The Pomp Podcast - #611 Why Bitcoin Will Be The Next Global Reserve Currency

Episode Date: July 22, 2021

Greg Foss is the CFO and Bitcoin Strategist at Validus Power Corp. He has spent over 30 years of his career in various credit markets, where he has managed hundreds of millions of dollars.  In this conversation, we discuss nation state defaults, credit markets, bitcoin, decentralized central banks, asset allocation, flare gas capture mining, and South/Central America.  ======================= Circle is a global financial technology firm that enables businesses of all sizes to harness the power of stablecoins and public blockchains for payments, commerce and financial applications worldwide. Circle is also a principal developer of USD Coin (USDC), the fastest growing, fully reserved and regulated dollar stablecoin in the world. The free Circle Account and suite of platform API services bridge the gap between traditional payments and crypto for trading, DeFi, and NFT marketplaces. Create seamless, user-friendly, mainstream customer experiences with crypto-native infrastructure under the hood with Circle. Learn more at circle.com ======================= LMAX Digital - the market-leading solution for institutional crypto trading & custodial services - offers clients a regulated, transparent and secure trading environment, together with the deepest pool of crypto liquidity. LMAX Digital is also a primary price discovery venue, streaming real-time market data to the industry’s leading analytics platforms. LMAX Digital - secure, liquid, trusted. Learn more at LMAXdigital.com/pomp ======================= Revolut is a finance app in the US and UK, that say they're the simplest way to access crypto. Sign up today at Revolut.com/pomp and make 3 card transactions to get $15, which you can exchange for any tokens Revolut supports. As usual, when you move your money from fiat to crypto your capital is at risk. See T&C's for details. Revolut is a financial technology company. Banking services provided by Metropolitan Commercial Bank, Member FDIC. Cryptocurrency services provided directly by Paxos Trust Company, LLC.

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. Now let's kick this thing off. Greg Foss is the CFO and Bitcoin strategist at Validus Power Corp. He has spent over 30 years of his career in various credit markets where he has managed hundreds of millions of dollars. In this conversation, we discuss nation state defaults, credit markets, Bitcoin, decentralized central banks, asset allocation, flare gas capture mining, and South and Central America. I really enjoyed this conversation with Greg, and I hope you do as well. This was an excerpt from our new show, The Best Business Show, where we stream live every single weekday,

11 a.m. Eastern to 1 p.m. Eastern on YouTube and Twitter. If you haven't watched it, I highly suggest. We're doing tons of financial education, but also a little bit of entertainment. Hope you tune in for the next episode. Before we get into this episode, I'd love to talk about our sponsors. First up is Circle. Circle is a global financial technology firm that enables businesses of all sizes to harness the power of stablecoins and public blockchains for payments, commerce, and financial applications worldwide. Circle is also a principal developer of USD Coin, USDC, which is the fastest growing, regulated, fully reserved dollar stablecoin in the world, now standing at more than $15 billion market cap and is adding nearly $300 million of net

new digital dollars in circulation every single week. The free Circle account and suite of platform API services bridges the gap between traditional payments and crypto for trading DeFi and NFT marketplaces. You can learn more at Circle.com. Again, Circle.com. Go check it out and let me know what you think. Next up are my friends over at LMAX. LMAX Digital, the number one institutional crypto exchange, offers clients the deepest pool of crypto liquidity on the planet, underscored by 100% uptime track record through volatility spikes. Leveraging LMAX Group's liquidity relationships and ultra low latency technology, LMAX Digital is the market leading solution for institutional crypto trading and custodial services. They've got a central limit order

book streaming spot Bitcoin, Ether, Litecoin, Bitcoin Cash, and it's all paired with US dollars, Euro and Yen. LMAX Digital is the number one crypto exchange for institutional investors. They do over $2.5 billion a day in trading volume. LMAX Digital, secure, liquid, and trusted. If you don't know about LMAX Digital, you must not be an institution because the top institutions all use LMAX Digital. You can learn more at lmaxdigital.com slash pomp. Again, lmaxdigital.com slash pomp.

Last but not least are my friends at Revolut. Back to basics for a second. I've partnered with Revolut, a finance app in the US and the UK that say they're the simplest way to access crypto. They're putting their money where their mouth is too. You can sign up, make three card transactions, and they'll just give you $15. That's right.

They just give you 15 bucks. What can you do with the $15? You can exchange for Bitcoin or any of the other tokens Revolut supports. Yes, they are crypto enabled. These guys have made it easier to get some skin in the game. As usual, when you move your money from fiat to crypto,

your capital is at risk. Sign up now through Revolut.com slash Pomp to get a $15 reward and put them to the test. They recently raised money at a whopping $30-plus billion valuation. Go check it out at Revolut.com slash Pomp, and you can be the judge for yourself. All right, let's get into this episode with Greg. I hope you guys enjoy this one. Anthony Pompliano runs Pomp Investments.

All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy but only as an expression of his personal opinion this podcast is for informational purposes only greg what's going on man gentlemen nice to meet you absolutely uh before we get started with uh with the fun stuff maybe give us kind of a quick uh 30 seconds on just your background and what you did before you ever found bitcoin sure very quickly so i'm canadian um i went to school as an engineer under

grad as an engineer at mcgill and then i went to cornell university and i came back to canada and i uh while i had a chance to work on wall street right out of school i came back to canada worked for canada's largest financial institution which was the royal bank of canada and uh lo and behold uh royal bank of canada in 1988 was insolvent okay gentlemen it was insolvent because if you had marked to market the value of their loan portfolio, their Latin American debt portfolio, to be exact, you would have vaporized their entire amount of book equity. That's not a good situation. And the Royal Bank was not alone in being in that situation. In fact, all of Wall Street money center banks, such as Manufacturers Hanover, Chase Manhattan, all the banks essentially

were in the same situation. Hence, Treasury Secretary Nicholas Brady's plan in 1988 to rescue these defaulted loans using the Brady plan. So that was one of my first projects. I was working directly for the CFO of the Royal Bank of Canada. But it got me to question, hey, hold on, I've just been through six years of university, two years at a top business school in the US, and you never hear about the fact that the global banking system goes insolvent on a regular basis long story short i've been looking for bitcoin since that day 1988 because of the fiat is the ponzi uh the question is why is uh why do people have comfort putting their uh their money in in uh depositing their money in banks well because there's a de facto put the fed will come in or the central banks will

come in they'll they'll backstop too big to fail and uh uh how do they backstop it printing money so since 1988 i've been looking for that solution and you see the shirt greg do you see the shirt we got i see it i can't see what it says though jerome powell is just printing cash with the sunglasses on just print and chill just chill man it is what it is and and look um i'll tell you fast forward after 30 years of trading credit from Canada, but I also worked on Wall Street. I traded huge sums of money with Wall Street. I worked at a hedge fund, well, two different credit hedge funds, actually. And I also worked prior to that on the sell side, which meant I worked for a large investment dealer in Canada called TD Securities, the securities arm of one

of Canada's largest banks. Anyway, credit is the focus because credit runs the world. Very simply, credit is the dog and equity is the tail. And nobody generally who listens to CNBC and thinks that they're stock picking gurus even understand the first component of credit. Needless to say- Explain when you say that credit runs the world, this is really important because we got a lot of young people watching that they've only ever looked at the stock market, understood the stock market. So when you say credit runs the world, what do you mean by that? Well, in a number of respects, Pomp, firstly, they need to understand that credit has a prior claim in the capital structure of any corporation. So unless the bonds or the loans of that company are worth 100 cents

on the dollar, the equity is worth zero, right? Now that's okay. As long as a free cashflow generating enough interest, uh, EBITDA interest expense, et cetera. But when companies go into financial distress, uh, the credit usually has the first sniff of that happening because they're very sensitive to that. And secondly, the equity guys usually have no clue. And so what's the credit guy doing like me if i if i'm long some of these bonds i look for protection in other markets and the first thing i do is i go out and i start shorting the equity of the common and these equity guys are like oh it's got to be cheap because you know used to trade at 20 bucks and now it's at 10 bucks a share just supposing and the reality the reality is it's probably worth zero but these

knuckleheads have no clue and they're buying it up and uh you know it's the it's the hedgy guys and the credit guys they're saying hey look you know my bonds could be impaired and if my bonds are impaired the equity's got zero value so you know you need to understand that prior claim now that's in a corporate structure but also most importantly in the global financial system that's as levered as the global financial system is it's always gurgling in the credit markets that signaled trouble that's going to come to the equity market. So I go back to the great financial crisis in 2008, 2009. The credit markets knew this far before the equity guys. And you remember Jim Cramer's famous rant on CNBC. They have no idea. They're out to lunch.

OK, the Fed calling the Fed for a rate cut. Well, the Fed did cut rates. Equity markets proceeded to hit all-time highs in October of 2007, yet the credit market never bought it for one iota. And Bear Stearns and Lehman Brothers, we all know what happened with them. But the credit market was always foretelling what was coming, whereas the equity knuckleheads were out there, oh, the Fed cut rates, so everything is fine. When you think about the credit investor versus the equity investor, there are some epic stories from the Teppers of the world, the George Soros of the world, et cetera. I can go through all of the kind of legendary investors with various credit situations. Why have the equity investors never learned the lesson, right? Why

do they not look at the credit markets? Is it arrogance? Is it ignorance? Is it a belief this time is different? Like if it's such a clear signal for future trouble, why is there not more attention on it? Great question. And it even starts with the equity analysts on Wall Street and bay street bay street is our financial street in canada um a lot of the equity analysts don't even consider where the bonds are trading even when they put out equity research reports okay you'd think that would be the first place they looked they they many of them don't even know what the credit rating is of the company let alone the credit levels that the bonds are trading at so you know you'd think it would be more apparent but firstly you're you're not really drilled this

in your uh in your in finance 101 if you've even taken finance 101 and more importantly bonds are esoteric they trade over the counter they're not registered on an exchange where you can see the perception of liquidity like the uh the equity market has okay but the reality is bonds trade in far higher volumes than the equities do uh and and yet you know everyone thinks oh well equities are liquid and because you know a couple of hundred thousand shares are trading maybe you know three million dollars of market cap of a company trades on a given day oh that's liquidity you know the funny thing is it's just not well explained and it's not transparent like the perception of an exchange traded instrument like equity help me understand and i know you wrote a

big paper on this recently how the credit markets and bitcoin are related or how they interface with each other and what people should take from the credit markets when looking at bitcoin so great question thanks yeah so i did write this paper and i i had to base it on uh my experience of 30 years of trading credit because what is bitcoin to me and to me bitcoin is anti-fiat and that's another way of saying it is default protection on a basket of currency okay so think about that for one second how would you measure that and based on my experience in the markets for 30 years, I go to the most efficient markets I know of called the credit default swap markets. It's essentially markets on insurance that foretell the credit

quality or deteriorating credit quality of a corporation or a country. So I think of Bitcoin as being this credit protection on countries. And I add it all up. You know, the U.S. is the strongest, no question. But in those countries, in the G20, for example, are names like Argentina. And if Argentina defaults again, which it looks like they're gonna,

that's gonna be three times in my career that that country has defaulted, okay? This is serial defaulting, and this is a G20 nation. So there's all sorts of components in there, but remember this. In 2006, you could buy default protection on Lehman Brothers for nine basis points. What that meant was you could pay $9,000 a year to protect $10 million of Lehman Brothers debt against default. So for that $9,000 premium, think of it as an insurance premium.

Two years later, it was worth $6 million. Okay. Hey, that's not a bad purchase of protection. And that's the way I think about these things with respect to countries as well. I'm not calling for the default of the United States, although it's happened in the past, whether explicitly or implicitly, like the 1971 going off the gold standard. At the end of the day, these insurance contracts are traded by very sophisticated counterparties and evaluators of risk. So I look to that market, I sum all the exposures up and it gives me an intrinsic value of Bitcoin, which today I value at over $150,000 US per coin. And as you know, it's trading, I don't know, right around 30,000, a little bit

higher today. The point is it's stupid cheap on that metric. That's what the intrinsic value is to me. And that value will increase as the credit default premiums increase when countries go into financial distress, which happens on a regular basis, just not with G7 nations. Canada is a G7 nation. Canada will be the first G7 nation to default if in fact a G7 nation does default. And that's unfortunate because I'm a proud Canadian. Why do you think that Canada is the first one firstly our cds rates are wider than any other g7 nation we do not have the backing of a european central bank which italy and uh uh you know other middle european countries have now italy is a g7 nation at the end of the day listen the the most important thing to understand

is Canada has the population of California. Canada just printed more money than any other G7 country by a long shot. And Canada is extremely dependent on things that contagion in other countries could flow through to Canada. So I don't want it to happen. I'm not predicting with 100% certainty

it will happen in my lifetime, but here's the problem in the here and now. Canada currently has a triple A credit rating by S&P. That happens to be one credit notch higher, meaning in the eyes of S&P, it's actually a better credit quality than the United States of America. Now, that's asinine, but it's true. S&P, you can never rely on them to properly predict something like, oh gosh, the subprime loan crisis, for example, right? At the end of the day, S&P still has Canada rated as AAA. That's one notch higher than USA. The funny thing is credit insurance on the USA trades at about 10 basis points per annum, and Canada is more than double that. Canada trades like a single A rated

credit in the CDS market right now. And our politicians have no clue. They're like, oh, well, Canada still has this coveted AAA credit rating. Garbage. Do not look at S&P credit ratings. I wouldn't wrap fish in their reports. So if Canada or one of the other G7 countries has potential default risk, right? Just let's put it at potential. Your argument essentially is just like you could have bought an insurance premium on a defaulting corporation. That is what Bitcoin is to you. Your Bitcoin is that defaulting kind of insurance. And so you're able to kind of back into the pricing of what you think the value is based on what you think the default risk actually ends up being for these various countries. 100% great way of explaining

it. And don't forget, it's not my opinion. It's the market's opinion. I'm just using this as the metric that I come to evaluation. I start my evaluation there and I say, well, this is stupid cheap and you're supposed to close your eyes and buy it based on that metric but i think bitcoin goes to prices that exceed uh you know a couple of million dollars us per coin i could run through the mathematics on that very simply bitcoin is the best asymmetric trade opportunity i have ever seen in 32 years of trading risk okay i'm not 100 certain but i'll just tell you anyone who worries about the price of Bitcoin, whether it's $30,000, $40,000, or $60,000 a coin is missing the bigger picture. It's all stupid cheap. And if you're overthinking this, you deserve to miss out on

the best asymmetric trade opportunity of your lifetimes as well. Walk us through kind of sequentially how that happens, right? So let's say that we end up with a couple of million dollars per bitcoin um being the uh kind of end state if you will right so yeah much much more valuable than it is today do we get institutions to adopt then you know kind of developing nations and then there's a default and there's an inflection point like how do you think we sequentially get there what does that like order of operations almost look like so great question so firstly i'll i'll detail how or not detail it'll be a quick explanation of how i get to my two thousand dollars two million dollars or greater per coin very simply today total global financial assets

in the world today are over u.s 900 trillion dollars now that includes all equities all debt all currency all fine art all gold 900 trillion u.s dollars all real estate sorry i forgot to mentioned real estate. Globally, I think that Bitcoin has a chance of becoming the global reserve asset of the world. Why? Because I think oil and natural gas will shortly, and when I say shortly, within the next 10 years, become priced in Bitcoin. Why is that? Well, I'm an engineer, rule of conservation of energy. You've certainly heard Michael Saylor say that. Oil and natural gas, if you're Russia, do you actually want to sell your valuable natural resources for this thing called a U.S. dollar, which is a programmed to debase fiat currency? Or do you want to hold

U.S. treasuries, which is a fiat contract that's also programmed to debase? Or would you like to sell your natural resource energy for Bitcoin, which is digital energy? I think yes. I think over time, there will be enough people or nations that want to price Bitcoin or energy and Bitcoin. When that happens, that becomes the reserve asset of the world. So what percentage of the reserve asset does it make sense that $900 trillion could capture? Would it be 5%? I think that's pretty low, but let's assume it's 5% of $900 trillion US dollars. 5% of $900 trillion is $45 trillion. dollars 45 trillion divided by 21 million bitcoin that's over 2 million dollars of bitcoin okay it's that simple now could it go higher than 2 million abso-freaking-lutely okay but let's just use 2

million dollars per bitcoin as a base case scenario how does it get there it gets there something like you know you have what happens in south el salvador a little bit and then it gets there because Michael Saylor, the genius of Wall Street, figures that every single corporation should actually issue debt in order to capture a certainty of debate contract in trade for this thing called Bitcoin. At the end of the day, you'll get institutions, you'll have a combination of countries, institutions, hedge funds. All of this will add to a higher price. We've seen it happen before. The reality though, Pomp, is when energy is priced in Bitcoin, that will remove the petrodollar focus. It will become the de facto reserve asset of the world. And you will see a gap up in price

that will blow your socks off, in my opinion. Does it have to happen? No. But run some probability analysis on what a $2 million, and that's in today's dollars, what a $2 million price of Bitcoin on an expected value basis needs to be versus Bitcoin potentially going to zero, which I also don't think is like even a price that it'll ever return to. But assume that you have only two outcomes, a binary outcome. One is a price of Bitcoin of zero. And the other one is a price of Bitcoin of two million dollars a coin. I'll ask you this question. Would you give me a 10% chance that Bitcoin can go to $2 million a coin. If I gave you the 90% chance, it goes to zero. And most people would say, yeah, you know, that sounds about fair. And the reality is, well,

on an expected value basis for that one calculation, 90 times zero is zero and 10% times $2 million a coin is $200,000 a coin. Hey, there's another example of why you should be buying Bitcoin today with your eyes closed. Don't overthink this. OK, it's a game of probabilities. It always is a game of probabilities. No one is ever 100 percent certain about anything in investing except this. I am 100 percent certain that fiat will continue to debase because they cannot possibly stop printing money due to the debt spiral that all fiat countries are in today. It is 100% certain mathematically that fiat currencies will continue to debase and will continue to debase on an accelerated basis. Pure math, pure, simple mathematics.

Grade 11 type of math is what I like to say, Paul. Grade 11, you're doing higher math than I can do. So I think it's actually more like grade four or five. One of the things that you're talking about is kind of a very macro view of the world, nation state defaults, et cetera. And I think that that is ultimately like a tailwind, and it really will drive global adoption. But we've also seen adoption on the micro scale or in smaller communities. I know that you spend a lot of time kind of paying attention to what's happening in El Salvador, and you've got some friends in Guatemala. maybe tell us a little bit about what's happening in more of the microeconomic standpoint uh on a

local scale versus just the macro side sure so thanks for bringing that up so yes when i was down in bitcoin miami um i happened to i was lucky enough to be on stage with three uh uh you know legends including your and i'm not even sure how you you and mark uh yousko you know that relationship anymore but i was on stage with him i was on stage with jeff booth and i was on stage with preston pish all right so we gave a uh a talk on that but when i was in uh miami i did meet these kids from guatemala who had seeked me out and said foss you know we got to talk to you we like your stuff but most importantly this is what we're doing boots on the ground in guatemala and i gave them a shout out on stage without knowing that about six hours later jock mallers

was going to make the announcement of the uh conference as far as i'm concerned so i shouted out these guys, Guatemala, they have this exchange going called IBEX, I-B-E-X exchange or IBEX Mercado to be more exact. And they're onboarding Guatemalans hand over fist. And I gave them a shout out because they wanted to start something in Guatemala called Bitcoin Lake based on a lake in Guatemala called Lake Atatia, which would be based on the same concept that Bitcoin Beach was based on in el salvador lo and behold two six hours later jack mauler's on boards an entire country which blew my mind well hold on a second corporations are now being leapfrogged by countries six million people onboarding under decree i'm like this is unbelievable now the guys in guatemala

live three hours away from el salvador and they've been on the phone with me foss and zoom calls foss you wouldn't believe what's happening we're getting calls from merchants in el salvador they're begging for our services. And these guys in Guatemala have five of the top 100, because I think there's only 100-ish in total, according to them, lightning coders in the world. They have five of them working at the same spot. And they're being engaged by the merchant community in El salvador to help them onboard the merchant uh the merchants who have been uh told to accept within 60 days right the uh the bitcoin so that's a real life use case we know the mathematics why it's great because el salvador will increase their gdp by four percent annually just because they're

getting rid of the remittances and the fees on excuse me they're not getting rid of the remittances they're getting rid of the fees on the remittances that western union charges when a worker from el salvador who's who's working let's say in the usa sends money back home not to mention the danger of doing that but also the 20 fee essentially door-to-door that is charged that increases el salvador's gdp by four percent annually like it's just so simple to do it with a beautiful beautiful uh well in my opinion the most beautiful technology i've ever seen um and that's a really life use case so yeah shout out to these guys in guatemala pomp they are boots on the ground in el salvador real life solutions to uh all the problems that bitcoin

solves and uh and the beauty of the network itself yeah it's awesome to kind of see people doing this. Before I let my brothers ask a couple of questions, help us understand just the institutional investors, folks who trade credit on a day-to-day basis, kind of your old colleagues, people that you used to work with, and that entire kind of highly sophisticated Wall Street-driven world. What's their take on Bitcoin? What are you hearing? What are they missing? Are they excited about it? How are they entering the market? Just kind of give us an update. So like everything, there's a distribution of understanding. I'll admit to you, when I was introduced to Bitcoin in 2016 my first thought was okay well i've read it's a ponzi so it's got to be a ponzi

and so i did the work and uh and i'm like holy and and and shout out to a guy that you've interviewed before his name was fred pie all right and now fred i i fred grew up in montreal i grew up in montreal i happen to own a pub in montreal and he met me at my pub and goes foss you gotta look at this thing and i go okay i'm intrigued but he showed me one thing he showed me the blockchain in action on tradeblock.com and i'm an engineer on visual and i go what the heck this is not a ponzi this is a thing of absolute beauty and i said yes first of all i said fred i love bitcoin it is the solution to the fiat ponzi that i've been looking for at that time you know over 25 years um and i said well thank you for for introducing me to this i did invest in in helping

him fund a company that uh uh launched canada's first exchange traded closed-end bitcoin fund okay so very proud to be part of that but here's here's what happens like everything there is a curve or a distribution of understanding and in the hedge fund community you'll have really smart people like ross stevens you know he came from goldman sachs uh you you have novigrads who worked at hedge funds you you'll have that tail part and then you'll have a distribution of people who are knuckleheads who are like it's a ponzi and and i was a knucklehead for a long time it's a ponzi until you actually have to do some work and anyone who outright uh rejects bitcoin because they've done two hours of work on bitcoin they'll never get it and you should never have them manage

your money because they are stupid okay first of all you need to do hundreds and perhaps even more hours of work even to grasp the beauty of bitcoin but it's more like anything if you don't learn about this in school you don't learn that it is a certainty because of total global debt being four times total global gdp it is a 100 certain that they have to continue to print money to solve that debt overload the numerator which is your total global debt is growing organically just because of the coupon on that debt at about a 12 percent rate and your denominator which is your global gdp is it going to grow at 12 not in a month of sundays yet people don't do that math and they don't know that they have to solve the fact that

the debasing of the currency is a certainty so they'll say like peter schiff well you got to go towards gold you got to go and peter schiff was right about 2 000 years ago but he's been wrong ever since okay because bitcoin is so much better than digital or than gold we all know the reasons why, but it's the same principle. You need store of value. So who gets it? Well, you got the guys that get it. You get, you got the, the, the, the, the, the middle of the distribution, the bell curve, they will get it. Those people will get it. And then you got the stupid part of the curve, which is the Peter shifts of the world that he probably gets it. He'll never admit he gets it and therefore won't get into it unless he gets his son into it, which, you know, we could argue

use a different uh bowl of potatoes anyway so there is a an adoption that occurs like in any market the network effect you've heard them all um and it it's like anything it's like what happens on the institutional side is you know a reflection what happens on the small retail investor side as well, right? It's, it's an adoption and 71% of Fidelity's clients just recently, I read 71% of institutional investors plan to allocate money to crypto. I prefer to focus on Bitcoin only just because of the things it solves, which is the fiat conundrum or the fiat Ponzi, if you will. No other coin does that in my opinion. And it's all because of the beauty of Bitcoin being decentralized math and code 21 million fixed supply forever and ever the most pure store of

value ever created by man and i want some of that so do other institutions and it'll just be a process i want some of that too i you can never have enough of that joe john what are the questions you guys got greg thanks for doing this first off really appreciate it um so my question is we have a kind of a wide range of people that watch this show i think some are probably in their 20s and have little to no financial investments and some are in their 30s and 40s and have a diverse portfolio. But when it comes to kind of financial investments in general, and more specifically Bitcoin, how do you think about personal allocation, right? How has that changed over time as you've gotten older? And how do you think about it for kind of younger people who are just

starting to invest? Outstanding question. So it's all about your risk tolerance. Let's start with someone who's a boomer like me. So I'm 58 years old. Obviously, I've traded credit my whole life, but I've been exposed to the traditional asset classes. And let's say that traditional asset class is 60% equities or waiting rather 60% equities, 40% bonds. All right. According to Yale University, which has done a study on reducing risk and increasing returns on a diversified portfolio, you should have six to eight percent of that type of portfolio allocated to Bitcoin in order to increase portfolio returns as well as decreasing the volatility or risk of that portfolio. It's a beautiful thing. So six to eight percent is what Yale University says is the

proper weighting for, you know, anybody with a 60-40 weighting in equities versus fixed income. Now, I've traded fixed income my entire life, and this is the first time in my entire life I own zero in fixed income. Fixed income right now is for absolute morons, okay? And they're going to say, well, I'm going to make all this money by trading the 10-year, and it's going to go up and down in 50 basis point increments and duration times convexity. I'm going to make this much in my – stop it, you effing fools, okay? This is about mathematics and it's no longer about interest rate risk in bonds. It's about credit risk. And no one has no substantial institutions have made that leap of faith except to Ray Dalio.

OK, read between the lines. Probably the smartest risk manager in the history of the last 40 years has made that leap of faith. He isn't buying it for his funds because it's probably not big enough yet. Bitcoin under a trillion dollar market cap. Ray Dalio needs, you know, big, big markets. But he said it himself. I'd rather own Bitcoin than a bond. So if you're not 60-40, what is the right weighting?

For me, I'm higher than 6% to 8%, but I don't have 100% in there because you're never certain, guys. I'm not saying to people go out there and own 100% Bitcoin. What I'm saying is get your ass off zero. I think that was your line, Tom. Get off zero. Get up to, let's say, a 5% portfolio weight. Then you can talk about managing risk. But until you get to 5%, you are taking far more risk by owning zero Bitcoin than if you own a proper portfolio allocation. and that again is just pure probability analysis okay so you get someone off zero they own five percent they still have 95 of every hundred dollars allocated elsewhere which one do you think they look at every single day every single tick of the market well their bitcoin allocation stop buy it hold it and i'll talk to you in 20 years don't overthink this get off zero get up

to 5%. I'm higher. Other people are way higher. God bless them. They've done their homework and people will say, oh, they were lucky. No, no, no. People who work hard tend to be lucky. And there's been an awful lot of Bitcoiners who have done a tremendous amount of work in this area. They will be lucky in my opinion, because Bitcoin is a rounding error at these prices john yeah greg thanks for doing this uh you're clearly very knowledgeable about credit bitcoin financial systems everything like that uh i'm curious what you think about how people go about storing their bitcoin right so you talk about how it's going to appreciate over time where would the average individual go to sort of like there's cold wallets hot wallets you can

they have those banks now right um where would people in your mind keep their bitcoin great question too these are these are lob balls for me guys um the the reality is this uh i own it in three different ways you got to own it on your wallet on your smartphone to experience the beauty of being able to send money to new zealand which i have i sent money to an aboriginal group in new zealand and it settled in 10 minutes if you've ever tried to send an international wire transfer money anywhere. It is a painful, painful process. And for me to have the ability to send store of value over around the world that will settle in 10 minutes was a thing of beauty. So yeah, I own some on my phone. I also own more of it in cold storage because I don't want my

phone to get hacked and lose that. So I own it in cold storage. But in Canada and soon to be in the U.S., we have Bitcoin ETFs that can be put in or invested in tax advantaged savings accounts in Canada. All right. Those tax advantaged savings accounts allow you basically to buy a dollar's worth of Bitcoin for 50 cents because of the tax advantage. Darn right. I'm going to take advantage of that, even if it's not your keys, not your coins type of argument. Full stop. All right. You need to understand that not your keys, not your coins works in an Armageddon scenario that I'm not sure anybody in the world really wants to get to. OK, you're going to have two parallel systems working. You're going to have fiat, which is good for circumventing the use, the need for barter, trading three chickens for a cow. You just do currency. That's like your checking account, as Nick Szabo says. And Bitcoin is your savings account.

So we'll have two parallel systems working, Bitcoin being your store of value. Own it outright, own it on a wallet, own it in a GBTC, which currently is trading at a 12% discount to NAV. I own it in various ways. Why? Well, some are financial markets, some are disaster scenarios. And one, which is the most important way of owning it on your wallet, you experience the beauty of what that technology is.

and I'll share a story with you guys. Frequently, I go to restaurants and I ask the waiter, you know what Bitcoin is? Waiter, waitress. And oh, yeah, I've heard a lot about it. Do you have a Bitcoin wallet? No, I don't. I tell them and I've done this over, you know, five times. If you can download a Bitcoin wallet by the end of this dinner, I will give you twice the amount of tip in Bitcoin that I would have given you in fiat. And so far, five out of five times they've come back in within that meal have downloaded a bitcoin wallet and sure enough i give them a bitcoin and it makes their day and sometimes i go back i've been back to the same restaurants i've seen people and they're like you know that x amount of bitcoin

that you gave me well it's now worth 2x and you you know you've onboarded somebody that way i've done it not just with waiters and waitresses i've actually done it because i'm involved in a company that trades a lot of energy. We are one of Canada's foremost experts in energy and Bitcoin mining. I've done it with CEOs of a tomato greenhouse who said, what am I going to use your turbine for in the summertime if in the wintertime, you know, because I need it in the wintertime to heat my greenhouse. And we say, you're going to mine Bitcoin with it. And they're like, what's Bitcoin? Or it's too expensive. And I say, download the wallet. You're done. By the end of the meeting, 45 minutes later, the entire conversation had switched from

heating their greenhouses with natural gas and the turbines that we sell to, hey, I can do that in the winter. And in the summer, I'm going to be mining Bitcoin with these same turbines and creating a follow on revenue stream. OK, so our company is called ValidusPower.com. Pomp, I'm going to tell you, we are a flare gas solution that is greening the environment using Bitcoin mining. We are taking out pollutants and we are mining Bitcoin and stabilizing the grid. And it's like what Marty Bent does. And I love everything with Marty Bent and Great American Mining. We do it with 35 megawatt jet engines. OK, this is like this can power a small data center.

All right. And this is a thing of beauty. As an engineer, seeing a 35 megawatt jet engine wheel up on the back of a trailer truck and attached to a formerly wasted gas supply. Rock and roll, baby. You are creating Bitcoin revenue stream using wasted natural gas energy. The financial incentives to do this are off the charts. Eventually, people will realize I'm tired of talking about it because I've been saying it over and over and over again, is the most profitable thing you can do as a energy producer is to mine Bitcoin. And the benefit to society of it. Can I say one thing? And that's beautiful. It is the most profitable until the grid needs the power more. And you just flip the switch and you're mining Bitcoin for 90% of the time.

But then the grid needs peaking power. So you flip the switch and you're giving it to the peak to the peakers at a kilowatt hour rate. It is better than mining Bitcoin. But the combined business model is a thing of beauty and it stabilizes the electricity grid. Completely agree. And I think that what people are going to start to realize is this is the single greatest contribution to society you can make is to free billions of people from what ends up pushing the most amount of people into poverty. If you're into philanthropy, you should be into Bitcoin. It's that simple, right? And the reason why you should be into Bitcoin is because Bitcoin, as a decentralized, automated central bank that is programmatic, monetary policy that's fully transparent, can be audited by anyone in the world, is going to completely reverse the effects of that fiat currency. And I think people just haven't woken up to that yet. And so if you are mining Bitcoin and running the network and validating transactions, you are contributing in an immense way to the independence and freedom and liberty of billions of people around the world.

If you hold Bitcoin, you're doing the exact same thing. And so if you are involved in this industry whatsoever, I fundamentally believe Bitcoin will do more for society than all philanthropy combined, because the greatest contributor to wealth inequality in the world is central banks devaluing the currencies of which majority of the world holds their wealth in. And it's just at some point people are going to wake up to that. Right. I think you, you've done a great job articulating, uh, kind of how that happens. But to me, uh, it's kind of a foregone conclusion at this point in terms of the problems in the legacy system. And then there, here is a solution. Um, it's just, how long does it take for the rest of the world to kind of understand and,

and, uh, and get comfortable and, and, um, you know, really kind of, uh, be in a position to start to allocate to it and hold it. It'll happen. Might happen in a year, might happen in 20 years, but it'll happen. I agree 100% look us up at validuspower.com all right my business partner the CEO is 100% indigenous Canadian all right not only is this going to change lives of all Canadians this could absolutely reshape the destiny of the indigenous population in Canada all right so so many good things happening with Bitcoin do your homework don't overthink this and for God's sakes don't

listen to Steve Hanke, professor of idiots at Johns Hopkins University. That is a conflicted individual that is a disgrace to mathematics as well as economics. Greg, you said Peter Schiff was right 2000 years ago, which everyone appreciated. You then said that Steve Hanke is the professor of idiots. I think that you may get the biggest round of applause from the audience because they are appreciating your colorful descriptions. But before I let you go, I always ask people a couple of the same questions first being what's the most important book you've ever read oh man uh jeff booth my fellow canadian the price of tomorrow and i'm going to be giving a i'm going to be driving with him from montreal down to new hampshire uh bretton woods new hampshire

in a couple of weeks and the guy is uh wrote the most incredible book in my opinion the best book i've ever read now i need to couch this with the fact i probably think it's so good because a lot of the statistics he came up with in his book, I use in my paper as well. The difference is I wrote my paper before I wrote, I read his book and it was like confirmation that I wasn't off on a tangent using the statistics that I used. So he and I have the same conclusion based on mathematics and research that we did independently. So maybe a little biased, but the price of tomorrow is a great book. Uh, one that you need to read about how stupid our financial system is, is when genius failed. Okay. The story of long-term capital management and two Nobel prize

winning, uh, uh, academics who took 90 to one leveraged bets on volatility in the market. And they were selling ball, which is a dumb ass strategy, but they were selling ball based on, oh a full six years of info of uh data god lord this was 1998 10 years after i started uh studying or trading uh professionally and uh they almost brought the financial systems down then so read long-term capital management or when genius failed just to realize how stupid wall street can be sometimes and then read price of tomorrow by jeff booth which forecasts where we are going because of technology and of course he has one or two pages and i'm serious not more than that dedicated to bitcoin i couldn't agree more on the uh on the jeff booth uh recommendation uh last question

most fun one aliens believer or non-believer it's only math i believe big math guy i appreciate you not a professor of idiots professor of math that's what uh that's what we need more around here in this world all right greg listen thank you so much for taking the time to do this we really appreciate it. Uh, everyone, uh, really enjoyed the conversation, uh, in the comments and stuff. So we'll, we'll have to do it again in the future. I'm a big fan of what you do and the education you put out there, pomp. And now we'll talk offline sometime. I have a young kid from Canada that's working for you that used to play hockey with my son. So small world, everything you're doing is so, so, so important. So God bless America. One final shout out when I did go to

Cornell, uh, my roommate died in nine 11. Okay. So I appreciate everything you've done as service for your country uh my granddad was uh was a veteran of two world wars bitcoin is freedom you guys bitcoin is everything that makes america great do not fear it embrace it and canada has handed this to us on a platform on a platter and if our government is too stupid to realize that then get a new government okay because this is the opportunity of a lifetime to define the future of money and have it native to north america and south america okay full stop i love you guys thanks for having me on greg you're a legend appreciate you thank you thank you pop see you bud thank you boys thank you thanks greg