The Pomp Podcast - Misir Mahmudov, Analyst at Adaptive Capital: Why Bitcoin Is Stored Time

Episode Date: June 20, 2019

Misir Mahmudov is an analyst at Adaptive Capital, and recently graduated from Columbia University. In this conversation, Misir and Anthony Pompliano discuss the importance of understanding money, scarcity as a driver of value, why gold used to be money, why Bitcoin is the digital gold, an analysis of Bitcoin's future market cap, and the idea of Bitcoin as stored time. You can find the Bitcoin modified version of Salvador Dali's "The Persistence of Time" here: https://bit.ly/2KqHP66 -----If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe.This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworksgroup.io

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off The Chain, simply the best podcast in crypto. Let's kick this thing off. Masir Mamoudou is an analyst at Adaptive Capital and recently graduated from Columbia University. In this conversation, we discuss the importance of understanding money, scarcity as a driver of value, why gold used to be money, why Bitcoin is the digital gold, an analysis of Bitcoin's future market cap, and the idea of Bitcoin as stored time. I really enjoyed this conversation and I hope you do as well. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the

opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys, bang, bang. I've got a Masir here. I'm super excited to do this because I previously recorded a podcast episode with your brother who came in and presented the bull case for Bitcoin. And I think it is safe to say that that was a widely popular episode. and you're here to talk about kind of the bull case for money and why Bitcoin is better money. So thanks so much for coming in to do this.

Thank you. It's a pleasure to be here, Pomp. Absolutely. Before we get started, let's do your background first and then we'll get into kind of money, why it's important and where we're going with it. Sure. So I actually recently graduated from college. I studied financial economics at Columbia University. All throughout my academic career, I was mostly interested in startups, building different apps for iOS Android and one of my projects was basically kind of somewhat relying on using the Facebook's API for for just like for its

operations and there were limitations that were imposed by Facebook and that made me really realize the appeal of decentralization and ever since then I I went down the Bitcoin rabbit hole, and here I am. I love it. All right. So it's very impressive to me how young you are, yet how well you understand the importance of money. Give us your high-level overview of just like, why is money important, and why is the historical

context important? Well, I think that one of the biggest problems in the modern world is that everyone is literally obsessed about money. They stress over money all day long. they literally work most of their day for money but they don't understand how money works why it functions and why what are the necessary criteria for it to function so i think that the biggest virtue that bitcoin has provided for me and for millions of other other people is uh it really opened our eyes to various uh previously neglected subjects such as monetary economics

that allow you to appreciate what money for what it's worth and how it's supposed to work. So I was never a gold bug or anything like that before, but delving into the Bitcoin rabbit hole really taught me to appreciate Austrian economics and what the gold standard meant and etc. And a lot of people, frankly, they are confused about what Bitcoin is. And that is understandable because money in the modern world is a complicated topic and oftentimes unnecessarily so. But it is made difficult to understand. But it wasn't like that in the past.

It wasn't like that because back in the day, people used gold, as we all know. And they used gold for a reason. And the reason being that gold had, it was the most scarce asset, basically. it was most limited in its relative supply which meant that you could rely that its supply would be constant over time and basically the share of the total gold supply that you owned would stay relatively the same throughout time therefore your wealth could not be diluted over time so one of the things i want to ask you about and really i'm excited about this because i feel like you can teach me a lot right because you have an understanding and thought a lot more about some

of this stuff than i have gold is scarce by nature right it's hard to um dig up from the ground it's hard to find all of these things but it is not artificially scarce meaning that we actually don't know how much gold exists under the ground or in the world right we constantly find new gold and dig it up it's hard to do it but but we can do that so it's um scarce within reason right bitcoin is different bitcoin is not only hard to produce from an energy consumption standpoint and kind of the algorithmic difficulty and all that but it's also artificially capped and so help me understand from a gold perspective how people have thought historically about you know when somebody just finds like a huge deposit of gold does that have price impact or do we just

generally believe in the narrative of gold is scarce and whether there's a find of a large deposit or not you know our gold kind of stays constant in value so yeah so as i already said gold is the least abundant stable element in earth earth's crust and the important thing is to realize that it has been mined and dug out for thousands of years so even if today or yesterday somebody were to find a relatively large amount of gold somewhere in the ground dug it out that wouldn't make a big difference because the amount of gold that has already been dug out is huge so that would be a little literally drop in the ocean so that is one of the beauties of gold is

the fact that we have used it for so long that the existing stock is so big that if you increase the flow, yearly flow, even a little bit more or whatever, it's not going to have a big impact. So explain stock to flow. I don't think a lot of people actually understand what that means. And this is a very important concept for what we're going to talk about when we compare gold to Bitcoin as well. Yeah, absolutely. So stock to flow, it's basically a ratio of the amount of the good that already exists in the world. For example, the amount of the total amount of gold that has already been dug out and exists in the world as opposed to the amount of gold that is being produced and mined every single year so i think the stock

to flow ratio of gold is around one and a half percent so every year there we mine 1.5 percent more of gold and that is literally basically the scarcest thing that as scarce as it gets The second most scarce thing is silver, and the stock-to-flow ratio of silver is around, I think, 20%, if I'm not mistaken. And the idea is that Bitcoin's stock-to-flow ratio is soon going to be even lower than that of gold. So as an example, let's just use easy numbers. If there was 100 ounces of gold in the world that existed today, over the next 12 months, we would dig up another 1.5 ounce, right? So that's the stock-to-flow ratio of how much exists versus how much we're digging up. When it comes to Bitcoin, what is the stock-to-flow ratio comparison between Bitcoin and gold?

I think right now the stock-to-flow ratio of Bitcoin is higher than gold. But clearly with the halvings that come every four years, that number decreases, decreases, decreases, and decreases. And I think in the next couple of years, we're going to have that kind of like some sort of like a flippening. where the stock-to-flow ratio of Bitcoin is going to be lower than that of gold, which is going to be quite something. So we basically will go to, on a stock-to-flow ratio basis, Bitcoin being more scarce than gold. So we already know from a macro structure standpoint,

Bitcoin is less scarce because of the artificial cap, but then also from a stock-to-flow ratio, it will become less scarce as well, which obviously, if you believe in supply-demand economics, should be positive for Bitcoin. Right. Yeah. OK, so before we get into too deep into the Bitcoin rabbit hole, let's talk about scarcity. Right. Because what you're hitting on here is gold is the most scarce asset in the world. Right. Previous to Bitcoin. Sure. Why is scarcity so important to money and to value? Absolutely. I think scarcity is something that a lot of people don't unfortunately don't understand.

But it is very important, especially when it comes to money. So if we just think that if there were to be an infinite amount of U.S. dollars, for example, then they would all be worthless, you know? So for money to function well, it needs to be limited in supply. Some people would say there are infinite dollars and it is worthless, but keep going. Yeah. So as a holder or a merchant who is accepting money in return for your goods or services, you really want to have the guarantees and assurances and the conviction in the fact that this money that you're accepting is scarce, it is limited in its supply, or in other words, it is valuable. because like it's a funny question uh the children always ask hey mommy like why can't everyone have more money right but like if the child's wish were to come true and let's say the amount of money in the bank accounts of every single person in the world were to double uh none of these people

would become wealthier you know none of them would because yes they're the notional amount of money that they have doubled but so did everyone else's you know so it's a relative basis yeah exactly so it's important to understand that money the amount of money doesn't really matter uh it's what's important is the fact that it stays constant you have to know that it is limited in supply nobody can arbitrarily just increase or decrease the supply as they at their whim uh because everyone else needs to know that if i own like one percent of the total mark of the total supply of money then i will own it uh tomorrow or the day after tomorrow because like who knows maybe overnight the amount of supply doubles and then my share has decreased, you know?

Yep. A lot of times I think of there is money and there is wealth, right? Money is the unit of account and what we use in terms of how much money do you have. But when you ask somebody how much wealth do you have, one is what is your current share of the existing money supply? When it comes to fiat currency, it's actually pretty hard to identify that because it's a moving target right that the circulating supply is a moving target it's constantly changing either expanding or contracting but also wealth as a measurement of acceleration right so what i mean by that is if i say to you how much wealth do you have you could describe it to me in terms of if there is two percent increase in the monetary supply every year right but i am gaining

wealth at 200%, right, there is a much different kind of trajectory that you're on versus the inflation. I don't know if that is perfectly, if it works perfectly when it comes to fiat currencies. I definitely think it works when you have a scarce capped asset like Bitcoin, understanding your percentage ownership of the scarce asset becomes very important. Yeah, yeah, for sure. I think it's also, it's important to know that we talk about scarcity here and how it's important for money to function well and be limited in its supply, but that's not really the case in the modern world. And ever since 1971, since the Nixon shock, where basically all the natural limitations on credit expansion has been basically, we got rid of them, for better or worse. for worse well and when we broke off the gold standard it's important for you to remember it was supposed to be temporary oh yeah right when they said we are going to break from the gold standard it was we are temporarily going to break we will come back to it and obviously we never

came back yeah and that basically means that whenever a bank gives out a loan they create new money and thereby increase the money supply and let's say you you own a what just for for the arguments that you own 1% of the total money supply, then a huge amount of loans were given out, and then the total money supply doubled. Now, that 1% that you owned became 0.5%. But you didn't even know about it. You were not the one taking the loans. You have no business with that, but that's the case.

So in today's world, you simply don't have those guarantees that your money is limited in supply, and that has really great implications. So before we get to Bitcoin, I want to stay on this idea of gold and the fiat currency, right? Because there's many people who I think are detractors to Bitcoin or maybe even they're sympathetic to Bitcoin, but they believe that it is a bad argument to make breaking from the gold standard was negative, right? They would say, hey, the use of credit actually built economies. It built a lot of the wealth that the globe has today. what is your response to that or how do you think through the positive and negatives of

of kind of how this has transpired over the last you know 50 plus years yeah so i don't think that inflation is necessary for the running or or the developing of the economy development of the economy i think that uh as i as i already said like the uh the amount of money doesn't really matter what matters is the fact that it doesn't change but the people who argue for inflation They say, like, 2% inflation is necessary to stimulate the demand, to, you know, promote industries, etc., etc. Because their argument is if you know that your currency is being devalued on an annual basis, even if it's just a small amount, you are incentivized to spend it, right? You're either incentivized to take that currency and put it into store of value assets, or you are incentivized to, quote, unquote, stimulate the economy by actually consuming other goods and services. Yeah, but you see, like, what we see in the modern world is that, yes, people are incentivized to consume because clearly their money is worth less tomorrow, so you might as well buy something today.

But because you have such a short amount of time to really decide on what you want to buy, people end up buying things that are really, they shouldn't be buying, like, fast food or just stuff, junk. Materialistic stuff. Yeah, exactly. But let's say their money weren't to depreciate as fast because, let's say, the inflation wasn't as high, then that means that these same people, they would be able to collect some money because they're earning it, they're paid salaries, and now they have some time in order to really think through their investment decisions, their financial decisions, and they can make an investment into a business. they can start something they basically they can make much more prudent decisions with regards to their finances now that they have the time to think about that and this starts this really initiates the process of civilization and progress because now that the people have the time to make smart business decisions and investments this will like the potential that this has to create more jobs and to stimulate the economy is much bigger than just like you going out and buying

some McDonald's or some shoes that you never needed, you know, just because you know that you need to spend it today. Explain the argument for Bitcoin as digital gold, right? So we understand that money is important. Money has always been built on scarcity. The value derived from gold is pretty self-explanatory and well understood at this point. Why Bitcoin as digital gold? Yeah, I think that it's a pretty easy way to think of Bitcoin.

some people say it's kind of reductionist but i think for beginners it's a it's a good way to think of it as digital gold so just like gold bitcoin supply is also limited but even more so as we already said because it is strictly limited 21 million like gold is simply expensive and often unprofitable to mine however bitcoin is literally impossible to mine beyond the 21 million cap which is very important so also gold is physical and clunky and bitcoin is digital and borderless it is very gold is expensive and uncomfortable to transfer bitcoin is digital and you can literally transfer billions worth of bitcoin in under an hour in under an hour with a final settlement which is just incredible and i think that what's important to understand is that one

of the reasons people really stopped using gold was because gold became very uh valuable and it it was impractical in everyday trade. So you would literally need to scrape off dust of gold in order to buy your meal, for example. So instead, they used things like copper or silver, even though they were less scarce. And then we had paper money, which kind of solved this issue because the paper money represented the gold,

and now it could be denominated in any unit. But the problem that that creates is that most of the gold that this paper money represents now sits in some kind of vault, in a centralized vault, that can be easily targeted or basically confiscated or whatever. So it's not decentralized. And part of this usage argument is, I believe this is true, and somebody will correct me if I'm wrong here, but coins, right? The reason why the coins have ridges around the outside of them is because the ridges show you that no one has basically scraped the coin of dust right so if you have a silver coin um you know or a nickel or whatever

it is today those ridges used to be there because uh it was a way to have almost a pre-cut amount of a commodity right of some precious metal but those ridges showed that no one had um screwed around with the amount that was there and so obviously no one's worried about you scraping pennies today right for example um but but i do think that there's a reason why we have a lot of these things um and it's important to have that historical context oh yeah no absolutely so bitcoin also solves this issue of divisibility because we know that bitcoin one bitcoin is equals to 100 million satoshis and i'm pretty sure that in the future we won't be really talking in bitcoins we'll be talking in satoshi terms because bitcoins will most likely be much more valuable and it will

be impractical so um as they say when in a in the future when we are driven in our self-flying cars do you really think that people are going to be carrying around chunks of yellow metal i don't think so you know so well that that's the reason i think a lot of people argue okay gold was uh not possible anymore to use for transactions precious metals became very difficult right And so we entered into a world where there was just better technology available. We get the printing press. We get all these different technological advances. And then the idea was, well, rather than you carry around all this gold that's hard to carry, it's not very divisible, et cetera, why don't I give you pieces of paper that represent the gold?

And that paper is much easier to carry around. It can be highly divisible. We can print it. We have all these things. I think you believe, similar to me, that paper was great until it wasn't backed anymore, right? So the whole idea of going off of the gold standard, we had the technology. We just didn't have the value attached to that technology anymore. Yeah, because banks were incentivized to give out loans in excess of the gold reserves that they had.

So now there's much more of that paper money as opposed to the gold that actually exists. but without the gold standard like it doesn't matter how you don't need to have any gold they can print as much as they want yeah right okay so as we get to bitcoin as the digital gold that there's obviously a number of advantages i think that bitcoin has over gold but i think your message is um that the core value proposition of bitcoin is very similar to gold right hard to produce uh it is scarce right it is quote-unquote sound money um it how do you view the people who say we don't need bitcoin we have gold right like they basically say look i get that there's some advantages but gold is still gold and we don't need to move to a better version of gold because

we have the original well i don't necessarily think that you need to get rid of gold per se as of right now so it's not a binary world yeah of course i mean especially at such an early stage of bitcoin's history clearly it's not it's not like we're going to live in a hyper bitcoinized world tomorrow i think it's all going to take some time and we all need to be patient but i just think that people who cling too much to gold and think that there is nothing no technology can ever replace that and bitcoin can't uh fight that battle i think those people should really reconsider what they believe because we are entering a new age where technology and cryptography and all these innovations are really at the forefront. And I wouldn't bet against Bitcoiners.

I wouldn't either. You use the term hyper-Bitcoinization. Describe what you mean by that because I think people hear that term and they don't actually know what that means. So, hyper-Bitcoinization is basically the idea that in the future, the world is going to converge to using one currency, which will be Bitcoin. The entire world, one global currency, and that happens to be Bitcoin. Yeah, that's the idea. Got it. And you referenced something earlier that if that occurs, Bitcoin, an individual Bitcoin, so one BTC, would become incredibly valuable in dollar terms. And it would be so valuable that for everyday transactions, it would be unreasonable to use something that's worth hundreds of thousands, if not millions of dollars. And therefore, Satoshi, which is the decimal places of Bitcoin.

One hundred million. Yep. Becomes actually more value or becomes important because that is what you're using for everyday transactions. Yeah, absolutely. Got it. Okay. Let's move to Bitcoin supply, right? Because I've heard you talk before about this idea that Bitcoin supply is inelastic to changes in demand. What does that mean? I think that you have to understand that Bitcoin is the first thing whose supply is truly inelastic to changes in demand or in other words, unresponsive to changes in demand. With anything else, including gold, whenever there's a spike in demand, the producers of gold, for example, or any other asset in the world, they are incentivized to come to the market and dig out or mine or provide more of that gold, more than usual, in order to satisfy this newfound demand.

So demand can pull supply, right? It can actually incentivize people to increase the supply because they know if they can find supply, there is demand waiting and prices are higher. Yeah, they can sell it for more and get market back to equilibrium and make that profit. So it's just pure supply-demand economics. Yeah, absolutely. With Bitcoin, however, this is impossible. no matter how much demand increases the supply is still the same it is still predictable we all know how it's going to change and this means that literally the only thing that can change in

response to the increased demand for bitcoin is price and as long as there is demand the price will keep going up and that also means the security will be going up so this is this beautiful uh positive feedback loop is it's just something so when i usually talk to institutional investors these are people who they understand asset classes they're professional investors they understand risk reward they've talked to you know a million managers uh and they've thought a lot about macro uh markets and industries and all this stuff i always have to remind them how supply demand economics work right because it's such a foundational simple concept that we almost overlook it it's too boring right and it's almost like it couldn't be that it's too simple right

exactly and so as a reminder to everyone supply and demand is when there's an increase in demand one of two things can happen which you're describing supply can increase to meet that demand and prices can stabilize or if supply does not increase price increases and that's exactly what's going on with bitcoin and so the reason why that's happening is because there's an artificial cap the supply cannot increase and therefore if the supply cannot increase there's only one thing that can happen and that's price and that's what we've been seeing for the last 10 years yep and so what would your response be to i'm going to play a little bit of devil's advocate right so two things i hear all the time are one bitcoin is not deflationary it's an

inflationary asset because every 10 minutes right or so there's more bitcoin that's being produced Well, technically, it is disinflationary because the inflation rate keeps on decreasing until it becomes zero. Deflationary. And deflationary because coins are going to be lost and the supply is actually decreasing. Yep. So basically, the structure of the system is deflationary. The monetary supply schedule is disinflationary. For the time being, yes.

Got it. And then the other argument I hear all the time is, well, you can just fork Bitcoin and create more supply. That wouldn't be Bitcoin. That would be something else. So describe that, though. Well, I think we would need a whole new episode to really talk about it. I don't know if you had Pierre Rochard. I think he could really articulate this really well and talk about the governance system of Bitcoin and the shelling point that we all converge to to say that Bitcoin is Bitcoin and that is the only Bitcoin that exists.

Everything else is not Bitcoin. They may use the name as a marketing ploy, but it is not Bitcoin. It's not. Got it. Okay. And then as you think about this, so you've made an argument that money is important. Gold has historically served as money, right? And there's been variations of gold or representations of gold, but gold has served as the global reserve currency forever, right?

Or for the last 5,000 years. and now we are seeing the the creation and adoption of a new gold right a new value driver that has very similar criteria and kind of aspects it's just a piece of technology that mimics a lot of those things does it better does it better right gold's pretty big market cap i think it's like seven plus trillion dollars 7.5 okay 7.5 trillion dollars so you're way smarter than me and will educate me throughout this entire thing. And then Bitcoin, though, is sitting somewhere between $150 and $200 billion, depending on the day, right?

Right now. How, as adoption increases for Bitcoin, what do we see with these market caps? I think that this is an indication that we are still super early in Bitcoin's history. And yes, we know that gold market cap is around $7.5 trillion. dollars. But we also have to consider the fact that for the last 50 years, gold has been heavily demonetized. Its price was kept artificially low. So if it wasn't for these reasons, I think that it would be more than $7.5 trillion. And as you said, Bitcoin's market cap is around $150 billion right now. That is at least 15 times smaller. And people have been disincentivized to hold a lot of

their wealth in money or gold or in anything because well they want to hold their wealth in something that stores value well or even increases sometimes so they sometimes they mostly choose like stocks bonds real estate is often or yeah all kinds of things so I believe that Bitcoin it will not only pull out that value from gold those from that 7.5 trillion and more because gold used to was demonetized and bitcoin it doesn't doesn't uh is not a victim to the same um dynamics but also bitcoin is going to take a uh portion of these other markets such as stocks bonds real estate because a lot of people they don't actually need those stocks or that real estate they don't they

don't live in those houses they just literally buy it just so that their value their wealth sits there and it doesn't disappear and if there is bitcoin they don't need any any of that as much you know they can just buy bitcoin and just see it appreciate and so i'm going to start calling this the mojave brother theory right because you and marat are the two people who i think have been the most public about this theory you have done the most work to convince me personally of this theory uh and i actually um i went from a skeptic to uh i am a pretty big believer in this right and this idea of uh today if i get paid let's say i have a job or i'm an average everyday working american or any citizen in the world i get paid in a fiat currency and i sit in my bank

account if i just save and i save and i save and i save and let's say that i save a hundred thousand U.S. dollars, right? It takes me five years, and then I let it sit there for 10 years. The $100,000 is worth less money 15 years after I started than it was when I first started putting money into the account because of inflation. The purchasing power is devaluing, right? Absolutely. What people are doing, and I think what you're saying here is they, rather than just save up in a bank account, they take that money and they buy store of value assets, right? They get out of the currency because of the inflationary nature. So real estate, art, stocks, bonds,

whatever it is. Yeah. But see, that's the problem. These everyday Americans, everyday citizens of the world, they specialize in something. For example, one is a florist, the other one is a dentist. So why would we expect them to be good at picking out stocks or playing in the financial markets? That's not their job. They weren't educated to serve that role. They were educated to do their uh they mastered their skill and they're supposed to be doing that best whatever whatever that they do they're not supposed to be doing all these things they're not supposed to be playing uh these financial games and but in the world that we live in today they have no choice they have they have to do it to protect their wealth yeah right you have to sit at night and

just watch bloomberg and so there's an argument that bitcoin is only gold right it's only a digital gold right so let's say that that is the um that's kind of i'll call that uh level one of the video game right and in level one that would mean that bitcoin could rise para pursue to gold's market cap which is 7.5 trillion and so from 150 billion to 7.5 trillion big markup right so that's the first stop would be gold's parity from market cap perspective the second argument would be bitcoin could replace money right so the global monetary supply that sits somewhere around like let's call it 90 trillion right people will argue different numbers let's just call it 90 trillion So we go from $7.5 trillion up to $90 trillion.

Remember, the denominator, right, never changes because it's $21 million of this equation. So now you're trying to get $90 trillion of value into $21 million of Bitcoin. You can do the math. Big numbers, right? But what you're actually arguing is Bitcoin's potential, right? So the absolute bull case for Bitcoin is not that Bitcoin can simply replace gold or simply replace money. is that Bitcoin is a market-expanding technology or an asset, meaning that the global monetary supply will actually grow larger

because what you're doing is you're stealing market share back from these store-of-value assets. So that same dentist or florist who took their $100 that they got paid and then started to sink it into real estate or stocks or bonds will no longer be incentivized to go do that. Instead, they will just hold it in that store-of-value asset, which is Bitcoin, as the reserve currency, And therefore, they're not necessarily required to make those investments to protect their wealth.

Absolutely. How big can this get? The total addressable market? The total addressable market that you think Bitcoin has the potential to reach. I think that the total addressable market is at least $100 trillion. Okay, so $100 trillion, which is actually lower than your brother. Because your brother, I think when I talk to him, he's going to get a hard time from his brother there. So I'm going to do some math here.

I'm not the best mathematician, but I think the calculator will do this. So if we do $100 trillion divided by 21, you're talking about a $4.7, $4.8 million Bitcoin price, right? So $100 trillion divided by 21 million. Now, we have to account for there's going to be lost, stolen, destroyed Bitcoin. So it would likely be higher just given the value. And when Murad came on, he had basically, I think, the math he had used was $17 million, give or take, Bitcoin. Yeah, I think that's a bit. And I think that his numerator was $160 trillion, right?

And so between $100,000, $160,000, let's say it goes somewhere in there, other than the investing component of this, right? So now the everyday person doesn't have to learn how to be an investor along with their daily specialization. How else would life change, right? What else would change for that everyday person? I think this is what I've been noticing personally, and this is what everyone who is in Bitcoin talks about. It's all about the time preference. And the time preference is basically this idea of your choices that you make with regards to spending money. Is it that you want to spend all your money right now, or do you want to wait and maybe wait for some time and then do a better, wiser investment?

So people who are involved in Bitcoin, they have been talking about the fact that their time preference has been decreasing. So they are no longer wastefully spending money on things that they don't need, be it fast food, be it just like random stuff that everyone is just used to buying because of the consumer society that we live in. So they basically say, and I could attest to that as well, that the amount of money that I waste has become smaller because I have these disincentives to spend my money. Because who knows, you know, like in a couple of years, the same one Bitcoin could be worth much more than it is today. So just like anyone is incentivized to wait as opposed to spend it right now. Why would you do that? So I think a lot of people hear the terminology time preference, right, the deflationary nature, the idea that the incentives change all this stuff. What you described was the microeconomics, right, what changes for you as an individual actor within this system.

You are disincentivized from spending your wealth because the more that you hold, the more valuable it will become over time, right, that low time preference. What does that do to the macro economy? So the whole argument that I think people would make is an inflationary currency stimulates the economy because it causes people or incentivizes them to spend money. When you go to a deflationary monetary structure and you are now incentivized to hoard your money, how do you think about the macroeconomic changes that would occur? So I think this term hoarding, he's a hoarder, has been wrongfully demonized throughout history because people, once again, they don't understand monetary economics and they just want to find a scapegoat. They just want to blame someone for whatever is happening on in their life. You have to understand that the hoarders, the people who sit on their money, who don't spend it, are the reason why your and mine or anyone else's money, for that matter, is valuable. Because people are hoarding money, that is valuable.

anything in the world is valuable because people are willing to hoard it if everyone uh didn't want to actually hold assets and just like spend them all day long and never actually held them then everything they wouldn't be worth anything so you have to be thankful to the people who are the hoarders they're the ones giving value to your money well i laugh all the time about real estate right people say that well they're not making more land right yeah where i grew up that was a very common phrase was that when i make more land and it's because there's scarcity and people want to hold things that are scarce exactly right fiat currency does not fit that model yeah so i think to answer your other question about how this impacts the macro financial uh world

you have to realize that what i just talked about time preference on a personal level this this applies to the whole world as a whole because people and just companies and everyone they will be engaging in more long-term projects as opposed to things that are short-term like interest interest rates won't be as low and random people who want to start reckless projects are not going to given out loans you have you will have to be doing a lot more work and putting a lot more effort into things uh and that's for the best because there won't be all of these like boom and bust cycles, and we won't have all the financial crises that arise due to this extra risk that is taken by these people who can't, they know that they can be bailed out in case

something happens by the central bank, by the Fed, or that is all in the world of Bitcoin, that is all impossible. There's no end or last resort. So one of the arguments that I've heard to make before and I think you're making now that is really interesting to me is the non-financial impact of hyper-Bitcoinization, right? And what you're describing here that you've mentioned already is this idea of a shift from consumption to more minimalistic, you know, kind of preferences in society. So people will not go buy all this nonsense, right? And they'll actually be incentivize to change their spending patterns invest into the future to invest to hold all stuff the other thing that i think a lot about and people get very we will say worked up when

i say this but but i truly believe this is inflation is the greatest driver of income inequality in the world right the two factors that make that true are one again if you are somebody who lives paycheck to paycheck and you get paid in cash you hold your cash in a bank account and it loses wealth so in the u.s it's not that big of an impact it's only two percent inflation in other countries when there's hyperinflation for example you can lose majority of your wealth very quickly if you just simply leave it in cash right so if you are living paycheck to paycheck, then you are obviously going to be susceptible to that inflationary negative impact. The second aspect is something called wage-adjusted inflation contracts, right?

And so the wage-adjusted inflation contract is if you and I are both employees, you get paid $100 an hour, I get paid $100 an hour, but in my wage contract or my job says to me, every year we are going to increase your pay 2% because we are going to negate the impact of inflation. So I get paid $100 this year, next year I get paid $102, the year after that, etc. You, however, do not have a wage-adjusted inflation contract and you are going to get paid your $100 this year, next year, the year after, etc. You psychologically believe you are being paid the same because the number is the same, but because of inflation you're actually getting paid less and less every year because purchasing power is going away.

And so I recently looked at this, and what I saw was if the minimum wage followed the same trajectory of Wall Street compensation over the last, I forget, I think it was like decades, right, whatever the time frame was, the minimum wage would be $33 an hour right now. Well, we are much, much less than that, less than one-third of that today. And it's because hourly workers do not have inflation-adjusted wage contracts, right? And so what I think I'm hearing you say in some of it, and if you add in this inflation as a driver of income inequality, is hyper-Bitcoinization is not just about financial impact. It's also about socioeconomic impact as well and can improve the world in a way that we probably don't have other tools to do. Oh, definitely.

I think that just like we said about the scarcity, if you are paid, I don't know, let's say just for the sake of the argument, one Bitcoin per year or whatever. And this year you have one out of the 21 million Bitcoins. Ten years later or whenever else, you're also going to have one out of 21 million. So that just shifts the whole paradigm. You are not victim to all the things that you were just talking about anymore. Why do people dismiss Bitcoin? like we're sitting here talking we're both you know hyper bulls and we believe that bitcoin is an asset that can that can improve the world and also has a incredible financial upside

right that's our personal beliefs why are there so many people who disagree with us or dismiss bitcoin well first of all i think it's super early most people they don't realize how early we are they think a lot of people say like i don't know i can't be bothered because the the train is gone it's uh i'm not people have gained have made the gains and that's it uh but no like in the in the grand scheme of things we're very early uh that's my belief so a lot so you're saying there's some portion of people which i would agree with this uh that believe it's a financial asset it's already appreciated so much in the last 10 years that basically all the gains are gone oh yeah they're they're very mistaken i think there are a lot more gains to be seen

well that's my belief of course and this is not financial advice of course but these people they are either they they you need to have some creativity to really be an imagination to see how big this might get and i think that it might really happen and on another note i think one of the reasons why a lot of people dismiss bitcoin is because it is very interdisciplinary and when I say that I mean that most people in the world, they specialize in one or maybe two fields at most. Whereas to truly kind of comprehend and like fully appreciate Bitcoin, you need to have a grasp of a large number of different fields and disciplines. This includes a little bit of computer science, a little bit of monetary economics, game theory, governance, psychology,

sociology all these different things and once you literally spend some time reading and understanding how bitcoin applies to all of these different things then you start to get the bigger picture and understand that like how this puzzle is put together and it actually makes sense if you just look at look at it from a computer science point of view or just from the economic side of point of view then none of that is enough you need to put those things together and then you realize that we're onto something really really big and when you look at it from uh the bears right or the people who completely dismiss bitcoin would you say that it is um a lack of time spent understanding it do you think that there's people who have spent the time and they just quote unquote

don't get it do you think it's a generational thing but like what have you seen in terms of the people that you speak with what is the main driver of the dismissal or the reason why they don't understand so i think there are lots of factors at play but i definitely think that the generational uh aspect is definitely there some people like we were talking about gold bucks previously they just lived their all their life in this system and like they don't want they don't even have the time to really adjust to all of this and they don't have the patience and they they would rather live in the world that they're used to rather than adapting to this uh this big change and changes are hard especially mentally for people who are older but

i mean you have to really look up to the younger generations these are the people who are going to be the people who are going to be running the world in the future and these people have grown up playing uh multiplayer games online having virtual currencies they they don't know what gold is. They don't care about gold chains or coins. They care about Fortnite. They care about V-Bucks. And I believe that soon these are going to be the same people who will be caring about Satoshis. Well, and one of the interesting aspects to me is a lot of the world is evolutionary, right? And so if you think about we had gold, we realized there was problems, we created these paper um you know pieces of paper that then were backed by the gold right so they represented the

gold all this stuff and we've continued to kind of evolve over time but if you sit and you think we have a world today where there's seven plus billion people on the earth a about half of them right i think of the numbers have access to the internet they're connected through these in this digital world where um the national borders are less important doesn't mean that They're not important at all, but they're just less important, to have 150-plus currencies for all of those people that are all governed by different individuals and different systems and then have people who speculate on what are going to happen to each one of those 150-plus currencies. The Forex market is like $5 trillion per day, which is huge. It just doesn't make very much sense, right? It's incredibly inefficient.

It's incredibly fragmented. And so if you were to sit there as a technologist or an entrepreneur and say, what is the largest market that you could disrupt with a piece of technology? Money is probably the largest market, right? It is half of every single transaction that we all engage in every day. And so from a market cap standpoint, out of financial assets, money is less than half the size of the real estate market, for example, right? but a piece of technology cannot replace a building right so this physical building we're in we can do things like we can replace the paper that shows who owns the building we can replace uh the air rights right so kind of how we think about the the 3d world but the physical building

will never be digitized because we need the physical building right yeah we can't stand on this floor unless it's physically there money is actually the largest asset that can be completely digitized and can be disrupted and so when you look at it that way i always say to people isn't it more efficient doesn't it make sense psychologically to you to have one single currency that is global that is digital that everyone can use that we no longer have to worry about exchange rates about different speculations etc and the reason why i bring this up is because the response i get is one of three things i don't care you don't know what you're talking about this isn't even important to me leave me alone right kind of the complete dismissal two is people who say

actually that makes a lot of sense right so kind of the two extremes but then there's this group in the middle and they say that makes sense theoretically but governments will never let it happen right the government stands to lose a lot of power the government stands to be hurt by this what is your response to that or how do you think through um kind of bitcoin and hyper bitcoinization in relationship to sovereign money or central bank backed money well i think that this is uh this point would be argued and i don't think that most governments are actually going to lose i mean of course there are different sides to this but i think a lot of countries are going to are have to gain uh have have to gain from bitcoin and from the world where bitcoin is

adopted because that means that they are no longer victim to uh these other countries who use their currencies to uh in in order uh for their own advantage for example some countries clearly have i don't know stronger currencies that they can and they can um have put financial pressure on other countries and that is no or uh they can have sanctions on countries so none of that is possible you can't you can't have these currency wars anymore you can't control other countries by using your currency your stronger currency or whatever everyone is using the bitcoin just like we had with the gold standard and it's a it's a better uh playing field for a How long does this take, right?

So let's say that you are correct in that Bitcoin becomes the global reserve currency. It becomes that core store of value that a majority of the world uses and it gets adopted in the way you think. 10 years, 50 years, 2,000 years? Yeah, it's definitely not going to take, if it is going to, it's not going to take as long as, for example, gold took thousands of years, right? But because we live in the age of information, the speed with which everything evolves is much faster. And I think that anywhere from 30 to 50 years, that is definitely a possibility. But this is not going to happen overnight. But, you know, as they say, it happens slowly and then all of a sudden, you know, you wake up and you're like, oh, wow, really?

Everything is denominated in Satoshis. Who knows? That might happen one day. So if you and I are lucky within our lifetime. I think so. Right. I think you're describing a world that many, many people are hoping and believe will become reality. Before we go, I want to talk about this idea that you have around Bitcoin as a store of time.

It's a sexy phrase. What does it mean? So, yeah, a lot of people talk about how Bitcoin is stored energy. and i think that even a better articulation of this idea is bitcoin as store time because like we know that first of all we need to understand human time is the most we can talk about like scarcity and we can talk about gold and bitcoin all that is great but at the end of the day the scarcest thing is the fundamentally most scarcest thing is time human time we are all allotted 70 80, 90, whatever number of years. And unfortunately, we can't do anything in the face of

this fact. Even the richest people, even the billionaires, even the Steve Jobs of the world, they unfortunately leave us early or whenever, but they can't, even their billions can't buy them more time, right? So you have to realize that time is the most valuable thing you have. so every time you go to work or you work for somebody you basically engage in a voluntary exchange where you give away your very limited in nature the most scarce good which is your time in exchange for money let's say dollars right but wait for a moment did we just come to the conclusion that time is the most fundamentally scarce thing there is so whereas money it is it's not scarce it is expandable you know uh so this realization is really really

it's really important because like this means that you're giving away something that is that cannot possibly be recreated like we can't create more of time for anyone i mean yes you can lead a healthier lifestyle etc get the best doctors but chances are you're not going to live more for more than 20 extra years or 15 extra years or whatever so you're giving away something that is absolutely limited in its nature for something that isn't something that is expandable all the time and it's this is an I think this is not a fair exchange so as we already talked about how you have your hundred thousand dollars that you made over time this is not the same hundred thousand dollars because of the effect

compounds over time you know so in the current world it is impossible to preserve your wealth into the future uh so people are literally forced to work most of their waking life because just as we already said but bitcoin i believe changes this to a large extent because bitcoin it is strictly limited in supply as we said it's disinflationary it's predictable it's eventually deflationary and most importantly just like time it is also limited in supply so So whenever you work for Bitcoin, you're giving up your most scarcest resource, which is time, for something that is similarly scarce, Bitcoin. And I think that this is a much more fair exchange. So I don't know.

Just next time if somebody offers you to pay your salary in Bitcoin, think twice. Think about it. So there's a movie that I highly recommend people go watch. not necessarily because i think it's great acting or because it is um a great movie plot or anything like that but because the message behind it um really resonated with me and it is related to what you're talking about yeah movie is called in time um with justin timberlake and uh i just pulled up here the description of the movie is in a future where time is money and the wealthy can live forever will salas who's justin timberlake is a poor man who rarely has more than a day's

worth of life on his time clock and so in this movie what's really interesting is um basically people walk around and they have a clock that is built a digital clock that's built on their arm and you can watch the time tick down and that time represents the amount of life you have left and so when you go to work what literally happens when you walk out of work they give you more time yeah that's the wallet that's that's the wall it's basically a digital wallet but it's a time wallet and it goes in your arm and the reason why this movie is so interesting is because the wealthy right the wealth is measured in time they live forever yeah like billions of hours they could they're gonna live literally you can't imagine how long they can live because they

have so much time and when they pay each other they can pay themselves i'll give you three more years right and so i you know after i've watched this movie years ago uh and it's always stuck with me this idea that what if we didn't pay each other in money or in some sort of financial asset, but we paid each other in time? You would change what you do, right? If I said to you, hey, come on and do this podcast or do this video and I'll pay you a year, meaning you'll live a year longer, you probably would run over here, right? But if instead I said to you, hey, will you go and do X, right? Do you want to go buy McDonald's and you have to give up a month? Is it worth actually buying that McDonald's for a month of your life?

Yeah. Well, to some degree, that is what you're doing, right? When you buy unhealthy foods, you are giving up part of your health or your life, right? And so I think it's just a really interesting framework that more people should use. And so I highly recommend watching that movie in time. Yeah, and I think before we end, I wanted to – All right. He brought something –

He brought a souvenir, and he went and told me what this is, and he just pulled it out of his backpack. Yeah. What is this? I think because we talk about Bitcoin as time, I think that this will make a lot of sense. And you'll like this. Oh, my God. So basically, this is a clock with a painting. I think this is one of my favorite paintings.

The original is by Salvador Dali. Okay. And it is called The Persistence of Memory. And the original actually has melting clocks right here. But as you can see, this artist has changed the clocks to bitcoins. And I think that they represent the time that we all have that it is limited. And the bitcoin, the similarly limited asset, it's a great representation of that. So first of all, thank you.

This is really, really cool. I know exactly actually where I'm going to hang this. the clock has a piece of art that Masir just described in the background that essentially symbolizes Bitcoin as time

who is the artist? of the original? Salvador Dali, yeah I think it's at MoMA this painting and they've replaced Bitcoin with we should try to get Salvador Dali's photo replaced with the Bitcoin version

so so this is pretty uh pretty cool and then um do you know where uh where we can other people can get this uh we can attach a link yeah okay we'll attach a link uh to uh in the description for uh for other people to get this is awesome um all right so my last question for you before we we get into these rapid fire questions is what is the biggest risk for this not happening right so So this hyper-Bitcoinization that you're describing, this idea that Bitcoin is the soundest money in the world, the scarcest asset, between now and the finish line, right, or that kind of becoming the globally adopted currency or store value, what's the most likely thing that screws us up between now and then? Well, I think the biggest risk is still to date is probably regulatory risk. and I think some people they kind of overemphasize this and think that this is a this is something huge and this will never happen because of regulations and what they can do but I think

that this is probably not likely to happen because this would require literally like all of the countries all the big countries in the world to kind of work together to preclude this from happening and but we know that this is unprecedented you never had all the countries that often exist in the kind of uh competitive environments to come together to fight against some cryptographic technology i i don't i don't think that i i think the prospects are are are are good and promising and we should just continue uh being here well you and i both uh believe that But we are on a journey that is likely to end up exactly how you're envisioning it. It just takes a really, really long time to get there.

I think the thing that is important for people to realize is patience. And I think Bitcoin is a masterful teacher of patience and low time preference. but probably the most interesting aspect to me is this these market cycles or the kind of boom and bust cycles they happen pretty fast right and you know there was a bunch of people yelling and screaming about oh 2018 there was an 85% drawdown in the asset and then literally in the five months you know following it goes up 160% and so we see these kind of really volatile moments up and down um but when you look out over a long time period right you know two five ten years it's up and to the right and it's following the trend that you're describing around scarcity

i always tell people zoom out look at the big picture because everyone is there like all your friends who are who know that you are into bitcoin or uh they come to you like oh are you happy now you must have lost 85% or whatever, right? But, like, I mean, if you have done your research, if you have spent time studying this whole space, you realize that this is only temporary, and we are going to, I believe, see new highs. And you have to really zoom out and look at the fact that

almost every single year for the last 10 years, you have to look at the lows of every single year. And I think for exception of one year, every single year, the lowest price that Bitcoin goes to has been increasing, has been higher. And that is very, very telling. And I think that just dismiss the people who are there. There's always been naysayers and haters. That's just common. I completely agree.

All right. So I end each one with rapid fire set of questions. What do you think the most important company in Bitcoin and crypto is? uh i think there are many i think i would go with cash app that's one of my favorite uh because these guys they are the first i think they're the one of the first uh established financial services businesses that are uh letting their customers seamlessly uh buy bitcoin and they are the number one app on uh the finance app store uh in the finance section and my prediction is that they will be the number one app in the app store uh in the in the next in the next two years

for sure because because the interest for bitcoin yeah because of that got it um what's the one regulation that you would change or improve if you could well i think that the the capital gains taxes for example in the states you have to pay taxes i think if you sell your bitcoins i think that kind of doesn't make much sense in some countries they have said that bitcoin is like a foreign foreign currency they treat it that way so there are there are no these none of these capital taxes, I think that it would be fairer to treat it that way. I think that's one thing. What's your most controversial thought in Bitcoin or crypto? Probably the fact that Bitcoin is not going to be used for day-to-day payments as much

in the foreseeable future, in the short to medium future. But in the long term, it will be. But I for now this uh this aspect of store of value property has to establish itself more and it's that's what we're going to see i think that's fair um what's the most important book you've ever read i'm really excited to hear your answer to this one there's so many um i'll go with two um i read this book called the iconoclast by gregory burns i think i i recommend to everyone uh it really opens the way you see the world iconic class iconic class by gregory burns another book that i would recommend is the book of five rings by miyamoto musashi this is more on the philosophical side but i think it's very very inspiring stuff all

right i'll have to uh i don't know if i'll read the philosophy one but that's actually pretty short is it short yeah it's okay i enjoy reading so if you if you recommend it i'll read it um what uh what do you think about aliens real not yeah i think they do exist however however the chances that they are at a similar point uh in terms of how civilized or how what progress what stage in progress they are in as us is very small so they're either a lot less developed or a lot more developed than us and in the former case they are unable to make contact with us and in the latter case they're laughing at us they're laughing it's not their it's not a priority for them but i think that one thing that should give us hope uh that i think is worthy of their

attention if they are more developed than us is bitcoin if they see that the humankind was able to come up with something like this then they they're definitely interested yeah i i uh i have not had anyone talk about um you know kind of a 3d way of looking at it right so you can say there's a binary do they exist do they not right and then there's the um will we discover them or will they discover us type uh conversation but this idea that they may exist yet we are at different stages of development in kind of the the life cycle humanity versus whatever um that their sentient beings are uh is interesting um and it almost plays into or relates to this idea of like a simulation right where if they are so much more advanced than we are are we the ones

who you know we're playing the video game right versus uh which is uh it's a little scary to think about right if uh if there's a species that is out there that is so much more advanced than we are that uh that they're kind of laughing at us um if that's true it kind of makes you pause for a minute oh yeah for sure what uh what one question do you have for me to uh to end this thing um what is your biggest takeaway from being in the in bitcoin i'm gonna cheat and i'm gonna give two answers uh the first is um how little understanding and education there are around just money right so why is it valuable where did it come from how is it created how is it governed uh what are the positives what are

the negatives you know what could be changed or improved you know all that kind of stuff but also in that bucket i put just personal finance right i mean i see people making ridiculous mistakes, you know, the high degree of consumerism, especially in the United States, you know, all of these things that, again, I think are tangentially related to when you see this new form of money and you get kind of pushed into the rabbit hole by somebody that you know, you begin to spend the time, energy to understand money, why it's valuable, et cetera. So I think that's the first thing is just it's very, very misunderstood.

The second thing is it's really forced me to think hard about automation and software and the reliance that humans will have on this stuff. And what I mean by that is I think most young people believe it is inevitable that we will trust algorithms or software over other humans, right? If I said to you, pick a good song for me versus Spotify, Spotify actually has a better shot at doing it just because it's listened to so many hours and the machine learning is so good, right, that it probably will predict what I want to listen to better than you will, right? same thing with google maps if i say hey give me directions to harlem it's pretty far away right you may know kind of at a high level but turn by turn the machine's going to be better right if i ask you a question you'll have answers some questions siri or google has answers to almost every question right um and so every aspect of our life whether it's fun entertainment value creation right work all stuff we are seeing software and automation become more prevalent

and more trusted money has been immune or insulated from that and so with the creation of bitcoin what i normally tell a lot of institutional investors is sitting here today If I gave you $100 of value and I said place your bets, would you place 100% on the U.S. administration being the best governor of money? Or would you be willing to place a 1% bet, 2%, 5%, 10%, 50%, 99% bet that a software system or an algorithm could do it better? And when you put that framework in place around do I trust the emotion, the bias, the greed, the fear, all of these human kind of aspects that drive our decision-making that we know is fundamentally flawed, do I trust that to govern money or do I trust an algorithm that is immune to all of that? I happen to be very lucky to be born when I was born, where I was born, look the way I am, be educated the way I am, et cetera, to think that I was able to have these questions because I saw the global financial crisis. I understood what was happening. I wasn't personally affected

very much because I didn't have a lot of assets to put at risk. But it led me to believe that maybe these people aren't the best to do this stuff. And so I'm still young enough to see the new technology see software trust algorithms do all this stuff where you get this kind of intersection of i don't trust the humans and i trust the algorithms and i understand there's problems with the financial system and this system looks better right and so it's the the kind of intersection of all these different aspects that lead me to a very simple framework would you put 100 of your wealth right would you put 100 on humans zero percent on software i'm not saying you have to be 100 on software zero percent on humans but you probably shouldn't be binary in

either direction you should get over here right get off zero and so that was that literally was the the kind of driver of that idea was just get off zero exposure even if it is literally 10 basis points we're talking about such a small amount right the second that you do it because it is volatile because you have assets at risk you pay attention and you get comfortable and you gain confidence right and you begin to build trust and then you get educated points yeah and that 10 basis points becomes 50 then 100 right then a thousand right and just continues to grow from there and so i think that that is um you know kind of the big takeaways are people don't understand money and two we're not talking about um anything more than do you want human governed money or do

you want software governed money and to me there is a very strong argument and I actually think a higher probability of success for software-based money than human-based money and so it'll be interesting to see this all play out but I think we're just incredibly lucky to be in the places that we're at and to kind of I think we just know a secret right absolutely I think that we're all early and this is going to be a long journey and from time to time it may be bumpy but I think in the in the in the big picture this is this is an absolutely fascinating time to be alive absolutely so listen uh you're welcome anytime you want i've got a new clock that i'm going to to hang up here and remind myself to stop trading my time for uh for nonsense

but i really appreciate you coming to do this early in the morning and we'll stay on for a few minutes to answer some questions for the live stream but uh thank you so much and we'll do it again soon thank you for inviting me it was a pleasure hey everyone pop here if you like this episode of off the chain and want to help us take crypto to the top of the apple spotify and other podcast charts please do us a favor and rate review and subscribe to review simply go to the off the chain homepage scroll down until you see the five blank stars taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts i appreciate you listening and see you next time on off the chain

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