The Pomp Podcast - #249: Preston Pysh Explains Why Bitcoin's Volatility is a Feature, Not a Bug

Episode Date: March 24, 2020

Preston  Pysh is a financial investor the host of the podcast, We Study Billionaires. In this conversation, Anthony and Preston discuss his past as a former Apache helicopter pilot, the current liquidity crisis, stock-to-flow model, the Fed's monetary stimulus plans, the proposed digital dollar for UBI, how currencies have historically failed, and why Bitcoin's volatility is a feature, not a bug.  =============================== CRYPTO.COM-----The only all-in-one platform that allows you to BUY / SELL / STORE / EARN / LOAN / INVEST crypto all from one place. Join over 1 million users currently using the Crypto.com app. Download and earn $50 USD using my code ‘pomp2020’, or use the link http://platinum.crypto.com/r/pomp2020 when you sign up for one of their metal cards today. TAXBIT-----Refund-maximizing, cryptocurrency tax software you can depend on. Visit taxbit.com/invite/pomp and receive 10% off your tax plan today by signing up for a free trial. LEDGER----- Ledger hardware wallets empower you to optimally secure, own and control your crypto. Visit ledger.com and give yourself peace of mind by knowing that your cryptocurrencies are safe.

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off The Chain, simply the best podcast in crypto. Let's kick this thing off. Preston Pish is a financial investor and one of the most well-read individuals I know. He's a former Apache helicopter pilot and the current host of the podcast, We Study Billionaires. In this conversation, we discuss the current liquidity crisis, the stock-to-flow model for Bitcoin, the Fed's monetary stimulus plans, the proposed digital dollar for UBI, how currencies have historically failed, and why Bitcoin's volatility is a feature, not a bug. I really enjoyed this conversation with Preston, and I think you will as well.

But before we get into the episode, I want to talk about our three sponsors. The first is Crypto.com. They're an all-in-one platform that allows you to buy, sell, store, earn, loan, and invest crypto all from one place. You can join over 1 million users to buy, sell, store, earn, loan, and invest crypto in the crypto.com app. That's right, they've got a mobile app. Go download it now and you can earn 50 US dollars with my code POMP2020 or use the link in the description when you sign up for one of their metal cards today. The metal cards are a Visa card. They're integrated with mobile payments that are now available for that Visa card in the United States. You can pay in a fast, easy, and secure way with Apple, Google, Samsung Pay. It

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They've pre-recorded an ad that we'll play now, and then we'll get into the episode with Preston. I hope you enjoy it, and make sure you go check out Ledger as well. Digital assets custody can be quite difficult to secure and hard to scale. Firms are often left with a difficult decision, having to choose between security or liquidity. At Ledger, we're obsessed that our clients' businesses succeed. That is why we decided to create a digital assets platform that would enable financial institutions and crypto firms to manage their funds without compromising on security and

liquidity firms like uphold bitstamp crypto.com index and dunamu are already using ledger vault to operate their business at scale while maintaining the highest standards of security to protect their clients funds visit ledger.com vault to learn more control scalability agility because security is not enough. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital

or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I've got a special treat for you tonight in that we have Preston, who is calling in or videoing in. We're recording this remotely, so bear with us if there's any audio issues.

Once the quarantine season is over, we will get back to in-person interviews. But for now, we'll stick with the remote ones so that we continue our social distancing. Preston, thanks so much for jumping on and doing this. Hey, Pomp, I'm a huge fan, man. I'm excited to be here. You have lit Twitter up with all sorts of knowledge, and I think people are excited to hear from you. Man, I'm excited to be here.

I'm just somewhat flabbergasted at what we're seeing right now. I mean, I kind of expected it to get crazy, but I wasn't expecting it to get crazy in such a short amount of time. I thought it was going to be much more drawn out and just this churn, and it has just turned out to be the exact opposite of that. For sure. So before we get into kind of what's happening right now, let's talk just your background and kind of share with us, how did we get from your early life to today? You know, so when I went to college, I majored in aerospace engineering. I came from, I went to a military academy. I went to West Point and it was very regimented, to say the least. And that kind of shaped my personality quite a bit, just the way I kind of deal with problems and the way I think about things. so that was that had an impact I came with this engineering problem solving kind of mindset

but I love numbers absolutely love mathematics and so uh you know you go into the army after you graduate and I I went in and I started flying helicopters I became an Apache pilot and but I wasn't doing a lot of math it was you know some of your flight planning I guess there's some basic arithmetic there, but not really a lot of math. And, uh, so I just became kind of obsessed with the markets because it was really complex. And I, I can say that's probably one of the things that really gets me excited is when something's difficult to understand and it's really complex. I just dive in. I just really want to understand how it works. And, um, so all this time while I was in the army, really the kind of the fascination started when I, my first assignment was in South

Korea after flight school. And, you know, just really started reading as much as I could get my hands on in the financial markets. And one thing led to another, and it really kind of early on, I was like, okay, so who's the smartest investor out there? What books have they read? What do they think about? And so it led me to Warren Buffett. I kind of became obsessed with anything and everything Warren Buffett related. You can probably see the security analysis book that back there behind me, I had the whole thing tabbed out and highlighted and just totally nerded out on the thing. And, uh, you know, 2008 hits and learned real fast that there was a lot of parts to the investing story that I still didn't understand through that, through that event

and just made me dig in even more. And so through the years, I mean, I've been at it for probably two decades, nearly at this point, just investing personally and reading as much as I can possibly get my hands on and then just studying anybody who has made lots of money in the market and just trying to understand how their brain ticks and how they've been able to pick it apart. And here we are. So, uh, yeah, that's, I'd say that's probably the, the, uh, cliff notes version. For sure. And then how did you originally come across a Bitcoin and kind of crypto um, as you're doing that studying, you know, I, uh, I was not a macro person at all for the longest time. And believe it or not, it's kind of funny because I read a Tony Robbins book. Uh,

Oh God, I can't even remember the name of he's, he's done two of them. The first one, I think it was just called money master. The game was the first one. And in the book, he talks about Ray Dalio a lot. And I'd really not studied Ray Dalio, didn't know really anything about his approach, but Tony was just, I mean, pumping him so hard in this book as if he was the master of everything, right? And here I am as a Warren Buffett person and just, you know, the propaganda from Buffett is that if it's macro related, you just ignore it and you just look at the individual company And it's kind of this ground up analysis and macro is too hard to understand. So you just ignore it.

And so Dalio, I was just kind of blown away how much Tony Robbins was talking them up. So I started reading everything I could get my hands on on Ray Dalio. Like, how does he have his opinion? Well, why is it structured this way? Why does he have gold in his portfolio? That's nuts because any Warren Buffett person will tell you gold's worthless. Um, so like all these ideas that were just, they were so counter to everything that I believed up to that point. And I loved it because it was counter to what I thought. And if you study

anybody who's made a lot of money in the markets, they, they absolutely love it when somebody has the opposite opinion of them and they want to understand all the reasons why. So that was me. I was like, okay, I just tried to read everything I can on Ray Dalio. Next thing I know Ray had posted and it's not available online anymore, but luckily I got the PDF and I printed this thing before it was taken offline. There's a really famous video that Ray Dalio did. It's called How the Economic Machine Works. It's a 30-minute video. I would tell you that 30-minute video is probably more valuable than anything you'll probably ever learn in a business school economics class ever. And I truly mean that if you don't believe me, pull up the video, watch it for

yourself. And I'm pretty much sure that that's probably the conclusion you'll draw at the end of it. Well, anyway, Ray had a, I would say it was a, it's on the shelf back there too. It's probably 200 to 250 page manual. That was the text behind that video. It went into a lot more detail than that video. And I studied the living hell out of this thing. I mean, just read it and read it again, and then started digging into like all these ideas that Ray had. And so I would tell you that as I look at my investing approach today, I would tell you it's probably 50% Dalio and 50% Buffett as far as the fundamentals, maybe, you know, 10% you could shave off to some other folks, But in general, I'd say it's a 50-50 split between those two investors as to how I think about markets. And so that's how I started getting interested in Bitcoin is because I'm looking at all the things from the Dalio approach.

And I'm saying, this is pretty darn scary now that I'm seeing the world from a completely different vantage point and all these macro factors, and you've got these 80-year credit cycles, which I was not even aware of as a value investor with a Buffett-style approach. But when you start looking at those charts and you see the 10-year treasury that went up for 40 years, and now it's gone down for 40 years, and now it's at 0%, well, what does that mean? Well, we can get into what all that means, but as a person who never looked at that, I can tell you it was pretty alarming for me probably, oh boy, five years ago, I'd say is whenever I, the light sweet, well, it was more than that because I started getting into Bitcoin. It was probably 2014 when I started reading all that and it quickly led me to Bitcoin and I made my first purchase at the start of the second quarter in 2015 for Bitcoin. Got it. And so let's fast forward from that point to today, because I think a lot of people are kind of, you know, holding on to their seat saying what the hell is going on right now. And I think that it plays very well into kind of the Bitcoin story. But what's your analysis on kind of the liquidity crisis that we're seeing and the more macro factors at play right now in this kind of financial market uncertainty that we're seeing? I think the thing that a lot of people don't realize is is they I would think that a lot of people just bias to whatever they understand domestically in whatever country they're at and

they say oh I'm in the U.S. and the U.S. markets are a disaster and they you know this and that but what I think a lot of people are missing is it's not just the U.S. this is a global thing that Everybody is in simultaneously at the same time. And I personally believe, and I've talked about this on a couple other shows recently, that the reason you're seeing everything so correlated from a macro standpoint across all these various countries, call it the yen, call it the euro, the dollar, I mean, pretty much any country you can go to, and they're all in the same boat with 0% interest rates in real terms. Nominal terms, you've still got a little bit left here in the U.S., but not much. Uh, but the real rates here in the U S are, are negative across the entire duration of the bond yield curve. Um, and what I would tell you is that is no coincidence. Like the reason that this is happening now is really because of Bretton woods. And I know that that happened, you know, 1944 is

when that happened. And that was a long time ago, but when everything was, when the dollar was pegged to gold and it was pegged clear up to 71, and all the other countries were pegged to the dollar throughout that period of time, that's where you're getting the correlation from as far as them all moving together. So when you come off of that peg in 71 and interest rates are sky high, and they even went higher into the early 80s because they were de-pegged and all that, and they were still printing and adjusting the money multiplier and all that stuff. But it got to a point where Volcker, Paul Volcker, who was the Fed chairman at the time in 81, steps in and he says, all right, we've got to do something about this. And he started bringing the

interest rates lower. And it drove all of these dynamics where we became a service-based economy here in the US. The other countries that were basically creating the situation where they had to keep lowering those interest rates then became the manufacturers and the producers through the next 40 years and 39 years. And that's where we're at today is they kept driving those interest rates lower. And there's your big credit cycle, the Dalio described credit cycle that I was referencing earlier, that now you're at 0%. And so now what does that mean? Yeah. And it feels like there's a lot of people, especially in the Bitcoin community, who've been yelling and screaming about, hey, if what happened already happens,

Bitcoins going to do very well. And there's a little bit of impatience, I think, in the market, really, because the lack of understanding around a liquidity crisis, kind of this idea that everyone's going to sell every asset they can to get dollars. And that's where you see the interest rates come down, you see the quantitative easing that was announced, etc. Maybe talk a little bit about kind of how these credit cycles, right, and kind of Dalio's description, What happens at these transition periods or inflection points? I think he calls them paradigm shifts to some degree. How does that play into where we are right now?

So at the end, which is where we're at now, because you've got interest rates at 0%, you've got to go back to some type of sound money. That's pretty much the only way you can get by. And most of it revolves around the debt markets because once you have debt at 0%, I mean, think if you're, you got to put yourself in the shoes of a 60-year-old, 70-year-old person who can't afford volatility in their portfolio that has to have some type of yield that they've completely banked on for decades that they were going to have, that they were going to be able to capture 5% or 10% yields on interest rates, right? So they're banking on that and now they're there and now you're getting 0% and in real terms, you're getting negative percent and that dog don't hunt. So you get in this situation where it's, it will not work for people where it gets even more interesting is your velocity of money. When you look at that metric over the last, you know, 30 years has just been continuing

to decline, just like your interest rates have. And the reason that you're seeing that is because the money's getting polarized into the upper class of society. And guess what? The upper class only has so many yachts and only so many mansions they go out and buy until they're kind of saturated on their pleasures. And then the rest just goes into more capital investments in the stock market, the bond market, or whatever. And real estate or however they're spending it. But what that does is that dries up the velocity of money. and then you don't see your bottom half, it's not even a half, your bottom 90% of

the population that spend less and spend less, and then next year they even spend less than that. And so now they're at a point where when interest rates get to 0%, they've basically bought back the bond market because it's at 0%, and that's what your quantitative easing has done. And now they've got to start inserting the cash into the general population in order to create some type of spending, right? Because everyone, I don't want to say everyone, but the majority of your people, not just in the US, but globally are in this situation where they've already spent it. They're on credit cards now at this point and they can't spend anymore. So now you're seeing UBI enter. And I'll tell you a year ago, I don't remember

which interviews I said this, but I said it to people. I said, this is politics agnostic. This does not matter if you're a Republican, Democrat, far left, far right, or whatever. UBI, universal basic income, is going to happen. It's just a matter of when it happens because you have to stimulate the economy. You have to keep the spending going in order to keep this fiat farce alive. And so now you've got the coronavirus, and I think a lot of people are going to falsely attribute UBI to the coronavirus, which is fine because maybe it might help prevent a war between nations, but they're going to attribute it to that. But I can tell you all the groundwork and all the mathematics and all the lack of velocity of money were pointing in this direction way

before this coronavirus ever came along. Yeah, it feels like the coronavirus really is the accelerant for kind of a number of trends and kind of forces that are all now coming to a head. And the coronavirus is, in some weird way, a health crisis that's manifesting itself as a financial crisis at the same time. And because you get these two crises kind of overlaid on each other, it feels like you get monetary policy and also kind of the government or a regulator side. All of a sudden, they realize we normally are used to dealing with one crisis at a time when we have two let's ratchet up our moves so it almost is um i said to somebody it's kind of like they're used to playing chess now they have to play one minute

chess and the second that they have to play one minute chess that just means they make their moves faster than they would have wanted to do if uh if they didn't have kind of a health and financial crisis at the same time does that feel right to you or do you look at it a different way No, I completely agree with what you're saying. You know, if you did the math on it and you were saying, well, this is a one in 80 year event with the credit cycle or one in a hundred year event, and you've got a pandemic that's a once in a hundred year event, you know, one divided by a hundred times one divided by a hundred is a pretty small number. And that's what we're dealing with here as far as how likely what we're seeing today that's playing out. I mean, you could make the argument that we're seeing something that's a once in a 500 year to a thousand year kind of event slapped on top of each other. I don't think a lot of people are going to view it that way, but that's absolutely how I view it. Yeah, I tend to think you're more right than wrong in that analysis.

So Bitcoin last week, or two weeks ago at this point, had a massive drawdown, drew down 50%. It's down about 30%, give or take, right now from kind of pre the coronavirus financial crunch, if you will, the liquidity crisis. A lot of people are looking around the room and saying, hey, is it over, right? And one of the metrics or models that people use is the stock to flow model to understand kind of where Bitcoin is and is it doing what it's supposed to do or staying on track. I know you've got a lot of thoughts about the stock to flow model and kind of how the recent price drop plays into that. Maybe talk a little bit about how you see those two events kind of overlapping. So I guess the numbers I always like to look at is the start of the year. So although you're right from saying the, before the coronavirus kind of hit, you know, I look,

I, I personally was looking at the coronavirus back in January and I was like, this is going to be really bad, super bad because of the videos and the numbers we were seeing out of China. But if we were just going to look at the numbers from the start of the year, because it just gives you a little bit more context on performance. The start of the year, gold is down 1.6%. percent bitcoin from the start january 1st is down 4.65 percent and the s p 500 is down negative 31 and people just got to understand these numbers you know it's just it's it's kind of crazy to me how long people can keep their head in the sand as to the performance of this thing it's just somewhat mind-blowing to me um so go into what you were saying there about

stock to flow. So Plan B comes out with this article, brilliant article, and he's comparing the stock, the existing amount of, and anyone who's listening to this as a Bitcoiner obviously knows how this thing is measured. It's your stock, the amount of Bitcoins that are currently on the market versus the flow, how many are being dropped at whatever rate. And when you're looking at this thing and you're seeing how accurate the R-squared value is on this. I've never seen anything like this in trading the markets since I've been doing it for two decades. Not anything close to this. And when people saw the price, and as we're approaching the next four-year halving, typically what you've seen in the past is that the price really starts to narrow its volatility

around that intrinsic value. I call it an intrinsic value or that stock-to-flow value. As soon as the four-year cycle, or I'm sorry, as soon as the four-year halving occurs, you see that volatility separate away from that intrinsic value or that stock-to-flow value tremendously. But as time marches on, you see that volatility kind of start coming in and kind of become fixated into that real tight price pattern.

And you're seeing the same thing play out right now. But I think what surprised everybody with this recent drop is they were not expecting this. I was not expecting this drop at all. But I wasn't expecting the supply and demand shock that we saw that came out of the coronavirus at the level that we saw it. I was expecting a supply and demand shock, but not anywhere near, I mean, car sales down like 80%. I mean, these numbers are not even fathomable for anybody that follows financial markets. These numbers are insane, absolutely insane. So what you got to understand is the derivatives market is just one giant, I would call it half casino and half risk mitigation.

What I mean by that is you have, let's just say you have an airline company, like they're trying to protect their risk in the oil market, right? So they're there for the right reasons to mitigate their risk. They just look at it as an insurance cost, but then the people on the other side of that trade are pretty much high stakes gamblers and people that are speculators. And so when those assumptions that are being made as to what supply and demand is going to look like in the future drastically change, guess what? You have massive impairment on one of those two people's balance sheets, massive impairment. And so how do you fix your impairment? Well, you got to go to fiat. You got to swap straight into dollars, into euros, whatever the denomination is for that

derivative. You've got to swap into that fiat. And I'm not talking about credit. I'm talking about monetary baseline fiat that you've got to swap into in order to adjudicate that impairment on those balance sheets. And so think about what we just saw. We saw the biggest supply and demand shock. I think you could argue the world has ever seen, right? We just saw the biggest supply demand shock, which means you had the biggest amount of impairment that we've ever seen in the derivatives market ever, right? And so if people don't understand how big the derivatives market is, wrap your head around this figure. The derivatives market, when you look at shadow derivatives, you look at reported derivatives, then you look at unfunded government liabilities

all inside of this derivative market. You're talking $1,600 trillion, right? So that is such a big number that people hear it and they're just like, oh yeah, that's a big number. But to just kind of lay a little context to it, right? Let's just assume the gold market's 10 trillion just for easy math. And you'll hear people say it's six or seven or eight trillion or whatever, but let's just make the number around here. Let's say it's a $10 trillion market for the entire global gold market. This is 160 times bigger than that. That's how big this is capitalized as far as the derivatives. So when you're talking about a $1,600 trillion derivative market that has massive impairment that everyone's got to swap into fiat fixed monetary baseline fiat

in order to adjudicate all those derivative positions you better darn well believe everything and i mean everything is going to be sold in order to come up with the dollars that are inside of all that capitalization to adjudicate this stuff right so just to say that bitcoin went down and has already had quite a decent recovery i mean hold on let me look at the flipping chart hold on let me do the math real fast bitcoin has already recovered 50 percent since the bottom of this derivative event right and now it might not stay there it might get back down that could happen. I know. But the fact that it has rebounded 50% off of that, to me, is mind-numbing how resilient and honey badger-like this flipping thing is. Yeah, it is absolutely incredible.

And I said to somebody, you've got to remember that, take equity markets, for example. They've got the circuit breakers. They've got hours of operation. They've got all kinds of mechanisms in place to tamp down volatility and do everything they can to not have a free market, because frankly, they're scared of what would happen when you do have a truly free market in times of panic, uncertainty, fear, etc. Bitcoin is a free market, right? There's no circuit breakers, there's no hours of operations. And so when you get that moment where everyone is selling everything, the fact that it only

drew down 50% is wild. And then if you look at things like I think Nick Carter and the folks at CoinMetrics did a study that almost all of the Bitcoin that was sold in that sell-off was Bitcoin that had moved in the last six months or sooner. So it was no long-term holders. It was no anybody with strong hands. It was all the traders, the Wall Street firms, the people who had just bought it and didn't know what they were doing or kind of knew into this. And so I think it just continues to prove out this thesis that there's two types of people who hold Bitcoin. There's the financial speculators, and then there's the long-term holders. I don't think there's a single thing that could happen to shake the holders out of Bitcoin. Obviously, the financial speculators, something as simple as a liquidity crisis, they couldn't get out of it soon enough, and you get a 50% drop in a free market. so i agree with everything you just said and and if you noticed i was i had quite the smirk on my face because the speculators that got shook out of their positions and this might be a really gross

uh opinion for for some people i i don't know but for me when this went down i was just i was just like this ain't nothing but a thing this is just the derivatives market blowing up and they have to sell their positions. These are all speculators. They're the people that I don't want to own this stuff because they're the people that I don't want to have influence in the rebuilding of this after all this shakes out. So the fact that that sell-off pushed those coins into the hands of the knowledgeable and the people that actually understand and have done all the hard work to understand what in the world's going on, those are the people that we want to influence and shape the future. Let me tell you they are. So I just looked at it as a blessing. I just looked at it

as like, oh, hell yeah, this is great. So obviously there's all kinds of uncertainty going on in the markets. There's this huge liquidity crisis. We see the dollar strengthening against other currencies, against all of these assets, which kind of leads to the asset price bleed, et cetera. And then we got the Fed's response. And if we had talked a week and one day ago on Sunday, we would be talking about the $700 billion quantitative easing and the second emergency rate cut down to zero interest rates. On Monday of this week, we got the next surprise, which was infinite quantitative easing. So the $700 billion they announced a week ago, not good enough. Now, literally using the word infinite in, or I believe unlimited was another

word that was used to basically describe how much printing they are willing to do in order to try to get us out of this thing. What's your general reaction to all of this? You know, kind of like what I said at the start of the show, I think it was all expected. I just wasn't expecting it to unravel in a week and a half, that they would be coming up with some of these obscene numbers that they're coming up with. I was just not expecting it to roll out at such a gangbuster speed. They've got a real problem with the dollar being so strong, and it goes back to a lot of this derivatives conversation. When you think about everyone having to settle these massive amounts of derivatives by swapping in the fiat, I don't know what the percentage is, but I would imagine

the percentage of derivatives that are denominated in dollars is far beyond any other currency by a landslide. And so when you look at the valuation of a fiat currency, it's all about its utility and how many people need to swap into it at that moment in order to make good on whatever they're trying to adjudicate or buy or whatever. And so when I look at that and I say, wow, the dollar is just taking off like a rocket right now. It's getting so strong. And then you think of all the implications of that. So all the goods inside of the United States are now more expensive, whether they're actually a product or they're a service, all that gets more expensive, which means all that work is going to be sent elsewhere in the world. And where I'm concerned

is you're going to have another supply and demand shock on the back end of this. Now, Now, I know the long end of the derivatives curve is already pricing when they kind of expect that to happen. But you got to realize, I don't think anyone has a good idea of when that's actually going to happen. And so as reality takes shape, all those derivatives are going to continue to get drastically repriced as the call for people to go back to work takes place or doesn't take place, regardless of where it's at. If it happens sooner or if it happens later, all those derivatives for that duration in the curve are then going to get repriced. Then everyone's going to run back to the dollar in order to, and I'm talking as a percentage-wise, they're going to run back into the derivatives market to reprice all that, and the dollar is going to continue to just go gangbusters. So I don't know how the U.S. can possibly deal with that other than just printing at ridiculous levels to try to ease that because people just don't understand how bad that is for GDP inside of the U.S. when you got the dollar just taken off like that. It's absolutely nuts.

Yeah, it feels like there's a great misunderstanding. I feel like there's been two economic lessons that people have learned in the last couple of weeks. The first was, what's a liquidity crisis and how does that have an effect on all these assets? I've probably answered that question 100 plus times on why are all the asset prices going down? And then once people understand what a liquidity crisis is and how it works, okay, that makes sense to me. Now, the second thing that we're seeing is I keep telling people, listen, the dollar is strengthening. At some point, they're going to have to weaken it if they want to stabilize markets and eventually drive the recovery. And all I keep hearing from people is shorting the dollar would be insane and all of these things that are going on. But I don't think people realize kind of the systematic mechanisms in place and the need for the United States to step in and actually weaken their own currency so that those other assets are able to recover. And the only way to do that is to print a bunch of money and flood the market with dollars, right? They've pretty much, you know, kind of expended everything else. So you bring up a great point, and I think it comes down to how people are interpreting timelines. And so they'll see a tweet where I say, I think that fiat currency is doomed, right? And so the immediate conclusion must be, well, Presta thinks the dollar is a bad place to be. But they don't understand. It's really hard to communicate everything and whatever, how many characters you have on a Twitter feed. But my opinion is in the short term, the dollar is an amazing place to be right now because relative to everything else, and you've seen this play out, the dollar has just crushed anything and everything. I mean, since the start of the year, it's outperformed Bitcoin by 5%, the dollar. Now, do I think that that's going to continue to persist? No. But in that short period of time, as we're talking about these derivatives blowing up because of supply and demand, the dollar in that very short window is outperforming.

And I think as you see these other, if you have more derivative events like this that blow it out, that cause a huge surge for monetary baseline fiat, you're going to see the price of everything, probably to include Bitcoin, get punished through those events. But then it's going to come back, especially as they start doing all these quantitative easing and UBI and everything else that they've got to do. That timeline, as you look out further, the dollar is going to get murdered against gold and Bitcoin. It's going to get murdered against these things. I think it's also going to get murdered against some type of commodities, especially things like oil and some others, but the timing on that is going to be dependent on when people start going back to work. and you start to see, I don't, I don't want to say you're going to see normalcy again, because I don't think the economy we're going to be going back to is going to be anything but normal. Like we're accustomed to, but people going back to work, there's going to be a demand there. You got UBI payments that are going to be going out that are going to be very hard to turn off. Um, and all of that's going to start plowing its way into what I would describe as a fixed,

um, supply or a fixed flow of commodities that are going to start coming out. And they're going to somewhat perform like gold and Bitcoin, but not nearly at the yield that you're going to see on those two in particular. Yeah. The example I keep using with people is in 2008, kind of the six month middle part of 2008, when there was the liquidity crisis, gold went down 30%. And then you kind of elicit this massive, or at least at the time, massive monetary stimulus from the government, you know, kind of hundreds of billions at the time was a big deal. And when they did that, all of a sudden investors realize, hey, my currency is going to be devalued. There's, you know, inflationary concerns, etc. They run back into gold, and all of a sudden gold ends

up being up 3x over the life cycle of the 2008, you know, kind of 2011 crisis. And it feels like same playbook, just a different day, right? Where you're going to get that response from governments where they've got to bring the monetary stimulus to weaken the dollar to stabilize markets and drive a recovery. And over time, you're going to see people realize today being in the dollar is a great idea. Six months, 12 months, 18 months from now, probably not the best idea. And then of course, you layer in the fact that what would have happened in late 2009 and into 2010, if 50% of the gold miners had just gone offline at the moment everyone wanted gold, right?

And I think that's what we're going to see with Bitcoin and the Bitcoin halving. So it's just kind of this story where I just keep saying, this is a script that even Hollywood couldn't write to some degree. No, they couldn't. You are in, you know, I saw some people tweeting that they're like, hey, how can we make the simulation stop? It's getting a little weird. For sure. So what's your general thought process on the Fed's response? Are they just doing what they have to do? Like, is this the right thing for them to do, given the set of cards that they have? Or do you think that they should be doing something else that might put them in a better position?

Well, they're in a unique situation because they understand what's going on. I don't think there's any shadow of a doubt that the people inside of the Fed obviously know there's something very bad on the horizon. I mean, that's the reason they've been doing all these repo operations. That's why they did QE for as long as they did it. They know that they're in a very precarious situation. The problem that they have, especially right now, because now you're in a crisis, now you not only have to exercise monetary policy, you also have to exercise fiscal policy in order to get enough money into the economy so that you don't have things start locking up and breaking. And so the challenge that they have is, last time I checked, when you implement fiscal policy, you got a lot of people that got a vote on it and agree what that looks like. whereas on the monetary policy side, you've got basically a figurehead that says, this is what we're going to do. Like you saw today, they're like, Hey, let's just start buying corporate debt through an ETF, like just out of nowhere. And I mean, people they're doing these things because they literally have to, and they're doing these things. And I don't even know if there's a legal framework for them to start buying corporate debt like that. I kind of think that

there isn't. Um, but I guess we'll find out sooner or later, but with everyone on quarantine, how are you even going to litigate something like, like that? I mean, they're just doing whatever they can to keep the boat afloat because they don't have to agree with, you know, 435 people as to what that looks like. So I think that's the challenge you have on the fiscal side is because you got so many voting members and you got so many people who clearly do not understand understand what in the world's happening. There's no way that they could possibly understand all the nuances of this from all the other things that they handle and what their specialties are and stuff like that. I don't expect them to understand this, but I guess what

I do expect out of them is to not outspend the tax receipts. I think that would be the only thing we really need them to do is not exceed the spending of what they raise in tax receipts. If we did that, we'd never have this problem. Um, but you know, they need to step in and, um, they've got to do the UBI thing. I mean, they've got to get that approved. They've got to start getting money into the hands of, um, you know, the, the working class person, because if they don't, it's going to, they could get into a real serious social unrest situation. And for people that don't understand when I say the feds got to do this, the they've got to do UBI and that stuff. That's the reason why I'm saying that is because if they don't, they're going to get into a situation where you

have gross social unrest, not just in the U.S., but globally. And I think people are already kind of seeing some of that. Yeah. It sounds like you're of the opinion, as am I, that once they start this, there's no going back. They won't be able to turn it off. People will get it just like the economy got addicted to monetary stimulus. You're going to get a population addicted to UBI and pretty much, you know, you ever go to take it away from them, you're going to have that same social unrest. So you might as well just buckle up and get used to this as the new norm. And, you know, people, you've got to have a transition into a sound money is what has to happen. The speed at which that happens is anybody's guess. I mean, I kind of, you know,

you obviously know my opinion. I think it's going to be Bitcoin. And I think that I think the coming two years are going to be beyond exciting for the price movement in Bitcoin. And I think that this four-year halving that's coming up in May is going to really drive that realization for a lot of people, especially as all these UBI checks go out and you've got so many millennials that are just going to plow it straight into this. And these millennials have been a condition to find 30% moves up or down to be somewhat normal. It's like, oh, well, I don't have anything to lose. So if it went down 30%, no big deal. And they're like the pristine hodler that you need to be um that you know you get some of the older generation i mean something moves 30 percent and

they're literally cleaning their pants so well you know i just think that say that again pomp i didn't hear you i said they just saw equities fall 30 percent and they're all ready to like jump off a cliff exactly yeah and i mean in in the bitcoin space that ain't nothing but a thing. Yeah. Let's talk about the UBI. It recently came out. I think it's Pelosi and some of her peers, but it doesn't really matter who it is, is now proposing the idea of folks getting a digital wallet and receiving these UBI payments potentially through a digital dollar. What do you kind of take from uh from this whole idea of everyone hates libra and bitcoin you know 12 months ago to now we're talking about potentially paying ubi via a digital dollar into a digital

wallet to me it sounds like they're speeding up the adoption of bitcoin i mean think about it you're going to have immediate clearance of transactions into bitcoin so before if they were doing ubi checks to to their bank of america account and then they had to clear it and whatever i mean it's just i think it's going to be a faster uh clearance of transactions time into a sound monetary baseline currency and there's definitely no difference in it being pegged which is the issue so unless and even if they did say it was pegged i don't think anyone would believe it So, I know I wouldn't. I would immediately swap it into Bitcoin if I received it. And I think anybody who understands what's happening is going to do the exact same thing. So, if anything, they've just accelerated the speed at which Bitcoin adoption is going to happen by doing it. So, sure, have at it. Yeah. One of the reasons why last year on television I started talking more and more about the digital dollar was I thought that there was kind of a win-win situation, which was the U.S., if other countries were to digitize their currency and the U.S. did not, we didn't have a digital dollar, there is a big risk to the dollar becoming less accessible to people around the world.

Right. If I can all of a sudden with an Internet connection, log in and I can buy the digital one or digital ruble or something like that, but I can't get a digital dollar. There's an accessibility challenge. And therefore, I'm going to store my wealth in another currency if for some reason I don't do it in Bitcoin. But then the second piece is, well, if they're going to digitize the dollar, then they're going to have to get everyone digital wallets. And just like you said, I think that once you start handling people, digital wallets, humans aren't stupid. Right. And they're going to realize very quickly, wait a second, there's one that's a deflationary type currency that has the ability to be provably scarce versus I've got this inflationary thing, which if you look at the Fed's balance sheet from last week, literally, it looks like it went parabolic, right? And that they added $356 billion, which is the highest increase in a week ever, right? And so I think just when you start thinking about where does an entire generation of people put their kind of wealth and where do they trust, well, they trust the thing that they can prove. And so if you're going to hand people digital wallets, you know, like you said, I think you're just accelerating Bitcoin's kind of rise in popularity.

I mean, if you've got a billion dollars and you got to send it into another currency and it takes hours or a day to get a clearance of transaction on that, you've got to take out some type of, I would think a smart person would look at that and say, all right, what's my, what's my volatility risk for this specific currency into the other one? And they've got to take out a derivatives contract in order to protect that. With digital tokens, you get your clearance of transactions near immediate, right? So you're taking that frictional cost of protecting that volatility risk through the time that it takes to clear completely out of the equation. And so, you know, the countries that are going to be the last movers on that, I don't know that I would step out and say that it's going to be the demise of that currency by any shape of the imagination, but it's definitely going to push, um, people, corporations and nations to adopt a different form of, of currency. I mean, it's just, it's just, it's just silly, man. When you look at, when you look at how obvious some of this is, you just got to shake your head and just say, my God, how are people not getting this? Yeah, most of them haven't done the work yet. You mentioned kind of the demise of currencies, though, and I know that you probably more than most have done a lot of work, one, studying and understanding, but also to kind of articulating how currencies fail, maybe walk us through historically how that's happened. And, and then we can talk about how that may play out here, you know, in our lifetimes. Yeah. So I got kind of a simple formula. There's probably more nuances to it than what I've written down, but I've just kind of simplified it. And so I say, when you have three things happen and they all got to happen, that's when you get into a currency failure situation. The first is that it's not pegged to anything. So we're seeing that. We've seen that for, I mean, since 1971, that condition has been met.

The next one is that you have fiscal spending that exceeds the tax receipts. We've had that for quite a while as well. You could have a fiat currency, and as long as that country that is hosting that currency does not outspend their tax receipts, you're fine. You don't necessarily have to have a peg, but human nature, you can read a book on human nature. Any type of history book will show you what human nature is. And human nature leads you to wanting more and greed, kind of overpowering the other courses that you have to choose from that are much more honorable. And so that human nature eats away at that, and eventually you get in a position where elected officials understand that they can vote themselves money from the treasury in order to get reelected, and when you don't have term limits, they'll do it. And so I think one of the easiest ways to solve that particular issue as far as tax receipts or the spending exceeding tax receipts is you just got to put term limits on people. That's just, it's just too obvious. But anyway, another conversation. The third condition that needs to be met is that once you get the debt that's issued in that currency on the government, I'm specifically talking about the government debt. Once it starts going down to 0%, then you start getting real rates that are negative.

And that's your third condition. All three have to be met. then you're in a position now where people are literally going to opt to take the fiat, have it printed. They're going to stick it in a safety deposit box because they're going to get a better return than owning a bond that's giving them a negative return. When you get in that situation and those are contracts, I look at those bond contracts as guaranteed contracts to lose money.

So if, if you came up to me and said, Preston, give me a hundred dollars, I guarantee you, I'll give you back 95 next year. that in essence is your negative yielding bond contract. So when you have all three of those met, that's when a currency starts to fail. Now, if you look at, I hear people say, well, look at Japan, look what happened there. They were at 0% for years and all those conditions were met. And you also have to look at where that money can flow globally when those conditions are set. And so you had yield in all these other countries up until recently. And so now you're at the position where all three of those conditions are met on a global scale for every

major economy in the world. And so now the question is, well, how and why would anybody want to buy a bond today? And for the people that, all the Wall Streeters will tell you, oh, well, I can buy it right now. And then the Fed's going to push it more negative, And then I could sell it at a profit. And you couldn't get a more, you know, I stole this from Warren Buffett. He would always say picking up pennies in front of a steamroller. You couldn't get a more picking up pennies in front of a steamroller type strategy than that, in my humble opinion. yeah it feels like that's a very um classically trained financial engineer type answer right which is how do i eke out uh any little bit of basis points of value versus why don't i actually go find what the next you know 10 20 30 50 years looks like and actually bet on the thing that it's not about single basis points it's still it's about kind of paradigm shifts if you will

from, uh, from Dalio. So I have my own business. I know what it takes to, to earn a dollar, right? Anybody else who owns their own small business or mid-cap business that that's a founder or a very high equity holder understands what it takes to make a dollar. People who understand how to create a dollar of value in society, right? They are not putting those trades on because they look at them as being absurdly unintelligent. The people you see putting these trades on are taking other people's money and they're the experts that are investing it on their behalf as their agents, right? Every person putting that trade on is not somebody who's creating real value for society because if they were, they would never in a million years sign

up for a contract that guarantees them to lose money? You don't mince words, but you are definitely not wrong at all, right? And I think that's part of what we're seeing right now is there was a lot of financial engineering going on. And when you look out into the markets, I mean, how long have people been saying, hey, we've got over leveraged companies in the public markets. You've got a pension crisis. You kind of got all these things going on. And actually, the people who were calling it out and kind of most aware of it were the people who aren't inside the system, right? They're not in that legacy world that is kind of blinded to all of this. And so you need those people to kind of check on reality sometimes.

So, Pomp, I wanted to talk about this, going back to the stock, the flow, if you don't mind, I want to, I want to talk about an idea that I think is really important. I think when, when we look at, um, a quote that Satoshi came up with, let me see if I can find it really fast. I apologize for the delay here as I'm trying to find this on my phone. But, you know, early on, Satoshi was talking about ideas around how you would value Bitcoin early on. And he was talking about a model that was very similar to mining physical commodities. And, um, one of the things that he talked about was this exact model. I'm trying to find the quote here. And I got this just for people, uh, to know where I got this. I got this quote out of a book that's called the book of Satoshi. And it's a, uh, just a consolidated list of, um, all these direct quotes from Satoshi. I really like to study direct quotes and not things that people are, you know, well, I think he said something like this. I want to read exactly the verbiage that he came up with whenever he said it. I'm really struggling to find the quote here. Hold on one second.

Oh, I can't find it on my phone. But let me just paraphrase it. And after I just said that I like to have the exact quote, let me paraphrase it. What he gets into is he talks about how when you have something that's really expensive, it incentivizes all those miners to go in there and capture that price. And then whenever the price is getting punished, they're not making money because their cost is below that. So they start shutting down. And he's basically describing the exact thing that we've all seen play out with the Bitcoin price through the last 10 years. And so what I find fascinating about all this is he was totally expecting the price of Bitcoin to

follow and track very closely to the electrical cost. But what I think a lot of people don't realize is that as more miners come online and this difficulty adjustment keeps ratcheting up almost like a noose throughout that four-year period, this four-year period then throws in this shock with the four-year halving, it throws this shock into that stock-to-flow, ramps it up just like the model is showing. And then all the people that can't produce at that price, if I'm a miner and the stock-to-flow just increased at an exponential level to what I was just accustomed to, I'm now out of the market. I can't compete with the lowest cost producers that are maybe getting their energy for free because they're harnessing a waterfall or

whatever the case might be. I drop out and so does everybody else. But then what happens is you get that difficulty adjustment that automatically allows this to become competitive in the marketplace. And then the price stabilizes it as it goes up there and tries to approach it. What I don't think people realize is that early on, this price was heavily tied to the electrical costs. And as time marches on and you get more of these four-year cycles, I believe that the price continues to be bound by that electrical price. But as you get more market participants and more and more people that pile onto it, the upside of that is not nearly as bound. And you can get in a point where it's almost like an orbital with a spacecraft going around an orbit. If it just

gets pushed a little bit outside that orbit, it can actually completely separate from the orbit and it goes off and then it becomes global money. I think that's exactly what we're seeing playing out. And I kind of believe that this next four-year halving cycle combined with all the things that we're seeing globally with these debt markets just getting totally debased and totally manipulated might be that final push that kind of kicks it out of the orbit that it's going in. And so as we look at the May halving that's coming up and you're seeing the stock to flow models showing that it should be around 100,000, somewhere in that ballpark, right? And it's not going to get there within the first, well, it'll probably get up to that level within a year, according to the model, and maybe even go higher. But I think as it pushes higher and you get all this global adoption and then you have market caps that are in excess of trillions of dollars, I think you're going to have traditional financiers that are looking at this and saying, all right, clearly this is something that is not going away.

This thing has been pronounced dead 150 times at this point, and it's clearly not dead. And I'm seeing the debasement that's happening. And I think that as you push this thing up and past a trillion and you start getting this buy-in and you get all these various vehicles that are allowing people to capture the underlying price through financial derivatives or whatever, and I don't necessarily know if I would call that, what's it, GBTC, a financial derivative. But vehicles like that are going to enable this thing to kind of bump out of that stock-to-flow price that's being held in there by this two-week difficulty adjustment combined with the four you're having. When you put those two together, I'll use a military reference. And there's a great movie scene that exemplifies what I'm talking about. So if you ever watched the start of gladiator and you have the, uh, long bows, right? The, the archers, the long bows, they shoot their, their, their long bows.

And then you have all the Calvary that's, that's flanking going up the flank around the backside. They don't see him because their heads are down and they're trying the enemies. They're trying to protect themselves from those long bow shots that are coming in. So they got their head down, they're hunkered down. They're trying to protect themselves. And as they're doing that, that cavalry of all the horsemen are going up around the side, around the flank where they can't see them. And then as soon as those longbows stop firing, they come in there on a fast attack, fast assault, and they go to battle and they catch them by surprise on their side.

What I think you have there, your longbows, and I'm using this military reference. People might hate it, but I love it. They're using the longbows. That's your four-year having cycle. that's the thing that comes at you when you just think it's so far out there that it's not correlated at all to a two-week difficulty adjustment but then after that long bow has been fired with that four-year uh halving cycle the two-week difficulty adjustment are your that's your cavalry that's coming in and it's just annihilating the living heck out of the speculators

and so those those uh miners that are going in there and that are mining this that are ratcheting up that are trying to capture that price premium that occurs immediately after that four-year halving cycle. All those speculators come in, they bid the price astronomically high, way above the stock to flow. And then the two-week difficulty adjustment just keeps grinding it back down to where it needs to be. So why did Satoshi do all, why did he design it this way? Because I'm describing something that's saying that the price needs to be fixed at that level for a four-year period before you go into another price bump, and then it needs to be fixed at that intrinsic value for another four-year period.

Why did he design it this way? My humble opinion of why he designed it this way is because he needed entrenchment. He needed people to not, he needed this thing to not take off in four years because he knows there would be too much drama around it and that you wouldn't have the entrenchment into the existing financial rails in order to stop it. But if you can push this thing out over a decade, well, then you can get tons of volatility. People are going to write it off as being nothing more than a speculator's tool. That's what the crazy people go in and trade because the volatility is over 60% annually. So only idiots are doing that. And so you'd have governments, you'd have very wealthy individuals that would just write it off as being nothing more than a speculator's game. But yet the thing keeps trucking along and it keeps bumping its price up purely for the reason to capture and work its way in as a Trojan horse into the existing financial rails.

That's my theory. What would have to happen for you to think either one, the Bitcoin thesis is no longer valid or two, something in your theory is inaccurate? So I've been asked this before, and I think that the concern that I have is that early on, my concern was that it could be banned and that a government could step in and do something to it that could stop it. But I don't necessarily have that concern anymore. I think that what we've seen globally, there are countries like Germany, there's other countries that are absolutely open, arms wide open to this thing. In fact, I would argue any country that's dealt with dollar dominance over the last 80 years, which is every country, has felt the pain of what that's like to not be a reserve currency. And they're looking at this as maybe being something, especially country, and I think this is why it's so popular in Germany, is because they remember. It's in their deep cultural roots, the 1920 hyperinflation event with the mark, that they remember that culturally.

They know how that played out, and they don't ever want to see it again. So they look at fiscal spending a lot different than, I think, a lot of countries in the world. And so they're looking at this and saying, this makes a whole lot of sense. So as long as you have countries like that, it's never going to get shut down. And that's what a shutdown needs, is for everybody to agree that it needs to be banned. And I don't see that happening. So that was my original concern. I would say now, the price could go down. You could see a lot of psychology, maybe push it

lower. I think this would be a concern. If you had miners that started really pulling their rigs offline and they were not in the business of swapping fiat for payments in BTC to stuff into their treasury on their balance sheet. I think that would be a concern. And we have pretty much seen the exact opposite of that. And I think you're always, I guess my personal opinion is you're always going to see the exact opposite of that for one reason, and it's the difficulty adjustment. Look at what we're going through right now. The price got hammered, right? And there are many miners that became unprofitable because of this derivative movement that we've just seen. But guess what? The incoming two week difficulty adjustment that's due here in a couple

days, it's dropping 15% to make it more accommodative for them to come back online and boost that price right back up to the intrinsic value. It's all by design. I mean, the game theory on this thing is nuts. And here I am trying to tell you how it could fail. And I'm still coming up with freaking reasons of why I don't think it's going to fail because I've tried my darndest to come up with all the reasons of why this thing won't work. And all I can arrive at based on the game theory is that it is going to work. Yeah. The only thing that you didn't say that I answered the question with is a self-induced bug. So from a developer standpoint, there's something that's introduced to the code base that could be like a self-inflicted wound.

Obviously, given the development process, I think that's highly unlikely, but I'm with you in that there's just not very much externally that I think is a threat at this point. And so what you go to is kind of the self-inflicted stuff. Well, I love that point. I think that's a great risk to highlight. And when we look back at the summer of 2017 with Jeff Garzik, remember Jeff did something really goofy there right at the last minute that could have really compromised a lot with just the trust and confidence in the, uh, in the protocol. Um, I think that could play out. I don't know if, if that plays out that the code can be adjusted. People can go back in there. They can, they can adjust the code, right? The protocol and those transactions or the, the,

basically the stoppage that you would see throughout that period, or they're going back to make that adjustment, I think you'd lose a lot of trust for some people that are coin holders in the protocol. Now, would that trust go somewhere else? I don't necessarily know that it would long-term. It might short-term, but I think as all systems come back online, I think that you would have not everybody come back in, but I think you'd have a lot that would show back up and they would stabilize the market. But I don't necessarily know if it would cause this loss and trust spiral that would take it down to zero. I don't think you're ever going to get that because this difficulty adjustment in the four-year halving cycle is going to ensure that this eventually

becomes global money. Your concern there would be that the trust would go into some other digital currency. That would be the concern. But I can't name another digital currency that's going to give you the speed of clearance like Bitcoin. And Nick Carter wrote just an incredible article. I think it's titled, it's the clearance of payments stupid or something like that. Maybe you can put a link to it in the show notes. I'm sure you know which article I'm talking about. But that's the challenge for any competitor in the cryptocurrency space is that you have to overcome that variable because at the end of the day, this is going to be money that banks are using, especially central banks, in order to settle payments that are billion-dollar transactions. And if you don't have a very thick layer that this thing can go through as far as transaction size in order to get quick payment clearance, statistical clearance of payments, it's never going to win in the long game, in my opinion. Yeah. I want to finish up talking about volatility. Obviously, volatility works in both directions, both up and down. Bitcoin, as you mentioned, has incredible annual volatility. But I think you and I both believe that this is a feature, not a bug. Maybe explain a little bit about what that exactly means and why you personally believe that.

so let's go to the idea like let's say we were designing bitcoin from the beginning and we had this idea of combining a four-year halving cycle with a two-week difficulty adjustment in order to create these intrinsic values these stock to flow valuations and um as we were doing it we could do something that had this this perfect linear intrinsic value growth over time into the model. And I think you could achieve that by adjusting the four-year halving, maybe make it shorter. I don't necessarily know what the optimal solution would be, but I know that if I move the four-year halving cycle and the two-week difficulty adjustment into certain positions, that I could probably remove a lot of the volatility around that intrinsic

value price, and that I could have this nice linear growth in the price. So you have to ask yourself, why didn't he design it that way? Or why didn't he or she or them or whoever design it that way? My opinion is that it was designed to have volatility on purpose in order to make it look very speculative and make it look like it was nothing other than what crazy people do. Or maybe crazy people trade. And so when I say it's a feature, not a bug, here's an interesting thing about game theory. When you're doing game design, designers of games, and you can read about, I mean, there's books out there on some of this stuff, but game designers use volatility as a tool to bring professionals and non-professionals together in a game. So let me give you an example. So like if we were playing the game of chess, highly skilled game, right? Very highly skilled. If I've been playing my whole life and I've run those repetitions through my neural net millions of times, if you step in and you've played 10 games, I am going to just annihilate you because of all the conditioning that I've done on my neural net. so it is very hard and not fun for a new participant that's learning the game to play somebody who's highly skilled that is not fun it's terrible experience so if i was going to

design a game that would make that more fun for you to play a grand master at chess all i got to do is is introduce volatility into the game so now let's say that um every time we we play i do my move in the game of chess and let's say that i'm the amateur and i'm playing a grandmaster every time the grandmaster plays before he plays his position he has to roll a dice and the dice is uh you know six numbers if he rolls an even number he can he can play normally But if he rolls an odd number, he has to skip his turn, and it becomes my turn again. When I introduce this new logic into the game of variance, the skilled player loses their edge, and the amateur gains an enormous edge. I kind of believe that when you apply that logic to the Bitcoin protocol and you look at how the two-week difficulty adjustment is so far away from the four-year halving event and that you try to hold the price at this intrinsic value, that it was done by design in order to create volatility so that you could have unskilled players compete at the highest level with the most skilled players in the world.

i mean it would make sense right in terms of at least that's what we're seeing the um the final product um kind of uh you know present itself as and to me one of the things that uh i always go back to is like was it intentional or not right and some people would argue oh there's no way that you could know uh through game theory the volatility and and the leveling of the playing field between skill sets you know yada yada yada whatever well at the end of the day you can say whether it was intentional or not but that's where we are today because that's what it does do right and the volatility that is what it does and so you kind of walk through this stuff and it's not an argument ever on is this true is this not true it's always an

argument people will go back especially detractors and argue on was this the intention of the design Which I think is frankly, you know, not really an argument worth having because it is what it is. And these are the facts that we have today and we can see how they're playing out, you know, and kind of practicality on a daily basis. You know, one of the things that I read, and this is going back to that book, the book of Satoshi, where it's all his quotes that kind of, you know, encapsulated into a single book. Early on, there were people that were, this is whenever WikiLeaks was going, having issues with how they were going to receive payment. And so all these people started showing up on these Bitcoin forums and saying, hey, this is our big opportunity. Let's have WikiLeaks run Bitcoin on the website. And you know what Satoshi's response was? He was adamantly opposed to this. Adamantly opposed to it. He says, no, we are not at the point where we need attention right now. And so for me, that specific engagement and that specific quote in the book was really powerful because he knew very well that he needed a lot of time and he needed a lot of entrenchment and he needed a lot of refinement to make this thing become a global currency. And it just further compounded my belief that the Trojan horse analogy was a deep, very deep time fuse that I think he was erring on the side of caution by pushing the four-year halving cycle out to the date that he ended up using. because he really knew that this thing needed time to churn to get that entrenchment into

the existing financial rails. Do you think Satoshi is somewhere still watching this and saying, wow, it's playing out how I designed? Hell yeah. I uh I tend to agree with you it's uh it's pretty crazy to see all this uh play out um again just so quickly what uh what's your favorite book that you've ever read you're a very well-read person so what uh what's your favorite or most important you've ever read dude that's a hard question um well the more you read the harder it is Yeah, it really depends on what the topic is that you're talking about. If I had to pick a book, I would say it would really revolve around habits. Because early on, I just had no idea how profound that is to really kind of master your habits. So The Power of Habit is a really, really good book by Charles Duhigg.

And another one that I think is also really good is Atomic Habits. Both of those books are going to give you some insights into basically how you condition your mind. You know, when I look at how the brain works and you look at your neocortex, It's, it's, they're trying to solve like the problems at hand in the, the, the things that are right there in front of you right now, you can do all your hard math problems with that, but almost all your processing is actually in your sub, in your subconscious, in the rest of your brain. And, and all these things are happening and they're, and they're happening based off of

habit loops that, that you have established. So, you know, you even have, I mean, this is the thing that I think a lot of people don't even understand is you have, uh, you know, on your spinal cord going down, you have gray matter clear down there in your spinal cord. And so like you eat a strawberry, it goes down into your stomach and all those neural nets are firing as to exactly how your stomach needs to secrete certain acids and how all of that's taking place subconsciously and you don't even realize it. So think about the things you do all day long and you think about your senses that are providing this cueing into your subconscious brain and the decision-making that is happening

that you are not even aware of. And let me tell you, it is way more profound than people realize how many decisions you're making on a daily basis that have nothing to do with what's happening inside of your neocortex or your critical thinking portion of your brain. So those books for me are really powerful

because when you think about what is it that I want to become? Where am I going? How am I going to get there? You then have to break it down into what are the habits that are going to be neat that i'm going to need in order to get there and then you've got to just start conditioning them like there it's a deep neural net machine learning type algorithm in order to achieve that so like

if you're going to play let's say you want to become great at chess well the only way you're going to get there is by doing it as often as you can and probably doing it right before you sleep because then as you sleep your your brain is basically re-simulating all that stuff that you learn especially at the end of the day um all of that stuff to me is fascinating how the brain works. I could give you a million book recommendations, but I tell people, focus on your habits, focus on what it is you're trying to achieve, understand what that is. I like to use the analogy that you're on a boat and a lot of people are just out in the water and they're letting that boat blow them all over the place. And in order to achieve what it is that you want

out of life, you have to say, first of all, what's the destination? Define the destination. Then as you're on that sailboat, you can control the sail and you can control the rudder. Those are your two things that you can control. You cannot control the wind. It might be blowing straight into your face. And when people see wind blowing into their face, they might say, well, that's impossible. I can't sail straight into the wind. But guess what?

You can. You can tack into the wind. So you might not be able to control your environment, which would be the wind, but you can absolutely control some things in your life. And once you master what those are and you understand what those controls are, whether it's the sail or the rudder, Once you control what those, once you understand how to control what those are, you can go anywhere you want. And I think one of the best ways to be able to control the rudder and the sail is to understand how to work your habits in your life. And so I would, I would recommend those two books. I love it.

Thoughts on aliens before I let you go. Believer, non-believer. Oh, absolutely. That's that one's easy. Why? oh it's just the the universe is so massive just it's unbelievably massive i mean i would get into your i guess the better way to answer your question is how do you define an alien um i'm assuming you're describing it as some type of organism that assembles you know different

chemicals into a certain order but um yeah so if you're using that definition absolutely i think that there's is just way too big for there not to be some type of life even in the most elementary form whether it's just like a microorganism or something i love it i love it um you could ask me one question to finish up what you got for me oh i like this all right uh how you're not gonna like this question but i'm gonna ask it so you're on you're on squawk box all the time and i can honestly say i laugh my tail off when you're on that show because you are just this calm consummate professional that is literally just laying down truth bombs on that show at all times and you're doing it and it's such a manner

that it seems like they're not truth bombs because you're just talking about it so casually and just so nonchalantly. But for anybody who understands what you're saying, it is comical to watch the expression, especially on Andrew Sorkin's face, right? He just, he is not there. He is not getting this whole Bitcoin thing at all.

And I guess my question for you is, what the hell are the conversations conversations once they they break to a lot of commercials i've been on that set before they go to a lot of commercials and there's a lot of sidebar chats what are the sidebar chats with you that we don't hear so uh i'll give you three examples uh the first is there's a lot of non-bitcoin talk right so like um they'll explain here's the types of assets that we do own uh they actually don't own a lot of assets they don't want to appear bias, et cetera. So there's a lot of kind of talk about that. Now it's just more of me driving that

conversation of personal curiosity over time. Two is one thing I will say. So for those who've never been to the set, basically you walk out there a couple of minutes before you're going to go on and do your segment. And now when I've walked out there, they just light up, right? And Joe, and they're all smiling. And it's just like, oh, it's time to talk about Bitcoin, and it's just kind of like, is this real or is this not in their opinion? Right. And they're still trying to figure it out, like you said. And so to them, it's more of like, this is going to be fun, which I think is a good thing, frankly, for me and then for Bitcoin too. But that's always just kind of the reaction. And then the last couple of times that I've been on, there's been

other people with me. And the one example that just cracked me up was the last, the second time I was on with Kevin O'Leary, as I sat down, he just looked at me and he just had this smirk on his face. And he said, are you ready to do it again? Because the first time we had gotten into a whole thing and I said, yeah, of course. And he goes, how much of your net worth is in this nonsense? And I told him, and then sure enough, as soon as the camera turns on, he was just waiting. It was like a piece of bait. And he immediately asked me the question. And when we got done, He goes, I couldn't resist. And so I think that what you end up finding is they just want to have fun. Right. And they're they're doing a great job, I think, delivering the news and and trying to educate people and keep people informed.

But at the same time, they want to have fun and be entertaining, et cetera. And so the conversations are quite, quite hilarious. But the one thing I will say is Joe went from a complete non-believer to literally asking, you know, Secretary Mnuchin, what do you mean there's no money laundering with the dollar? Right. And so anytime you can get a host that is ready to just serve up his own truth bombs, I think we've kind of accomplished our mission there. i'm i'm kind of surprised i would have suspected that becky or uh andrew would have been the first adopters and so when joe came off i mean man joe is hardcore now it's it's kind of amazing to see him just be all in on it so yeah dude you are doing such a service i want to personally thank you on behalf of the people that are in my community um i mean it is such a pleasure and it is downright hilarious to watch some of the stuff that you say on that show because i can just

literally see it flying straight over people's heads and um and you're just saying it in a way that is is exactly how we want the community to to say it on that show so dude you're crushing it i absolutely love it. I appreciate it very much. Where can, uh, where can people find you online? Where, where, uh, where should they go learn more stuff? So I'm on Twitter. Uh, you can just find me at Preston. Last name is P Y S H Preston Pish. Um, I also have a podcast called we study billionaires. We pretty much just try to read whatever book we can find that a billionaire investor has recommended, um, or read whatever articles we can. And then we try to talk about whatever moves they're making in the markets to try to understand what's going on.

My show is much more focused on the economy in general, not just specifically Bitcoin. I'm obviously a huge hardcore Bitcoiner at heart, so it's really fun for me to talk about it, but my show is much more wider in what we cover from all the different types of securities. But yeah, I appreciate the opportunity to provide that handoff. It's called We Study Billionaires on the Apple Store. Absolutely. Well, listen, I appreciate you coming on and spending so much time to do this. And you are dropping your own truth bombs on Twitter. So we'll definitely have to keep doing this more often in the future. So thanks so much. Loved it. Thanks for the opportunity, Pomp. hey everyone pop here if you like this episode of off the chain and want to help us take crypto to

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