The Pomp Podcast - #502: Robert Breedlove on Bitcoin As The Apex Predator

Episode Date: March 1, 2021

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What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Robert Breedlove is a Bitcoin educator and runs the What Is Money show. In this conversation, we discuss the current state of Bitcoin, corporate America protecting their balance sheets, when central banks will join us, and what the world will look like in 25 years. I really enjoyed this conversation with Robert, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. First up is BlockFi. BlockFi provides financial products for crypto investors.

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strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I have Robert back with me. Thank you so much for doing this, sir. Glad to be here, Pomp. Thanks for having me. The last time we talked, it was pre-COVID, and we had a fantastic conversation, really just breaking down kind of Ray Dalio's thoughts around gold, stores of value, Bitcoin, etc. Sounds like he has come around quite a bit, and maybe he's not a full-blown Bitcoiner yet, but he's definitely closer than he was back then. And maybe give us just kind of an overview in terms of what you've been up to over the last year and a half or two years. Yeah, last time we spoke almost exactly a year ago, and it was, I guess, about two weeks before the COVID meltdown. And that, as we were just touching on, it's been like this singular accelerating event for the Bitcoin thesis, the digital age in general.

um so very strange times but also kind of exciting to be in the bitcoin space um dalio it seems has come around somewhat uh i think his most recent stance on bitcoin was that it's one hell of an invention so he's still not he still seems like he's a bit lost in the blockchain buzzword jungle, and he still has some concerns about volatility and could Bitcoin be disrupted by another crypto asset, et cetera, et cetera. So he's still kind of looking at it as a consumer product. I don't think he's fully grasped the nature of an internet protocol, the nature of the social layer built on top of it, that people, holders specifically, all the rules.

bitcoin are optimized for holders so there's really you can't there's not any design space left to introduce a value proposition that can break that network effect of bitcoin i mean not a conceivable one i mean anything can happen who knows but um you know bitcoin is essentially as we touched on in the last episode just perfected all the properties of money and now we're talking about a $1 trillion asset. I mean, this thing, as Saylor alluded to, when these digital networks get above $100 billion, which is 10x ago for Bitcoin, they tend to become indomitable. They have such an entrenched network effect.

I guess you could say the brand recognition, too, is really important, that you can't even mention a competitive crypto asset without comparing it to Bitcoin. And so Bitcoin has this kind of self-reinforcing narrative in the world. And that's ultimately what it is, right? It's an idea. The whole thing's an idea. And it runs countervailing to all of the entrenched power interests and central banks, right? Their premise on the opposite worldview, that we should just be able to expand the money

supply arbitrarily at will to fix all of our problems. you know bitcoin flips the whole thing on its head and says no we should have a firmly fixed money supply that is a a sound power reservoir for the the energy that we sacrifice the time and energy we sacrifice to obtain money the money supply should reflect the scarcity of the time and energy we sacrifice to obtain it. And this idea, I think, is just tearing, it's just breaking out throughout the world, right? Again, COVID, we have the sharpest liquidity collapse in market history. The March 12th Black Thursday event was a faster global equities drawdown and flight to safety than the 1929 collapse. Now, so far, the repercussions of that have not been as severe.

But as we know, when you just increase artificial liquidity to try to paper over these disasters, you're just delaying and exacerbating the ultimate correction to economic reality. And I think there was one headline, I think it was Jim Cramer's show, where it showed like bottom of the screen, stock market all-time high, screen behind him, 40 million Americans unemployed. So the central bank model has totally diverged the market from its underlying valuation fundamentals. And now everything's become much more a product of policy than supply and demand. And things would be pretty bleak and grim without Bitcoin right now, because it's the only thing that, I guess, is still rooted in supply and demand, almost that you can find in the world.

Everything that can't be printed right now is overpriced, right? Commercial real estate, equities, anything that's being substituted in as a store value, since the store value function of money has been totally compromised in fiat, is at a historic all-time high price point. And Bitcoin, it seems at least, although it's at an all-time high, it's really just beginning this long run to actually do what we say it was going to do, which is consume all the monetary premium in the world. And, you know, we're a trillion-dollar asset today that store value market cap globally is probably closer to $250 trillion. so hard to believe as it may be there's still a lot of upside in this market absolutely one of the people who unlike Ray Dalio really really understands Bitcoin and has become a massive proponent since last time we talked is Michael Saylor you recently produced an entire series

called the Saylor series where you just talked with him and so maybe talk through a little bit in terms of your understanding of his worldview and then what you took away from the recording of that series? Yeah, so another one of these just out of the blue events was actually Saylor and MicroStrategy. He was in a unique position

in that his company was sitting on a lot of cash. Saylor, for the audience who may not know, is the CEO of MicroStrategy. They're a NASDAQ business intelligence firm. They had been running a pretty conservative ship, financially, at least, for the past decade. They're sitting on a nice treasury of cash, about $500 million. And in the wake of COVID, as Michael's been making his media rounds, he just had to figure

out what to do with this melting ice cube. And they evaluated all their alternatives and ultimately decided on Bitcoin. So it was interesting. i think this was august maybe when he announced originally and i just woke up one day saw this announcement i'm like what is this it's crazy some big corporation has bought a ton of bitcoin and then in my i've got a twitter dm from him and he's sending me a link to the article and so we started having a conversation and you know it turns out he had been following a lot of the maximalists and you know your show and other people's writings for a long time or you know

relatively long time, a few months. And the interesting thing about that for me was that this guy went from essentially, he had disclaimed Bitcoin back in 2013. I don't think he thought a lot about it between 13 and 2020, to my knowledge. Then all of a sudden, he has this COVID event where he has to reevaluate his liquidity profile and how he's going to maintain shareholder value um in the treasury so from march 2020 to august so we're talking about a course of five months he basically fully accelerated on the bitcoin rabbit hole right he went through all the all the content we produced all the writing he knew it all um and so the amazing thing about that to me was and i i thought this before that the thesis of bitcoin although it's extremely complicated

very multidisciplinary. You have to understand things from many different angles to really to grok Bitcoin or to understand it. The general value proposition is not that complicated once you get it, right? It's just money that has a fixed supply. So you can't, it's money that can't be stolen, value that can't be stolen through inflation, deauthorization, confiscation, all of these things. And I had this thesis that people would wake up to this relatively simple, once this idea got out and it sort of shook off the fun that that still plagues it a little bit that people would um take this idea up very quickly because it's just money that can't be reproduced in a world where money is being infinitely reproduced by the central bank

and i thought he you know sailor's acceleration in the rabbit hole was one great example of that he just he went zero to hero so to speak in this course of a few months so in our conversation conversations, I was talking to them and I said, I had this idea for a show. I didn't even know what it would be at this point, podcast, YouTube channel, whatever. I just said, I wanted to sit down with the best thinkers in the Bitcoin space, but also in the macroeconomic world. So it's not just a Bitcoin focused podcast and talk to them in a long form discussion. So I would sit down and talk to you as long as it took we could talk for 50 hours if you wanted and that the idea was to get to the first principles of your worldview so basically externalizing the mind of these

amazing thinkers and show the world how they think how they build their worldview and my thesis behind this was that in a lot of this coming from the book sovereign individual which we talked about last time too, in the 1500s, I guess it was around 1490 when Gutenberg invented the printing press, we collapsed the cost of information access. So all of a sudden, we went from like 10 million books produced in the prior 500 years, there were 10 million books produced in a decade once the printing press was made available. And the consequence of this was there was a great many more thinkers emerging in the world a great uh much more variety of thought emerging in the world and a lot of this uh new critical thinking was actually

heretical to the institution of the day which was the church so the printing press sort of led to the downfall of the church as the dominant institution of the world but the thought there was it's the, when we decrease the cost of accessing information, we actually increase general critical thinking or general intelligence, right? People can access information more freely. Ideas are much more free flowing. So I thought that here in the digital age, maybe we're seeing something similar. We've once again collapsed the cost of information. You know, we have the library of the world, so to speak, at our fingertips through a smartphone or a laptop, that maybe this would be a similar type event to the Gutenberg printing press. And we're actually going to increase

critical thinking in the world and increase kind of general intelligence. So what I wanted to bring into this new paradigm was long form discussions that would almost be like the intellectual olympics in a way like you sit down and you see someone that's got you know a long track record of experience um you know clearly a brilliant guy he wrote a book in 2010 called the mobile wave that basically said go out and buy facebook apple amazon netflix google they're going to dominate the world clearly that thesis played out perfectly over the past decade um and just you know help spread i guess the information that these people have obtained uh that they that they've won basically hard one through experience um throughout their careers

and and share that with the world and see if people um would have an affinity for it and it turns out i think the thesis is right so far i'm getting feedback on the sailor series specifically that it's some of the best content people have ever seen because this guy to give you a little idea we really tried to build his entire world group from first principles so we started in the stone age we're talking about stone age technologies like fire hydraulics which are you know using water to overcome gravity missiles and building this view of how mankind is the animal that channels energy across time and space toward the achievement of aims that's what distinguishes us from every other animal is that we can plan we can build these intellectual structures

we then go out and harness energy to to energize those structures and we create things in the world that's what civilization is and just brick by brick building this intellectual edifice that took us from the stone age into the industrial age into the digital age frankly and then evaluating Bitcoin to that long scope of how this impacts everything going forward, how it totally changes the game. And Saylor is just a master speaker. He drops in so many wonderful analogies comparing Bitcoin to the discovery of steel or Bitcoin to the discovery of antiseptics, making the point that fiat currency is like toxic money, actually. It infects our socioeconomic structures and now we have a money that that's basically free of

unpredictability and how that's just a total game changer so we recorded um two sessions initially about five hours each that came out to about nine episodes we're scheduled to do at least one more session that could be between another one and three episodes uh going forward i'm going to sit down with other prolific thinkers in the space jeff booth is next uh we're already working on that conversation framework uh just got an all-star cast lined up and for me this is amazing because this is something i would be doing no matter what uh it really is a passion project it's deeply satisfies my own intellectual curiosity as i'm trying to write and think about these things uh new and varied perspectives like to get inside someone's mind to this extent

changes me like i'm i now think differently as a result of interacting with sailor uh throughout the series and um yeah i'm just super excited about it i think um we can keep you know i think people really like the first one and i'm hoping they're gonna like uh the ones to come here so absolutely so michael saylor kind of cracked open the dam if you will in terms of uh corporations buying bitcoin uh and putting it on their balance sheet uh he did it in a very kind of transparent honest way. And what I mean by that is he basically said to shareholders, I am considering doing this. If you do not want to be a part of this strategy, basically, I'll buy back your shares at a premium. And then he went ahead and started to execute this strategy. He has continued

to kind of take out very low interest loans or debt. And by using capital markets, is able to continue to fund the further purchase of more and more Bitcoin. I think he's at now over 90,000 Bitcoin that he's put on that balance sheet, kind of four, four and a half billion dollars worth of value based on today's prices. Talk a little bit about what you evaluate the impact of this decision. Obviously, we've seen Square go out, they did a $50 million purchase, then another $170 million comes out to about 5% of their cash position. We've seen Tesla, about 7-8% of their cash position, about $1.5 billion. And there's a whole host of other crypto-related businesses that obviously hold Bitcoin on their treasury as well in the public markets. But how do you

evaluate what we're seeing with corporations actually buying Bitcoin and putting it on their balance sheets? Yeah, I think at a very high level, we're seeing this game theory that many Bitcoiners have long identified, as early as 2011, 12, 13, 14. We knew how the game theory of money operated. What was different about Bitcoin is that this is the first asset that emerged at the retail level first before permeating these larger levels of organization. so i think that it's a really really big deal i mean sailor is will probably go down i joked with him at the opening the show that for a company called micro strategy this might be the most brilliant macro strategy ever executed um if the bitcoin thesis continues

to play out in the way that we think it will and the way that it currently is um you know he stands to become one of the most wealthy people in the world um and micro strategy stands to become one the most successful companies in the world. It's all a result of the game theory, or you can also think of this as the vortex of incentives that is Bitcoin, and that it basically has bootstrapped itself into existence by paying everyone to interact with it. Again, we saw this work at the individual level initially, where people can just mine it, convert electricity into Bitcoin, then people found some value in its exchange properties. It can't be seized, it can be moved 24 by 7, et cetera, et cetera. So then it gained a market value. And as has been said, that was

kind of the miracle event. Once Bitcoin established a market exchange value against fiat currency, um it became that was the beginning of its monetization essentially everything from that event has just been a step function of its uh constricting supply flow so every four years is construct constricting by 50 and it's just bootstrapped itself upward and for sailor to make a move that bold i mean first of all this guy was is predisposed to understanding Bitcoin. Again, the guy that wrote The Mobile Wave, he understands network effects. He runs a business intelligence firm. He gets software. I think the last piece that he dropped in after March 2020 was just central banking, basically, or monetary policy or Austrian economics. Whatever

that monetary element was that he plugged in just sort of crystallized this worldview for him on Bitcoin. And no matter what amount of work we have done, like us Bitcoin ambassadors and talking about it, educating, writing about it, money always speaks louder than words. Actions speak louder than words. So the fact that he's now up to, the initial allocation was $500 million from treasury. He has since taken on some very cost-effective debt. I think his first round of convertible notes on secured debt was at 75 basis points. I think the latest round was at zero. So it was literally taking on free debt capital. And the reason he's able to do that is because of the optionality Bitcoin has installed on his balance sheet effectively.

So credit providers are willing to lend him money at 0% or 75 basis points so that they can get the option on MicroStrategy stock, which has the Bitcoin on its balance sheet. So it serves as a proxy for an option on Bitcoin effectively. And this all points to kind of a point he's made repeatedly is that every company now faces similar incentives. They have to decide to plug into the Bitcoin network in one way or another, either putting it on their balance sheet or, as Square is doing, they're selling Bitcoin, right, which forced other corporations to adopt a similar strategy. They have to compete or die, effectively. So now PayPal is selling Bitcoin. I expect to see that continue. and um this points to where i think fiat will just ultimately fail against bitcoin because

everyone so now we've seen this game theory permeate from the retail level to corporates we have now expected in the next say five to ten years to see it permeate at the sovereign wealth fund at the central bank level but every market actor whether you're an individual or you're at the other end of the spectrum, faces incentives today to borrow dollars or borrow fiat at low cost to buy Bitcoin on term debt, and then pay back depreciated dollars. So this is something Pierre Richard wrote about in 2014. It's called a speculative attack, right? When every market actor faces incentives to borrow in the weak currency, buy the strong

money. I don't like calling Bitcoin a currency because it's not governmental. So buy the strong money, sell the weak money, buy the strong money, and then pay back the weak money after inflation has eroded some of that real debt burden. This is like the digital asset or something that's going to be eating the fiat structure from all sides and that everyone wants to now borrow and sell, basically go short dollars and long Bitcoin. And this incentive is faced by all market actors. um really starts to make you believe that this thing could all play out much more quickly than we thought um you know even this time last year we were talking about this is like you know ray dalio had not taken any had not taken bitcoin seriously at all up until that point so in my mind

then it was like oh we're probably 25 years out from a central bank taking this seriously but now you know covid as this great accelerator has just changed everything and uh it seems now that um the the musical chairs the game of musical chairs has started at the corporate level people are going to be racing to take a seat at the table that is the bitcoin network and now that we're north of the trillion dollar market cap uh we're almost to the point where it's taken very seriously as a macro asset. I'd say once you break $5 trillion market cap, it is a very serious macro asset. And every capital pool in the world will want to have some exposure to it. That's when things get really interesting. Because the supply curve of Bitcoin, it's

perfect information. We all know what it is now, all the way into the future. And thus far in its history, its price has adhered to that supply curve. So what we're seeing today is still a function of the May 2020 halving. We typically have these halving events. 12 to 18 months later, we have a huge price bump. If that pattern continues to repeat, the incentives to front run Bitcoin become astronomical because everyone's looking at the same curve saying, this thing's just going to keep going up. My strategy is to sit down at this table before anyone else sits down on this table. As market actors do that, they're actually increasing the market cap of Bitcoin, increasing the likelihood of its success, and further imposing that calculus

on other market actors. So I think it is just a very interesting event. I think Saylor will be regarded as a pioneer, frankly, in Bitcoin. And he, you know, he is proving that thesis at the corporate level. And now I think we're just waiting with bated breath to see it happen at the central bank level. Yeah. So speaking of that, I think that everyone knew individuals were buying. I think that there had been a lot of focus on financial institutions, Wall Street showing up. I actually think we have really bad short-term memories. Not that many people were ready for corporations in 2020 and into 2021. But that has happened in a much faster clip than I thought was previously expected. Anyone who would have claimed in the beginning

of 2020 that within a year, Tesla would be buying a billion and a half dollars of Bitcoin on their balance sheet, I think would be absolutely nuts. And I think from there, what you end up getting is the final question, which is, what about the central banks, right? So we have individuals, we have financial institutions, we have corporations. That next big inflection point is a central bank or many central banks doing this. I think your opinion is that it is inevitable. but is that actually inevitable why do you think that and kind of what is the timeline that you think is is most reasonable when evaluating yeah tesla is a great example of just the second step in that game of musical chairs right sailor buys 1.3 billion at the time i think it was 1.3 tesla

buys 1.5 right so i would i think those numbers um are closely related for a reason right saying like how much should we buy and tesla's treasurer cfo saying well how much did the other guy buy about 1.3 let's buy 1.5 so that as silly as it sounds i think that's actually how a lot of this game will be we played out um in terms of the timing of central bank purchase it is so impossible to say and i know it's kind of a cop-out but the digital age if it has proven anything to us it is that the exponential change it has brought about is so holistically unfathomable how fast it can be um you know we've gone from in the past 20 years from the internet say 25 years the internet is a joke to everything's on the internet now everything right everything we do

And not only that, the Internet also is in our pocket now, the fully baked Internet. We're not talking about the little Nokia flip phone with a mediocre browser. It's a supercomputer now in our pocket. And it's only getting faster. So I really am increasingly of the belief that we are in a renaissance-like event. The world will look back on this period in history as a major mega political transition from an analog age into a digital age, right? In the same way we look back at the transition from the agricultural age to the industrial age, for instance. And all of the institutions that served us in the past, right?

If we think just looking at the central bank itself, the structure of the central bank is characterized by the money, right? So the money is upstream of everything. The reason we have a central bank, frankly, is because gold is expensive to secure, and it's heavy, and it's hard to move across space. So we had a great tool that was selected on the marketplace for holding its value across time. which was gold. Gold became kind of globally dominant money, but it constricted our ability to scale economic activity because it's hard. It's very expensive to transact it across space. And for a world becoming characterized by globalized trade, if you imagine that we had to actually ship gold around the world for every transaction, it kind of points towards how

self-defeating and how expensive that would be. So the central bank emerged as the ultimate custodian of gold, and it issued paper currency to augment the lack of portability in gold. So now we have this large custodian that centrally manages the gold and issues paper backed by it. But with this custody model came the requirement to trust the central bank that they won't abuse the money supply, that they'll always maintain a one-to-one peg between currency and gold. And clearly, that trust, if nothing else, defines the history of banking is that that trust is violated repeatedly. So in a way, it's as if gold is the game we've always been playing. We could say that another way to think about this is that the common misconception today

is that governments are the originators of money. Governments issue money. But that's not actually true what money emerges when we have property rights basically so when we uh in the agricultural age and we started creating savings in the form of grain capital etc to protect that capital the protection service was the government so it's the local group that specialized in violence that protected you from other specialists in violence to protect those savings so money government actually emerges from money basically once we have property and savings the government emerges as a protection service for those savings um the the type of money we have again has shaped the institutions we have today so we've got gold leading to the central bank and the question

now becomes we've been playing this one game everyone's trying to accumulate as much money possible across history that led to gold becoming the most dominant money in the world, the question now becomes 5,000-year-old tech, gold, 12-year-old tech, Bitcoin, a digital disruptor to the only game we've ever been playing, the original governor of human action, if you will. Money is the governor of human action, not government. It's whoever holds the gold makes the rules, as the old axon goes. This, I think Bitcoin makes it so interesting, is that it is the latest and greatest testament to the disruptive potential of the digital age. We've already seen digital age totally upend, say, the media landscape, the advertising landscape, taxis, ride sharing,

You name the industry, it's been impacted more or less severely by digital technology. But at the pinnacle of this recurrent analog institution disruption, the largest and most dominant in the world is the central bank, which is premised on gold. And now we have this digital tool disrupting it from the bottom up. It's disrupting gold, which then upends the central bank model, makes it irrelevant. And, you know, the $100 trillion question, so to speak, is what are they going to do about it? What are they going to do? It's increasingly obvious that most attack vectors on Bitcoin just will not work to stop it outright. Right. There's in all of the thinking that's been done about Bitcoin, no one has identified a credible unilateral attack vector that could take down the network. I mean, the analogous question is, how do you shut down the Internet worldwide forever? It's not even good enough to shut it down for just a day. You need to shut it down permanently everywhere.

um so short of like a super global catastrophe there's not a lot that can be done to stop the internet therefore there's not a lot that can be done to stop bitcoin so then the question becomes what are they going to do to adapt to this new reality and as i've argued in a lot of my writing uh this is kind of like the old i think it was gandhi that maybe said this but who knows i read it on the internet so it might be wrong first they laugh at you then they fight you then they uh adopt to whatever first first they ignore you then they laugh at you then they fight you then you win that's right exactly so bitcoin's going through that progression essentially and i think we may be somewhere at the fight stage maybe kind of coming out of bitcoin's honeymoon period

maybe they do uh attempt to increase regulatory hostility towards bitcoin at the end points exchanges and custodians and other venues, which points to the importance of always holding your own keys. But I think Bitcoin survives that because, again, the network will survive that. Government doesn't have any mechanisms that can really jeopardize the network itself. They can sort of just impact the consumer endpoints. So when we get beyond the fight stage, that's when i think they just start acquiring it as a means of of insurance against its success um you already hear rumors about you know venezuela doing this they're selling passports for bitcoin you hear rumors about countries in the middle east actually monetizing um some of

their their energy there with bitcoin mining also using it as a means to circumvent u.s sanctions so there are all of these sources of demand for bitcoin that no government can eradicate and i think the first central bank that publicly discloses the purchase of bitcoin is just going to heat this thing up to a level of of game theory that we can't even imagine um because then you're running the same calculus but at a level where not only do they have the largest balance sheets in the world, but they can also just print money and buy the thing. So that's when I expect escape velocity for Bitcoin to be achieved. So if we zoom out for a second, and we basically look at this as it's pretty well understood how we got here at this point, right? If you've been paying attention,

if you've been kind of interested or curious, you can go read that everywhere. I think what people are trying to figure out is where are we going? And so if we look forward, I don't know, 25 years, what does that world look like? Is Bitcoin in every individual, every financial institution, every corporation's balance sheet, and every central bank reserve? Are there all out violent wars over this? Just walk me through from where we are today to what you think 25 years of how the world looks like, and then how do we get there? Yeah, this is an extremely complicated question because we quite actually have no historical precedent whatsoever.

Another way to maybe think about this is the way the models of socioeconomic organization we have, right, whether it's capitalism or socialism um they're they're really just social devices or you could think of them like a tool basically itself so in the 20th century for instance we had this both ideological and economic contention between soviet russia which was a command and control economy and u.s capitalism. And the reason the US out-competed the USSR, and the USSR ultimately broke down, bankrupted, and fragmented, is because the model of, we'll say capitalism in parentheses, because it's not pure capitalism. They've always had essentially planned money, but most markets

were free compared to Soviet Russia, where no markets were free. It's because they were able to mobilize the collective intelligence of market actors through the price signal. And therefore, they're able to create a lot more wealth through trade. So it's a more energy efficient, we gain more energy efficiency or productivity by trading with one another than we do having one singular plan or director tell us what to do. Because the intelligence of that bureaucratic body can never rival the intelligence of a distributed network of market actors. So you had this distributed computing network of free market capitalists competing against a centralized computing network of Soviet Russia pricing czar, right? U.S. capitalism

therefore out-competed Soviet communism for that reason. It was a more energy efficient tool, if you will. And I think that whatever this model that comes in the wake of Bitcoin, we could say it's purified capitalism, like in the original sense of capitalism, which has minimized state intervention. I, in some of my more recent writing, have started to call it sovereignism. Because for the first time in history, Bitcoin gives individuals and entities, any market actor, full sovereignty over their own money. They don't need to depend on any other custodian or institution to facilitate value flows across space and time.

So it enables this new mode of socioeconomic organization that was never before possible for Bitcoin. And that's why I think it is difficult to comprehend the implications of this and difficult to explain, frankly, because we don't have a lot of direct historical analogy. But to get a sense of where this goes and why I think it goes that direction, we can just look at the average U.S. taxpayer. So the average U.S. taxpayer today is paying about $10,000, $10,500 each year to the IRS. So direct taxation, that's the average tax bill. That does not include inflation.

So that does not include loss of purchasing power on inflation, which, as we touched on before, the quote that everyone loved is, there's no better way to fertilize the rich man's field than with the sweat of the poor man's brow. That's what inflation is, essentially. It disproportionately affects the poor, retirees, pensioners, anyone living on fixed income. So it's an additional invisible tax. But we won't even look at that. We'll just look at direct taxation.

$10,500 per year paid in direct taxes to the IRS. If that amount of money, that $10,000, was instead put into a savings account that yielded 10% per year, over 40 years, so after 40 payments and 40 years of interest accrual to that account, that sum becomes $4.4 million. dollars. So the incentive that just the average U.S. taxpayer faces, the guy paying a stroke and a check, $10,000 per year to the IRS, the decision of whether or not to adopt Bitcoin becomes, would you switch your savings account from your local bank to the bank of Bitcoin for $4.4 million in retirement savings? And again, we haven't even included inflation, which if we look at inflation in 2020, US tax revenue, direct tax revenue was $3.9 trillion. We printed about $4.1 trillion. So we could say that the inflation tax was effectively doubled the direct tax rate. So

you could say that $10,000 payment per year, probably getting hit for another $10,000 per year based on inflation. Now, again, it depends where he's at in the hierarchy. Does he hold assets? that's the old dollars, et cetera, et cetera. But we could say that, okay, that 4.4 million would then be an $8.8 million decision for your average guy, your average guy or girl. This, although I don't think clearly not many market actors have awakened to this calculus yet, I think over time as governments are increasingly bankrupt, right? We know that governments are the least efficient operators in the world. Just go to your local DMV to see how inefficient things are. They're not accountable to their P&L like every other entrepreneur in the world. They're just able

to print money and paper over mistakes and bad decision-making and continue. And the example of this that I think Safety pointed out was in Lebanon, they have the Lebanese Rail Authority, railroad authority still operates today and they haven't had a track of railroad in lebanon for like 30 years so it's like these these i forget who said it but there's nothing more permanent than a temporary government solution so they're the only reason they're able to do that is because they're able to steal from society so governments need to steal more and more over time to remain relevant. As that overreach escalates, market actors are going to wake up to this option, this exit option. I can just go into Bitcoin and get out of the inflation game or whatever

tax they're being hit with. They can go and hold Bitcoin, borrow against it even, which is a tax efficient strategy of taking liquidity against it and suffer no tax impact. I think this creates a hydraulic pressure pushing market actors to the exit, which will be to exit the fiat currency complex and go into Bitcoin. And every incremental saver that decides to hold their savings in Bitcoin necessarily has to divest their fiat. So they're selling fiat to buy Bitcoin. And this further accelerates the inflationary pressures on the dollar, which further accelerates other market actors exiting. So this is the feedback loop that I think drives people into Bitcoin, people in market actors, institutions, and everything over time. So then the question

becomes, which is very deeply and interestingly explored in the book, The Sovereign Individual, what happens next? Because if everyone moves their savings into Bitcoin, all of a sudden, inflation is no longer a revenue source for the government. Which again, if we look at the US government last year, that was 50% of their revenue, pretty much was inflation. Direct taxation becomes much more complicated because all of a sudden you're in this asset that is largely unrealized gains for people that are holding savings in it. You can't really tax unrealized gains. You could pass the law on it, but you're just then encouraging people to take their savings elsewhere, which with Bitcoin, you have this hyper mobile capital. You can move to

any jurisdiction in the world. Anyone that treats you well, right, you can go and take the residence there. So it's this escalation, I guess this option for people to move their savings into a non-state bank, which we call Bitcoin, like the ultimate offshore bank, if you will, it's going to force governments to treat their citizens more honestly. It's going to force them to compete for citizenship, to compete for their business, so to speak. So it's imposing the free market paradigm at the governmental level, which is not something they're accustomed to. They're accustomed to treating their taxpayers like cattle, right? They could just raise them up, shear them down whenever they need to, which is the analogy that the book uses, actually. It says

in the 21st century, those cows will grow wings, basically. And we can now take flight and go and move to where we are treated best. So as inflation revenues go to zero or near zero, taxation revenues start to collapse as well. This bankrupts the nation state model of human organization. And so the big question is, what happens now? How do we organize ourselves post-statism um and i've started writing a series on this i you know it's difficult to explain and comprehend what happens uh we have a few analogies like i alluded to the one about soviet russia earlier um the book goes into some more examples about what happened post-feudalism how society restructured itself um but it's important to realize that it's the old andreason

quote right the software is eating the world that just rings louder and louder to me with every passing year so it's not just every business is in the technology game now like you can't you can't not be in the technology game like everyone uses technology it's just it's very deeply enmeshed in our day-to-day life as we're proving right now on this call it's also eating the institutions we have used to organize ourselves across history for hundreds of years like the dominant institution of the world now faces digital disruption by bitcoin and um i don't know i would say for for deeper thoughts on that come check out the series i'm writing it covers the sovereign individual but also uh putting some of my my own lens on it and

also things I've learned in these conversations like with Saylor and others about how they see the future playing out. When you think back to what does happen when that kind of status environment fails or at least drastically reduces in its power and kind of reach, Soviet Russia, I think you mentioned feudalism. What happened in those situations or what are the main takeaways that people should know about? Yeah, the first thing that tends to happen is governments get increasingly desperate.

They're basically, so you can think of inflation, by the way, as a slow, implicit default of government. They have cash or they've written checks that they can't cash effectively. So they're defaulting on this debt in slow motion by inflating the currency. So they'll print more currency to pay their bills, and they externalize the cost of that money printing onto society. So by printing money or engaging in quantitative easing, the central bank is harvesting the economic surplus of entrepreneurs, of the productive economy. They're not infusing any new wealth into the economy. Printing, like creating a new paper certificate that we call the dollar, that is not value.

That is just a claim on the savings that we've created in the world, the buildings, the equipment, the time, the knowledge, all of that. Late-stage governments tend to be printing faster and faster because this thing, as we've touched on previously, the fiat currency complex being a debt-based money, it requires steadily more collateral and leverage to remain sustainable. There's this increasing appetite for interest, basically, to be siphoned off the productive economy and back to the owners of the debt. And this thing and all of the costs of that are externalized to inflation. So it tends to accelerate. When we look at something like Weimar, Germany, this has really perverse consequences, actually, because people think they're getting wildly rich.

their homes are becoming more valuable their businesses are increasing in value so all assets denominated in the failing currency are becoming nominally more expensive so it has this deceptive quality of thinking you're becoming wealthy when in fact it's the currency that is failing um so i'd say that tends to be one thing another thing that that happens which i would you were seeing today is that since nothing holds value there's no sound store value people become uh their time preferences increase a lot which means they become much more uh likely to gamble and engage in super risky ventures um they you know gambling in the stock market was a big thing in weimar germany i would say that's what we're seeing today in a lot of ways there's a lot of

not to knock on the Wall Street bets group. I think they've done an amazing thing by proving the effectiveness of a decentralized organization versus centralized organizations. But there's a lot of gambling there too, right? People are just getting easy money, borrowing easy money,

and they're just betting on stock prices going up forever. So increased speculation in stock and other asset categories, And then, see, the currency is getting deprecated all the while. And then what finally happens is that people try to get their money out of the country, right? When the writing is clearly on the wall for everyone that this thing is going into hyperinflation, people either try to trade their money for consumable or durable goods, things that can't be printed, things that have uh an energy intensity or require sacrifice to produce whether this is food or

buildings or anything that that's a real capital asset or they try to get their money actually out of the country and transmit it to someone to a jurisdiction with a more uh more stable monetary regime and the the end game of that too like we saw with ussr is that the whole this giant nation was held together basically by its ability to confiscate wealth from all its citizens when that mechanism breaks down uh the country tends to fragment so so government shrinks, things relocalize. In the case of the USSR, there were a lot of these countries that end in Stan that were formerly conquered that became independent countries again. So the overarching theme is that as the nation state model is bankrupted, it tends to fragment

into smaller pieces and ultimately relocalizes government. When you think through what would happen in the United States, is it a replica of those situations that you just described? Or do you think that the creation and pervasiveness of technology would actually change what happens in the analog geography-based world? And actually, there would be more of a fragmentation and a coalescing in kind of a digital world. How do you look at Soviet Russia? It's really hard to kind of understand what would have happened if there was the Internet and kind of when all that played out. But any thoughts there of comparing the digital world and kind of the analog world? MIKE GREEN Yeah, I think the big difference here is that, again, market actors in those situations would try to leave one bad situation to get into a less bad situation.

So to get out of maybe the Russian ruble and into the US dollar, for instance, there was no true exit option. There was no way out of fiat currency because all, or we could say monopolized currencies, they haven't always been fiat, but they've always been centrally controlled and planned. You can only move from one centrally planned monetary regime to another. It's kind of your best hope. But Bitcoin is, it's a radically new frontier because it is this unstoppable free market money, right?

You think of it as a global digital non-state-based money for a non-state economy, right? That we can actually enter this digital domain that no nation state has dominion over. And actually, the individual is empowered maximally with options. Basically, you have optionality. And optionality is freedom, that you can now move your capital anywhere in the world. You can custody it in any number of high security schemas and whatnot. So how this plays out in, say, maybe the United States is I think you could see a similar fragmentation. I believe actually in the Texas state constitution, they have the right to succeed from the United States based on a number of parameters.

And someone can fact check me on that. It's been a few years since I've looked at it. But when centralized power structures are getting defunded, so to speak, as savers are moving into Bitcoin, they lose relevance in many ways. And so I think you would see especially powers that are, we could say, say governments that are self-sufficient, like Texas has its own energy grid. It's got coastal access. It's, you know, relatively large geography. You'd see something like that maybe take place first. Maybe Texas could actually break off in the U.S. But in the long run, people just start to self-organize. It moves away from this top-down, monopolistic, command-and-control economy where you're told what to do, right? How many of us have consensually negotiated our tax treaties with the government, right?

We don't. We get a bill that says this is what you pay. These are the services you get. You're welcome, right? You don't get any say-so in that commercial interaction. but or we will or we will send armed men to put you in jail exactly right um and sailor had a great analogy for this too he's saying that everyone in miami is very polite because most people carry firearms right so even a sweet old lady like you're going to be extra polite to

everyone because you never know who's packing heat so this the the option to do a thing can be more powerful than actually doing the thing. It doesn't mean people are running around Miami shooting each other necessarily, but just the fact that they possibly could tends to make people accord a little more nicely than they might otherwise. So Bitcoin restores this symmetry of power between the individual and government or institutions in a way that we've never seen before it really is something radically new um and yeah i i think that well we already see so much self-organization in the digital age right we the groups like uh these clubhouse chats i don't know if you've been involved with a few of those recently like these are people just coalescing

around an idea talking about it forming their own independent networks we're moving information and capital now through these apps and electronic media through digital media it's like in the property rights basically which by the way that's what government's original intent was right it was to preserve the peace in the local environment and protect the property so people could trade and people could resolve any disputes about private property non-violently they could have recourse to the courts so they didn't have to go and you know raise pitchforks against one another Well, now property rights and Bitcoin are preserved by the mining network, right? It's disrupted the need, the original need for government.

So government, just like gold is being disrupted from its original principles of money, like the five properties, Bitcoin's more divisible, durable, recognizable, portable, scarce than gold. That's why it's outcompeting it. Bitcoin better secures property rights. Again, if we look at a tool or socioeconomic structure as being the system or idea that best allocates energy across time. So how do we spend the least energy possible towards satisfying this aim? The aim of property rights just being that whatever fruits of my labor that I sacrifice to obtain something, I can preserve that in something.

So if it's a physical item, I actually need a little bubble of protection around me. Otherwise, people would just come and steal your stuff and you don't have police to call, you don't have courts, et cetera, et cetera. But with Bitcoin, we have this property right that's metaphysical. It's just digital information, much more cost-effective to secure. And it exists independent of the courts, of the monopoly on violence, of government entirely. so now that people are able to do this people are empowered with all with all of this optionality to communicate and move capital across these self-organizing digital networks it just

obfuscates the need for nation-state organization in private property production so you know my high level thesis on all of this because again it's hard to get it all into words is that the world is becoming a video game basically it's an all more and more of our relationships and important functions in life are mediated by digital technology and screens um you know dating is a video game now people are swiping left swiping right um all of these important things that we used to need to do many of the important things we used to have to do in person and we can now do digitally. And that just decreases the need for the analog institutions that provided security pre-digital in the digital age. And who knows? The tech is just getting

started, by the way. We're still hamstrung, I think, in many ways that we need a laptop or we need a smartphone. What happens when augmented reality or virtual reality really becomes more mainstream, and that we're able to overlay the real world with digital data. Either, you know, the whole idea of Google Glass was to get the tech out of the way. So the more the hardware gets out of the way, I think the more we accelerate this transition into sovereignism or post-state capitalism, whatever you want to call it. Yeah. It's fascinating to me to kind of think through this because I think you said it perfectly. Nobody actually knows. Before we wrap up, is there anything specific that you can identify that other than central banks starting to buy

Bitcoin that you would say is, hey, this is an inflection point or a milestone that I've got my eye on? I don't know when it happens, but when it happens, people will be able to say that is you know an important moment um yeah definitely you know you touched on the central bank buying it i think i'll say this about the pandemic situation um that actually the book sovereign individual has been pressured in a lot of ways and a pandemic was actually predicted in that book to be used as one of the main state responses to social upheaval and immediately before the pandemic we had unprecedented millions worldwide protesting their government there's still a lot of it going on today um so i don't i don't know you know that's the timing of that is quite

interesting to me either that i'm not saying necessarily that the a lot of people call it the scamdemic. I don't know that it was purely manufactured or created, but the state response to the virus has certainly been many orders of magnitude more severe than prior health scares. We had the swine flu and all these things before that government didn't react in this way. So there seems to be mixed motives let's say of this this latest uh response um i think you know another breakthrough will be when we see a lot of state like so there for instance in north america a lot of the energy infrastructure specifically on like related to natural gas and whatnot is

just wasted today so that wasted that flared natural gas could be capped with a bitcoin mine and monetized instead so bitcoin as we've discussed previously it provides this energy buyer of last resort i think states too will be really forced to embrace bitcoin for that reason because again they're suffering financially as well. They're trying to print more money to stay ahead of their own bad decision-making historically. And I think that they get forced further along the risk spectrum as well, that they need to start mining Bitcoin, and that states that control these energy sources or energy producers that otherwise would not have a way to monetize that energy will now be forced to start monetizing. I think that could become an inflection point

for Bitcoin, that when you actually see large territories monetizing unused or underused energy sources into Bitcoin, then it's only a step functional way of those producers themselves accepting payment in Bitcoin, holding Bitcoin. You've now reduced the selling pressure on Bitcoin again, because miners, which today are the source of most of the open market selling to cover their energy bills and operational expenditures, that source of selling goes away. So now you put even more upward pressure on the price. And another point that was made recently was a lot of these miners that are going public,

they'll go into capital markets and borrow against their balance sheet at zero or 50 or maybe 100 basis points, and just pay their bills with debt capital, leverage up and take their bills with debt capital, such that they can hold more of that Bitcoin on the balance sheet. So I think there's a lot of these avenues that are going to really constrict the selling of Bitcoin by miners over time. And I think those will be major inflection points, because I'll just put so much upward pressure on the Bitcoin price that it will potentially push us into this hyper Bitcoinization

type scenario i am uh i am on uh the same wavelength as you are as uh this is all going to happen it's a foregone conclusion uh it's just a matter of how aggressively it happens uh and ultimately what that timeline looks like uh but as we have learned those who have the kind of longest term horizon uh tend to get the best rewards uh in this game and so i think you've done a fantastic job of articulating that over, uh, over the years and, uh, and continuing to do so now, um, for people who want to, uh, go watch the sailor series, uh, or watch some of the other series that you've coming out, where can we send them to, uh, to find you on the internet or find those, uh, pieces of content that you're putting out? Yeah. Um, thanks for having me. I

think, you know, you're doing a great job with this platform. You've definitely, uh, pioneered a lot of the space yourself and bringing more mass awareness to Bitcoin and this mass transformational wave of innovation that we're living through. So thanks for that. My Twitter page is where I post links to most of my work. My last name is Breedlove. So my Twitter handle is at Breedlove22. B-R-E-E-D-L-O-V-E-2-2. The show is called The What Is Money Show. And I named it that, by the way, because as we know, describing Bitcoin in a few words, especially for someone that doesn't understand it, is not very easy. There's a lot to unpack there.

But I found that this question, what is money? Like if you can get someone just asking themselves that question seriously and researching it diligently, that they'll stumble on kind of the gold and Bitcoin thesis at some point. So I'm trying to kind of incept sort of like Inception, that movie where you're just planting this little seed, getting people to ask themselves the question, what is money? And I think it just continues to uncover a lot of interesting truth for me as well. It's a really deep question, seemingly simple, but actually really deep. So you can that's on both YouTube. So the What Is Money show, you can search by my name on YouTube.

We also have a website for it, which is What Is Money podcast. dot com um we just again released the sailor series we're almost done with that one uh booth series will be next uh and then i've got a a big big cast for the first 10 long form series um yeah that's it that's me all right at breed love 22 on uh twitter right yes awesome man listen robert i uh i really really enjoyed talking to you every time we would definitely do this again in the future so thanks so much for doing it and uh hopefully everyone learned a ton from this i hope so thanks again for having me