology doubling today. So in 18 months or two years, you're going to have another double.

And while everybody's looking backwards at technology, they're looking backwards. And holy cow, where did self-driving cars come from? Where is AI going? They're looking backwards, looking forwards. It's moving so much faster than anybody can even comprehend. And that doubling is a doubling of the deflationary impact to society across every industry. So if it took effectively central banks all over the world through debts, And if it took $185 trillion of monetary easing over the last 20 years to produce $46 trillion of gain and GDP gain, so $4 for every $1 of GDP gain, you can tell it's not working.

And it's not working because of the deflationary impact. It's a bigger force today. That's looking backwards, looking forward. There's nothing that central banks can do to stop it. So I'm going to come back to this point about the idea of using debt to produce growth, but I want to discuss what the natural path of technology deflation would do, holding aside inflationary economic policy. So you spoke of the examples that are really easy, consumer, basically consumer technology

examples where the price of the iPhone is cheaper than it was before, and it wasn't even a thing that existed 14 or 15 years ago, right? We see it in the context of how much a TV is now versus what it was in the mid-90s. We see it in the context of services, which are reducing the costs constantly. So those are kind of obvious examples. But for people who are sitting there thinking, well, sure, those are basically computing related things or, you know, how is this going to impact other industries or what would it do to other industries? How would technology be deflationary in an industry that isn't just kind of what we think of as consumer technology? Again, holding aside an inflationary economic policy propping up an old system.

So it's going to be moving, and I'm on boards of countless companies that are moving into everywhere. So it is not just in consumer apps. AI is a backbone of everything, and the digital nature is moving into countless industries at light speed. So it's coming to a movie theater, or you. It's coming everywhere. Now, but more importantly, when you say asset classes, probably the one that would stand out is housing. Rents keep going up. How's the prices go up? You have to ask yourself, what would prices be of that if you didn't stimulate economies with $185 trillion of debt? You would have just seen the natural trend of prices falling everywhere. So we fool ourselves into believing that some things always go up in price,

because some things are artificially inflated to go up in price. So this is, I think, a key point from your book. You actually said this. We fool ourselves into believing that assets such as stocks or housing always go up over the long term because they always have, which I'm sure there's a name for that bias, right, or that logical fallacy. but I don't know it. But let's talk about how we got here then. So what was the path? I mean, effectively what you're talking about with economic policy

and inflationary economic policy is the idea of using debt to produce growth. When did this come about? What were the key inflection points, whether it's Brenton Woods or 1971 and leaving the gold standard or 2008, for those who are trying to kind of put this in historical context, you know, you said, always go up over the long term because they always have. when did that always start and what were the key points and the key decisions that got us here? That's a big question. So we might have to take a little bit of time to get.

Yeah, exactly. Yeah, no worries. So, okay, I'll tie this back to John Maynard Keynes. A lot of people talk about negatively now and everything else. But I think his policies are being manipulated right now. And so he was, government should step in in soft times and then repay. in good times. And he also believed, he wrote a article, I wrote a paper in 1930 saying the economic, the economic possibilities of our grandchildren. And in it, he forecasted, I think it was a 13-hour work week today, where we are today, looking at what was happening in the kind of eight-fold or store more that you'd have

have with technology from that time and saying what would that look like. And for a long time, we were actually tracking towards that. And we were tracking ironically until 1971. We had a 38-hour work week. And then after the U.S. went off the gold reserve, it started to change. Now, you needed two incomes to support the same thing. And it started to get more and more further and further away from that idea. So a very small percentage of people live that they don't have to work.

Their assets are so high, their revenue is so high from rent seeking on those assets and they don't have to. So a small portion of the population has had that because we've manipulated currency so that some people are enjoying the games and most people are not. So that's really what's happened. And it's gotten worse every year since. So when you started it, it was a tiny little bit nobody would notice. Now where we are, it's a lot. And so in the last 20 years, $185 trillion of stimulation to produce $46 trillion of economic growth. And so you can see it really clearly.

By the way, that's pre-COVID. Imagine what it looks like now. right but it it looks like so now if you just follow the technology doubling and effectively the productivity gains doubling that means you have to double the debt to remain even and now you're getting to a debt that the debt level that is unsustainable it's it's impossible to pay back and it's not necessarily the debt it's debt that you can't pay back so you have to do artificial bailouts and everything else of that. So you create a perverse incentive structure that creates the debt in the first place. So let's dig into this a little bit more and where incentives lead people. Maybe we could

even use or bring in the idea of negative interest rates being floated right now as an extreme example that helps. The first example, yeah. Yeah. So let's talk about in a rational society, if you have negative interest rates, what does it do in terms of pushing people into risk assets to look for yield? So let's start before negative interest rates and then we can go there afterwards. But if you look at through the lens of what is happening right now, so all of the bailouts and people are up in arms about the bailouts of the airlines, the oil patch, everything else. And effectively prior to this, you had almost free money, right? So savings are worth nothing. And as a CEO, if you are you going to keep savings if they're worth nothing and the other CEOs are

buying back stock and increasing stock price? You're going to get fired, right? Because because why would you keep money in cash? Cash is worthless. And the, and the government is telling you money's worthless. Don't put it don't keep it in cash. And then an event like this happens because you're wired for perfection. You have so much debt leverage against this. Any outcome, you don't have the savings to do it, but you were incented not to have the savings.

So is all of society is incentive not to have the savings. And now you have your hand out because now I'm going to fail. Sorry. And now you have your hand out because you, because you don't have the savings to pay for a rainy day. Yeah, so this is, I mean, this is what people have been frustrated about is that you have all of these, these kind of corporate actors who have created basically no resilience in the system, incredibly fragile systems.

But the argument, which I think you're making, which is, is that the system didn't incentivize them to do that. It created a scoring system in the stock price, which actually led to the exact, opposite type of conclusion. And what markets do is they get extremely efficient at doing the thing that the incentives lead to, right? Totally. Now take it one step further. The existing path, interest rates have to be negative to try to drive growth against a bigger force of technological deflation. They have to be negative. And then they have to be more negative and more negative. at what point did the incentives change society and the risk assets so much that it's just a lottery ticket?

What I would say is we're already way past that point. Effectively, you have governments. You have Trump coming out today and saying we need to take our interest rates negative. Yeah. What does it actually look like for people who are trying to just conceptualize this? And by the way, to be clear, if the president tweeting about this wasn't enough. of a sign. You're seeing extremely respected economists like Ken Rogoff who are writing essays about the need to take us into deep negative interest rates. So this is an idea that was previously

sort of a non-starter, right, a sacred cow that has been slaughtered pretty aggressively. And you know Nathaniel, you know from my book that I did a whole bunch of research on here and the IMF had working papers going back years ago that we might have to take interest rates to negative 6 globally right that to further next recession. So when you have serious economists talking about this, doesn't it beg the question, might it not be something else, right?

How can we say we actually have an economy that functions in a world where any savings, you're losing money on your savings. And it just forces you to go, okay, something else might be wrong here because we keep on building all of these new models and new everything else and more stimulus and more stimulus and more stimulus

because we're missing the thing biting at our very nose. The thing biting at our very nose is there's nothing that they're going to do to stop it. technology technological deflation or the or the benefit of technological deflation is is too big a force for whatever they do so one of the one of the strange paradoxes of the modern time is this feeling on the one hand of that people have of feeling further behind and and and less um let in control of our economic destinies than ever before, while at the same time having access to experiences and services and technologies that grandparents couldn't dream of, right? That the robber

barons couldn't have possibly imagined, could never have paid for. There's this weird paradox of the things we have around us and have access to with this sense of feeling farther and farther behind. And part of that, I think, has to do with the exacerbation of inequality that comes from this sort of extreme focus on asset growth or asset price appreciation that is a byproduct of inflation. But I wonder if you could explain a little bit that force how the focus on inflation benefits asset prices and how the inflationary benefit to asset prices, actually exacerbates inequality. Yeah, so let's use it again through this time right now. So the government is coming in, and they're bailing out industry, and they're bailing out. So let's use Zoom as an example.

Zoom 10 million users to 300 million users or participants in a month and a half in growth. I suspect it's not going to go from 300 million participants back to 10 million after COVID. Would you agree with that? every one of those people that is on Zoom and every other video conferencing suite that has experienced the same growth is a person paying a percentage of rent to a commercial building. And if you allow what should happen to happen, that means commercial prices have to, a commercial real estate has to fall precipitously as do rent. because supply and demand, as more people get more work done for less and then over Zoom. Now, it might not go back. It might not stay at 300 million.

It might go to 200 million. But that's a lot of people in commercial real estate that changes dramatically. And it's just one tiny industry that technology is impacting. So you have governments coming in and saying, don't worry, we're going to save, we're going to pay the rent for you. We're going to keep the prices high. We're going to bail out the high leverage loans to the $2.3 trillion that is against commercial real estate. We're going to take it off the balance sheets of the banks and put it on the balance sheet of the Federal Reserve. And what that does is it stops prices from falling where they need to.

And as a byproduct, there's a whole bunch of people left out of that gain because prices didn't fall. And those people's rent stays high or goes higher because of that artificial easing. And then the government has to go and bail them out through, let's call it basic income or something, to pay for artificially high prices that they created in the first place. So this is the interesting contrast, is that you have a scenario where technology is pushing the price of an equivalent or better life down, right, in terms of an actual quality of life. But there are certain categories of things we need in life, namely places to live.

Food, housing, education. And so all the things are rising in price because the stimulus dollar is going in it. So if you just looked at Maslow's hierarchy of needs and you said, why do people feel this way? Because they're scared to death because they wonder how they're going to feed their families. And when they feel that way, you have the start of revolutions and you have political divides. And it's perfectly predictable because governments are creating it. It's actually, it's really interesting, too.

Speaking of things that are starts of revolutions, Preston Pish tweeted out a chart from the Federal Reserve a couple days ago, which was just a change in financial assets since the two. 2007-2009 recession by income group. And it's notable, right? You have the top 1% who increase their financial assets by 125%. The 80 to 99% have gone up 75%. So, you know, so, you know, three quarters more financial assets. And 60 to 80% have increased by almost 50% their financial assets, whereas the bottom 20% are down 30%. Right. So you have a the situation where, you know, even after 2008, the actual, the bottom of society, the bottom tier of society from an income perspective is getting further and further behind. I mean, it's validating this sensibility that people have. And, and here's the, I'm one of the top, I'm in the 1%. I wrote the book because society doesn't work if a very few people have all the wealth and everybody else doesn't. The ones without.

come and take it back, right? And you cannot run. If you just project this forward and you keep doing this and you're going to concentrate wealth into very few people's hands and everybody else is going to be have-nots, capitalism doesn't work in that scenario. That's why I said. It's really predictable what happens next.

So let's talk about that for a minute. What are the kind of keep the party going, Keep the lights on types of solutions you're seeing. I know you write about a few in the book, such as modern monetary theory. Yeah, and all of them. I just think so negative interest rates to 6%, and then further. Modern monetary theory, all of these debt that can never be paid back. If you said before COVID, 250 trillion of debt to run an $80 trillion global economy.

after COVID, what do you have? Is it going to be $350 trillion, $400 trillion? By the way, that's the known. That's not the stuff that's unfunded pensions and everything else. That's the absolute debt. So $350 trillion, $400 trillion globally to run a $60 trillion global economy? At what point, at what number do you say, this doesn't make any sense anymore, and there's a reset? And things that don't change for a long time change overnight.

Right. And what's happened is all of that risk is moving into currency risk. Because when you don't trust the currencies, you don't trust somebody's ability to pay you back or they're going to manipulate the currency to pay you back. Trust breaks all at once. And so I hope that there's not a disorderly unwind. But all of the proposals on what you said, MMT, the negative interest rates, all of the ones that are pushing on a string to try to pretend we have growth in spite of

the deflationary environment that is bigger than that, all of those will make disorderly unwind more likely. Support for this podcast and this message come from Eris X. With Eris X, you can trade spot and regulated futures on cryptocurrencies through a licensed, U.S.-based exchange. ArisX believes in fair access for all. Sign up today to take advantage of zero fees and learn more at ArisX.com slash consensus. This episode is also sponsored by the Stellar Foundation.

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It's the only publicly traded investment product that offers diversified exposure to large cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash CoinDesk. That's G-R-A-Y scale.co slash CoinDesk. Do you think that UBI falls into this as well? just kind of putting a band-aid on the scenario? Yes, yes, because if you just think about what UBI, how do you pay for UBI? If you run the models on the UBI,

in times of population, the amount of money to be able to pay for that, and where does that money come from? So, UBI might be one of those things. there needs to be a social safety net to make the transition. There needs to be agreement by governments. Maybe we'll make the transition. But again, all of these solutions on the right-hand side,

on typically the Republican side or on the Democrat side, and the further you go there, like the super right-wing, super-left-wing, all of these solutions are being argued on top of an old system. and without either side saying, how are we going to ever pay this back? And if you can't pay back, just debt itself is disinflationary in itself

because taxes have to go up a lot to be able to pay that. And so if you go to MMT and say, oh, we can just print as much money as we want and we don't have to pay it back, well, then why are we paying taxes? Why don't just keep on giving money away? Which is interesting because this is something that that many Bitcoiners, certainly kind of those of a libertarian bent, have been saying for some time,

but you're starting to hear actually echoed in the Twitter halls of the general proletariat, let's call it, right? Where, you know, these numbers that we're seeing are so extreme in terms of the amount of stimulus coming out of seemingly nowhere that it's causing regular people even to ask that type of question, too. And that's the, and I think that's it. You'll get to, you get, and, and, And a lot of times you look at it in a country specific, but when you don't have something that you can have an exchange rate that you can trust globally to a currency, then trade breaks down.

So every country right now, the reason why Trump tweeted out, we need to take our negative interest rates, is he thinks that other people are using negative interest rates to compete with lower prices to be able to enable trade. That is not the case. And they might be. and he wants to get in front of it.

But the whole point is all of that, every country is stuck in a loop, that they're trying to create more jobs, more jobs in an environment that's going to have less jobs. So I want to come back to the currency piece. Obviously, it's something that we talk about a lot here. But before that, just by way of understanding, so I imagine that there's some people who are thinking through this

and trying to put on their contrarian. out, right? And trying to really think through the counter arguments to this, who are trying to kind of live inside this idea, well, you know, maybe the music never has to stop, right? And this game of musical chairs is just, it's just a fun party. And so I guess the question is, how do we see or how can we understand the declining capacity of debt to create growth? You know, where does that show up? You know, You mentioned the statistics about how much debt it's taken to produce growth. But is it the case that that's actually the amount of debt to produce each new unit of growth is increasing? So how many years, for your listeners, it's interesting.

As I was writing the book, I was just thinking about it. In fact, some of these things just made me say, because I've been talking about this for 10 years, and I said I just have to do something about it. But how many years do you need to hear central bankers saying we can't get inflation up? Right. How to believe they can't, right? Every year they do more, more tax cuts, more more this, more debt, more lower interest rates. Every year it takes more and they're getting less.

The data is really clear. More for a lot. And it makes sense because it's it's on the X. exponential trend of technology depletion, it has to be more each year. So each year they're getting less return on the debt. And you used to be able to, let's say you needed a GDP gain and government would come in and say in a recession and they'd say, okay, let's build roads and bridges. And why did that produce short-term jobs and longer-term GDP gain?

And so it might be a good use of debt to be able to produce longer term GDP is because you spent less time in the car. And so you had more productive time at the office. That's really why. Today, all the super highways are digital. And so I use Zoom as an example. There's not in Canada where I am. There's not one extra job in Canada because of Zoom. It's borderless.

and I was on a House of Commons call to our government, and we were using Zoom, right? There's not one extra job. The highways of the future are digital, and they take away that GDP gain. The GDP gain is in the technology, but it's not enough to offset what's coming out. It's interesting.

One of the things that as I was thinking about this conversation earlier today, I noticed Danielle DiMortino Booth, who was on the show a couple weeks ago, had posted a stat from Hosington National Management that calculated that in the decade from 2009 to 2019, China lost 38% of its growth generating capacity per dollar of debt created, basically. So each dollar of debt was producing almost 40% less growth than previously, which I think is reflective of this kind of idea that there's diminishing returns eventually that happen in this model. Yeah, so China is a really good example.

I've spent a lot of time there throughout the years. And when I first went to Shanghai or Beijing, the road system was terrible. And they built how fast they built cities and productive use of capital. And new cities and new cities and new roads and new trains and everything else, productive use of capital, it drove a corresponding GDP game. But no country in the world has ever increased. or debt to GDP faster than China, and that's the known. That's not the

black pools and everything else that's on an off balance sheet. And what else are you going to build to drive the GDP game? So it's unproductive use of debt. And now you have assuming you have to pay that debt back,

it's a cost to, you're essentially pulled forward a whole bunch of demand and you have to pay for that demand, which is deflationary in nature as well. So let's bring it back to the currency question. How does this become a currency problem? How does this turn into currency crises? So a currency, and we've seen this, you could use Venezuela, you could use other countries that see this all the time. At some point, if debt can't be repaid, then there's two ways to solve that.

increase taxes a whole bunch to be able to pay that back and that has a cost of slowing down economy and a lot further and creating probably a massive depression and just let's forget technology driving things cheaper all the time as well but that would be one way

and over a long period of time pay back that debt get on side or essentially destroy your currency and have hyperinflation and payback the debt at Leimer Republic and Germany. And I don't think we've ever seen the world where we had a reserve currency like the U.S. We're running 80% of world trade and every other currency trying to manipulate the currency on

top of that currency as well. So it's hard to say when this happens. But at some point, people are going to wake up and they're going to say this is never repayable. And I'm not going to trust that currency anymore because I know the only way you're going to pay me back is by changing the underlying currency value. Well, it's interesting because it's almost like the first wave of this that we're seeing the destructive impact has to do with dollar strength compared to other currencies around the world, right? So I did an episode a couple weeks ago about Lebanon and the Lebanese pound has lost something like 60% of its value against the dollar. It's been pegged to the dollar officially at about 1,500 Lebanese pounds to the dollar ever

since 1997. And that started to slip last year. And the problem is Lebanon imports basically everything, right? So all of its debts are dollar denominated, which is the story of basically the whole world at this point. And all of its, everything that it sells inside to consumers is paid by Lebanese pounds. So when that starts to break, it creates real challenges, right? Last fall, it was in the context of gas companies who were trying to be able to buy gas from abroad with Lebanese pounds, and they weren't able to. They just shut down, and there were these huge lines and huge shortages and so on and so forth. So this has become now a major catastrophe there. And there were not even talking hyperinflation. We're just talking about 60% of people's value, you know, the value that they hold

evaporated overnight, which can erase decades of savings, right? And it feeds back on itself because right now why the dollar is getting stronger is every country, every business and every country denominated by U.S. needs that currency right now as fast as possible. And so there's a supply demand that is driving that current currency, U.S. currency value up. It won't stay there over time. But for now, that's what's probably for the next six months. That's what happens with the U.S. currency. But you're right. The impact to other nations who are trading partners, who do provide GDP growth to the world and businesses in the U.S., right? So them failing has a cascading effect across the world is a big deal.

One of the points that you've made previously has to do with, you know, with some of these strategies, MMT, et cetera, or just kind of like, you know, just the continuation of the system as we have it, is that, you know, people will point to Japan and say, hey, look, you know, it's kind of worked there for them, right? but it's different when everyone is trying to do it at the same time. That's the big thing. If one country essentially and is allowed to do that for a long time does it, does it.

And in Japan, they owned the debt, right? So the holders of Japanese currency was mostly government and everything else. wasn't foreign denominated, where they had that problem. But one country can probably get away with it. With every country right now, essentially a bunch of the trade wars are about currency wars. If every currency is playing the same manipulation game, at what point does the music stop and somebody's left without a chair or everybody's left without a chair? Where does an asset like Bitcoin fit into this thesis for you?

So I'm a really big believer on Bitcoin and from the fundamentals of what I think happens next and the game theory, everything else that happened. First, it's a network effect. It's built into code that more trust will enable it. More people use it, more of the unraps and trust will as a byproduct of that. This might not be popular with a bunch of the Bitcoin people, but it is how I feel. So if I could choose to have my Bitcoin go to zero and governments chose to have a Bitcoin-like equivalent so that we could transition to this in an orderly way, I would take that, that choice, because it meant society actually prevailed and you could make this transition hopefully peacefully.

I don't think there's any chance of that. So I think Bitcoin is going to, I think Bitcoin is going to dominate, but it's going to dominate because of, because countries cannot get together and do what. and trust and develop a currency that has Bitcoin type equivalents. Each country is going to try to create their own currency to manipulate rules because we have a low trust environment right now. And so I don't think that that will happen. And as a byproduct of that, then Bitcoin is going to be very, very successful. So it's interesting.

Keen's proposed something he called a bank or at Breton Woods, which should be this currency, which looked, in retrospect, a lot like the first proposal for Facebook's Libra when it came out, right? Separate from any one national sovereign currency. And he believed really strongly that the World's Reserve currency shouldn't be the province of any one nation. But of course, the U.S. had just won World War II. And that was, we were the organizing factor.

And what's more, it was the U.S. global security guarantee that kind of made the system that would grow, you know, the globalization system that would grow from there, work. And I think that the problem is, and why I think most people who are economists and historians in particular share some of your skepticism is that the U.S. would have to believe it was somehow in its interest to also move the world off of the U.S. dollar system for any alternative that wasn't just a single country's reserve currency to work. And that type of, it seems very difficult in the world that we have today to imagine a U.S. that would feel that way. Exactly. Exactly.

But if they don't and you accept the thesis, so I talked about technological deflation and what governments are doing to try to stop it, it's going to happen anyways. It's just going to happen to Bitcoin because it also creates an incentive. for other governments to get together earlier, potentially buying Bitcoin in behind the scenes, before a group of governments to senderbent and say, okay, we're pegging to this because it has more security than the U.S. dollar. So it creates, by not doing it,

it also creates an incentive for it to happen faster. So how do you see this playing out? When you see kind of Bitcoin emerging in this, Is it through individuals opting out of their local monetary regimes and opting into Bitcoin for global trade? Is it companies who operate across borders in kind of this internet ether sphere using Bitcoin as the backing? Is it to your kind of what you were just intimating before right now, governments actually deciding to try to peg to Bitcoin in some way? Or some combination. Yeah, it's a combination.

It starts with individuals, just like you have the community right now. and it moves up to higher and higher wealthy individuals doing it as a store of value against what's happening, Paul Tudor Jones recently, which causes different on-wraps, a whole bunch of other hedge funds that have to do it now as well to achieve beta. And so it starts in a whole raft of people start doing it. And it starts what you mentioned with Lebanon, the on-ramps in some. of these countries, just like in Venezuela, are really strong because people know what's going to happen next. So people are storing the currency outside of the currency regime.

And as more people do that, in Venezuela, when if you had 5 million percent inflation in a year versus having Bitcoin, you did really well with Bitcoin. If you owned the best stock in the market in Venezuela, you were wiped out. And so you could feed your family if you had Bitcoin. So the more that you have breakdown of other governments too and other currencies regimes, I think it's all bullish for Bitcoin. So I think it's a combination of all of the above. Let's shift gears maybe kind of as a way to think a little bit ponderously in some ways.

your sense, which is one I share, is that it's unlikely that there's going to be any sort of easy unwinding, right, or managed transition. And it seems much more likely that we have a cataclysmic event when the music finally stops to use the metaphor that we keep coming back to. But let's hold that aside for a second. What would it look like for people's lives if deflation actually took hold? I mean, you talk about it being the key to an abundant future. What does that abundant future actually look like?

Or what could it look like? Well, and you could start to see it now through your phone. I'm sure nobody wants to give up their phone. You said it was only invented 13 years ago, right? And think about the power you have it. You have more power than most presidents had 20 years ago in your phone. You have all the information of the world sitting there. You have every app in the world that's all effectively.

free and I'm sure you don't want to give it up, right? What if that was everywhere? What if that looked like that you could actually spend less time working and more time having the benefits of technology doing the job for you? I think you could have a whole renaissance of time. Like, if you just actually poke on what we're just talking about right now, what is the most valuable thing in your life. And it's really your time. Where does that time go? What is that?

And do you want to work 80 hours a week to say one day I'm going to spend some time with my family? Does that seem like a rational decision? You're doing that because you're trying to work harder to be able to gain more money so you can spend more time on a treadmill that's getting further and further away from most people. If you reverse that and you said, we're going to just let this happen.

Yes, there's a transition. Debt has to, we have to somehow figure out how to do the debt. But it means you would have way more time and you'd have an increasing benefit. You'd have the same lifestyle as today. More savings, more, and cost would be coming out.

Cost would be coming out all the time because technology does the job better than people. Well, and it's interesting, too, because, you know, in some ways these are arguments that are similar to many thoughtful proponents of UBI, right? Part of the argument is if people were unburdened of certain time commitments, they would produce things of meaning. They would live more meaningful lives. They would create more value, not necessarily just in terms of buying more things, but in terms of the, the, lived experience of the people they interact with, be it their families and communities. And again, I'm not necessarily, it's, there has to be a social safety net to get people

across the, this cat, right? So UBI might be the best, best one. It's just, it, it's a terrible idea if it's bolted on top of existing monetary policy. Well, it's interesting. It feels to me in some ways like, and you know, maybe some proponents of UBI will listen to this and can follow up, you know, on Twitter or whatever, but it feels in some ways like you're coming, the argument that you're making for abundance in the context of deflation is trying to come to the same conclusion, this idea that the ever-increasing workweek doesn't legitimate human society or individual pursuits and that we could redesign or reimagine society to not have that requirement in it if we let the system just change a little. It's just that you are actually kind of dealing with the superstructure change that you see as necessary as compared to, again, bolting on this cash flow for people so they can buy those still ever-increasing assets like houses that just keep going up in price forever.

Here's what I see as an entrepreneur and I see it in every just different company. and I see it from, and I study this extensively. Even in a crisis like this, there's a lot of companies that the sky is falling, everything has changed, and they forecast it forward, their existing business forward, and there's no way that it will ever make sense. And so they're hoping for a miracle. And entrepreneurs say, okay, where is this going? They see a different world, and they, from a first principles basis, and they say, okay, this doesn't make sense over here,

but how do we change this to be able to make a lot of sense? And how do we capitalize on where the trend is going and everything else? And so Kodak, inventing the digital camera, they invented, Steve Sasson, invented the digital camera at Kodak and tried twice through his executive to say, here's where this is going. Kodak protected their film business and drove it off a cliff. Blockbuster had,

9,000 stores, it was the number one movie rental place and didn't buy Netflix for $50 million, and instead added candy aisles to their stores because people want candy and popcorn when they rent their movie. And both of those examples are because executives, and you have to assume those companies are filled with really great executives. It's not a bunch of dummies. It's just in retrospect, they didn't see how fast technology was moving. and they missed how fast that changes their entire business. If you zoom out and use that analog or those analogs in what's happening today, the global economic system doesn't see how fast technology is moving,

and they're adding candy aisles to their stores. And they're going to drive it off a cliff. That's what's happening. So the superstructure that we're talking about is it's easy to see in businesses. We study this in businesses all the time, right? Just because you're looking at case studies. Why didn't these people see this? But it's normal for people not to see it

because they're so married to the existing structure that they're trying to protect it at all costs. They're not asking with a beginner's mindset, why does it look like this? And how do we build it differently? They're saying it's always look like this. How do we protect it? It's interesting. I mean, this kind of idea of being stuck inside the system, because we all experience it day and day out, it reminds me actually of David Foster Wallace's commencement speech at Kenyon College in 2005, which was later branded, This is Water. And the aphorism that he talks about is fish swimming through the water, two young fish and old fish swims by. And he says, good morning, boys, the water's beautiful. And they look at each other after he's passed. And he says,

What the hell is water? And his point, he's talking about something a little bit different. He's talking about kind of the idea of having a choice about what we think about and how we engage with people and how we engage with the world around us. But to some extent, a lot of what you're talking about is these assumptions of normalcy that aren't actually normal as much as just the byproducts of specific decisions that we've made or been complicit in making. Yeah, exactly. I'm part of a bunch of these policy decisions. I see it all the time. When I say policy decisions, I've been asked by different governments to make recommendations right now on what's happening. But I see the same thing across the same thing that you see typically from CEOs and business married to their existing business. And so governments all over the world right now, here is what they're asking. And Fed policy, how do we get full employment? Phillips Curve, how do we get employment and drive inflation? And every economy globally is trying to do the exact same thing. In a pretty obvious world where we are not going to have net new job creation globally,

we're going to have job destruction because of where technology is and what's moving. And essentially what they're doing is saying, we're going to do this at all costs, at cost to society, at cost to monetary easing, it costs to our currency, whatever it takes to drive full employment. Sometimes asking a better question allows people to imagine a different answer. And what if the answer, what if we asked a question, how could we design society so you didn't need as many jobs?

I think this is really fascinating. And it gets at, you know, we have so many hurdles to this conversation. One of them is how people feel okay, like how we tell a different story. We've told an up by, you know, your bootstraps value of hard work story for so long, especially in America. It's so embedded in the cultural psyche, the narrative. And even you see it metastasized and manifest in different ways now. We have battles over hustle porn, right?

And the idea of how much you're supposed to work, you know, in times of crisis or whatever. It feels to me like we've got this entire economic question that is, it feels insurmountable. But then on top of that, a total reimagination of the social contract and what it means and what is required of any individual to be a full contributing member of society. That's what makes it so hard. And you know because you read the book. I spend extensive amount of time on the things we think we know versus the things we know. and how far we'll go to defend a previous reality at all logic and anything else. Logic doesn't change people's mind, right?

They will look for something that confirms their bias. And so I spent a bunch of time in the book because it is the thing that's actually preventing this. It's the same thing that prevents it in a lot of the companies because they don't want to accept a new reality. the look for information that matches the previous beliefs. And today you can find a lot of information anywhere that matches your belief. It takes a lot of honest looking to be able to keep and to look at the information that you would not agree with and try to see it from that point of view to really practice kind of first principles and look deeper. but that's hard to do. It's really hard for people to do.

It is really hard. As funny, as laughing as you're speaking, because part of when Paul Tudor Jones made his case for Bitcoin last week, he talked about how you kind of have to be dispassionate because often the markets are at odds with your priors, right? And if you're kind of left just sticking to your guns, I think there's a larger lesson there. But as you, I mean, you know, you've been living in this for a long time. you're living in this set of thoughts. You've been, you know, you shared this book. What is, there's plenty of cause for pessimism. I think we've talked through a lot of that and the stress there. What, if anything, is a, is a source of optimism for you right now? So I've met so many brilliant people through the writing of this book. I'm going to back up a set. I don't care about one book sale. I don't make money from the books or in anything

that's, you don't write something like this to make money, right? you in fact before I wrote it I had a conversation with my wife that it went something like this you know that we're the one percenters and I'm going up against everyone else in this class and the entire economic system that I have to say and and what that might do is because this big this could look really bad it could show it could show up negative and everybody can take take it out of you and you could and you could be the fool and it could hurt my own businesses as a result. I had to, I had to be comfortable with, uh, with that before writing it. And, and so, so that was a real conversation to put my family through it to, to do everything else before,

uh, before writing it. But it's, but it, I also went through the kind of logic. I said, I can't not say something. I cannot, I cannot be, I have to, I have to, I have to, to do this. So we made a decision together together that I would do this. And what I would say on the good side, I've been blown away by how many great people I've mapped through this experience. I've been blown away. It actually, it's reaffirming all of what I believe. There's just really great people in the world and they're looking for a hopeful message to hang on to. And They're fed a bill of goods today that is dividing them further and further and further. So it's been super powerful.

And if there's more and more talk about what we're talking about, hey, and I will take this. I could be wrong. I would rather, I don't think I am, but I will debate that in a whole bunch of areas, but in a dispassionate debate to try to get to the right answer. and what I've found through a whole bunch of people I've met through this year one, this conversation. I wouldn't have met you otherwise. Preston's another, Pomp's another, like some of the just unbelievable people,

too many to list here on your show that I've met because of this and they're all taking this message forward. And if enough of them do, we'll design a better future. I think it's a great point to end on. We do ourselves a huge disservice when we assume that what people know and understand about the world is complete and impossible to change, rather than giving them the benefit to actually have conversations that allow them to look at things differently, right, regardless of whatever perspective or background they come from. I think we get too easily caught in our bubbles of whatever it's useful for someone to organize us into

rather than being kind of treated as vessels of knowledge and information and interest and ambition and hope and dreams that are trying to progress and make sense of a confusing and changing world. Exactly. Jeff, thank you so much for your time today. I will make sure to link to the book. for everyone who hasn't read it. I highly recommend it. And yeah, I appreciate you being here and continuing to share this, both the challenging and the hopeful side of this message.

It's been awesome. Thanks, Nathaniel. Reflecting on this conversation with Jeff and on the book as a whole, one of the biggest challenges, it seems to me, isn't just the finding political will to actually make such catastrophic or huge changes, things that have such deleterious impact in the short term, even if they're better in the long run. That all on its own would be a challenge worthy of better than the leaders that we have now. There is another challenge inherent in this whole situation, which has to do with our own self-image. It is nearly impossible to imagine a wide-scale society shift right now, at least in America,

where working professionals could get comfortable with the idea that they were just as valuable working only 13 or 15 hours a week as they were with their current 70 or 80-hour weeks. We take pride in these measures of inputs of our time, of how much we work, how hard we work, how hard we hustle. In fact, you're seeing at least some backlash around this with people calling it hustle porn, but still, these are incredibly ingrained ideas, and the idea of disentangling our self-worth and our ego from our career seems to me to be as much of a challenge in some ways as finding the political will to make these shifts.

I think the good thing is that's a part of this change, this inevitable change, it feels like in some way, that we can at least exert some control over. We can start to think more broadly, more holistically about what it means to be a person on earth, what it means to be a person in society, and to find value in ourselves, in our peers, in ways that aren't simply reflected by the way that we input into a system, which is in some ways bankrupt, even though it's still chugging along. So something to think about for sure as you go about your day. And as always, I appreciate you listening. I appreciate... Welcome back to The Breakdown, an everyday analysis, breaking down the most important stories in Bitcoin, crypto, and beyond. This episode is sponsored

by ErisX.com, the Stellar Development Foundation, and Grayscale Digital Large Cap Fund. The Breakdown is produced and distributed by CoinDesk. Here's your host, NLW. Welcome back to the breakdown. It is Thursday, May 14th, and today we are doing the second in our series of surveying the carnage. Now, this is a series basically that is looking at the economic fallout of the coronavirus crisis and the shutdowns across a number of different industries, and the purpose of this is to move beyond our analysis of what second and third order effects might occur to actually understand which second and third order effects are occurring and how they are playing out in specific industries. In the first episode, which I released last week, I looked at three industries travel first,

one of the more obviously impacted by coronavirus and COVID-19. I looked at music and the concert industry, one of the industries that is likely to feel the impacts of this for the longest period of time and the most completely. and finally I looked at real estate from both a residential and a commercial perspective. In this updated edition of surveying the carnage, we're going to look at the film industry, at sports, at advertising, and then at one, which I think is potentially the highest impact to the way that the world is organized in the long term, higher education. So let's dive in.

We started last week with the music industry and entertainment space, so let's start this week with the film industry and the sports space. The film industry from the standpoint of movie theaters was already hurting. Over the last three years, movie theater stocks and companies like AMC were down roughly 75%. So there were already big questions about the future of movie theaters, particularly as it relates to the surge in streaming, this long-term secular trend and shift in consumer behavior away from movie theaters and towards at-home releases. Now, studios already wanted to experiment with direct releases.

Many of these studios were involved with some of these streaming projects and had seen the potential, seeing the power, but they didn't want to compromise their relationships or they were battling to not compromise their relationships with the theaters, right? When this coronavirus crisis, when these shutdowns happened, that shifted the calculus in a pretty big way. One of the first breaks occurred as Universal decided to release trolls to World Tour directly to streaming instead of doing the cinematic release. And this is a different model, right? Instead of a $9, you know, dollar rental or a $5 rental or whatever it was, months after it had been in the theaters, it was put out as a $20 rental for premier access

for a short period of time because you were getting that movie theater experience in terms of the timing, but at home. And interestingly, it did really, really well. It made $100 million in three weeks, which was more than what Trolls One made in five months at the box office. So this was a a hugely important sign. Now, it also got AMC to say that they were going to ban Universal movies, so obviously created more of that tension. But at the end of the day, money talks and bullshit walks and $100 million in three weeks is money talking. Disney followed suit with Pixar's Onward, and they just announced that Hamilton is being moved up a year and coming out direct to Disney Plus in July. So big, huge shifts in terms of where the movie industry fits vis-a-vis

movie theaters. There's a couple other things going on here that I think are worth noting. One is that movie theaters are likely one of the last industries to open. Just like we talked about last week with the music industry, the reality is that these types of experiences, concerts in the case of music, movie theater experiences in the case of movies, are both one completely optional and two, events that have a high density of people closely packed in next to one another. right? This isn't something where you can easily do social distancing. I mean, I guess you could have a movie theater setup where it's only one out of every four seats or something like that is actually sold. But it just sounds like a logistical nightmare and it sounds still like you're

operating on a fraction of the profits. So unlikely to make a difference, right? It's unlikely for politicians to be willing to clear this type of behavior when it's so clearly optional. What's more, and this is something that's really important across almost everything that we can talk about in these second order and third order effects, consumer behavior might shift as well, particularly in terms of their willingness to put themselves at risk for these voluntary activities. The Democracy Fund and UCLA Nationcape Project surveyed 6,700 U.S. adults in the last week in April and found that 61% said that they definitely or probably would not go to the movie theaters after this. So that's a huge, huge net loss for theaters, even if they were allowed to open.

This has created havoc for these companies. AMC is now in bankruptcy talks, and actually when news broke that Amazon might be courting them, AMC's stock spiked 56% on that news. So this is a really key moment, and likely the movie theater industry does not come out looking exactly like it does now for all intends and purposes. Now, there's another dimension of the film industry as well, which is that literally nothing is being made right now, right? Film production, TV production, these things are all called off. And that hasn't hit us yet because of how far out production schedules are relative to when we actually see that content. But the reality is,

is that there's going to be some period in the future in which there's just this gap in content and that could be its own set of impacts. The impact of this in the short term has to do with workers, right? Netflix has set up a $100 million relief fund for people who work on production on its productions, but that's a unique thing in the industry pretty much. And there's huge numbers, tens of thousands of people who are out of work in this industry from a production standpoint. What's more, on the other side of this, people are anticipating that the way they actually have to produce movies to produce films to produce TV is going to change as well. There could be constraints that are mandated by governments in terms of things like how many extras they can actually use. You know, you're not going to

get the same big, crazy Battle of the Bastards at Game of Thrones if there's a cap to the number of extras. And ultimately, that concerns me less because this industry is filled with creative people who are going to find ways to use CGI, to use digital effects, to use alternative strategies to make that work. but the point here is to recognize that there is disruption to both the consumption and production side of film that will have long-lasting impacts. So that is number one, the film industry. Let's shift now to sports, and I think sports are going to have an important place in the long-term story of the U.S. response to coronavirus. If you'll remember, in mid-March, there was a Monday during which Trump tweeted out that the flu still was killing more people than coronavirus, and may

that comparison, and by Wednesday, he had declared a state of emergency and everything had changed. And in the span of about 60 to 90 minutes on that Wednesday evening, we had Trump declare that state of emergency. We had Tom and Rita Hank say that they were infected with coronavirus, and we had the NBA shut down the rest of the season. So the NBA was kind of a third leg of that stool that made a really big impact. It was the first major publicly visible industry that went not just into slight disruption mode, but complete shutdown mode. And it just so happened to happen at the same time as Trump was making this announcement. So I think it was a really instructive and important moment in the way that the U.S. started to actually grapple with the urgency of this disease.

So that's neither here nor there, though, in the long term of this industry. Sports is a $71 billion industry with tens of thousands of employees. And like music, like concerts, it is likely to be one of the last to open, at least when it comes to live sporting events. Like music and like movies, there are significant barriers for consumers to be willing to put themselves back in harm's way by going to those events. Same survey that I referenced before. The same percentage, 61% said that they are definitely or probably not likely to attend a sporting event, a live sporting event, even once the lockdowns are lifted. This is the second highest result. This is the second highest result. in that poll behind only concerts, stadium concerts, which polled at 64% of people being unwilling to

attend even if lockdowns were no longer in effect. Now, a different study from Seton Hall had this percentage even higher said that something like 72% of people would be unwilling to attend a sporting event even after these lockdowns had ended. And this is a huge economic fallout, right? Live sports are a $19 billion a year industry. Now, there are proposals around for, or sort of half versions where at least you get televised sports, but there's no one in the stadiums. But those carry impacts in terms of how players are organized, right? Mike Trout has been vocal about how that feels like it might not work because what happens if your wife is pregnant and you have to go see or do you have to be quarantined for 14 days? There's all these challenges

logistically of having this at all. So there's a lot of serious questions about when live sports come back and what they come back as and whether people will be willing to go. And this is to say nothing of the fact that we're going through an unprecedented economic crisis in terms of people's actual wallets, their own resources. They may not be able to spend the huge amounts of money to actually go to these live sporting events with their high ticket prices, inflated concessions prices, et cetera, et cetera. So a huge number of impacts just in the industry. But it's not just the industry itself.

there are significant knock-on effects where sports spills into other spaces. Spring Sports get something like $2 billion in advertising that evaporated overnight, right, with huge impact on the advertising industry, which we're going to talk about in just a minute. College sports is a huge area, right? Colleges make $18 billion a year from sports, and that has nothing to do or it says nothing of just the huge licensing deals that come from apparel companies. Well, those apparel deals are out the window, that revenue stream is out the window, and colleges, as we'll discuss at the end of this clip, at the end of this episode,

are already facing huge budget shortfalls and structural challenges even beyond this. So there's the college sports area. Lastly, there is the fact that consumers are not going to wait around for sports as their primary entertainment. They're going to go find other things to do with their time. And boy, are we seeing that. Already, even before this crisis, e-sports were on the rise. There's no denying that, and there's a million good reasons for it. I could do a whole episode about why I think e-sports makes so much sense, right?

The connection that you had to sports as a kid when you could watch your favorite baseball players or soccer players and then go play that sport on a regular time, imagine that, but you can be playing concurrently to watching. You could be playing against your favorite gamers live via Twitch. It's a transformational medium in so many ways, but that has only increased. So in the first quarter of 2020, Twitch reported all-time highs for hours watched, hours streamed, and average concurrent viewership across games. Twitter has reported a 71% increase in conversation volume and a 38% increase in unique authors in gaming content. And that's just the second half of March, right, before the first full month.

Verizon has seen a 75% increase in gaming usage since quarantines went into effect. And again, these are lagging statistics. This is from about a month ago. So, e-sports is exactly as you would expect ascendant in this time of corona. It's also e-sports betting. So Quentin Martin, who's the CEO of Luckbox, which is an esports gambling site, says that turnover had risen almost 13 times since November 2019, with deposits up 10x. What's more the average size of the bet is doubled since February.

So basically, you not only have more people playing gaming and being a part of e-sports, you have people more gambling on it. So these are core behaviors formerly organized around sports that move back into this realm. Now, when it comes to sports, I think that the area that feels most likely to be long-term impaired is that live sports experience, is that stadium experience. But, you know, these industries are at various levels of financial success and are already dealing with, again, long-term secular trends in terms of consumer preferences. And anything that knocks out huge sets of behavior that takes out big rafts of consumers is going to be a challenge. And it wouldn't surprise me if we see major restructuring around at least one of the major sports

league. So sports is in a tough spot, no doubt. Let's just briefly touch on advertising now, because I think as you see from sports, advertising is an industry that is kind of not unto itself. It's related to everything else. And advertising tends to be particularly impacted by these crises. In the great financial crisis, advertising lost something like 60 billion in revenue and it took eight years to recover. And there are huge indications that advertising is in for a very challenging time. Overall spending on digital ads from March and April was down 38% from what companies had expected it to be. Ad spending on TV has fallen 41%, 45% on radio, 43% in print publications and 51% on billboards and outdoor platforms. So this is all from the industry association,

the IAB. We're already seeing really, really significant impact on the advertising industry. And the crazy thing is that on the one hand, you have more content consumption than ever. But on the other hand, advertisers simply aren't willing to spend what they were before because A, people can't buy things in many cases, right? You don't have people going out to buy cars. auto sales in the UK in April were down 97% year over year. You don't have people going out to buy clothes and going to traditional retail. Retail is expected to lose $2.1 trillion this year. 50% of people, according to a global web index survey, say they won't return to brick and mortar shops for some time to a long time after lockups have ended. So there's no cause for these people to

advertise, right? There's no benefit to them. You have an industry that employs 500,000 people roughly 480,000 people in America that is just going to be cut to its knees. And this gets to something that Danielle DeMartino Booth talked about when she was on the show a couple weeks ago, which is that a key economic indicator to watch for is the second round of white collar layoffs as these second and third order effects come home to roost in these other industries like advertising. So that's kind of what I'm watching is how will it impact these big agencies that employ such huge numbers of people and how will the advertising industry rejigger its offerings? Will it be lower CPMs? Will it be totally different methods? I mean, there's a huge number of things that could happen,

but it's sure that something is going to happen because the model that we had before simply will not be sustained at a time when no one is spending money and no one can even really spend money. Support for this podcast and this message come from Eris X. With Eris X, you can trade spot and regulated futures on cryptocurrencies through a licensed, U.S.-based exchange. ArisX believes in fair access for all. Sign up today to take advantage of zero fees and learn more at ArisX.com slash consensus. This episode is also sponsored by the Stellar Foundation.

The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power a payment application or issue digital assets like stable coins or digital dollars. Stellar is easy to learn and fast to implement. Start your journey today at Stellar.org slash coin desk. Our final sponsor is Grayscale Digital Large Cap Fund. In times like these, diversification is key. Consider Grayscale Digital Large Cap Fund, ticker symbol GDLC.

It's the only publicly treated investment product that offers diversified exposure to large-cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash coin desk. That's G-R-A-Y scale.co slash CoinDesk. Now, lastly, let's talk about education. This is an area that I've spent a huge amount of time thinking about. Those of you who don't know, I was a venture capitalist at a firm called Learn Capital for a while in San Francisco, which was one of the earliest education-focused pure play venture firms. And what I mean by that is that it wasn't a social impact fund or a double bottom line fund.

It was judged on IRR and the rate of return, just like any other venture capital firm would be, but was focused exclusively on education. And so I had a front row seat to seeing many of the shifts that were happening right in front of our eyes. We were an early investor in General Assembly and many other education companies that you've heard of. And I think that already education was in a tough spot. There was a growing disconnect between the cost of education and the outcomes in terms of actual real wages. And this to me is going to be a massive, massive accelerant in what could amount to this dismantling. of the education system, in particular the higher education system as we know it. But before we get

into higher education, let's talk about a different part, the earlier education, right? Primary education and secondary education. I think that the clear and deleterious impact of these shutdowns in this circumstance is that you're going to see what was already highly unequal outcomes between public and private schools massively accelerate. There's an idea already. in education called the summer slide, which is basically the percentage of things that are retained as students move from one grade to the next. And in many cases, this is one of the best, one of the strongest arguments for a shift in our education model to get rid of the traditional summer season because we basically have kids who we send off and they lose meaningful

percentages of what they've learned around reading comprehension, particularly around math, right? So they have to spend the first period of time of each new school year just catching up, which they wouldn't have to do if we design the system differently. But either way, we're talking about now a summer slide exacerbated on a huge, huge level. You have kids who may not even be able to go back to school in the fall in some cases. And what we're doing in terms of at-home education is highly unequivalent between public and private schools. In private schools, they are racing to adapt distance learning technologies and live instruction via Zoom and things like that. Because their business model relies on parents not pulling them out, right?

It relies on parents continuing to pay for their very expensive services. Private education is a luxury good that needs parents to continue to be willing to pay that luxury good price. And private schools are aware of the fact that in a time of economic turmoil, when there is a another alternative, even if not a desirable alternative, they could be one of the first things on the chopping block. So they have shifted their model aggressively into this distance learning model that involves live concurrent instruction. Public schools don't have that benefit, right? Only something like 22% of public schools are doing any real-time lessons at all across all grades, and only 10% of public schools are doing real-time learning across all grades. So what I mean by

that is that 22% are maybe, you know, older kids are doing it at some parts of high school, but younger kids aren't. Only 10% of public schools have real-time instruction in any way, shape, or form across all of their grades. That means that 90% of students are not getting any sort of real-time concurrent instruction, right? They're basically just living in a homework world where they're left to their own devices. Maybe their parents are helping, but their parents to stress out trying to figure out what they can do at home too. And this is a potential disaster. You're going to see, again, the outcome gap, the learning gap between those kids who have access to private education, those kids who don't, just explode, explode, explode, and of course,

the people who are going to suffer the most are the kids who are already the most vulnerable, right, who don't have parents who can afford to take off a huge amount of time, who maybe live in single parent households. Those are the kids that are going to be the most left behind by this. So you basically have a situation where we're pouring fuel on a fire of already unequal outcomes as it comes to education at the lower levels. Then you have the university system. And the university system is a fascinating case study in what happens when you prop up an industry with cheap debt and how expensive it gets. So I'll get into what that means in just a minute.

But basically, the price of higher education has been increased. hugely for years and years and years. Between 2008 and 2018, the average tuition at four-year public colleges increased across in every state. On average, tuition increased by 37 percent during that decade. This reflects itself in the growth in student debt. At the end of 2009, Americans had roughly $772 billion in student loans. A decade later, at the end of 2019, that total had spiked to approximately 1.6 trillion, which is an increase of 107%. This is the largest chunk of debt outside of housing debt. It's bigger than credit cards by almost 2x, right? So it is a huge, huge drag on the American economy that students have to pay this huge amount of debt. But here's

the really important thing. Since the 1980s, the cost to attend a four-year university grew 8x as compared to the growth in wages. That means you are paying eight times as much as the benefit that you could hope to or expect to accrue from wage increases at the same period. This is why, or one of the reasons why people feel like they are getting farther and farther behind because they literally are. They actually factually are. So this is all going into the COVID-19 crisis, right? This is before. We were already in the midst of seeing, I mean, look, Technology deflation, for those of you who listened to the Jeff Booth episode yesterday, technology should be radically decreasing the price of learning.

We have the most amazing educational tools that we've ever had in the entire history of the human experience on Earth. We can zoom people to places far away to experts that they never would have had access to. We can record the greatest lessons ever experienced. We can design amazing, new, interactive types of lessons for cheaper than ever before, yet college has continued to rise in price. And why? It's because of the plentiful availability of cheap debt.

When we live in a cheap debt world, which is the exact premise underlying our inflationary economic policies, what it does is cheap money available increases the ability for colleges to increase those prices, right? If you have a comparative increase in debt, well, colleges are just going to increase because the debt's going to cover the difference, right? Debt will cover the difference between the cost.

of going to school and what people can actually afford to pay. Never mind the fact that it's totally not commensurate anymore with the expected benefit on the other side, the ROI on the other side, as that changes dramatically. This is what it looks like to be in Fiat world in this land of cheap debt. And so you have, again, cheap debt propping up a system that would be massively changed by technology-based deflation. And frankly, we're seeing or we have been seeing that the technology based deflation nibble around the edges, the increase in coding boot camps and these kind of different models, right, that was already happening in advance of COVID-19. But whatever the case, there was a clear disconnect between the ROI and the value proposition of a four-year college

education and the actual cost, even before this crisis. We are about to see the single biggest crisis in higher education business models that we've ever seen. Cal State, which is the largest public four-year university system in the country has announced that it's going all online this fall. That's 480,000 undergraduates who will be basically all online. You have 50% of colleges who, as of 2018, had no formal online anything, so who are completely unprepared for this. If this goes on to the beginning of 2021, if colleges aren't really able to open up in the fall, which many are worried that they're not going to be able to, the gap between projected revenue and costs, something like 50% will face a 10% or more greater gap between projected revenue and

costs, and 25%, 26% will have a more than 20% gap between their projected revenue and costs. What's more, that's presuming they can get college students to continue to pay these exorbitant prices for a now online education. But you're already seeing class action lawsuits at places like Wash U and Brown and many others of students saying, this is not. not what we signed up to pay for. We're not going to pay you anywhere near this, right? We want our money back. That will be not only a legal cost to fight that, but if things go badly for colleges, that could be another huge reduction in their revenue. Then there's all the new students who might be coming in, who are reevaluating this in a huge way. One, they're reevaluating their

decisions to go to a private versus a public university. Two, they might be even reevaluating their decision about the ROI of a college education going into a recession anyways when they start to see white-collar jobs being laid off as well. So it is a bad time, right? One higher-ed industry group estimates that we're going to see a 15% drop in enrollment in the fall, costing colleges something like $23 billion. And then there's other issues as well. Since the Trump administration began, there's been a 10% decline in international students, which are often some of the biggest moneymakers for colleges, because they pay full price, especially at the graduate levels, these set of students continue to go down,

and that's only going to be exacerbated by travel restrictions, right? So higher education has all of these issues. And this is one where it's very clear that COVID is not the bubble. It's the pin prick. But, man, it's more like an arrow shot at a thousand miles an hour into that balloon than just a pin, because the dramatic nature of the shutdown's impact on higher education you will start to see more and more stories of colleges simply not reopening at all.

And it might not be this fall, but you will start to see it. We already started to see colleges shut down over the last couple of years. I think there's going to be an absolute culling in the middle. I think that the top tier of colleges that have massive endowments and can claim brand, can claim alumni networks, et cetera, et cetera, will be fine. Those will continue to be a desirable luxury good with many more people competing to get in them that can get out of them. They will continue to be able to support themselves through massive research budgets, right? You got to remember that for research universities like

my alma mater, Northwestern, university tuition is only 25% of revenue. 50% or more comes from patents that come out of research, right? So they have another business model that can continue to function even as enrollment changes. So like I said, that top tier of research universities, of high-brand universities will likely be fine. What's more, you've got to imagine that public education will shift again. We will figure out different models as more and more demand for cheaper types of education moves down the thing, right? People will decide not to travel as far away from college, right? There could be all of these big, again, secular trends that bring people closer to home and more to localized colleges, community schools, et cetera. I do think that those schools will adapt,

even if there's some pain along the way. It's going to be that middle, right? The people who were charging the same prices at these incredibly expensive universities, these elite research universities, trying to offer the same outcomes that just won't be able to defend that model anymore. I think that that middle tier of schools

is just going to be absolutely decimated by this crisis and by the larger trends that it's accelerating. Now, if there is any good news in the realm of higher education, I think that we were already in a moment where we needed to start having third paths, right? There needs to be third paths between, on the one hand, just not going to college, and on the other hand, buying into the model of a four-year university education. And that middle path seems to me to be vocational training around a number of different industries, mentorship, skills training. There are so many

domains in which you'd be better suited with some sort of old-style guild model of learning a trade. And by the way, I mean things that we think of as white collar as trades too, right? I guarantee you there could be better advertising programs funded by publicists than you could have at even a Medill School of Journalism at, again, my alma mater, Northwestern. So this idea, though, of guild style training, of specialized training, I think is poised for a renaissance. And I think one of the other outcomes of the coronavirus crisis could actually accelerate that, which is a return to domestic supply chains. I believe that one of the things that you're going to see is a major national push for the return of domestic manufacturing and production capacity around a lot of the

key parts of our experience where we don't simply want to outsource those things to China. This is going to require a lot of highly specialized manufacturing capacity, highly specialized skill sets and talents. And I think that there will be a burgeoning industry of new types of atleaes and studios and vocational programs and boot camps and et cetera to train people up in those areas. And I don't think that their economic model is going to look the same as these four-year universities. I think they're going to be more directly tied to economic outcomes on the other side. And I think that that could be a really positive advancement. So it is clear to me that the higher education bubble has to pop in a major way.

And I think the coronavirus is going to do it. But frankly, I'm not that after the first kind of period of pain. I'm not particularly pessimistic about what comes out on the other side. I think that almost anything, if it involves some amount of this third path, is going to be better net net for individuals and better net net for society than what we have now. All right, guys, deep into this one now. I was going to do another industry today, but I think I'm going to save at least one more of these surveying the carnages for this broader idea of supply chains,

but particularly in the context of food and some of these other areas that are really important. important from a national security perspective. So I don't know if that'll be next week or the week after, but I will do an episode on feud, on restaurants, and on supply chains more broadly and what the impacts might be. So anyways, guys, thanks as always for listening. I hope that you enjoyed this. Welcome back to the breakdown, Money Reimagined, a special podcast micro-series about the battle for the future of money in the post-COVID-19 world. This episode is sponsored by Aeros X, the Stellar Development Foundation, and Grayscale Digital Large Cap Fund. And now, here's your host, NLW.

Welcome back to the breakdowns Money Reimagined. This is a series about the battle for the future of money and how the evolving economic crisis surrounding COVID-19 is transforming that battle. Before we dive into our episode today about Bitcoin and stable coins and and these off-system alternatives, let's quickly refresh where we were in our story. In episode one, we started with the strange paradox of the almighty US dollar. On the one hand was the promise of never-ending money from the Fed. From Fed Governor Neil Kashgari appearing on 60 Minutes saying that they had infinite cash

to an ever-expanding portfolio of special-purpose vehicles to backstop markets in increasingly exotic ways, the last two months have been filled with the inescapable burr of the money printer. Yet for anyone who thought that this potential debasement of the dollar would slow its demand, they would have been wrong. Around the world, demand for dollars has only gone up, often at the expense of local currencies. Still, even if it wasn't some hyperinflationary event, the dollar wrecking ball, as some called it, still has called into question the foundations of the global monetary system. Episode 2,000, then was about the contenders who are seeking to replace the dollar system, but doing so by working

within the larger monetary order. We looked at the euro, the Libra, and China's digital currency electronic payment system, or DSEP. TLDR, none are looking particularly strong right now. The euro is stuck in the mire of ongoing questions of political legitimacy of the European Union as a whole. COVID-19 has driven member countries further apart rather than closer together. The Libra, for its part has kowtowed to regulatory pressure, particularly from the Americans. And instead of a disruptive basket of currencies approach akin to a modern version of the bank or that Keynes proposed at Bretton Woods, it now seems the project is trying to simply position itself as a partner for future central bank digital currency efforts. China is certainly streaming forward with their

digital currency, but face headwinds of large geopolitical backlash around their handling of the coronavirus crisis, and animosity heaped on top of the fact that the yuan remains primarily at this point a national currency. Professor Neil Ferguson called this moment the era of currency experimentation, and part of what makes this experiment so unique is that the contenders in the battle for the future of money aren't only trying to work within the system. The fact is that Bitcoin, the emergent monetary alternative that so many are looking to today, was born in direct opposition to the system. Embedded in its very genesis block was the famous message, a headline from the Times of London from January 3, 2009,

Chancellor on the brink of Second bailout for banks, that forever positioned it in opposition to the debasable fiat money regime. This episode is about Bitcoin and asks the question of whether a non-sovereign money, something that is rooted truly outside the existing political and monetary power structure can provide an alternative on the world scale. As we'll see, it is also about the way in which another crypto domain, permissionless dollar stablecoins, are challenging the system as we know it as well. The Bitcoin narrative can be a highly capricious thing. Such is the challenge of an asset created by a pseudonymous and long-remove founder

and propagated and supported by a decentralized network of miners, hoddlers and businesses who don't represent any one single interest or perspective. Still, by the end of 2019 and heading into this year, the digital gold narrative of Bitcoin was largely dominant. This was an emerging asset class whose most notable feature was its fixed supply and decreasing rate of issuance, and which many believed might act like gold in times of crisis. The beginning of the year was good to Bitcoin from a price perspective. From a low of just under 7,000 in the first few days of January, Bitcoin raced all the way past 10,000 by mid-February. Then COVID, or at least Western market awareness of COVID, hit, and it hit with a fury.

As equity markets sold off, so too did Bitcoin. The biggest drop came on Thursday, March 12th, Black Thursday, as it would come to be known, when the Bitcoin price crashed from around 8,000 to as low as 3,800 before starting to rebound. For some, this was definitive proof of the failure of the digital gold narrative. Bitcoin was behaving in a way more correlated than ever in selling off like a risk asset. Didn't that mean it had failed the store of value test? Speaking on this show two weeks later, Morgan Creek Capital founder and CEO Mark Yusko was quick to dispel that notion.

The Bitcoin drop 12 days ago was a great example. You know, I had all these people screaming, you know, what's going on? I thought Bitcoin is a safe haven. I'm like, guys, it is a safe haven as a store of value, as an ultimate currency for the long term. Gold has been a currency for 5,000 years, one ounce buys a fine man suit. You know, 875 paper currencies, three quarters of them have disappeared. The pound sterling, 374 years ago, one pound note got you one pound sterling, a pound of sterling silver. Today it costs 374 pounds of sterling silver.

So paper currencies devalue and go away, and real money, sound money, stays forever. But, but we're young in Bitcoin's life. And Bitcoin is owned by two types of people, maybe more than two, but really two. One is hodlers, right? People who own it, believe in it, want it to be their store of value. And then speculators who are like, hey, this thing moves. I like things that move. I'm going to trade it.

And the problem is people bought in sometime after the low back at 3,100 in December 18. And they didn't get it right at the bottom. They got it sometime, the 4,000, 5,000, whenever it was. And they wrote it up and we had the big rally up through 12,000. And then it starts to roll over again. Be like, wait a second, wait a second. Well, those were weak hands and some of them started to sell. But when this crisis hit and stocks started being liquidated and hedge funds started being liquidated and, you know,

individuals started getting margin calls. In a margin call or in a liquidation, you don't get to sell what you want to sell. You have to sell what you have to sell, you have to sell what's liquid. And there were a lot of hedge funds and a lot of individuals, individual investors, that bought Bitcoin, not really understanding or caring what it was or what it is, but they just wanted it because it was moving. And so the fact that it fell dramatically when everything was getting liquidated should not have been a surprise to anyone. So if Bitcoin was still holding on to this idea of being a digital gold, how did regular? their gold do. Delphi Digital's Kevin Kelly reinforced the point that in a liquidity crunch, everything gets sold, regardless of the properties that make it interesting in the long term.

And really the only thing that's 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. Investor and podcaster Anthony Pompliano reiterated these points about the idea that correlation goes to one in a liquidity crisis, but also added something distinct. In his estimation, the smartest investors weren't just thinking about Bitcoin in the context of right now, but were focused a few steps down the line as the environment would move inevitably from deflationary to inflationary. What people need to understand is in the institutional world, they understand how a liquidity crisis works. They realize that in times of liquidity crisis, asset correlations go towards one. Every asset with liquid market is going to sell off, right?

And we have historical example after historical example of this happening. You know, gold in 2008 is the best example. I don't think anyone's going to claim that gold is not a store of value. But in 2008, during the liquidity crisis, about six months, it sold off almost 30%. And then it ended the entire crisis up over 300%. And so what ends up happening is it just was a liquidity crisis. But we're two to three weeks into this. And people are yelling and screaming about their kind of, you know, their analysis of, you know,

their analysis of Bitcoin has changed when this crisis is going to be months, if not, you know, two years long. And so you can't make an analysis on something in the middle of the crisis. And so what I think is happening is that a lot of people in the institutional world, they have one of two perspectives. If Bitcoin was a very big part of what they did, so take, you know, hedge funds that started trading Bitcoin a lot, et cetera, they sold the Bitcoin, right? They just sold. sold it off. We saw 50% drop, end of the day on Black Thursday, down 30%. These people spent every day trading Bitcoin and cryptocurrencies. They just sold it. They needed the liquidity. They're actually a small part of the institutional world, a very small part. The majority of

institutional investors could care less about Bitcoin right now, not because of anything Bitcoin did, but because they have bigger problems. And so if you're sitting there and you manage, let's say, you know, a $5 billion pool of capital, whether you're an endowment, a foundation, a pension, et cetera, Bitcoin at most was like 25 basis points of your portfolio. If it goes to zero, literally you've lost more money in the stock market than you lost if Bitcoin went to zero, right? And so it's just not that material to their portfolios. Now, the smart ones, I think, are the ones who are thinking two or three steps ahead,

what they're starting to realize is, wait a second. We're in a deflationary environment. All assets are selling off. The dollar strengthening. The only way to stabilize markets and reverse those asset prices is to flood the market with dollars through quantitative easing. We're seeing that start to happen. There's likely to be much more coming.

In that scenario, when we switch from a deflationary to an inflationary environment, I need to protect my portfolio. I need to go into real estate gold, Bitcoin, etc. And so what some of them are starting to say is, wait a second. I'm not fully on the Bitcoin train where I'm going to go put 5, 10% on my portfolio, but I actually want to have the conversation now because in a world where we switch from deflationary to inflationary, I want actually to get exposure. And so I think it's encouraging that kind of the more sophisticated institutional investors

are realizing, wait a second, this is exactly what Bitcoin was built for. And I actually may want to get some exposure to this thing because I don't have very many other places to go to protect my portfolio in the world we're going into. A lot of people analyze where we are right now and they're saying, oh, Bitcoin didn't work, but that's not true because you have to look at it over the entire lifetime of the crisis. And actually, when we switch from deflationary to inflation, that's when Bitcoin should do the best. Before we get to the inflationary part of our story, however, we need to look at something far

away from the realm of the theoretical and firmly in the realm of the real. For while Twitter was debating Bitcoin narratives, in the real world, something fascinating was happening. The supply of permissionless USD-pegged stablecoins was surging. More on that after the break. Support for this podcast and this message come from ErisX. With ArisX, you can trade spot and regulated futures on cryptocurrencies through a licensed U.S.-based exchange.

ErisX believes in fair access for all. Sign up today to take advantage of zero fees and learn more at ArisX.com. Consensus. This episode is also sponsored by the Stellar Development Foundation. The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power of payments application, or issue digital assets like Stable coins or digital dollars. Stellar is easy to learn and fast implement.

Start your journey today at Stellar.org slash CoinDesk. For most of their short existence, stable coins had been primarily a tool for making the day-in, day-out functioning of crypto traders and exchanges work more smoothly. As the COVID-19 crisis took hold, however, the total supply of permissionless stable coins started to rise, and increasingly, it seemed not to be just based on the traditional crypto use cases. CoinDesks Michael Casey explains. We've written some articles about stable coins and the rising demand for them that we've seen in the past few weeks as the COVID crisis has taken hold.

And I think it's still early days to draw lasting conclusions about what's going on. but it's certainly anecdotally, if you look at where some of the demand, some of the new demand, most importantly, that's coming into some of the stable coins is coming from, it does appear that this is going beyond. I'm talking specifically what we heard from USDC here. This is the folks from Center, the Coinbase and Circle, and the demand for their new business services product,

where the demand is coming from e-commerce sites and cross-border payment providers and payroll organizers and, you know, entities that need currency or need dollars in particular because they're cross-border, but need money to keep their business running, have started to look to stable coins as an option. This nascent appearance of demand from these other entities that we're hearing about from Circle in particular is fascinating because why now, right? Why are these e-commerce sites that aren't crypto participants buying into this? And the argument that Jeremy Aller, the CEO of Circle, put to us,

and again, this is just an early interpretation, is a compelling one. And that is that among some people like that, there's going to be concerns that, yes, I need dollars. Everybody needs dollars now. But if my dollars are provided to me by, say, a European bank, and I'm worried about the banking crisis that they're facing, then those dollars themselves are backed by the fractional reserve banking system. I'm not so certain that just having dollars is enough. Maybe I'm not protected enough if the bank itself is under some sort of stress.

And when there's a confidence crisis around debt and dollars in banking, maybe I need something much more reliable. So a run on the bank, a traditional run on the bank is like take it literally into bank notes right into cash. But that's not going to help me if I need to keep my payment system going and my global e-commerce site and paying for invoices and payroll and everything else. I need something that can move money around the world, but give me that confidence that it's, you know, it's not going to just go away as a result of some crisis. And stable coins, you know, can potentially be that, right? It's an open question as to how truly free of fractional reserve

of banking risks, something like USDC is, because they still have a bank account behind them. But, you know, in theory, there's supposed to be most of those reserves, those reserves are dedicated toward very, very liquid, secure assets like, you know, treasury bills. They're not relent out, as is the case in a banking system. Whatever the reason, what's undeniable is that the supply of stable coins has skyrocketed all the way to more than $10 billion, more than doubling on the year. As this has happened, to some, it looks more like stable coins have jumped out of the crypto context and started to resemble something that looks more like a modern permissionless

version of the euro dollar system that is an integral part of today's global monetary order. Block Tower Capital's Avi Felman explains that euro dollar system here. Euro dollars are dollars held outside of the United States by foreign entities or overseas versions of American banks. Now, I don't want anybody to get confused by the name Eurodollar. The Eurodollar has nothing to do with the Euro itself, and it doesn't really have anything to do with Europe. It purely refers to the fact that the Eurodollar system emerged after World War II as the U.S. was giving dollars to Europe to rebuild infrastructure through the Marshall Plan. And so the name stuck, the name Eurodollar just stuck. Now, the size of the Eurodollar market

is pretty massive. According to the BIS, there were $4.5 trillion in offshore dollar deposits by the start of Q4 2016, nearly 33% of all M2 money stock at the time. The euro dollar market is actually so big that the Fed recently began monitoring offshore interest rates with the understanding that foreign funding actually has a material impact at the Fed funds rate at home. So this similarity in funding rates has only increased demand for euro dollars as foreign entities can lend at the same rate as the Fed does, and they don't have to be regulated by the U.S. government. The system has gotten so large and liquid that derivatives on euro dollar lending rates have become the de facto way for global investors to speculate on and hedge changes in the federal

funds rate. So the rampant demand for dollar exposure has actually catapulted Eurodollar derivatives to be one of the largest products traded on CME by volume and total interest. There's now broader demand for U.S. dollars. And so what you're seeing is you're seeing stable coins actually being demanded by people in countries that want access to a stable currency, especially in the face of a crisis. So in a crisis, cash becomes king, and the dollar is the king of cash. Independent researcher Hasu takes these ideas even further, making the point that the Fed policy of near 0% interest rates makes crypto dollars

even more appealing than traditional dollar exposure. People were definitely using stable coins to get dollar exposure even before the crisis. But the crisis seems to have accelerated demand quite a bit, leading to supply increase of these crypto dollars from around $3 billion pre-crisis to over $10 billion today. And I see that as the result of four different trends. First, when the overall market volatility is high and demand for safety, for safe haven assets goes up also.

And stable coins definitely satisfy this demand in the crypto markets, very similar to Fiat or an exchange. But many exchanges still don't support Fiat pairs, and the Fiat also tends to be stuck on exchanges that do support it. Second, the opportunity cost of holding crypto dollars has declined now that the Fed has lowered

the federal funds rate to near zero. So you no longer miss out on any interest by putting the money into crypto dollars compared to an onshore bank. Third, we have seen increased demand for dollars from emerging markets. And crypto dollars make it easier than ever to get dollar exposure if you're living in Russia, Brazil, Argentina, and so on. All of these are local currencies that have had double-digit inflation against the dollar so far this year. So if the most dominant crypto use case during this crisis has been for people around the world to more easily access dollars, does that mean that the core ideas of crypto are ultimately just simply subservient to the broader order? Castle Island Ventures Nick Carter would argue

no. In this clip, he makes the point that an essential aspect of Bitcoin and cryptocurrencies is that they allow people to store wealth in a way that can avoid the vagaries and whims of local political regimes. In that context, stablecoins are doing something incredibly important. Initially, I thought stable coins were just for traders to move money around exchanges and retain them within the crypto industry while going risk off. But it's become clear to me in more recent months that stable coins actually have a genuine usage here, even for non-traders, just for regular people. And it's just a matter of entrepreneurs creating products around them that may be abstract away some of the complexity and just reinforce the fact that.

that these are unencumbered dollar IOUs, and typically in offshore banks that are always convertible, a par, redeemable, and you can use them without restriction. That's a very powerful thing. Those are digital dollars outside the confines of the banking system, or at least out the side of the confines of the local banking system. And that's where dollarization has fallen short a lot of times, in places like Argentina, Zimbabwe, Ecuador actually had a product like they had a central bank

digital currency, which was dollar denominated. In all those cases, the banking system was the point of failure that the government used because typically they wanted to confiscate the value of individual savers. They wanted to confiscate savings from the general public. So they were always able to lean on their local commercial banks to confiscate funds in various roundabout methods. And stable coins instead, they take a single governance regime, whether it is tethers, governance rules, or the Circle Consortium, or something else. You know, there's like 50 stablecoin issuers, maybe. And it outsources that or exports that, rather, to the whole world, which is pretty cool if you ask me. And my guess is that those monetary arrangements are going to be more suitable or

there'll be demand for those overseas monetary arrangements in places where physical dollar cash is hard to obtain and the local banking system doesn't support dollar deposits and savings because they're, you know, denominated in whatever the local currency is. And the truth is that even though we make fun of the dollar as Bitcoiners, the dollar is pretty much the best sovereign currency relative to all the other ones. And in a time of crisis, people have dollar denominated debts. They need dollars. That's why we've seen dollar rallying so much, really breathtaking, actually, in the last couple weeks. And I think what the ultimate effect of this will be, you know, I don't think cryptocurrency or Bitcoin is going to destroy fiat.

I do think it potentially accelerates the destruction, a lot of weaker currencies, because it gives these non-financial rails to flow out of some local currency and into a currency of your choosing. Most of the time, that's the dollar. That's what people are familiar with. In some cases, they already have a feeling for what it's like as a unit of account. They might have some dollars, some physical dollars. So I think, you know, in the near term, the biggest contribution of cryptocurrency is not catalyzing some hyper-bitquinization event and toppling all the central banks.

It's giving people easier access to the dollar or to a tokenized representation of the dollar under, you know, a number of issuers of their choosing. And I'm sure there's going to be more and more credible ones. Like, we'll see what the Libra does here. You know, that's a pretty interesting thing. So that's kind of the concept I've been obsessed with for the last few months. And in the last month, I think the supply of stable coins has gone from about $4.5 billion to just crossed $8 billion today. I could easily see it over $50 billion by the end of the year. Coming up after the break, we returned to Bitcoin and why a moment in which every central bank rushes to print whatever it takes to backstop the economy

might be, in fact, the exact moment it was made for. Support for this podcast and this message come from Grayscale Digital Large Cap Fund. In times like these, diversification is key. Consider Grayscale Digital Large Cap Fund, ticker symbol GDLC. It's the only publicly traded investment product that offers diversified exposure to large-cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash CoinDesk. That's G-R-A-Y scale.co slash coin desk. Let's pause here to take stock.

We've got a real use of crypto in stable coins that are providing permissionless access into dollars and away from local monetary regimes. We've got a narrative battle over whether, right now, in this moment, Bitcoin is a risk asset or a safe haven. But we also have a gnawing question of what happens on the other side of the immediate shock of this crisis, as demand returns and markets are left trying to figure out what to do absolutely awash in fiat currencies. Masari founder and CEO, Ryan Selkis, discusses the potential true relevance for Bitcoin in that context. My co-founder Dan McArdle wrote in July of 2018 a thread about

how Bitcoin will perform and what the narrative will be when there is the next financial crisis and next recession. And the whole premise was Bitcoin is not a safe haven. It's not an inversely correlated asset where people will flock to it in times of distress, and it will ultimately act no differently than gold did during the 08 crisis. When there's a flight to liquidity, all correlations go to one, and that is going to include Bitcoin as a risk asset, just like it did with gold. Long term, if people are concerned about currency weakness, emerging market currency crises or failures, if they're worried about the destruction and debasement of the dollar or other existing reserves. That's when the digital gold and gold narrative plays out, and ultimately,

this has to be a cycle in which Bitcoin does well. On March 13th, before significant Fed intervention was announced, podcaster and investor Preston Pish joined the breakdown to discuss some of these exact dynamics and how we get from what is now an economic crisis to what could at some point become a currency crisis. So what you're having right now, because 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 bank 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 that flippening of getting bid in 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 flippinging 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 bank step in in a major, massive, unprecedented way.

In the clip you just heard, Preston Pish was talking about the theoretical example of what happens before Fed intervention and after Fed intervention. Well, since that was recorded, the Fed intervened and in a major way. We have... have seen a doubling of the Fed's balance sheet, trillions of dollars in stimulus, more stimulus proposed, a blurring of the line between the Fed and the Treasury, and this is all just in the US. Around the world, the story is the same. Canada's central bank has tripled the size of its balance sheet. Australia has grown by 43 percent, and so the story goes. So what might happen as people look to this incredible new dollar creation and start to lose faith or have worry in the

very dollar system, the very idea of a sovereign fiat currency as the global backstop. Investor and researcher Luke Gromman argues for the need for a neutral settlement asset. The bedrock underpinning this $57 trillion monster in the offshore dollar markets was the dollar will be kept as good as gold for oil. And now it's not. Despite it's the contrary. And now it's definitively not. And so I think particularly in the aftermath of 08, you saw the central banks move first.

when they started buying gold again for the first time in 35 years. And then in 3Q14, they stopped buying treasuries altogether, but they kept buying gold and they keep buying gold. And so to me, this system, the way it has organically shifted, it still needs some sort of neutral settlement asset. You cannot have a depleting asset like oil, where the U.S. has the ability to basically print money for that oil. in short because energy, it's energy, right?

Energy, there's no such thing as free energy anywhere in the world. And I have to give credit to that. I think to Josh Crum, who came up with that. I think it's a great concept, the way of explaining us. There is no such thing as a free energy machine in the world. And the dollar system has structured from 44 to 71 was a free energy machine in a way, but it had that gold tie. So there was a governor on it.

Post-71, there was less of a governor on it. it, you know, but we still manage to keep the dollar as good as gold for oil. Post O3, it's gone into Lala land and there's no governor on it. And so it naturally begins to push people back toward the market solution, which is you need a neutral settlement asset, you need a bank or. And I think ultimately, I think gold and Bitcoin as neutral settlement assets for what I would say, gold for the official sector and big institutions. And Bitcoin, for the people, if you will, are these Bank Corps solutions that allow you to, you know, to allow creditors to escape this system because you, in the system we're describing,

in a UBI world, you cannot store your surplus wealth in the debt of another when that debt is just being created, when that debt effectively becomes currency, which is what we just described. So I think gold and Bitcoin do extremely well. They've, you know, Bitcoin obviously has done extraordinarily well. gold's finally showing some legs in the last 12 months after a long period of time. But I think they are likely to be two of the biggest winners in terms of assets over the next five to 10 years. Preston Pish again argues the benefits of Bitcoin over something like gold and why it seems to

him like governments looking to move away from the dollar system are likely to begin hedging into Bitcoin. 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 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 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 other settlement currency is there other than gold? Okay. So they can do that. And they have been doing that. But now 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 a small portion of the gold. So now you've kind of turned this on its head and where you've 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. There is, of course, another possibility that isn't so adversarial. One idea that some have floated is some new Bretton Woods conference. In other words, a new moment of international cooperation where some synthetic basket

currency is created and adopted to replace the dollar at the center of the global order. Without the buy-in of the U.S., however, a political possibility that is basically unimaginable as it stands, most are skeptical, and in that skepticism, Bitcoin rises to the top. Jeff Booth is the author of The Price of Tomorrow, why deflation is key to an abundant future. In it, he argues that the inherent deflationary power of technology to drive prices down is on a direct collision course with the Fed and other central banks' inflationary economic policy. In this clip, he echoes Preston's skepticism of the possibility of global cooperation for a new standard. If I could choose to have my Bitcoin go to zero and governments chose to have a

Bitcoin-like equivalent so that we could transition to this in an orderly way, I would take that choice because it meant society actually. prevailed and you could make this transition hopefully peacefully. I don't think there's any chance of that. So I think Bitcoin is going to, I think Bitcoin is going to dominate, but it's going to dominate because countries cannot get together and develop a currency that has Bitcoin type equivalents. Each country is going to try to create their own currency to manipulate rules

because we have a low trust environment right now. and so I don't think that that will happen. And as a byproduct of that, then Bitcoin is going to be very, very successful. If they don't, and you accept the thesis, so I talked about technological deflation and what governments are doing to try to stop it, it's going to happen anyways. It's just going to happen to Bitcoin. Because it also creates an incentive for other governments to get together earlier, potentially buying Bitcoin in behind the scenes, before,

a group of governments to senderbite and say, okay, we're pegging to this because it has more security than the U.S. dollar. So it creates, by not doing it, it also creates an incentive for it to happen faster. Pish again reinforces the difficulty of a new Breton Woods, arguing that is not just about getting people to agree, but breaking the spending habits as part of that agreement. 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 all these countries coming to the table in 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, congressionally 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. In many ways, all of these arguments for Bitcoin have been some sort of Bitcoin by default becomes the best option. Nick Carter, however, makes another really important point, that Bitcoin isn't just a sound money, but a money that is free from political discretion and capture. Bitcoin is an emerging monetary alternative, and it's a project that will take decades to reach maturity.

And we're still at the earliest stages. This is the moment for crypto enthusiasts to step up and say, hey, look, we created an alternative, which is not totally immune, but much more immune. to political discretion. And I think this is something that's been lost a little bit. You know, the dollars purchasing power is actually increasing at a time when effectively lots more dollars are being implicitly created, which is confusing to a lot of people, right?

But that's because the dollar is exposed to all these other dynamics, not just the supply side dynamics, but the demand side, especially from emerging markets. But, you know, it's not strictly speaking the purchasing power that Bitcoin you know, unanticipated purchasing power collapses due to inflation the Bitcoin hedges against, Bitcoin does much more than that. It insulates the money from political discretion. So under a Bitcoin standard, you don't have the ability to bail out, you know, corporates that might have taken on too much risk. The money is issued in a very specific way, and it's issued in a free market way. So the only way to get it is to compete in the market to be a mentor,

of Bitcoin. That's a very profound thing. To me, the monetary issuance traits are absolutely critical and often overlooked. And the whole point is to eliminate discretion in the system. That's where these crises come from, in my opinion, from the implicit guarantee. That's why you get the risk taking. Now, granted, there's plenty of cases in the crypto industry where protocol developers do create slush funds and they monetize their protocol proximity, so to speak. So you have Cantillon insiders in some of these other protocols, but very much not so in Bitcoin. And that's one of the things I like about Bitcoin. It's predictability. It's institutional stability. The fact that we're all on even footing in terms of the money supplied, the fact that it really is robustly free

market and how the units are issued. You know, those are the things that really matter. And nothing has changed from that perspective. So what are we left with? The reality is that this is a story that is still in progress. Just as we couldn't foresee this exact virus-wrought context or have predicted the shutdowns that came as a response or guessed at the exact mechanism of government intervention, no one can know exactly how the rest of the economic story will unfold

and what capacity Bitcoin has to offer as a true global alternative to today's fiat system. What is clear, however, is that more people than ever are taking notice. On May 7th, legendary hedge funder Paul Tudor Jones shocked the finance world when he released a full-throated argument for Bitcoin just days ahead of the halving, the every four-year event where Bitcoin's rate of issuance and block reward is cut in half. What is clear is that Bitcoin is an asset that is becoming more scarce,

right as every other currency is becoming more profligate. While this may not lead to inflation or the currency debasement that we accept, the narrative power of the contrast is inescapable. On that note, let's wrap with a clip from CNBC's squawk box between Joe Kernan and Chimath Palahapitia. Chimoth is considered by many to be this generation's Buffett, and his article for Bloomberg in 2013 calling Bitcoin Schmuck Insurance was one of the most influential in Bitcoin's history. We had Paul Tudor Jones on yesterday, and he was talking about, you know, QE, infinity,

however you want to look at it, and that maybe the time will come. when you need to have some type of asset that there's a fixed amount of. And he was referring to Bitcoin. I think maybe even Paul Tudor Jones. Say the words. I have to disclose that I own, I mean, compared to you, I own like three cents out of a dollar or something. You know what I mean? But I have to disclose that I own it.

But Paul Tudor Jones made the case yesterday. And you know, yesterday was the happening. I don't know. The having was yesterday. So the stock, the flow has now gone up. Joe, this is again, now you're seeing a lot of lines of different thinking converge. So when we started to believe in the long-term value of Bitcoin, it was as a store of value, and it was that schmuck insurance that you kept under the mattress.

And there was a small cohort of us that had believed this for like almost the last 10 years now. But when you have people like Paul Tudor Jones, sophisticated market participants, who don't necessarily come to it from that perspective because he was probably first in in gold or, you know, curve steepeners or whatever, now all of a sudden even he is looking at Bitcoin. And the reason is because we are in this massive deflationary spiral. And you have to figure out how to protect yourself. And so however you think about it from a classic economic theory or the schmuck insurance where you're somewhat skeptical of the, you know, established governing masses, it is important that we have a hedge, non-correlated hedge. And I still

struggle to find anything that is as uncorrelated to anything else and to everything else than Bitcoin. And I think that, you know, if we see it have its day, it's a moment where you're going to wish that you had just bought the 1% and just kept it. So there you have it. Whether it's schmuck insurance, digital gold, an escape valve from undesirable local currency regimes, or simply the most uncorrelated asset around, in this battle for the future of money, Bitcoin will play a role. next time on the final episode of Money Reimagined, a recap of the most interesting insights about the future of money from the Consensus Distributed Virtual Summit.

You've been listening to The Breakdown, Money Reimagined. Our theme song is Faith in My Money, Money Printer Go Bur, a new track from DJ Scrilla, which is available as part of his newly released Sound Money album. This episode featured content from NLW, Mark Yusco, Kevin Kelly, Anthony Pompliano, Michael Casey, Avi Feldman, Hasu, Nick Carter, Ryan Selkis, Preston Pish, Luke Gromman, Jeff Booth, and a clip from CNBC's squawk box

between Joe Kernan and Chamath Palapitia. This episode is written and produced by NLW, announced, scored, and executive produced by Adam B. Levine and edited by Rob Mitchell. If you have any questions or comments, email us at podcast at coindex.com, and stay tuned for the last installment in our continuing story.