The Pomp Podcast - Murad Mahmudov: The Ultimate Bitcoin Argument

Episode Date: October 31, 2018

Murad Mahmudov is one of the highest conviction Bitcoin Maximalists in the world. In this conversation, Murad and Anthony Pompliano discuss what Bitcoin is, how it works, the importance of its deflationary monetary system, why all Fiat Currencies are doomed to fail, and how central banks and institutions should be thinking about Bitcoin.

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. Murad Mahmood is one of the highest conviction Bitcoin maximalists in the world. In this episode, we discuss what Bitcoin is, how it works, the importance of its deflationary monetary system, why all fiat currencies are doomed to fail, and how central banks and institutions should be thinking about Bitcoin. This is my favorite conversation we've ever recorded. I learned a lot and I hope you find it half as valuable as I did. This podcast is presented by BlockWorks Group, the only blockchain event and media production

company I trust. If you're an investor, lawyer, accountant, or entrepreneur and want to attend exclusive events and dinners, visit them at blockworksgroup.io. I promise you won't be disappointed. 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. Before we get into this episode, I want to give a quick shout out to one of our

sponsors. Saluna is a blockchain computing company powered by its own renewable energy. The team is planning to build a 900 megawatt facility on top of a 37,000 acre location, one of the best wind sites in the world in Southern Morocco. You'll hear more from them later in this episode, but I'd love if you could go check out their website. You can find them at saluna.io. All right, guys, I am here with Murad. We are going to do our best to create a podcast episode that becomes the de facto episode you can send to people when they ask, what is Bitcoin and why is it important? So Murad, a tall task in front of us, but thank you for coming. Thank you for having me, Anthony. Pleasure to be here.

Absolutely. All right. So before we get into this, let's go through your background And then we kind of jump into everything Sure, so I'm originally from Azerbaijan Was until recently an international student here in America Got into Bitcoin quite heavily after spending a semester abroad in China during the previous bubble in late 2013 early 2014 a lot of the exchanges back there as you may know still didn't have sort of tremendous liquidity yet and and some of my foreign friends were sort of trading bitcoin p2p uh sort of bringing it into

china selling it etc um so attended a bunch of beijing meetups and sort of been in the rabbit hole since um and um made a small pause as many of us have in like up to 2015 and then as 2016 year old then sort of got back into the this game uh briefly worked in finance um and then sort of now doing several different crypto things full-time absolutely um okay and so let's just start with the simplest question right what is bitcoin this is a very good question and a bitcoin is something that can be described with more than a hundred different definitions and a lot of people debate what they are but to me personally bitcoin first and foremost is a new form of money and it's a new form of thinking about money, storing money, transferring money, and just dealing,

organizing and understanding money and sort of all kinds of sort of second order financial effects that come out of that. Absolutely. So let's walk through some of the core components of Bitcoin, right? It's obviously it's built on a blockchain and then it is divisible. It's fungible. It's, you know, all these things. What are the important components to you? so blockchain is definitely one of the components a lot of people think that that's the core one but really that's one out of four or five core moving pieces i don't want to give the term blockchain too much legitimacy right now because it's really been over abused i would say and up to this point it has become little other than a marketing term at this point

I mean, I'm not as fascinated with blockchain as I am fascinated with the Bitcoin blockchain. But as I've said, there are many moving parts. Another is sort of the proof of work function of Bitcoin. And how the timestamping and the security come into play in this regard. Bitcoin's governance in particular is very, very unique and very, very complex and sort of hard to understand, hard to explain. But I just want to underline the fact that it's not just a currency on a blockchain. It's really sort of very, very interdisciplinary and multivariable phenomena where a lot of different things come into play and blockchain is merely one out of

several. Absolutely. So let's go into proof of work, right? How does that work, right? And why is it important proof of work is very important because it is the first workable in my opinion solution to the double spending problem at scale as we know a lot of different alternative currencies and alternative money forms were created in the 90s in the early zeros unfortunately though they didn't work quite well because most of them were centralized, more often than not, of course. And when something is centralized, it is very easy to shut down. A privilege of creating and controlling your own money, let alone a monopoly on it, is something that gives sort of the

controllers of that system a tremendous amount of power, arguably more than anything else in the world. With Bitcoin, proof of work, once again, coupled with several other things, allows the system to be secure and decentralized at scale, as well as allows us to timestamp transactions on the ledger in a sort of decentralized, trustless, or rather trust minimized manner which allows bitcoin for the first time to be a an alternative monetary system and an alternative currency which is several orders of magnitude much harder to shut down to censor to stop and to manipulate than any other project of a similar variety that has ever arrived in the past. Absolutely. And so this idea of the decentralization, right, in a centralized

world, whether it's the traditional banking system or other attempts like DigiCash, HashCash, Bmoney, et cetera, the centralized versions don't have the double spend problem, right? So the double spend problem is this idea, if I have a single US dollar, a physical dollar, and I give it to you, I no longer have a dollar that I can give to anyone else, right? So I only can spend that dollar one time. In a digital currency, the actual unit of value is a digital file, right? And it could be copied. And so therefore, the problem that many of these early attempts to build a digital currency ran into the double spend problem you described. And that was where I give you one unit of value, one Bitcoin, and then I would be able to send that exact same

unit of value to somebody else, therefore spending it twice, double spending it, right? Right. The blockchain, right, structure is what solved this. And so do you think that the solving of that double spend problem is why Bitcoin has been able to thrive when other previous attempts didn't? Or do you think it's something else? So technically, centralized currencies and centralized financial systems have a double spend problem as well. However, in order to solve it, you need to, we need to place our trust in a central party, in a centralized authority who sort of often control the transactions, they control the settlement, they control

the issuance of the currency, they control many different things, right? Satoshi in one of his earliest sort of posts on the cypher, cypherpunk email list, he noted that the traditional currencies have several sort of layers of trust that you have to sort of essentially give into in order to use the system you need to trust the central banks not to dilute the currency too much you need to trust commercial banks that they're going to let your transactions through etc etc etc right and um the the amazing thing with bitcoin is that uh now in a very very unique way um satoshi nakamoto has managed um in a very elegant way sort of combined several innovations together one of which is proof of work hash cash uh together with sort of a chain of blocks as well

as several other things that we can get into uh to create a uh digital currency where a the double spending problem is solved in a trustless manner and in which sort of the this allows as um nick Zabo says for the system to be much more socially scalable than anything else we've had before. And a lot of sort of anthropologists have argued that sort of expanding social scalability with various technologies that allow us to sort of connect with as many people as possible in a way where we don't have to sort of rely on any single party. With more and more inventions of this sort, we can really sort of expand the horizons of commerce and the human civilization at large.

Absolutely. And so, you know, those previous attempts at this all either had a lack of adoption or they had technical problems, right? There was issues that they couldn't solve. One of the things that often doesn't get talked about with Bitcoin is the governance, right? So everyone is focused on the technology itself

and kind of how that is executed. what is so special about the governance of this digital currency so governance of bitcoin is not formally defined and i would argue that in a way it is a strength rather than a weakness technically the governance has to do a lot sort of with the bitcoin improvement processes and how those get proposed and how those get reviewed how those get added in etc it's a very conservative uh extremely meticulous process uh which i consider a strength a lot of people consider that or a lot of people complain that bitcoin is not evolving or bitcoin is too slow and to me those people are sort of exhibiting high time preference and impatience uh i think the altcoin boom and the

the ico boom a lot of the blockchain boom as well has sort of has its origins in part because of of this. True Bitcoiners understand that this isn't a six year get rich quick scheme, but it can be an 80 year project. And it's something that perhaps will continue going on until the end of our lives. And so every changes to the system need to be extremely, extremely careful. I like to compare it to like a nuclear reactor or a heart surgery or like a moon mission because um there's a lot at stake uh a hundred billion more than 100 billion dollars already and uh potentially trillion tens of trillions of dollars someday right and so uh this because it is software it it lends itself to flexibility uh this malleability has allowed us to

create a money that is harder and sounder than gold and and fiat of course but at the same time This malleability also makes it fragile in a number of other ways. And sort of because of this, and precisely because it is software, we need to be extremely careful. But the governance process of Bitcoin is what Pierre Rochard calls a P2P, anarchic network governance. And the fact that it is slow to change is something that really makes Bitcoin far, far stronger than everything else. And the number one reason, and I can give dozens of reasons, but the number one reason why altcoins are far, far behind Bitcoin is precisely because they are much more centralized in relative terms and everything about it is much easier to change. And currencies, first and foremost, are all about trust. As I like to repeatedly say, these crypto assets are unlike many people sort of in the VC world, San Francisco, California.

They think of these things as software platforms. They try to apply the late zeros, early tens sort of tech paradigms to this thing. But really, to me, it's a monetary phenomenon. In very loose terms, I like to describe these things as digital monetary metals. To me, that's sort of arguably the closest metaphor for now. I like to even say that Bitcoin being compared to digital gold is an understatement. And really what it is, is digital monetary nuclear weapons. Because if you really dig into the third and the fourth order's game theoretic effects

that are likely to arise when this thing gets just a little bit bigger, which to me, it inevitably will. There is just so much that it is going to cause and reorganize in this world. Absolutely. And so, you know, one thing that I think about a lot is if you were to draw a spectrum and on the left side, you have the slow development cycles and kind of carefulness of Bitcoin. And on the right side, you have optimization for innovation, right? And I think that Bitcoin obviously is pretty far on the left side of that spectrum. And a lot of the ICOs and altcoins, et cetera, are pretty far on the right side, right? They want to quickly build something. They want to get it out. They're trying and experimenting and innovating and doing all

these things. And so what ends up happening is because Bitcoin's speed of development is slower, more methodical um kind of more intentional it can pull from the things that work on the innovative end and it can avoid the landmines of the things that don't work right do you agree with that i agree with that and i would even add that sort of the um a lot of people who've started altcoins or sort of gotten into that wave in the last couple of years come from the technology world or the startup world venture world and um sort of one of the schools of thought i.e move fast and break things, it completely does not work for cryptocurrencies. Because once again, this is not like a dog walking app or a dating app or like a food picture app, right?

And you need to be extremely, extremely careful with this. And we want to make it so that a huge chunk of the world financial system eventually gets absorbed into this one digital currency. And so conservatism is definitely the way to go here. Some people would even argue that we need to even be more careful and review in an even slower fashion. But I definitely agree with you that Bitcoin can definitely take whatever. If there's ever something that is actually useful and truly innovative that any altcoin does better in any capacity or function, a Bitcoin can eventually adopt that for sure. However, and this is why I believe that sort of privacy coins or coins with more programmability, et cetera, et cetera, they really don't stand a lot of they don't really stand a chance against Bitcoin at this point in time, because I believe people will soon realize the truth.

and the truth is that the value and aka the price is determined by the monetary premia and the monetary premia is determined by a combination of the current monetary network effects monetary liquidity saleability marketability recognizability the lindy effect and most first and foremost the credibility of the monetary policy and just the general trust and in in all of these terms in all of these criteria, Bitcoin is so far ahead than everything else that the way I see it, yes, there may be two or three more sort of mini altcoin bubbles, particularly as more people sort of enter into the space. There's a natural sort of incentive to sort of find the next big thing, of course. But I believe that once Bitcoin goes above several trillion dollars or so,

a big divergence will happen. And really all the other cryptocurrencies will be similar to what penny stocks are to the big caps in the equity world right now. Got it. And so would it be fair to say that if you take that same spectrum on the left side, you've got security and on the right side you have low levels of security. Bitcoin conservatism pushes it on the extreme end of the left side around security right and do you think that these other blockchains tokens etc are lacking focus on security or do you think they're making a rational trade-off between security and let's call it innovation or something like that i think it's a rational trade-off and the reason for that is because if you even want to compete in bitcoin in any capacity then you

it's really difficult to compete against it in terms of sort of monetary disinflation which really is the most important thing here well so what you're saying is if somebody wants to compete against bitcoin right another project you can't beat it on security today right because of the network effect and then you can't beat it on the monetary policy and therefore you have to go to other areas in which you may be able to build a competitive advantage that is most of the thinking in in sort of altcoin creators heads and i believe that it might it has worked a little bit not not really. It might even work a little bit in the upcoming waves, but it is doomed to fail eventually. It's like winning the second or third most important aspect, right? It's like saying,

look, the most important thing around security. It's like sixth or seventh, I would say, right? Yep. Yeah. It's super interesting. Okay. So let's talk about the design of Bitcoin, right? So obviously there's proof of work, there's governance, et cetera, but the actual monetary design. Walk us through kind of the disinflationary and deflationary nature of the actual design. So before I delve into that, I will say, and I think this is something that people will increasingly realize in the coming years, uncensorability is cool, unseizability is cool as well. But to me, these really are perks. In terms of the price going up and this thing taking over the world if we create a pie chart the 90 percent a i.e the dominant force which will be

doing that is bitcoin's monetary policy and really it's unprintability the fact that nobody can print beyond 21 million that is by far the strongest and the most important innovation really here okay so the monetary policy of this system is by far the most important part precisely and people need to use something as money yep um right now some of the better currencies are the u.s dollar euro the swiss franc etc but really um people use those because essentially they're peaking they're they're picking the least bad thing um i believe the supply of the u.s dollar the last year has increased by 6.2%. Bitcoin's stock to flow ratio today is around 3.8%. And after the next halving, if you go off of the 21 million number, it's going to be 1.7%. And

actually, I believe that that switch from sort of low 3% to high 1% is going to be the number one sort of driver of the next big wave in the point in 2020 but um to answer your question more directly unlike other currencies which uh their um respective central banks uh in the case of fiat can print essentially whenever they want and uh as well as their sort of respective local commercial banks can create more of when uh issuing that bitcoin is limited to strictly 21 million units um some of them it is believed that that several million have already been lost i believe that when all is said and done um the global supply of bitcoin is going to be somewhere between 16 and 17 million um the fact that nobody can print beyond the 21 million limit and the fact

that the users the miners and essentially the everybody in the developers everybody who has as little as one satoshi of bitcoin they are incentivized in um having that rule be the number one and the most important sort of rule and the number one focal point the number one shelling point which the community is gathered around and really this is the number one thing which allows bitcoin to continuously increase in value and people are already pricing in its extreme scarcity I like to say we've never had an object, let alone a money as scarce as Bitcoin before. Even gold is expanding at a rate of around 1.6 percent per year over the last 10 years. Now, I believe that after by the late 2020s, that number for Bitcoin is going to be lower than 1 percent.

And it is every year is getting lower and lower. So technically, that number is getting lower every 10 minutes. And as you might know, every four years, there's a particularly additional sharp drop as well. And so I believe that that soundness, that hardness of currency isn't palpably felt by people yet. And even a lot of participants in the market, a lot of sort of traders and investors, they don't really quite grasp this aspect yet. But I believe that this is the revolutionary thing here. And this is why I believe Bitcoin is going to be in the hundreds of trillions in today's terms in the future. So there's a couple of key terminology and components that you just described.

So there's the total supply of Bitcoin. So when it's all said and done, 21 million Bitcoin. And we can get into why that is and if that could change or not later. but for right now, let's just say there's 21 million total supply of Bitcoin. At the same time, there's the circulating supply. So how many Bitcoins have been produced and are currently available for ownership, you know, by people or organizations. And then what we see is every 10 minutes, every block, there are more Bitcoin that are added to the circulating supply, but that 21 million fixed supply never, never changes. And so what occurs is the disinflationary, right? So

yes, the circulating supply continues to expand until it reaches that 21 million. But that number goes down every four years or so, right, in terms of how many bitcoins every 10 minutes are added to the supply. And so that's a disinflationary model. What you described is once all 21 million Bitcoin have been mined, or now part of the quote, unquote, circulating supply, we now get into a deflationary model, right? And so it's no longer disinflationary, because actually, there's no more being added. And now we can only go reverse, we can only lose Bitcoin in the circulating supply, right? And so let's talk about the pros and cons of an inflationary system, and the pros and cons of that deflationary system, right? Because I don't think I think

people hear these terms, but they don't really know what they mean or why there's pros and cons either side. We're taught in a lot of schools and sort of the contemporary mainstream neo-Keynesian economists argue that mild inflation is best. To me, I think that sort of governments around the world, particularly in the Western world, are incentivized for that kind of academic discourse to be the dominant one in even in the best institutions and in my research i found that there's a lot of sort of academic grants and academic sponsorships financing that central banks and ministries of finance ministries of economics etc that allocate to certain schools of monetary thought than others but i believe that sort of those currencies are

local monopolies and those currencies are forced upon us from top down. Bitcoin is a free market phenomenon. I would argue that Bitcoin is an experiment in Austrian economics that so far in its 10 years of existence is succeeding massively. My belief is that money is a product just like anything else. And I think we will not have truly pure capitalism and truly pure free markets until money which is a product that we utilize which is a product which is a half of every single transaction in our society is um something that is originates from the free market as well uh i believe that money is ultimately a product of the market rather than a product of the state and i think the last 47 years in history have sort of um are a temporary phenomena

For thousands of years, gold was the predominant money or gold and silver were the predominant two currencies around the world until sort of the paper notes became more widespread as a technology. You can think of paper notes as a layer two technology on top of monetary metals. And at that point, once you had paper notes, which sort of were redeemable for metals, there was no longer the divisibility problem of gold was solved. So the need for silver was drastically reduced and thus silver was demonetized further. It's very interesting to look at the gold silver sort of price ratio.

And after 1881, you see sort of a gold skyrocket in silver terms. I believe that something similar will happen with Bitcoin versus all other monetary instruments and even other financial assets, which is really, which is really quite eerie. I think that when all is said and done, Bitcoin will be the second or the third single biggest asset class, the single biggest asset in the world. Maybe real estate will be the only one bigger. And sort of this is my reasoning around this. Right now, it is believed that the total money supply of all fiat currencies around the world is somewhere around $80 trillion.

If you consider M1, M2, M3, if you add them all up around the world. And I strongly believe that that number is artificially diluted and artificially kept small. because essentially by continuously printing, governments are disincentivizing the world and disincentivizing investors and even average people to store too much money in currencies. And they're doing this because if I take $100 and I put it in my bank account, as they print money, that $100 loses purchasing power every single year. For sure. I mean, every single day where the money creation occurs, um see it's interesting because the cost of creating that money for the government

uh is near zero it all it takes is just a push of a button right um but essentially every single unit of fiat currency that gets created reduces the wealth of uh the fiat holder around the world and bitcoin is an unimaginably new phenomena where for the first time uh nobody can seize your wealth not just directly like they did with gold in the 30s but just like they do with stealth inflation in fiat nobody can print more and for the first time you have this currency that you can have full or at least very strong confidence that for the rest of your life the percentage of the money supply of this entire system will always remain the same which really is completely unprecedented because even with gold you don't have that um and so here's the thing uh the total

amount of wealth that is stored in currencies is artificially small uh people essentially the system doesn't want us and doesn't want people to have a good robust unseizable store of value because if that were to exist then governments and central banks would lose a tremendous amount of sort of seniorage privileges because every time they print they they essentially enrich themselves at the expense of everyone else a little bit right and so this current system because the money is constantly getting diluted people like surgeons artisans dentists etc engineers they either have to play part-time investors on the side or they have to sort of outsource those services to register investment advisors and brokers etc and that's part of the reason why

the financial system is much bigger than it has to be and why wall street is is just a ginormous part of of of the world's economy um if we had something like gold or better yet bitcoin then you could save your wealth and it would actually gain a little bit of purchasing power every year without having to sort of have this anxiety riddled wave of activities that you need to do and it's it's actually quite crazy how in today i'm not even talking about the second or third world where this isn't even an option even in the first developed civilized western world um you have to create a diversified portfolio of equities bonds small caps moonies commodities fx derivatives sometimes etc just to preserve your wealth i'm not even talking about making some

tremendous outsized returns i'm talking about just to save your wealth and this is crazy and like in biblical times there there's a there's a famous jewish proverb which says keep a third of your wealth in money, which was gold, keep a third of your wealth in land and keep a third of your wealth in your business. And even as recently as in the 50s and 60s, you could notice that in portfolio allocations, some of sort of the traditional mutual funds and the early big asset allocators, they had a much bigger allocation to cash when sort of the trust in currency was much greater. And you saw that reduced as years went by. And in recent decades with quantitative easing, essentially the trust in currencies gets incrementally reduced.

But I believe that if Bitcoin were to become global money, which I believe it will or something like it definitely will, because Gini is out of the bottle and sort of the idea is here to stay forever. The percentage of of of people's average portfolio that will be in cash as opposed to today will be much greater, perhaps not a third, but it will be much higher than it is today and much closer to a third than it is today. And precisely because of that, I believe that the total wealth in the world

that is held in a currency, and note, this one currency will not be inhibited by inflation, it will not be inhibited by borders, it will not be inhibited by centralized control. All these things will contribute to it being the single biggest currency in the world. And I think that eventually, I increasingly believe that the cryptocurrency market, even soon, not just in the future long term equilibrium, it will be a winner take all rather than a winner take most game. And I believe that Bitcoin as it currently stands, will probably take 94 to 95% of this entire market. So there's a lot here to unpack. And I think it's really important, right? What you're describing is the idea, an inflationary model, like what we have with the US dollar,

for example, incentivizes me to get out of cash, right? And get into either hard assets, or to spend that capital, because if I hold it, it loses value, right? And so that inflationary model, for many people, they spend, or they take that cash and they buy real estate, or they buy other investment opportunities, because they know that they have to at least do better than 2%, right on the on their yield for the year, because if they leave it in cash, they're going to lose 2%, right, give or take, based on inflation. And so the argument that you're making here is, let's take, I don't know, 5, 10, 20, 30% of the real estate market is actually wealth preservation, right? And if people were given the choice, rather than buy real estate, they would rather

take that exact same value and hold it in the cash equivalent, right? They don't do it because today that loses money. But if there was a global digital deflationary currency, the real estate total market cap would shrink because people would move from real estate back into that global currency. And this would not only happen in real estate, but in a number of kind of store of value type asset classes where people today find safety to get out of cash and preserve wealth but that may not be true in the future precisely um and i think that this really the market for the global total addressable market for monetary uh instruments is a zero-sum game for bitcoin to win other things have to lose um it's other currencies or other asset classes so currencies both both and that

is part of the reason why I believe that Bitcoin the single currency will be bigger than in sort of in in their quote-unquote market cap or in the amount of wealth that is stored inside it will be greater than not just any but all of current fiat currencies and monetary metals added together because I believe that Bitcoin is such a good store of value that it will take more than 95% of the current market cap of fiat currencies. It will take more than 75% of the current market cap of monetary metals. And then, and this is sort of the interesting part, I think because the current fiat currencies are inflationary, a lot of high net worth individuals and asset managers around the world use the stock market, use the fixed income markets,

use the real estate markets as a store of value. That is part of the reason why if you try to buy an apartment in Tokyo, London or New York, the prices are insane. And this is because both American high net worth individuals and foreign high net worth individuals use these sort of prime city luxury apartments as one of their stores of value. And I believe that sort of because the the fiat currencies are constantly diluted at the same time, this has caused an artificial sort of increase

in the value of other asset classes and other financial instruments. As people are hunting for yield, the aggressive sort of quantitative easing and the aggressive sort of unorthodox negative interest rate monetary policies of some central banks since the financial crisis have exacerbated this effect even further. And if you look at the inequality and the Gini coefficient, it has increased sharply since 2008 in the last 10 years, even more. uh one of the reasons for that out of several i mean of course it's a very multivariate topic but one of the reasons is because the working class and the lower classes they mostly um store their wealth in cash most of them live pay to paycheck and whatever savings they have they do keep it in cash just for simplicity's sake um now the asset owners are those who own

real estate stocks bonds etc and a lot of the wealth has flown there and a lot of people although essentially the people who have benefited the most from this grand wealth effect experiment are people who are holding these assets. And much of the time, it is the central banks themselves who are indiscriminate and price insensitive buyers of these financial instruments. Well, so this is important because there is a thought process

that inflation is merely the act of stealing wealth from the poor and enriching the elite and wealthy, right? And so what that means is if you live paycheck to paycheck and you leave a high percentage of your net worth in cash, then every year you're losing value, right? You're losing purchasing power. But if you actually have other assets, and a lot of them, inflation continues to drive the price of those assets up. And therefore, those that own non cash assets, actually benefit drastically from inflation, and are incentivized to keep the party going. Right. And so if you switch to a deflationary model, actually, the people with the preference to have a high percentage of their net worth in the currency will benefit drastically. And those in non cash assets will actually not benefit in this scenario.

for sure and i i like to describe bitcoin and sort of this entire sort of phenomena as a grand wealth transfer event and i believe that it will be arguably the single biggest wealth transfer event in human history uh it will be a wealth transfer from the old to the young from the tech savvy to sort of the more conservative from the open-minded to sort of the more closed-minded and of course from the people who will be holding these crypto assets and most of all bitcoin um and the losing side in this case would be people holding fiat currencies gold etc absolutely so let's say that everything you've described is true right and this and you just laid out the blueprint for how this is going to play out over the next decade two three four

decades right how big is the opportunity right what is the market cap of bitcoin 10 or 20 years from now so so like before before i answer that question i'll say that as bitcoin let's say in six to eight years from now as it it's a bit bigger or much more volume much more lindy effect much more trust much more credibility etc much more mainstream people will simply compare two things and uh bitcoin will be in a free market battle against fiat currencies and gold simultaneously And even other things when you just isolate the store of value component, as we have discussed. People will simply say, okay, this thing is expanding at 6% per year in its supply. And this thing is expanding at 1% per year in its supply.

Which one should I pick as a store of value? And that's why, to me, sort of this feedback loop is inevitable. It will be so difficult to stop. The math becomes undeniable. It is really, if you sort of extrapolate this phenomena and extrapolate this sort of wave of financial change, Bitcoin will be a black hole that will absorb a tremendous amount of value. I believe the total addressable market is somewhere between 100 and 200 trillion. I like to say it will be 160 trillion. so if bitcoin and that is if we go off of the 10 million dollars per bitcoin price in today's terms

without even counting the sort of the inevitable hyperinflation of fiat currencies and so this is my reasoning um so so you think that a single bitcoin will be worth 10 million dollars in today's money yes i do um and which would give us a market cap of what like 160 trillion right now the current market cap of bitcoin is 110 billion i believe when this bear market is done give or take will bottom some around 80 billion and so um that's a 2000x that is still possible between right now and what is probably our death and i think like that is there's still a tremendous opportunity here and i think high net worth individuals a more sort of edgy open-minded tech-savvy institutions, and eventually government institutions will push this to the extreme.

These are big numbers you're talking, and you realize that very few people in the world believe what you believe right now. I realize that. But if you spend sort of months and months studying this, it sort of becomes a self-fulfilling prophecy to you. I'm very confident Bitcoin will be bigger than the U.S. dollar and potentially even bigger than all of them combined. Because there's an interesting table that Vijay Boyapati has made. And he says that cryptocurrencies, or Bitcoin in particular, are harder to tax, harder to seize, easier to transfer, easier, sort of harder to steal, easier to sort of cheaper, easier, faster to send around the world. They are borderless. They are sort of uber competitive. They're highly deflationary.

And there's like there's dozens and dozens of reasons. And all of these combined, I believe, will make Bitcoin incredibly big, similar to what the gold standard was in the late 19th century. But given the fact that the economy is much bigger today and given the fact that it is digital and sort of much more fluid, I believe it will be far, far greater than even that. And yeah, that's my these are my thoughts. absolutely so let's talk about this idea of hyperinflation and the fiat currency experience our experiment right so 1971 um was it richard nixon right takes us off the gold standard the gold standard being the thought process that for every paper currency every u.s dollar you could go and redeem the equivalent in gold right it was being held in the central banks at the time what a lot of people don't realize is richard dixon said we're going to go back to

the gold standard it was a temporary decision right or at least that's how they was presented and so we obviously didn't and since 1971 what we have seen across the world at different times in different locations is fiat currencies start to fail right and these fiat currencies where they appear to be failing most is in regions or countries where a government or the overseeing organization loses discipline, right? And the thought process is in the developing world, we have much more discipline, right? There's checks and balances and the Fed can't press the print button too much, right? Because there's those checks and balances. But in let's say a country where a dictator comes into power, there's less checks and balances, there's a higher

probability that they will lose discipline that you can hit in the print button too much. And you get into hyperinflation, devaluing of the currency. And we know how that ends, right? Let's talk about that hyperinflation period. Why are we seeing this in the countries we're seeing it today, right? And do you think that this is going to happen to every fiat currency in the world? Why or why not? I believe it's a combination of incompetence as well as outright grasping for power. And I do believe that this will eventually happen to all fiat currencies around the world. But it will happen sort of stage by stage.

Of course, the second and the third world currencies will be the first to collapse. And sort of the more established euro and dollar, the leak from sort of the financial leak from there towards Bitcoin will be a bit more gradual. it will be more like an S-curve and then it will reach a point where the money will just like rapidly flow rapidly flow into Bitcoin because people will as I've described

people will simply realize that this money is harder than the other one the other money there's people behind it and these people can do whatever they want however this is governed by such a strong unbreakable algorithm and the community of people

sort of strengthening it that I believe sort of the credibility and the faith and the trust in Bitcoin relative to fiat currencies will keep growing. And as I've said in the beginning, currencies and sort of the cognitive monetary premium that's placed atop them is first and foremost is about trust and it's about credibility. The Swiss franc, for example, people like it because the Swiss don't print too much. They have sort of 300 years of credibility.

They have temperance. They have discipline, as you've described. A lot of sort of, and it's important, Saif Dinamoos in his work, he often says that hyperinflation has never occurred with metals because there are natural limits to creation and there are natural sort of free market balances there. But in 99% of cases, it has occurred with fiat currencies

because they are at the behest of humans. And Georg Gutter-Hulsman, who is arguably the most prominent Austrian economist today in the world, he says that sort of this money supply inflation has traditionally been the means of financing war but um as of late it has become it's not just used in in wartime it's been being used perpetually and i like to say that so this inflation it essentially shifts some activity from long-term projects and long-term capital goods production to more sort of short-term consumption

I'm a believer that it is not the consumption that really drives the sustainable long-term growth of the economy, the kind that actually increases our quality of life, but rather us engaging in long-term projects, long-term capital goods production, long-term production of tools, instruments, research, innovation, and things like that. And really, the best things that have ever been created, they were 10, 20, 30-year efforts rather than sort of us going and buying something useless, right? And so I believe that if we have a currency that's more deflationary, well, people will be incentivized instead of going out there

and, as you've described, investing in something else or even buying like a pack of crisps or just new shoes or really something that's really useless right now. Instead, people will be, just due to the deflationary nature of it, it will be seen and felt as more precious. People will be more incentivized to A, save, and B, invest in long-term projects and long-term sort of craft. Absolutely. And so I think with this hyperinflation, what we're seeing for maybe the first time or one of the first times, humans have a choice. Do I trust the machines, the software

code, the math, right? And the algorithms, or do I trust the humans? And as more people elect to take fiat currency and convert it to Bitcoin, they are electing to trust the machines over the humans, right? And I've described this before as the machines are unbiased, they're emotional, they're disciplined, and they do what they're supposed to do. The humans are undisciplined and greedy. And when you lay it out that way, I think this is going to happen in a lot of different facets of our life, right? You already see some of this with, you know, the advent of Uber and that type of stuff. But with money specifically, the problems arise from human lack of discipline. and therefore as more people trust the machines they are rewarded because money acts how money's

supposed to act agree or disagree definitely i definitely think we will see a similar phenomenon in different sort of facets of technology and capitalism as a whole and as i've sort of described in the beginning bitcoin i don't want to use the word entirely trustless because there are still certain things you can trust but they are far far more distributed and in my opinion harder to change than sort of centralized solutions and this allows commerce to happen on a global scale and this allows you to trust this payment rail like never before bitcoin is extremely secure and it allows us to i believe that another thing that it will do to finance is it will eliminate the forex industry completely because if we only have one global

currency instead of these dozens of currencies that we have today, hundreds of currencies, then the foreign exchange market will cease to exist because we will just have one currency. Hans Hermann Hoppe describes the current sort of state of affairs and state of fiat currencies as a mild state of barter. Whenever one company or one corporation in one country has to do business with another, they first have to exchange their currency to another country's currency, then need to change that for goods, and then need to go back and forth and every time. So it's kind of like barter in the sense that you first need to sort of make these extra transactions. But with Bitcoin, like several layers of those transactions will just get

abstracted away. And I believe that sort of this will expand the economy and accelerate capitalism and free markets and borderless commerce even more. Absolutely. So, all right, here's what I want to do. I want to play devil's advocate, right? I want to take the seat of the Bitcoin detractors, the people who don't believe or or think that your view of the world is wrong, right? And so I'm going to throw some ideas out at you and some detractions, and you kind of respond as you see fit.

Can Bitcoin go to zero? I believe that theoretically it could, but with every 10 minutes that it successfully adds another block to the blockchain and doesn't fail, the probability of that is reduced every 10 minutes or every single day. Okay, so there's a non-zero chance it could happen, but the addition of time makes it less likely.

Precisely. And this is precisely where sort of our just constant discussion of Lindy effect comes from. The longer a piece of technology like this exists, the more likely it is to persist even more in the future. And the longer it exists, it also gives trust to the people. Because say you discovered Bitcoin in 2011, a lot of us thought, oh, it's a joke, it's whatever. We've seen that before, right? now you read it again in 2013 you're like oh this is still not dead in 2015 you're like oh this is still here now in 2025 people are going to be oh this thing is here for almost 20 years this is

here to stay you know and oh like they've they still in 20 years haven't printed any additional bitcoin beyond 21 million this is really really strong you know uh so bitcoin yeah it's um it's not not just the trust in the security and not just the trust in sort of the decentralization but also the trust in the currency as money is also growing, which is very, very important. And as I've said, trust and market cap over the long term is really the same thing. Absolutely.

If it did fail, if it did go to zero, what's the most likely reason why? Catastrophic bugs, probably. Once again, as we've said, it is software. And software, it's an increasingly complex software. So many thousands of lines of code, so many things so many moving parts at the same time and really unfortunately very few people of that caliber that are and that are simultaneously working on these kinds of technologies right now

and so the main sort of 10 to 15 contributors to the bitcoin project are people sometimes once every four or five years they they do make mistakes as we've seen recently with the with the bug. Luckily, it was fixed pretty quickly. There will be bugs. I mean, as I've said, this is a multi-decade project. This is a 50, 60-year project. This is software. We're likely to see three, four, five bugs more before sort of this thing takes over. But this is inevitable. And as I like to think, it's better we take care of these things right now when it's only a couple hundred billion rather than when it's a $20 trillion system with the world's economy running on it of course um okay bitcoin is too volatile to be a store value so to me this is um like the

easiest this is the easiest sort of piece of um myth or misconception to parry because um you actually want bitcoin to be volatile um bitcoin cannot go from one dollar to being the globe the global digital store of value standard global currency without volatility. In fact, you desperately want Bitcoin to be volatile, preferably upwards, of course, but you do want it to be volatile, especially versus fiat. When you use the term volatile, you need to understand volatile versus what? And typically we mean versus the US dollar, right? I think that Bitcoin's volatility is great. If you zoom out and look over the last years, especially on a log chart, this volatility has been predominantly upwards and this volatility is so good it shows people that bitcoin's strength

versus fiat currencies is strengthening and fiat currencies per unit of bitcoin are weakening and um this volatility isn't just inevitable it's desirable by the time bitcoin uh completely takes over and in the long-term equilibrium but um to in a more practical answer is that As Bitcoin's traded volume grows, as Bitcoin's liquidity gets deeper, as Bitcoin's order books become more abundant, as more and more people sort of cognitively recognize it, as there are more hodlers, as there are more users, as there's more infrastructure, as there's greater security, and most importantly, as there is a bigger market cap, Bitcoin's volatility will decrease. so what this tells me is bitcoin is a net positive volatile asset right there's violent volatility but over a long period of time it continues to increase in value and therefore the only way to go from worthless to worth a lot you have that volatility that's a good precisely i mean you can't have all these trillions of dollars of wealth stored in one asset flow into another

asset without volatility being there on the way. And money is really a technology. It's a financial technology that enables us to do a lot of things. And Bitcoin to me is a far superior technology than any monetary metal or any state currency. And so people will, the world, because it is a superior technology, it will win in the free market and the world will adopt this better technology. And this better technology will expand everything. Okay. Bitcoin can't scale the transactions. The blockchain can't handle the number of transactions needed for a global adoption. So a lot of people make a very big mistake. They compare, they think of Bitcoin as exclusively a payment rail where it's only like one of the six things it does. And they compare it

to say Visa or PayPal. Now, Bitcoin, the main blockchain is sort of the layer one of the whole system you have to think of visa as it's like a layer three or a layer four of the current status quo financial system which is like the dollar then you have the central banks then you have the bank commercial banks then you have certain like the rails and then you have sort of visa or paypal that all sit on top of this thing and so um we will bitcoin is also as you might know developing layer two layer three solutions already and so um those are the ones that you will eventually need to compare against Visa and PayPal. The base layer isn't so much as a payments rail for daily transactions

when you're buying crisps or a cup of coffee, but it's a settlement layer for very big and very serious transactions that require a lot of security. Eventually, I believe the base layer will be much more expensive than it is today, but rightfully so, because most of the security will come from fees. and it will be large institutions and and sort of large sort of business transactions large commercial transactions that will predominantly and ultimately eventually be settled on layer one but i believe that the trillions of transactions will be occurring on layer two if not higher as

well as possibly on the side with side chains drive chains etc but um my argument and nick carter has put it very very well he said these are layer one is not parcels it's container ships So they will eventually be used as settlement for very, very big transactions. And if you compare it with gold, for example, today, do you know how much it costs? And gold right now is a means of final settlement between central banks, which they do once every several years. When moving gold from Europe to America or vice versa today takes tens of millions of dollars and months, if not years in time. Bitcoin, even if you run the math at the very equilibrium, the price to settle like several billions of dollars on a layer one of Bitcoin will still be orders of magnitude cheaper

than you can do with gold today, which is still a huge, huge advantage. And all of those daily sort of small minuscule transactions that doesn't require hyper security and hyper decentralization will be done on much cheaper, much faster layer two, layer three solutions which uh sacrifice some security for greater speed and greater availability etc i think that's fair um that bitcoin is being compared not to the us dollar which it is superior to in a lot of ways yes right but it is being compared to payment rails that aren't accurate comparisons precisely and uh a lot of people have pointed out very very well um safety namus i believe was the first one to point this out uh bitcoin isn't competing against

venmo uh it's not competing against paypal or visa bitcoin is competing against central banks or even more precisely it's competing against the bank of international settlements as a as a major settlement network for large transactions as well as against central banks for currency issues and those are really the two things uh where it has a competitive advantage and those are the things that you need to be comparing and not sort of the small value transactions absolutely um okay bitcoin is not accepted anywhere so um i believe that people um and this is sort of sort of what a lot of people behind bitcoin cash and um this nano ripple etc that's litecoin even they don't understand uh i believe that the monetary progression and there's a lot of debate about

about this, but this is sort of my strong belief, is that money has to move, a new pre-money, sort of a new synthetic commodity that has properties of becoming money, it needs to go through this evolutionary process. And if you go on my Twitter page, it's pinned right on the top, it sort of shows a step-by-step progression.

And I believe, and this is historically what has happened to gold and silver as well, and I believe is what's going to happen to Bitcoin. First, it needs to be a collectible, then it needs to become a store of value, then it's going to be a medium of exchange, and finally it's going to be a unit of account. So this sort of merchant adoption, to me, that's more for later.

Right now we need to develop Bitcoin in the criteria that make it as the best store of value. I believe that Bitcoin right now is still somewhere between the collectible and the store of value phases, but sort of every year it's moving ever closer to the store of value stage. Early on, a lot of people argued that it was a collectible for cypherpunks, nerds, anarchists, libertarians, et cetera. And right now, as we've discussed, as market cap is getting bigger, as liquidity is getting bigger, as sort of the comparisons to gold are becoming ever more obvious, as market cap increases a bit more, as custody solutions improve, it will be seen more and more as a store of value.

Now, as it grows, as we've already concluded, volatility decreases. It is my strong belief that people prefer their day-to-day currency, i.e. their medium of exchange, to be relatively priced stable in terms of purchasing power. And that's why I believe the goal isn't to spend Bitcoin right now. The goal is to make Bitcoin as good of a store of value. As Bitcoin grows, its disincentives to spend also decrease. Right now, I'm not spending my Bitcoin. Frankly, I'm not going to be spending my Bitcoin for another 15 years or more. I'm not going to spend my Bitcoin until it's at least $15, $20 trillion in today's terms.

Um, as Bitcoin gets bigger, say it's reached 20 trillion, um, then the amount of gains in percentage terms that you can have from there on until the ultimate future become less, uh, there's, there's no longer going to be the thousand X that's still possible today. The maximum, uh, from then on is going to be like what five, six X. And at that point, the disincentives to spend that are very, very present today, uh, are no longer there. So, you know, everybody knows the pizza story where in 2011, somebody spent 40,000 bitcoins on a couple of pizzas.

And today that could have been like half a billion dollars or something. Right. And so a lot of people now know they don't want to be the pizza guy. Right. And so right now, the key is to optimize Bitcoin for a store of value. And as more sort of liquidity pours into the system, we will optimize a Bitcoin for a medium of exchange after I believe the store of value functionality has been more or less saturated. Of course, in monetary academic terms, the medium of exchange and the store of value functions of money are inextricably linked. But right now, I believe we need to optimize for the latter, and then the former will come with it. Today, Bitcoin is 21 million total supply, right? That is what is written into the code.

Detractors would argue that that can change through two different ways. One is if the miners all agreed to allow an increase in the total supply, or two is a hard fork like a Bitcoin cash that would incorporate a different supply schedule would then have Bitcoin not be 21 million fixed supply. How do you respond to either one of those? Yeah, so the latter is easy to respond. It's like saying, does the printing of Zimbabwe dollars hurt the US dollar? Not really. In fact, I think over the long term, this kind of currency competition is impossible. If Bitcoin is really not government money that we're saying, this is the only one that

you're allowed to use, and that it actually needs to win in the free market. And Bitcoin still has to win 20 other contenders before. And as it wins these contenders, the trust in those 21 million becomes ever more. And people realize that these 21 million are much more precious than all the other stuff. And Bitcoin is far, far more unique than any other cryptocurrency in this sense. So once again, Bitcoin Cash printing their own 21 million is like if Zimbabwe or Venezuela prints their currency, it doesn't weaken the U.S. dollar. If anything, it makes it stronger because you have wealth into the quality one. And over the long term, I actually think these altcoins are good for Bitcoin because they're showing that this one is far, far stronger.

and over longer term periods the way monetary instruments work is that you want to de-risk your your wealth as much as possible and you're incentivized to instead of like being too contrarian eventually you want to bet on what's the most converging asset and people will eventually the one that's less liquid is risky riskier to store your wealth in and eventually i believe that not just with other financial assets before it has to fight with gold and fiat it will first have to predominantly defeat other cryptocurrencies. And to answer your first question, miners aren't in control of Bitcoin. Full nodes, i.e. users, are in control of Bitcoin.

And the user-activated soft fork is something that has essentially proved that. More than 93% of miners wanted to increase the block size in sort of their way. More than 85% of the companies, exchanges, wallet providers were on their side as well. Essentially, all of the, even many of the wealthiest Bitcoiners were on their side. However, so the users and those people running full nodes, they decide what kind of code to run and as well as what kind of transactions to approve. Miners cannot make these changes to the code without consensus. And at the end of the day, Bitcoin is this impenetrable fortress of full nodes, which really collectively, as we've previously discussed in a P2P network fashion, control the network.

And I strongly recommend Stop and Decrypt's article titled Bitcoin is an impenetrable fortress for more nuance on this topic. Awesome. All right. Let's switch to the creation of Bitcoin. Right. So one of the things that Bitcoin is able to point to that most other cryptocurrencies and even fiat currencies cannot is that the creator of the system is unknown. Right. So anonymous, pseudonymous, et cetera. We don't know if it was a man, a woman, a group. And there is folklore and myth around who this may be. who do you think it is should we spend our time trying to figure out who it is right is it important and if we do figure out he she they is satoshi is that good or bad for bitcoin i have certain suspicions but i'm not going to i'm not going to say any names out loud precisely because

nobody knowing who that is for sure is what makes Bitcoin so strong. And as a Bitcoin evangelist, I am incentivized in this pseudonymous myth and pseudonymous strengths to continue going. Frankly, I don't think that the search for who the Bitcoin creator is, is a productive activity. And the fact that it is still unknown and it is still merely a thing of theories is, once again, one of the dozen things that makes Bitcoin far stronger than 99% of other cryptocurrencies. Absolutely. Because you won't say names, I think that's completely fair. Will you at least tip your hand in whether you think it is an individual or a group? I think it is one person. One person. All right.

Well, at some point, somebody is going to get that out of you. Sure. But I mean, there are there are sort of six or seven theories on this topic. Frankly, it really doesn't matter. Even if we even if we found out who it is, it doesn't matter. It wouldn't even damage Bitcoin at that point. I mean, it's it's good right now that we don't have any any, quote unquote, heads of the dragon to cut and that there's no single party in control of it. As well as the myth is a nice sort of cherry on the cake. but um the story is almost just as important as the technology for sure because i mean you can't

have an emergence of this neo-money phenomenon without this cult-like religious like wave accompanying it right but um it doesn't it doesn't matter uh there the work that has been done on bitcoin since 2010 is so immense and now there are so many contributing uh individuals contributing coders, contributing companies, that it wouldn't even matter. Bitcoin is far bigger than Satoshi right now. Absolutely. All right. We're going to read a quick message from the sponsors and then we'll be right back. All right. So what I want to talk about now, I had Travis Kling on, right? So Travis previously was at Steve Cohen shop right now. He's got a crypto fund. And one of the things that we talked about was this idea of musical chairs in the institutional world, right? So

there's a fixed supply of Bitcoin, 21 million. And right now the music's playing and everyone is walking or jogging around the chairs. And at some point the music will stop and people will have to grab a chair. They'll begin to sit down. Right. And one of the ideas that Travis presented was this idea that some institutions aren't going to wait for the music to stop. They're going to just start sitting down. Right. And so he recently tweeted and said, you know, look, I talked about musical chairs. Yale came out and it's now public that they've invested in two separate crypto funds. And so Travis made the point that Yale just sat down. Yale just grabbed their seat. The music hasn't stopped, but Yale sat down and said, we're going to make sure we have a seat at the

table. How do you think institutions, central banks, you know, world leaders, etc, should be thinking about Bitcoin, thinking about how to diversify assets into Bitcoin, and possibly even fearing Bitcoin? What do you think that kind of rational thought process should be? David Swenson, who is the head of the Yale Endowment Company, has been the trendsetter in the endowment space as well as the large asset sort of allocation space for the last 20 years. Legend, absolute legend.

Right. Now that he has invested in two crypto funds, I believe, I strongly believe that we will see other Ivy League syndicates, other Ivy League endowment companies, as well as big asset managers and even hedge funds in general, start dabbling in the space.

um and it's important to call out so they invested in funds that aren't just bitcoin right it's not like they just went and bought bitcoin and put it in in you know custody account yes they invested in funds that from my understanding a majority will go into liquid kind of late stage opportunities like bitcoin ethereum etc yes but some portion of it will still go into ICOs, venture capital equity investments, etc. So it's kind of a broader basket than just Bitcoin. But Bitcoin, Ethereum, these liquid cryptos are a big percentage of the allocation. So obviously, if they had just bought Bitcoin and Bitcoin alone, and just put it in their own custody account, that would be an even bigger deal, right? But this is still pretty big

deal. How do people respond other than just backing funds, right? If you're a central bank right now, what do you do? The two best things to do is to either invest in Bitcoin directly or to invest in a GP of one of the top five best funds. The latter, given the superiority of the fund over others, might be the single best decision. And then the third best is to invest and the LP of the best funds, of course. But those three are the best opportunities. I don't quite agree with the portfolio construction of, without naming any names,

I don't quite personally agree with the portfolio construction of the two funds that are relevant to the story here. I believe that a mildly leveraged play on Bitcoin will have a better Sharpe ratio than dabbling in altcoins. But I think it is, I mean, I will personally be having 10 to 15% of my portfolio in two or three premium altcoins as well, but really my heart predominantly belongs to Bitcoin.

And I believe that at this point in time, from a technological perspective, It is fiduciarily irresponsible not to have at least 60% of your cryptocurrency portfolio in Bitcoin. My own fund will be engaged in more active management, but the sort of the long term portion of our portfolio will be predominantly Bitcoin or leveraged, long leveraged place on it. And here's the thing. A lot of people, perhaps rightfully, believe that this sort of altcoin game, so to speak, and this blockchain project game will still go on for two or three more cycles, and that might be true.

And given that that is true, the two funds that we are discussing, they have tremendous pedigree and tremendous sort of networks that they can tap into. They've got the names and they've got the track records. They also can't really justify putting three quarters of their portfolio into Bitcoin because then essentially many, if not most of their LPs will be able to just do the same themselves. They need to take advantage of sort of the opportunities that they have, the tremendous deep discounts on future altcoins and the future ICR projects that they will receive undoubtedly. and perhaps even they might uh some of these things might outperform bitcoin in the near term and thus if they sort of change their direction at a precise enough time they might even make more bitcoin for their investors that way so i actually think that something like this is a

strategy a lot of the a lot of sort of similar people that i've talked to um they believe that they're when all is said and done there will be six or seven currencies i think that's nonsense Because if you study monetary history and given sort of the globalized, increasingly fluid, increasingly interconnected and interoperable nature of these technologies and the world at large, I believe I used to think it was winner take most as well. I used to think it would be like 70, 20, 6, 4, like in a Pareto distribution type way. But I increasingly believe that it will rather be winner take all rather than winner take most. And I would also say to many of these investors that you have to, you absolutely have to think of these crypto assets as money first and software second. A lot of people who come from the entrepreneurial VC or the technology world,

they think of it the other way around. They think about it the other way around. And I think that is going to lead to a lot of losses. It's going to lead to a lot of losses. And a lot of even sort of the premium big hedge funds will not perform as well as those who managed to position themselves in accordance to more correct monetary theories. Yeah, look, I'll even take it a step further, right? In most cases, you have more extreme views than I do. But in this case, I may have more than you in that if you're an institution today

and you have zero exposure to the cryptocurrency asset class or market, you're violating your fiduciary duty given that it was the best performing asset over the last decade right it has very unique characteristics when it comes to lower levels of correlation upside the per unit of risk that you take by allocating capital here and so those institutions that are on 0% exposure have to do what we call get off zero, right? Each portfolio is different. So some it's 10 basis points, 50, 75, 200, 500, whatever, whatever the basis point number is, it's all about what their goals are, what their current allocations are, all of that. But zero is the wrong number. Right? And so that's much easier, I think, for long term macro investors who have

experience and even expertise in the alternative space. So Dave Swenson is like a perfect example at Yale. But I think that this is actually true at the central bank level, at the individual level, et cetera. And so let's go into a hypothetical world where the U.S. central bank is playing game of musical chairs and they sit down and it comes out that the u.s central bank bought five ten percent of the network on the open market what happens to bitcoin the price and kind of the the macro economic world if that was to come to light uh well then buying five percent would be impossible because people need to realize that more than 10 million of Bitcoin,

I believe somewhere between 10 to 13 million are like held and not like actively trading or actively circulating. Only three to four million are being actively traded. And as Bitcoin's price will be increasing, I believe that people will be realizing that there's really a financial revolution going here and this is something to be kept for a long time.

relative to the amounts of capital that are sloshing around in capital markets around the world bitcoin is really so small still right um and um it's really quite it's really liquid really uh and um as they even try to buy half a percent like that very act will raise the price so much in a vertical fashion that just buying the next half a percent will be eight times more expensive And like this continues compounding in an exponential fashion. It will need to be done in an extremely stealthy, in an extremely clever, in an extremely patient manner over months, over years, maybe even. And maybe even then they'll only be able to get to two, two and a half percent ballpark. Right. Here's what I like to say.

Governments buying Bitcoin. Really, I think they will be buying Bitcoin last. there's two things I want to say here first of all governments buying Bitcoin will essentially be putting the final nail in the coffin of reducing their own size by half because Bitcoin is unprintable which we have discussed how is going to destroy fiat currencies and Bitcoin is increasingly untaxable I mean the privacy technologies around these technologies as you know will also keep improving rapidly. This is inevitable. And so I believe that governments buying Bitcoin will probably be the latest group of people to buy them. And that will be the final ultimate credibility

because essentially the biggest competitor is capitulating. Something like that will not just be a rumor. Something like that, given Bitcoin's illiquidity, will be extremely difficult to hide. I like to joke that once some Asian central bank or a sovereign wealth fund announces that they put 2% of their assets into a portfolio of blue chip cryptocurrencies, it's game over. But I don't think that central banks are really the people. By the time they will try to be accumulating any of them, Bitcoin will already be huge. I actually believe, and this is one of the things that my views differ from many people in the space, actually. I actually think that Bitcoin's ascent will be driven predominantly by the wealthy. The three people, the three niches of investors that will make Bitcoin's price skyrocket over

the coming decades will be open-minded, ultra-high net worth individuals. It will be savvy funds and fund managers, and it will be, I think, politicians and dictators and sort of these fringe third world, second world individuals who will need this currency perhaps more than anyone else. And I like to joke that essentially the people and the institutions who Bitcoin was designed to destroy will be precisely the people who will drive uh bitcoin's price and bitcoin success to the sky because if you think about it the people who censor the most need uncensorable currency the most the people who seize the most need unseizable assets the most and of course the

people who print the most need unprintable currency the most these people every week you read about some fringe countries wealthy individuals and government officials bank accounts in switzerland in luxembourg in the caribbean being frozen in america being blocked transactions being censored and this technology allows those very precise people to have unseizable store of value where they can essentially accumulate wealth with absolutely no one else in the world being able to take it away from them so for better or worse this is how free market uh instruments and free market technologies work. So it will be, of course, used for the good and the bad, but irregardless, these very people whose Bitcoin is fighting against ideologically

will be the same people who will be helping it financially. Absolutely. And I tend to think that you are more right than wrong on that, right? Okay. So before we kind of go into some rapid fire questions, if an institutional CIO, a central bank authority, a government leader is listening to this give me your 60 second pitch to them why they should buy bitcoin bitcoin is the soundest hardest currency that has ever been invented in the history of human civilization um it is this is this inflation is second to none its monetary policy is known years in advance and it is becoming increasingly credible uh it will also be increasingly a threat to the very currencies that you guys control i think getting in before most other central banks

and most other sovereign wealth funds and most other rich people will uh in the next decade will prove to be one of the smartest investment decisions in in the course of human history And if you are able, the countries that are able to stealthily accumulate Bitcoin and adopt Bitcoin more than other currencies will thrive in the age of hyper-Bitcoinization, while the other countries that haven't done so will suffer tremendously. Long Bitcoin, short the bankers. I think we are in agreement there. All right. So you've answered some of these already, but what do you think is your most controversial thought? Is it the opportunity that exists for Bitcoin still?

I mean, the opportunity for Bitcoin is better than ever. I would say the risk reward. So the reward is technically low in and of itself is lower than it was in like 2013 or whatever. But the risks are also massively reduced. we are we already have 200 companies building for this thing building on the side of this thing building on top of this thing the number of engineers involved are ever greater if you watch this if you watch the slides and the lectures from scaling bitcoin tokyo that's happening over the past couple of days the amount of just genius inventions that are being potentially added to

bitcoin and the improvements added to bitcoin are incredible and the liquidity today and the volumes today and the marketability of the brand today is far greater than back then so risk reward might might even be higher i would say um the opportunity is still there uh it's at least a couple of hundred x and in the very very long run more than a thousand x so there's still a lot of wealth to be created here um doing a mildly leveraged play via various um instruments or derivatives is a way to boost returns even further uh but i believe that the opportunities there is definitely is definitely here and um my other um controversial opinion is what i've described is that bitcoin isn't necessarily sort of going to be adopted bottom up but rather and it's not

necessarily going to be adopted top down either but uh it will really be uh the the wealthy who will be adopting it and unfortunately due to the nature of the world uh those are the people with money and it's the people with capital who are going to be sort of boosting the market capitalizations of these assets absolutely what's the most important company in crypto right now chaincode labs why they have some of the most prolific developers and blockstream as well of course got it so those working on bitcoin yes um john newberry alex marcos um matt corallo they're just on a whole nother level of genius absolutely um all right if you had a magic wand and you could wave it, what's the one regulation that you would improve or change?

I would reduce taxes and I would privatize a lot more things around the world. Interesting. I believe that free market capitalism and individual entrepreneurs are much more efficient at providing solutions and much more efficient at making what Austrian economists call economic calculations. In very, very crude terms, a thousand clever, smart, talented entrepreneurs with a million dollars each will do a lot more, both for themselves and the world, than just an emotionless bureaucrat with no connection to that particular money will do with a billion dollars.

And I believe that a lot of the things that governments do around the world today, if you privatize or even partially privatize those things, the world will be much more efficient because um essentially seven fiercely competitive companies will always achieve the result much better than one sort of bureaucratic uh fat government institution so to speak i don't think anyone is surprised that you believe that and i tend to i tend to agree of course the most facets there um okay uh so let's talk about something for two minutes that's non-crypto related so aliens right we just got to admit that they exist most people think of aliens as a human equivalent right they're depicted that way in movies and sci-fi etc but nobody ever really

talks about alien animals right do we think that there are multiple species of aliens and if so do we think aliens have pets well if you make the assumption aliens exist then it is likely that many different kinds of aliens exist right just due to the vastness of space statistically speaking this vastness is so immense that if we do go off of the assumption that at least one speech one other species exists it is likely that hundreds of others do as well and it is also likely that several species exist on sort of one uh planet or ecosystem for fun or whatever uh together and i wouldn't be surprised if those um civilizations have animals as well yeah yeah you think they have pets though you think they take the animals and they make them their pets possibly and like

a domesticated uh it is hard to say some of the alien species would have pets i think probabilistically speaking, that's very likely. It really depends sort of on the culture and the order of that particular world. Yeah. I think that's fair. All right. So I end each one of these with allowing the guest to ask me one question. What one question do you have for me? I guess you've asked this question to me, but I would like to sort of hear your version as well. I know we've already previously talked about this, but I just sort of like to rehash these bullet points in my head as well. You personally and sort of on with your work

with Morgan Creek and other ventures, how do you go about pitching Bitcoin and sort of this ecosystem at large to not individual investors, but the more conservative large asset allocators? Yeah, look, I think that it's custom given who we're talking to, right? So there's kind of different things that we emphasize or de-emphasize depending who we're talking to. A lot of it is informed by who they are, what their current allocation is, what their goals are, et cetera. But there are some common threads through each conversation, right?

One of them is this asset class has some of the highest yield opportunities per unit of risk across the entire world, right? Any asset, any asset class, any strategy, this is one of, if not the highest potential yield per unit of risk. So that's one. Two is that the idea of scarcity around Bitcoin specifically is something that they have likely not thought deeply about, nor do they actually understand the gravity of the implications. So it's one thing to just understand, okay, if there's a fixed supply, an increase in demand, price should appreciate. It's another thing to understand 21 million Bitcoin exist. And there are hundreds of trillions of dollars of wealth in the world that are going to be competing for those 21 million, hundreds of trillions of dollars exist.

And so if you manage 500 million, a billion, 10 billion, a hundred billion, you're nobody. And if you don't have your seat at the table now, you may not get a seat later, right? So I think that's the second one. And then the third one is we actually make a economic argument looking at other asset classes. So the opportunity cost, if you do not invest in cryptocurrencies, Bitcoin, blockchain, et cetera, what else is out there? And what you find depending on who you listen to, right? My, my partner, Mark Yusko, um, is, uh, is very well versed in kind of the endowment model and comes out of that world. And he walks people through this idea that the yield that they target or goal on may not be available in other asset classes, right? So if you look at stocks, bonds,

currencies, and commodities, only four assets that you can own, the ability to drive six and a half, seven, seven and a half, 8% annualized yield may not be there over the next decade. and so if that is true that doesn't necessarily mean you should take 100 of your assets and go put it into bitcoin for example but you should have exposure right and so those three core components make up this kind of verbal campaign that we're on called get off zero right and it's the idea that if you are sitting in a fiduciary seat and you have a zero exposure to the asset or the asset class, you're wrong, right? There's a qualitative argument. There's a quantitative argument. We're happy to discuss either one of them, but you're wrong. Zero is the wrong number

and you have to get off zero. And so whether it's 10 basis points, 50, 100, 500, that's a customized conversation for who it is, what their goals are, what their current allocation, et cetera. but zero is the wrong answer and what we find is that specific argument of you have no skin in this game and this could be the most important game available really resonates right and so i think that yale jumping in very big deal right we've got some institutions that i think when people find out are going to be shocked. Right. And again, more people grabbing seats. I think what we are going to see over the next, I put it like 36 months is a, a FOMO or a, um, uh, just an inflow of capital from very, very sophisticated people that most of the financial world is not

expecting. Right. So there's a, I think it's Bill Gates says, um, you know, we overestimate what we can accomplish in two years, and we underestimate what we accomplish in 10 years, I'm probably with you in that even the most hardcore Bitcoin believers are actually drastically underestimating what we're talking about here and what the potential is. And if that is true, this is the most important piece of technology that the world's seen. Without a doubt. And those are amazing points. To add to the discussion on yield, I would say one of my old bosses told me that making money for you guys will, in general, as an aggregate, as a demographic, will be much harder than it was for our generation or the generation before that. And as you might know, in the 50s or 60s, you could have just a regular job and still be able to buy one house or even two houses, have a big family, et cetera. Today, that's impossible.

The world, not just America, but the world as a whole is becoming fiercely competitive. We are sort of, obviously not at the end of the S-curve, but we are sort of, it's kind of sloping down. Innovations are harder to create. The technologies are more sophisticated to sort of incrementally push further. and the amount of i guess ideas that are easy pickings are scarcer nowadays i generally like obviously getting becoming wealthy takes a decade at least or more for anybody but i like to say semi-jokingly that crypto might be the last easy way to get rich in my generation look i am we We obviously today have, you know, the richest man in the world, over $100 billion of wealth, right?

Jeff Bezos. It would not surprise me that the richest company in the world, right, which is over a trillion today, is matched by the richest person in the world in the future. So we'll have a trillionaire. and the odds of that person comes from the cryptocurrency world in my opinion is the highest probability out of any other industry and so if that is true the amount of millionaires sent to millionaires billionaires sent to billionaires that will be created in this asset class will be unparalleled in anything else in history and so i think that's part of the excitement for sure in monetary terms um within that particular asset uh bitcoin will

actually increase inequality because um the way it is is the the distribution is improving with every cycle of course but if hyper bitcoinization were to actually occur the genie coefficient of bitcoin would probably be higher than any fiat currency today among the predominant ones so we would definitely see some of trillion a couple of trillionaires in today's terms i think without a doubt absolutely all right man this is uh this is epic i really really appreciate the time um i hope that this is valuable to everybody and uh and we'll have to do this pretty regularly to uh to check back in and see kind of how uh how all this is progressing so thank you for sure thanks for having me man absolutely hey guys thanks for listening we're back with the ceo of saluna

john belzier john what are you most excited about right now what excites me the most is that we're really in the midst of a revolution satoshi nakamoto's paper that came out eight years ago really launched a revolution globally and the blockchain is definitely here to stay today's blockchains are predominantly seen as the core technology for cryptocurrencies among other things But in the future, blockchains will do more. They'll be the foundation for entire new ecosystems. They will revolutionize a host of different industries around the world. And taken as a whole, these new distributed applications will form a new kind of internet.

One where protocols replace companies and algorithms choose the best computing backend and solutions that they can find. This new ecosystem, this new internet, if you will, will need dedicated infrastructure to power it. And what excites me is that Saluna aims to be the key part of this infrastructure. We have the opportunity to build the next great infrastructure company to power this revolution. Thank you for taking the time. If you'd like to learn more about Saluna, please visit saluna.io. 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