The Wolf Of All Streets - The Bullish Case For Bitcoin | Vijay Boyapati, Author and Early Investor

Episode Date: June 29, 2021

In 2018, Vijay Boyapati blessed the entire Bitcoin community with a powerful, in-depth article, The Bullish Case For Bitcoin. The highly praised work was so popular that its arguments were expanded upon and compiled into a book. Vijay makes the simple, yet elegant case that Bitcoin is still in the infant stages of its evolution, but more importantly, it is progressing magnitudes faster than any currency in history. Bitcoin is quickly refining into a store of value in real-time for investors around the world, giving them the opportunity to participate in “the most important innovation to money in a thousand years.”   In this episode, Vijay Boyapati and Scott Melker explore: The monetization process Is this a bear market? The store of value market Diamond hand conviction The stages of money Bitcoin as legal tender What makes Bitcoin superior? Bitcoin vs. Gold vs. Fiat Clean and green Bitcoin The Chinese mining ban Threats to Bitcoin --- Voyager:  This episode is brought to you by Voyager, your new favorite crypto broker. Trade crypto fast and commission-free the easy way. Earn up to 9.5% interest on top coins with no lockups and no limits.  Go to https://thewolfofallstreets.link/voyager and download the Voyager app and use code “SCOTT25” to get $25 in free Bitcoin when you create your account. -- Matcha: Matcha is the easiest way to trade in DeFi. Matcha enables you to trade across all the major DEXs so you can be sure you’re getting better prices than going to a centralized exchange or Uniswap.   Connect your wallet and start today at https://thewolfofallstreets.link/matcha  --- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by Blockworks. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworks.co ーーー Join the Wolf Den newsletter: ►►https://www.getrevue.co/profile/TheWolfDen/members

This episode is brought to you by Voyager and Matcha. Stay tuned for more information on both later in this episode. What is up, everybody? I'm Scott Melker, and this is the Wolf of Wall Street's podcast, where twice a week, I talk to your favorite personalities from the worlds of Bitcoin, finance, trading, art, music, sports, and politics. Basically, anyone with a good story to tell. Now, breaking into the crypto space is challenging and requires an understanding that Bitcoin is a packaged deal chock full of complicated lingo, insider memes, historical and economic references, and a lot of blatant misinformation. Vijay blessed the entire community with a long-form article back in 2018

spelling out the bullish case for Bitcoin, which helped solve this problem. This article, which is a favorite of mine, became so popular amongst newcomers and OGs for its simplicity and elegance that Vijay has now extended the work into a book, which brought in droves of fans at the Bitcoin conference in Miami. It's my hope that having Vijay on today during this slight market downturn to remind us all why we are here in the first place and to once again spell out the bullish case for Bitcoin. Vijay Boyapati, thanks so much for taking the time to come on the show. Thank you, Scott. It's awesome to be with you. Awesome. So guys, for reference, we're recording on June 23rd, a day after Bitcoin dropped below

$30K and had that epic bounce that we all witnessed. Now, I'm curious from you, is there a price point at which real concern should kick in for traders and investors? Well, the thing is with Bitcoin, I want to step back a little bit. We've never seen this before. We've never seen the process of monetization of an economic good happening in real time. Bitcoin is, I think, the most important innovation to money in a thousand years. And if you look at the process of monetization with gold, that happened over many thousands of years, whereas this has been compressed with Bitcoin into a very, very short time span. Bitcoin's only existed for a decade.

But one of the things we've learned about the process of monetization is that it seems to happen in these cycles, these hype cycles, where Bitcoin will be discovered by some people who recognize that it's incredibly important. They have very strong conviction in it and they begin to invest in it. And Bitcoin's price starts creeping up slowly. And then other people kind of recognize that the price is creeping up

and they get interested in it as an investment and they put some money in and the price starts going up even faster. And then you get into this kind of parabolic phase where it's just pure speculation and people coming in just to make money really, really, really quickly. And then you have a blow off top and then you have a crash. But what happens is the crash goes down to a level that's higher than the previous plateau, the previous low. And then, you know, once Bitcoin stabilizes, you have a new cohort of people coming in who recognize, well, this thing isn't dead.

It's sticking around. It's important. I can see why it's important to have some of my savings in it because it can't be debased. It can't be confiscated. I can transmit it across the world without anyone's permission. So that sort of sets the base for the next cycle. And we've already seen four of these cycles. And the thing that's absolutely fascinating to me that we've learned about the process of monetization is that these cycles look almost identical. It's like a fractal pattern of

increasing magnitude. And what I mean by that is if you look at the price chart of, say, the 2017 cycle, and you superimpose it on the prior cycle, it looks very similar, almost identical, you know, with a little bit of variation. And the same thing is happening now. So I guess, you know, to make a long story short, we've seen this before. Bitcoin has gone through significant corrections, but it always finds a base of the new people who have incredibly strong conviction, who have recognized through experience and through time of holding it and learning more about it, why it's important. Now, you know, the big question that a lot of people are asking is, is this the end of the bull market?

Is this a new bear market? Do we have to go through a bear market for another year or so before we get into a new bull market? You know, I think it's really hard to know. I don't think anyone can know with certainty. But to me, that doesn't matter because my timeframe on Bitcoin is, this is something I'm really passionate about for my children and for my grandchildren. I think this is a project that has profound implications for the world and for the global financial system

in the timeframe of a decade or decades. So I'm incredibly bullish on Bitcoin in those timeframes. In the shorter timeframe, I can't say exactly what's going to happen. But I sort of view these dips as huge opportunities because the people who have done the best with Bitcoin are those people who had the strongest conviction when everyone else was fearful. If you have conviction and you can be a strong holder when everyone else is panicking, you're going to get by far the best returns. The people who come in the bull market, the last stage is the bull market. Maybe they'll make some gains, especially if they're trading in and out. But the biggest gains go to those who hold for the long term and have conviction when everyone

else is scared. It's interesting, right? The most dangerous words, according to Sir John Templeton in investing are this time it's different, right? And so we were once again seeing the narratives of super cycles and institutional floor and price could never drop more than 30% again. And now you're talking about you superimpose one on top of the other. That's an 85% drawdown, right? And we're only at around 55% here. I think one thing that a lot of people have learned is that that's always a rational exuberance when you start talking about it can never happen again, right? And what you've said is a more reasonable and measured approach, I think, to the market, which is that even if we see this cycle go to 235 or 250 or 300, don't be surprised if it comes back to 100 afterwards,

right? Right, exactly. And, you know, if you've been in Bitcoin for longer than a year, if you've been in it for two or three years, you're still sitting on incredible gains. And that's the story of Bitcoin. You need to have a time horizon that's greater than a year. If your time horizon is a year, I can't tell you whether you're going to do well or not, because the market is still volatile. And that volatility is really a function of new people coming into Bitcoin. That's how monetization works. You get more and more people putting some of their savings into Bitcoin. In the early days, when Bitcoin was much smaller, you look at the Winklevoss twins, they put in about

$10 million into Bitcoin. That had dramatic impact on the price. If you put $10 million into Bitcoin now, it wouldn't budge Bitcoin at all. But at the same time, the flow of funds into Bitcoin is so much larger. You have financial institutions and corporations and billionaires coming to Bitcoin. So Bitcoin still has that volatility because the flow of funds is increasing as well. Eventually, when Bitcoin is owned by a large enough fraction of the world's population, that volatility will decrease because you just won't have as much flow of funds coming in. It just simply won't be possible because everyone will have some Bitcoin.

So we are just so early in this process of Bitcoin becoming money that we still see this volatility. And, you know, when I step back, I think, what is the addressable market for Bitcoin? It's the store of value market, which is a gigantic market. It's gold, it's government bonds, it's real estate in some places. So this is a multiple hundred trillion dollar market and Bitcoin's market capitalization is right now somewhere between half a trillion and a trillion.

So there is a lot of room for Bitcoin to grow. I'm not worried about this correction. I sort of view it as a natural part of monetization because, you know, you're probably very familiar with this. Markets are not clean. They don't move in a linear process. They're messy. They go up and they go down.

And you have sometimes large corrections, large, scary corrections. That's how markets work. This is not a planned economy. This is a free market. This is the freest market on earth. I believe the Bitcoin market. So it's messy. And you just, if you can get used to that and get excited by the ride and what the long-term future of Bitcoin is, I think that that'll help people who feel fear right now. I've argued constantly that Bitcoin is the last free market on earth at the moment and is the only free market. And I always get this insane pushback from people saying it's so manipulated by whales and, you know, Chinese miners and all the arguments that we see. And I try to explain to them, that is the free market. Just because you lost money because somebody had more money than you to move the market does not mean the market's not free. In fact, that is the definition of a

free market. You just are suffering because you're on the wrong side of the big trade, right? Absolutely. A manipulated market is not someone with big money, like putting in a sell order that has other people on the other side who are willing to buy. A manipulated market is printing money endlessly so that stocks can never go down. Absolutely right. Absolutely right. And and, you know, the idea that whales are manipulating the market. that's just someone who has a lot of Bitcoin, who was early on, who has a position at some price where they think, well, you know, I'd like to cash in some of my Bitcoin to improve my lifestyle. And that, again, is a really important part of the monetization of Bitcoin. It's the distribution of the supply, because in the early days, a lot of the supply was held by a small number of hands. And for Bitcoin to become global money, everyone has to have some Bitcoin.

And so that means that that supply has to come out of the hands of those people who are early on. And that's totally fine because if you're someone who mined Bitcoin in 2010 and you have a few thousand Bitcoin, you know, all credit to you when Bitcoin gets to say 100,000,

if you want to take off 10% off the table because you want to buy a nicer house for your family. There's nothing wrong. That's not manipulation. That's someone who says, you know, I've made tremendous gains. I've helped the process of monetization of Bitcoin by holding for over a decade. I want to take some off the table. That's fine. We shouldn't sort of put these negative connotations on people having views on the market or having targets of improving their lifestyle. I think that's completely

a mistake and a mistaken way of thinking. So I really, I agree with what you're saying, that the system we live in, the fiat system is the manipulated system because you don't have real price discovery. Every time you get real price discovery, the Federal Reserve steps in and says, nope, we don't like this. We don't want prices to go down here. Even if they're the real price for stocks or real estate, we're going to intervene. Bitcoin doesn't have this plunge protection team

to come under the price when it drops. What it has is people who have conviction. And that's how the market works. Yeah, it certainly is. And it's interesting how much taking profit ever is viewed as a negative by the hardcore community. But I think that that's probably relative to the level of how much you have. If you want more, you probably view taking profit as a problem. If you have too much, you probably eventually need to, you know, improve your lifestyle, as you said. And there's a notion there that you talked about that I think is so important. First, it has to trickle down. It's like the only case in history where trickle down

economics works because those early holders have to put it into the hands of people who have less. But there's also always been the notion that I find absurd that people who were earlier lucky, right? But I'm sure you know, in my experience, most people who had Bitcoin in 2010 or 11 sold at a thousand. They didn't hold up to 65,000 or through these entire cycles. So I think it's incredible conviction in diamond hands, so to speak, to have been that early and to still be holding anything. Absolutely right. And if you look at the fraction of people who were that early, it's a tiny fraction who've held, you know, a significant fraction of their Bitcoin over time, because there is no market that will test your nerves, test your convictions more than the Bitcoin market. You have to have nerves of steel. And when everyone is saying, when it's spread across the mainstream media

and all the bears have come out and they're saying Bitcoin is dead, this time it's really dead. Governments are going to ban it. It really takes a strong will. And not many people have that. Most people come to Bitcoin, when they first come to it, they sort of see it

as a trading opportunity. They think, oh yeah, you know, I can make 50% on this in like a few months. And there's this just hilarious tweet that I love to refer people to of this guy in 2011 who said, you know, I bought my Bitcoin at, I think it was 3 cents and I sold it at 8 cents and I got out. And you can look back on that and you can see how he missed this gigantic opportunity because he just viewed it as a trading opportunity. He didn't view it as a transformational technology. In a way, it's like getting the ability to buy a share of the internet in 1993 and trading that away in 1994 because you think, wow, I made like, I made 30%. But this is something that's going to change. I firmly believe is going to change society. And we may not see the full transformation for a decade or

multiple decades. So if you can step back and recognize Bitcoin for what it is, a transformational technology, a fundamental innovation to money that, you know, when Satoshi Nakamoto published his white paper, he solved the fundamental problem of computer science that many people didn't think was solvable. And by solving this problem, it's called the Byzantine Generals Problem, he made something possible that had never been possible in the history of the world. That is the ability to transmit value from one person to another person on the other side of the world

without any intermediary. That's never been possible before. And that's a profound change to the world. And it's going to take time for people to understand that and for that to transform the world and the financial system. Right. Peer-to-peer cash. But to play devil's advocate, and as you even touched on, obviously, I think the store of value narrative has solidified more than the medium of exchange. And we've seen things like stable coins and other coins that could be argued to be either superior, faster, cheaper to move.

So do you think that what he solved there with that problem is still the key use case for Bitcoin or that it will be in the future? Or do you think that it really solidifies in the digital gold arena and we see something else step forward as a better form of payment? Well, one thing I think is sort of misunderstood is that money is a medium of exchange. Now, there's an economist, a very well-known economist, William Stanley Jevons, who was the father of marginalist economics. And he explained that money evolves in stages. It doesn't immediately become a medium of exchange. Gold wasn't immediately a medium of exchange. When gold was first discovered by

primitive man, he didn't instantly start go around buying bread with it and milk. The first usage of a new money is kind of a collectible. It's just something that someone, like with gold, someone picks up and it's shiny and they think, wow, this is cool. I'm going to hold some of it. Now, over time, as more and more people recognize that it's being valued in this way as kind of a collectible, it slowly transitions into becoming a store of value because people recognize that it holds some value over time. Now, when a form of money becomes widely established as a store of value, then it becomes suitable as a medium of exchange because its purchasing power will stabilize. And once its purchasing power will stabilize, people will think, okay, now it's good for me

to exchange for other things because when it's becoming a store of value, its purchasing power is increasing very rapidly, right? That's what's happening with Bitcoin. It's becoming a store of value, its purchasing power is increasing very rapidly, right? That's what's happening with Bitcoin. It's becoming a store of value and its purchasing power is going up very quickly if you sort of take a longer time horizon. Eventually, when everyone owns Bitcoin, its price will stabilize. And then people will say, well, there isn't an opportunity cost to using it in exchange. And what I mean by opportunity cost is that, you know, this famous story of this guy who bought two pizzas

for 10,000 Bitcoins, and those are worth like, you know, $350 million or something now, a huge amount of money. And now people don't make that mistake anymore because they recognize, hey, this is something that could go up a lot in value. It's not really for you. I shouldn't really be using it to purchase things yet. Eventually it will be good for purchasing things with, but, you know, once it gets to that medium of exchange stage of money, once the purchasing power has stabilized and once it's used by a lot

of people, then it goes to the final stage of money which is unit of account and unit of account means that you'll see prices in terms of that form of money so like when you go to the grocery store you know under a gold standard you'd see prices in gold terms like this is a hundredth of an hour this loaf of bread is a hundredth of an ounce of of gold and eventually when bitcoin gets to that final stage of becoming a unit of account, you'll go to the grocery store and you'll see, well, this loaf of bread is a thousand satoshis. So my argument is, yeah, Bitcoin doesn't look like a medium of exchange now, but that's only because it's in the process of monetization and it's evolving through these stages. In the very

earliest days, Bitcoin was really just a collectible. It was owned by cypherpunks and libertarians and anarchists, people who just thought it was cool. And then it got these early investors, people like the Winklevoss twins, and it slowly started transitioning from a collectible to a store of value. It's still in that state. I would say it's still in the early part of the stage of becoming a store of value. Once that's completed, it'll be a medium of exchange and a unit of count. So the people who make the argument that the volatility basically discounts the store of value argument, which we've seen even from like Nassim Taleb, obviously, and others, they're just not understanding the evolution of money and where we are in that process, right? So they're just not understanding the evolution of money and where we are in that

process. Right. So they're just early and discounting it as such as saying it isn't, you're saying it will be basically is that this is we have historical reference for how this has happened. I know that when in reading the book, you have your stages laid out, which you sort of just talked about. And you argue that Bitcoin is basically transitioning from stage one to stage two, correct? Exactly. I don't call it a store of value. I call it a nascent store of value. And Bitcoin's market capitalization is less than a trillion dollars. I think that once it gets to the same level as gold, I think it'll eventually surpass gold. But once it gets to gold's level, I think the volatility will be commensurate with gold. And people, you know, refer to gold as a store of value all the time. Gold still has some volatility, right? It dropped in 2011,

it dropped 30 or 40%. So, you know, that doesn't discount gold as a store of value. And I think when people look at something like gold as a store of value, they think this will have value over the long term. So the volatility argument to me is just completely related to where Bitcoin is in its evolution to becoming a store of value and then to becoming global money. That makes perfect sense. Raoul Pal posted a really interesting chart recently on Twitter, basically showing the speed of adoption of Bitcoin versus the speed of the adoption of the Internet and other technologies, and basically made a very clear argument that it's the fastest adoption of any technology in history. And that that's what we're investing in. So it's funny you talk about gold, but that took, like you said, thousands and thousands of years. We're seeing that compressed into a decade.

Right. And some people are really impatient and they think, well, Bitcoin, why isn't it a medium exchange now? People aren't using it as a medium exchange. It's like, well, this thing's only existed a decade. Come on. It's gone from zero to a trillion dollars in a decade. And to think that you can go from zero to a trillion dollars in a straight line is to me the height of absurdity. Nothing is going to go from zero to a trillion in that shorter time span without some volatility. How much does what happened in El Salvador and what we're likely to see in Paraguay, Panama, Brazil, Argentina, you know, Bitcoin accepted as legal tender. How much does that push the ball forward as far as Bitcoin's evolution over this process?

This is an incredible development, a profound development. And honestly, this surprised me. I didn't expect this kind of nation state adoption of Bitcoin to happen for at least several more cycles. You know, I was thinking maybe this would happen five years from now at the earliest, probably more like 10 years. So I think this is incredibly exciting and I think it's profound. What it means for the people of El Salvador is that they can use Bitcoin without friction. And that's a huge advantage. Like in the United States, if you want to use Bitcoin in exchange

or say you've got a huge amount of gains on Bitcoin and maybe you want to buy a car or something with Bitcoin, you want to buy it directly. A Tesla? Yeah, well, for a while they let you buy it. They'll be back. Don't worry. Elon will eventually be back. He Yeah. They'll be back. Don't worry. Elon will eventually be back.

He'll be forced to be back. But in the US, if you buy something with Bitcoin, you're paying capital gains on that. And that's a huge friction, right? You've bought Bitcoin for, say, $100 and now it's $500 and you want to spend that Bitcoin. That gain, that $400 gain is going to be taxed. Whereas in El Salvador, there is no tax. It's treated at the same kind of level or standard, legal standard as their money, which is in El Salvador is the US dollar. So I think you'll probably see a lot more medium of exchange usage in El Salvador,

especially in places where they don't have a good banking system. They have an internet connection, but they don't have the infrastructure to do, you know, the stuff that we take for granted in the US like credit card payments and Venmo and PayPal and stuff. They don't have those financial institutions are strongly built up in the rural parts of El Salvador. So I think Bitcoin is going to have a huge amount of growth in El Salvador and adoption. And I think that's going to, the people who are using it, they're going to start keeping, they're going to see Bitcoin as important. They're going to keep some of their savings in it. And I think over the long term, those savings are going to continue to grow in value. And other nations are going to look at El Salvador as an example and say, whoa, whoa, these guys are sort of lifting themselves out of poverty by jumping on the bandwagon

of this new form of money, which I believe is going to be the global reserve currency. And the countries that will do the best are the ones that are earliest. So I think the other nations in Latin America are going to look at the example of El Salvador and those dominoes are going to begin to fall fairly quickly. And what's really interesting is that it's a country, like you said, that's currency is the dollar. This isn't Venezuela, where we have a hyperinflated boulevard or, you know, Lebanon or Iran or Argentina, where they have legitimate currency problems. This is a country that uses our currency. I would have expected it potentially out of desperation in one of those

countries. Yeah. And my thesis was that the countries that would at least adopt Bitcoin on their balance sheet would have been smaller dictatorships. And it would have been adopted because those dictators wanted to keep something that was hard to confiscate. And circumvent sanctions. Yeah, exactly. And there's a story of Venezuela, right? Where they wanted to repatriate the gold that they owned.

It was Venezuelan gold that was held in the Bank of England. And the Bank of England refused. And the guy who's president at the time, Maduro, you know, I don't think he's necessarily a nice guy. And so I don't want to pass judgment on whether this was a good thing or a bad thing. But from the perspective of a nation state or the leaders of a nation state, the fact that you can have your savings confiscated by another nation is a really scary thing, right? To be cut off from, you know, potentially hundreds of billions of dollars of your nation's savings because another country says, no, you can't let that happen.

So I would have expected places like maybe Venezuela or North Korea, the more dictatorial countries to say, we need to get some Bitcoin because at least we'll have something valuable that we can trade for that can't be stopped by the US government or the British government. But it turns out it was just it was a far sighted leader in El Salvador who sort of looked into the future and wanted to improve the lot of his people in his nation who decided to make this huge step. And it's a great thing because he had this opportunity. He's incredibly popular in El Salvador, like 90% approval ratings.

He's trying to get the crime down in that country. He's trying to benefit the people in that country financially. And he just took a strong leadership position. And I'm surprised by that. I wouldn't have thought that a politician, I'm kind of cynical about politicians. I wouldn't have thought that a politician would stake their reputation on something like this so early. So I'm very excited by this.

And I'm really happy to see how things develop in El Salvador. Yeah, as an aside, I wouldn't be surprised if North Korea or Venezuela do have Bitcoin, you know, on their balance sheet, just don't talk about it. And I think a lot of every time I try to engage with him on Twitter. And then he made the argument that it's not legal tender because you'll never see things priced in Bitcoin, right? You still see everything in El Salvador priced to the dollar, but you don't see 0.00001 Bitcoin for a loaf of bread or something like that. What do you say to that argument? Yeah, this goes back to the evolution of money. And it's sort of saying that because I haven't seen something yet, it's not possible. You know, a lot of people could have said that about just even the concept of decentralized money. And in fact, you know,

it's really interesting when Satoshi published his white paper and published it to the cryptography mailing list. These are people who were steeped in the history of attempts to create digital money. The people on that list didn't sort of see his publication and get really excited. Most of them were incredibly skeptical. Like we've tried this a lot, you know, for the last decade and no one was able to do it. This is probably bogus.

And a lot of people said, I don't think this can work. And they gave all sorts of criticisms for why it was impossible that it could work. So Bitcoin from its very beginning has people who have been very skeptical of it, from being skeptical of the technology and protocol to now being skeptical that Bitcoin can become money. Things aren't priced in it now. I think it's things aren't priced in it now i think it's it's important to acknowledge that so when someone like talib says that i don't think the the right response is just to dismiss him it's to say yeah you're correct things aren't priced in bitcoin merchants are pricing things in dollars because their costs are in dollars but when enough people have bitcoin uh when enough people are

accepting bitcoin because they they recognize it as, when enough people are accepting Bitcoin because they recognize it as something valuable, then people are going to start thinking about their costs in Bitcoin. And there are, in fact, some people who do think about their costs in Bitcoin, small, you know, people who are trading in these crypto markets

use Bitcoin as their unit of account. Miners often use Bitcoin as their unit of account. They think about their profit in terms of, have I increased my supply of Bitcoin? They haven't thought about, have I increased my supply of dollars? Because they're accounting for their profit in their money. And they're thinking, my money is Bitcoin.

I don't care if the value of my Bitcoins are fluctuating. I just want to grow my stack. So Taleb is just describing the current reality. He's not just sort of precluding any possibility. The problem is he thinks he is. He thinks because we don't see it today, it's impossible forever. And I think that's a huge mistake. If you've been paying any attention to me or have been following me for any length of time, then you know I absolutely love Voyager. Every single time someone tweets me or asks me, hey, Scott, where do you trade and invest? The answer is always Voyager. They offer over 50 assets to trade commission free. I save so much money,

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Do it now. The irony of it being him who says that, if you, I mean, people have read his books. If you read Anti-Fragile or Black Swan, one of the key concepts is that risk managers approach problems incorrectly because they only base it on what they've seen in the past and not the fact that it could be worse in the future so if you see an earthquake you only manage risk at your nuclear facility based on the size of that

earthquake not realizing that that earthquake was bigger than the previous earthquake and itself was a black swan event so to have a mentality where you don't address the fact that something could just be evolving towards, it just to me is such cognitive dissonance. Yeah, there's a great irony, right? Bitcoin is the ultimate black swan and it's right in front of his face and he can't see it. He doesn't understand what he's seeing. It really is so crazy. So what makes Bitcoin superior to these other mediums exchange or stores of value? I mean, we love the narrative, obviously gold 2.0, but what is it about gold that is inferior to Bitcoin? Yeah. So in my article and in my book, one of the things I talk about is that for a lot

of people, it's really hard to wrap their head around, like, how does money get any value? Because money isn't like traditional financial assets like stocks or bonds or real estate, which have cash flow. And, you know, stocks have dividends, real estate has rent, and bonds have interest payments. And when you look at the price of a house, for instance, an investment property, you can say, well, this price of a million dollars is justified because it's producing, say, $70,000 in rent. But money doesn't have that. Gold doesn't produce any cash flow. Bitcoin doesn't produce any cash flow.

So money is valued in a different way. Money is valued for the attributes that make it good as money. And what roles does money have? We've talked about this. It has the role of a store of value. It has the role of a medium of exchange. So what attributes historically have been chosen by human societies? Well, there are things like portability.

So for instance, gold is a better money than cows because cows are hard to transport around. You don't want something that's really hard to move around. Divisibility, because you want to use it in trade, it should be easy to divide into smaller pieces. Fungibility, this is one that people don't always think about, but one unit of the form of money should be equivalent to any other unit of the form of money. So gold is better than diamonds because diamonds are irregular in shape and quality. So it's not as good for trade. And probably the most important value for any money is scarcity because people don't want to keep their savings in something that is super abundant or can be easily produced.

So gold is superior to sand, for instance, because if sand was money, then anyone could go down to the beach and become rich. And so the value of the money would disappear and everyone would say, no, I don't want to keep my savings in this. Whereas gold is very, very hard to produce. And there are other ones like established history. People tend to trust something as a store of value that's been around a long time. So gold has an advantage in that sense. But across all of the other attributes, Bitcoin is far superior to gold. It's far easier to transmit. I can send Bitcoin across the world very easily, whereas sending gold is incredibly costly and risky. Storage of Bitcoin is much, much cheaper and easier.

Like if you had a few million dollars of gold, you have to find a secure place. You need someone with guns to actually hold it. Like, so the physicality of gold is a disadvantage. And in scarcity, Bitcoin is something new, something we've never seen before. Gold is hard to produce, but the supply of gold does increase every year.

It increases by about 2% per year because miners sort of dig up more gold. And there's always a risk that there's some major innovation to mining. So people figure out a way to do cheap seafloor mining or asteroid mining that might sound far-fetched now, but someone could figure that out and the supply of gold could dramatically increase.

Whereas Bitcoin is ultimate scarcity. There'll never be more than 21 million Bitcoins ever produced by design. So that's something new that if you get some fraction of the total supply of Bitcoin, you know that can never be diluted. You'll know you have that percentage of the 21 million forever. And that's a really exciting thing as a saver, as someone who wants to keep their savings. You know, you can't be diluted by a government. You know, you can't be diluted by

someone digging up more gold. Your fraction of the total will never be reduced. Right. Amazing what math can do. Yeah. So it's interesting, actually, my team and I dug a bit deeper into the attributes that you compared in the article, which you just described, and tried to give a grade based on the American GPA, you know, up to a 4.0. And based on what you described, Bitcoin received a 91%, which is an A minus. Gold was about an 85% and a B and fiat was about a 77% with a C plus. I would have thought fiat would be a lot lower, but there were things where gold was favored over Bitcoin, like durability and fungibility, right? I mean, there are places where it's superior.

Absolutely. Yeah, that's exactly right. Like one unit of gold is equivalent to any other when you melt it down. Whereas Bitcoin, at the network layer, every Bitcoin is treated equal. Like you transmit one Bitcoin to another. The network doesn't care. It'll be transmitted. But because Bitcoin has an open blockchain, Bitcoins can become tainted in a way so that if someone uses some Bitcoins for illicit trade, like on the Silk Road, law enforcement agencies can trace those Bitcoins. And that kind of, in a way, reduces the

fungibility of Bitcoin a little bit because they can say, look, we don't want an exchange to accept these Bitcoins. So they're treated differently. That is kind of problematic. And it's another area where I'm willing to admit and say, like, this is a weakness of Bitcoin right now. But I'm also very optimistic that the privacy improvements to Bitcoin that are coming down the line are going to improve Bitcoin's fungibility. And you made one last point about fiat,

you know, not being as bad as you think. I think that's actually another really interesting observation because fiat currencies did develop in a way because gold does have disadvantages. And it's hard and, you know, risky to transport gold, and especially in large quantities. That's why promississory notes which were the first form of fiat money were developed by banks instead of like when someone does a deposit of

gold at the bank they get a piece of paper and then they can trade that piece of paper being worth the same as the gold and that was so much more convenient uh and so you're right fiat does have some advantages of gold and the ability to transmit value using fiat is certainly higher than with gold it's interesting to your point about fungibility obviously a centralized exchange or authority can view certain bitcoin as tainted as you said but that's sort of that's a again that's a now problem and not an evolution of it if you got to a bitcoin standard where you didn't have to rely on those centralized authorities to tell you that you could or couldn't get your money out or what Bitcoin would go anywhere. So that could be

something I would say that evolves, right? Yes. Again, completely correct. What will happen under a Bitcoin standard is that you'll be able to trade Bitcoin for anything. Merchants will accept your Bitcoin. So you can go to your local farmer's market or something. And if you have a few tainted Bitcoin, you can probably spend it in that way because the farmer's market isn't going to be checking the list of some other country saying that you're not allowed to trade this. And also, I think technologies like mixers, which mix Bitcoins and make them more anonymous, I think you're going to get better over time. And things like this latest protocol upgrade to Bitcoin called

Taproot are going to make it easier for people to conceal ownership of Bitcoin. And some law enforcement agencies are going to say this is a bad thing or a problem. But I think it's important. Privacy is an important right for people to have. And we take it for granted a little bit because people can still use cash in the US. And so we have, if you want to have some privacy, you can use cash. But it's kind of scary. Nation states are trying to move to a world which is cashless. And, you know, the country which is furthest along in this is China, but they want to have this almost panopticon society where everyone is watched at all times and everything you do is watched. I find that incredibly chilling. So I think it's important for money to have some level of privacy so that people can live in freedom. You know, freedom is a very important value to me.

And so I'm optimistic and hopeful that Bitcoin gets more privacy technologies in the future. Yeah, I mean, the evolution of money is obviously digital and we're not stopping technology. On the flip side, a central bank digital currency is so much worse for the people than a fiat currency, just as you touched on, because it eliminates all privacy. They want your taxes, they take it out of your wallet. They want

to drop your stimulus, they send it into your wallet. They want to know what you sent your grandmother for her birthday, it comes right out of your wallet. They can see every transaction and complete control of the money supply. I mean, it really is a train wreck waiting to happen, which will hopefully drive people towards Bitcoin. Potential big digital currencies are terrifying. Yeah. And we have an alternative, which gives me hope. You know, I was kind of pessimistic. I wanted to get involved in the political process in 2008.

I left my job at Google to go campaign for Ron Paul. And I became really pessimistic sort of seeing the political process up front. But I now have more optimism because I think we have an escape hatch. We have Bitcoin. And just owning Bitcoin is being part of this revolution, which is bringing more freedom to the world. Yeah, I agree entirely. Going back to the fungibility conversation, something that came up sort of not so long ago that I was thinking about. We've seen now, obviously, the clean Bitcoin as far as not the fact that it hasn't been used Bitcoin that's been proven environmentally safely mined as opposed to mined using coal or something like that? And we see a premium for environmentally clean Bitcoin. That's a really interesting thought.

I haven't thought along those lines the biggest concern i had was people talking about bitcoin being sort of dirty or being bad for the environment and using that as a political attack vector and people use these kind of tendentious soundbites saying that you know bitcoin uh if if it became money then we would boil the oceans and and bitcoin uses bitcoin uses more energy than some small country. But what these people are missing, the nuance that they're missing is that the majority of energy that's used for Bitcoin mining is clean energy. It's coming from places like the Sichuan province where they have this massive hydroelectric dams where the government overbuilt and they have excess energy capacity that isn't being used. And energy isn't fungible you can't take that excess in energy in the sichuan province

and transport it to texas and do something with it in texas right it just gets wasted so it's places like that and and iceland where they have a lot of geothermal energy that miners gravitate toward uh that they're looking for cheap energy that would otherwise be wasted to mine Bitcoins. And now there's great development in El Salvador where the president said, hey, look, we've got all this volcanic energy. We've got geothermal energy that comes from volcanoes. Why don't you come and mine here? So it's an interesting thought.

Maybe people will think this way. Some people will say, I'll only buy clean Bitcoin. I think ultimately as Bitcoin's fungibility improves, there won't really be a choice. You won't know what the source of the Bitcoin is. Maybe at time of mining, some miners will market the Bitcoins that they've mined in this way to get an extra profit.

They'll sell it above market price. And there are places that do this already. They say organic certified or whatever. And it's like, is there any difference here? Is this like, is this just marketing BS or is it legit? So, you know, it's an interesting thought that you bring up

because maybe miners in the future will do this. And they'll say, if you want clean Bitcoins, you pay this 20% premium. Free range, grass-fed Bitcoin for all, right? Kobe, Kobe quality Bitcoin. Yeah, I guess you could see it. And the whole thing is misdirection, obviously. To hear someone like Elon Musk talk about an energy problem when his car, I mean, his

car is run on electricity, just like the Bitcoin network. It doesn't matter how much electricity you're using, it matters where it comes from, as you said. So it's just really ironic to think about it in that context. Right. The one extra thing I'd like to say about this is that I think the idea that humans are using too much electricity is really an anti-civilization message. And I don't like it because human civilization has consumed more energy over time as civilization has developed. And as human progress has gone forward

and our standard of living has gone up, we should welcome that. Of course, we don't want to destroy the earth and it would be great to have innovation and have forms of energy that are cheap and renewable. That would be great to have innovation and have forms of energy that are cheap and renewable. That would be great. But we shouldn't just say energy usage is going up. That's bad.

We want people to have a better lifestyle. We want people to be lifted out of poverty. You know, in places like India and China where their energy consumption has grown dramatically over the last three decades, it's because they're becoming wealthier. They're not living in abject poverty anymore. And we should celebrate that. We shouldn't be saying, well, this is bad. We're using all this energy. We want people to live healthy, happy lives.

And that requires energy consumption. Human innovation and technology have always found new and creative ways to find energy, right? I mean, there's never going to be a lack of energy. We're never going to find energy. Right. I mean, that, that there's never going to be a lack of energy. We're never going to run out of it. And clearly the trend is towards energy. That's better for the planet, I would say. So I agree with you a hundred percent. Right. And the market, I believe the market will figure this out also because like you say, people will start to demand it. Some people will say like, I want to get,

I want clean energy and, you know, people putting solar panels on their houses and they're demanding it from their politicians. So I think that the world is going to move in that way. It's not so much that Bitcoin consumes a lot of energy. The real problem, if you're an environmentalist, is looking at the energy mix from the energy grid and trying to solve the problem upstream rather than downstream. Instead of saying people shouldn't use energy, you'd say, well, how do you fix where the energy is coming from? Focus on that problem. And there's a lot of innovation that could be had on that side. So I think it's a little bit mistaken to look at Bitcoin's energy footprint and bemoan that it's growing. It's interesting that you brought up the Sichuan province

because it's been so in the news of late with China shutting down all the miners. And like you said, it's a matter, it's a region where they have hydroelectric and it's primarily clean energy. But it seems that China is taking sort of a sweeping heavy-handed approach and just indiscriminately shutting down all mining

to reduce their carbon footprint, or in my estimation, because it's competing with a central bank digital currency, approach and just indiscriminately shutting down all mining to reduce their carbon footprint, or in my estimation, because it's competing with a central bank digital currency. But what do you make of the Chinese mining ban, which actually seems real this time? We've heard about it a million times. What do you think that means for the network? And do you think, I mean, my argument is that it goes, it becomes more decentralized, it goes to places that are using clean energy, great. But what do you make of the mean, my argument is that it goes, it becomes more decentralized. It goes to places that are using clean energy. Great.

But what do you make of the move out of China by miners? So my short answer is that this is really great for Bitcoin and it's really bad for China. In a way, we should be thanking China. Through the overproduction of energy, they have subsidized the security of the Bitcoin network for a decade. And now when mining has become kind of centralized in a way in China, they're doing us this huge favor and saying, oh, all mining out of China, they're massively decentralizing mining, which is great for the Bitcoin network. China was really well positioned for a Bitcoin monetization. If Bitcoin

became the world's reserve currency, they were in a great position. They had a huge fraction of the mining happening in China. And at a single stroke, they've destroyed that position. And this is going to be something that's much harder to reverse than their prior bans, which were things like bans on exchanges, which they could turn on and off. And with exchanges, it's easy to move servers and kind of get around these bans. But when you shut down mining, that's physical infrastructure, computer servers that are being turned off, that are no longer producing money and whose value is diminishing over time that need to be moved. So this happens at huge cost. So if China ever

decides, hey, that was a bad idea, we're going to let people mine again, miners are going to be much more skeptical. They're going to say, well, this is a huge risk. I don't know if I want to deploy capital to China again. So I think this is going to be a long-term shift in mining out of China. One small disagreement I have with you is I don't believe this has to do with China's central bank digital currency. I think they probably still don't pay attention too much to Bitcoin because it's not that big. I think it has to do with internal corruption in China.

I think it has to do with, you know, mid-level or low-level Chinese bureaucrats in the Communist Party who are using their energy grid to enrich themselves through Bitcoin. And I think party officials have made it a big priority to cut down on corruption because they're not living in kind of a democratic society where someone's really bad, you know, get voted out. They have to kind of control this internally. And I think it's a problem that's been increasing in China is this kind of city level corruption or province level corruption. And I think that's probably one of the big motivations. And really, it's they've missed the forest for the trees. They're looking at one problem and completely ignoring the benefits

to their nation of Bitcoin. Eventually, they'll come back, but they've done such a huge damage to this industry in their country. But as Bitcoiners, I think we should all celebrate this. China has given us cheap electricity for a decade to secure the Bitcoin network. And now, Bitcoin mining is going to spread around the world. It's going to be in Texas. It's going to be in Iceland. It's going to be in El Salvador. And it's going to be much more resistant to government attack. Yeah, it's almost like they waited till the perfect moment when the network could actually support being moved out of China to go ahead and do this for it. So really astounding. And we're seeing, to your your point not only are

they cracking down we've seen in szechuan they're saying you have two weeks to get out right not and that means your miners your infrastructure your racks everything like eviction notices effectively so we're seeing you know the fifth largest miner moving to kazakhstan we saw a report of three metric tons of mining equipment being moved to Maryland in the United States. You're right. Those are not coming back. You're not shipping that. You're setting up shop. You are setting up your entire infrastructure in another country. You're not coming back on the whim of a Chinese bureaucrat. Yeah. And there's this great picture tweet I saw on Twitter of a Chinese miner who was having a plate of barbecue in Austin

in Texas because he's moving one of the biggest miners in China, moving his infrastructure to Texas. And now he's going to live a different lifestyle with brisket and, you know, Kansas City ribs. It's going to be great. I'm excited for it. Yeah, I think it's awesome, too. So that said, we spent a lot of the sort of negative news, obviously, which comes back every cycle into positives. But what news is there that's truly negative? Or what news could there be that would be a true threat to Bitcoin or the network? I'm still concerned about a state attack, a nation state attack. I still think Bitcoin is not large enough that it's invulnerable to this. And if there was a concerted nation state attack by nations around the world to stop

Bitcoin, to stop people being able to buy it, to stop them transmitting it, I think it's still vulnerable to that. And I view this as kind of a question of political capture, at least in the democratic nations. Does Bitcoin get to the stage of enough political capture that it becomes politically infeasible to attack it? And the example I like to give of this is the ride-sharing company Uber. They had this kind of business philosophy of let's just go into cities. We're not going to ask for permission. We're just going to start our business. We'll hire a bunch of drivers. People will start using it. And the local taxi lobbies were always very hostile to Uber and they'd go to the local city government and say, you need to regulate this. You need to shut it

down because this is just unregulated competition for us and we don't like it. But by the time city governments got their act together and tried to regulate Uber, that they would have this very strong constituency of people who are employed by Uber, the drivers and people who pay attention and say, well, my constituents like this. And so we have members of Congress in the US now on both parties who are pro-Bitcoin. We have our first US Senator who owns Bitcoin and who's openly said, I want to educate my fellow Senators about why Bitcoin is important.

Now, I think this political capture will happen in the next four or five years. Well, there'll be such a large fraction of people who own Bitcoin that shutting it down will be the equivalent of trying to shut down the 401k program. If the government said we're shutting down 401ks and we're confiscating your 401ks, there'd be revolution. There'd be riots on the streets because that's people's livelihood that they've saved over a long period of time. I don't think Bitcoin is there yet, but I believe it will probably get there. Now, governments have had their first inkling that Bitcoin is a threat. Central banks are starting to talk about, you know, what would happen if they lost control over monetary policy.

And if Bitcoin did become this global money, it would be bad for them. They would have less control. But they're really not in the stage of taking it that seriously or acting on it. So there's this kind of race. Does Bitcoin get to enough political capture before nation states kind of wake up and say, whoa, this is a huge threat. This is a threat to the way that we control monetary policy. And I think that's an open question.

And we shouldn't be too blasé about dismissing it as a real risk. I mean, we move a lot faster than they do, right? I mean, governments are inherently slow. So I agree with you. I think it'll be so far gone by the time they care. We finally are hearing them talk about it. But we just saw the SEC and they have a leader in Gary Gensler who understands blockchain, is passionate about it saying,

wait another year to regulate this or worry about it. And to us in the community, we thought it's coming, they're looking at it, it's so important. And they were kind of like, oh, we got other things on our agenda. Yeah, we're getting some political capture and that's in that sense that some of the bureaucrats are already pro bitcoin and are willing to defend it and you have these different factions within within the government where the sec is somewhat hostile in the way they're treating bitcoin and and um uh what's the i think it's finra what are the other departments in the treasury which are trying to impose these other regular banking regulations on Bitcoin, which are kind of in a way, an attack on Bitcoin because they want to be every transaction to be sort

of traceable so that you have a name associated with it. But then you have other people like in the SEC who are, who are very pro Bitcoin Hester Pierce is very pro Bitcoin. So you're already seeing, you know, pockets of this capture where people are defending Bitcoin from within the government. And we're going to see that. It's going to be interesting to see whether the people who are really anti-Bitcoin get their act together. And I'm optimistic like you. I think people in governments are generally slow to move

and slow to get anything done. Everything moves very slowly in a government compared to the free market. So I'm very optimistic that we will get to such a level of adoption that Bitcoin can't be attacked, at least in the democratic countries. Listen, I mean, we know that the United States is a government of crony capitalism and that billionaires and banks don't make decisions without insider knowledge of what's likely to come. So it's always been my argument that in the last year, as we've seen some more institutional adoption, that's a pretty good indication that it's not getting shut down in the United States because those billionaires would not have made those decisions without knowing that it's not going to get shut down in the United States. Yeah. And usually financial institutions and corporations are more successful at lobbying the government

than regular retail investors. So that's another moat around Bitcoin, which protects Bitcoin, is that you have these people who don't want to see the value of their portfolios being destroyed. And if they were under attack, they would step up and say, don't do this because it'll hurt me personally and my institution or my corporation. Right. But weren't we supposed to short the bankers and long Bitcoin? I find it very interesting. And I know that we're running out of time, actually. So this might be a good topic to sort of conclude on, myself included.

We cheer institutional adoption. We cheer huge money coming in. We cheer the banks opening this. But isn't that somewhat counter to the ethos of why many of us got into Bitcoin in the first place? You talked about it earlier, being a citizen in a country that has a hyper inflated currency and the power of Bitcoin to transact and store your value. And that's the opposite side of the spectrum of, hooray, Goldman Sachs is going to have Ethereum futures, right? Yeah, you know, I think this is, I see the concern and I think it's a legitimate and a valid concern.

But I think this is also an inevitable part of something becoming global money. Everyone's going to have it, including these financial institutions. And the thing that makes me happy is that the people who were early on in Bitcoin were mostly people who were ideologically aligned with freedom. They believe in freedom and, you know, government having a smaller role in society and people having more responsibility for themselves. So even if these

financial institutions come in, I think that the early adopters are going to have an outsized political influence in a new society where Bitcoin is money. So that's what I'm excited about. And I think also Bitcoin tends to transform people in a way, at least I've seen this, where people see this as a better form of savings and and because it can't be debased they change their mindset to like oh i want to trade this to i just want to accumulate this i want to get as many sats as i can and it transforms them in the sense that they become more savings oriented rather than consumption oriented uh And this is a term in economics for this, lowering people's time preference.

They become more future oriented. They become less gamblers. They care more about like, I want to save more. I don't want to spend as much because I want to accumulate this thing that I think is going to be very valuable in the future. So I think it will have a transformative effect on the morals

of society, even those parts of society that we don't really like or agree with. I think it'll transform those institutions as well. We've seen that plenty of times with some of the individuals who have come in. Even Michael Saylor himself was a Bitcoin detractor in the early days and now is arguably our biggest proponent and cheerleader. And I just love sort of to conclude what you just said. And you said it earlier, you view accumulating Bitcoin as something you're doing for your children. It's a better version of a savings account that doesn't exist anymore. And I tweeted almost the exact same thing the other day, something the effect of three-day bear market, three-month, three-year, 30-year, I don't care. I'm not selling it's for my kids, you know, and I think that that really is the

mentality that most people eventually come to. Yeah. And the number of people who have that mentality is growing day by day. And maybe it maybe it sort of doesn't grow as quickly during bear markets, but it is growing continually. And eventually I think it's going to get to everyone. Yeah, I certainly hope so. It would certainly help the world and help us. Well, so where can everybody find you after this conversation and keep up and get the book? Yeah, so I'm real underscore Vijay at Twitter, on Twitter, where I tweet a lot. I published my book on Kickstarter, which people may not be familiar with, but it's a way of launching new products. I am sort of committed to getting books to the people who supported my Kickstarter first, but people will be able to get

the book on Amazon probably within about a month. So keep an eye out for it. It's not there yet. I want to get the books to the people who really, you know, put themselves forward and said, I want to support you. I feel a sort of moral obligation to do that, but I'm going to get it out to people really quickly. So not there yet, but keep an eye out for it. Oh, thank you so much for taking the time to do this. Really just incredible insight and very well in line with how i think about things now and funny hearing you kind of describe the evolution of people because i just came in as a trader in 2016 and didn't actually care about the asset myself it was

exactly how it happened for me before i got orange killed so to speak so i think people are going to find some really great uh information and here. So thank you once again. Thanks, Scott. It was really, it was awesome speaking to you.