The Breakdown - Vijay Boyapati’s Four Mental Models for Valuing Bitcoin

Episode Date: November 19, 2020

Vijay Boyapati’s “The Bullish Case for Bitcoin” is one of the most influential articles in the history of the industry – even being assigned reading from MicroStrategy’s Michael Saylor as he tried to convince his board on the merits of what would become its big bitcoin move.  In this conversation with NLW, Vijay discusses his recent thinking around four valuation frameworks that help us understand 1) how people see bitcoin’s upside potential and 2) the likely values they suggest for bitcoin. We also discuss why state-level attacks are Vijay’s biggest concern for bitcoin’s future.

Your conviction in Bitcoin is tested far more strongly in a bull market than it is in a bare market. Being able to hold your Bitcoins in anticipation that this is going to become a reserve currency is very, very difficult when the bitcoins you own move from a small fraction of your savings to a meaningful number or a life-changing number, as it has for many people in the last 10 years. So prepare your body because it's a wild, wild, right? And if you haven't been on one of these before, you'll experience what I'm talking about. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world.

The breakdown is sponsored by Crypto.com and nexo.io and produced and distributed by CoinDest. What's going on, guys? It is Wednesday, November 18th, and today I am thrilled to share this conversation with Vijay Boyapati. Most of you will be familiar with Vijay if nothing else for his essay, The Bullish Case for Bitcoin. This thing came out in 2018 is a 41-minute read and is, I believe, at this point, the consensus-best place to send someone who really wants to understand a starting point in their journey around Bitcoin. As some evidence of that, it has been voluntarily translated into now 20 languages. It was something that Michael Saylor from Micro Strategy made all the people on his board read. It is just a phenomenal starting point for understanding Bitcoin in the context of monetary history.

As we were recording this show, we were watching Bitcoin crush up through 17 and then 18,000. And it's impossible not to feel the start of a new move happening. We're finally seeing some of those mainstream media articles that are coming in as Bitcoin approaches its all-time high. And so what I wanted to do with this conversation was a few things. First, I wanted to look at VJ's recently shared frameworks for valuation of Bitcoin. VJ calls them valuation frameworks. I might call them something like mental models. It's a way of looking at what Bitcoin's real possibilities are and what that suggests for price. And I think they're an incredibly useful heuristic for also understanding where the world is as it relates to Bitcoin. So that's where the conversation starts.

Where it ends, however, is with a re-examination of many parts of his bullish case for Bitcoin and a question of what has changed in the last two years and what is likely to make this next bull run different. VJ is one of the most coherent thinkers in this space, so I know you're going to love this conversation. And so without further ado, let's dive in. All right, VJ, welcome to the breakdown. It's so good to have you here, sir. Thanks, Nathaniel. I've been looking forward to talking to you for a while, so I'm glad to be on your part. Yeah, absolutely. And what a fun day to do this as well. Obviously, Bitcoin is having a seminal and historical. day in some ways. So this should be a really fun conversation. You know, I think most of my listeners

will be familiar with you. For those who are not in the intro, I just said that you basically are, you know, the sort of undisputed holder of the essential starting piece, the bullish case for Bitcoin. I think that has become the default starting point for so many people on their journey. And, you know, what I thought would be really fun is there's a bunch of content and ideas that you've had obviously over the last couple years since you wrote the first version of that. But I thought part of what would be fun to do today is, is look at some of the, look at the, almost go back and look at some of the pieces of that and what's changed, you know, particularly around things like your assessment of what the real risks are,

because it's such a different time now than it was then. So, you know, there's lots of different places to go, but I'm sure we'll have a great time with it. Cool. Sounds right, man. So let's start with this idea of valuation frameworks, because obviously we're in a kind of a big price action period, not just day, although it's a big day as well. And you recently had a thread about four frameworks for thinking about Bitcoin valuation. And I think that it's less

kind of like if you're already involved in Bitcoin, here's four ways to try to value it. It's more meta perspectives on how to think about the asset as a whole. So maybe let's start with what got you thinking about this and then what are these four frameworks? Yeah. So I've been trying to figure out the correct economic framework to understand Bitcoin since I first came across it in 2011. And the question of how Bitcoin had any value at all really fascinated me. And I had a background in Austrian economics. So I felt like I had the tools to understand something like Bitcoin and how it might have value. And by the way, I should say, I've always found it amazing that economists, especially monetary economists, weren't more fascinated with this question.

You have this new monetary good that a lot of people didn't think was possible, and it clearly has value on the market. How is that possible? And it's, I think, the most important economic question in the last century. So I've been thinking about the economics of Bitcoin for almost a decade. But it's only recently that I started thinking about valuation frameworks, which is kind of a slightly different mindset. Valuation frameworks is coming at it more from the perspective of like an institutional investor

or venture capitalists. When they look at something like Bitcoin, they're not as much interested in the economics. They're thinking like what price should I assign to this thing? And I've become more interested in it because I think this is the first. first cycle that Bitcoin is going to go through where institutional demand is going to be quite significant to the price movement of Bitcoin. And so you're going to have people coming in here who really want a framework to think about how they should value Bitcoin. And so I sort of

went back and thought about the frameworks that people had been using over time. And and try to assign a price target to each framework. And I thought there were four major frameworks that you could sort of assign to Bitcoin valuation frameworks. The first one has existed since the beginning, and it's the framework for people who dismiss Bitcoin out of hand and say this thing is a bubble or a Ponzi scheme. It has no real intrinsic value.

It's not, it has no comparative advantages to anything that exists today, including the Fiat monetary system or to gold, for instance, which is a comparable monetary good. And if you believe this framework, you would assign a value of zero to Bitcoin and you'd think the long term value of zero is zero because it really has no comparative advantages and is just built on air. So honestly, that framework has been trotted out a lot since 2009. Bitcoin was even dismissed funnily enough by some of the cryptographers who are now big contributors to Bitcoin, like Greg Maxwell, sort of dismissed this new system in the early days because a lot of the early cryptographers thought this thing is not possible. So whatever's being created is just a scam. And so it's interesting to kind of reflect on the fact that even people who are very important in the Bitcoin ecosystem

sort of went down this path of initially thinking this thing isn't worth anything. And I went down it as well. It's the natural first reaction, I believe, when you come across something like Bitcoin. So the second framework is valuation framework is to believe that this is kind of a niche monetary good that's going to be attractive only to people who have an ideological affinity to Bitcoin. So libertarians, maybe people who are technologically savvy in Silicon Valley, but that there's a limited audience for this thing and it's never going to break out into the

mainstream. It's never going to be the kind of technology that my parents, for instance, are going to want to use or will understand. And if you believe this framework, you believe two things. Firstly, that it's going to remain a very volatile asset, because if it's going to stay small, people moving in and out of Bitcoin are going to have a big impact on its price. Like individuals who come in and say, I'm going to put in $100 million to Bitcoin. And, you know, there are quite a few people in Silicon Valley who have that kind of money. One person coming in and putting that kind of capital into a small asset could make a huge difference to its price.

So you would believe, if you believe this framework, that Bitcoin is going to remain very volatile. And you would probably assign a price target somewhere in the range of 10,000, which is around where we are now, to about 100,000, which gives it a market capitalization that's going to be somewhere in the hundreds of billions of dollars. It's going to be interesting, but never significant. The third framework, which I sort of think is, in my mind, I think this is the most obvious and I think the conservative framework is that Bitcoin is digital gold. It's primarily

disrupting the market for a global non-sovereign store of value. And if Bitcoin were to disrupt gold, you look at gold's market capitalization, which is around $10 trillion, that would put a price target of about $500,000 per Bitcoin as sort of the valuation framework you would think about. And the reason I think this is a conservative framework is that Bitcoin excels along all the attributes that make for a good store of value. It is superior to gold in all of the attributes. It is more scarce than gold. It is more portable than gold. It's more divisible than gold.

And it's more transportable than gold. So perhaps the biggest comparative advantage that Bitcoin has over gold is that it's a store of value. that you can easily transport across borders or transmit across borders. And there is a lot of demand for people in places around the world who have some amount of wealth that they've built up through their lifetime or through their, you know, generations. And they fear for their safety or they're living under an oppressive regime and they want to leave.

And Bitcoin is an ideal store of value for that kind of person. imagine you're a wealthy businessman in China, and for whatever reason you're persecuted by the Chinese government. It's very difficult to transport your wealth out of China, carrying it in bags of gold. Or, for instance, the example I like to think of is the famous Austrian economist Ludwig von Mises, who was Jewish. And in World War II, he flew, sort of fled,

Europe just ahead of the Nazis and managed to escape to America, but he was penniless. When he arrived in America, he had nothing. He had to restart his entire career, and he just had the shirt on his back. In situations like that, gold, sorry, Bitcoin is so significantly superior to gold that you could understand people at the margin deciding to save in Bitcoin, rather than gold because it gives them that ability to leave if they need to. So the third valuation framework would put a price tag, price target on Bitcoin somewhere between 300 and 300,000 and a million. And I go up to a million, which is higher than gold,

because I think that Bitcoin is superior to gold. So in my mind, a $500,000 target per Bitcoin is a conservative target because I see something which is, you know, a far better mouse trap. So I would assign at least that kind of price level to Bitcoin. And the final valuation framework, which I think if it ever comes to be, is sort of, you know, a decade or more down the line, is Bitcoin becoming the world's reserve currency? And what that means is it's the asset that central banks and nation states hold in reserve

as their means of savings. And it's akin to what gold was in the 19th century when gold was used as money globally. And if you were to assign a price target to his valuation framework, you would assign a target probably in the order of $10 million per Bitcoin or above. It becomes the primary savings vehicle

for the entire world. And it also, it strips store value premiums out of other asset classes which have a premium and are used as vehicles for storing value. And there's a whole range of asset classes where this is true. Real estate is an example. For instance, I live in Seattle and just north of me, Vancouver is a city which is famous for having a large fraction of Chinese buyers of real estate. And it's real estate that they do not live in.

just buy it in case they have to escape China. And so they have houses in Vancouver, BC, as a store of value. And so assets like that, in the case of Bitcoin becomes a store of value, will have that premium drained from them and it will be drained into Bitcoin. And there are a number of other assets too. like, for example, fine art is an example of an asset that rich people sometimes store value in. I love this framework because it's a great jumping off point for discussing perceptions. I mean, people who listen to this show will know, I talk about a lot of these things as almost narratives too, right?

And they kind of define and set expectations. One of the things that I think has been really interesting to see is in almost each of these areas, holding aside maybe the fourth, the world's reserve currency. there have been narrative shifts even within how people are discussing these these frameworks. So tulip mania, right, is not really, like there are very few people. I mean, you still see some people who think it's based on nothing in thin air, but the longer that it goes on, the harder that it gets to just dismiss it, right? It's been kind of Mimi on Twitter recently to point out that Tulips never had a second time or a third time or a fourth time or a fifth time. So that's been interesting to see, because that's not just the Bitcoin Twitter people, that's also people in FinTuit who have

come to this. The Libertarian Limited, which is what I called your second framework in my notes here, the idea that is kind of like a niche group, it was interesting hearing Drucken Miller talk about this because he cited the fact that Silicon Valley money, West Coast money, West Coast Tech money, is what he called it, kind of loose-handedly, as interested in this, that is actually a factor that It's almost like for him, there's enough of that money that it's worth taking seriously, even if he's not of the political class, which is a way of it's different because all of a sudden that anchor, right, that anchor community becomes not a limiting factor, but a reason that it's a foundational factor. I think that's really interesting. And even in digital gold, I feel like there's been a shift. I mean, you know, a lot of people have been here for a while, but there's been a shift in the conversation from digital gold as,

a descriptor of equivalence to a discussion of a potential disruptor, right? That all of a sudden, when we talk about digital gold, we're not just talking about a digital equivalent of an offline thing, but a context in which the digital nature of it makes it so superior on a number of dimensions. And that has, I think, really shifted a lot of people, especially over the last six months, or at least it's felt like, is the entrenchment of the digital gold narrative, but realizing that inherent in that digital gold narrative is this set of things that make it have potentially much more upside even than just kind of a one-to-one market cap comparison to gold now. Yeah. So, I mean, that's two very interesting thoughts you bring up there.

So the first point I would make is that if you look at the industries that are dominant in the U.S. economy, it really shifted over time. So if you go back like a long way, say 100 years or even 70 years ago, farming was a very important industry in the US economy. If you go back to the 80s and 90s and early 2000s, finance was a really important, probably the dominant industry and it kind of peaked in the 2008 bubble as a fraction of the entire economy. But now it's really really, it's really, technology, which is the dominant industry and the economy. You look at the biggest companies on Earth. They're all technology companies, Microsoft, Apple, Google, Facebook, Twitter. And so you're right, you go to Silicon Valley and there's just a massive, massive concentration of wealth.

So even if it was limited to Silicon Valley, there is still a lot of money there. And I would also bring in another point that Michael Saylor, who's the CEO of Micro Strategy, likes to mention a lot, which is that Bitcoiners are like Cyber Hornets on the internet. You will not find any group of people more passionate. You'll never find a group of shareholders who are as passionate about the stock that they own as Bitcoin maximalists are about Bitcoin. So you have this built-in, you have this built-in group of evangelizers who want to go out and explain to other people why Bitcoin is superior. And there are multiple reasons. Part of it is ideological.

Part of it is that there is an affinity. They want to see the world change and to have more freedom. But also part of it is they have skin in the game. They have their savings in Bitcoin. And it benefits them to go out and to speak with people and explain. why this is a superior thing to save in to gold or dollars. And we live in a time where people are receptive to this message because the dollar is obviously being debased as quickly as the Fed can debase it.

So your other point about, so you have to remind me your second point about... The digital gold sort of as the disruption being inherent in it rather than it just being like, oh, yeah, there's gold and then there's digital gold. And they're kind of both, you know, the same thing versus like actually competing in some way. Yeah, yeah. So one thing I find really interesting now that I remember it when you bring that up is that gold is Bitcoin's closest cousin in sort of the family of global financial assets. They're very similar.

They're both monetary goods. They're both sort of scarce assets. They have a lot of similar attributes. But if you think about the ownership base of gold, it's very, very different to the ownership base of Bitcoin. The ownership base of gold, if you think about it, is central banks and to a large extent, people in India and people around the world who want to have gold's jewelry, there really is not much retail demand for gold, whereas Bitcoin is very different.

most of the demand that comes for Bitcoin comes from retail, which is just regular people. There could be tech investors or earlier adopters of technology or libertarians. These aren't necessarily institutions, or I think that's going to change in this cycle. These are people who just believe in it themselves and want to invest some money. And these are not people who typically own gold. And if you think about like generationally, millennials, ask any millennial how much gold they own. They'll laugh at you. I bet you, I would think that less than one in a hundred millennials has any meaningful savings in gold.

But ask the same group how many of them have some savings in Bitcoin. I bet you it's a significant number of them. And really, I think you can see the future in the present if you have a keen enough. eye. If you pay attention to what young savers and young entrepreneurs, young business people are doing today with their savings, I think it gives you an indication of what is going to happen in the future. And I think it sort of points to a very, very bright future for Bitcoin and a shift away from these old traditional assets into something that's defining this generation, which is monetary debasement.

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Step two, transfer assets to your secure nexo wallet with no minimum or maximum limits on funds deposited. Step three, sit back, relax, and earn up to 10% compounding interest paid out daily on your crypto and fiat. Your passive income made simple. Get started at nex0.com. With this idea of the fourth framework, the world's reserve currency framework, I guess my question, this is obviously a big one. And, you know, so much, what I want to talk about next is maybe this kind of bull run that seems to be really getting some wind under its sales and how it differs. But in that context, obviously digital gold is so much where the narrative is. But I want to

spend just a second on the world's reserve currency thing. Do you think that the rise in the discussion of central bank digital currencies, which have become, they've gone from something that we talked about over here in places like Coin Descan on Twitter last year to things that are being talked about in every government and every Bank for International Settlements meeting, right there, they are at the very top of the global kind of monetary agenda. Do you think that that increases or decreases the likelihood of people ascribing to this valuation framework and seeing Bitcoin this way? Yeah, certainly it might sort of encourage the narrative to hear these institutions which are still trusted, at least by institutional investors.

Certainly among regular people, there's a massive drop in trust in central banks. So it may help the narrative amongst people who are in Wall Street, who are managing large amounts of money and get them to think a little bit more about Bitcoin. I see it as a little irrelevant to the monetization of Bitcoin because I think a central bank digital currency to me is almost an oxymoron. The dollar is fundamentally a digital currency. The vast majority of dollars that are owned are owned digitally. I don't, the dollars that I do have, you know, not that many, but the ones I do have are not under my mattress, they're not in my wallet, they're in a bank account or on Venmo or something

like that. So what you're talking about with Bitcoin that's fundamentally different to the idea of digital currency is one that can't be manipulated by a central party and that has fixed supply. And that makes it really special. And what's especially important is that there's credibility in that monetary policy. People will look at Bitcoin and say, actually, I do believe that there is only 21 million Bitcoins. And because I believe that, I want to invest in it. If you think about a central bank, like the Federal Reserve coming out and say, well, we're creating a cryptocurrency too. Well, why do I believe that it's fixed in supply? Tell me why I should believe that. It's never going to be fixed in supply because central bankers believe in the

manipulation of the money supply, they think it's good for the economy to manipulate the money supply. So they've already shot themselves in the foot in terms of credibility. So I'm very skeptical of the idea that central banks are going to create something that competes with Bitcoin. Maybe they'll create some kind of replacement to the dollar that travels over borders a little more easily. But then again, that already kind of exists. If you think about something like Tether, it's essentially a dollar cryptocurrency. The downside with Tether is that you have to trust the organization which issues Tethers. And perhaps there's a somewhat greater amount of trust in the Federal Reserve to not be raided by the police and to fall apart, which is a risk

when you're buying tether that wherever they're holding those dollars that are backing the tethers that are out there, those could be rated or the bank account could be closed. So I personally do not find this discussion that central banks are having is particularly interesting or a threat to Bitcoin anyway. And I honestly, to bring up a sort of slightly related topic, I don't, I feel the same way about Libra, which is Facebook's attempt at this same thing. which is to sort of issue a pegged, stable coin that can be, you know, transmitted globally. And that's, they argue, is not controlled by them, but by a group of various companies and

payment processes around the world. I don't think it's any threat to Bitcoin either. Yeah, it's interesting. I actually, I would go in the exact opposite direction. And, you know, instead of it being a threat, I, think that it articulates the raise on debt for an open monetary system so much more than even now, right? We still have layers of abstraction. Like, I think that part of what made this year so remarkable was the coincidence of the global response, the global central bank response to COVID shutdowns happening at the exact same moment as the having. That's what clicked for so many of these institutional buyers that, like, okay, unlimited money, like fixed money. And that, that,

just that comparison was so acute. And I think what you're going to see with central bank digital currencies, which I believe are completely inevitable, is the basically the coming together of monetary and fiscal policy. And there will be, for a lot of people, they'll experience it mostly the same, but with a slightly more efficiency, which is just fine. But for people who are in the business of money and paying attention to it, the ability to manipulate the money supply will be a tool so that having a thing, having kind of the reification of digital money as the what money really is, but then to have the dramatically different examples of this system that is open, uncontrollable by any centralized party and fixed in supply versus every government kind of constantly

tinkering with their policy on a, you know, a day-to-day week-to-week kind of level. I actually think could drive the interest in an opt-out, maybe not at first kind of on a governmental level, but certainly on a corporate level, on an industry level, in a big way. But I feel like that's going to be a conversation that we continue to have, which is why I love that you put it in this devaluation framework as something where we really aren't discussing it in that way yet, at least aside from pieces like this, but I think it's going to come up more and more. I want to shift, though, you know, I kind of alluded to maybe what's made this year different.

And, you know, you tweeted the other day, I think anyone who experienced the 2016, 2017 bull market knows this feeling. Late 2016, unremending bullish action that almost no one outside of the Bitcoin community was paying attention to. And you had actually spent some time even last year talking about what we've learned through previous hype cycles, through previous bull market cycles. And I'd love to go back to some of that. There was a concept that you had that I thought was really interesting called like supply overhang basically at the beginning of a bull market. So maybe you can just talk about that and more broadly just kind of get at like what your sense of where we are in the cycle. Did it start actually in 2019? Is this a 2020 phenomenon? I just love

your take on that. Yeah, for sure. So I wrote a thread on this topic in mid-2019, and that's when I thought, that's when I believed it was obvious that we were right at the beginning of a new ball market. And so I wanted to revisit what is it that we know about ball markets? How do they proceed and what are the kind of things that you're going to see in a bull market. And so you've already mentioned this. The early stages of the bull market are sort of defined by accumulation by strong hands. People who after the sort of precipitous crash really strongly, viscerally believe in the value proposition and they begin accumulating as quickly as they can.

And really, I think from early 2019 to mid-2020, you saw significant accumulation of Bitcoin. You can sort of look at this also. There are various metrics that you can look at on the blockchain where Bitcoin sort of accumulate into certain addresses and just stay there and don't move. That's a good sign of hodler accumulation. And that's what, if you're paying attention, that's what you would have seen during mid-2019. And then sort of you start getting people who were interested in Bitcoin before, but then dismissed it when it crashed, coming back in and saying, hey, wait a second, this thing hasn't disappeared.

It's still kicking. And it seems to be slowly increasing in price. And those people start coming in as well. And then you get people like Michael Saylor, for instance, who's been paying attention to Bitcoin for a while. And it's like, okay, this hasn't died. I have some conviction. I'm going to put some savings into it.

Then eventually, slowly but surely you approach the previous all-time high. And this is where I talked about the supply overhang. What you have psychologically when you approach a new, sorry, the previous all-time high, which was about $20,000, $19,600 to be precise, you have people who wanted to sell at that level and they had, they, psychologically, they had some vision

in their mind of what their lifestyle would have been like if they had sold at that point. If I had just sold my bitcoins at 20,000, I could have done

X, Y, Z. I could have bought a big house or a yacht or a fast car, those sorts of things. And so when you get close to the all-time high, those people feel this strong

urge to diversify some of the savings that they weren't able to because they missed out on that small window. And what I mean by small window was small window of time. When Bitcoin reaches an all-time high, the price moves very quickly in a short amount of time. So people think of the all-time high as 20,000, but if you think about it in terms of time, the time it took to go from 10,000 to 20,000 was, I think, a matter of a couple weeks. And the time it took to go from 15,000 to 20,000 was a couple of days.

and from 17,000 to 20,000 was a couple of hours. So that was a window of time in which very few people actually got to trade. It's just a headline number. It's a number where people think, oh, that was the all-time high. But it has a very powerful psychological draw to people who have a significant amount of savings in Bitcoin, which is, oh, I wish I sold some of my savings into that high. And so as you get there, these people sell, they become the last sort of hurdle. that the market has to get over the last amount of supply

that will be diversified into the market before Bitcoin. So I described as being in open fields or open pastures and can run free because there is no longer anyone who wished they had sold in the previous cycle because you're in sort of a new price territory. Once you get there, that's when Bitcoin starts moving really quickly. There's two main reasons that I think. one is that those people who wanted to sell now have had the opportunity.

They've been given the opportunity. It's gone past the all-time high. And the second reason is the media comes in. And the media only starts paying attention amazingly when Bitcoin reaches an all-time high because it's a headline number again. It's like, oh, Bitcoin has reached that crazy level that we all said was crazy three or four years ago. And we derided it and we said, this thing is going to die.

It's dropped 80%. it's never coming back, but it's got back there. And so the media takes an interest, and that starts the FOMO phase, the parabolic phase of the bull market. When Bitcoin starts, the price movement starts accelerating really quickly, and the volatility comes back,

and you'll see intraday moves of like 5 to 10%. We are not there yet, and I think that that process is probably going to play out over the next year or so, but we are approaching it very quickly. One question I have is whether the shift in demand for Bitcoin, where the demand is coming from, is going to dampen the cycle slightly. I believe the demand is now coming from institutional investors, and institutional investors generally have a stronger hand than retail investors.

They're less prone to, for want of a better description, puking up their position. And I think when an institutional investor puts money into Bitcoin or, you know, the CEO of a company, someone like Michael Saylor, they're really in it for the long term. They're in it for, you know, five to 10 years. And so I think it's interesting that this cycle might be one where the volatility is dampened or at least. it's an open question whether that will be the case or not. Yeah, I think that's interesting. It's one of the things that I saw you point out at some point over the course of the last week that, one, that sourcing liquidity at the scale that a lot of these buyers want

is actually meaningfully difficult at this point, right? Being able to buy as many Bitcoin as you want, like that could just be, it could be that actually the base price of Bitcoin based on who wants to buy in the amount that they want to buy in is higher than we're already seeing reflected. It's just taking a moment to catch up. So I'd love you to explore on that. I also thought that that was an interesting point paired with the fact that these massive buys that have been happening haven't actually moved the market the way that you would have expected even a couple years ago. That's an interesting question.

So just, sorry, to step back, the price of Bitcoin is set on the margin. The last Bitcoin was traded. What is the price of that? That's what we call the price of Bitcoin. But if you were to look at it another way and say, let's look at all of the Bitcoins out there. and what is the price you assigned to each Bitcoin? And by that, I mean, how much money would it take to get that Bitcoin out of the hands of the person who owns it?

For a lot of Bitcoin, that number is very, very high. There are a lot of people who own Bitcoin who would not relinquish their Bitcoin if you paid them $100,000. They are truly in this for the long term for the next 10, 20 years, generationally almost, you know, people buying Bitcoin for their kids and locking in a way, cold storage. So, yeah, if you look at it that way, I think the price of Bitcoin is, as you say, much higher.

If we return to the question of accumulating Bitcoin now, institutions accumulating Bitcoin, there was a small window, I believe, in early 2020 to mid-2020, where it was still possible to accumulate a sizable position without moving the market. I think that is impossible now. I think it's essentially impossible. And I think the total number of tradable bitcoins that you can accumulate under 20,000 is probably, this is my gut feeling, it's not precise,

but it's probably in the tens of thousands of Bitcoin. And so that gives you what a dollar value is somewhere in the order of $200 million worth of Bitcoin that can be accumulated under $20,000. If you think of Michael Saylor and the purchase that he made for his company, he accumulated 38,000 bitcoins. So I don't think there is enough supply out there to accumulate Bitcoins under 20,000 for more than a handful of large investors. And there are a lot of large investors who are now thinking about getting a position in Bitcoin. Even today on Twitter, you see Ray Dalio sort of talking about, hey, you know, I've dismissed,

Bitcoin, but I'm open. I'm open to arguments about why this is important. So hit me with your best arguments. That is a really important point. He is now at the psychological point where he is open to hearing about and understanding and perhaps reconsidering Bitcoin. And that's a process that I think almost everyone who's come to Bitcoin goes through. I went through that process where I dismissed it. And it took, you know, some time and speaking to people I really trust before I changed my mind. And sorry, this is a little digression from what you brought up. This is something I've written about as well, which is the number of touch points that are

required before someone gets interested in allocating savings to Bitcoin. And it's kind of a measure of how receptive a person is to, thinking about alternative ideas. For some people, they hear about Bitcoin once or twice, and they're already open because they had an affinity, an ideological affinity to something like Bitcoin. And so they say, yeah, cool, let me see what this is about. For other people, they will need five to ten people that they trust to tell them, hey, you should think about this Bitcoin thing.

This is a great investment. Like my mother, for example, I've been talking to her about Bitcoin for a long time. but she probably needs to hear about it from five to ten of her friends. And then something, the light bulb will go off in her head and she was like, hey, I should think about this because the people who are, you know, in my circle of friends are thinking about it as well. And so to go back to Ray Dalio, he's probably got some people he trusts who are saying, hey, you should check this out.

This is going to be big. This is going to rival gold. this is the next big investment opportunity for this decade. So think about it. And from what I've heard, there are investors like Bill Miller, who are sort of actively evangelizing him, saying, go and go and think about Bitcoin and see if you want to allocate some capital to it.

It was interesting because Dalia, so I watched Dahlia's comments, the most recent ones. And I don't think the question was planned. I think that it kind of caught him off guard, because which would explain why the arguments were so fundamentally, like 2017, 2018. It didn't feel like something where he had recently spent time reupping his thesis and had a lot of conviction with it, which is why it wasn't super surprising but still encouraging to see

him on Twitter, as you were mentioning, engaging around this and being like, listen, you know, like I'm open to new arguments. It almost felt like he felt misrepresented by himself in terms of how convicted he was around these criticisms or concerns. Not that he didn't still have them, but that it's kind of like, he was basically saying, some ways without quite admitting it. Like, if I'm using the wrong framework to think about this, I'm open to a different framework, which I think is, to your point, a really healthy place to be and probably reflects a lot of folks who are sharing their different frameworks for how to think

about it. Right, right. And if you think about the waters that he's swimming in, I bet you there are people that he trusts or whose opinion he values that have started talking about Bitcoin. Someone like Peter Thiel, I don't know if they're, they swim in the same waters, but Peter Thiel has been talking about Bitcoin for the last year. And if you're someone who values his insight into the future and, you know, what he did with Facebook and Palantir and various other things, you hear him say, hey, our, our biggest bet right now is Bitcoin. If you hear him say something like that, you're going to be like, your ears are going to prick up and you're going to think, maybe I should be thinking about this as well. So I think this is going to be

the cycle where there are a lot of people like Ray Dalio who want to get in and are starting to get interested. The problem for them is that we are approaching the parabolic phase of the bull market where accumulation of accumulation of large amounts of Bitcoin can be done without slippage. And slippage is a term to describe when you put on a position or a large position, you shift the price a lot. Once you're in the parabolic phase, there is no way to accumulate Bitcoin without shifting the price because everybody is going to be falling over themselves doing the same thing. So I know that you have, I don't have you for too long.

I could talk to you about this stuff forever. But I want to come back to the bullish case for Bitcoin. And what has changed? You know, obviously this thing has been translated into like 16, 17, 18, something. I think it's 20 languages now. 20 languages. Yeah, just got a message DM from someone who's translated. into Japanese and another one who translated into FASI, which is, you know, it blows my mind.

When I wrote this article, I had no idea that it would have the traction that did. It was meant for a small group of friends, plus hopefully a few people in Wall Street to kind of wrap their mind around Bitcoin. So, yeah, it's just incredible to think that something I've written has been read that many times and, you know, I get people all around the world messaging me saying, hey, this is what got me into Bitcoin. It's really, really humbling. So it sounds like from what you're saying that it could be translated exactly into one more language and then people have to stop, just for the perfect beautiful symmetry of 21 languages. Yeah, that would be perfect. No, so I guess I wanted to

ask your thoughts, you know, one of the pieces with it. I mean, it really to me is I think why it's so resonant is that it's not making, it's setting the entire historical context for money and why this would be valuable in a way that's super accessible. It's just the right level of depth. But you do spend a little time towards the end talking about, you know, the difference between kind of FUD and real risks, right? And the real risks back then you talked about were protocol risks, exchange shutdowns, fungibility. What do you see as the biggest risks now? You know, we've talked a lot about the corporate Treasury movement, the institutional investors coming in, do those things potentially presage some sort of co-optation? Or is that not something you're worried about? I mean, if you had to actually

pin down what you do think are meaningful risks or challenges now, what would they be? Yeah, that's a great question. And it's something that I want to revisit. I'm working on a second version of the article, and that's definitely the issue I want to most address, which is how has the risk profile changed? So you mentioned protocol. risk, I think that risk always exists. You've built a monetary good on top of cryptography, and if there's some fundamental change in technology or theory behind cryptography that breaks Bitcoin's security, that could break the value proposition completely and immediately. However, I think that risk has vanished to epsilon or some tiny number.

Bitcoin has survived the test of time. It's had the world's best cryptographers and computer scientists banging on it for a decade. I don't really worry about that risk at all. One of the other risks I think I mentioned was competition. I personally discount that risk much more now than I did back then. I think it's much clearer that Bitcoin is dominant. The network effects are far too powerful. The brand is too powerful.

whenever you talk about any other cryptocurrency, Bitcoin is always going to be mentioned. So I don't worry about that so much. I think exchange shutdowns is probably the risk I think about the most, but as a small part of the bigger risk, which is state attack, I think the biggest risk going forward for Bitcoin is a concerted nation state attack on Bitcoin, which will involve many different things.

It could be shutting down exchanges, banning it in your country. It could be requirements to report your ownership of Bitcoin, which I think is a very scary possibility because one of the things that you could call a weakness of Bitcoin is that it's not fully private. The blockchain is completely transparent. and the amount that's held in a particular address and where that amount goes is fully transparent and recorded for all time. So if governments start requiring that people report their Bitcoin, I think that's a very scary future,

unless technologies are developed that dramatically improve the privacy of Bitcoin. And another sort of related one to that is there's this thing called an F bar report. I'm not sure if you've heard of it, but the US government requires that anyone who has more than $10,000, which is, if you think about it, a sort of a diminishing amount of money, $10,000 back in the 70s when these numbers were created was a significant amount of money, but $10,000 today is not. If you have $10,000 overseas in any form, you have to report every bank account, the account number, the amount you have in it, which country it's in, you have to report all of this stuff to the US government. And one of the concerns I have is that US government

might start applying F-bar rules to Bitcoin, which I think would be a chilling precedent if they did that. They currently don't require you to do that, but that could change in the future. but I think a concerted nation state attack is something that we should expect as Bitcoin eclipses gold's market capitalization. Gold has always been a monetary threat to central banks because it provides an escape hatch for people who say the monetary policy of my country is insane. It is affecting my family and my savings. and I want to get out.

I want to be in something that I can trust. I don't get out into gold. And so nation states over time have put all sorts of restrictions on gold. And if you go back to the original nation state attack, it was on gold in 1933 when Franklin Roosevelt issued an executive order confiscating all the gold in the US. if you had any savings in a bank lockbox, you no longer own those savings.

You were given a piece of paper instead, that dollar amount. And a dollar at the time was worth, sorry, $20 at the time was worth an ounce of gold. And what they did was they said, okay, you don't get your gold anymore, we're going to give you dollars, the equivalent dollars,

but we're going to change the exchange rate to be less. So if you have an ounce of, of gold, you're going to be given $30. Oh, sorry, $15. I can't, I've got to figure out which way it is. But you got less dollars than the gold was worth. So I think the advantage that Bitcoin has is it's much more decentralized than gold. Gold was, because of its physicality, has this centralizing tendency where you don't want

to store it in your house, you find a place to store it, which is usually a bank. And those banks become very tasty targets like honey pots for nation states to attack. So I think a nation state attack on Bitcoin will be more difficult than it was against gold. But I think it'll happen. And I think it's probably, I would think it would happen in the range of somewhere $500,000 to a million for a price on Bitcoin. When it starts affecting monetary policy for nation states, when they start saying, hey, we can't, change the interest rate here because people are jumping out of our currency into Bitcoin, so we're losing control over monetary policy. We need to clamp down on this.

And I tweeted about this several years ago. I think it was 2018 or maybe 2017. There was an article in the Wall Street Journal where the journalist said central banks are starting to get a sense of this could be a problem where if enough people put their savings into Bitcoin, they lose control over monetary policy. And I wrote at the time that this is the first inkling that the establishment has got that Bitcoin is a threat to their power structure. That's the threat that I worry about. That's the threat that I think is the only meaningful threat from here until Bitcoin gets to a million dollars. Super interesting. We could do a whole show. In fact, at some point we should do a whole show just on that. Maybe we'll have you back and do a little

roundtable. But for now, I want to say first, I really appreciate your time, both on the show and also the time that you put into helping educate and give people resources to learn. I guess by way of a last question, you know, we're about to, if not already, in some very heady times, especially for folks who haven't necessarily lived through one of these hype cycles. Do you have any words of wisdom for people who are watching these numbers rip up, who will start to see those press articles come in and who are trying to keep it together basically as that happens. I've written about this. And one sort of observation I'll make is that your conviction in Bitcoin is tested far

more strongly in a bull market than it is in a bare market. Being able to hold your bitcoins in anticipation that this is going to become a reserve currency, I think it will. That's my belief in the long term that it will, is very, very difficult when the, bitcoins you own move from you know a small fraction of your savings to a meaningful number or a life-changing number as it has for many people in the last 10 years um so as a lot of people say prepare your body because it's a wild it's a wild wild right and if you haven't been on one of these before uh you'll experience what what i'm talking about i think a lot of people over this cycle are going to

one that holding Bitcoins is hard. The people who have held Bitcoins for a substantial amount of time have done something that's psychologically very, very difficult. And so they do deserve credit. They didn't get lucky. They had conviction. And if you're going to benefit from Bitcoin going to the future, you really need conviction to hold this asset.

It will be volatile as it's growing. And so brace yourself. That's my advice. Awesome, Vijay. Thank you so much for hanging out today. We really appreciate you being on the show. Thanks, Nathan. There is a lot to unpack there, but the thing that I keep thinking about is VJ's last valuation framework, the idea of Bitcoin as the world's reserve currency. I think it's fair to say that most people aren't thinking in those terms, but as I mentioned during the show, I believe that the

growth in the conversation around central bank digital currencies will, in fact make people have that conversation more with regard to Bitcoin than if those CBDCs weren't so on the agenda. I believe that these CBDCs are going to dramatically highlight the benefits of an open, non-sovereign monetary system that is going to drive not just individuals, but some corporations, to look to Bitcoin as an alternative. It's also interesting to me that when VJ is articulating his real threat, the threat that the threat that he's actually worried about, a sovereign-level attack, it strikes me that that will only come or that could only come to fruition in the context that some meaningful portion of the world

actually does start to see Bitcoin through that fourth valuation idea. What's clear is that there is a long way to go yet on this journey, even if it feels like such a seminal moment as we approach that all-time high psychological barrier. It is going to be wild to see what and I'm excited to keep bringing you people like Vijay to help you explore it. If you enjoy this show, please go give it a rating or review. I really appreciate everyone who's taking the time to do that. And until tomorrow, guys, be safe and take care of each other. Peace.