Unchained - Why Bitcoin Now: Meltem Demirors and Lyn Alden on the Perfect Conditions for Bitcoin - Ep.197

Starting point is 00:00:00 Hi folks, we have a fabulous episode with Melton Demiris and Lynn Alden on the macro environment surrounding Bitcoin pegged to the U.S. presidential election, which takes place the day this show comes out. However, first, I would like to add context to the unchained interview with Andre Cronia of Uren Finance. Whether or not Andre's statements in this episode are inaccurate is up to interpretation, but the additional context can help you all decide. During the episode, I asked Andre about a dispute he had with Phantom and XAR, which involved. involves Greg Vanderspay of Z-A-R Network. And Andre said, quote,

Starting point is 00:00:35 there is no contractual agreements between me and them. The additional context I would like to provide here is that Greg, Andre, and two other parties had a memorandum of understanding dating back to May 2019 to establish a blockchain platform called ZAR-Z-R network. Later, a contract between an entity named Kirk Newtown, of which Andre had 25% and the Phantom Network was signed, in August 2019. Andre also said, quote,

Starting point is 00:01:05 The long and the short is all of this only happened after Yearn's success. Andre dates Yerun's success to May 2020 when Yerne reached a total value locked of more than $10 million. Greg's first legal letter to Andre was June 16th, 2020. However, text messages show discord between Andre and Greg in April. I also asked Andre about their allegations that he was running URN. finance, urine. Exchange, and urine.fI on their infrastructure. Andre said that the civil action against him was, quote, based on the fact that I had unlawful access to our Amazon Web Services account,

Starting point is 00:01:42 which was registered under my credit card that I have proof and evidence for. Greg says it is true that Andre registered those on Andre's personal AWS and with his personal credit card. However, on the who was lookup for urine. finance and urine.combe, the registrant organization, which is a another word for owner is ZAR network spelled ZAR. And that's the blockchain platform described in the memorandum of understanding. Also, Greg says that Andre originally tried to register 12 domains using Greg's personal credit card and Greg's AWS account, but that when the payment for the domains for urine.finance, urine.fI, and urine.com exchange was declined on Greg's card. Andre registered those on his personal credit card. Andre claims that it was

Starting point is 00:02:30 a shared AWS for the company. Greg says it is his account. In a text exchange, Andre informed Greg he had accidentally registered those domains on what Greg calls our account, and Andre responds he thought he was logged in on his account and so would reimburse Greg. Greg responds, no need at all, dude. Additionally, it looks like Andre had stored the logo that is now used as the YRN logo on the ZAR XAR Google Drive and the I-Leverage.cominian. I-Lewverage. Adelaide.finance and I-trade.finance domains were also stored on Greg's AWS. And those domains now show notices that they are, quote, the subject of an active criminal investigation. Case number CAS 176 slash 7 slash 2020. Of fraud, theft, and crime and injuria with the South

Starting point is 00:03:20 African police services. The notice says this also applies to a list of other domains, including urn. dot finance. Lastly, Andre said in the show, quote, Greg himself later came out and said there is no case against me. However, Greg says there is an active criminal investigation into Andre opened in C-point Cape Town. Andre says his attorneys have looked for the case but have not found anything. I reached out to the South African police in multiple ways and was not able to determine the validity of the claims on either side. However, the police did say that the notice on the websites was not placed by them since the contact address is a Gmail address and not a South African. African Police Services or SAPS email. I and the team at Unchained regret not reaching out to XAR or Phantom in this dispute for comment before publishing the show. Now onto my conversation with Milton and Lynn. Hi everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin, a journalist with over two decades of experience. I started

Starting point is 00:04:27 covering crypto five years ago and as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. Subscribe to Unchained on YouTube, where you can watch the videos of me and my guests. Go to YouTube.com slash C slash Unchained podcast and subscribe today. Crypto.com, the crypto super app that lets you buy, earn, and spend crypto, all in one place. Earn up to 8.5% per year on your BTC and more than 20 other coins. Download the Crypto.com app now to find out how much you could be earning. This is the seventh episode in the Why Bitcoin Now series, in which we take a closer look at Bitcoin

Starting point is 00:05:05 in the context of macroeconomic forces, including the pandemic and the economic response. The series launched at the end of June with a look at the macro environment then and how it intersected with Bitcoin. And now, four months later, we're going to regroup on that topic amidst the presidential election to cover the many macro developments since then and how they impact Bitcoin. Here to discuss our main. Melton Demirrars, chief strategy officer at CoinShares, and Lynn Alden, founder of Lynn Alden Investment Strategy. Welcome, Meltem and Lynn. Hi, it's so exciting to be here. And I'm so thrilled, I have to say, to finally do podcasts with Lynn. Yeah, thanks so much for having me. And I'm glad to meet

Starting point is 00:05:47 both of you. And I'm really excited for this. So let's just start with kind of like a little price check in before we dive into all the macro stuff. As of the time of this recording, Bitcoin has passed the three-month mark of having a price above 10K. During the 2017 to 2018 bull run, it only stayed above that price for two months. What do you think is the significance of this? And what does it say about how Bitcoin and the circumstances surrounding Bitcoin have changed over that period? Lynn, why don't you kick this off? And then I'll go into the crypto nitty-gritty. Sure. So, I mean, you know, I look a lot about Bitcoin in context of the halving cycle. So this is actually pretty normal for where we are, you know, this many months after the having.

Starting point is 00:06:31 And so, of course, every cycle you don't know if it's going to perform like the last couple cycles have. But it's one of the strongest kind of patterns we have so far, even though it's a pretty small sample size. So combining that with the macro backdrop, it's not too surprising to see how Bitcoin's holding up. You know, I think a key thing to watch is that, you know, going forward, a lot of the macroeconomic situation, in addition to being tied to the virus is very tied to stimulus. And so we see, you know, whenever there's not enough stimulus, we see kind of disinflationary pressures reassert themselves. And it's going to be interesting to see if, you know, if Bitcoin's kind of bullish-having cycle, how that relates to, you know, potentially that volatile aspect. And so far, it's holding up,

Starting point is 00:07:14 you know, quite well compared to, you know, compared to precious metals, compared to equities. So far, it's kind of doing its own thing to some extent. And I'll just add on to what Lynn said. I think one of the other interesting things, you know, since the inception of Bitcoin and the writing of the Bitcoin white paper, which we're going to celebrate the 12-year birthday this weekend, which is exciting. One important thing to keep in mind is we've never really seen how Bitcoin behaves during an economic recession. And at this point, I think it's fair to say we are in a recession after two quarters of back-to-back economic contraction. So what I think is really interesting is for the first time, we are actually watching Bitcoin in the environment for which Bitcoin was sort of designed, if you will. If you look at what's happening, which Lynn has alluded to and it has written about in so much of her research, the environment we're in right now that is unfolding, you know, there's all this money printing going on when money printer go burr, right, we anticipate inflation will happen just because it hasn't happened yet. And just because from a CPI or

Starting point is 00:08:13 consumer price index perspective, we aren't feeling inflation doesn't mean it's not rampant in the market. If we look at the facts, U.S. home prices are seeing their fastest quarter over quarter, quarter, increase in recent history, I think in 40-year history. So home prices are going up at a very rapid pace. We're seeing equities, right? Equities are trading at 2025 forward PE multiples. So people are pricing in their expectations of the future today and they're looking for growth. So I think Bitcoin is actually starting to find its place in the narrative. We talk about narrative all the time in the crypto space. And I think one of the things Lynn alluded to when she talked about the having psyche, you know, this is one of the narratives. It's also substantiated.

Starting point is 00:08:53 with a lot of data, but the halving narrative is a consistent one we've had over sort of the last 12 years of Bitcoin. And I think what we're seeing now and the reason I talk about all of these facts is this narrative that we've talked about in the Bitcoin community for, you know, the last seven years that I've been in it is now finally unfolding in the real world. And so watching Bitcoin's behavior in this environment, I think is really exciting. To me, you know, we're going to continue to test Bitcoin's strength. I think Bitcoin's decoupling from equities, it's been interesting to watch. Bitcoin's breakout from gold has been interesting to watch, but until this actually plays out and we have the data and the evidence,

Starting point is 00:09:33 which again, that's what I love about Lynn is she's like, show me the receipts, right? Show me the receipts. So until we have the receipts to prove Bitcoin's behavior in this environment, we've hypothesized about for so long, it'll be difficult to sort of say definitively what'll happen. But my view, I'm very bullish, very excited. And as our friend Raoul Pal likes to say, irresponsibly long. Yeah, I love how you phrase that when you said that this is the environment that Bitcoin was designed for. In a way, that's like perhaps a more succinct way of explaining why I'm doing the series now, you know, when the pandemic started happening and the stimulus response came in. I just thought, how are these not the perfect conditions for Bitcoin? And it should be a time when I

Starting point is 00:10:18 would have expected that a lot of people would be doing research about it. So that's why I was like, I should probably do a series on all this. And so another big development going on is that the day this episode comes out will be the presidential election. And Lynn, you wrote up a really thorough analysis of U.S. GDP growth, federal debt growth, and stock market performance under Republican and Democratic presidents. And something that struck me about it is that the GDP and stock performance was better under Democratic presidents than Republicans, Republican ones, which surprised me because I thought markets generally went up on. positive news for Republicans, you know, for instance, like when Trump won the election in 2016. So, and then actually the other thing I noticed was, you know, even things like federal debt have tended to rise in Republicans more than Democrats. And then, again, the conventional wisdom

Starting point is 00:11:08 tends to be that Democrats are the big spenders and Republicans are fiscally conservative. So why is there this disconnect between the narrative and the data and how do you think the markets will react to a Trump win versus a Biden win, especially one in which their party also takes the legislature if that happens. Yeah, and I think, you know, one thing I kind of point out in the article was the difficulty of forecasting, because first you have to be right about the outcome and then write about the, you know, when you get that outcome, how does the market respond to it? So one thing I pointed out is back when, you know, when Trump and Clinton were going together, the narrative was that, you know, because Trump was the outsider, he was the long shot. And so people were like,

Starting point is 00:11:47 if he wins, like the markets are probably going to crash. There were a couple economists that were kind of pointing that out. And so when he did have that upset win, markets immediately sold off for a few hours that night and then just soared, of course, in the months that followed. And that's, of course, because they were correctly pricing in the corporate tax cuts that were going to come. And so, you know, we've seen that play out. Now, going forward, I don't have a strong differentiated between if you get a Trump win and a red hold in the Senate or if you get a Biden win, I think there are certain sectors that could perform very differently. But the kind of the two things I'm weighing against each other are, of course, if you get the blue sweep, you have a higher probability of corporate tax rates going up and potentially other taxes going up.

Starting point is 00:12:32 But you also have potentially more stimulus spending, which could benefit some of those companies' bottom lines, especially if you look a little bit more in the cyclical stocks or their value stocks. On the other hand, if you have a kind of a more of a red sweep, you know, you're kind of increased the probability that you're locking in the existing tax cuts and potentially getting more. tax cuts, we're also potentially factoring in somewhat lower stimulus spending. And I think actually the thing that people aren't focusing on enough is whether or not you get a gridlock scenario. So I'm actually paying a little bit closer attention to the Senate race as it pertains to asset prices than I am to the presidential race because in many ways, you know, Trump's not, you know, he doesn't fit cleanly in with either party to some extent. He's not a, he's not, you know, kind of a traditional fiscal conservative. He wants very large stimulus. So the same thing.

Starting point is 00:13:21 Senate is a little bit more of a battleground between kind of physical conservatism and some of the more progressive aspects that we're seeing. So I'm actually focusing on more so who wins the Senate because, for example, a Biden win with a red Senate is a very different outcome than a Biden win with the blue Senate or even a Trump win with a red Senate because he could potentially get more things through that Senate than Biden could. So I think that's kind of the key thing to look out for is, is how kind of gridlocked it is or how decisive it is. Melton, do you want to add anything to that? Because I was a little bit, it just wasn't the kind of analysis that I, or the conclusions of it were not what I was expecting. And that made me wonder how things would go, you know, with this election. Yeah, absolutely. Well, this is why I love reading Lynn's research, like not to fan girl for Lynn, which I do on a regular basis. But she has the receipts, which obviously, you know, one of my big focuses, particularly with the way I look at the crypto.

Starting point is 00:14:20 system and what I like to share is, you know, let's look at the data, let's look at the facts, and see whether those facts substantiate the narrative. And I think what Lynn's research piece very helpfully points out is the facts, right? When we look at the data, they don't support the popular narrative. I think she's absolutely right in terms of the Senate and House races mattering much more than the presidential race. The other thing that's been really interesting to see that I don't think we talk about enough is stimulus and tax cuts, right? And typically, I think the way people frame their thinking is Democrats are all for stimulus, social aid benefits. People call them quote unquote socialist policies because they focus more on distributive economics

Starting point is 00:14:57 and sort of distributing wealth and creating a bigger state and sort of this idea of, you know, distributing wealth. Whereas I think the Republicans and the way the GOP is sort of framing policy right now is in the form of tax cuts, right? So minimizing sort of the amount that gets taken out of paycheck, making sure that some of the regulatory restrictions that are making it more challenging, this is their framing, not mine, for certain businesses to operate or removed, making it easier for people, you know, and part of this also really matters in what's happening on the Supreme Court right now. If you'll recall, RGB was staunchly anti-corporate, and she defended workers' rights. Amy Coney-Barritt, you know, we don't have that much data about her rulings,

Starting point is 00:15:42 but my sense is she's probably more pro-corporate and less workers' rights. I anticipate there will be some erosion of workers' rights under the current construction of the Supreme Court, which is important to consider. But I think what people mistake is stimulus and tax cuts have the same effect in the sense that they create a massive deficit. And the story here is, regardless of who gets elected, we have a massive, massive deficit in this country. And then you factor in. One really important thing that I think neither party talks about is unaccounted for liabilities, right? So typically if people are, you know, putting together the balance sheet, if you will, for United States, and we have tax revenues every year on the scale somewhere between

Starting point is 00:16:22 four and five trillion dollars. And then we have all of these liabilities, which is our spending. We have a bunch of unfunded liabilities in the form of Medicare, Medicaid, and Social Security. And those unfunded liabilities are only going to get larger as more and more people start to retire, right? We are seeing the biggest shift in our labor force ever. We're seeing supposedly a massive generational wealth transfer, but health care costs are highly, highly inflationary and continuing to rise. And so my biggest concern is this. Under either party, we have a huge problem with the deficit. We have a huge problem with the liability of Social Security, Medicare, and Medicaid. We have a population where wealth has disproportionately accrued to the older generations and

Starting point is 00:17:05 younger generations are not accumulating wealth. So what we have is a setup for a cataclysmic retirement crisis. And in this environment, there is no possible way, I don't care if you're blue, you're red, you're orange, I don't care what color you are. In this environment, there is no possible way for any party to do anything other than continue to inflate 401Ks and retirement accounts and continue to inflate home prices, which constitute the majority of wealth that the average American holds, right? The largest asset they typically have is their 401k or their retirement account and their home value. And in this environment, both sides, they have to print money. It's not even a partisan issue.

Starting point is 00:17:43 What this leads to, and this again sort of goes back to, I think, a lot of what Lynn writes about, there is no foreseeable way out of this debt spiral or money printing spiral. It is completely and fundamentally unsustainable. And so I'm just, you know, I'm very interested to see over the next four or five years how political parties might actually start to change because of this wealth gap. I'm in Texas right now in Houston. young voters are turning out in droves, right? The power is shifting. States that were previously red are becoming purple or in some cases may flip blue. States that were blue in the past are

Starting point is 00:18:21 starting to become maybe purple or shifting towards reds. Like the battleground is shifting, and people don't talk enough about the demographic changes that are influencing those shifts and the underlying sort of culture war that is emerging between the old way and sort of this new way. And at the end of the day, you know, I'm not going to work 40 hours a week as a 25-year-old so I can pay 80% of my income, you know, to make sure grandma and grandpa have medical care and can live comfortably in retirement. That's not going to fly. So I'm very curious to see how these dynamics unfold. And I don't think people talk about that enough in terms of sort of the political landscape. We've had a number of unique circumstances this year. The pandemic hit. And we saw record unemployment, and especially in the U.S., And obviously certain industries pretty much came to a near halt. But then at least also in the U.S. we saw the U.S. government deployed $2.6 million, a trillion dollars in stimulus.

Starting point is 00:19:21 Add nine zeros, Laura. Add nine zeros. Yeah, things would look a little different if it was $2.6 million. But anyway, there was about $20 trillion in stimulus deployed overall worldwide, according to the IMF. And I just wondered, how would you say, these countervailing factors, you know, the record unemployment and these industries just coming to a halt against all the stimulus. How would you say that those have affected the macro environment and

Starting point is 00:19:49 Bitcoin so far this year? So a big thing I'm kind of focusing on is where we are in the long-term debt cycle. So a lot of my work, you know, Ray Dahlia popularized that concept and it's something that I've incorporated as well, which is that, you know, you have the normal five to 10-year business cycle. But, you know, they don't just, every time you get to the end of that cycle and restart, you don't start fresh, right? So every cycle, you get lower and lower industry rates, you get higher and higher debt levels. And he string a bunch of those together until you hit the zero bound in industry rates and until you get extraordinarily high debt levels as a percentage of GDP. And so then that subsequent de-leveraging event looks very different than,

Starting point is 00:20:28 you know, the, say, the five or six or seven normal de-leveraging events that transpired before then. And so the last time we were in a situation where the long-term debt cycle was unfolding, was way back in the 1930s and 40s. And so it's, you know, it's a very challenging period to compare to because, you know, technology is so different, culture is so different. Geopolitics are so different. But it's the closest thing we have to in terms of where policymakers are in terms of fiscal monetary policy.

Starting point is 00:20:55 And that's actually true that the same kind of structures in place for most developed countries in the world and to some extent emerging markets, but mostly it's a developed market phenomenon. And so, you know, if this pandemic had happened and, say, a much less levered world. The response could have been much smaller because, you know, people would have had more, say, savings, less debt levels. And so, you know, stimulus could have been more targeted, more specific. But because it's such a highly levered system, and so, you know, the impact of shutting down a highly levered system is so systemic, that's why we've seen such massive stimulus. And, you know, the federal

Starting point is 00:21:32 government, for example, went into this running trillion dollar deficits with, you know, with debt to GDP ratio is not seen since the, you know, the 1940s. And so this just blew out that fiscal situation and pressure on the fact that housing and private and corporate sector debts are still extraordinarily high. And so that's kind of how I'm looking at this. And that's why, you know, the election to some extent, it matters in the sense that, you know, how gridlocked it is. And there will be specific differences between who wins. But as Melton pointed out, whoever wins, the deficits are still going to be continued to be very large, years out, regardless of almost any political outcome. Yeah. And I'll add to some of what Lynn said. I think the other thing that's really notable,

Starting point is 00:22:14 Laura, I mean, we saw this with how stimulus was implemented, right? Large corporations who have spent decades doing share buybacks, paying large bonus packages and basically, you know, operating on really high levels of debt, turned to the government and needed bailouts to stay afloat. And I think that is, and like endemic to a form of corporate social. Like we don't live in a democracy. We live in a corporate socialist society where the government takes money from taxpayers. 75% of tax revenues come from individuals. 75%.

Starting point is 00:22:49 Only 11% comes from corporations. So they're taking taxpayer dollars, right? And they are using it to finance bailouts for large corporations. It happened in 2008, which is where we learned that this was totally acceptable behavior. And basically other than a handful of groups like, you know, occupy Wall Street, nobody really cared. And bankers walked away, we know, with massive bonus packages and this process continued for another 10 years. Now it's happening again, you know, government's going to do what they can get away with. You know, people have talked a lot about

Starting point is 00:23:20 sort of the cantalon effect or the fact that people who are closest to the money printer are those who are most likely to receive bailouts. And you see this, right? The private sector has ingratiated itself with the public sector. There is very little distinction here. And it's really Wall Street, that's driving policy when it comes to the stimulus, right? And both sides, again, I think people try to, you know, differentiate political parties by their policies, particularly their economic policies. I call BS, right? I'm not going to cuss, but it's total BS.

Starting point is 00:23:50 They're one in the same. Both parties are one and the same. They're going to engage in the same behavior. Some will be more over about it. Some will be more covert about it. Some will be more, you know, in your face. And we've seen with Trump's sort of personal style, that he is very overt about his actions, but the Democrats are really no different in their

Starting point is 00:24:09 behavior. And they were complicit in one of the largest sort of tax fraud sort of instances with TARP, right? There are billions of dollars that were unaccounted for. There are still billions of dollars that are unaccounted for. So I think the same cycle is sort of continuing. There's a total lack of accountability. There's a total lack of responsibility. There's a total lack of leadership. And so I don't see this changing any time soon. And the, the prevailing ideology, it's not just in the U.S., it's everywhere, spend, spend, spend. The last point I'll make, which I think is interesting is, you know, Lynn, you just said zero is the limit.

Starting point is 00:24:46 Zero is no longer the limit, right? Like a Mervyn Goodfriend predicted this many, many years ago. Mervyn Goodfriend, you know, he predicted NRP or negative rate policies. He also predicted that the only way you could implement NRP or negative rate policy was through a central bank digital currency or some way to keep people from exiting the system. And so again, like, we're in the setup. We're entering, you know, people overuse this phrase, but we're entering an unprecedented period in history. You've never seen something like this before. But rates are zero for the foreseeable future. Inflation target is

Starting point is 00:25:18 2 to 2.5 percent. How does that work? So to me, the answer then is it's Bitcoin, it's gold, right? There are assets that people believe are resilient in the face of inflation. And what's interesting, the last thing I'll say, which I already said, but one more thing. So So people like to say, you know, the stock market, oh, it's bullish stock market, is overperforming. Stocks are not going up. What's happening is the value of the dollar is going down, right? And that really, I think, is the fundamental framing that people don't understand until they start to grasp the idea of Bitcoin and things that are scarce in nature.

Starting point is 00:25:52 We can print more dollars. We can't print more Bitcoin. The reason the price of stocks is going up is because there are more and more dollars in the system chasing fewer and fewer assets. And so again, what I think this means for Bitcoin, if I'm looking at my portfolio, right, let's say I'm an advisor and I charge 2% to my clients to manage their portfolios and I have them in a typical 6040 portfolio, meaning I have 60% in equities of 40% in bonds. My 40 just got wiped to zero.

Starting point is 00:26:20 My 40 is now zero. And so there is no way that my client is going to continue to pay me 2% to give them zero or very close to zero. So how am I going to deliver performance? how am I effectively going to diversify and how am I going to keep pace with inflation? And I think all across the world in investment committees, these conversations are happening. And they have to happen. They're starting slowly.

Starting point is 00:26:43 But I think as this realization sets in, right, with the boomers who are running these banks and no offense because they generally are men in their 50s and 60s who have a certain set of beliefs of how the world functions. And that belief has been completely shattered. they have not yet adapted to their new reality, but they soon will have to. I'm sure, Lynn, you've been talking to many banks who are like, what do we do? We've been talking to banks and asset managers who are asking, what do we do? And is Bitcoin maybe part of the answer to how we stay relevant, how we keep AUM, and actually deliver a product that our clients will pay for? It's like it's not rocket science, right? It's simple math. It's addition and multiplication. like any number times zero is zero.

Starting point is 00:27:31 And Lynn, are you having similar conversations? Because I do wonder if this is part of, you know, the fuel that's led to things like the recent J.P. Morgan research note that finally years after many of us have been in the space and recognize that, oh, yeah, some of the assets in Bitcoin could be in gold could be transferred over to Bitcoin or things like that. you know, they finally published something like that. Are you noticing similar thoughts from other traditional investors? Absolutely.

Starting point is 00:28:06 I mean, you know, one of my common questions from my research clients is, you know, what do I do with like the, you know, the bond portfolio, you know, the portion of my portfolio that's bonds because, you know, they're worried about, they're looking at equities and they're saying, okay, you know, so stocks in many cases are quite expensive based on most metrics. On the other hand, the one metric where stocks are not expensive is the equity risk premium. So if you compare, say, the S&P 500 earnings yield or the dividend yield compared to the 10-year treasury, that's actually still moderate. And it's because as expensive as stocks are, bonds in many ways are even more expensive if you look at it in that way because their yields are so low.

Starting point is 00:28:43 And so they're saying, you know, what's left? So I often point to, you know, certain foreign markets potentially offer better risk-woured scenarios with, you know, more attractive valuations relative of their growth, potential. I also point to alternative assets like gold and, you know, Bitcoin. I think, for example, gold can replace a segment of a bond portfolio, for example. And so, you know, it's definitely like one of the most common questions I get. And it's getting more and more mainstream. The concern about what is what's going to happen in my cash if I just hold this at zero yields for the next five years. And, you know, for example, the other day I gave a presentation to a bank board of directors. And, you know, Bitcoin wasn't one of my kind of presentation points.

Starting point is 00:29:26 I was just talking about fiscal monetary policy. And then one of the first things they asked when I was done was, what do I think about Bitcoin? Because they had noticed, for example, the Michael Siler, you know, at this point, it's worth half a billion dollars in Bitcoin that he put on his balance sheet. And they had heard in one of the interviews that, you know, he, when he was convincing his board of directors, he sent a bunch of different materials to them. And one of the things he sent was my article on Bitcoin. So the board's like, so is this, like, how real is this?

Starting point is 00:29:53 So is this like still an asset class for the crazies? Or is it like a, you know, an actual, that's how they phrased it. Or is it an actual like, do you treat it like a commodity? Do you treat it like a currency? So I gave them like my, you know, kind of my five minute, you know, kind of bullish overview for Bitcoin. So yeah, I'm definitely kind of seeing this both, you know, down to the retail investor and all the way up to people, you know, kind of overseeing banks and just thinking, you know, what are we looking at here? And interesting from the people running the banks, I mean, they even questioned. whether or not things like CPI are accurate measures of inflation.

Starting point is 00:30:28 Because in some ways, they were actually referring to the Austrian definition of inflation, which is just increasing the monetary supply. So they were saying that this year, their deposit place just blew up. So the amount of deposits coming in has grown dramatically for them, which is true. If you look nationwide, what a bank's deposit is done. Because broad money supply has gone up so much, because bank deposits went up so much, they were viewing that as a form of inflation and saying, you know, is this going to be different than, say, 2008? So that was kind of how they were looking at it. Wow. This is really fascinating. And it makes me reminisce a little bit about those days when we used to talk about the wall of institutional money that was going to come into the space. And now I'm a little bit like, oh, okay, well, maybe it will actually happen finally.

Starting point is 00:31:17 Wait, hold on, Laura. You know, I want to say something about that. And this is something I get very fired up about. We don't need the wall of institutional money coming into Bitcoin. Institutions do not get Bitcoin. They have not gotten Bitcoin. And the way they're thinking about Bitcoin now is completely antithetical to the point of Bitcoin. What they want to do with Bitcoin is stick it into a vault, right?

Starting point is 00:31:39 However you do that through their custody solution. And then they want to hypothesate it and multiply the Bitcoin supply by creating synthetic products on top of the Bitcoin. Okay. for Bitcoin to go mainstream, and we can even like categorize what mainstream use, if we want the number to go up, right? Like the way number goes up is very simple. We need more demand than supply. That's already happened and that's the happening that that, that Lynn mentioned earlier. But the thing is like everyone keeps talking about institutional money. I don't care about the institutional money, right? Because the institutional money, we keep trying to take Bitcoin and shove it into a box so that institutions will, want to buy it, hold it, eat it, right? We're like, hey, if we take this and we package it

Starting point is 00:32:23 it and we shove it down your throat, do you want it? Right. And they're like, oh, if we package it this way, like, yes, I don't want to do that, right? Bitcoin needs to fundamentally change the way that we think about financial institutions. That is the whole point. And I think that's what so many people are proving with the way they're building their Bitcoin-focused businesses, but taking all of the Bitcoin in the world and shoving it into Bonney's custody solution and then building a bunch of synthetic derivatives around it, so you get Bitcoin depository receipts, that is no different than the paper money we hold today, right? Like, it's marginally better, maybe, sort of from monetary policy perspective, but it's nonsensical. So I actually reject this

Starting point is 00:33:02 notion that institutions need to adopt Bitcoin. Bitcoin is going to fundamentally change the way that institutions function. That is my goal. That is my objective. That is my belief. Yes, there will be a transition period or an evolutionary period over which that happens. But if the objective is to take Bitcoin and make it look, feel, smell, taste, you know, look like what banking looks like today, then we have completely missed the point. So I would say, forget about the institutional wall of money, focus on changing what it means to be an institution servicing a new asset like Bitcoin. Yeah, actually, it's funny that you say all this because I have been thinking to my love, oh, once Cracken launches its bank and a, um, a

Starting point is 00:33:47 Avanti Bank launches. I just wonder how these things will change the way banking is done because their business model is going to be quite different. So this is kind of like a perfect moment, actually, because we're going to take a little break. And there's so much else to discuss because there's this whole like geopolitical thing going on in the world that really intersects with everything going on Bitcoin. So we will talk about that in a moment after this quick word from our sponsors. go to conicsonterio.ca. With Amex platinum,

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Starting point is 00:36:16 for a new Bretton Woods moment. The speech itself was actually kind of anodyne to me. You know, she called for financial inclusion, closing the gender inequality gap, addressing climate change. But then, you know, a lot of people were talking about this and saying there's a lot more under the hood to what she was saying. So what do you think is or will be the significance of this speech, particularly for digital assets in Bitcoin amidst, you know, everything else going on? So I can hop in here to start and then Lynn, I'll pass it to you. Look, I think the notable thing about what's unfolding, and it's not just the IMF, it's the ECB, it's, you know, Bank of Japan, it's the PBC, the People's Bank of China. There's all of this monetary talk unfolding, right? And basically what's happening is for the last, gosh, I'm 60 years, the dollar really since World War II, right? And arguably maybe even before, the dollar has been the supreme currency. The U.S. has had both political and economic

Starting point is 00:37:23 hegemony. And in many ways, you know, the U.S. has benefited from its ability to export inflation by printing more dollars and by sort of having the entire global economy run on dollars, largely fueled, by the way, by sort of the petro dollar, right? Or the use of the dollar in the oil and gas industry, which for many, many years defined the nature of global geopolitical conflict and the largest financial flows between nation states. And so for the first time, I think everyone around the world is seeing an opportunity to erode the supremacy of the U.S. dollar. And when I say that, I don't necessarily think that's a negative thing. But I think the U.S. dollar has sort of been in this dominant position for so long that people now see a window of

Starting point is 00:38:09 opportunity to sort of redefine where the U.S. dollar fits in sort of the global monetary system. Bitcoin, I think, is sort of the initial challenge. If Bitcoin has proven one thing that I think's really valuable, it's that there is room for things like Bitcoin to not only exist, but to actually thrive. Right. And what's so fun to me, a few years ago, I love sharing the story. A few years ago, I went to Euro fee, which is an event for European central bankers. And I was at a dinner with several central bankers, including, you know, the Gabundas Bank and BIS and some of these large, large global banks. And I was talking about Bitcoin. And of course, right, I was the crazy Bitcoin lady, only women in the room, but also the crazy Bitcoin lady. And one of the people who

Starting point is 00:38:58 runs one of these banks said, I mean, well, you can't have a currency. You don't have an army. And I said, excuse me, I have an army. It's called crypto Twitter. And I, and I, and I, and I, and I say this in a slightly joking way, but it's very serious. Like for the first time, we have proven that the intractable link between money and state can be broken. And you can have money without state, right? And the idea of digital statehood, which I know Lynn and I both want to get into and like the internet versus everything else, we've proven this idea. And I think that is extremely powerful. It's extremely scary. I don't think people grasp how serious it is. And you can't put it back, right? Bitcoin has reached a point where, like, you can't go back. It's inevitability. So it's,

Starting point is 00:39:45 to me, I think Bitcoin has actually forced a conversation that maybe would have not happened for another 10, 15, 20 years if these events hadn't unfolded in this way. Maybe it's serendipitous. Like, maybe there are greater forces at play. But I definitely think a lot of people, whether they will admit it or not, have been inspired by Bitcoin, both positive and negative, right? But they've seen the potential of what can be done when you build a global movement. And Bitcoin's not just technology or money, right? It's also a social and a political movement. Yeah, I agree. And, you know, one thing I've been focusing on. So a lot of people now are kind of asking me, what are my thoughts on this, you know, the new, you know, the quote, New Britain Woods proposal. Now we're using

Starting point is 00:40:25 words like great reset, things like that. So I view a lot of this is kind of framing a narrative. However, you've looked back over the past several years, there have been kind of cracks in the in the current system building for a while. And so we were already kind of moving towards, you know, I think the outcome can take many forms, but we're already kind of moving towards the necessity for the current system to kind of shift over into another system.

Starting point is 00:40:48 And so this is kind of like, you know, now the pandemic kind of pulled forward maybe the next three years or so and just kind of put that more in the forefront, you know, we're already kind of getting there. So if you look back, you know, so we had the bread and wood system, which was that the dollar is backed by gold

Starting point is 00:41:03 and other currencies backed themselves, by the dollar. But that kind of ended, of course, in 1971 when, you know, the U.S. was exporting a lot of its gold. And so that was an unkind of sustainable situation. So then the dollar is backed by nothing. And, you know, globally we had then, you know, a pretty rapid period of currency devaluation. So we had high inflation in multiple countries. In the U.S. in particular, we had some issues. And so the next stage of that system was the petra dollar system, where, you know, using the United States large military presence and ability to protect supply line to protect certain nations, they set it up so that, you know, almost all oil pricing worldwide happens in dollars. And so people often refer to the fact that, you know, every, say, you know, 50 to 100 years, you have another global reserve currency.

Starting point is 00:41:50 But what made this period unique is that, you know, in those past periods, it wasn't necessarily the current itself that was a global reserve asset. I mean, there's still like precious metals that were kind of the core of that. But it was the fact that that currency was widely accepted. Whereas the petra dollar system was a more unique period where one currency had a total lock on global commodity pricing, which is different from the previous ones. And so we had the situation where all countries had to have the dollar in order to buy commodities, especially oil. And so, but that also makes a situation where we had to make sure that we had tons of dollars out there in the system. which necessarily means that we're running very large trade deficits, you know, over decades, pretty much. And there were economists back when this was set up, they warned that this, you know, back in the Bretton Woods system, they warned that this would be an issue over time.

Starting point is 00:42:41 But basically, you know, we said, okay, we don't care about what happens 50 years from now. We want to, you know, structure the system to, you know, kind of solidify power now. But now that we're decades later, you know, now that those decades later are here. So basically, if you look back over the past several decades, you know, the United States has run very persistent trade deficits. And the system itself is reinforcing. So because there's so much dollar demand out there, right, because there's demand for the dollar in order to buy commodities. And then over time, you get more and more dollar-dominated debt outside of the U.S. Right. So, you know, corporations and countries around the world, you know, they get financing in dollars. And so that, you know, to service those debt, they need dollars. So we have this kind of dual kind of demand for the dollar that's really persistent. So for most countries, if they start running big trade deficits, you know, next time they have like a recession or crisis, they usually get kind of a currency devaluation. And that increases their, you know, export competitiveness and reduces their import ability. And so it kind of helps correct their imbalance.

Starting point is 00:43:45 The U.S. never really experiences that correction because there's this kind of extra demand for the dollar at all times. And so we've basically over, you know, say 50 years, exported a very large portion of our industrial base, even more than many other developed countries. Like if you compare us to Europe or compare us to Japan, we've really kind of doubled down on the services sector and exported a lot of our industrial base, of course. And that has had, you know, profound impacts on, you know,

Starting point is 00:44:13 especially, you know, craftsmen, blue-collar labor, and to the benefit for many types of white-collar labor, for example. So we've had, you know, some of the benefits accrue to some segments to society and not to others. But this system's really kind of stretched now because, you know, the world is so kind of saturated with dollar debt. At the same time, the U.S. is just so kind of hollowed out in terms of its industrial base. And now there's a narrative that we want to bring back industrial base. But that's really challenging to do with the current system as structured. So there's so many kind of things pointing to another system slowly emerging.

Starting point is 00:44:48 And we started to see this, you know, for the past decades, whenever a country tries to price oil and something other than dollars, their next several years tend to not be very pleasant, you know, militarily, you know, militarily speaking. But we started to see, for example, when Russia says that they want to start pricing oil in euros, there's not much that the U.S. can do about that, you know, physically. So instead, we sanction them. We say mean things, but there's not a ton we can directly do about it. And similarly, if you looked at, for example, trade between Russia and China over the past several years, if you look back two, three years ago, you know, something like 80% of their trade was dollar-based, and that's now fallen to something like, you know, 45%. So they started using the euro more. They started to use some of their local currencies. And so we're starting to see somewhat of a multipolar system. And so in some ways, you know, people are worried about how that would affect the dollar and, you know, America's status. And so we're starting to see somewhat of a multipolar system. And so in some ways, you know, people are worried about how that would affect the dollar and, you know, status in the world. But in many cases, even the United States is really harmed by this current, you know, system as structured, right? Because we're the ones that have to run very large deficits. And so as we move on to the next system, you know, it's going to be some sort of multipolar system or, you know, neutral reserve settlement assets. There are all sorts of, you know, of course, digital assets now present another type of technology we can incorporate into the ways that these countries can go about that. But the general theme is that it's less based on one country's

Starting point is 00:46:16 currency and more based on either multipolar system or on a neutral reserve asset. Yeah. So this is the perfect segue to my next question because obviously in the mix with all of this, China has begun rolling out its digital currency, DCEP. And amidst, you know, all these kind of things it's doing with, you know, trading partners such as Russia, I also wondered what you thought about how the DCEP will affect the balance, particularly when it comes to Africa, because the population there is so young, and that's where we're seeing digital asset adoption maybe can move a bit faster because the legacy financial system there is less robust. So I wondered what effect you thought the DCEP would have on the playing field. Do you think it

Starting point is 00:47:09 gives China leg up, especially if it can use that as a leverage point when it comes? comes to dealing with these emerging economies, particularly around the Belt and Road initiative, or do you think that, you know, people and many businesses and countries have inherent trust issues with China? So I wondered if that would always sort of like limit the impact of DCEP. If I may jump in here. So we've invested in a number of companies at coin shares outside of the U.S. and particularly in emerging markets, including Southeast Asia, Middle East regions, where China is attempting to extend its influence. So let's just talk quickly about DCP.

Starting point is 00:47:50 I think there are two things that are really important about DCP that are not talked about enough. I believe that we will have over one billion Chinese consumers interacting with digital Remembe before Western governments write a single definitive policy guidance. Okay. And I say this not to lambast the leadership of Western, quote unquote, democracies, although I certainly do that in other conversations. I say that because the fundamental difference between China and the U.S., for example, China is a command and control system, right? There is one philosophy, one ideology, there is one ruler, and it flows downhill. The U.S. has been in partisan gridlock for a long time now, and we see it.

Starting point is 00:48:39 in the regulatory environment, right? There are lots of different regulators. They are, you know, their state rights versus federal rights and the system of checks and balances that has been set up to sort of, you know, protect the republic and sort of this concept of American democracy in the form in which it had historically existed is no longer really relevant in our digital world. And I think what we're seeing is the struggle of the American Republic and its governance structure to operate successfully in the digital world, right? Like, it's very difficult to find, to define where physical jurisdiction begins and ends in a world that's digital, right? This concept is intractable. Like, these two ideas are fundamentally incompatible, which is why you see so much of cryptocurrency

Starting point is 00:49:21 focused regulation is defined by physical jurisdiction, right? Like, Bitcoin doesn't have a physical jurisdiction. It just doesn't. And so what we see, I think, one is, you know, there's a fundamental difference and it means that China moves at a much higher speed. The second thing that I think is really interesting is China has one singular focus. Their focus is empire, right? And here I'm sort of projecting a bit, but the focus is empire. And I think what's been interesting to observe is in the Chinese system, when there's support for something, there's an unlimited amount of economic capital, like investment capital, but also political

Starting point is 00:50:00 capital that's made available to make this thing happen. So you look at the investment in manufacturing capabilities. You look at the investment in R&D and semiconductor fab, right? You look at different parts of their economy. Now you look at DCP and BRI, the Belt and Road Initiative. These are all a function of the fact that China has unlimited economic and political will. Lynn shared an interesting statistic on her blog that 10 years from now, you know, the Chinese economy will comprise close to 30 percent of the global economy and the U.S. economy will sort of shrink over time. And I think this shifting and rebalancing of the world is an interesting one. One topic we haven't talked about is India, right?

Starting point is 00:50:40 India actually, in a way, is, I think, an under-discussed topic. The Indian subcontinent is more populous than North America, South America, and Europe combined, right? But also, I think the Indian subcontinent is just less understood, perhaps, than China. People don't talk about it as much, and I think politically it's been a little less organized. But I do think what you're seeing right now is a realigning, a polarization, right? If we think about, you know, the result of 1945 and the drawing of spheres of influence and the splitting of the world into axes and allies, right? We're now seeing a new type of polarization.

Starting point is 00:51:21 I call it the new Cold War. Maybe that's a bad characterization. But I definitely think there's sort of a schism. And it exists along three primary lines. It's economic, right? And we've talked a little bit about the currency war and some of the things happening there. It's digital, right, in terms of infrastructure information, where information resides, how it flows, who develops software, who uses software. And we see this playing out, right, like Huawei getting hit with RICO charges and not being able to build 5G in the U.S. or in Europe, the implementation of the Clean Act, which tries to remove Chinese influence and makes an American firewall more explicit in terms of our telecommunications infrastructure.

Starting point is 00:52:00 we see it with TikTok, right? And like President Trump bragging about, you know, selling TikTok when in fact, the only thing that TikTok actually did was move its U.S. data into a data center run by Oracle, which is a U.S. corporation, but like fundamentally the company, bite dance is still domiciled in China. So it's very bizarre. So you see this sort of digital war that's breaking down. And then the last one, again, is it's a culture war, right? And I think, again, this is where it starts to get really interesting. The demographics, of the West are aging, sick populations and an extreme disparity of wealth in many ways, right, but also extreme distributions of wealth, meaning older generations have much more wealth than younger generations. And the ability of younger generations to earn wealth is less than before

Starting point is 00:52:47 in each successive generation. Whereas in these emerging economies and these rising powers, right, the demographic situation is much different. They have a young population, it's not as old. They have a booming young population. That young population is very entrepreneurial. You know, they have, they're starting to see more and more economic opportunity. They're building businesses. So I think there are these fundamental differences that are starting to merge economic warfare, digital warfare. And then I think there's sort of a demographic or sort of culture war that's emerging. And all three of these are working together to sort of redefine the fabric of our world. I'm not an expert by any means in any one of these. I just find this

Starting point is 00:53:26 very fascinating because I don't think people think about them in tandem enough. I think there are people who specialize in the economic implications, maybe in the infrastructure implications and maybe separately on the culture and sort of demographic implications, but none of these things exist in isolation. And when you look at them together, I think the story is so telling and it's terrifying in some way, but I think change is good. Like I'm a proponent of change, right? Like the universe tends towards entropy and chaos. So you might as well lean in, embrace it, and sort of filled for a future filled with chaos and uncertainty. So my belief is more chaos, more uncertainty and increased polarization. I actually, I want to take this so I know this episode is mostly about Bitcoin,

Starting point is 00:54:10 but I just have to call out this essay that you wrote on the digital war because it was so fascinating to me. I just, I hadn't really, you know, I mean, you know, like you said, you're just pulling in kinds of all, you know, all these different things together into one piece. But one thing that fascinated me about your conclusion was that you said that you felt that all these things going on in terms of the digital war would result in more metered bandwidth consumption, which is basically a definition of Ethereum. You know, it's a platform in which you pay for the computation that you use. And so, of course, I know this episode and this series does focus on Bitcoin, but this was actually the first time I'd seen a clear argument for how macro forces will drive usage

Starting point is 00:54:49 of Ethereum. So can we just take a couple minutes for you to explain that? Because that was so fascinating. I haven't really heard anybody articulated it in that way before. I think it's not necessarily, you know, an articulation of the value proposition of Ethereum. I actually want to go back to something I vehemently believe, which is that Bitcoin at its core is a telecommunications protocol, right? It's a protocol that allows us to communicate, but it allows us to communicate about UTXOs, right, and value in the form of Bitcoin. What I think is really interesting is the Bitcoin mining community, right? The physical network that is the back. So Bitcoin has three layers sort of in my simple construction. There's the

Starting point is 00:55:28 protocol, which is the code that actually governs, or it's the governance layer of Bitcoin, if you will, governs how consensus operates in Bitcoin world. There's the physical Bitcoin network, right, which is how the protocol gets implemented. It includes routing logic. But it really, that mining layer ensures the security of the Bitcoin network and the hash rate is a function of that, right? And you have to expend electrons and silicon to make that happen. It's very expensive, both from a CAP-X and OPEX perspective. And then on top of that, you have applications and products and services and all of that. What I think is really interesting is Bitcoin mining is going through its own evolution

Starting point is 00:56:03 because of the introduction of asset back to debt, right? For the first time ever, you can utilize Bitcoin itself, the output of this process, to finance further investment in Bitcoin mining capabilities. And what's happening is, as a result of this new financing vehicle, we're seeing Bitcoin mining pop up in different parts of the world. we're also seeing a concerted effort to onshore Bitcoin mining into the U.S. And what's really interesting here is I actually think that Bitcoin at its core as a communication protocol means that Bitcoin starts to become vital to companies and nation states in terms of preserving their access

Starting point is 00:56:37 and their ability to access the Bitcoin network, right? Because if I'm a Bitcoin miner, now this doesn't really happen today, I can choose and sort of prioritize what transactions I want to mine into a block. And so in my view, investment in physical Bitcoin infrastructure is closely associated sort of with security and the military industrial complex. And I think as Bitcoin's use becomes more prevalent, Bitcoin will become a matter of national security and investment in Bitcoin infrastructure will become a matter of security. Just as today we see people realizing in nation states realizing, right, that semiconductor fab, semiconductor R&D, that's being onshore to the U.S. Why? Because it's vitally important. We have chips inside of our phones, inside of our devices. that are manufactured right in China. Now, it's known, right, that there are backdoors that are installed into these chips and into these systems that we use. There's all sorts of really interesting sort of data when you start to get into the world

Starting point is 00:57:31 of cybersecurity, which is a world I love. Again, I'm a novice at it. I learn every day from people who are way smarter than me. But I think there is this whole dynamic that's unfolding that closely couples together the manufacturing process that Lynn spoke about, right, that we've historically exported. It now needs to be re-imported. because there is a fundamental relationship between physical assets and physical infrastructure and the digital world. And people seem to believe that like Wi-Fi and Internet just like

Starting point is 00:57:59 floats around in the ether and it materialized by magic, no, it doesn't. Right? It doesn't. People seem to think that, you know, blockchain compute is accessible and available to everyone and it's a free resource. Like, no, it's not. These things require electricity and silicon to run. They require rare resources. They require things that are in short supply. And the laws of thermodynamics dictate that there is a limited amount of energy in the universe, right? Energy cannot be created or destroyed. Matter cannot be created or destroyed.

Starting point is 00:58:27 It can only mute or change form. And so, like, this is a very long-winded and very metaphysical way of saying, like, there is a fundamental relationship between the investments we make today and the world we see tomorrow. And I think we have chronically underinvested in very important infrastructure that supports our ability to communicate, to transact, and to function in this new digital world. And other countries have been overinvesting, particularly China. And this, I think, is one of the greatest travesties of modern democracy is through regulation and really piss poor public policy. We have chronically, chronically damaged American infrastructure and European infrastructure to the point where I believe it

Starting point is 00:59:12 be fundamentally impossible to compete. Our infrastructure, our technology, our capacity for R&D, our capacity for capitalizing this infrastructure build is not even a discussion. Lynn, I'd be curious to see what you think. Sorry, I went off there, Laura. No, no, but that was fascinating. And it surprises me that because I felt like your essay was arguing that this was why a theory was important. But people can read that essay later and decide what they think. But yeah, Lynn, what's your take on this? So I think I can tie two points together. Lori, you mentioned that we're starting to see kind of, you know, more adoption of certain things in other countries.

Starting point is 00:59:50 So, for example, you know, Africa's got a younger population. They've been more prone to digital assets, for example. And we've also seen, if you look at mobile payments, you know, China and India have been huge centers of mobile payment adoption. They kind of leapfrogged over the credit card model, you know, straight from cash to mobile rather than cash to credit and then slowly into mobile like we have here. in the United States. And so that kind of gave them an advantage in certain ways. So we've seen, China really kind of spearhead the digital payments area with AliPay and WeChat. And going back to kind of about, you know, the point about how the whole internet, everything, the way everything runs, is still kind of essential for certain commodities and certain infrastructure. So in addition to securing

Starting point is 01:00:39 semiconductor capabilities. It's also about making sure that countries have kind of certain key commodity exposure. And if you look at China in particular, that's always been one of their weaknesses is that Asia is not, they're not very energy rich. And then, you know, they're rich in certain minerals. But overall, most Asian countries are net importers of commodities. And so, you know, going back to that whole kind of structure of the way everything has been over the past 50 years or so, you know, First, when the U.S. was running really massive deficits, trade deficits, our first kind of major source was to Europe. So Europe would sell us things. We would give them dollars. And they would take those dollars and they'd reinvest in our treasuries. So they would finance our deficits.

Starting point is 01:01:23 And we'd be importing, you know, treasuries and dollars for goods. Then, you know, we kind of matured that relationship and we started to see the rise of Japan. So Japan kind of took over as the really big a country that was, you know, running big trade surpluses with us and then reinvesting those dollars into our treasuries. And then starting around roughly 20 years ago, you know, as that relationship with Japan matured, it became China. So China was this big rising power. They ran massive trade surpluses with us. And then they took those dollars and reinvested into our treasuries. And, you know, we, you know, so it hurt a lot of blue collar labor. But the whole geopolitical kind of alignment was all kind of, you know, just,

Starting point is 01:02:06 nice and it's going fine. But then about, you know, five, six years ago, China said it's really no longer in their interest to keep buying treasures. So if we look at China's treasury holdings, they kind of leveled off. And so instead, they started taking those dollars and they started the whole kind of belt and road initiative. They started basically using those dollars. They would lend them to countries in Africa, other countries in the Asia, South America, all around the world to basically secure resources. So instead of kind of funneling those dollars back into treasuries, they, in most cases, funneled those dollars back into hard assets to secure food imports,

Starting point is 01:02:47 energy imports, metals, all the different kind of materials they need to basically run their economy. And so that started kind of the conflict is, okay, well, now United States is seeing, okay, they're using the current global dollar system against us. Instead of playing along in this kind of cycle we go through, now it's, you know, we're setting dollars to them, and they're using those dollars to secure their infrastructure, their commodities, and so the U.S. was kind of the losing side of that. And that's why I often point out that as currently structured,

Starting point is 01:03:19 the global reserve status doesn't even really benefit the U.S. anymore in the same way that it did, you know, back in the 70s, 80s. Now it's a very different world. And so I think it's a key point that, you know, some of these other areas have really gotten a strong leg up in terms of, you know, advancing infrastructure, securing certain commodity rights. And it's something that this is kind of, as we go forward in this decade, we're probably going to see more and more kind of a focus on, you know, different regions, making sure there's as self-sufficient as possible. So the U.S. found out the hard

Starting point is 01:03:51 way that, you know, we don't, we didn't make masks. You know, most of our medicines come from Chinese components. So, you know, trade deficits like don't matter until they matter, right? So until, you know, it's a pandemic and there's a shortage and we say, wait, so we don't make any of this. Like we literally are totally reliant on countries that we're not too friendly with anymore. So both in terms of semiconductors, in terms of vital medicines, and just kind of the whole supply change, they're kind of slowly reorganizing more and more. And of course, that's further benefited by automation, right? So automation can replace some forms of cheap labor. so that I can kind of give some of the wealthier countries' ability to manufacture things

Starting point is 01:04:30 affordably that they couldn't necessarily manufacture before and that they had to outsource it if they wanted to be competitive. So I think that kind of ties into, you know, that's the trend we're seeing. And some of these other markets, just they're so far ahead in terms of mobile payments and acceptance of digital assets that, you know, they have kind of an advantage to there. Yeah, and actually, Lynn, we, I think, you know, Meltim answered this question first, and then I asked her something else, but I actually also just wanted to get your take on how the rollout of DCEP and China,

Starting point is 01:05:01 you know, amidst everything that you just said would affect the balance of power financially, but then also how you think all these things will affect the adoption of Bitcoin. Yeah, so for China, I mean, the main thing that China and Russia and some other countries are doing is they want to build a bypass the dollar system. So, you know, a lot of people view China as wanting to overtake the U.S. as the global reserve currency, but that's, you know, as far as most analysts are concerned, that's not really their primary target. They want to be able to buy commodities without the dollar, essentially.

Starting point is 01:05:31 So it's not necessarily that they want, you know, massive holdings. They don't want to repeat the whole kind of triffins dilemma that the U.S. just went through over the past 50 years of having to export our supply chains. China just, you know, they had a very export-driven economy for the past 20 years. And now they're kind of moving on to more of the empire stage, right? So they want to have all these kind of tendrils to other countries. and now they're the biggest commodity importer. So, you know, their newer technologies around their currency, one of the goals is to make their currency more accessible, more usable,

Starting point is 01:06:02 and to increase its ability to go around the dollar system. So I think that adds to the current trend of more trade happening outside of the dollar. I think that's kind of the key thing to focus on. And how Bitcoin fits in that, I think we'll see. I mean, China so far has not been, you know, really friendly to Bitcoin in some ways. Maybe Meltem has more details on this. So there's kind of a war between, you know, making their currency more accessible while we have some of these more decentralized currencies.

Starting point is 01:06:31 So, of course, Bitcoin is a totally decentralized neutral asset. Gold historically has also been kind of the, you know, the older, the less technology advanced form of that where, you know, over the past, say, five years, as we've seen countries not really buy treasuries, they have instead slowly stocked up on gold. So we've had, you know, they've been net purchaser of gold more so than, treasures of the past five years in their central bank holding. So there is kind of a shift towards these neutral assets. So, of course, Bitcoin is a much smaller asset. So we might start to see that show up in some of these smaller players, whereas we've already kind of seen that trend

Starting point is 01:07:06 going in gold's direction. So there is definitely kind of a demand for these neutral assets. Bitcoin and China, the only thing I will say is, you know, we've watched the Bitcoin China narrative unfold. We call it the China FUD or the China Fear Uncertainty. out in the Bitcoin space. Like if you're a Bitcoin or you're probably laughing because there was, you know, in 2014, 2015, every month there would be new China fud, like China shut down mining, China shut down exchanges. This exchange CEO was arrested. Like we just saw this happened with OKX, right? So look, the China fud in the Bitcoin space has been going on for a long time. The only thing I will say that I've been surprised by and I think in a pleasant way is how permissive,

Starting point is 01:07:51 the Chinese authorities have been towards Bitcoin as of late in particular. But really, in the last few years, right, there hasn't been much regulatory crackdown. I think there's been, you know, maybe they're ignoring Bitcoin. Maybe they think Bitcoin is actually net positive to achieving some of the goals that Lynn outlined in terms of bypassing the US dollar system and therefore supporting Bitcoin, whether explicitly or in a more subtle way by not doing anything or any, ignoring it effectively from policy perspectives sort of path forward. But I actually have been fairly surprised, Laura, because I would have expected more action against Bitcoin, particularly as a way to stem people removing money from China, sort of capital controls. But we haven't really seen that. And I think that's actually been surprising. I certainly was surprised. I expected more draconian enforcement. But instead, we've actually seen the U.S. trending that way. I think that kind of highlights the dilemma that China's main thing is they want to make sure there's not a lot of export capital happening. They don't want a lot of money flowing out. But in the other hand, if there's a system that makes global payments easier and is a store of value and competes with the dollar, they have kind of a, you know, they're all for that in a certain way. So if that can kind of take off without harming them, so they're kind of in that balance, I think. One thing I was curious about is Melton did talk earlier about the growing inequality and

Starting point is 01:09:19 the World Economic Forum recently published a report saying, quote, the pandemic is a boon for the ultra rich. In the U.S., over 44 million people lost their jobs in unemployment surge toward 15% between April and June. Yet the fortunes of the top five billionaires rose by 102 billion dollars, increasing their wealth by 26%. In fact, the combined wealth of U.S. billionaires increased by over 637 billion to a total of 3.6 trillion, which is considerably more than the entire wealth of the 54 countries on the African continent. So there is this meme on Twitter. I'm sure you guys have seen it. Bitcoin solves this. And, you know, Bitcoin is supposed to represent this democratization of finance. But based on what we're seeing so far, it feels to me,

Starting point is 01:10:04 at least, tell me if I'm wrong, the Bitcoin is currently being dominated by those who are already at the top of the ladder, you know, the Chamath, Paula Hepatias of the world, the Winkle-Vos twins of the world, the Paula Suter-Joneses of the world, and not the people who might be suffering in this pandemic. So do you think Bitcoin will ever help address this inequality? And if so, how and if not, you know, why do you think it won't fulfill that potential? I want to just start by clarifying terms, though, Laura. Democracy does not mean equal distribution. Right. But here we're even just talking about access. Yeah, absolutely, right? So, inequality and extreme inequality is a problem. And I think one of the things that's been interesting

Starting point is 01:10:49 to study, just sort of going back to facts, you know, I have the receipts in this situation. If we look at the genie coefficient, right, it's not just the income genie coefficient, but the wealth genea coefficient. If we look at the wealth coefficient in developed countries, developing economies, and in the Bitcoin economy, right? In Bitcoin, I haven't looked at it since about 2018. And Bala Ljcesternavassen was the first one who's sort of written about it back in 2015. The genie wealth coefficient of Bitcoin was initially really bad, right? Very few people owned a lot of Bitcoin. And then there was a long tail of people who owned very little Bitcoin.

Starting point is 01:11:23 But the thing about Bitcoin is because it is limited in supply, it's fundamentally distributive in nature, meaning as the price of Bitcoin goes up, people who have a lot of it will sell it. And sort of that very distorted sort of curve where you have a really, really sort of fat grouping at the top where you have few people holding a lot of wealth, that sort of gets compressed. And then the tail starts to get fatter as there are more people sort of further down the line who start to have the ability to accumulate more Bitcoin. So I think what I would focus on is the quality of opportunity, right? Someone who has $10 and has the choice of what to do with $10, they've always

Starting point is 01:12:00 had the option of buying Bitcoin. It's just that a lot of people haven't done it, right? And there's sort of this other meme that isn't Bitcoin fixes this, but it's like, you know, heard about Bitcoin didn't buy it. Heard about in 2016, didn't buy it. 2017 didn't buy it. And then like in 2020, the person is crying, you know, in the fetal position. So anyways, yes, it is problematic. The distribution's not equal, you know, yes. But at the same time, I don't think it's Bitcoin's responsibility to fix the quality of access and to fix like fundamental systemic problems. These are complex systemic problems. I do think, though, that Bitcoin does provide a certain equality of opportunity, like anyone with a smartphone today can get exposure to Bitcoin and participate in the Bitcoin

Starting point is 01:12:46 economy if they have a phone in the will to do so. So I do think there is an equality of opportunity that maybe is not seen in other assets. Maybe I'm being overly optimistic because obviously I'm invested in Bitcoin and I'm naturally incentivized to say nice things about Bitcoin. But Lynn, I'd be curious to hear your thoughts. So I think there are kind of two sides of it, like two totally different ways to look at the whole kind of Bitcoin fixes this as it relates to kind of wealth concentration. So one is obviously the practical aspect that if you have this really small asset class that is mostly driven by small investors, retail investors, and if that, you know, if Bitcoin bulls continue to be right about it, right? So it's already,

Starting point is 01:13:27 it's already made a lot of millionaires, for example. And so if you see, you know, the 2020s play out anywhere like the 2010s and you see kind of Bitcoin continue to get a large and larger market capitalization. What that essentially is is a wealth transfer from, you know, because it's a retail driven, it's young driven. So you see kind of a transfer from some of the older generations to the younger generations. You see kind of big banks hopping on late, big investors hopping on late. So it kind of is more focused on the retail market and some of these early adopters for wealth managers and hedge fund managers, family offices. So it, it may, it, it may be a lot of, some rich people richer, but if you look at kind of the really big money centers

Starting point is 01:14:07 compared to who kind of initiating continues this trend, that kind of practically would benefit from people that get on that train if they are correct about, you know, it continues to expand in market capitalization. I think the other kind of way of looking in that is somewhat the more kind of the Austrian economic view or like the ability of kind of hard money to kind of pressure government's ability to spend in a certain way in the sense that, you know, as I think, was Melton that earlier pointed out that, you know, in some ways, we don't really have, say, a free market. We have kind of socialism for the well-connected and capitalism for the unconnected, right? So if you were working a job, I mean, it's very capitalism-oriented. If you lose

Starting point is 01:14:47 your job, you get some benefit, but then you're kind of on your own. Or is if you're a large money-center bank, if you're a systemically important organization, if you fail, you get bailed out. The executives are fine. They get golden parachutes. Not allowed to fail. We also see a disparity. in financing, right? So if you're a large organization, you can access capital markets, get really low borrowing rates, and then the Fed comes in, it makes those borrowing rates even lower by being willing to buy your bonds, even if they're not necessarily investment grade. Whereas if you're running, like, say you're a family run restaurant, right, and it's hard for you to get financing, especially at attractive rates if you want to continue through this difficult time. So we see kind of

Starting point is 01:15:27 that different access to capital. And so, you know, I think one of the kind of subsets of, of Bitcoinsers is the view that that can kind of pressure government's ability to kind of keep distributing to the top more so than the bottom. If they can kind of invest in these harder assets, and if those assets grow big enough that they challenge some of those money systems. I think there's kind of the two kind of ways to look at that outcome. And so let's just circle back to the presidential election because I was wondering, so regardless of what administration does come into office next year. What signals or signs will you be looking for from that administration as you continue investing in the Bitcoin space? Like, are there any particular types of legislation or appointments

Starting point is 01:16:12 or changes in the handling of the pandemic or just or the stimulus or whatever it might be? Like, what are you going to be looking for when you think about how the industry will develop going forward and how that will impact Bitcoin? I'm only looking at one thing. And it's laws associated with privacy. Right now, encryption is under attack in the United States and in most Western nations, most developed countries. So there is a number of bills, there are a number of bills, pardon, on the floor right now. They're sponsored by Republicans, particularly Mitch McConnell and Lindsay Graham. The Earnit bill in particular is what I'm referring to, which would seek to limit and severely

Starting point is 01:16:52 curtail the use of end-to-end encryption in consumer-focused applications and implement the effectively a backdoor for the NSA and other intelligence agencies and Five Eyes, you know, this organization of intelligence agencies around the world have sort of signed off on this. We saw a few weeks ago there was a statement from the DOJ and sort of the powers that be that the calling for more surveillance on the crypto ecosystem travel rule is seeking to go from $3,000 transaction limit to a $250 transaction limit around the world privacy. is under attack. And that means Bitcoin is under attack in many ways. Governments want to tax Bitcoin. They want to know who holds Bitcoin. They want to know what you're doing with it. And I think this is an existential

Starting point is 01:17:38 threat to Bitcoiners everywhere. Again, I think the premise that Ellen raises premise of hard money, when you can be identified and pressured into, you know, having to pay taxes on these hard assets you hold, you know, Turkey right now is trying to implement a tax on gold. There's trying to figure out how to feasibly tax gold when much of the gold there is held by retail owners, you know, under their mattresses and not in bank faults, very hard to do. But taxing something like Bitcoin is very easy to do. And you can quickly see states try to seize these assets from people. This is my greatest fear. So I'm very focused on privacy and privacy related issues. I believe it's fundamentally important that we maintain the ability for consumers around the

Starting point is 01:18:23 world to use products and services that facilitate end-to-end encryption and protect their privacy. I agree. So, you know, I think one thing you can look at is, you know, the last time where we, we're at this point in a long-term debt cycle. So I mentioned before that, you know, we have to go back to the 30s and 40s to find a similar time. And so if you look back then, there was roughly a 40-year period where 10-year treasuries didn't really give positive returns. So, you know, because you had the inflationary in 1940s, you had the inflationary in 1970s. There's a little bit in the middle there where they did okay, but they were still actually pretty low rates and just kind of barely tried to water with inflation.

Starting point is 01:19:00 So there was like a period from, if you had bought treasuries in the mid-1930s, by the time those matured, you were already in the middle of the inflation in 1940s. So we actually lost money compared to inflation. So roughly from the mid-1930s to the mid-1970s, it was not great to hold treasuries. And it overlaps almost perfectly with the period where gold was illegal to own for. for Americans. So one of the primary release valves of that kind of monetary system. So at the end of long-term debt cycle, it's basically currency devaluation is what's used to kind of alleviate those debts. So instead of debts going down nominally, you basically have a little bit of de-leveraging here and there,

Starting point is 01:19:39 but mostly it's that they just massively increase the amount of currency units in the system. So you lower, say, debt to GDP, you lower debt to money supply, mostly because the denominator is going up. Now, but the big pressure to that is if people take those assets out and they go into other things. And of course, you know, from the government's perspective, there are certain assets that are more acceptable, like stocks or real estate that they'd prefer you to put into. And so, but when people try to go those other routes like into gold or into cryptocurrencies, that the government's less thrilled about those release valves for currency protection. So the problem, though, is that, you know, for example, when they ban gold, it's really hard to enforce. So it actually

Starting point is 01:20:18 was backed up by pretty severe penalties, but the number of instances where they enforced that were low because they didn't send people with guns around every home and check everyone's gold, right? It's just it's more costly to enforce. So they basically try to enforce it just through threats, essentially and some kind of around the margins enforcement and hoping that people stick with it. Bitcoin, of course, is unconfiscatable. So again, it's like how would you enforce it? So, you know, if you were to, you know, people always say, will they ban? cryptocurrency, of course, they can't ban it, but they can pressure the exchanges, they can get in the way. Now, lately we've seen the opposite. We've seen, for example, laws that in many cases

Starting point is 01:21:00 favor the custodian of digital assets. I'm sure Meltem covered these way more closely than I do. But I do think that, you know, focusing on privacy is important. And also, you know, if they can't ban things, the next thing they can do is tax things. So one thing that is gold's always had an unfavorable tax treatment is that it's usually tax as a collectible, which means that the long-term capital games are at a higher rate than, say, stocks. And so, you know, there's basically ways that they can pressure these scarce assets by saying, okay, you know, you can have it, but we want to know who has it. We want to tax it at an egregious amount. And by the way, they will know who has it. On the 2021 tax forms, the top question on your 1040 is not did you buy or sell cryptocurrency,

Starting point is 01:21:46 which was last year's or this year's question, it's, do you own cryptocurrency? Do you hold any cryptocurrency? And the IRS has gone on numerous fishing expeditions. The Coinbase fishing expedition has been widely documented, but what's not documented is more important. They go on fishing expeditions on a daily, weekly basis. They know if you live in the United States and even if you don't, they know who holds cryptocurrency and who doesn't. And that information will be used at some point is my belief. Yeah, I think so. I think, you know, at the most of the most, most benign ways that they want to make sure they get their taxes for it. And of course, there's more insidious things they can do.

Starting point is 01:22:23 And kind of the whole, one of the whole, you know, quote, benefits of digital currencies from the government's perspective is to give them, they get more transparency, they get more control, they get more control over interest rates even, let alone they can do different things, like they can, they can program it to be, you know, spendable in certain jurisdictions on certain things, depending on how far down the rabbit hole they go into how advanced they want to get with digital currencies. And so any sort of decentralized asset is just, it's not part of what they want to, you know, be going well generally. So it is something I think to watch for that, you know, to see that that kind of balance between it becoming more and more accepted.

Starting point is 01:23:02 And at a certain point, there's, you know, you can argue how big does it have to be? Some people say the government won't consider a threat until it's big enough. When that under the spectrum, once it's big enough that, you know, it would impact so many investors to harm it, that's also another way of kind of protecting it. So if the donor class is heavily involved in Bitcoin, suddenly it's a lot harder to kind of pressure Bitcoin. So there's always these kind of counter forces that are always at play. All right.

Starting point is 01:23:30 Well, we will have to see what happens maybe next year. I'll have you guys back and we can regroup and see what we think. Well, this has been a great discussion. Where can people learn more about each of you? I'm at Lindaulden.com. I'm at Twitter at Lindauldencon. contact, and I do a lot of free material, focus on macro. I cover a bunch of different asset classes, so I'm not specifically in the digital asset space, although I've been more involved

Starting point is 01:23:57 lately because I've been bullish on Bitcoin. Yeah, so highly recommend reading Lynn's research. I think it's really good. And I will say you were one of the first people, Lynn, to actually write research coverage on Bitcoin from sort of an investor perspective, macro perspective. So I give you a lot of credit for that. You were willing to dip your toe in when a lot of people were sort of running for the hills. So kudos to you. Me, you can find me on Twitter at melt underscore dem. You can find me at coin shares.com.

Starting point is 01:24:30 I write on various forums. I am very online and very easy to find if you ever cannot find me. Feel free to drop me a DM in Twitter. And I will certainly try to write back to you. Great. Well, thank you both so much. for coming on Unchained. Thanks, Laura.

Starting point is 01:24:48 Appreciate it. Yeah, thanks for having me. I think it was great discussion. And again, I really enjoyed meeting you. Yeah, yeah, this was super fun. Thanks so much for joining us today. To learn more about Meltem and Lynn, check out the show notes for this episode.

Starting point is 01:25:02 Don't forget, you can now watch video recordings of the shows on the Unchained YouTube channel. Go to YouTube.com slash C. Unchained podcast and subscribe today. Unchained is produced by me, Laura Shin, with help from Anthony Yun, at Daniel Nuss, Bossie Baker, Shishonk, and the team at CLK transcription.

Starting point is 01:25:18 Thanks for listening.

Unchained - Why Bitcoin Now: Meltem Demirors and Lyn Alden on the Perfect Conditions for Bitcoin - Ep.197

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