The Breakdown - The Breakdown Weekly Recap | May 30 2020

Episode Date: May 30, 2020

The week's episodes in one convenient file.  Monday | Best of April/May (not included in Weekly Recap)  Tuesday | Deglobalization and Other Narrative Violations, Feat. Geoff Lewis Wednesday | Why Innovation Matters (and How Not to Screw It Up), Feat. Matt Ridley Thursday | The Geopolitical Implications of a Too-Strong Dollar, Feat. Brent Johnson Friday | The Battle for the Future of Money, feat. Lawrence Summers, CZ, Michelle Phan, the Winklevoss brothers, The Chainsmokers and more. [Money Reimagined Episode 4]

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 30th, and boy, what a week it has been. As with every Saturday, this episode is a compilation of the full run of programs from the week before, so you have them all in one convenient file.

and as every Saturday, I want to take a few minutes to just talk about what my reflections on the week are. And as I said, it's been a crazy week. And so I think there's three events that are worth holding in mind, keeping track of, paying attention to. And so I want to share a little bit about them. The first is this Trump v. Twitter First Amendment censorship thing. I'm sure if you're listening to this program that you've probably seen, but the TLDR is that Twitter started to put a, fact-checking messages on Trump tweets and then labeled one of his tweets. Basically, it said it violated their policy around supporting violence.

And so it's kind of created this Trump v. Twitter thing where he's apparently considering an executive order trying to remove protected status that would enable lots of lawsuits to basically punish Twitter for the content that their users posted, which would be a change in how platforms are regulated today, right? So if someone says something on Twitter, you can't sue Twitter for what they say if something bad happens. This would change that. I think a lot of things about this. I'll do a full show on it at some point.

It's a really complicated issue. But I think for me, the number one issue that is worrisome to me is active U.S. politicians interfering in private companies. That's something that I think is a genuinely bad precedent that I really don't want to see. So that's something to keep an eye on from a variety of perspectives, but certainly worth noting when you have a sitting U.S. president who's basically picking a fight with private enterprise in a direct way like that. The second huge issue from this week, which is something that I'm going to have more coverage on next week, but I think is important, is Hong Kong. China is making moves to make the independence of Hong Kong less and less relevant and basically bring it within its purview in a pretty significant. way. And this comes, you know, on the heels of almost a year of protests now in Hong Kong about the relationship with China and is hugely concerning, right? This is an incredibly important

independent economic base that has that apparently really threatened. The U.S. government has gone so far as to say in a tweet from Mike Pompeo, the Secretary of State, that it no longer sees Hong Kong as independent from China. In a speech yesterday, Trump announced that it, a number of new actions regarding China because of this. But it was interesting because none of those actions amounted to an actual defense of Hong Kong. It basically just created further punishments for Hong Kong because they were now going to be treated like part of China. Anyways, like I said, I'll have a lot more on that next week with some guests. And I've got feelers out for a huge number of guests on that topic.

I think my feeling is that whenever there is such a huge geopolitical, rift or challenge like that, it's going to have implications for markets for macroeconomies and so on down the line. So that's why I think it's worth spending some time on that. So that's issue number two or thing number two that happened this week. The third thing is, of course, the video of George Floyd being executed effectively and the protests that have turned into riots around the country. I think what's clear is that this is not just the response to a specific, discrete incident of police brutality, but a broader reflection of the feeling of anger and despair and economic dislocation and fear for the future and systemic racism.

And every part of what has been bubbling under the surface for a very long time is starting to come to a head. And I think the important thing to watch is how this continues to metastasize and burnout where this anger, where this fuel goes. It's very hard to believe that this is just going to dissipate and go quietly into the night when it is clearly about so much more than just this one incident, as horrific as that incident is. My caution for all of us around what we're seeing from these protests and what they reflect and what they represent and the anger that they are reflection of is that when you have an establishment, a leadership class that is as threatened as the leadership class is going to be by not only these protests, but the anger that they

represent and the numerous sources of anger they represent, there are a very small number of techniques available to them in the playbook. And they more or less all come down to divide and distract. Divide, get people to blame each other. And you're seeing this in the rhetoric around looting and this is manipulations and it isn't actual real protesters. So there's the divide tactic. Try to plug this into old divisions, old political categories, make it yet another aspect of the culture war. And there's distract. And distract, unfortunately, is often by picking enemies and picking fights away.

And there's not an exception. It's not an accident, rather, that I am mentioning this in the same light as mentioning the increased escalations with China. I think that there is a fear, a legitimate fear, of the way that that foreign policy can be used to distract from local turmoil. Now, in the spirit of sharing things that I've found enlightening or illuminating rather than trying to make sense of it myself and give you answers or context that I don't have and, you know, ideas that I haven't fully processed yet, I wanted to share two clips. The first is from Killer Mike, the hip-hop artist, speaking in Atlanta. This is a clip that I've seen a lot of people sharing as a voice of calm in the madness and a voice of comparative reason in

the chaos and the turmoil and the divisiveness. And you may not agree with all of it, but that's not why I'm sharing it. I'm sharing it because it's resonating with a lot of people. And I think that resonance is worth trying to understand. The second clip, I'm sharing is historical. It's a speech from the night that Martin Luther King was murdered, and RFK, Robert F. Kennedy, was set to do a political event in Indianapolis. The local police told him that they could not guarantee his safety or protection if he went and did this event, and he insisted on doing it anyways and ended up giving this speech, this five-minute speech from the back of a pickup truck. And later that night, as almost every day,

city in America burned to some extent Indianapolis was comparatively calm. So it's a reminder for me that we have been through hard times before and we have gotten through them. Anyways, guys, I hope you enjoy these clips and I hope you enjoy the rest of the shows from the week. It was a great week of interviews and conversations. We had Brent Johnson coming to talk about the Dollar Milkshake Theory. we had Matt Ridley talking about the history of innovation and how to spur it on. We had Jeff Lewis talk about narrative violations and why seeking out narrative violations can be a great way to provoke change. And finally, we had the last of the Money Reimagined series, which looked at the battle for the future of money and had some incredible speakers from the Coin desk Constrances distributed event that happened a couple weeks ago from the chain smokers to Michelle Fon to CZ from Binance to the Winkle Vosses, to, Larry Summers and beyond. So a great week of shows, even though it was a hard week, honestly,

for I think most people to be thinking about anything just strictly crypto-related, strictly speaking. Anyways, I appreciate you hanging out with me. I appreciate you thinking through these tough issues and how to advance as individuals and as a society with me. So until next week, be safe and take care of each other. Peace. And I don't want to be here. I'm the son of an Atlanta City police officer. My cousin is an Atlanta City police officer. And my other cousin East Point police officer.

And I got a lot of love and respect for police officers down to the original eight police officers in Atlanta. That even after becoming police had to dress in a YMCA. because white officers didn't want to get dressed with niggers. And here we are 80 years later. I watched a white officer assassinate a black man. And I know that tore your heart out. And I know it's crippling. And I have nothing positive to say in this moment.

Because I don't want to be here. But I'm responsible to be here. because it wasn't just Dr. King and people dressed nicely who marched and protested to progress this city and so many other cities. It was people like my grandmother, people like my aunts and uncles who were members of SCLC and NDACP, and in particular, Reverend James Orange, Mrs. Alice Johnson, and Reverend Love, who we just lost last year. So I'm duty bound to be here to simply say that it is your duty not to burn your own house down for anger with an enemy. It is your duty to fortify your own house so that you may be a house of refuge in times of organization. And now is the time to plot, plan, strategize, organize, and mobilize.

It is time to beat up prosecutors you don't like at the voting booth. It is time to hold mayorial offices accountable, chiefs and deputy chiefs. Atlanta is not perfect, but we're a lot better than we ever were and we're a lot better than cities are. I'm mad as hell. I woke up wanting to see the world burn down yesterday because I'm tired of seeing black men die. He casually put his knee on a human being's neck for nine minutes as he died like a zebra in the clutch of a lion's jaw. And we watch it like murder porn over and over again. So that's why children are burning to the ground.

They don't know what else to do. And it is the responsibility of us to make this better right now. we don't want to see one officer charged. We want to see four officers prosecuted and sentenced. We don't want to see targets burning. We want to see the system that sets up for systemic racism burnt to the ground. And as I sit here in Georgia, Homer Stevens, Georgia, former vice president of the Confederacy, white man said that law, fundamental law,

stated that whites were naturally the superior race and the Confederacy was built on a cornerstone. It's called a cornerstone speech. Look it up. The cornerstone speech that blacks would always be subordinate. That officer believed that speech because he killed that man like an animal. In this city, officers have done horrendous things and they have been prosecuted. This city's cut different. In this city, you can find over 50 restaurants, owned by black women. I didn't say minority, and I didn't say women of color. So after you burn down your own home, what do you have left but char and ash?

CNN? Ted did a great thing. I love CNN. I love Cartoon Network, but I'd like to say to CNN right now, karma's a mother. Stop feeding fear and anger every day. Stop making people feel so fearful. Give them hope.

I'm glad they only took down a sign and defaced a building and they're not killing human beings like that policeman did. I'm glad that they only destroyed some brick and martyr and they didn't rip a father from a son. They didn't rip a son from a mother like the policeman did. When a man yells for his mother in duress and pain and she's dead, he is essentially yelling, please God, don't let it happen to me. And we watch that. So my question for us on the other side of this camera is after it burns, will we be left with charred or will we rise like a phoenix out of the ashes that Atlanta has always done? Will we use this as a moment to say that we will not do what other cities have done? And in fact, we will get better than we've been.

We got good enough to destroy cash bonds. You don't have to worry about going to jail for some petty. We got smart enough to decriminalize marijuana. How smart are we going to be in the next 15 or 20 years to keep us ahead of this curve? So that much like when South Africa suffered apartheid, you had Andy and other politicians that could make sure that Atlanta said Coca-Cola, we love you. But if you don't pull out of South Africa, we're going to leave. We're not going to drink Coca-Cola anymore. Coca-Cola jumped on their side in apartheid Indian.

So we have an opportunity now because I'm mad. I don't have any good advice. But what I can tell you is that if you sit in your homes tonight, instead of burning your home to the ground, you will have time to properly plot, plan. strategize and organize and mobilize an effective way. And two of the most effective ways is first taking your butt to the computer and making sure you fill out to census so that people know who you are and where you are. The next thing is making sure you exercise your political bully power and going to local elections and beating up the politicians that you don't like.

You got a prosecutor sent your partner to jail and you know it was bullshit. Put a new prosecutor in there. Now's your election to do it. You want a different senator that's more progressive that promotes marijuana through. Now is the time to do that, but it is not time to burn down your own home. I love and I respect you. I hate I don't have more to say. I hate I can't fix it in a snap. I hate Atlanta's not perfect for as good as we are.

But we have to be better than this moment. We have to be better than burning down our own homes. Because if we lose Atlanta, what else we got? We lose an ability to plot, to plan, to strategize, to organize, and to properly mobilize. I want you to go home. I want you to talk to 10 of your friends. I want you guys to come up with real solutions.

I would like for the Atlanta City Police Department to bring back the community review board when that Alice Johnson was formerly under under Chief Turner. We need a review board here before an officer does some stupid shit. We need to get ahead of it. That's my recommendation to my mayor and my chief. Let's get a review board.

Let's get ahead of it. And let's give them power. We don't need an officer that makes a mistake once, twice, three times, and finally he kills a boy on national TV, and the next thing you know, the country is burning down. We don't need a dumb-ass president repeating what segregation is said. When you start looting, we start shooting. But the problem is me of some officers black and some people are going to shoot back. And that's not good for our community either. I love and respect you all.

I hope that we find a way out of it because I don't have the answers, but I do know. We must plot, we must plan, we must strategize, organize, and mobilize. Thank you for allowing me some time to speak. I'd like to appreciate our chief of what she said on YouTube. I thought it was very bold to do. I'd like to appreciate our mayor for talking us like a black mama and telling us to take our ass at home. And I'd like to talk, thank my friend for convincing me to come here, and I'll defer to Joe Beasley now because he knows a hell of a lot more than we do.

Thank y'all. I have some very sad news for all of you. for all of you and that is that Martin Luther King was shot and was killed tonight and that was Martin Luther King dedicated his life to love and to justice between fellow human beings he died in the cause of that effort in this difficult day in this difficult time for the United States it's perhaps well to our what kind of a nation we are and what direction we want to move in. For those of you who are black, considering the evidence evidently is that there were white

people who are responsible, you can be filled with bitterness and with hatred and a desire for revenge. We can move in that direction as a country and great polarization black people amongst blacks and white amongst whites filled with hatred toward one another or we can make an effort as Martin Luther King did to understand and to comprehend and replace that violence that stain of bloodshed that is spread across our land with an effort to understand compassion and love. For those of you who are black

and are tempted to be filled with hatred and mistrust of the injustice of such an act against all white people, I would only say that I can also feel in my own heart the same kind of feeling. I had a member of my family killed, but he was killed by a white man but we have to make an effort in the United States

we have to make an effort to understand to get beyond or go beyond these rather difficult times my favorite poem my favorite poet was Escalis he once wrote even in our sleep pain which cannot forget falls drop by drop upon the heart until in our own despair against our will comes wisdom through the awful grace of God.

What we need in the United States is not division. What we need in the United States is not hatred. What we need in the United States is not violence and lawlessness, but is love and wisdom and compassion toward one another. feeling of justice toward those who still suffer within our country, whether they be white or whether they be black. We can do well in this country. We will have difficult times.

We've had difficult times in the past, and we will have difficult times in the future. It is not the end of violence. It is not the end of lawlessness, and it's not the end of disorder. But the vast majority of white people and the vast majority of black people in this country want to live together, want to improve the quality of our life, and want justice for all human beings that abide in our land. We dedicate ourselves to what the Greeks wrote so many years ago to tame the savageness of man and make gentle the life of this world.

that has dedicate ourselves to that and say a prayer for our country and for our people. Thank you very much. Support for this podcast and this message come from Eris X. With ErisX, 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 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 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 coin desk. That's g-r-a-y-scale.co-co slash coin desk.

Welcome back to the breakdown, an 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 Tuesday, May 26th. And those of you who listen regularly know that I spend a lot of time thinking about narratives. Narratives for me are the way that we make sense of complex phenomena. They're the way that we orient lots of information and make it make sense contextually. But narratives are a battleground. Narratives are constantly in flux, and narratives because they interpret the world around us, different narratives offer different competing interpretations, and those tend to

create political battle. You see this all the time in the crypto industry, as people compete to define and explain what's important and why and what people should spend their time on, and ergo where people should put their investment within. Narrative battlegrounds become the way that resources are allocated in some contexts like that. I think about narratives all the time, and I'm excited to have a guest today who thinks about narratives in a really unique way as well. My guest is Jeff Lewis. Jeff was previously at Founders Fund, where he led investments in companies like Lyft, and is one of the two founding partners of Bedrock Capital. When Bedrock Capital was announced in 2018, they announced it with a letter that got a lot of attention for talking about

narrative violations. And effectively, their thesis was that instead of looking for companies that met the conventional wisdom about how the world was or how the world was changing, they were going to go look for companies that actually violated current narratives in ways that they thought were powerful and offered an opportunity for asymmetric return. As you'll see in this conversation, the idea of narrative violations is not something that I think is strictly speaking a venture capitalist or investing concept alone. I think it's about a way of seeing the world and trying to peel back narratives to understand what the counter-narrative might be. I think especially now, that's a really important skill. Being able to see through narrative mirage, which is another term

of Jeff's, is a really, really important skill. I hope you enjoy this conversation as much as I did. And as always, interviews that are long like this, we edit only very lightly to keep the conversation as natural as it was. So with that, let's dive in. All right. We are back with Jeff Lewis. Jeff, thanks so much for joining. Good to be here. So I remember when you launched your venture fund, you launched it with a letter, which got a ton of buzz. And the central conceder, one of the central ideas was the search for narrative violations. This is something obviously that I think about a huge amount, just narratives in general.

I think they're a hugely important and often under-examined force in society and business. But I'd love to hear just from you what this idea of narrative violations really means and how did this notion of organizing capital around it start to form? Sure. So, you know, I'd start off by saying that it's sort of the power of narrative is sort of one of these things that sort of always been hiding in plain sight and in business. And so it's sort of like, for the narratives to work, you can't explicitly talk about them in the context of being a narrative.

And so, you know, there's a sense in which, you know, Bitcoin became a store of value because people believed that it was going to become a store of value. but if you actually said, well, we need this sort of value narrative to work for Bitcoin to become valuable, it wouldn't have become valuable over time. So there's a sense in which the narratives are very powerful. They sort of have an impact across all areas of business, the markets. And then it's sort of very dangerous to talk about, to talk about them explicitly as narratives because you might burst the bubble and they might stop working. What we wanted to try and do with Bad Rock was in venture capital.

There are sort of two ways that you can make money. You can either invest in something that people generally believe is going to work. You can be sort of more bullish than everyone else and something that folks are already bullish on. And so recent examples of that would be something. like, you know, Figma, which is sort of a design collaboration tool where sort of everyone's sort of felt it's going to work for a long time. And folks can just compete to pay higher prices to invest. But there's sort of a consensus view that it's a business that's clearly working in the consumer space, you know, something like Snapchat's been doing well in the public

market. So you can sort of, obviously, Amazon is sort of consensus good company. So you can, you can when these businesses are private, you can be more bullish than everyone else in saying that everyone's bullish on. Or you can be bullish on something that others are bearish on. So you can believe something's going to work that others just think is going to fail. You know, in my case, Lyft would be sort of the modal example. When I led the financing around in that company, it was like everyone thought it was this crazy thing with these pink mustache that was going to get destroyed by Uber. This was back in 2012.

But with Bedrock, what we wanted to do is try and carve out this third way of actually what are businesses, what are markets that are just completely not captured in the narrative at all. So the narratives are always these hyper-polarized. It's either going to change the world and give way to this sort of utopia or it's sort of going to destroy the world. And then technology, the narratives are especially polarized in a positive or negative direction. And so our whole idea around narrative violations, which you wrote in our letter, is can you find companies that are not captured in either one of those extremes and actually powerfully cut against or ignored by sort of the narrative?

And, you know, I'll pause there. So one of the implicit things in narrative violations is that the narratives tend to be, have historically tended to originate from the media. So there's a sense in which narrative violations investing strategy is kind of a contra legacy media investing strategy. So you sort of do the, you would sort of want to avoid things that the legacy media is hyper-focused on. It's interesting. I think we'll talk a lot about media because I do think that it's a good, it's a good note, I think, to start or to have right in this upfront where it is interesting how much of this new kind of mental space.

It's interesting because in a lot of ways, and I think that you experience this a lot in your conversations on Twitter, you're bringing this idea of this as an investment discipline or investment strategy. But really, it's kind of a way of seeing the world strategy that happens to have investing implications if you want to sort of apply it to that. Is that a fair thing to say? Yeah, it's a fair thing to say. It's sort of how one can make money with it. So that's sort of why one would want to investigate it. Yeah, it's interesting. One of the parts of the letter, I was rereading it before our conversation.

And you guys wrote, allowing a popular narrative to decide for you is the most seductive of shortcuts. And I thought that was a really, a particularly insightful line. And so I guess, you know, we're now living in this world where the narratives seem pretty up for grabs. I mean, is that your sense coming out of COVID that there's been kind of a big Overton window shift on some previously firmly held narratives? Or do you think it's been overstated because we've been living through this, actually, I guess let me clarify. Do you think that the scale of these shifts in people's bands of perception are truly expanded? Or is that a momentary blip based on kind of the strange situation of quarantine? Well, you know, I'd like to believe that it's the, I'd like to believe that it's the former.

And so I'm certainly seduced by the idea of believing that folks actually realize that the narrative gatekeepers actually haven't really known what they're talking about. And the fact that we had sort of no comprehensive pandemic preparedness plan and there was no sort of mobilization of all the smartest people in the country back in February to figure out what we ought to be doing. And instead it's sort of just been this haphazard disaster at literally every level, at the federal level, municipal level, the state level. It's, you know, the way in which the stimulus has been executed, to me, feels sort of extraordinarily dangerous, secure, you know, the sort of economic cure is going to be worse than the virus over many years.

Certainly one would, well, it's seductive to believe that, that everyone sort of sees that the emperors, quote unquote, have no close. but then at the same time, I actually feel that most people, you sort of experience, I think most people will just experience this as a sort of hyper traumatic event. And when a sort of hyper traumatic event happens, you sort of just want to forget that it happened and sort of move on with your life. And so I sort of think there's going to be this bifurcation where on the one hand, there's the subset of, of, of the world that the Overton window has been sort of massively expanded for and that's a very positive thing. And on the other hand, I worry that actually, it just, it, it, I worry that sort of not enough people sort of have the ability to think about these things in this way.

And therefore, it's sort of just weird, it's just this weird degradation. It's like everything is the way it was except worse or something like that. Yeah, it's, you know what? I was kind of watching. I think this is a strange thing to celebrate, but I think that there is actually something potentially good in the fact that the crisis of institutional leadership was so cross-cutting across every political perspective, every political party, every type of institution, you know what I mean? And there was a moment where I think, you know, it could have been a conversation more broadly about the nature of those institutions that cause such spectacular failure. But instead, as it seemingly always does, just created new battle lines around the same

culture war, right? Like, instead of having a mass conversation about how we let ourselves get into this and what sort of structural things we need to change, it so quickly became the much easier, like masks as a symbol for, you know, what, what you already believed politically going into this. And that's a, perhaps not surprising, but certainly a bummer, I think, from where I'm sitting. Yeah, it's, it's been really, really, really disappointing. You know, I sent this tweet early on in the, in the epidemic that the virus broke woke. And, and I think that, I think it probably did break, the sort of woke, the old version of woke, but now there's sort of this even dumber, it's been replaced sort of even dumber, even dumber culture were around, around masks,

around, you know, around opening up or not. And I'd like to point out that I don't think this is a uniquely U.S. phenomenon. So I would argue that actually in most of the Western countries, there've sort of been versions of the same thing that sort of played out, it sort of maybe less polarized. But, you know, there's this right at France, obviously one of the countries in if it's been quite hard hit. And there's this French writer,

well back on sort of, you know, he writes in this open letter that he published about a month ago, sort of, you know, try and translate it. The way the epidemic has panned out is remarkably normal. COVID-19 is a banal virus with no redeeming qualities. It's not even sexually transmitted. It will only push further the obsolescence of human relationships. And it ends with the West has not the eternal divine right to be the richest and most developed zone in the world.

And that's sort of like the negative depressing conversion. And of sort of how this maybe just sort of accelerates these maybe somewhat dystopic depressing trends. And then maybe there is this, I'm hopeful, I'm optimistic, somewhat optimistic. There's maybe this positive version where we realize. that we can't, you know, group communities and the sort of small localized, decentralized way, realize you can't depend on any of the legacy institutions. You have to build your own sort of hyper-local, you know, organizations. You know, maybe there's a crypto version of this with, you know, local ways that on a very local level, you sort of try and build something new. But certainly,

certainly it seems really bad, really bad for all of the institution, legacy institutions, and quite bad for capitalism at large in the West, I would say. Yeah, I mean, so I think that this idea of this is a force for localism is definitely a pretty clear outcome. And I think you're seeing that on multiple levels. Obviously, you're seeing it in the fact that communities have sort of had to step up and take care of each other, right? I mean, we were just talking about this before, but I live in a tiny little town in the Hudson Valley. And the main kind of sources of community support during this time have not been, you know, PPP loans that's been, you know, the one restaurant that's still operating doing, you know, free meals for families Monday, Wednesday, Friday that are, you know, totally anonymous and no questions asked, right? So you're seeing kind of that sort of community resilience infrastructure kick back in.

But I think that there's also this larger conversation about what it looks like to redesign the economy, you know, more structurally to be resilient. Or at least some people are thinking about that. And now it's interesting because, you know, there are some sort of public market actors like Chimov who have talked about the need for resilience in the economy. But by and large, most of kind of the public market actors are just kind of rooting for more of the same. and this V-shaped recovery. How do you see the conversation playing out about these larger structural shifts that we need in terms of the economy, things like supply chains coming back home, the ability to manufacture masks or PPE or whatever it is, you know, near.

And how much is that going to be driven by kind of existing companies versus entrepreneurs from the ground up? I think there's a – I think there's just going to be a complete. 180 on the supply chain side. And so, you know, I sent out this, we're basically, we've had this 30-year trend of off-shoring and, you know, if you're a large company, sort of hire a McKinsey to figure out how you can create a, create a hyper-complex sort of offshore supply chain to cut cost and sort of the globalization story of the last literally 30 years. And I think that that is, that is for anything, quote unquote, essential, that is going to 180.

You're going to have to do things within the U.S. and have basically, you know, most of the supply chain within the U.S., I'd say there's other countries that we can partner with that aren't China specifically. So there's, you know, obviously Mexico, that relationship, I think it's going to become more important versus less important over the years to come. I'd argue we're going to have a more important. relationship with India and we've had historically. So I think the era of the sort of somewhat globalized supply chain is not completely,

not completely done, but certainly for essential things. Having a much more localized supply chain is going to be going to be important. And I do think there's a very solid startup opportunity there. I mean, certainly in a biotech context, there's a huge sort of entrepreneurial opportunity there, with local supply chain for the drugs. I mean, the drug supply chains historically had to be very dependent on China. That obviously has to change.

In a sort of coordination, just helping businesses re-coordinate, reorganize their supply chains. I think there's probably a technology startup opportunity around doing that, which is quite interesting. And I think this is something that folks sort of intuitively, intuitively understand. And so I tweeted this thing yesterday, which was sort of,

you know, I was sort of using McKinsey as a scapego, or as a sort of, you know, buzzword for globalization. I wasn't actually picking on McKinsey specifically, but I tweet out, you know, McKinsey wanted McKinsey, but for helping companies reverse whatever McKinsey's recommend it over the past 30 years. The idea there is really that era of helping companies globalize is just, I think that's just done. Because the sort of globalization, the whole predicate for globalization has been these ties with China. And that clearly is, that clearly is done now. Yeah, that tweet definitely hit a nerve, right? I think the last time I looked, it was like more than 6,000 people had favored it or something.

So clearly there is a shared sensibility with that. Or people just hate McKinsey. I think people are looking for scapegoats. And so I feel sort of bad at the tweet because it was like, well, sort of, you know, scapegoating McKinsey. It's not actually really McKinsey's fault. They were an actor in this system. And the system was just really, has just been really screwed up.

And so I'd say it's a statement on. people are extremely angry, people want scapegoats, but I think people viscerally feel and understand that this globalized, globalized world in which we could just be BFF with China and depend on them for these critical infrastructure needs from supplies to some point. That error is done. I think people do viscerally understand that. Support for this podcast and this message come from Eris X. With Eris X, you can trade spot and regulate. 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 CoinDesk. That's G-R-A-Y scale.co slash CoinDesk. I think that part of why, you know, part of your context, it's almost like,

there's another tweet that I think you could be paired with it that you sent out, which is basically saying prediction that the people who create the next normal, who actually pave the path for the next normal, will not be those same people who crafted this ludicrous global supply chain dependency while self-actualizing solely through frequent flyer status. And I think that the point here, and I mean, putting words in your mouth now, is there is a sense of you see all of these companies like doing 180s literally overnight and trying to, like getting contracts from cities to reimagine things.

Do you know what I mean? and it's sort of like it's a little bit of a bitter pill to swallow that they're just able to kind of shift on a dime and reposition themselves as experts in this new thing, which is by definition because it's new, a thing that people don't really have expertise in. Yep, totally. Totally agree. It's going to be this new crop of companies of people. And then I think the, I always like to think in terms of time scales. And so, you know, one of the things implicit with narrative violations is something can be a narrative violation, be counter-narranted. at one moment in time. So there was a moment in time at which remote work, you know, many years

ago, you know, things like Zoom, Slack that would enable remote work were counter-narrative, were narrative violations. That was a good moment in time to invest. Now those are popular narratives, the narrative of remote work, work from home. So it's arguably a sort of overheated moment in time. I wouldn't necessarily want to get involved in sort of remote work companies today as an investor's. The time scale element to this, and I think that there is a massive of time scale element to the shift that we're now going through. So I think folks are tempted to be like, oh, well, we're reopening. And so, sort of, so yeah, it's going to be like a year or two years and we sort of, you know, can repair things.

But actually, I think we're sort of, there's like a 10-year time horizon, we're just all of these things are going to change. You know, I sort of liken this to a platform shift like the, like the iPhone. It's been just this consumer behavior shock to the system. And so there's going to be this sort of 10-year wave of new innovations that ideally will come out to address new needs that we didn't have before pre-virus. And so I think folks have a tough time thinking in 10-year time horizon increments, but that's actually the type of timescale that this is all going to play out on. And so that's a long-wind way of saying, you know, maybe McKinsey will pick up a few projects over the next few months, but long-term, they're kind of screwed. Yeah. Well, and it's, there's, there are people who are going to, you know, there's a lot of people who are having kind of those heterodox ideas validated now, right? Like one person that we had on the podcast before is Peter Zan, who wrote Disunited Nations. And it looks particularly prescient now in the context of this. And it's basically arguing that, you know, we were in the next 10 years going to end this era no matter what. It's just that Corona did it in a, in massive fashion. And so I think that, you know, know, in the same way as sort of like those ideas were out there, right?

But again, they were kind of lurking in these narrative violations versus kind of in the mainstream. And you might see the people and companies who are in those spaces start to emerge now. So another question for you that I want to actually come back to work from home. And maybe just, you know, we'll go through a number of the different pertinent narrative battlegrounds almost right now. But before that, you know, so a piece that you tweeted out, which I also really liked, John Luddig wrote this great piece about the tailwinds adventure capital.

And the argument was basically that we're shifting in a kind of an era way, away from just the total blue oceans. I was almost thinking about the westward expansion when there was just so much of America to claim. And then at some point, it started to get competitive. And the thesis is that you're starting to see actual zero-sum competition. You're going to see more zero-sum competitions between Internet companies because you don't just have the kind of unlimited tailwind of growth of just more people coming online, more people spending more time online, right? At some point, people are spending as much

time online as they can. And a lot of his piece is about why venture capital might need to shift back towards being really about vision because there's going to be a new financial infrastructure, things like Clearbank that fund debt, right, and change the way that even these new companies fund themselves. I wonder, do you think that, that this sort of tenure shift that you're describing of a real reworking of the global economy is a new space that will, is it basically a new type of tailwind? The sense that we have to kind of start a mass scale project to redesign the economy to bring it back closer to us, at least around these essentials, does that create a kind of a different

tailwind for venture capital for entrepreneurs? You know, I'd like to believe that would be sort of the positive version of it. I worry that actually, certainly in the world of the internet, which I think is what John Luddig, former colleague at Founders Fund, really focused on his piece talking about software, talking about innovation on the internet. my sort of abstract sense not having thought about it would be that actually what we're getting through COVID is this crazy acceleration and internet ubiquity from everyone being at home, which would basically mean that once we're on the other side of this, we'd seen even faster

deceleration because we'll be closer to full internet penetration than we were before. But definitely if there's sort of, so I'd almost argue. that it's actually not even clear that this is going to not even clear. There's not even clear there's a positive version to the John argument. Now, all of that said, it does feel like where it's sort of version 2.0 of all of these key things. So like video conferencing, online education, you know, online entertainment. You know, we've got versions of companies doing these things. So there's, you know, there's Zoom. There's the online education companies. I'm an investor company called Lambda School, which is one of them. Other, you know, obviously the streaming

companies. It seems like streaming is probably the most baked in terms of the table set of who the players are. I'd certainly say that the video conferencing, it feels like there's actually just a lot of room for new entrants there. And yeah, it'll be. sort of zero-sum competitive or you know it's sort of quite winner-take-all but I don't think Zoom is sort of the terminal video conferencing company I'd say online education huge open field and that's going to be less zero-sum than video conferencing there can be multiple winners and it's really unclear what those companies are going to be I'd say we're just getting started on you know something balogy mutual friend of I think it's called this decentralized, calls this decentralized healthcare, the idea of, you know,

obviously telemedicine, but that's just sort of piece one of, you could imagine, just a much more decentralized healthcare industry, and it feels like that's a big white space. And so, and so, yeah, there is, there is potentially this, this, this, this set of new tailwinds. But I think the Luddig argument is just, is just basically, is just more true now than it, was pre-COVID. Yeah, I think that's a, that's a really good point. You know, it's interesting, the online education piece, kind of validating what you were just saying. So I spent a couple years a long time ago now, six or seven years ago, with a company called Learn Capital, which is one of the first, one of the first San Francisco investors to focus on education exclusively as,

like, it wasn't a double bottom line fund, right, where they were trying to have, you know, social impact as well. It was just a traditional venture fund. In fact, I think that their first fund was a carve out from founders fund way back in the day. Really? Before I joined. Yeah. Like I don't like double bottom line fund. So good to hear that was one of those. Those never work. Yeah. Yeah. And it was just, you know, it was the their whole thesis was like, look, you know, this is a hugely important economically massive area of the economy. Like you can have good, like, it's not that they didn't care about the sort of the social impact of things. It's just going to be a byproduct of funding good companies. But it was interesting because at that time, you know, I got in,

I joined, well, one, because I thought that the guys who were running it were incredibly smart and I really wanted to learn from them. But two, because, you know, to me, the education system is one of these singular most broken things. I mean, it absolutely destroys people's ambition in so many contexts. And I think, you know, it needs a total structural reimagination. The problem was when I got into it is that the most valuable thing you could be doing in education in 2011, 2012, 2013 was to basically get a big piece of the, you know, effectively regulatory capture or capture, you know, government dollars going into local schools. So as more dollars became available for kind of mandated technology to communicate between parents and students, going and capturing that was much more interesting economically than starting a big new version of a company, right? General Assembly was one of the investments back in the day. And it's just more more valuable to go after the kind of the K-12 normal market. I think that when you start to see an actual opening in the

higher education model and that huge money honeypot for reimagining things and designing it differently, you're going to see a lot of a lot of new entrance to the space that look really radically different than what we've seen before. Yeah. So I agree with that. And then I think the, the challenge on it is that a world in which we can actually have the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the the the world of, um, online education innovation writ large. So by that I mean, sort of the end of a four-year residential colleges, with, with a few, with a few exceptions. A world in which that's, uh, and, you know, sort of the rise of sort of more decentralized, not necessarily homeschooling, but certainly a sort of much more decentralized approach to, to, to K to 12. Um, a world in which that's true, I think is a world in which based. basically, the virus ends up being really, really bad. And so I don't know if we want to live in that world. Yeah, we're going to root for that much. You need to just, you need to basically, you need to disrupt sort of people's willingness to go to campuses.

So it needs to be bad enough where people aren't going to go to campuses anymore because you're sort of two congregated in large groups. And I have a tough time sort of, I don't actually think that's the direction we're heading. And so the online education, decentralized education is all, it's, you know, there's maybe these narrow areas. I think there are these narrow areas where you can build these large companies. And so we're optimistic on something like a Lambda school or, you know, something maybe like an outschool where you maybe narrowly with Lambda build it with reskilling for, you know, tech and tech adjacent jobs. You can maybe narrowly build it with homeschooling, with outschooling

or wonder school or those companies. And then to have a sort of huge paradigm shift, I think, maybe the virus would have to be worse than it is, and I don't want that to happen. Yeah, I agree, actually. I think, and this is my general feeling. Maybe this is a good context, actually, to get into work from home. I think that we have this tendency when we're talking about these shifts. And it's understandable, right? Because you kind of zoom out to like, well, what's the opposite of the system we have now? And is that what we're headed into? When really what a lot of times these shifts look like, I think is natural market forces of increased choice coming back in in some ways, right? And so, you know, for me, going back to your point, I think what we'll start to see with higher education is not, you know, a closure of all these four-year universities.

It'll be a different calculation among people about what the cost-benefit analysis is, which might put pressure on certain parts of the market, you know, to reduce prices. Or you might see a lot more Lambda school for X, right? And I think that a lot of the success of those perhaps industry-focused training things will be about do companies actually decide. that they like hires from those areas, right? If you started a Lambda school for marketing, would the DDBs and whatever of the world actually hire those people? Or are they just going to be looking for kind of traditional paths? And who knows?

But it's going to be less or my guess is that it's less a full-scale shift from one paradigm to another and more just these things kind of creeping around the margins and creating more optionality. And I think that, you know, we were talking about work from home in a similar light. You've had kind of an interesting journey following on Twitter for the last two months or so in your work from home thoughts. Take us through kind of how you thought about it at the beginning and then how it's kind of shifted to where you are now.

Sure. So I've been pretty schizophrenic on it for many years and certainly gotten more so over the past few months. And so of long thought, it's what we would call a narrative mirage. So it's sort of this thing where you've articulated, it can maybe exist on the margins. It works for some companies to be fully remote, but sort of an overhyped sector.

You've got sort of a million remote work enablement and collaboration tool startups out there. They're all really well-funded, lots of competition among VCs who invest them. So you've long thought it was sort of this over-hyped area because ultimately I'm a big believer in you get a lot more, you will give a lot more and get a lot more out of your work if you feel sort of very deeply interpersonally connect.

to the people you're working with saying there's something sort of elemental to work, to sharing a space with people, being live with them in person, which meant that remote work would never fully take over. And then just on a more basic level, if you're the CEO of a company, you sort of, I think, in the old paradigm, wouldn't want your teams all working remotely because you want to actually be making sure people are actually working by seeing them in the office. And that's sort of the easiest proxy for seeing people are actually working is are they in the office doing things on their computers?

And so had been quite skeptical of it. Obviously, we've seen just an insane acceleration in remote work over the last few months, given everyone's basically, everyone in a white collar jobs, basically had to have to work remote in almost every state. And so I basically, where I've netted out is, is it's sort of, it's incidentally, the hype was warranted because of this, because of this COVID accelerations. There certainly is going to be a lot more, a lot more remote work across the board. But I think it is actually going to be predominantly concentrated in areas that are going to be less and less important in the future.

And so, and so, you know, I, in terms of functioning within a company, and so, you know, I'd say that I actually, you know, I think it's real, but actually there are these, you know, anything that's sort of essential, the essential worker categories, you know, those folks can't really work remotely. And the blue collar categories that we're going to become increasingly dependent on, certainly in a context where we're insuring wide swaths of our supply chain over the next decade, those folks can't work remotely. And then I don't think the hybrid really works. I think you have to be either entirely remote or entirely in the office. And so I'd say it's, the hype to date has been justified, but I think we're probably on the verge of it of remote work being overhyped

yet again. And then we'll probably land in an equilibrium where, you know, there's some companies that are fully remote. It works well. You know, I think it'll work well for a number of the large Silicon Valley companies that, you know, don't, you don't really need that many people to do much work because they're sort of natural monopolies. So like a Google would be an example in search. And then, and then I think there'll be a subset. set of companies that you actually will have people, employees and their families will actually co-locate with the company, like a resurgence in company town. So you have the Citadel hedge fund did a version of this where Ken Griffin, the founder, moved all of their traders into

the four seasons, Palm Beach. I think they're all still there to do sort of a makeshift company town. And I think in certain key essential industries, certainly in the food supply chain, others, you might see a resurgence in company towns where families co-locate with their company. And then I think there's going to be a lot of companies that just have to take all of the sort of all of the public health, quote unquote public health stuff that you'd expect or many people would expect a government to take care of, just have to privatize that and do it themselves that people can come into the office. So that's like, you know, all of the basic sanitization, temperature checking, you know, symptomatic surveillance, et cetera, stuff. I think that's going to have to just be executed by companies because I think a lot of companies are just going to go back to offices. Yeah, I think that it's an interesting point that there's these, the question of how hybrid you can make it versus it being kind of a structural decision from the ground up will be really interesting to see. What are other areas, you know, as you're sitting here and thinking about narrative mirages versus real shifts that you think are, I guess, what are narrative battlegrounds that you're watching right now in terms of trying to understand how much things are going to change post-COVID-19?

I'd say that one I'm quite obsessed with is the media. And so I sort of argue that that may be one area where things really do change going forward is the legacy me has just gotten so many things so wrong at this point that I think this might be the breaking point where it actually does go in a much more, in a much more decentralized direction. You see early efforts, things like substack that sort of enable anyone to start. their own media company. Certainly you can monetize a following on Twitter through, you know, someone like someone like the guy behind Stratory, this very well-known technology newsletter, Ben Thompson, has been able to really prove there's a business model there.

You know, someone like Jessica Lass, with the information, has done it on a larger scale. I think there could be a wave of citizen journalists, a centralized media. I think that's a very interesting area to watch. I think the, I think the whole idea, well, I don't believe we're going to see the sort of end of the four-year residential sort of liberal arts college in the United States, unfortunately. Yeah. I do think that sort of it's sort of the end of career tracks. And so, you know, when I graduated college in sort of, you know, 2004, there was sort of the consulting. banking, brand management type tracks if you had a business degree that you would go on.

You know, for a number of years recently, they're sort of like, well, you would do product management or software engineering or finance or consult consulting still stuck around. And I do actually think it's the end of those tracks. And I think we're going to see people are going to just be doing much more idiosyncratic things. And there's probably business people both around that. And so you'll sort of have these weird idiosyncratic. influencers in all of these micro niche areas. It's kind of like what you do. You're sort of this

idiosyncratic influencer. And I think there can be millions and millions of people like that that own these specific niches. And I'm really quite interested in what are the tools that can enable those folks, because that is kind of the direction, I think. I think things are going. there's a sense in which being an influencer in a sort of very narrow area, having a highly engaged but relatively small audience, is kind of like now the new aspirational thing to do versus joining a McKinsey. Yeah, it's really interesting, too. I think that what people have discovered is that these niches, because of the power of the internet to converge people of shared interest, these niches can actually support an individual, like it really, really well, right, from an economic standpoint, even if they're really narrow. I mean, you see this too, not just with, you know, kind of the types of things that I'm spending time on, but like in gaming, right?

You can have micro, obviously the people look at the, you know, the biggest Twitch streamers all the time, but there's this huge long tail of games that have enough of an audience to support some number of independent media professionals, basically, you know, who are creating content. And it turns out the economics as an individual look really different when you start to rehabilitate people to also pay for content that they like, whether it's directly in terms of subscription like Ben Thompson's newsletter or just in terms of kind of the streaming monthly subscription type things, which don't really get you anything different. It's just a way of supporting those creators. I think that that's a, I tend to agree that I think that it's an early trend.

I also think that we still are at the front. of figuring out the right ways to monetize it. Like, if you look at the difference in the, uh, the Chinese, uh, podcasting market versus the American podcasting market, it's massive from a, from a, uh, a revenue standpoint. And it's because, it's great, it's, it's wild. It's wild that we don't have that. Uh, that, it feels like that shift is definitely going to happen, uh, here over the next number of years. So I keep going. No, no, no. It's so, uh, let me ask a question to two about, I think that the, the media thing is particularly interesting. You know, My vantage point is influenced a little bit by the particular kind of business niche that I'm in in the context of the Bitcoin industry because this is, I think, one of the things that's fascinating is that you have independent media brands that grow up alongside the mainstay media brands, right?

You have, you know, Coin desk in the block, but then you have a lot of people who are getting their analysis, not from those sites, but from kind of the independent. voices that they can subscribe to either via, you know, podcast or whatever it is. And I would argue that a lot of those folks are as influential as anyone at, at these media sites. And I don't think that's basically, by the way, a knock on the kind of the legacy style media. I think it may just be a different paradigm. In fact, you know, my relationship with CoinDesk is I'm independent, but partnered with them for distribution, which is, I think, a really interesting and very different way to go about it. And when you start to see, you know, the Matt Tybys of the world, who left Rolling Stone to start their substack, do that more and more often,

you're going to have a kind of power shift in the relationship between people that could get really interesting. And I think that we're, you know, right now, you know, I know that one of the things you've been noticing or spending time on too is we're seeing kind of the, it feels like a new all-time high or apex in some of that in terms of the kind of, the individual influencer power of both Rogan and more recently during this quarantine of Dave Portnoy from Barstool. sports. Yeah. Yeah. You know, I'd say there's a, I'd say there's this sort of, there's this sense in which we're, you know, where, where, we're, so I'd say

Portnoy and Rogan are different. So I think with Rogan, I think the Rogan story is maybe, is maybe a, a story of, of actually, of the power of platforms. Is it sort of, you know, like someone like Rogan, you think about him just in the context of society, he's probably like the most well-like person in America. So, you know, he's someone who could, if he ran for president, he'd probably win. He, you know, he is just universally,

I don't think there's anyone in America who would say they dislike Joe Rogan. You know, one could argue whether he's overrated or underrated, but certainly he's very likable, has a huge audience and really can get anyone he wants on his show. And sort of the fact that sort of did this deal with Spotify, sort of this three-year type deal, to me is more of a comment on the power of platforms than, you know, I would have expected Rogan to have created his own platform or something like that.

I would have hoped you would have created his own platform. versus someone like Portnoy, who, you know, he founded Barstool Sports, and now he sort of become a media personality, sort of going in a, I would argue maybe a different direction of might actually be doing more of the, trying to have political influence or create his own platform, something like that. But I guess with Rogan, my feeling is I'm a little bit disappointed because if like the most loved person in the country, if like this is it for him, this, you know, reported 100 million,

and it's probably a fair amount more Spotify deal. It's like, wait, does that put a cap on what you can actually do as an influencer and how does that impact with the influencer economy? My hope is that he's just this idiosyncratic person and it doesn't. But I was actually somewhat disappointed with that news, although I'm a fan of Spotify. Yeah, it's really interesting, actually. I think it was fascinating to see people's Insta reactions. And, you know, in general, people are free to do whatever deal they want.

And it's a ridiculous amount of money for something you created from scratch, you know. So respect whatever the logic was. But it was funny to see people who are like, oh, this makes so much sense. He's been so worried about YouTube censorship. He's been talking about it all the time. It's like, well, the answer to that is to move to a different centrally-complored platform and negate your ability to put this thing on any other platform. It's like, that's not an answer to censorship, you know?

But I do think, you know, one of the things that it also brought up for me, which specifically with podcasting, is that I realize that we don't really know what the half life of a podcast is supposed to be, right? We have a rough sense of what, like, how long a TV series lasts, even though that's also shifting based on different models and how Netflix does things versus how HBO does things or whatever. But like, you know, if you have a successful show, you're expecting it to go seven or eight seasons, right? If it's a drama, maybe a little bit longer, if it's a, you know, whatever, a comedy or something. sitcom that doesn't matter. We have no idea. It's like our most podcasts, three-year things, and then they do a different podcast. Are they five-year things? Or they 10-year things? It's like early enough in the medium that it's actually hard to know. And I think part of, you know, there were some people who pay more attention to Rogan than I do who were like, dude seems

tired. And if you're tired and all of a sudden, you know, there's, and who knows what sort of pressure he feels being the middle ground for everyone, you know, it seems like sometimes or it could seem like, you know, and someone offers you a ridiculous nine-figure deal. Like, maybe you just, of course you're going to take it. But I do think it's an interesting question that you bring up of what it means in terms of the full upside potential of an independent kind of media enterprise. Yeah. Really, really, really good point. And I don't think we fully understand the value of the back catalog either on these podcasts. And so, you know, there's a, there's a, there's a in which a lot, most of the revenue for in the historical sort of cable television paradigm,

the bulk of the revenue was sort of from reruns, actually. And maybe there's some version of that that's true for podcasts. I don't know. I think it's too early. Yeah, it's really interesting. Well, I've picked your brain out a ton of different things and really appreciate the time. Maybe just by way of wrapping up, you had one other tweet that I thought was really, really interesting.

And I want to see it's a month on from when you said it. And I want to see if you're, if you still feel this way or if it's evolved at all. So this was on April 30th. You tweeted out, if you run a zombie company, now is the time to try and sell it. If you work for a zombie company, now is the time to change jobs. It'll be years until folks are as optimistic on the economy as they're going to be over the next three months. Narrative mirage recovery. So first, I guess, what did you mean by narrative mirage recovery?

And second, how has the last month changed or reaffirmed this take? Oh, I believe it now more than ever. And so I would say it's a name. narrative mirage recovery because basically the Fed is, it's sort of the perma-QE Fed money printing on steroids plus HGH. I mean, the amount of stimulus that's gone is just insane. And then the reality is just that can't do it. You can't infinitely do it.

And so I'd say that it's very much a narrative mirage recovery. that'll become clear starting in Q4. And then the reality is actually, I think, regardless of the fact that it's the narrative mirage recovery, the U.S. is on a relative basis still better off than most other countries. You mentioned Peter Zan, I think he makes the argument quite articulately that on a relative basis we're still probably better off than most other places. But that doesn't mean that it's, that the economic miracle is going to continue. I think it's now come to a screeching halt, and that'll become clear to folks toward the end of the year.

Jeff, awesome to talk to you. Great to get your insights. Let's do this again sometime. Sounds good. Thanks a lot, man. My pleasure. The thing that stands out to me after that conversation is this idea of how much we think things are going to change when we see a new force for change in society. So the work from home example and the

higher education example were the two that we discussed most extensively in this context. But we have this tendency to assume or somehow get into this headspace that when new forces present themselves, it's going to change things wholly and immediately rather than being a gradual incremental process where first bits in the margins start to change and then it slowly goes more mainstream until big swaths of what was previously outside the mainstream have become normalized. I think that's what you're going to see in higher ed, as I mentioned in the show, where different industries get their own version of Lambda School, get their own version of Y Combinator that becomes as if not more respected than traditional degrees. I think that's what's going to happen with work from home. I don't think that cities are all of a

sudden going to lose their appeal overnight, but there's big sets of people demographically with different types of interest, who are going to design their lives around the ability to work from home now, and that's all of a sudden going to be massively more respected among corporations. I think that it's really important not just to peel back narratives, but also to look at both scale and breadth of impact over time and really try to have a more nuanced view of the world. Anyways, that is my battle and my cross all the time, this idea of bringing nuance to digital conversations. Anyways, I appreciate you at least allowing me to do that by hanging out with you today. Until tomorrow, guys, be safe and take care of each other. Peace.

Welcome back to The Breakdown, an 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 CoinDest. Here's your host, NLW. Welcome back to The Breakdown. It is Wednesday, May 27th, and quick announcement, guys, right before we dive into a really, really exciting conversation with Matt Ridley, author of the new book, How Innovation Works. I wanted to share that I am experimenting or about to experiment with some interesting

additional content, bonus content, VIP content, both written and podcast form that I really want a set of beta testers to help me out with. So if you are interested in beta testing a bunch of, you know, content around the same themes of the breakdown as a supplement, as an extension to the breakdown, DM me at NLW on Twitter and let me know, or email me NLW at widomore.io, and I will get you in this beta test for June. But without any further ado, let's talk about my interview today. Matt Ridley is an extremely interesting thinker. You may know him from his TED Talk from 2010 when ideas have sex. You may know him from his book, The Rational Optimum.

how prosperity evolves. You may have read his more recent book, The Evolution of Everything. If you follow British Parliament, you may know him as a member of the House of Lords. But in this context today, I'm having a conversation with him as the author of the new book How Innovation Works and Why It Flourishes in Freedom. And the conversation is really about the way in which innovation has been treated historically as some emergent phenomenon that just happens, rather than as something that can be understood and cultivated in explicit ways. And Matt spent a huge amount of time in this book digging into figuring out how innovation actually works and why it is so essential to the evolving prosperity

of the human species. We cover a huge amount of ground in this conversation from the idea of this economic history of innovation to how Thomas Edison created the first innovation factory and was not the inventor that we think of, but actually perhaps the first modern innovator. We talk about how governments can and can't encourage or incentivize innovation and what works and what doesn't. We talk about how innovation actually an innovation policy influence Matt's views on Brexit. And finally, we talk about how in the context of the COVID-19 crisis, what the state of innovation is and what new opportunities might come up. So I really enjoy this conversation. I hope you do as well. As always, when we do interviews that are long

form like this, we edited only very lightly. Let's dive in. All right, I am here with Matt Ridley. Matt, thank you so much for spending some time with us today. Nathaniel, it's great to be talking to you. So I'm really excited for this. I've been following your works for quite some time. I was trying to remember back, I was not actually at TED Global when you gave the, when ideas have sex presentation. I was at the next TED Global and I had been at Oxford for a different conference a couple months before that. But that really caught my attention and I read The Rational Optimist and have been enjoying the evolution of these ideas. And so we're here today to talk about innovation and your new book about innovation. But first, by way of getting it started, what made

you want to write this book in particular right now? Well, I've been thinking for a long time that innovation is the sort of the big theme of humanity for the last few thousand years, that understanding it is important. And I've touched on it in my book, The Rational Optimist, which was about the fruits of innovation in a way. And I've touched on it in the evolution of everything. But I've never actually sat down and said, what is innovation and how does it work? And the more I think about it, the more I think it's rather amazing that people haven't

written more on this topic because innovation is such a lot. an important part of our lives and is so crucial to how we got here and it's crucial to how we'll get out of here in terms of the pandemic and things like that. And yet it's a somewhat mysterious subject. Nobody can really tell you why it happens when and where it does, why it dries up in some sectors and takes off in others and then does the opposite at a different time. Nobody can really give you a plan for how to make it happen. Sure, we know some of the But there's an awful lot of nonsense talked about innovation as well. So I thought it would be fun to tackle it head on as a topic.

And then I had the idea of doing it as a series of stories where you tell the story of the steam engine, you tell the story of the search engine, and you draw lessons out of those stories. So I've had a lot of fun doing that over the last couple of years. Yeah, it's really fascinating to me. I do feel like we have these moments where we realize that it's almost a fish trying to explain what water is type of thing, where something is so ever present in our lives that we haven't actually studied it as a discipline, right? And, you know, one of the things that was fascinating for me reading the book, I come from a history background. Did you ever kind of piece together why it was that this innovation has been missing in economic theory throughout history?

Yes, I mean, there is interesting thinking on this, that if you look at economic history, starting with Adam Smith, Adam Smith talks about two somewhat contradictory ideas. One is the idea that if we all exchange and specialize, we will eventually get more and more efficient at everything, and we will drive out the inefficiencies in the world until we reach equilibrium, where we're all, we've found the perfect solution as to how to work for each other. And that implies that growth disappears. Growth, growth dries up, as it were, you know, that we reach a sort of perfect equilibrium. It implies diminishing returns.

But the other Adam Smith story is that there's a pin factory in which, because people are specialising, they get better at the tasks they're doing, and they, invent new devices to make them even better at the tasks they're doing. So there are increasing returns. And for most of economic history, economists were obsessed with decreasing returns, diminishing returns. They assumed that, you know, this burst of growth would come to an end, that we would run out of new ideas, new technologies. And that just kept not happening. I mean, right up until the 1930s, Keynes is still saying, well, we might have hit, you know, the end of innovation. Some people are saying that again today.

But in fact, we've had ever-increasing returns because of ever-increasing innovation. And economists suddenly realized, as late as the 1950s, really, we don't actually have a theory about innovation. We just assume it's an exogenous external thing that happens to the economy, and we have the fruits of it. Paul Roma then got the Nobel Prize for trying to turn that round and saying, no, innovation is itself a product. It is the result of what we do. as well as the input to what we do. And so, you know, economists have begun to get innovation into their equations, but they haven't really succeeded yet.

Yeah, and it seems so fundamental. I mean, how hard, how impossible is it to model out or predict economic outcomes when you don't have a way to take expected innovation into account, right? I mean, especially when so many of, so many issues in the economy are going to be based largely on changes in productivity and what different types of innovations do as it relates to, you know, needs for inputs and quality and quantity and types of outputs. Yeah, I mean, I like to give the example of the price of light. I mentioned this first in the rational optimist, but, you know, there have been calculations done as to how many hours you had to work in, in order to afford a given quantity of light. Today you would have to work about a third of a second

to get an hour of light from a normal lap. But in 1800, with the then cost of candles and the then average wage, you'd have had to work about six hours to get an hour of light of the same quantity. That's a beautiful example of how something has gone from being an unaffordable luxury available only to the few to something that is a routine necessity that we all take for granted. And that's because of innovation. That's because we've replaced the

candle with the kerosene lamp, which has been replaced with the light bulb, which has been replaced with the compact fluorescent bulb, which has now been replaced with the light emitting diode. So, and yet, you know, your labor, what you're spending your labor on has changed in that time. In the past, if you wanted light, you had to spend a good percentage of your day working to get light. Now you have to spend a third of a second working to get light. So you can spend the time working for something else. So this is a, you know, this is economic growth, the reduction in the amount of time you have to spend fulfilling a certain need. And that you can't leave the story of innovation out of that process. It seems extraordinary that you would think you could. You know,

that hasn't come about because we've got more land or more labor. It's come about because we're new technologies. You know, it's really interesting. I think that the light example has a lot of parts to play in this story, which I feel like we'll come back to throughout. this conversation. I want to start maybe with the Thomas Edison example and this question of how innovation differs from invention and these kind of inflection points in the history of innovation, because I think that's such a phenomenal example. But I also, and I'm mostly reminding myself, I want to come back to this idea of how much less work it takes to get light now compared to how much more time it takes, how much more work it takes to own, you know, one index share of the S&P 500,

because there's an interesting conversation starting around the competition between technology deflation through inflation or, sorry, through innovation and the sort of inflationary economic policies that keep asset prices, some would say artificially large. But I want to come back to that because it's a little ahead. A little ahead. So let's talk about this idea of light. So one of the more I think it's a resonant example for folks because we have the mythology of Thomas Edison as the kind of inventor of the light bulb in some ways. But it really wasn't invention per se. Could you share just a little bit about that example and maybe this idea of an innovation factory

and what that did for innovation kind of writ large? Yeah, well, Thomas Edison wasn't the only person to invent the light bulb. In some ways, he wasn't the person to invent the light bulb. There are 21 other different people with the... or 20 other different people with a good claim to have invented the light bulb independently. There was Lodigan in Russia, there was Swan in Britain, and many others. And the point was the technology was ripe. It was ready to go. The technologies you needed to combine to make a light bulb would reach the point where it was inevitable.

Someone would do it. You can't stop the light bulb being invented in the 1870s, basically, in that sense. So Edison, perhaps, therefore, in a sense, doesn't deserve the crucial. credit he gets. But in another sense, he jolly well does deserve the credit because what Edison did was take the basic prototype and turn it into something reliable, affordable and long-lasting, which his rivals didn't do. So he produced the first light bulbs that would last a long time and that you could genuinely rely upon. They didn't just blow up after a few hours. And the way he did that was by what I would call innovation not invention,

and that is to say a huge amount of trial and error. And he emphasized this very, very clearly. He did over 5,000 different experiments before he settled on the plant material to use for the filament of his light bulbs, which was Japanese bamboo. So he famously said invention is 1% inspiration and 99% perspiration.

So, you know, I would say that innovation is the perspiration, as it were, and he understood that. And he then, you know, he didn't, it wasn't just him, it was a whole team of people. And in fact, what he had done was he'd set up a factory, a huge plant, the product of which was innovations. You know, the job of the people working in his factory was to produce changes in technologies that could then be made into products that other people could buy and sell. He was the first person, therefore, I think, to see innovation as a product rather than as an input. And actually, there's not enough people who do that today. Yeah, you had this great line.

The Industrial Revolution, therefore, was in effect, the emergence of a new kind of economic system that generated endogenous innovation as a product in itself, which I thought was just a really great way to put that idea. Yeah, I do think that is key. And of course, it depended on abundant energy because I have this sort of thermodynamic view of civilization in my book, which is that we as living beings and our technologies are improbable structures and the way we make improbable structures, you know, we're far too ordered, you know, we're not random enough for the universe. And the way you make something non-random is by putting

energy into it. That's essentially what the second law of thermodynamics says. So it's, the more energy you made available to civilization, the more innovative improbabilities you could produce. Yeah, it's fascinating. As an aside, I think that concept would find a lot of resonance with many in the Bitcoin community who see the proof of work system that Bitcoin relies on as a way of converting energy into effectively truth, right, and a source of shared common knowledge. That's kind of the predicating basis of it. But I want to... But that's a really interesting point. And I mean, it's often seen as one of the the flaws of Bitcoin is the huge amount of energy it requires. But in a sense, it's just spelling out

what is inevitable is that if there's going to be something that valuable, then it must have a lot of energy input. Yeah, exactly. And I think that a lot of the, there's a number of different counter arguments to the kind of strict energy interpretation, which is, I think, classically, maybe the most common critiques you hear are, one, it's used for crime, two, it's the amount of energy, and three, just it's, you know, it's unstable or it's a bubble or something like that. And I think on the energy argument, you know, there's a lot of interesting things happening in terms of capturing lost energy. There's new companies being set up now to capture energy that would otherwise have to be vented off at, you know, a natural gas because it can't

go anywhere fast enough and inputting that into Bitcoin mining. But I think that the other argument is is a little bit more basic, which is, you know, people and individuals and societies get to choose to what they deploy, you know, their energy for. And, you know, if we decide that Christmas lights are okay, why not decide that this, this kind of true system, this money system might be okay as well. But I don't want to, I don't want to drive us too far down that tangent. Just some red meat from my Bitcoin friends. But I want to go back to a point that I think was really, you almost breezed over, but it's so important. You said something to the effect of just a minute ago.

In the 1870s, the light bulb was getting invented no matter what. You said it more eloquently than that. And it gets to this idea that you posit in the book that innovation is inexorable. Can you describe just a little bit about what that means? Yeah. Well, it obviously can't be the case that everything is inevitable, because otherwise it would have all happened a long time sooner, if you like. But nonetheless, when you look at the history of technology,

you find that almost every technology comes into being in two rival forms or more. Three, four, five different people rushing to the patent office saying, I've invented that. No, I've invented that. And this phenomenon of simultaneous invention is so striking that actually as long as the 1920s, people were writing our lists of all the people who had rival claims to the thermometer or whatever it might be. And there are always lots of them. And why is this? I mean, it's almost as if there's something in the air.

The light bulb is a very extreme example. As I said, there are 21 different people who have a good claim to having thought this idea up independently. But if you bring it forward to today and to a more recent example, you can see what's happening, I think. And that example is the search engine. The search engine was invented in the 1990s to help us all navigate the Internet. and it was, we think of it as being born out of Google, but of course Google wasn't the first. There were lots of other search engines around when Google came along.

It just was one of the best. And none of the people who built those early search engines, most of them, didn't think they were building search engines. They thought they were cataloging the internet or something like that. That's what the Google founders thought they were doing. So they didn't see what they were doing in retrospect. In retrospect, it looks so inevitable. You know, it doesn't matter whether Sergei Bryn meets Larry Page or not.

We still get search engines in the 1990s. You know, you can't stop it. You can't prevent it happening. And so it must surely have been predictable. But it's not, actually. If you go back to the late 1980s and search for evidence that people were foreseeing the arrival of search engines, they didn't any more than they foresaw the arrival of lightbulbs in the 1870s.

So there's something strangely asymmetric about the history of technology. It's fantastically obvious in retrospect and fantastically non-obvious in prospect, which I find completely fascinating. I think the way I would put it is that once a particular combination of technologies come together, then the next step of combining them is inevitable and inexorable. But that doesn't mean that every step in the history of technology is inexorable and inevitable. 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,

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 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 gray scale digital large cap fund. In times like these, diversification is key. Consider gray scale digital large cap fund, ticker symbol GDLC. It's the only publicly traded investment process. It's the only publicly traded investment process. that offers diversified exposure to large-cap digital currencies, all from your brokerage account. For more information, visit grayscale.co-slash-co-co-co-coldest. That's g-r-a-y-scale.co-co-slash-coin-desk. This is another great point from the book is, in addition to not having kind of cogent theories for the economics of innovation or really how it works, we also speak kind of monolithically

about it, right? We talk about innovation as though, you know, whether you think it's on upswing or the down swing, we speak about it as an entire category. When it's, it's sort of important to pierce out where are people innovating at any given time and why. And I mean, I guess, when I say where, I mean both, you know, in terms of what context, what industries, what technologies, but also there is a geographic wear, historically speaking as well. What did you notice about the patterns of innovation across, you know, the 20th century and just kind of where we're bringing us up to the state of innovation today. Yeah, well, I think that innovation is a surprisingly localized phenomenon.

I mean, when you think how much civilization there was in the world, how many different countries with cities and trade and ships and all this kind of thing, nonetheless, I can take you back to any point in history in the last thousand years and say, this is the innovative part of the world, much more than everywhere else. In the 1980s, it would be California. In the 1890s, it would be London. In the 1700s, it would be the Netherlands.

In the 1500s, it would be Italy. In the 1000s, it would be Fujian in China and so on. And why is this? Why is this bushfire burning so brightly in one place at any one time? And it must be something to do with the confluence of trade and immigration and freedom, the freedom of people to do what they want, to do experiments, to invest, to make mistakes, to change course, all these kinds of freedom that come together in one place at one time and create the ecosystem in which innovation flourishes.

And, you know, obviously we look at California and say, yeah, and of course, once this was happening in Silicon Valley, everyone went there if they were that kind of person. So it did attract people from elsewhere, and there must be a degree of that too. It doesn't seem to last very long either. You know, these places burnt very brightly for a while, but no longer do so in most cases. And it looks like the bushfire has shifted in recent decades from California to China. China is doing innovation in certain areas, digital, AI, biotech, at a faster rate now than California is, I would guess. If you look at the way Chinese consumers, you know, pay for meals and taxi cabs and things like that,

they're sort of way ahead of Americans now. No, that might be misleading. It might be that it's not as innovative as I think, but that's my guess. And that feels weird because China doesn't feel free enough to be the sort of place where this should be happening. And I think what's happened is that for a brief while, China, although it had a Communist Party regime, which allowed absolutely no freedom in democratic terms, it nonetheless allowed the entrepreneur a considerable degree of freedom down at the bottom of society where he wasn't being bothered by petty rules and regulations about whether or not he could put up a factory or design a new widget.

And that period may be coming to an end, given how extraordinarily authoritarian the regime now is compared with 10 or 20 years ago in China. So I think the moment may be already passing. Well, this is a really interesting point. and the China example being almost potentially an exception that proves the rule in some ways, where effectively it feels like a lot of the positing of the book as it relates to freedom, is that if innovation is the byproduct of tinkering, experimentation, people and ideas coming into contact with another, those are hallmarks of free societies, right, where government more or less gets out of the way of people and lets them do things. And certainly you have an ongoing tension and balance as it relates to kind of freedom and regulation that is always competing.

In the U.S., that's one of the interesting things about the software movement is that it had comparatively less regulation, so it was allowed to do a lot of things. That seems to be closing now as we see just how powerfully influential in society these social media platforms are. But the interesting thing about China is that the strange version, I mean, it is a different type of authoritarian than we've seen because basically they made a bargain, right, with their people that said economic growth and improvement in your life for your freedoms, right, effectively. I mean, it's obviously more complicated than that, but that is more or less the base case. And so in that context, you have to incentivize innovation to get the economic growth. that you want. In fact, you have to incentivize innovation when you can't get traditional economic growth because, you know, maybe you don't have traditional economic growth, but at least you have the convenience of new mobile apps. And we see this played out even now in the blockchain

industry where China is investing a huge amount of money to be perceived as the leader in that, to attract business that wants to be interested in that space, regardless of whether it will be a thing. It might be a bridge to nowhere. But it's interesting, I think, in that it shows, you know, There's such an intentional bargain for the economic growth that innovation brings contra freedom. But if that declines, I think in some ways, it might reinforce the point even more. Yeah, that's a really interesting point. I didn't know that they were pushing into blockchain to the extent that you described. Of course, blockchain has the potential to enable the innovative ecosystem to cast loose from planet Earth and float up into the cloud.

and conduct a process of innovation that doesn't have to be anywhere, that doesn't have to be subject to the intellectual property regulations of California or the democratic constrictions of China. That sounds fairly hand-wavy and idealistic, and I suspect it is too much so. And by the way, one of the things I talk about in the book is the way technology is disappoint in their first decade after being invented only to flourish later on.

This is called Amara's Law. Roy Amara said every new technology, we underestimate the impact of a new technology in the long run, but we overestimate it in the short run. And we've seen this with everything from, you know, railways, which were invented in the 1820s, but in the 1830s, they kind of didn't achieve much, but it's in the 1840s,

when suddenly there is railway mania and everybody builds thousands of lines and it becomes a routine thing. And we saw it with the internet. You know, we had e-commerce in the 1990s, and we had all the dot-coms. And then by the end of the 1990s, everyone is saying, is that all there is?

You know, I'm not sure this is all it's cracked up to be. And then, of course, 10 years later, Jollywell is all that it's cracked up to be. So I think the same will happen to blockchain that we will have a period when quite a lot of your critics will say, where's the beef, you know, why aren't you writing contracts in space and launching currencies to compete with sovereign ones and so on? But then there will come a moment when that will happen and I as a citizen will say, look, I don't care what taxes and rules and regs and money you're trying to impose on me in the UK.

I'm not a citizen of the UK anymore. I'm a citizen of the cloud or something like that. Again, I've gone a little far-fetched there, but you get... Yeah, no, and I think that what you're actually getting at, too, is that one of the reasons that I think blockchain, as a concept, as an industry, has attracted a lot of people is that there's a larger sense, an imperative towards decentralization, towards trying to uncouple or decouple from systems of power that exist,

and try to do things in a way that isn't command and control, that isn't organized. I think blockchain, it fits easy from a narrative perspective with that. But I think that the impulse might be something a little bit larger than the technology category, if that makes sense. Yeah. Now, I think you're dead right. I think there is a philosophical point here. And it's there in the manifestos of the cyphopunks that preceded blockchain. It's very clear that these are radical libertarians.

And it's the same mentality. behind the launch of the internet, actually, which, I mean, I've just been reading up on this. I don't really have this in the book, but I hadn't really twigged the extent to which there was a rival command and control government-directed version of the internet called the OSI, which was being negotiated at a high level in more and more sort of United Nations sort of way, with people arguing over commas in rules and regulations, and which just kept getting more and more unwieldy and instead a sort of bottom-up anarchic free-for-all developed around the T-CIP protocols which launched the internet. So I do think that the spontaneous order aspect of

innovation is terribly important and is what blockchain is all about. So this actually gets to another really key point about, you know, obviously governments, are in some ways, not just governments, or not just countrywide governments, national governments, but any sort of regulatory block, be it cities, be it states, be it governments, be it, you know, regions like the Eurozone, they're all competing in some ways for innovation. And there's different ways they go about it. And I think that this is something that's really important to you. It's if we understand and respect innovation as something important, as a public good in some ways, or a public-private hybrid good, what are the right ways and what are the wrong ways for,

for people to sort of incentivize innovation. Yeah. Well, I run through some of the things that innovation needs if it's to flourish. And one of the things it likes is fragmented governance. It doesn't do well in empires. There isn't that much innovation in most empires. It does well in city states. It particularly likes small fragmented continents where you can move from one. regime to another. America is a good example of that today. Elon Musk was threatening to leave

California for Texas the other day because he didn't like the rules and regs in California. That's exactly what Gutenberg did 500 years ago in central Europe. So that's quite an important feature, I think, of innovation. I'm also very skeptical about intellectual property. I think the patent and copyright systems that we have erected are far too restrictive, far too easily turned into barriers to entry against competitors, which actually slowed down innovation rather than speed it up. And I think the evidence for that is getting clearer by the day. And where you've got strengthened intellectual property systems, you don't get more innovation. And where you've got weakened ones, like, for example, in the development of streaming music, Napster and so on,

you don't get less innovation. So I think the way we've gone about making intellectual property so restrictive has actually become a problem. And we see when a patent expires, we get a burst of innovation. So there are quite a few things that are being done by, governments today that don't help. The other thing, of course, is subsidies, grants and winner picking. You know, governments love saying this is the innovation we would like to champion. We're going to give it a grant. We're going to open its headquarters with a fanfare, and we're going to subsidise its products.

And often, governments are terrible at picking the right technologies, and they end up subsidizing dead ends again and again and again. and they don't keep an open mind about which of different rival technologies will reach a goal. So I'd like to see governments dangling prizes in front of innovators more than either patents or research grants or subsidies. Because if you hang a prize out and say, look, the first person to get a vaccine for COVID-19 will get a prize. it needn't be a lump sum. It can be in the form of a market commitment or something like that. So you're actually agreeing to subsidise the price at which it's supplied to the market

so that the company has actually got to go and deliver it to the market. The Gates Foundation has done this with a pneumococcus vaccine, a good example of that. So I do think that innovation policy is at the moment very misguided. It thinks in much too creationist a way, much too top down a way about the way innovation works. How much did your research on how innovation works shape your views on Brexit, if at all? Well, it's actually the big reason why I'm pro-Brexit was because I could see how the European Union was stifling innovation. It's no accident that Europe has been unable.

to spawn any digital giants to rival Amazon, Facebook, Google and so on. It just can't get a digital industry going to the same extent as both America and China can. It's had exactly the same problem in biotechnology, particularly in agricultural biotechnology, where it's cut itself off from a whole technology by sort of not banning it, but by having regulators that take so long to take a decision that they don't end up doing so. And the one-size-fits-all policy of the European Union misunderstands how innovation works. Innovation has to have differences. So that if you say, as we do in trade agreements, what is good enough for you is good enough for me. If you think this product is safe, then we'll agree it's safe too. We like to. We like

the way you go about doing it. It's not the same way we go about doing it, but at least you've decided this product is safe. So you can sell it in our market. That's what trade is all about. European Union takes a completely different approach. It says no, the rules must be exactly the same everywhere. We want to harmonise everything. Now the problem with that is that you can't then do experiments. You can't say, hmm, the Bulgarians are actually doing a better job of of satisfying this consumer need more cheaply and more effectively, because everybody's doing the same thing everywhere. And so the more I looked at it,

the more I realized that this was a central flaw in the way the European Union was building its empire. And I use that word empire advisedly. Giefer Hofstadt, the lead advisor on Brexit in the European Parliament, uses that word. He says, yes, we are trying to build an empire. what we're trying to do. And we from Britain had a look at this and said, this doesn't end well. When Napoleon tried it, when Charles V, tried it, when the Emperor Augustus tried it, when Hitler tried it,

we went along with it for a while and then realized that actually that's not the way the world should work. We want to be an outward-looking trading nation connected with the world. We're much more dependent on trade with the rest of the world than the other European countries, for example. And we said, look, please will you reform in a more innovative direction? They said, no, we don't want to reform. So we said, right, well, in that case, we'd like to leave if you don't mind. It's interesting to see that, I mean, there's so many numerous examples, but where even policy that one could, if you took off your cynical cap for a moment, could say it was well-intentioned,

like GDPR, ends up having this absolutely crushing impact on innovation because of the cost of compliance, right? Cost of regulatory compliance benefits the incumbents more than that. anyone else, right? Very good example of that, because if you look at who has been able to cope with GDPR, it's the big companies. Facebook and Google. Facebook and Google can afford the compliance departments that enforce GDPR. I mean, every now and then I come across a website that won't let me read its stuff

because it's not in the EU and it knows I'm from the EU and it says that we just can't afford to deal with GDPR. That's not true. So there's been a clear move. If you look at sort of website traffic, there's been a clear move within the European Union towards the bigger companies capturing more of the market, particularly if you look at advertising share, for example. So shifting gears just a little bit, because I want to bring this back to what was the state of innovation going into COVID-19? And if where and how do you see it changing on the other side of this pandemic or economic crisis?

I guess there's multiple dimensions to it. Yeah, there's both the pandemic. crisis and the economic crisis. I think the pandemic should forcibly have reminded us that we haven't been doing enough innovation. You see this most clearly in the case of vaccines. Vaccine development is a very slow and laborious process that has hardly changed in decades. Sure, there are new ideas about how to do vaccines, but it still takes many months, many years, to develop a vaccine. It's a somewhat slow process, slower than it should be, and it's not that much faster than it was 50 years ago.

That's extraordinary when you think how much we understand molecular biology, how much we understand digital technologies, etc. It really is very striking. Why is that? Well, the pharmaceutical industry hasn't been that interested in vaccination because vaccines aren't very profitable. And on the whole, I think the World Health Organization and other bodies like that have not paid enough attention to it either.

World Health Organization said in 2015, the greatest threat to human health in the 21st century is climate change. Well, that may or may not be the case, but it hardly suggests an organization which is paying attention to its day job, which is to stop us catching pandemics. And in that respect, it's not just vaccines,

it's diagnostic tests as well. A point of care, DNA test to tell you what kind of virus you've got could have been developed 10 years ago. Why hasn't it? Because, on the whole, the regulations that you have to go through to get licensed for such a device take many, many years to reach a decision. Now, an entrepreneur can't wait many, many years.

So he goes off and invents a new computer game instead because that's easier. You don't need so much permission. And when you think about it, that is what has slowed down the development of these technologies, the length of time it takes, because look around you now. We're suddenly finding that it's possible to give these new devices license in a matter of days or weeks when we need to.

So why couldn't we have done that before? So I think we should come out of this crisis saying we must do a better job of encouraging innovation and not taking the technologies we have for granted and not taking the risks we're running for granted. But more generally, and back to the economic crisis we face,

crises like this, though they are terrible for the world economy and although they crash investment in new technologies, nonetheless do open up new opportunities. I mean, if you were thinking of starting an airline, it wouldn't be a great moment right now, but it might be a great moment in a year's time when the economy is getting back to normal and suddenly there are a lot of gaps in the market.

Suddenly there are landing slots available and there are new ways of running an airline that haven't been thought and that wouldn't have been able to get a look in against the existing incumbents but might now do so. And of course, you and I are doing this interview remotely on a technology that I've only just learned how to use. And as you found out at the beginning, I haven't learned very well how to use it yet. And so the opportunities there are surely huge. There is now a critical mass of people interested in telemedicine, tele-lawyering, tele-accounting, tele-meetings of all different kinds, and that will result in opportunities for innovation, surely.

All right. So we are now living through this very troubling time. And you talk about a little bit about the opportunities. that you saw. But, you know, what is the rational, optimistic point of view coming off the other side of this crisis? And is it about innovation? The rational optimistic point of view coming off this crisis is that bad as this crisis is, it won't be nearly as bad as previous pandemics in the past. And it will, it looks like it will pale in comparison with the improvements that poor people in the world in particular have seen in the last decade,

where the rate of decline of extreme poverty has been truly extreme. So even if that goes into reverse for a year or two, we will be much better off than we were 10 years ago. And there is every prospect that the process that produces prosperity will resume in the next few years and that we will therefore claw our way back to prosperity and progress. It can't be guaranteed, of course. I mean, this might lead to a war. It might lead to a nuclear war.

An asteroid might appear. A worse pandemic might appear and so on. So I'm not here to say that everything's going to be perfect. And indeed, in the rational optimist, I said a lot of things are going to go wrong in the 21st century, including possibly terrible flu pandemics. But nonetheless, the process that inevitably, inexorably grinds human living standards upwards is still there. And an essential part of it is innovation.

Matt, thank you so much for joining us today. Really enjoyed that. Thank you. We had a few technical difficulties, which were really unfortunate towards the end of the interview. And we had to wrap up a little quickly. There are two more questions that I wanted to discuss. with Matt, and that hopefully will form the basis for our next conversation on the breakdown. The first has to do with reconciling the need for innovation and incentivizing innovation with something like the issue of stock buybacks that we've seen. In the book, Matt wrote,

A symptom of the disease is that companies are sitting on huge cash piles, measured in trillions, and multinational firms have become net lenders rather than borrowers, because they cannot see ways to invest their money in innovation. Some big pharmaceutical companies may now make more profit from their financial investments than they do from selling drugs. When big companies do spend money, it is often defensively to enforce their patents or protect their market share. Their assets are aging and they are increasingly apt to play safe. This is partly the fault of diffused ownership by pension funds and sovereign wealth funds and the lack of skin in the game that comes with it, which has a tendency to turn entrepreneurs into rentiers, extracting profits from local monopolies

achieve through raving barriers to entry via intellectual property, occupational licensing and government subsidy. The dead hand of corporate managerialism then finds that is easier to control markets than to contest them to plan rather than experiment. Of course, many companies still pay lip service to innovation, appointing executives to jobs with the word and the title, and adopting slogans that use the term, but this is often meaningless blather, disguising a deep attachment to the status quo. This is Matt talking about innovation famine, which I think is a hugely important. topic, especially after what we've just seen and the unbelievable lack of resilience in corporate markets in the wake of this crisis. I think this is all part of a really important story.

So that'll be part one of our next conversation whenever it's to happen. Part two, I think, comes to this question of how innovation is about enabling people to work for each other. Matt writes, the chief way in which innovation changes our lives is by enabling people to work for each other. As I have argued before, the main theme of human history is, is that we become steadily more specialized in what we produced, and steadily more diversified in what we consume. We move away from precarious self-sufficiency to safer mutual interdependence. The question becomes to me, what happens if we stop trusting each other? On a local level, on a national level, whatever the level might be. I think we're in a moment where we're

dealing with very contentious issues of globalism and globalization versus localism and localization. And I wonder about Matt's views about how this potentially impacts or threatens innovation. Those are the two questions that we have. It's a great start for a future episode. I know that some of you will be hungry and want Matt to come join again right now to talk about that. But anyways, guys, until then, thank you for listening. I appreciate you hanging out. And so until tomorrow, be safe and take care of each other. Peace. Welcome back to the breakdown. An 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 Thursday, May 28th, and one quick thing before we dive into the interview, I was really excited to see how many of you have responded to my request yesterday for beta testers for some new bonus content, newsletter content, mini podcast, micropodcasts. I basically just have a bunch of ideas of things that I want to experiment with with the breakdown listener community. So if you are

interested in learning more about that, participating in some content beta tests, email me at NLW at Wittemore.io or hit me up on Twitter DMs at NLW and I will get back to you later this week. But with that said, let's move to our main topic for today, which is the geopolitics of the dollar milkshake theory. My guest today is Brent Johnson. Brent Johnson is the CEO of Santiago Capital. He's a really well-known thinker around the dollar and just macroeconomics writ large. He's been on Real Vision. He's frequently featured as a commentator in economic and political media. And I was really excited to get to talk with him about his theory of the dollar milkshake. And so basically, this theory is all about how the dollar and the U.S. economy in general is in this

position to basically just suck up all the liquidity from around the world with huge implications for asset prices, for emerging economies. And it's really interesting. As you'll hear, there are a lot of people who get frustrated with this theory, including Brent himself. He talks at one point about how this theory came out of a lot of intense study, not him wishing that we're this way. So I really hope you enjoy this conversation as much as I did. As usual, edit it only lightly. You know the drill. Let's dive in. All right. We're here with Brent Johnson. Brent, thanks so much for hanging out. Absolutely. Thank you for having me. I always enjoy talking to new people.

Yeah. So I've been following your work for a while. And I think you're in this interesting position where something that you've been talking about, articulating, giving shape to has been increasingly validated in the market. So I want to get into your idea of the dollar milkshake theory. Let's just kick it right off the bat. with what this idea is, and then maybe I'll help try to walk listeners back through how this idea came to be formed. But let's start with the idea itself. Sure. So for lack of a better word, the dollar milkshake theory is something that I've kind of developed over time over the last, call it four to five years. And it's basically one where I think we're kind of reaching the end of this global super debt cycle. The global debts have gotten so big that I think there's going to be a reckoning day. And I think for a number of

reasons, the global liquidity is going to get squeezed, for lack of a better word, into the U.S. dollar. And as a result, I think U.S. dollar and U.S. dollar assets will get squeezed higher over the next couple of years. And the rest of the globe will be deprived of liquidity over the rest over the next couple of years. So the milkshake comes from the fact that the central bank around the world have just been flooding the markets with liquidity since 2009. And for a period of time from 2016 to 2019, the U.S. was raising interest rates while the rest of the world was still mixing the milkshake, so to speak. And the fact that we were raising rates acted like a straw and pulled, you know, capital into the United States. Now, a lot of people have said that this isn't maintainable because we have now stopped raising interest rates,

and in fact, we have gone back to injecting liquidity, and so now we are mixing the milkshake along with all the other central bags again. And my comment to that is that even though a couple years ago, the raising of interest rates was the primary driver of the U.S. having the straw with which we would drink the rest of the world's milkshake, it was not the only driver of the straw. There are many other factors, which we can get into if you want, which I think will drive liquidity into the U.S. dollar. So I still think even though everybody's mixing the milkshake again, I don't think it's so important who mixes the milkshake. I think it's important who captures the milkshake, for lack of a better word, and who drinks

it. And I think that by and large, the U.S. is going to be the one to do that. And so I don't know if that helps explain it or not, but I think we're headed towards a fairly big financial crisis. And I think all the dominoes will fall, but I think the U.S. will be the last domino to fall, if that makes sense. Yeah. So there's a ton to unpack here. And I think one of the really key themes that I'm sure we'll spend time on is that this is all, when we speak about everything, right, all these economic terms, whether it's safe haven assets or whatever, they're all relative to one another. And that's, I think, a key part of nuance in this

that gets missed. But before we get into that, let's actually go back to the response to the first round of QE, the response to the great financial crisis, how, you know, kind of what happened at first, what people expected, and then why you started to get the sense that there might be this, this break, and we might actually start to see interest rates. Because from what, from what you've said, that was kind of the genesis where you started to really think about this. Yeah. So I think in order to get the full picture, and I don't, know how much time you want me to spend on this, but if in order to really get the full picture, I think we need to go back 13 years to 2007. And I'll try not to make it too of a long and

boring story, but I'll try to keep it somewhat brief and somewhat interesting. But a long story short, 13 years ago, I was working for Credit Suisse, which was a major investment bank in global financial institution. And I had a very fortuitous meeting with a young couple who had just sold their business for several, you know, tens of millions of dollars. And I was trying to convince them to invest their money with us. We had a meeting, and in that meeting, this young couple proceeded to ask questions of my superiors, the chief investment officer, the head of wealth management that I did not feel were that hard of questions, but needless to say, these managing directors could not answer those questions. And I felt that that was, you know,

after the meeting, they thought it was funny that this young couple asked these questions. And I just thought that that was wrong, that, you know, that they were making fun. of this young couple when, you know, it was them who couldn't answer the question. And so that kind of led me on a period of self-discovery. And, you know, I kind of had literally a light bulb moment when I went back to my desk and, you know, with a sheet of white paper and a pencil tried to figure out the answer to some of their questions. And I realized that it was just not a good situation and that a lot of the questions they were asking were not only important, but kind of key to the next two or three years. And that meeting kind of set me off on a path to where I did a bunch of self-research,

self-discovery, I guess, self-education. And so when we got into the heart of the financial crisis in 2010, I kind of knew why it was happening and what was happening. Now, I wasn't smart enough to predict it ahead of time, and I wasn't smart enough to figure out how to profit from it, but I did feel like I had an edge up on everybody else because at least I understood what was happening. And, you know, And part of that self-education was understanding the monetary system as it's currently designed. And so in 2009, when the central banks came in and started flooding the market with liquidity, it made sense to me that gold and silver would rise because we were going to have high rates of inflation. The central bank was going to try to deflate the value of dollar.

And, you know, you needed to get out of financial assets and then to real assets. or, you know, stocks would do well because they are kind of an inflationary hedge as well, but probably didn't want to be in bonds, probably didn't want to be in other things that wouldn't do well in an inflationary period. And, you know, that kind of worked for the first kind of two years because while equities didn't do that great, gold and silver did fantastic from 2009 to 2011, let's call it. And then, you know, we got into 2011 and 12, and, you know, the markets had gone up a little bit, but not as much as they probably should have. And, you know, we started to get into this European crisis.

And yet, you know, after 2011 gold, you know, in 2011, they did QE3, you know, and I thought, wow, that's even more of the same. Gold's really going to rock it now. But the interesting thing was, was that it didn't. Gold started to fall. And the dollar didn't really sell off even. They were doing more QE. and, you know, I kind of fought that for a couple years.

I had been pretty bearish on equities because I thought we were ready for have another crash. And then, you know, between 2011 and 2013, you know, the market went higher, but gold didn't. And it just wasn't making sense to me. So I kind of went back to the drawing board again. This was probably 2014, 2015. And that's when, you know, I realized that, you know, even though they printed all this

money, the dollar had actually gone up in value. And I was trying to figure this out. It didn't really make sense to me. And the conclusion I kind of came to was that I had done very good analysis on the U.S. and the U.S. dollar. And it really should have gone down. But the problem was is that I looked at it in isolation. I just looked at the United States. I didn't look at Europe. I didn't look at China. I didn't look at Australia. I didn't look at Brazil. And the simple fact is, is when you take a bigger view, is that fiat currencies or countries issued by countries, they all trade relative to each other.

None of them are backed by anything. It's backed by the faith of the government and the people in those countries. And because these all trade relative to each other, it doesn't matter if the U.S. is in a really bad situation. What matters is if anybody else is in a better situation. And I kind of came to the conclusion that, for a number of reasons, as bad as it was here, it was worse everywhere else.

and that helped me kind of understand why the dollar had not lost value. And that kind of, you know, so that 2016 was the time frame where I thought that, you know, gold might not break out yet. I had initially thought gold would be breaking out. And then because I understood what was going on with the dollar at this point, I thought that the gold might not break out. And, you know, I kind of held that view really until now. And it was right through the summer of 2019, but about a year ago, gold really kind of had a move.

and I thought we would eventually get into a period of time where both gold and the dollar rose together, you know, versus all other fiat currencies. And that's kind of happened here in the last year. I'm not sure if, you know, we're kind of off to the races on that yet, but I still do believe that happens. Again, mainly because fiat currencies trade relative to each other. And as many, even though we have all these problems in the U.S., I think the U.S. will do better than the rest of the world. then I think gold will probably do better than the number of these other currencies. So that's why I see both gold and the dollar rising versus other currency. So that's kind of a long explanation.

I hope that made sense. But that was really kind of how I got to this theory. Yeah, no. And so I think it's super helpful. What's interesting now is maybe to layer on what these different, what these different kind of elements are that make the U.S. dollar stronger, the U.S. economy in general, stronger relative to other parts of the world. Because it's, you know, you identified interest rates increases starting in 2016. There's other potential

factors, the fact that there's the world reserve currency. And so there are debts that are dollar denominated. Would you maybe just go through kind of what those other elements are? Because I think it is so hard for people to, there's a lot of people, let's put it, that are going through the same feeling that you went through where you're like, hey, you know, viewed in isolation with this incredible amount of money printer gober, as the meme says, like, why aren't we seeing inflation, you know? And I think you do a good job of looking at all those different elements. Well, the first thing I would say is I want to disabuse people of an idea that you can't have inflation alongside a rising dollar. You absolutely can have inflation alongside a rising dollar.

And when I say a rising dollar, I mean versus other fiat currencies. And I can give you a really simple way to prove this to yourself, and that is to just ask yourself, is your cost of living today higher than it was in 2007 or 2008? I think the answer will probably be yes, but if you go back and you look at it, the dollar has actually risen versus fiat currencies since 2007 and 2008. So that's a 12-year period where the dollar went up in value, but so did the cost of living. So the idea that you know, inflation is the dollar losing value, again, versus what, right? And when I'm talking about the dollar going up in value, I'm talking about it going up in value versus other fiat currencies.

Now, it may lose value against some commodities or some costs and expenses that you have, but on the global stage, as far as currencies are concerned, the dollar is reigning supreme. And part of the reason is, is the institutionalized effects of the government. global reserve currency. Now, there are probably a lot of people out there that don't even know what that means. Essentially, what it means is that one nation's currency, typically the most powerful country in the world, issues a currency, and then that currency kind of gets adopted by the rest of the world to use. And so because the U.S. is the global reserve currency, a number of goods and services, mainly commodities around the world, are priced in dollars. A lot of global trade around the world is priced

in dollars. So the institutionalized effects of, you know, if you, if you sell goods to the United States, and because the United States is one of the biggest consumer markets in the world, if you sell goods in the United States, you reserve dollars in return. And if you receive dollars in return, then you can either hold them or exchange them for foreign currency. But if you're doing a lot of business with the United States already, you may need to keep dollars. So then you invest those dollars in U.S. dollar assets, maybe treasuries or U.S. stocks or real estate or whatever it is, The point is there becomes this institutionalized effect of because you do a lot of business in dollars, you hold dollars, you hold your reserves in dollars, you hold your savings in dollars, and that leads to the U.S. dollar assets getting a bid. So it's kind of a reinforcing system. So that's one reason that the one characteristic of the straw, so to speak. Another one is that because the U.S. has one of the biggest consumer markets in the world and because it's one of the biggest economies in the world, we have the biggest

and deepest financial markets in the world. And the reason that's important is because that means there's lots of liquidity. Because there's a lot of people who want U.S. dollar assets, that means it's easier to sell your U.S. dollar assets when you need dollars. If you've ever invested in a illiquid asset, such as a piece of land that nobody wants or a commodity that nobody wants or a currency that nobody wants, that means it has less liquidity. It's harder to sell.

But because U.S. dollars and U.S. dollar markets are very deep. That means they're very liquid. And so that's another reason why people choose to hold dollars. Another reason is the rule of law. Now, again, you've got to think of this on a relative basis. You may argue that the rule of law does not exist to the way it should in the United States. And I would say that perhaps you're right, but then go around the world and tell me where it exists even better than the United States. and I think you'll find that at least there's a process here that people understand.

They know how they can litigate. They know how they can settle disputes. You know, there are contracts that are legally enforceable. You know, that is not the case in all other countries. And so the fact that people feel like they can come here as a good place to do business attracts people to the United States. Another thing that many people just don't realize is that because a lot of commodities and a lot of global goods are traded in dollars or, priced in dollars, even when countries who have nothing to do with the United States trade with each other, they trade in U.S. dollars. So as an example, Brazil may be doing business with Japan,

but those invoices may be priced in dollars. And if they're priced in dollars, when money gets wired back and forth between Brazil and Japan, because it's a dollar, then the United States government says, well, that's our jurisdiction. So if that flow of dollars needs to take place through a United States correspondent bank. And basically, that's the U.S. dollar payment system. So in other words, in order to get, when money travels around the world, it doesn't just like magically appear. It travels over wires and channels and routes, however you want to define that, that are

basically designed and overseen by the United States. And so we can allow people on that system or we can kick people off of that system. And if you're kicked off of that system, like has happened to Russia and Iran, and Venezuela and some other countries over the last couple of, you know, after the last decade and maybe even further back than that, it becomes increasingly hard to do business on a global stage. So that the fact that we control those channels, that is a part of the straw as well. The other part of the straw that many people don't like, but that is an absolute fact of life, is the U.S. Navy. You know, the United States military enforces the use of the U.S. dollar as the Global Reserve

currency. And if you think that this is a all conspiracy theory, I would just say that I can name you two or three world leaders who have attempted to set up, I don't know, trade routes or trade treaties or, you know, currencies, non-dollar treaties who are no longer in power. You know, and these are in places like, you know, Iraq, Libya, Panama, you know, this isn't an accident that these things happen. And again, I might not like it, but it is a fact of life. So those are just a couple of the different things that lead, you know, to the world economy operating on a U.S. dollar basis. Well, I think that the, I actually think that the Navy point is pretty important relative to

understanding the global system that we have now, right? The Bretton Woods system that was architected after World War II, it wasn't just like the U.S. was saying, hey, you know, we just won that thing. So use our dollar now. it came with an implicit and in many cases explicit security guarantee, right? That was part of the nature of the system. And I think that what has made the last, well, the last 40 years since the end of the Cold War, but especially the last 15 years, let's call it, such a strange period is that we're seeing

the unwinding of that security degree, but the kind of the dollar part of the system is still as strong. And as you're pointing out, in many cases, stronger. So it's a very strange time. but I think you're right to point out that this is a, that the military, the historic military apparatus. And by the way, this is not a, for those who are just kind of like thinking about it as purely negative.

And I think you've made some really important points about the negative parts of it. It's also the reason why countries didn't have to create their own internal supply chains anymore. Now, there's, I think, a lot of good conversation happening now about why that may not be in everyone's interest to have a totally global, just in time supply chain, you know, and no one have to care about geography, but the fact of the matter is that that security guarantee was what allowed that to happen. So I actually think it's a really important point. And I'll give you another example, too, because a lot of times when I point out the military, they'll think that this is, you know,

that I'm claiming that we're going to war constantly and we're, you know, taking over other countries. And listen, I'm not saying that that hasn't happened, but that's just part of it. I'll give you another concrete example. And that is there's a one of the biggest and most important shipping lanes in the world takes place off the east coast of Africa, you know, through the Suez Canal down around South Africa, you know, out into the Indian Ocean. And, you know, a few years ago, that was a part of the globe where, you know, it sounds funny these days, but literally there were pirates and they were, you know, taking over ships and then holding those ships for ransom. And, you know, there's that famous, there was a movie even made about, I think it was called Captain Phillips,

if I remember right, where, you know, a tanker was hijacked by, you know, some pirates. And, you know, the way it was resolved is the U.S. military pulled a carrier up alongside that ship. And, you know, the commandos or the Delta Force members or the Green Brays, whoever it was, you know, snuck aboard the ship and took it over and got the hostages of freed. And again, that's an example of the U.S. maintaining free trade lines that didn't involve the U.S. going to war. But again, it just, you know, that was the U.S. that did that. It wasn't Russia that did it. It wasn't Brazil that did it. It wasn't England. It was the United States that did it.

And it was on the other side of the world. And so that's just, but that type of activity, again, you might not like it, but it does allow for efficiency of trade. Yeah. And I think it's important to be able to speak to historic realities of economic systems with clear eyes, you know, regardless of whatever we're trying to drive them to. And, you know, I actually, not a ton of people know this because it's a totally different career path, but I lived on and off in Egypt, I don't know, probably a dozen times between when I was 19 and 25, because I thought I was going to do either Middle Eastern stuff or post-conflict resolution stuff. And there's a reason that Egypt was constantly, you know, controlled by someone else, whether it's

the French or the Ottomans, up until basically the end of World War II. It's because of the value of the Suez Canal because of the value of that of that shipping route. But I want to go back to another piece of kind of this overall argument because I think that you did a really nice job of painting out all of these different elements that have put the U.S. and by extension, the dollar, in this totally unique position. And that's the reality is that it's unique. It's different. It's hard to view in isolation because of all these comparative advantages. But let's talk about debt. And let's talk about the rise in debt that happened over the last 10 years in the wake of the global financial crisis and where we were coming into this. And just by way of adding a few

statistics into this, Rob Paul, who's been talking a lot about the dollar recently as well, he just tweeted out the other day a number of stats that I thought were really interesting. 79.5% of all world trade conducted in U.S. dollars, 84% of all non-domestic debt globally is under U.S. dollar debt. But let's get into what that means and what the implications are. Yeah, you know, it's a fantastic point. And the reality is this is probably the biggest demand driver for the dollar. And it is one of the biggest parts of the straw that I didn't even mention. So thank you for bringing it up. And, you know, Ravel is a buddy of mine. And so, you know, we see things very similarly with regard to the dollar. You know, I think another mistake that I think

a lot of people make is when they will say, okay, the U.S. is taking on more dollar debt. You know, other countries around the world have taken on debt. If they default on that debt, that is bad for the U.S. dollar. In the long run, yes, that is absolutely true. But in the short term, it is not. And what I mean by that is that when you create debt or when you take on debt, you are basically saying, you're giving me dollars today. I'm going to go do something else with it.

And then in the future, I'm going to pay these dollars back to you. So what you're basically doing is you take those dollars. You go invest in some project, you buy something. But what you simultaneously do is you simultaneously take on the burden that says, you know, two years from now, five years from now, 30 years, whenever that debt comes due, you have to go get dollars and then, pay them back. So the fact that you are now short dollars and you owe dollars means that there is a future demand for dollars. So every time U.S. dollar debt is taken on, it actually increases demand

for dollars. And so the fact that all of this debt that has grown in the last 10 years, you know, everybody knows that the U.S. debt has just gone through the roof and we owe like, you know, $26 trillion or something along those lines. Well, the interesting fact is that there's a huge amount of debt by entities outside the United States who also owe dollars. And, you know, the popular number is 13 trillion. We've done some research where we actually think it's actually much bigger than that when you factor in off-balance sheet stuff, some shadow banking stuff, and, you know, some assets that aren't tracked as closely. But let's just use 13 trillion as the base number. That is $13 trillion of demand.

for the dollar. Not only that, but if you fit, if you, if that $13 trillion had the same interest rate as the outstanding debt on the United States. So the average U.S. Treasury bond has a yield of like 2.2% or 2.1% or something like that. Now, there's no way the rest of the world has that same preferable rate that the U.S. does. But let's just pretend that they do. That would mean that the, that on a yearly basis, there's, there's a trillion dollar. of interest payments that are due on the use.

So there's a trillion dollars of debt or demand for the dollar just to pay the interest on a yearly basis. So and the thing is, is there's really no other system that if you leave the dollar, there's really no other system to go to. Now, I think that there's a lot of other countries that would like to leave the dollar. I think there's probably great demand to leave the dollar. but wanting to do something and being able to do it are not the same thing. You know, I always use examples.

I would very much like to be able to hit a golf ball the way Phil Mickelson does, but me being able to go out there and do it are two totally different things. And so, you know, the fact, you know, going back to the whole reason why the world, why the U.S. is the world reserve currency to begin with, you know, world reserve currencies are not given, they're taken. And until somebody can take that global reserve currency from the U.S., and replace it. And then, you know, not just from an economic perspective, but from a military perspective,

the dollar is the only game in town, so to speak. And so, you know, the idea that you can just walk away from using the dollar until there's another system, it's very hard to do. Not only that is then we get into the situation where people will say, well, yes, but if all this debt is defaulted on, that would be very bad for the dollar because, you know, there would be no more demand. Well, that's partly true, but what I think people forget is that you have to understand

how money gets into the system to begin with. And without going into too much detail, because this conversation in itself could last five hours. But money in today's monetary system, for the most part, is loaned into existence. It doesn't actually exist in physical form. It's all just ones and zeros, and it's mostly digital, and it's mostly created in the form of loans. And so when, you know, one man's debt is another man's asset,

or one woman's debt is another woman's asset. And so if debt gets defaulted on, yes, the demand for the dollar does fall based on that amount of loan that's defaulted on. But because money is loaned into existence, a default leads to more defaults, leads to more defaults, and it actually creates a credit crunch where the supply of money will support, will decrease even faster than the demand because of the default. And so even though the demand has fallen, if supply falls even faster or money becomes

even harder to get because of this credit crunch, the price of the money can still rise. And so because there's really no exit valve, other than gold, and we can talk about gold or Bitcoin or something like that if you want to as well, because there's really no other system to go to, the dollar will rise even if there are massive. of defaults on the dollar. 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.

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scale.co slash coin desk. The interesting thing is, you know, you take this, what you have is kind of this dollar powder keg, right, where anything that, any sort of liquidity crunch, as we saw at the beginning of this economic crisis with COVID-19, just sets off a huge amount of demand for dollars, right? Because it's not just the natural demand of kind of the U.S. is debt and debt held here, but the world's debt, right? when everything comes due, there's this huge artificial debt which creates a spiral up in the

price, which then starts to impact local economies, especially emerging market economies, where it's not even necessarily kind of this super debt cycle, but just the fact that if you're a net importer and everything coming in is priced in dollars, but everyone's paying you in a local currency, if those things start to break apart, it just creates chaos. We're seeing that in, I mean, a huge number of economies around the world. Lebanon stands out as one that's had a real big shift in fortunes over the last six months. But it becomes this kind of spiral on a pretty big level. Yeah, I mean, and that's the thing, is that you get into this.

This is actually part of the milkshake and part of the short squeeze is that, you know, as the dollar gets stronger, it puts more pressure on the rest of the world. You know, it gets squeezed even more. What little liquidity that there is gets squeezed into the U.S. because it's seen as a safe haven. And then as it gets squeezed into the dollar, the dollar goes even higher. The dollar goes even higher puts even more pressure.

And so it becomes a kind of a self-reinforcing loop. It's like a ratchet. The tighter it gets the less it can back up. And so, you know, and it can develop very fastly. And the way I used to explain it is I'm not sure if your listeners are familiar with gold, you know, in the arguments for owning gold. But one of the arguments for owning gold is, is that there's just not that much of it, right?

If we were to go back to some kind of a gold standard, there's not enough gold in the world to go around, for all the demand there would be at least not at current prices. And so as that demand increases, the price of gold would increase and therefore you should own gold. That's part of the argument. Well, it's the same dynamic,

and part of the argument is that there's a lot of paper gold that's traded out there, but it's just a promise for gold. It's not actually physical gold. And so like, you know, on the comics, You know, there's like 200 times the amount of gold trades on the comics as they actually has, as they actually have, you know, in reserve if everybody actually tried to take the gold that they're, that they quote unquote own. It's kind of fractional reserve gold banking, so to speak. Well, the same thing exists in U.S. dollars. It's a fractional reserve system, which means that on any one day, if everybody went to the bank to pull out their money, there's just not enough money there.

The banks do this because they know not everybody's going to go to the bank on the same day and pull all their money out. And so they keep a fraction, quote unquote, of the reserves in the bank, and the rest are lent out and sent around the world and money is created out of, you know, more money's created, et cetera, et cetera. But the same thing happens in fiat currencies that could happen in gold. If everybody who has these paper certificates or this paper wealth wants to go and get their physical dollars, there's just not enough. to go around. And so that would cause each individual physical dollar to go up in value if everybody, you know, tried to get it on the same day. And that's exactly what we saw, you know, a few months ago in March. It was essentially a global margin call on the dollar. And not just the U.S., you know, people around the world needed dollars too. That's why you saw all markets selling off. And it got

into a situation where it wasn't just equity markets, commodity markets, the gold market, Bitcoin, government bonds, real estate, everything was getting liquidated because it didn't matter the price. It didn't matter the fundamental. It didn't matter the future potential. All that mattered was, I need dollars today. And so it was, you know, it was that unwinding of all this leverage. And the central banks had to come in and provide short-term liquidity and make a bunch of promises and backstop a bunch of industries. And so, you know, that pressure has released.

They flooded the market with more liquidity. but that's essentially what, you know, what has happened and where we're at. I think March is a good example of proving the demand for the dollar. Yeah. And I think one thing that's worth, you know, making note of here is that we use these words, like strong is so often in other contexts means it's just a synonym for good, right? But the problem is, you know, a strong dollar, it creates, well, one, an incentive to not spend all those dollars to hoard them. Right. So all of a sudden, kind of the loaning of money goes out. It creates, it makes it impossible for American exports to be purchased by anyone, right? There's a, we had Lynn Alden on the show last week and she was making the correlation between times when the dollar has been the strongest and when corporate earnings. So actual, you know, not just a top line growth in stock, stock prices or anything like that, but actual earnings have been lower. Again, for, for large their reasons, because everyone operates multinationally at this point.

And I think it's just, you know, it's useful for people to understand that the, the, the, that the spirals in a way that just freezes the whole system rather than there, it just being, you know, kind of hard for some other places. It's not good for the U.S., I guess, as well. So maybe we can get into that. Like, why, you know, because I think this is the crux of maybe understanding what happens next, at least on the policy side. I think the individual side, you know, diversifying into things like gold and Bitcoin is worth talking about as well. But from a policy perspective, you know, how does the strength of the become bad for the U.S. itself. And can you see, although it's been the pillar of the global system for so long, can you see arguments start to crop up that it would be in the U.S.'s interest to not be the world reserve currency anymore? Yeah. So one thing I should probably make clear, and I usually try to do this early on in the interview in case somebody doesn't say, listen to the whole thing, is that, you know, I am, I, there's a big

part of me that does not like my theory. And part of the reason that I was pretty sure I was right when I kind of kind of figured it out was because I hated the answer. Typically, you know, if you like the answer, it's because it's kind of comfortable and it makes sense and it feels good. I hated the answer when I first came to this. And it took me a long time to kind of accept it. But that's kind of how I knew or kind of what made me feel like I was right as well.

And so I think, you know, this is all going to end. very, very badly for the dollar. I am not sitting here professing that we can continue these proffleget ways and print money out of nothing and spend whatever we want and there's going to be no ramifications. The chickens

are going to come home to roost. The point I like to make is that every other country has the same system and it's just my belief that the chickens are going to come home to roost for them before it comes home to us. It does

it doesn't absolve us for of our sense. The Piper is going to show up, right? I just happen to think he's going to go to a bunch of other towns before it comes to ours. And so to your point, will there come a time when the dollar loses value or could there even be a time when it would be in the U.S.'s best interest to have the dollar be lower? And I think the short answer is yes. I think that, you know, after the next call it two, three, four, maybe even five years of dollar strength, that there were more than likely come an event, whether it's a, you know,

it's out of the blue or whether it's a coordinated event where the dollar will get revalued lower. And what I mean by that is perhaps the government after, you know, the dollar gets so much stronger and it kind of brings the global economy to its knees, maybe we'll have another Bretton Woods type conference or another Plaza Accord type deal where the world will come together and they'll say, listen, the debts have just gotten too big. The system that we designed, it's a horror show. The dollar has just gotten too strong.

We need to write off these debts. We need to come up with a new system. And I think in something like that, then it would probably be in not just the U.S. 's interest, but the whole world's interest to do that. But I don't think that something like that happens until there's a lot of pain. Again, you've got to remember that this is a system that has been built over the last 80 years. And the amount of blood, sweat, tears, you know, political capital, you know, human sacrifice as far as military this is not something that the U.S. is just going to wake up one day and hand over.

And despite there being some advantages for the U.S. to have a lower currency, there are incredible advantages to being the World Reserve currency and having a strong dollar. I just don't see any politician that wants to give that up. Now, it's possible. and make it to a situation where they don't have any choice. But I don't think that there's a bunch of politicians behind, you know, dark curtains in Washington, D.C., trying to come up with a way to lose the World Reserve currency. You know, some people may believe that that's the case.

I don't believe that's the case because I think the advantages vastly outweigh the disadvantages. However, what I will say is that Trump's policy of America first, unfortunately, as it may sound, does not fit with the current design of the monetary system. And what I mean by that is that there's this thing called Triffin's dilemma, and this is a famous economist named Robert Triffin from, I think, back in the 60s, perhaps the 70s, who kind of came out and said, you know, this global reserve currency issued by one country, it's all great for a period of time, but eventually you will come into a situation where the needs of the global community

they come into conflict with the needs of the domestic community. And when that happens, you know, there's a crisis because you can't have it both ways. And what Donald Trump has done is drive us right into the heart of Triffon's dilemma. America first policies do not square with the current design of the global monetary system. And, you know, it's not like you can just walk into Trump and say, hey, the system isn't designed for this. Because you know what he's going to say? He's going to say, I don't care. This is the way I want America first and, you know, other countries be damned.

And so, you know, something is, this is going to end badly. I don't know exactly how it's going to end. My thesis is that the dollar will get stronger before it gets weaker. But I do, but back to your initial question, I know I kind of went on a little bit of a tangent there. I do think it's possible that the dollar will go lower, perhaps significantly so in the years ahead. I just don't think that that's in the cards right now. It's really interesting seeing, you know, I think that the Overton window is kind of open and expanding on this conversation about what a post-Global, you know, U.S. Global Reserve System might look like. But it's so interesting that it's, we're so early in that conversation.

I think this validates your point of there being no, no, neither no blueprint or consensus or political will to actually drive that conversation forward, even if someone became convinced that you have. you have, on the one hand, you know, Hank Paulson writing in foreign policy almost exclusively about the potential position of the Chinese R&B to replace the U.S. dollar. And coming up very, very clearly that that's not the case. Whereas then you have other people who are saying, no, no, no, the problem isn't just the U.S. dollar. The problem is the idea of any national sovereign currency. This goes back to Keynesian idea, right? Or what Keynes was proposing at Bretton Woods, and you have Mark Carney last year proposing what effectively amounts to a modern bank or, right, which is basically just that he proposed Libra, but run by central banks, which was interesting.

You know, and that's obviously like a little academic and he was just, you know, he knew he was coming out of his role at the, you know, Bank of England. So who knows where that was coming from exactly. But I do think it's really interesting that this, the conversation is so nascent, but it's happening in some ways, which I think is different, right? And, you know, in the Bitcoin world, we've seen our version of this Overton window shift a little bit with Paul Tudor Jones coming in and, you know, talking about the great monetary inflation and talking about why that makes him interested in that asset. And I mean, I guess that's an interesting context to maybe talk about this sense that you have

that there's a scenario. You know, gold and Bitcoiners tend to view their assets, or at least some portion of them tend to view their assets as diametrically opposed to the U.S. dollar, right? If the U.S. dollar is thriving and going up, that must mean that their thing is less relevant and going down. And you kind of have a sense that they may rise in. in tandem. Yeah, I think that that is most likely the case. Again, I think, you know, and it's understandable. I understand why the idea behind, you know, gold or Bitcoin or some other stores of

value, it makes sense to own them in the eventual collapse of the U.S. dollar. It intuitively makes sense. And again, you know, the dollar will someday lose value. All fiat currencies eventually do. But I think, you know, when you think back logically about how things progress, very rarely is it like Star Trek where you can just beam yourself from one place to another and it just automatically happens. I'm not saying that there aren't events that can happen where things can happen overnight. You can have, you know, these big announcements come out overnight, which change the world. But that's typically not how it happens, right? It can happen that way. but it's not typically the way it is.

Typically the way it is, is it's a long road. There's much pain along it, and it's only once the pain gets so great that change is enacted. So I get a little, I don't know, frustrated is the right word, but when people say that, you know, the dollar is just going to be devalued overnight or, you know, this is just going to happen overnight. Well, just because it's a possibility doesn't mean it's a probability. And while you can, you know, it's okay to have, you know, content. agency plans for this small probability event. But just because something has a small probability of happening doesn't mean you have to

allocate a huge portion of your portfolio to this small potential event, right? I think it's more wise to have a position or, you know, be ready for something like that, but also realize that typically these big macro things, you know, something like the change of a global reserve currency or the trade of a change of a trade deal or, you know, peace treaties, These typically, it takes a long time for these to develop. I mean, think about how long Brexit took, right? I think the original Brexit vote was in 2016 or something, and they finally just did it at the end of 2019, three and a half years later.

So I guess my, you know, I do think that we are going to get into a system where a lot of people would like to leave the dollar. They will see it as an increasingly hostile system or an increased, complex, unnecessary, you know, weapon that is yielded, wielded by the United States. And I believe there's great demand for an alternative. I just think it's a little bit too little too late. And so as I think we get into the middle of this crisis, the ulterior systems that do exist will get flows and will get increased attention. And that will cause, because those markets are relatively small, the gold market's relatively small, the Bitcoin market is relatively small.

because those markets are relatively small. As some of the global liquidity ascribed to the dollar peels off and looks for an escape hatch, it will find its way into things like gold or Bitcoin or other things, and that will cause those markets to rise. But I don't think the whole world overnight all at once is going to leave the dollar and go to gold. I don't think the whole world all at once overnight is going to leave the dollar and go to Bitcoin. It just seems more likely to me that we'll go into a period of great chaos, there will be a lot of ups and downs, peaks and valleys, and a lot of pain.

And at the end of that valley, which could be three, four, five, seven years from now, a change will be mandated. But it's very possible that along that route, you know, things like gold and Bitcoin or other stores of value, maybe it's diamonds. Maybe it's, you know, farmland in New Zealand. I don't know. Maybe those types of safe haven trades increase in price as the, you know, as the road to that eventual change of the system. you know, unfolds. But I just think it's unnecessary. And I think it, it, it, I just, I don't want to say it's lazy thinking because it's,

it, that's not the right way. But I think it's just too easy to say, you know, the dollar's going to lose value. So therefore buy gold or buy Bitcoin. I just don't think it's going to be that simple. I think it's going to be much harder than that. Well, and I think that the kind of the point that you're making about the dollar's place in the world is that it's, it almost has to be treated as this very fundamentally different force in the economy, right? It's a political asset as well, right? And so

absolutely. And I think, so two interesting follow-ups to those thoughts. One is it was interesting because in the crypto space, one of the things that we saw is, you know, again, the first wave of this crisis was people who don't like Bitcoin basically being like, look, see, it dropped off too. It's correlated. It's screw you. You're wrong. You know, like it was a safe haven. And then after that, it like rebounded. So the resilience narrative came back. And then I think what, you know, where, you know, the narrative landed was a lot about the contrast between this sort of programmatic limitation and an overtime reduction of supply issuance, you know, embodied in the every four-year halvings, happening at the same time as stimulus was ramping up in such a huge way, was a really unique

kind of narrative moment. And I think when it comes to safe haven trades, to use your term, those narrative moments really matter because they're about belief, they're about hedges in the future, right? So you saw that with Bitcoin, but the interesting thing was from, an actual use perspective, what you saw was an unbelievable uptick in dollar stable coins, right? And this was all of them. I mean, tether grew the most, but it was also USDC, the Circle Consortium and Paxos and all of them, you know, I think we went from like something like 4 billion total circulating supply of these things to 10 billion now. And a lot of it, it seems, you know,

some of it was just crypto traders, right, moving liquidity out of whatever they had, you know, to kind of just sit there as dry powder. But it seemed like a lot of it was also people trying to get dollar exposure, even if it was this weird synthetic dollar exposure, right? It was this close enough different thing, which is really fascinating. And I think, again, kind of reinforces your point that there's this, I mean, look, the dollar got liquidity even in this market that was basically designed to be hedge against the dollar system, you know?

Right, right. There's the straw right there. You may have seen this. And if you didn't, I'm happy to send it to you. but a friend of mine named Max Braunstein, who works at Coinbase, wrote a paper on this exact topic. And it talked about the increasing use of tether as a way, not that it was necessarily intended for this, but that actually increases the value or demand for the dollar. And tether being used as a way to get access to U.S. dollar funds or whatever.

So I think it's a very interesting topic. And certainly one that bears some scrutiny. and some, I'm very sympathetic towards that view. Yeah, he and Avi Feldman from Block Tower, who he writes with, and I think it's called, I can't remember what the name of the blog is, but it's a great one. So that was one point. The other follow-up that I thought was really interesting, I think really salient about what you were saying, is the expectation of the speed at which these radical shifts happen and how the market might be able to understand them or bet on them or price against them. I think one of the things that also makes this so challenging is that any type of economic shift of the magnitude that we're talking about cannot be divorced from political reality, right? These things become political and those are X factors that you simply cannot predict. What we don't know, you know, you have this theory about the dollar milkshake, which makes tons of sense. The X factors are, what if politics gets us into a situation where there's a war and then the military is involved, you know? And if you look at great historians, one of the one of my my favorite set of historical writings. And it's from a, you know, a source that not everyone

loves, but Eric Hobbsbom, who's a 20th century historian. And he wrote his books in such a way, towards the end of his life. He did this compendium of books where he basically just sat down on a beach for three years and wrote everything that he knew. And each chapter looks at a period of time, so, you know, 1918 to 1939 or something, through the lens first of the economy. and then the next chapter is through the lens of the military and then the next chapter is through the lens of politics, whatever the order is. But each chapter you read,

you're like, that was literally the most comprehensive, clear-headed look at how those systems all fit together that I've ever read. And then you read the next chapter, and you're like, holy crap, how could I have missed all of that

in that same 30-year period? And I think that's one of the real challenges when we have these conversations, you know, we're in a time, I guess, that's so interesting. And this is why I think the work that you've done to kind of try to bring this together as a theory that people can wrap their head around

is so important. We're in a time when the implications of what's happening in the economy are inherently, have huge political implications that are part of much larger political forces that you kind of can't divorce them from. Right. Right. And, you know, I'll use a competitor to use the X dollar as an example to kind of prove this point is whatever you think about the U.S. dollar and the problems with it, I don't see how you can't describe those same characteristics to the euro. But then not only that, but it's like getting 20, different, if you've ever had a family reunion and you tried to agree on something, you realize how hard it is to get 20 different people to agree to do the exact same thing. Now you've got 20

different countries, right, or whatever their exact number is. And the idea that you can have this, you know, this, this, you know, this unified currency when you've got 20 some different, disparate countries with needs and wants and desires and da-da-da-da-da. I guess my point, But look how long, you know, number one, how long it's held together. Number two, you know, the first Euro crisis was, you know, 10 years ago and the Euro is still together. The amount of political capital that has been spent to keep the Euro together should not be, you know, underestimated. Now, I'm somebody who is hugely bearish on the Euro. I think the Euro is most likely to fail.

But that doesn't change the fact that it has had a number of things thrown. at it and yet it's still here. And I think a big part of that is you have to consider the political capital that has been spent to keep it so. So the idea that the U.S., after spending 80 years of political capital is just going to roll over or is just going to, you know, give up the global reserve currency and these types of things. Or, you know, I think people don't have a proper appreciation for how much work has gone into setting the system up as it is. And I think it will end, but it will be, it will end because of the, the poor design of the system, not because the, not because people want to change it. You know, it's not because the U.S. will want to

give up on the global reserve currency. I don't think it will be because, you know, a politician in Washington suddenly comes up with a new system and everybody buys into it. The, the, the the political capital and the institutional effect of the global monetary system is, it's kind of hard to fathom when you kind of step back and really think about it. No, I completely agree. Well, I've kept you at the super macro level because I think that's, you know, where my head spends a lot of time. But what do you think about, what do you look about kind of day over day, week over week?

You know, what are you watching right now in terms of how things are playing out? Yeah, the first thing I look up at when I wake up in the morning is the price of gold. The second thing I look at is the price of the dollar. And then I start looking at things like what are treasury rates doing? What's the stock market doing? So, you know, I like to look at the big picture stuff first. You know, I'm not necessarily looking at an individual stock or what an individual industry is doing. I like to get a, you know, I like to get a big picture view of just kind of what's going on in the markets itself.

You know, the other thing that I'm following very closely is the political events and how that ties into monetary events. So, you know, the thing that I've been focused on recently is Hong Kong and the fact that, you know, Hong Kong has had this autonomous nature from China for, well, for forever. It used to be under British law. And then, you know, since, you know, in 23 years ago when the British handed Hong Kong back off to China, China had this, you know, this. Oh, the philosophy, I guess, for lack of a better word, of one nation, but two systems. And, you know, last week for the first time in the 23 years of its existence, the communist, the Chinese Communist Party did away with that pledge. It was no longer one country, two systems. And, you know, Hong Kong is in the process of losing its autonomy.

And that has implications because right now, because Hong Kong is autonomous from, or has historically been autonomous from China, they have received from the United States kind of most favored nation status. They get special trade concessions that China does not get. And so with the result of, you know, China kind of folding Hong Kong into their one China policy, they are no longer going to,

it's likely that they are no longer going to, you know, enjoy those special trade circumstances with the United States. And it just so happens that, you know, the Hong Kong dollar is pegged to the U.S. dollar. It just so happens. have the most leveraged banking system in the world. And it also happens that they've had, you know, almost a year of protests now with what's going on between China and Hong Kong. And not only that, to complicate things even further, their economy has probably been hurt by COVID

as much, if not more than any other region in the world. You know, their three biggest industries are retail, tourism, and real estate. And all three of those have just been decimated by the, by the COVID crisis. So we thought Hong Kong was in trouble prior to this, but now when you consider what's going on with the COVID crisis and now with the China doing away with the autonomous nature, we think it's very likely that this Hong Kong pig breaks, and that has many both effects on global currency markets,

global financial markets and geopolitical as well. So looking at things like that, you know, is one of the things I do a lot of work on. Yeah, it's a major kind of escalation in some ways of that today with Secretary Pompeo tweeting out, today I reported to Congress that Hong Kong is no longer autonomous from China given facts on the ground. Exactly. It's a big tweet even by this administration's big tweet standards, right?

That's a good way of saying it, yeah. Well, listen, what, you know, do you think that these, I feel like, Charles Dickens talking to the ghost of Christmas future, are these things that will come to pass or only may come to pass if we don't change our ways? I guess the question is, you know, how inevitable are some of these shifts or is it too hard to know what could intervene in the meantime? Well, I think I think that they are inevitable. And I think it's Doug Casey who coined this phrase. And if I'm attributing it to him incorrectly, then I apologize. But, you know, I've heard him say, you know, inevitable does not mean imminent.

And I think that's what everybody needs to remember is things in the macro world and the geopolitical world, they always take longer than you think they should. And I'm somebody who looks at this stuff very closely. And I always, I think that they take longer than they should. And then they take even longer than I think they should, right? So even I'm surprised at how long that they take to play out. So my point is, I think this stuff is largely, you know, it can't be stopped.

The die has been cast, so to speak. All Fiat currency systems do come doing it, and that's just kind of a mathematical fact. The question is when. And I would say that we're getting closer to the endgame than we ever have been before, but it still may take longer to play out than many people think. I would not be shocked to see this play out over the next five or ten years.

I think it'll play out over the next two to four years. But again, but if it takes five or ten more years to play out, it won't shock me. But, you know, I certainly think over the next couple of years, this whole topic, all these topics that we've been talking about are definitely going to become, you know, part of the popular conversation. Well, it's a super interesting conversation, and I really appreciate the time. And I guess I just want to end on one thing that I immediately noticed when I ran into your fund.

It's named Santiago Capital. And I pinged you about this. And you had done the Communeo de Santiago, which is basically an 800-year-old pilgrim trail across Spain. You told me when, but when did you actually do it? So I did that in 1999, spent 26 days, walked 20 miles a day for 26 days and 520 miles. Greatest experience in my life. Yeah, so did you do the French route down from the Pyrenees? I did.

I did. Yeah. Yeah. I did it in 2004. Yeah, I did it in 2004. Yeah, during the año Santo. So the anio Santo means that it's a, it's a year, it's a whole year where the, the, if the day of St. James falls on a Sunday. So you get two-thirds off purgatory instead of one-third. Exactly. So do you have your free ticket in heaven? I do, but I'm not Catholic, so I didn't take communion. So it was waived, basically. Oh, yeah, yeah. Okay, well, I have my certificate and I'm not giving up. No, I think it is a pretty amazing experience for anyone who did it. It's such, you know, I'd be interested to see how it, what it was like now. You know, when I did it, the euro had just barely been born.

It was still like there was, I mean, we never spent more than seven, you know, euro a night on lodging or anything. And I'm sure it's changed a lot since then. Yeah, it was fantastic. So did you start in, you know, just north of Pamplona and come over? of the French border. Yep. Yep. We did the St. John paid to port and then down. Yep. Yep. Yep.

Fantastic. Oh, man. You're getting me excited thinking about it again. I told my son when he graduates high school, if he wants to do it, I'll do it with him again. So that's about six or seven years away. So we'll see if he decides to do it. Yeah, that's perfect. My wife and I have plans to do that with, we're just going to make them, I think, is our goal at the high school. That's, we're going to, well, we're going to try to be diplomatic about it. We're going to try to tell stories about it, or at least I'm going to tell stories, because my wife hasn't done it yet either. So much that they get excited and think it's their idea.

But listen, Brett, really, really great talking to you. So much insight and I think a lot for our listeners to chew on. So thanks for spending some time. Well, thanks for having me and happy to come back anytime and wish all our listeners good health and good luck. One of the things that I think was so important about that conversation and about the perspective that Brent has is that. this idea that economic realities and economic predictions can't be divorced from their political context and the larger geopolitical context. Right now we're seeing, for example, of serious uptick and increase in the tension between the U.S. and China. That is not just an economic

tension. It's a deeply political tension with a hopefully not military outcome, but it's something that certainly people are talking about. Those types of political and even military actions obviously have huge, huge impact on how these different economic flows will shape out. And so to me, it seems like if we're going to have a conversation about the strength of the dollar and the relative strength of all these other assets, we can't divorce it entirely from the larger political context in which it operates. I hope that that's a conversation that you guys are interested in. It's certainly something that a perspective that I'm going to keep trying to bring into this show. Anyways, guys, I hope you enjoyed that conversation. Like I said, I know I did

And as always, I appreciate you listening. So until tomorrow, be safe and take care of each other. Peace. Welcome back to the breakdown, Money Reimagined. A special podcast microseries about the battle for the future of money in the post-COVID-19 world. This episode is sponsored by Eris 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.

Today we reach the final chapter in our four-part series on the battle for the future of money. The premise of this series is that there is an increasingly interesting competitive battle emerging for what the future of money will hold. In our time, that means not only what government-issued currencies will thrive, but whether new forms of currencies have a chance. Whether it's those issued by corporations or consortiums or decentralized networks or pseudo-inonymous monetary geniuses that drift quickly into the shadows never to re-emerge. Episode one was all about the great incumbent, the U.S. dollar.

Despite the ascendance of the money printer go-burr meme and the idea that excess money printing should cause inflation, the U.S. dollar has gotten nothing but stronger over the course of this crisis. The place of the U.S. dollar in the global monetary order and the status of the dollar denominated debt in the world clearly creates a unique and perhaps unexpected reaction. Episode 2 was about the within-the-system contenders, the Euro providing a regionally based alternative, China, with its aggressive digital yuan project, Libra, with its would-have-been could-have-been-Bankor, a return to the idea of a supernatural basket-based currency like John Maynard Keynes proposed

and was summarily outvoted on at Breton Woods. Episode 3 was all about whether there was any possibility that an outside of the system contender had a chance at disrupting the very nature of the system. Bitcoin has created something completely unique, a fixed supply, non-sovereign, non-corporate currency that has attracted billions of dollars of activity and inflows, plus a growing legion of passionate hodlers that increasingly include not just disaffected libertarians and cypherpunks,

but the royalty of the financial establishment, looking warily at the prospect of future inflation. At the same time, during this crisis, while the Bitcoin narrative has seen serious inroads, it is USD-pegged stable coins that have seen the greatest growth. This episode is a catch-up on each of these concepts, but with some new conversationalists. Between May 11th and May 14th, CoinDisc held the first-ever consensus distributed virtual summit, an event particularly suited to the era of COVID-19 lockdowns.

This episode checks in on each of the three questions posited by the other Money Reimagined shows with a unique ensemble of guests. Lawrence Summers was the Treasury Secretary under President Clinton. He was a director of the National Economic Council under President Obama. He was a professor of economics and later president at Harvard University. In this clip, CoinDesk's chief content officer Michael Casey asks Summers what he thinks about the Fed's policy in the time of COVID-19 and whether he had concerns about the independence of the Fed from the Treasury.

I don't think there was a viable option if we were to preserve a financial system. This is one of three moments of existential threat after 1987, after 2008, 2009, and now this in the context of the pandemic. I think it's important to recognize what's on the other side of the Fed balance sheet. This is not a case where they're issuing pure money, which, by definition, has a zero interest rate. This is a case where they're issuing bank reserves for the most part, and those bank reserves will pay whatever interest rate the Fed sets. So in that sense, they have rather more the character of short-term government debt than of money. One would be a fool not to recognize that the inflationary risks, given the magnitude of this dislocation,

are greater than they were three months ago. But at the same time, there was a very famous letter written by a set of economists to Chairman Bernanke in 2010 in which they explained that the growth in the Fed balance sheet, assured major inflation down the road. It's now pretty clear that that letter with respect to those events was wrong. And I think assurance that this growth in the balance sheet necessarily points to an inflationary period would not be a sensible judgment. I don't think the market participants who have traded break-evens down or reduced the price of commodity prices, even forward commodity prices, have necessarily been irrational.

I think you're going to see more blurring of the roles of the Treasury and the Fed. You're already seeing it in these joint facilities that are being operated where the Treasury is provided, providing the risk capital. What you think about issues relating to financial stability as central, when you think about bailout type activities as critical, inevitably there's going to be more overlap in the roles of monetary and fiscal policy. So yes, I think that the high point of central bank independence has been passed. On the other hand, I think there is a reading of monetary history in which we had a major experience

with unanchored money in the 1970s, and a very broad social lesson was learned. And so I think there will be closer relations between treasuries and central banks, but whether that points to a new inflationary era, I think that's more likely than I did three months ago, but it's not something I'd be prepared to go out and predict. Summers also had a take on privacy and anonymous transactions that, frankly, defines a good part of the raise on debt for the crypto industry. I think the problems we have now with money involve too much privacy. I was one who pushed very hard for the step that Governor Draghi and his colleagues took to eliminate the 500 euro note, or the new printing of the 500 euro note.

All you really had to know about those notes was that their nickname was the bin Laden to know that they weren't a very good idea. In a world of inordinate tax evasion, in a world with trillions of dollars of, laundered money around corruption and the drug trade. I think the last objective of government policy should be the promotion of anonymity with respect to large financial transactions. One of the financial community's accomplishments has been some progress with respect to issues around bank secrecy. And I would think it tragic if we were to turn backwards in some jurisdictions and an effort to get some sovereignty revenue were to go into competition by offering anonymous stores of value.

If there's a case for central bank digital currencies, I think it's exactly the opposite. I think it's a case that's around equalizing the playing field between smaller and larger players, and it's around making it more difficult for anonymous forms of finance to, you know, flourish. But of all the important freedoms, the ability to possess, transfer, and do business with multi-million dollars sums of money anonymously seems to me to be one of the least important freedoms that governments should be working to preserve. Christopher Giancarlo is another former U.S. regulator, the former chairman of the CFTC in this case. He is now focused on a new digital dollar advocacy project and argued at consensus distributed

that the need for a digital dollar has only accelerated due to the pandemic. What the crisis has shown us is really the limitations of the traditional accounts-based, analog fiat-based system as we're faced with the need to get benefits to needy persons in the economy, to keep the economy in neutral rather than going into reverse while we wait to read. open. But we're also finding that just money itself is a virus transmitter, and we need to deal with that. But there's been so many other issues that have been uncovered over the last few years, the cost and the slowness and the friction involved in global remittances, as well as international payments and wholesale payments as well. The dollar is a key part of infrastructure. It's a public

good, but yet it also needs to be modernized. And as the world moves into the second stage of the internet, the internet of things of value, the dollar itself needs to be future-proof for that new era. And it needs to be digitized and made to be able to be programmable. So we really feel that the time has come. As I said earlier, the great French writer Victor Hugo said, there's nothing more powerful than an idea whose time has come. We believe that the digital dollar is that powerful idea whose time has come. But what about the dollar competitors? More on that after the break. Support for this podcast and this message come from ErisX. With ErisX, 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 erisX.com slash 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 coin desk. Okay, back to the dollar competitors.

First, let's listen to Eves Mersh, a member of the European Central Bank's executive board, discuss the possibilities for a European digital currency. He expresses a somewhat different view than Secretary. Summers on privacy and anonymity in that context. A retail central bank digital currency could be based, for example, on digital tokens, which would circulate in a decentralized manner, that is, without a centralized ledger, and allow for anonymity towards a central bank imitating a essential feature of cash.

Some argue that a token-based digital currency might not guarantee complete anonymity, and it could be designed in an intermediate way. If that were the case, this would inevitably, however, raise social, political and legal issues, especially in those countries for which it has been commonly accepted that banknotes are. are printed freedom. Alternatively, a retail CBDC could also, for example, be based on deposit accounts with a central bank. A CBDC of this nature would enable the central bank to register, of course, transfers between the users. It would have as an advantage to offer protection against money laundering or other illicit

uses or what the ruler of the day considers to be illicit. And this all would depend on the degree of privacy that we would build into the design of such a scheme. Of course, it's not just existing currencies like the euro competing for place in the battle for the future of money. In many ways, the most recent phase of the battle was prompted by the introduction of Libra. In this consensus conversation, author Dave Birch described. how the variety of actors have expanded because of the catalyst of Libra. All central banks are looking at this, but of course they're not the only people that

are looking at it. And for people who come more from the tech side like myself, I think it was not a hard conclusion to come to that the decentralization of money would open up the possibility of more issuers. In fact, I wrote a book about that as well. So who those issuers might be, I'm not smart enough to know, but I know there's quite a lot of them. One, category is central banks, but another category is private currencies. And because of Libra and Facebook, that's what sort of set me thinking down this path. But the conclusion I began to come to, the more I looked at it, was that actually there are some other activities. I mean, Libra may well have been a catalyst to some of this thinking. I don't think it is in the case of China.

I think they've been planning it for a long time. But you see things like the Chinese digital currency and Libra beginning to emerge. Now, as Naomi pointed out, up until quite recently, that was the preserve of, you know, techno-deterministic, you know, cyber lunatics like me and actually many of your attendees. But last year, when the governor of the Bank of England stood up and said, what we need is a sick currency. You know, he said it's synthetic hegemonic currency, but I think sick currency is better marketing. He said, we need a sick currency.

Well, he's not just some guy like me saying it. That's the government of the Bank of England. And so then you began to see people whose opinions I really respect, you know, Nile Ferguson, who wrote one of the best books about the history of money, the assent of money, when people like that start saying, you know, the US has to take digital payments very seriously because there are issues of hegemony and by extension soft power, you begin to see some divergent opinions opening up. Larry himself last year said, you know, right now the network we have, he meant swift,

the SWIFT network doesn't work as well as it should. You know, Larry would favor putting effort into that rather than building alternatives. But when serious people like that start saying, you have to pay attention, then you know something's going on. And, you know, you're talking about Christopher Giancarlo. He said a couple of months ago, it's kind of like a new space race. And I think that's true.

In this clip, former Treasury Secretary Summers again shares his thoughts on the future of, of a Libra-like model for a new global reserve currency, making specific reference to former Bank of England Governor Mark Carney's idea of a synthetic hegemonic currency. In other words, a modern version of Keynes Bankor to replace the US dollar at the center of the global monetary system.

I think it's a long shot. I think it's a very long shot because I don't think there's the necessary political roots of consensus on how there would be global governance of a major currency. I don't think anybody's going to entrust that level of responsibility to the IMF or to an institution like it or certainly not to the United Nations. And I think the experience is that currencies are like languages, once they become established and established in having a global role, there tends

to be a lot of persistence just because of the network effect. So Mark could be right. He's certainly visionary on this. But I think Mark's other dream around much more active finance around global climate change is likely to happen much sooner than his bank corps. I think it will be a pretty substantial step if we got as far as the substantial growth in SDRs, special drawing rights of the IMF that has been proposed. I'd be surprised if we saw this soon. In some ways, that means less public competition for private digital currencies. Libra itself has announced a number of changes during the time that we've been producing

this Money Reimagined documentary series. They've added new association members. They've hired a slew of new high-profile leaders. They have distanced themselves further from Facebook. and perhaps most important in the context of the money battle, they have backed away from the idea of the basket of currencies approach that some thought might be so disruptive. In this clip, Libra Association, head of communications, Dante Desparte,

and Digital Dollar Project lead Christian Carlo discuss why the projects are, in fact, compatible. Well, if you think of the conversation and everything that Christian Carlos said, Michael, I agree with. I think at the end of the day, you need this kind of public-private collaboration to enable, in particular the last mile use cases, the user-directed peer-to-peer payment use cases can't happen at the type of scale that they need to happen if it's just singularly a public sector obligation. So I very much believe, and I think the association believes, that you can build digital commons and that those can be leveraged by public and private actors to try to empower people. And the last point I would make, to anybody expecting a vigorous debate between Chris and myself, they may be disappointed because I think the idea here is to really empower that public sector oversight of the financial system and the monetary system, while at the same time empowering consumers, citizens, and users to have user-directed payments. I don't think those goals are at all in opposition with one another.

The Libre Project and the Digital Dollar Project are both addressing the same set of issues, and that is the antiquated nature of our accounts-based analog financial system as we go into a digital 21st century. We tip our hat to Libre because it's because the Libre Project and Bitcoin that we're having this conversation today. And as a believer in the marketplace of ideas, which is the genesis of all innovation, of all scientific discovery, the marketplace of ideas is what's going to produce the future. future of money. And so we have a lot to learn from each other. There's different approaches, serving different imperatives, but all addressing the same concern about the antiquated nature of the traditional bank-based account system that goes back several centuries and is really going to be challenged by this new wave of the internet of things of value.

Part of the justification given for Libra at congressional and Senate hearings was the threat of a Chinese central bank digital currency. Giancarlo reinforces that point here, saying that part of the reason for a U.S. digital dollar is to have a global monetary standard that reflects Western values. We think it's critically important that a digital dollar have built into it as a design feature are Western values of an expectation of a degree of privacy in our use of money. Now, even with cash, let's be honest, there's a balance. between privacy rights and law enforcement rights right now. Under certain amounts, under $10,000, there's an expectation of privacy. Above that, there's not for limited purposes, a government

purposes of law enforcement and national security, not for purposes of monitoring where you're doing your shopping or who you're giving your political contributions to, but how, but where you're using your money that might violate law and national security. So there's always a balancing in a free market economy, in a democracy between the rights of the state to protect itself and to protect its laws and the rights of individuals to spend as they deem appropriate. And what we've got to get right in designing a digital dollar is that balance. If we get it right, and I believe we can get it right, a U.S. digital dollar, we believe, could be a preferred unit of sovereign currency.

Caitlin rightly said that money goes where it's best treated, and I fully agree. And I think that we must make one of the design imperatives in designing a U.S. CBDC getting the privacy balance right. So people around the globe, there's always competition for use of currencies. If you look at history, more often than not, you had both sovereign currencies competing against each other, but also competing against commercial-driven currencies in the global world. It's the last several generation of the dollar's dominance and sovereign currencies dominance over commercial currencies is relatively unique in human history. But whatever the case may be, we believe that it's possible. In fact, we believe it is an imperative to get this balance of privacy rights right in a digital dollar so that the dollar is seen as a reserve currency of choice, not of forced usage, but of choice.

But what about the digital you want as a digital. competitor to a potential future digital dollar. In this clip, author Dave Birch and World Economic Forum blockchain leads Sheila Warren, discuss the soft power advantage of the US dollar and why every nation needs a digital currency strategy. I mean, I hate to be sort of blunt, but when you talk about the kind of Libra and Chinese digital currency, and if you're saying to people, look, do you want to be surveilled by, you know, an unelected, you know, essentially, you know, dictator for life surrounded by a cadre of yes men that aren't actually accountable to the people that they serve or the Chinese Communist Party. That's a, you know, that's a decision that people

that have to make, right? Yeah, I think that you can't really separate cultural values and politics from this question. You know, I mean, certainly when it comes to civil liberties, they're very different definitions of what it means to have a society that's focusing on civil liberties or even social justice in different parts of the world. And those are political decisions to a large extent. I agree with that completely. I'm not saying it to make a political point. I'm not saying which digital currency strategy is the best. I'm just saying that we should have a digital currency strategy.

If, you know, because, you know, suppose, you know, right now the US dollar is about three quarters of international, you know, one leg of three quarters of international transactions settles in dollars. That goes through in New York. That gives the US incredible soft power. It does. Absolutely. No question about it.

So the question is, you don't have to replace all of that to have an impact on the US. What happens if 2%, 5%, 10% of those international transactions start to get settled in another I mean, let's just for sake of argument, let's say a Chinese digital currency just to, you know, just to heighten the differences. Once 5, 10% of that begins to be settled, then you have an issue. And actually, he didn't mention it, but Larry Summers was part of a war game last year. They ran a war game out of the Berkman Center, I think, looking at the impact of Chinese digital currency on the US dollar.

And I can't remember the, I mean, the outcomes weren't good. I don't remember exactly what. I remember the North Koreans bought nuclear weapons, which I think is. That's right. It was very dramatic, as I recall. That's a bad, right? That's, yeah. So whichever way you cut it, it doesn't need much of a shift to become a serious issue.

So that's why I'm arguing that the UK, the US, the West should, should, have a digital currency policy, even though I'm not smart enough to know what that policy should be. I think you have to have a digital currency strategy, regardless of the size of your economy. You have to know this is coming. You have to be prepared for it. And you have to kind of, at this point, you're not even ahead of it. You're really just kind of keeping up, you know, with whatever else is going on. But I also think that we tend to pause it in this space because this is very new, that they're

all going to be somewhat monolithic, and it's just not true. The strategies will differ with. The implementation will also differ in very meaningful ways. and those have to do a lot, largely with politics to a large extent, and with kind of the norms around money in a particular society. While much of this conversation so far has been about central bank digital currencies,

one of the unique realities of this moment is that non-sovereign networks from outside the existing system are making meaningful advances towards the currency competition. More on that after this break. Support for this podcast and this message come from gray-scale digital large-cap fund. In times like these, diversification is key. Consider Grayscale Digital Large Cap Fund, ticker symbol GDLC.LC.

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 coin desk. That's g-r-a-y-scale.co-C-o slash coin desk. Binance CEO Chaoping Zhao is intimately familiar with the new world of cryptocurrencies and what type of threat they might represent to the existing monetary system. He makes the point in this clip that the worst thing for the crypto world would be a loosening of regulation in the traditional system. In other words, Bitcoin and cryptos are at least in part a reaction to that traditional system.

What is the scariest regulation that you could think of being put on the crypto industry. So to be honest, it's actually counterintuitive. What would kill the cryptocurrency industry is if they make the regulations for the traditional fiat industries really, really relaxed and increase a lot of freedom. So if I'm able to send money, fiat money from any bank account to any other bank account, and I'm assumed I'm innocent until I'm proven duty, I can send large amounts, small amount at low fees and I can invest in projects around the world with ease, if they make

those kind of regulations, if they remove those kind of restrictions that we have on the traditional financial industries, that actually might actually, that will do much more damage to cryptocurrencies and our business in turn. If that happens, we'll have to repeat the business somehow. But I would actually think that actually has a larger impact on a negative impact on cryptocurrency adoption, whereas if there are more and more restrictions being applied, it's counterintuitive. It's actually better for the cryptocurrency industry. Again, they can control, well, every regulatory body can control really hard on the cryptocurrency exchanges, but the centralized exchange is only part of the ecosystem.

If you really control that strictly, people are going to move some to decentralized exchanges, OTC, P2P trading, there's a lot of other venues that's not centralized. I'm actually less worried about them coming up with overly restrictive regulations. It just pushes people elsewhere. The real thing that will slow down adoption of crypto is actually making the traditional financial industry more freedom-driven. So it's really, it's counterintuitive. It is undeniable that since the crisis began, or more specifically, a massive uptick in central bank money printing in response to the crisis began, that the Bitcoin narrative, particularly with the comparison of the having, has gotten clearer.

In this clip, Bitcoin author Safedin Amos explains. Well, you know, the hit of the addict always feels good when you first take it. It's the withdrawal that's a problem. So, you know, heroin would be a very good idea if it didn't involve withdrawals. And I think the same can be applied to analyzing central banking actions. More generally, the problem, I think, think is quite structural. And when we have a monetary system that's an advanced monetary system like Bitcoin that is digital, that is apolitical, we can see the shortcomings of a debt-based

system, which constantly, you know, periodically requires endless amounts of money printing and quantitative easing and all of these processes take place. Sure, it might appear like the central banks are being heroes for saving the day and for stepping in and for ensuring that things don't go too badly. But I think the real question that people need to be asking themselves is, why does this monetary system require central banks to keep stepping in all the time? That's not normal. That's not healthy. And, you know, Bitcoin seems to be growing and offering us a completely different alternative way of running this monetary system.

At the time when central banks are just finding more ways of or having to inject liquidity into their systems in order to prevent catastrophe and hope that this sticks this time and that they won't need to do something like this next time, Bitcoin's method of approaching this is to just stick to its original schedule that it was specified before 2009. And we've seen over the last 12 years, many people have tried to change that. but it continues to stay as it is. And I think this predictability and the use of a hard asset rather than a debt asset is what distinguishes Bitcoin from the central bankers currencies. And it's going to be fascinating watching over the next few years and few decades how this, how these two models unfold. On the one hand, we have a political model where money is made out of debt and it continues

that requires political decisions and political bailouts versus a purely automated. monetary system where pretty much everybody has given up on the idea of having any kind of discretion over the monetary policy and the monetary policy just functions on its own with a hard asset that cannot be inflated easily. Shapeshf CEO Eric Voorhees reinforces this point, arguing that removing the ability of humans to change monetary policy is a powerful advance, as well as reminding us of the difference between printing money and creating wealth. Well, with Bitcoin, it removes the ability of humans to change the monetary policy.

And ultimately, that's good in the same way that we don't have the ability to affect mathematics when we get scared about a virus. We don't have the ability to affect gravity or the changing of the seasons or how the planets orbit the sun. We don't have an ability to change any of that stuff when we get scared of a virus. and something as crucial as money, which is the most important good in the society is how humans interact day to day with each other.

That kind of thing should not be within the purview of any small group of people to unilaterally change. I think it will be very clear in the future, you know, five years, 10 years, 20 years in the future that a group of central bankers deciding what the price of money should be will appear very, very foolish indeed. And in Bitcoin, that power is removed from people. And that's why ultimately it will be much more trustworthy over time, and is why ultimately it will retain its value far better over time. Printing money does not

print wealth. It does not print wealth. It simply rearranges how wealth works in society. And what you're doing is you're essentially taking wealth from the future and you're giving it to people today. And of course, people today, when you print that money, will feel good about that. The damage is distributed over time, and the damage can be very pernicious and very severe. And to that person who said that, I think he could make that argument if there was any plausible suggestion that the money would be destroyed after the crisis recedes. If the balance sheet of the Federal Reserve actually went back to something normal after this, at least he could make that argument. I would still take other issues with it, but he could make that argument. But all of us know

that the Fed's balance sheet will not return to anything normal. Indeed, it did not after the 2008 financial crisis. But don't forget, they did not borrow money this time. They printed money. There is a difference, and it's important. Right. Right. Borrowing is more honest. Printing is just stealing. I mean, when you print, when you print money, you are stealing purchasing power from all the people that hold money today and in the future. It is just theft. A pretty big premime. It's a big pre-mine.

It's a pre-mine which is not stated up front in the white paper. So it's more like a pre-mine that can happen at any time ongoing with no one clear on when it will occur or how big it will be. It's just theft. The Winkle Boss brothers as well reinforced the important. of the halving from a narrative standpoint and how far Bitcoin has come since the last time this happened four years ago. So when the first having happened, I think we didn't even know it was happening. It was so long ago.

Obviously the second one was a big deal. It seems like every four years things improved by an order of magnitude, whether it's price, the human capital coming into space, the project. So I expect this four years to be the best for yet. Yeah, and I think the actual event tends to be a non-event other than obviously the celebration and the milestone. And that's really exciting. But I think a lot of sort of the reduced cell pressure and the actual economics start to kind of kick in and be felt generally a little bit after. Of course, this happening has COVID in the backdrop, which changes everything.

And in many ways, sort of the stage for a store of value like Bitcoin has been set. So I think like a lot of the things that we've talked about, like Bitcoin being digital gold and safe haven and all that stuff, the talking points have been the same since, you know, we got into Bitcoin about eight years ago in the first having. But the dynamics of fiat regimes has drastically changed. But it's not just these Bitcoin insiders that are excited. there is a clear pop culture clarity emerging where the narrative of Bitcoin as an alternative is taking hold. Listen to Alex Powell of the chain smokers, the hitmaking duo behind songs like Closer, Paris, and something just like this,

describe why this moment makes sense for investments around the Bitcoin industry. Well, I mean, I think it would be foolish to say that we all haven't been seriously affected in one way or another by this, you know, pandemic that's happening right now. But I think any smart investor sees the opportunity in times like this. Obviously, in 2008, when the crash happened, all sorts of amazing companies came from a new need from the consumer, whether that was Airbnb or companies like Uber or obviously Bitcoin in this case, which I think presents a really unique opportunity right now, the target investments in companies that play to those strengths. Obviously, Kasa is a great example of that.

I think with the banks lending trillions of dollars, and there's uncertainty about what your money will be worth tomorrow and obviously the benefits. through the Bitcoin is you own your money and it's yours. But then you've got to think about security and how do you protect that asset that you own is yours now. So companies like CASA are there to kind of solve that problem through their technology, which is created to be consumer-friendly and super safe and secure, as you mentioned before. Doubling down on this point is YouTube beauty influencer OG and massively successful businesswoman Michelle Fawn. She argues that mainstream understanding is near but needs better

education. I would say when I first started on YouTube in the beauty space, there was just a lot of mystery behind beauty. makeup artists would have their secrets. And so the average consumer were not as educated about makeup techniques compared to today, 10 years later after YouTube. And so I could actually see the same thing happening in the crypto space, specifically in Bitcoin, because especially right now, we're in very interesting historic times where like the feds, They're just printing so much money, I think like $6 trillion of just a stimulus package. And so I think a lot of people now are just questioning what money is and what money means to them. And I think the more they start questioning and wanting to learn and understand more about money,

the more they're going to be interested in sound money like Bitcoin, hard money like Bitcoin and gold. So I think it's just going to be extremely like interesting times that we're going to see right now where, one, the decentralization of just money in general. And similar to like YouTube and beauty, where YouTube decentralized content for the average consumer, anyone could technically have their own TV show. Everyone technically could have their own empire in that sense. And same thing with beauty.

Beauty back then, there was a lot of, the barrier entry was much higher. You had retailers who were, it was pretty much a closed market, retailers kind of controlled what consumers were seeing and understanding and buying and enters in beauty influencers. And they kind of disrupted that model and they democratized what beauty means. Beauty is not just a one-face fits all. Like it's very diverse. And so I see something like Bitcoin just really changing that space. And that's why I'm really excited about partnering with Lolly on this, too,

because a lot of my viewers and audience, they want to learn more about Bitcoin. They are interested in it, But one, maybe they might not have the money to invest in it right away, to buy any right away. And two, I think a lot of them are just confused with so much misinformation in this space. And so I feel like the best I can do is just offer, just offer like a better way to teach and share my experiences of Bitcoin. Because I don't think there's one authoritative figure in the space. I think most Bitcoiners can agree that we're all just learning.

And every single day we're learning more and more about this. And yeah, it's exciting times. Ultimately, though, the proof is in the pudding. While some pop culture influencers have been orange-pilled into Bitcoin, is there anything to suggest uptick during quarantine is actually happening? According to Catherine Coley, CEO of Binance U.S., the answer is yes. Yes, in fact, since the lockdown, we've seen the downloads for our app double, as well as the assets under management, go up closer to 60%.

So we've been able to see just an influx of people adopting digital assets and wanting to be able to stay nimble between these markets and traditional markets. So that's really where we're seeing that participation. Why is the interest growing, in your opinion? Part of it comes from the accessibility of digital assets. It's 24-7. You can trade it from your phone or home. It doesn't have as many barriers to entry as other markets, and people can engage in more frequently, especially in these times where we're focused on staying. healthy and at home. So I think that's where we're seeing this pickup. In that essence,

our OTC trading is really to be able to provide an easier way for folks to be able to buy larger than $10,000 amounts in lump sizes that don't go through our order books. So anonymity is something that often market players are asking for. This was validated by Ray Yusuf, CEO of Paxville, who points to emerging markets like Africa and Latin America as key drivers. We've noticed that 20% rise across revenue all across the board and a 30 to 40% rise in signups on average, but Africa and Latin America are leading the way. In fact, all emerging markets are. There's immense demand there for Bitcoin retail demand based on real use cases, including wealth preservation. You know, for example, Nigeria.

In the past four years, the currency is depreciated by over 60%. and that's only continuing to rise. The currency wars aren't going anywhere, and they're driving a lot of refugees to Bitcoin. Now, there wasn't a total unanimous belief in Bitcoin on display at consensus. Carlo-Perez, the hugely influential thinker on the economics of technology revolution, shared the skepticism of a truly leaderless system. This is what she had to say in response to a question from investor Chris Berniske

about whether a new decentralized model of governance could be at the center of a new default model more broadly. You know, that sounds so nice. But I have a problem with it. I do agree. It's a great new governance thing. But have you ever tried to organize a community? Have you ever tried to organize any sort of group? Do you know what it's like to organize a group without a leader where everybody is the same?

I was a boss once. I tried not to be a boss. I hate being a boss, but I was in my country. I was the head of a technology directorship in a ministry. And I said I would accept the job as long as I could have everybody participate equally and so on. Well, I almost resigned when trying to do this, I realized that without being a leader, I could not get anything done. So I don't know if you believe that without a leader, you can have a good organization. It sounds very nice, but I'm sure you've got to solve it somehow that this idea of having a sort of anarchic stateless, nobody leads, everybody's the same.

If you believe that maybe it can happen in some cases, I have never seen it happen properly. and the hippie communities that tried to do things like that ended up in chaos. So I'm not so sure. I really think that stateless utopias, libertarian utopias, are as flawed as communist utopias. Too much state or too little state, they're both really bad. So I think maybe we have to see a place. I'm sure there is a very important place for blockchain. But I'm not sure it's in order to eliminate the state.

So, after all this, what is the takeaway? The battle for the future of money is a battle that is just beginning. What has become clear during the COVID crisis is that the dollar remains incredibly strong, so strong, in fact, that it is sucking in value in the form of stable coins and causing problems with other fiat currencies, particularly in emerging markets. Other reserve currencies like the euro are struggling with questions of political will. China's digital yuan is steaming ahead, but China itself also faces serious political questions about its handling of the crisis. Bitcoin has undeniably achieved a new level of narrative

relevance, not only from the pop culture icons, but also by a growing cadre of influential investors. This was exemplified when Paul Tudor Jones made a full-throated argument for Bitcoin as a hedge against what he believes is coming, a great monetary inflation. And ultimately, that's the question. What is coming? In many ways, the battle for the future of money can't be predicted without being able to predict the coming set of not only economic, but geopolitical events. For now, what remains true is that there has never been a more active conversation and a wider set of possibilities for the future. Thanks for listening to The Breakdown's special Money Reimagined series for CoinDesk. Until next time, be safe and take care of each other. You've been listening to The Breakdown

Money Reimagined. song is Faith in My Money, Money Pryor Go Burr, a new track by DJ J. Skrillo, which is available as part of his newly released sound money album. This episode featured content from NLW, Lawrence Summers, Christopher Giancarlo, Yvesse, David Birch, Dante Desparte, CZ, Safte, Saftein-Amos, the Winklevarez, Winklevonne, The Winklevoss Twins, Michelle Fan, Catherine Coley, Ray Yousaf, and Carlotta Perez. This episode was written and produced by NLW, announced and executive produced by Adam B. Levine, edited and scored by Adam B. Levine, and Rob Mitchell. While this is the last episode in our story so far, the outcome, or even a cohesive vision for money reimagined as our world changes, is far from over. Subscribe to the CoinDest Podcast Network, wherever you get your podcasts, for new episodes of The Breakdown and other original thoughts served up fresh daily as the battle for the future of money rages on. If you're still listening, we'd love to hear what you think about this special series, our podcasts in general, or anything else. Send us an email at Podcasts at Coindex.com or leave us a podcast review on your preferred platform.

On behalf of NLW and the entire team at Coin desk, thanks for listening.