We Study Billionaires - The Investor’s Podcast Network - BTC033: Important Bitcoin Considerations w/ Tuur Demeester (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone, welcome to this Wednesday release of the podcast where I'm talking about Bitcoin. Today's guest is a longtime friend and person that influenced me tremendously during the early years of learning about Bitcoin, and that's Mr. Tur de Meester. Tur is the founder of Bitcoin Alpha Fund Adamant Capital and a longtime proponent of Bitcoin since 2012 when the price of Bitcoin was only $5. Prior to Bitcoin, Tur was the co-founder of a think tank in the Belgian Rothbard Institute, and he also established two private schools in the Netherlands in Belgium.

Starting point is 00:00:34 On today's show, Ter and I cover some of the current events and topics that we find important to the fundamental case for owning Bitcoin in your portfolio. So without further delay, here's my conversation with the thoughtful Tur Demester. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. All right. So like I said in the introduction, I'm here with Tur de Meester. Long friend, you've been on the podcast multiple times, two times, yeah, maybe even three

Starting point is 00:01:18 times, Turr, I can't remember. But yeah, this is really cool to do this because we have not talked since I think 2017. Yeah, it's been a long time. I mean, we've interacted plenty online, but it's been a while. And you stepped out of the spotlight. So a lot of the comments, so I put out on Twitter like, hey, I'm talking with Ter, what's the questions? And almost everybody's like, why did he step out of the spot? Like, what's going on?

Starting point is 00:01:44 Like, what's he doing? So that's the first question. Long story short, there's a few like side reasons, which is like you have a public Twitter account, especially when like the bull market starts again. There's just so many trolls and it's just really distracting and annoying. You have to like be blocking all the time. And so that's like one thing. But to be honest, the main reason was I read this article by Tim Ferriss, 11 reasons not to become famous.

Starting point is 00:02:11 And he wrote that. When was that? I think 2020 sometime, I mean, it was really scary to me. It's like, it really made me think about like, especially given how strong Bitcoin bull markets can be. It's like, it almost doesn't matter what you write. Like people are just going to like pile in and follow you. So it's like, man, I'm like 200,000 now. Like, what if I grow to like a million followers just because of.

Starting point is 00:02:33 of the market. And he just makes the case that like, it's a tradeoff, you know, like being, having notoriety and like as that grows, the shape of the tradeoff changes. And he makes the point, which I think is really fair, that a certain subset, a small percentage of the population, it just has psychological issues. And they are prone to projecting things into public figures. You can get really scary situations that way. And then he kind of is like, oh, you know, imagine your high school that you grew up in, maybe like five of those people of your high school are going to develop mental issues, which is fair and that's probably true. And then if you extrapolate, like, what if you're following is 100,000 or a million or

Starting point is 00:03:16 five million, you know, and then you extrapolate those numbers too. And that's when you get those stalkers and things like that. And you just don't know. There's a big unknown there. And then the upside is also not very clear. You know, like, I mean, I guess it depends what you do. But like, for me, it's like, there isn't that much. upside. Ideally, I love research and like, ideally I want to be like the Fleetwood Mac of Bitcoin

Starting point is 00:03:39 where it's like you're like a band of bands. It's like the other bands like you, but you're not really world famous, which, you know, there's examples of that. Or like a comedian's comedian or whatever you call it. Your title forever now, which is the Fleetwood Mac of Bitcoin. So that's been my thinking and it's just that, you know, it's been nice and it's been Zen to just, you know, have the private account. A bunch of followers. So I get plenty of, you know, discussion and it's a lot of fun. I totally get it. I just don't think people realize the emails.

Starting point is 00:04:10 I know Peter McCormick talks about a little bit more publicly. Like some of the emails and stuff that you get from people is just beyond strange. So, no, I totally get it. But, you know, it's nice because I was one of the original followers before you made your account private. And I feel like I'm on this crowd that got through the gate. of not being able to not access your account. And so I know there's a lot of people out there that have changed. Like one of the comments I saw, people had changed to like a more and on account.

Starting point is 00:04:43 And they're like, I can't follow TUR anymore because I'm on this new account. But I mean, it's just I get why you're doing that. So I was just talking about it with my wife today. And I was thinking like, what if, what if just for this occasion we did something like special? And what if on the day that this, you know, this podcast, airs, I'm going to try to open up the account for the day. I love it. I love it.

Starting point is 00:05:07 That'd be really cool. Yeah. And you know what if any people who hear this, it's like, you know, it's not going to be some random news item that you'll hear like, oh, the account is open. It'll be like, you're listening to the investors podcast. You're kind of really into this stuff. And so yeah, like if you, if you Google my name, I still think it's my Twitter account. Hopefully on the day that this airs, I'm going to try and open it up so that people can just,

Starting point is 00:05:29 if you encounter it and it's closed, like just, you, you know, you can. You can request to follow me and I still manually go through the list and I still manually approve people. But it's true, if you have a really long name with lots of letters and symbols, I'm probably not going to approve the follow because that looks like a spam account to me. Well, I think that's great. And if some crazies slip through, you can just block them and move out. All right.

Starting point is 00:05:55 So let's get into the meat of this. So in your mind, like what has changed since the last time we talked? talk. Like, if you warp yourself back to like the bull market of 2017, till now, what has changed, what has surprised you, what is maybe something you weren't expecting to see right now? Well, it's like what has surprised me, but I feel like I've been trying to prepare myself over and over and I still get surprised. This, I hope this does not sound like insulting, but I want to say like the shape of delusion. People come into the space, like new. people. It's like the eternal September. There's always new people coming in who have not heard of

Starting point is 00:06:36 anything and they get excited about particular things. And so there's a certain story that emerges from that. And so the story in 2017 was ICOs. And then now we've had the story of NFTs, which actually I do think is kind of interesting. But there's also kind of like there's new tokens still. And I think now a big part of the story is like proof of state. There's a lot of excitement about earning money with your coins. But even still, you know, like the thought about the mining, for example, like that it was eco. I did have a sense that we were going to at some point run into like global warming,

Starting point is 00:07:13 like that crowd. But it's still, like it always surprises me. Like, maybe it's because I feel like I'm not like that. Like, I usually only write about something if I feel like I've done a bunch of research. Like, I might put a tweet out that is just like, I'm, you know, a brain fart. But when it's like an article, it's like I feel serious about it. I've done research, but a lot of people seem to not have that inhibition. They'll just kind of put out things.

Starting point is 00:07:36 And I'm like, what are you talking about? Like this is absurd. And so I guess I just keep getting surprised in that sense. In the positive sense, we have a country that made Bitcoin legal tender. Like, how amazing is that? It's like 11 years in. Was that way earlier than you anticipated? Yeah.

Starting point is 00:07:55 You know, it's one of those things that you want to predict it. Like for the longest time, you'd be like, oh, you're like, oh, you're you Yeah, that's for 2020. But you say that in like 2014. It's like, you know, a million years away. But it's like, damn, it's like 2021. And it happened. It's just, and then the ramifications, like other countries that are thinking about it now,

Starting point is 00:08:13 all of a sudden, like the IMF is scrambling and the World Bank, like, oh, no, like our charter says this and now we got to do this. Talk to people about that. Because I'm not sure that everyone's tracking that comment that you just made about the IMF having to kind of honor. There's a guy, an academic, who wrote in 2013, he wrote, I think it's the IMF. The IMF is responsible for protecting national currencies against speculative attacks, which basically means you go long, a strong currency, and you go short the small fiat currency

Starting point is 00:08:51 of one small nation. And in order to do that, to protect against those attacks, the IMF acquires strong currencies so that they can play the other side of the band protect whoever's being attacked. And so in 2013, a paper, you know, PDF and a peer-review paper appeared that suggesting, like, well, one day the IMF should buy Bitcoin. Because people are going to use Bitcoin to do these type of attacks, which is basically you borrow the fiat currency and you buy Bitcoin with the borrowings, which is the micro-strategy strategy.

Starting point is 00:09:24 That's what Michael Saylor is doing. And so if you start doing that on a national, it's always like, That's what I mean with the ramifications. Like all of a sudden, Bitcoin has entered this fear of nation states. And so these kind of scenarios are now very real and becoming very serious. And that's like, wow, like, is the IMF going to have to do that? And like, I think the World Bank is something similar where their charter says that they support whichever the legal tenders are of all the countries.

Starting point is 00:09:52 And so now they have to offer support for Bitcoin as well. So it's interesting. I mean, of course, I think they're going to wiggle and they're going to. going to try and change the rules and knowing politics, that's probably going to happen. But we have our field day, like, leaning back and eating some popcorn watching them trying to wriggle from under this. So the one I really want to ask you about is very current right now. We're about to have a negative 25% difficulty adjustment.

Starting point is 00:10:20 And if you would have told me last year at this time before the halving event that we would see a negative 25% difficulty adjustment. In the quote unquote middle portion of this bull cycle, I would have laughed in your face and said, no way. And then if you would have told me that it was negative 5 and a negative 15% adjustment preceded it, I would have really laughed at you, but then I probably would have known what happened, which was China completely outright banned mining. So what are your thoughts on this?

Starting point is 00:10:52 Do you think that there's more pain to kind of come as far as more hardware to be shut down? We're almost approaching a 50% difficulty adjustment from the top, which kind of makes me feel like most of the pain as far as the has occurred. But is there more? Was there more hashing in China than what we had thought? Yeah. I mean, it's so interesting how I'm just thinking of this. You could argue there's actually a parallel with 2013 here. where because we rallied to 270 bucks and then we crashed down to $80.

Starting point is 00:11:29 And I'm trying to remember what the catalyst was, but it was some kind of fear and certainty doubt about, you know, I was going to say Silk Road, but somehow it feels like that was later. And then so the story is that during 2013, so we rallied from, I mean, it was all the way down at 30 bucks, $270 down to $80. And then we were like in the doldrums. For the longest time, we were trading between like $90 and a, $150. And then by the end of the year, so like before the year was over, we rally to $1,100,

Starting point is 00:11:59 like almost gold parity. Since the beginning of this bull, I've been wondering like, huh, is it possible that we could get a replay of that where first there's enthusiasm and then somehow the story gets a bit broken and people are like all the sudden worried. And so I think weirdly, people were comfortable with the fact that there was so much mining happening in China. It was It was kind of like it was a reason to be worried, but like it had been there for so long. I think there's just right now, people just don't know what it means. I think that is what the market is saying. Like, we don't really know what this means, but it's a big change and we're really worried.

Starting point is 00:12:35 But the reality is this is an amazing stress test for Bitcoin. And it's just the network is of course 100% uptime. Actually, if you look at in dollar terms, the fees aren't really that affected. It's still $5 to send a Bitcoin, even though there's. way less blocks per day being mined than before. The miners are having a field day. The non-Chinese miners are having massive increase in profitability and revenues. So I forget what your additional question was.

Starting point is 00:13:05 But to me, this is like just another stress test. And overall, it's a great thing for Bitcoin. I wasn't expecting it. But it's kind of like what you want in general is for all the governments to play all their cards. And this is China playing their crackdown cards. I don't think there was a question. I think I was just rambling about the current situation.

Starting point is 00:13:24 So, yeah, just kind of getting your thoughts on it. Some people are throwing out some really crazy scenarios. Like, is China turning off all of their hardware and then going to turn it back on a 51% attack? I'm rolling my eyes, but I'm kind of curious what you think about some of those. Sure, yeah, yeah. Well, I mean, first in general, like one thing that I think is very underappreciated is how difficult it is for, governments to nationalize an industry. And there is data about this. If you look at the oil industry, and it's not incredibly difficult to keep an oil rig operation running. It requires

Starting point is 00:14:02 know-how, but it's not crazy difficult to keep it running. But the track record is horrendous. So like Venezuela, and when countries nationalize an oil company, the production tends to go down by 50% over the next few years. And it's for all kinds of reasons, bureaucracy. It's just in general. Like the same with, you know, if you have a train company that's private and then it gets made public, like the efficiency just plummets. And so no doubt the same would happen. If you nationalize Bitcoin mining, you know, the efficiency, look, how easy would it be to just have some mining rigs disappear all of a sudden? Or, you know, so many scenarios thinkable.

Starting point is 00:14:41 And also the profit motive is gone. Like if you're just being paid a fixed wage, no matter the profitability of your firm, like, why would you care? how well everything is maintained. So nationalization, yeah, and so like, and then more in specifically this scenario, I mean, it's just not what I think we would, we would get different information. Like, we would see right now we are getting real information that real rigs are, they're trying to move them to Kazakhstan and they're trying to move them to the US and, you know, we see the photos and the videos and it's just very strange that China would, would do it in such a weird way. Like, if you want to nationalize, you nationalize, you don't shut it down first

Starting point is 00:15:20 to then reboot it up. It doesn't make sense to me. I'm open for the possibility, but it doesn't make sense. For me, it's just the government's fearful of what it might mean. I think what it is, is that we have evidence going back to 2014. China is fearful of capital flight. They're fearful of capital flight. The R&MB is not very strong. It was very, very strong for 20 years, extremely strong against the dollar. And then in 2014, you saw these devaluations, like the cracks, the chinks in the armor, and then they had a big devaluation in 2015. And of course, the political, you know, with Hong Kong and stuff, like there's a lot of Z is really like a kind of a dictator more and more, more than a pro-free market guy. And so the big money is wanting to

Starting point is 00:16:06 get out of China. And so that's been happening for five, six years now. And Bitcoin mining is a great way to do that, right? You pay with R&B, the electricity. bills and then the Bitcoin are like offshore Bitcoins, right? And you can move them anywhere. So I think that's the real motivation. And they're never going to say this publicly, but I think that's what behind what's behind this. If you're bullish on Bitcoin and you hear something like that, you become very bullish on Bitcoin. There's macro traders who first got involved in Bitcoin back in 2016, just based on this story alone. They were like, capital flight is happening out of China. People are using Bitcoin, therefore I'm long Bitcoin. That was their only thesis for a long time.

Starting point is 00:16:50 Yeah, I find it fascinating to see it play out to have all the on-chain data or the hash rate, the difficulty adjustment demonstrating that this is in fact happening. It's one of the most objective indicators of how much hash rate was actually present in China. I think rather than it being more, I think it's actually less than what people thought it was. A lot of the reports are saying like 70%, but I remember hearing even Bitmain diversifying away from China back in 2018 because they were cracking down on exchanges. And of course, if you're, you know, if you have a brain, you know the next step could be mining.

Starting point is 00:17:28 They've been diversifying away from China since 2018. So the hash rate has been dropping. And so I think 40, 50%, maybe between 30 and 50% was actually mining in China. The minus 50%, you also have to take it with a grain of salt. You've got to look at the moving average. You know, you're always going to have spikes one way or another. So I don't think you can exactly take the top and then look at the exact bottom now. Yeah, I think that's a good point.

Starting point is 00:17:54 I'm expecting, you know, we're going to go into this next two-week period. And I think we're going to start to see the difficulty plateau and then maybe even start to recover for what's a much smaller adjustment. It could be hard, the recovery, because, you know, minors are trying to move to Kazakhstan, but apparently supply there is very, very tight electricity supply. And then, of course, if you want to move to the West, like Canada or the U.S., you've got to pay import taxes on the machines, and it might take three, four months to even physically move everything.

Starting point is 00:18:27 And then additionally, we were having a semiconductor chip shortage globally. Recently, there was a report that Bitmain cut down their order of chips by $300 million just because TSM didn't have the capacity. And so it doesn't matter if you have a lot of money that you're just not getting the chips allocated to you because there's a global shortage. And so because of that, I agree. Like I think the difficulty is going to plateau for a while, which is great for the existing miners, right? The people who are not in China are very happy, of course. What are your thoughts on the hardware centralization and how much is being manufactured in China and like what this means?

Starting point is 00:19:07 I'm not very deeply informed about that. I do think that it seems that with the kind of geopolitical tension that the U.S. is really trying to get more production capacity of chips outside of the regular central now, because China's influence sphere has a lot of chip capacity, and that's kind of like a bottleneck potentially. So I do think, in a way, Bitcoin mining is similar to what Bitcoin mining is doing to local electricity places where it's kind of growing the pie and making the network more robust, like in Texas, for example, by adding new capacity to the net, you basically have a bigger buffer for things, if all of a sudden there's another polar vortex or another problem, the miners,

Starting point is 00:19:53 then prices spike in the network. Miners just switch out their Bitcoin miners and sell excess electricity to the network that would not have been there had they not been mining there, right? And people don't, it's hard for people to, they often think that the existing electricity capacity is like a static piece of pie and that Bitcoin is just coming in and, you know, snagging big pieces of it. That's not what happens. It's excess capacity that's being created. And so I wonder if maybe similarly with the chips, because Bitcoin is creating extra demands, maybe over time is going to diversify production of chips as well, you know, making the global supply more robust. But, you know, That's speculation because so far it's probably very tiny that Bitcoin demands compared to cell phones and whatnot.

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Starting point is 00:24:40 Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. Do you think companies like Bitmain are going? to try to move outside of China for a lot of their production in order to not be a victim of maybe a further crackdown from the Chinese government? You mean for chip production?

Starting point is 00:25:05 Well, the chip production, I know, is happening outside of China. But as far as like the actual rigs that are being manufactured? I don't know that. I mean, I think that maybe your risk is relatively limited because, you know, how long are all the components really in China to assemble it and ship it out? So it's a trade-off. But I think in general, I'm reminded of this, you might know it even. I went to the Gada Gold Conference.

Starting point is 00:25:33 It was called Gada Gold Rush. 2007, it was in London. It was like, ironically, it was kind of like the peak of the gold price at the time. There was like a lot of exuberance. Anyway, it's like a big gold conference. And that was the first time I got to speak actual gold miners and people investing in gold mines. And I remember this one guy saying that a pattern that he'd seen over and over the decades is, that people would go to these very shady jurisdictions, you know, Banana Republics, for lack of

Starting point is 00:26:00 better words, and have kind of like dollar bills in their eyes because they saw that certain, in certain areas, the ore grade was super high. So all of a sudden you would find, I don't know, 15 grams of gold per ton, like super high yields. And so it would be like, oh man, let's fund a gold mine because you can calculate how much you could make. This is like billions of dollars in the ground there. It's amazing. Let's do this. And time and time again, over and over, they would get, kind of victims of their own success, because if it did well in the mine, the local politicians would just boycott you, whether deliberately or not, but you would just get caught up in bureaucracy or somebody would take over your mind, or just something inevitably would go wrong.

Starting point is 00:26:40 And that's why most of the gold mining capacity is still in the U.S. and Canada and Mexico, because they're more stable jurisdictions. And so I think there's an analogy there for Bitcoin mining where even if, I don't know, there's massive capacity somewhere. You're still going to want to go to the jurisdictions that give you the long-term security, not exactly what you were talking about. Talk to us a little bit more about your comment there with Texas and the energy adding and being advantageous to the grid.

Starting point is 00:27:10 And when you do, I'm curious if you think that politicians are starting to figure this out. It appears like it's happening at a local level, but I'm more interested at a federal level and like at a national level, whether this understanding is starting to set in. I'm not sure. I mean, yeah, in Texas, I think it's, people are definitely working to kind of bring that story because it's totally valid. Like so much of what's being produced here is like, ooh, like way in the West where there's just very, very scarce population.

Starting point is 00:27:44 And so you're not taking anything away from the big cities. You're just creating excess supply, like new supply. instead of gas being flared, it's being converted into Bitcoin mining. But then if you avoid flaring it, you do have to set up the capacity to make electricity, which that is making the pie bigger. But yeah, on a national level, I don't know, I feel like something can be so crystal clear and so logical from our point of view. And if somehow the political winds blow differently, it just gets blown out of the water.

Starting point is 00:28:16 Like, people ignore it. They're looking at their constituents and what they're, they're going to vote for and they're trying to, in a way, front run what they think people are going to think. And so I don't know. I think it's going to be a hard battle with the mining. But in a sense, it doesn't really matter because if local politicians are going to vote against Bitcoin mining, the capacity, we've seen it.

Starting point is 00:28:36 This is the perfect example. Capacity is just going to move elsewhere. Like, and China is the biggest, probably in the next, we might not see a move like this in the next century, like the next hundred years for Bitcoin mining. Like, where is ever going to Bitcoin mining be so concentrated? like 50% of the capacity is going to move in a matter of months. That is not going to happen again, I don't think. Yeah, I agree with you.

Starting point is 00:28:58 And similar to Michael Saylor and how demonstrative him putting Bitcoin on his balance sheet was, if it's valid, if why he's buying it explodes the price or it totally punishes the price, I think you and I both agree as to which two of those scenarios it's going to play out, you've got the template of exactly what that means for a business as opposed to a business putting 1% of Bitcoin on their balance sheet. It's just so demonstrated. And I think what also is happening, which is really surprising to me that you're seeing it in like this 100% kind of way, you have China who had the largest amount of hash rate in Bitcoin literally just divorce itself from the network. And I think as this year progresses and we get it.

Starting point is 00:29:46 into the end of the year, 2021, you're going to have that exact same thing play out for a nation state as to the benefits or the penalties of not participating in the network, which is just amazing to me that you're seeing at such scale. Because if they just, you know, if they only banned one province or whatever, their districts are broken up over there, it would not have hit the same way that it's going to hit. speak of David versus Goliath. I mean, we're talking tiny El Salvador against China, right? I mean, that's kind of the two examples that are most in everybody's mind, right?

Starting point is 00:30:23 Who's going to win? Isn't that ironic, though, that you're seeing pretty much the smallest country in the world and the largest country in the world population-wise, and especially hash rate-wise, play out. And boy, oh, boy, what an example this is going to be as we get through the next 12 months. I think that it also shows the brittleness. Like, you know, giant empires have this weird. They build up this brittleness where they assume they know how to deal with the threats.

Starting point is 00:30:53 But when they face a new kind of thread, they can get it so wrong. But they have this habit, like they're so big. They can just smash their fist on the table and just get rid of it. And I think this is really a major miscalculation. And then people have pushed back when I suggested it, but they're in my mind. reminds me of Spain in the 1500s, 15, 1600s, when they were the largest empire on Earth. They had untold amounts of colonies and income from their colonies. And still, they managed to just lose it all in a matter of, I don't know, 100 years.

Starting point is 00:31:27 You know, there was, of course, inbreeding and problems like that, like local political problems internally. But a lot of it was just like they were just kind of arrogant and just massively taxing their own merchants, putting up all kinds of crazy restrictions. And so the merchants would literally abandon ship. They would just go elsewhere or just give up. And so in a way, they can just shoot themselves into put. And I think that's potentially what China is doing.

Starting point is 00:31:53 Also with the crackdown on Hong Kong and stuff. If you chase out your billionaires, who's going to be motivated to start the next startup? Yeah. And if there's one thing I've learned about Bitcoin, is it's almost like it enjoys the cuts to its skin. Like, anytime somebody tries to attack it, it's almost like... It's like water, right?

Starting point is 00:32:13 It just goes wherever there's least resistance. Yes, exactly. What are some of your thoughts on mining in general? So we are talking about a little bit on the energy grid, but I'm just curious, in general, some of your thoughts on mining. I think right now, mining is really interesting because we talked about the semiconductor shortages, the hash rate redistribution because of China. Basically, you know, existing miners are an interesting value proposition, I think,

Starting point is 00:32:42 because one of the challenges for mining was back in 2013, you would put in an order, you would have so much risk, basically. You'd put in an order as like one single individual for a couple thousand dollars, and then you would order a machine and it would arrive six months late, if at all. So it's just crazy risk. And then you had the like cloud mining guys. They would kind of say, okay, we're the middleman. Now we're going to place those orders. We're going to aggregate them.

Starting point is 00:33:08 But they also had the same problem of these delays and stuff. But now we actually have miners that have built up real capacity that's actually deployed. And they're kind of building on ramps for investors to then participate in kind of a in a much more risk-sensible way. And it's, you know, if you look at capacity, like for example, say that you have like 2000 Terra hash, for example, working, which would be like, you know, a bit over $200,000 or something like that to put that, to deploy that, you can mine about a Bitcoin every two months at the current rates, one Bitcoin every two months. So like on an annualized basis, that's basically, basically you get your money back in way less than two years time. Of course, that's, you know,

Starting point is 00:33:51 I'm not saying it's going to keep being this way. Although when the difficulty rates drops, the proposition gets even more attractive for the existing miners. So I'm pretty, I'm positive on what's going on there. I think it's an interesting time. We're kind of in the doldrums a bit with Bitcoin. And so, yeah, I'm excited. I mean, I'm mostly involved with Blockstream, so I know mostly what they're doing in the mining space.

Starting point is 00:34:14 But I think it's an interesting time for, because where do you diversify in Bitcoin? It's one of those perennial questions if you don't want to burn your reputation on a shit coin or something. So this is an interesting idea as far as because so much hash rate was taken off the network, and it's going to take so long for it to come back on because nothing about the transition to another geographic location is going to be quick. Some people are saying multiple quarters until a lot of this hash rate gets back on line. Does that extend the bull cycle out longer before it hits its peak, then what we've maybe seen historically.

Starting point is 00:34:54 Because historically, the peak kind of hits about 70,000 blocks after the halving event, which is call it a year and a half kind of timeline after the having historically. And I know there's not a lot of data points here as far as these four-year cycles. But what are some of your thoughts on that? And then in addition to that, what we see after the peak hits is all this hashing keeps coming online after it has already peaked because there's fat margins like the margins you're describing. And so miners are incentivized to keep bringing more and more hash rate online, which really gets super competitive and it kind of drives the price to this homeostasis

Starting point is 00:35:33 kind of stock to flow price point. Does all of that get pushed out further to the right because of this big China ban and hashing going to take a lot longer to come online? I mean, you could make the argument that, you know, there's a bunch of Bitcoin that are being sold now that otherwise would not have been sold just because the miners are needing liquidity to get out of this quagmire. I don't know. I need to think about what it means if the whole cycle would be affected by it. I still feel like, you know, there's however many billing people on the planet, I still feel like those are going to be more of a driver of the whole price dynamic than the miners are going to be. even if they sell a lot, like if people think it's under value, they're just going to pile in and buy. I'm pretty optimistic still about the 30,000.

Starting point is 00:36:19 It's going to be the height of irony. This gets aired and we've broken below it. But I'm still pretty optimistic that, you know, we may really hold this level. Maybe we'll, like, drop, like, I have a big scare and drop to like 23,000 for a week or something. But I think it sure recover pretty quickly. But so, yeah, I think it's more up to the overall market to decide where the price is going to go and how fast then then that miners really can make a difference. So I just realized, stock to flow wasn't even a thing the last time you and I talked.

Starting point is 00:36:49 So what are your thoughts? Do you buy into some of it, all of it, none of it? I think some of it. I think some of them, I need to kind of review my notes on it because I remember being critical in the beginning and then I didn't really check my notes again on like what exactly was I skeptical about. I think there's a few variables that are just not taken into account in it. And also like if you tweak the variables.

Starting point is 00:37:11 rails a bit, all of a sudden the price goes to infinity or like, so there's a few things there that I'm not sure about. If everybody buys into it, it's going to invalidate itself because models do tend to be that. If they become too popular, the market just invalidates them over time. And, you know, that's my thesis is that I think it's going to continue to be fairly valid until Bitcoin basically takes over as this global settlement layer. And then the model invalidated at that point. Yeah, well, you'd have to look at like stock to flow versus gold or something.

Starting point is 00:37:45 Because it's true. Like in dollar terms, any model is just going to, the noise get just so, it's like, it's like Chernobyl, right? I mean, if you get high inflation, there's just so much noise that it doesn't make sense to look at a chart anymore. I started looking at charts in commodities terms rather than dollar terms. Those make a lot more sense to me now than dollar denominated, like real estate or bonds. It doesn't say anything to me if I look at a dollar denominy of charge.

Starting point is 00:38:12 But don't you think that Bitcoin and gold are just two totally different animals? As far as their terminal point, like where they're going. I think in the midterm, like sure, I think there's a lot of comparison there. But like when you're looking long term, like 10, 20 years from now, I don't really see them being a similar creature, if you will. I agree. I was just thinking, how do you, as a trend. I mean, if you do like medium term trades, you got to trade against something. And so I think gold is interesting because there is going to be, even if Bitcoin keeps

Starting point is 00:38:45 outpacing gold, there's going to be a kind of a trading range or something like that. That's what I mean. This article was mind-blowing. I think you wrote it in 2017. It's called the Bitcoin Reformation. Oh, I think that's 2019. Was it 2019? Yeah.

Starting point is 00:39:01 Really. Well, anyway, the article is incredible. I'm going to have this in the show notes. And first of all, I'm curious if there's anything that you wish you would have added to this article or maybe changed. And give people just kind of an overview as to like what the article, like the basis of the article. And then there's a couple things that I wanted to ask you about it. So the thesis, and it's weird, it kind of started with me just, I wanted to know more about like Belgium where I'm from. So I just started reading a bunch of history.

Starting point is 00:39:32 And I was like, I thought this is nothing to do with Bitcoin. And then finally, I was like, man, this is so interesting what happened 500 years ago when the book printing became a thing, you know, the price of books dropped from a year's labor to the price of a chicken over 100 years' time. Like that never happened before. And also so many technological innovations were happening with that allowed for global navigation of, you know, boats and sailing. Like, you could for a long time, you could sail to another continent, but the challenge was always, how do you get back? If you go to a new territory, how do you get back? And so you needed more advanced navigational tools. And then also in terms of doing business internationally, you have the invention of double-entry

Starting point is 00:40:14 bookkeeping, which allowed for like the Medici's and, you know, actually large multinational companies. And so those things came together during the, what's now called the Protestant Reformation. And it gave voice and it gave power to a new group of people that had not had that chance before, those are the merchants, people were later called the sea beggars, they had all kinds of derogatory names for them. But basically, they were able to use their knowledge to create international businesses and create a new basis of wealth. There was a big wealth transfer that started happening away from, you know, the clergy and the land nobility towards people that

Starting point is 00:40:54 basically were invested in equity more. Like they had they started building these companies and people had shares in them and you have the first bonds and the first like proto life insurance in contracts and things like that. And so as I read more about this, is like, man, this so much sounds like what's happening today, not only with Bitcoin, but also with the Internet, for example, also literally dropped the cost of information by the same range even more, right? Even more radically, going from the price of, you know,

Starting point is 00:41:21 entering a library or going to university or like the early Internet connections to like how cheap data is now. And so I started like kind of like looking specifically for parallels. So one of them is these technological catalysts was a big parallel. And then also having a group of people who are willing to stake their lives and reputation on this thing, which back then was the merchants. And now I would say in the report, I said the millennials. Actually, I wish I'd said the Bitcoiners because I do think you need your, you know,

Starting point is 00:41:53 you need to not only live and work in the digital sphere, but you need to actually move your wealth there as well to really live in Cyprus. space, so to speak, or cyberspace. And one other aspect that is a parallel is that people had the ability to withdraw. They have the ability to defend themselves against very large forces. Because that's the thing. Like, if you're smart, you want the upside, but you also want a fallback option if things go wrong. And so back then, you could do that by, I mean, the Dutch, of course, they could flood

Starting point is 00:42:25 their fields of the Spanish game. So they used water as a defensive mechanism. But also, you could use the boat and go to England. England or go to the US, you know, so you had all these fallback options against the biggest empire in the world, which was Spain. And so similarly, I think today, cryptography plays that role. That is the thing that allows us as individuals who don't, we don't have armies, but we can just not share our password, or we can store our password, chunk it up in different countries

Starting point is 00:42:53 in vaults and do multi-sig and all that stuff. So there's a, there's a moat there that's building that's really powerful. And that was, you know, the thesis is that basically we are now going through the Bitcoin Reformation and it's going to change society in many, many ways, similar to, you know, the Protestant Reformation brought freedom of religion, for example, freedom of speech, things that we take for granted now were really claimed 500 years ago. And I think we've got new things that emerge from this big revolution. One of the ideas that you talked about kind of near the end of the article, and this is like

Starting point is 00:43:27 a 17, 19, page. if I remember, right, it's fairly significant. But you talked about Bitcoin as liquid collateral as basis for lending and derivatives. And this is when, you know, the derivatives market, when you wrote this is just starting to kind of emerge and become a thing. I'm kind of curious as to your conviction or just misconceptions at the time of writing to kind of how you see it now. Well, I haven't delves very deep into the Bitcoin derivatives market, like how it's evolving. I do understand that more and more like insurance companies are getting involved. But then again, you know, derivatives are a prerequisite.

Starting point is 00:44:09 What a derivative is is just a bet, right? It's basically a contract that is a bet on a certain event happening at a certain time in the future. And basically, that allows companies to hedge their risks in a much better way than you could do if there's only a spot market. So, for example, airline companies use a lot of derivatives to hedge the oil prices, for example. And so similarly, if you want large companies or, you know, like life insurance companies and those kind of companies to get really involved in Bitcoin, they need that ability. And so that's why I was so excited, like we're seeing this derivatives market grow, and it's going to kind of reel in the blue chips of the world to really, you know, get in there

Starting point is 00:44:50 and then get involved. the largest commodities producers, for example, they can start Bitcoin mining. There's so many ways that traditional companies can get involved. So that's why it's, no, I wouldn't change my thesis. I think it's kind of playing out like I thought it would. How about on the lending side, the lending and borrowing side? It's growing massively. If you think about it, like in the Fiat world, which is how we grew up in, like,

Starting point is 00:45:15 it's literally the air we've been breathing for all our lives. the thing that had value was our labor, which is our income expressed in fiat currency. What's the other thing again? Maybe like your house, you use your house as a store of value to borrow against, use that as collateral, and then wealthy people would use their equity portfolio. My thesis is that those stores of value are vulnerable to political wins, and because the politics are going to get way more chaotic in the next decade or so, I think people are going to want much more reliable and verifiable types of collateral.

Starting point is 00:45:51 And Bitcoin is brilliant in that sense because even gold is very hard to audits. Like we, for example, the Fed, we haven't gotten an audit of the Fed since I think 1953. It's very difficult and expensive. And even if you have an audit, like can you trust it? Whereas Bitcoin, anyone can spin up a node and look on the blockchain and check of this address actually holds that balance, et cetera. and now with Taproot, we're having even more possibilities in that realm. So that's kind of my thesis as to why Bitcoin is such fantastic collateral.

Starting point is 00:46:22 And of course, I mean, now Michael Saylor has come in and saying, don't ever sell your Bitcoin. Just use some of it as collateral. Borrow against it. It's going to go up in value. And then, you know, you borrow more to pay the interest and you're set. You don't have to ever sell because it's such good collateral. So to me, that's like such a ringing endorsement. And there's, of course, many more.

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Starting point is 00:50:09 For a person who's coming into Bitcoin for the first time and probably paying really close attention to the price action, I like to say, hey, take a look at the user account. I know Michael Saylor refers to the user account a lot. He's like, hey, we're at this many users right now. And if you were comparing that to the internet when it first stood up, we're in year 1990 or 2000. I can't remember what the equivalent is. I think like 90 something like that, 1999, 96. And so do you think that trend of adoption and users is the thing that somebody who's buying this with a long-term lens, that's the thing that really kind of focus on and pay attention

Starting point is 00:50:47 to as opposed to the daily gyrations of the price action, which is extremely volatile and difficult? Is there anything beyond that that you think would be important for a new entrant to Bitcoin to really focus on? I made my first spreadsheets comparing Bitcoin adoption with internet adoption back in 2013. Like I think, you know, that's the main thing to watch. And it's incredibly is held up, right? I mean, we are indeed.

Starting point is 00:51:15 Like, we went from being like Bitcoin was like internet in 1990, 91. And now we went all the way up to 7%, which was 1995. Like that's interestingly, I don't know, you could look at like, oh, how many, what percentage of the population does it take for around? revolution to spark, right? I think it's similar. Like, people say three or five percent or something like that. Like, that's enough to make big change happen in society. And so maybe seven, back in the internet, internet in 1995, that was the tipping point, 7% adoption of U.S. households. So U.S. households, 7% of them were using the internet in 1995. And so, yeah, I think we're past

Starting point is 00:51:53 that tipping point. Like, this is, if you look at adoption curves, there's always like a slow beginning. And then that tipping point, and then it speeds up. And so I think that's what this is. I think we are, it's incredible to think, but I think adoption is going to speed up from here and now. And of course, a lot of people are going to own Bitcoin that don't even realize they do. Because if your insurance company owns Bitcoin or your pension fund owns Bitcoin, you're exposed to the price. You're exposed to that asset. So are you telling me you subscribe to the super cycle? Is that what you're saying here? My thesis so far is that we are still in a 2013 replay. And so that this is the equivalent

Starting point is 00:52:30 of, you know, we went to 65,000 back down to 30. That's roughly the equivalent of going to 270, back down to 100. And then, you know, a bit of doldrums, six months or so. And then a 10x or something like that, right? And so if we do 10x from 20, 30,000, we're talking about 150 to 400,000 somewhere that range. I mean, it's also like, it's starting to get weird because we have so much dollar inflation, right? And so what does it even mean to dream of a $300,000 dollar Bitcoin two years or three years down the road, how much inflation are we going to have had by them? 50%.

Starting point is 00:53:06 I mean, who knows? How much value of the dollar will have lost by then in terms of purchasing power? Well, and I think you subscribe to the idea that like, if they're going to debase by that much on M2 money supply, what's going to stop them? Like, what's the backstop at that point? Like, they're going to have to accelerate from there based on everything that we know about macro markets and fixed income markets and like, how are they going to control it, I guess, is my point. If they're adding that much more pruning into the system over the next four years,

Starting point is 00:53:39 five years, what comes after that for the five years that follow that? If there's any like reading recommendation, although it's, there's maybe other accounts that are a little bit more accessible, but there's a little book written by Andrew Dixon White. It's called Fiat Money Inflation in France. And so he's basically talking about it was originally published in 1876, but it's a very short little book. And he just talks about what happened with the money leading up to the French Revolution. And it's uncanny how many parallels there are. And literally QE, like quantitative easing, they did it.

Starting point is 00:54:17 And then the economy revived. And everyone was like, wow, this is amazing. And then there was another crash. And they did it again. And they did it again. And the succession of the QE's was ever. more close to each other, eventually they blew up the currency. You know, it's, I think this is the path that we're on.

Starting point is 00:54:33 It's weird to think about it because the dollar is supposedly the strongest currency and the U.S. is the strongest economy. But, you know, I mean, this is the path we're on. And maybe they're going to like do a 180 and come up with something to back the dollar magically, but friends tried it too, right? They confiscated the lands of the church and they're like, now we have assigneurs and these are really backed by real land. Of course, you couldn't redeem it, but it was supposedly backed by it.

Starting point is 00:54:59 So it's like, you know, they're going to really have to back it by Bitcoin or something real, redeemable to kind of have a chance at preserving their currency, the value of their currency. Because the root cause, the issue is that they're not allowing the market to normalize, right? They're not allowing the companies that should be blowing up and going bankrupt. and then those assets re-getting bid back into the market at ridiculous cheap prices for somebody to gobble up, they're not letting that happen. And especially after you do it for decades of not letting the market be free and open to purge itself from misallocation, you then get yourself into this really gigantic mess that nobody politically wants to be responsible for by implementing sound monetary policy.

Starting point is 00:55:52 Yeah, and one aspect I think that is under, it's understandable why it's underappreciated by the market and most people, but I think it's important to look at is that, is that the amount of interventionism is going to ramp up. And it's, we've already seen that. A lot of people think, oh, 2020 was the exception. But like, no, to me, this is just a continuation of 2008. It was like, people were like, incredulous. Like, these giant bailouts, this is crazy. Whereas, like, in 2020, it was like, of course we're going to have bailouts. It's just a, it's just a lot. It's just a lot. It's just a lot. matter of how many trillion. And then, of course, we're having like rent control, well, not really rent controls, but it's more like eviction, you know, bans, eviction bans, all kinds of market interventions. They've even, I think in California, they've forced insurance companies to keep insuring people that don't even pay the insurance for like against fire and natural disasters. And so all that intervention, I think regular investors underestimate the effects of that on their portfolio over time because you are invested in a company that could be facing headwinds regularly in a heartbeat. All of a sudden, there's some kind of regulation, and then that

Starting point is 00:57:02 stock snaps in half, and it stays that way. Or you're invested in real estate, all of a sudden there's rent controls, Weimar, Germany, lots of rent controls. You could rent an apartment literally for the price of an egg. You could rent it for a month for the price of an egg because they cap the rents. You know, so these are all things that, and that's why it's so. appealing to try and be in an asset that you can just hold on throughout all the crazy, you just hold on to it, you don't move it, you don't sell it, and then once things start normalizing, your purchasing power is intact and high, versus somebody who's been trying to skip from, you know, from hot potato to hot potato, they've gotten burned over and over.

Starting point is 00:57:43 Well, I think what you just described is really the why behind why we've always seen these kinds of things end the way that they end throughout history. And if I was going to describe it in one word, it's austerity doesn't work politically. You were describing how the political spectrum has shifted over the last decade plus and how it has become politically unpopular for anybody to believe in austerity being the correct choice to solve the problem. Ten years ago, there were still advocates out there saying, hey, we got to be responsible here. We can't, we can't just print this money. What are you talking about? We just can't bail these banks out. Now, you literally have people spray painting the doors of politicians that just say, give me my money.

Starting point is 00:58:36 And it's both parties. It's not just one party or the other. So because austerity requires people to be responsible for actions that have been decades, these actions that we're asking, I mean, if you're 30 years old and somebody's saying, well, we just need to do austerity. That 30-year-old is looking at that politician or whoever and saying, I was a kid when these decisions were made or I wasn't even bored when some of these decisions are being made. And you're telling me, I've got to be responsible. They're saying, get the heck out of here. They're not buying it for a second.

Starting point is 00:59:07 And so I think that's really the why behind these things always fail the way they do is because no one's willing to go through the austerity measures that are required to normal. normalize it over time. And it's understandable because these bubbles have been blown up for, you know, you could argue since 1971, right? I mean, this is longer than most people have been alive. Yeah. I would even go further than that because the whole reason we came off the gold standard

Starting point is 00:59:35 is because they were manipulating the ledger of gold to currency in the system, the money multiplier. Hey, I want to get your thoughts on a couple other things here. We've had conversations on this show about Europe. opinions on Ethereum specifically versus Bitcoin. And you were one of the people that, to be quite honest with you, early on, that I really looked up to as I was just learning everything, and I'm saying, this guy here is somebody I really admire his critical thinking. And he's a, he's a pretty staunch Bitcoiner without Ethereum being part of how he sees the end state. And you

Starting point is 01:00:11 even wrote an article, I forget which article it was in, you basically said, this is, this is going to be a binary outcome that Bitcoin's going to win or something like Ethereum would win, but it's not going to really be both. I think a lot of people out there would disagree with that idea. I'm curious if you have changed your thought on that outcome. And then kind of like, what are your thoughts on some of these other tokens that are now competing with Ethereum to try to become the decentralized application layer? Just all your thoughts on this stuff, because it's been a while. At Ethereum, I've actually changed my thinking somewhat in the sense that there might be a way that they can maneuver themselves to basically become part of the Fiat system. If they can get some kind of support on the national level or higher, like the international Fiat financial level, like the IMF level or whatever, because the central banks have a PR problem.

Starting point is 01:01:11 They want to create a digital currency, but it's totally unclear what problem they're trying to solve. they already have digital currencies, you know, the dollar and everything is digital already, and they're clearly not going to have a decentralized thing. So then what exactly are they offering? And so there's a small chance that Ethereum could get kind of co-opted by, you know, some nation state or someone on a supernational financial institution and that it kind of has a longer shelf life because it has that like political protection. But if that doesn't happen, And I think it's unlikely to have, you know, to live beyond 20, 30 years and have any success because it's ultimately dilutive.

Starting point is 01:01:51 Like it is, it's a political system. If you're going to move to proof of stake, you're basically saying proof of work down the toilet. And the Ethereum Foundation has said so much about a month ago, I think they put out a statement like, hey, we're really doing this, you know, this wasteful proof of work mining, which is like, they're kind of like, they created Ethereum miners. who make their living supporting the network, and now they're saying, like, guys, you're fired, you know, which I think is a horrible.

Starting point is 01:02:19 Anyway, so they're doing that, and they're moving to proof of stake, supposedly, which is a political system where people get to, the voting is not linked to doing any kind of work, but it's just linked to how many ether you have. So it's basically ruled by the rich, like the rich people are rich in ether, they get to decide what rules are going to be made. And of course, now they're saying like, oh, but ether is a hard currency and we're never going

Starting point is 01:02:47 to have inflation. It's like, I want to wait and see. What if there's kind of a bit of a bear market for Ethereum and big holders are kind of like shifting on their chairs and they're thinking about selling? Well, why wouldn't they approve a resolution that says, oh, we're going to increase inflation so that you get more ether's staking rewards, which By the way, isn't that kind of what happened in 1980 with the U.S. dollar? We had like 1970s. We had inflation. Then Volcker came in and said, hey, you guys, I'm going to make you love the dollar. We're going to create these government bonds that have very high yields so that you can stay in the dollar and you can stake the dollar and get annual awards of 15, maybe even 20%.

Starting point is 01:03:31 And that gave like a second life to this, you know, problematic currency, which is not running out. And so that's kind of my thesis about Ethereum proof of stake is that ultimately it's very brittle having a political system to defend the protocol. If you look at Ethereum's emission schedule, it looks like a squiggly line. Like it's, it looks so random. It's because it's big, because of all these hard forks and these random political decisions, it kind of looks like a Federal Reserve interest charge, to be honest. So I think that it's just very clearly a different animal.

Starting point is 01:04:04 It's like what did Michael Saylor say? like a shark duck that lives in the trees, you know, it's not digital gold. So in terms of competing with Bitcoin, I think it's competing with the existing Fiat system, and it could have a potential future in that realm. Yeah, but that doesn't solve the issue at hand that we were talking about earlier,

Starting point is 01:04:25 which is a monetary system that forces responsibility. That has scarcity by definition. I think the other piece to the proof of stake for, is proof of work is if you go out and buy a new rig today versus if you bought one four years ago, eight years ago, your ability to capture coins if it's four year difference. It's a four year based on Moore's law. You basically have four times the processing power of somebody that purchased a rig from four years ago. And so the advantage comes to the new entrant into the protocol versus the person who arrived first soaked up all the tokens and is the quote unquote rich person

Starting point is 01:05:09 in those two different scenarios. And I think that that is a really profound piece to Bitcoin, especially as you think about Moore's law and how it has an exponential piece to it, because I'm just comparing a four-year period. But if we'd go eight year or 12 years, what you're doing is you're really having a profound impact in an inverse of a first mover advantage with proof of work? I literally tweeted this today. I said, Bitcoin is a freemium model. The basic product, haggling is almost 100% free. The fees are only charged once you start making transactions. And so there's this powerful flywheel effect where new users get onboarded with low friction

Starting point is 01:05:56 And long-term users, they happily pay the fees that will sustain the network. That's the other side. There's mining, which is kind of like that. But also just getting involved in Bitcoin, it's literally free to buy some Bitcoin and hold it for 10 or 20 years. And the fee burden is really kind of being paid by the people that are moving significant amounts of Bitcoin. Because when we really understand Lightning and I think where a lot of it's going,

Starting point is 01:06:21 I mean, you can see this in El Salvador right now. the cost for them to be doing their coffee transactions, which are immediate, which when we had a conversation before the summer of 2017, wasn't even a known thing that we would have immediately clearing transactions at near zero fee, that's a reality today. Like, that's like happening. And in fact, I would make the argument, that's the main reason why El Salvador is tapping into Bitcoin is for the network first in using the rails to maybe just conduct a USD to USD or it would be a USD to Bitcoin to USD transaction, where the two participants from their user interface don't even really realize that they're using Bitcoin to conduct the USD to USD, what appears to be a USD to USD transaction. And like what that enabled already today is mind-blowing. And I think when the media, you know, you got this guy from Johns Hopkins last, Hanky, I think is the guy's last name.

Starting point is 01:07:23 He's there bashing it. And I think I don't want to speak for this guy because I'm somewhat disgusted by his analysis and his depth of research. But when he's out there making these claims that like Bitcoin is really dangerous to El Salvador, he's talking about the volatility and the price action as a store of value piece in completely ignoring the second layer. Doesn't even mention lightning, which is what the country is primarily. using it for today. So it's very frustrating to see. And then of course the media just, the regular

Starting point is 01:07:59 media just runs with it. And for people that are in the space and really understand what's happening, you just want to bang your head against the wall. The latest incarnation of the old man yelling at the clouds. Exactly. So what are your thoughts on? We were talking about Ethereum. So this whole Ethereum 2 thing. 2.0, yeah. Yeah. I mean, it's beyond overzealous. as far as the technical challenges that they've got to overcome. What are some of your thoughts on that? I mean, it's weird how, it's not weird because I think it fits the pattern, but like they have a pattern of coming up with ways that they're going to scale the network

Starting point is 01:08:36 that are totally kind of like blue sky thinking, like, oh, yeah, here's a thought. And it's just like they're coming fresh out of a brainstorm session. Like, oh, we're going to scale with the, I mean, I even forget the buzzwords anymore. But like there's like a, there's like a graveyard of buzzwords that they have. of like things that they were going to plasma and they were going to do, what was the other thing? I'll find the word, but there's like a bunch of things that they were supposedly going to do, whereas Bitcoin has always been like literally this is going back to how Finney, I think, in 2011, second layer scaling, right? I mean, you scale in layers and that's modular scaling. It's just how

Starting point is 01:09:14 things make sense. And so Bitcoin has been extremely consistent in that sense. You forget about the B-cashers, like they never got it in the first place, and they were never serious developers either. But so, yeah, like, you know, the latest thing is, it's kind of like, it's just a novelty-based network and they just always look for something new that they can, that they can, with not a lot of thought about the long-term ramifications, what they're doing, other than, oh, but we're listening to the market. It's like, yeah, but you're not Facebook. Like, what are you talking about? Do you want to build a protocol that people are going to use 20, 50 years from now? Or do you want to just kind of, like, you know, raise capital with some fancy buzzwords?

Starting point is 01:09:51 And I really think the latter is happening. Like, proof of stake has been tried. Like, dude, like, this is the old thing. This is what they tried in the 90s. This is the thing that was discarded. And so all this voting stuff is totally brittle. Proof of work was the big innovation. And you're just throwing that.

Starting point is 01:10:10 That, to me, you know, knocks down credibility of people immediately. If they don't recognize the fundamental innovation of proof of work, like people, like, the people involved with Cardano, for example, are very negative. about proof of work. I'm like, to me, that's almost like an instant disqualification. Like, thank you for making my due diligence so easy. You're not getting something. And the irony is it strengthens the grid. And if you're not finding the cheapest electrical expense possible, and especially if you interpolate that out to 20 years from now, like, if you're not finding, like, dirt cheap next to zero cost electricity, like, there's no way

Starting point is 01:10:46 you're going to be competitive in the mining process of Bitcoin. It's just not going to happen. I mean, just look at how much it's progressed since you and I started doing this stuff years ago. Like the progression, the trend line towards cheap, clean, renewable energy automatically happens naturally. You don't need a bill. You don't need anything politically to shape it in that direction. It's just going to move in that direction. Well, and also, like, we have Darwin on our side, right? I mean, we have the handicap principle in nature, which is like animal species will develop traits that are inherently costly.

Starting point is 01:11:20 to do, like, require a lot of energy, like a peacock with the feather feathers or like the bees going all the way up in the air until they're the ones that win the race and get the queen. Like, why is that? It's because it's very hard to imitate. It's very hard to fake, right? You can't fake proof of work. That's why it's so valuable. And I asked, I tell you like, what is your analogy for proof of stake?

Starting point is 01:11:43 And he comes up with some kind of hostage scheme. It's like, oh, yeah, you know, back in the day with the kings, they could hold. some people hostage and then, you know, exchange them. It's like, oh, that sounds so stable. That sounds like such an amazingly stable system. I definitely have a bias towards Bitcoin over Ethereum and all these other protocols as well. I want to be fair, but I also want to use the critical thinking where it's required to discuss why both of us don't necessarily see how this works long term. People disagree. They can go out there and do their own research to come up with arguments against what we're saying,

Starting point is 01:12:22 I guess. One final word about that is that I would say the real stress test for like defy decentralized finance has not really happened. I mean, come on be honest. Like we have not have a government crackdown on defy. And so we just don't know. We don't know how robust it is. I think it's actually very brittle probably.

Starting point is 01:12:44 And so, but that's kind of the bread and butter of Ethereum is like all that stuff. So we'll have to wait and see how robust it really is once there's a serious, you know, I don't know, some kind of judge who makes an order or some government or something. What are your thoughts on defy on Bitcoin in a second or third layer kind of thing? Because you were talking earlier about how you think it's important for things to scale in stacks, layers, with the base layer being this impenetrable kind of moat of a store of value being first and foremost and then everything being built on top of that. So where do you see Defi going with Bitcoin? I think I'm pretty much aligned with Alice Galene on that one. I think smart contracts

Starting point is 01:13:27 are always part of the roadmap for Bitcoin. Like Satoshi tried to put them in the main chain. I think people later realize it's better to have it on higher layers. I mean, Lightning is a smart contract layer on top of Bitcoin. Like, you know, let's not forget that. And so yeah, defy is totally going to happen. I think the liquid network is cool. I think it is fundamentally a different trade-off security-wise. That makes a lot of sense. It's a great settlement network. It's faster, but it still has a lot of security, and it has that privacy that I think is needed. That was one of the things that made me long-term skeptical about ERC 20 contracts and things like that is the level of transparency, like the amount of front-running that can be done with those kind of things that

Starting point is 01:14:07 you need in the financial space, you need private transactions. You just need it. Like, people cannot do business peacefully if they don't have that. And so I'm really excited that we're getting that. So with ERC20 on Ethereum, are you able to see that in front-run it? As far as I know, maybe something changed more recently. But as far as I know, like, yeah, you can see the tokens on the network. So for people that might not know what the ERC 20 acronym is.

Starting point is 01:14:37 So this is creating tokens. You can even make a security token. You can make a token however you want, but on Ethereum, it's called ERC 20. What TUR is talking about is on the Liquid Network, which is built on top of Bitcoin. This is a Blockstream, you know, one. It's open-sort code, but Blockstream pretty much, you know, came up with it and put together the consortium of companies that run the servers. And so you can come up with your own token on True Liquid.

Starting point is 01:15:06 And what TIR is talking about is on Liquid, you can't front-run the transaction. transactions because they have this almost like a veil of secrecy in the way that the code works, that you're not able to see how they're being transacted. When they validate a transaction, they don't even know if there's tokens in it or not. Like, that's the level of privacy. It's not even like they don't know how many. It's that they don't even know that there's tokens being moved in that transaction, in that block. So, Ter, what are some of your thoughts on just stable coins?

Starting point is 01:15:38 Tether specifically, I'm sure everyone wants to hear your thoughts on Tether, but stable coins in general. I think it's exposing some of the real problems with the Fiat network. Like I once kind of accidentally ran into Bipfinex and CEO, and he told me that he was involved with international trade for a long time, like before Bitcoin, moving assets and money around the world, like producing like, you know, real products and then selling them internationally. me. And so one of his big frustrations was always that it was so hard to move money around in the world, so, so hard. Of course, not between U.S. and Canada, but once you're talking about jurisdictions that are way further apart. And so their whole support of the whole Tether ID was

Starting point is 01:16:23 that. It's just like solving that problem. And I think they've done that pretty, you know, pretty brilliantly so far. It's kind of like a lot of the blame that's supposedly on Tether's shoulder, it's kind of like, well, yeah, it's imperfect because they are using imperfect rails. Like, they're using the Fiat rails to try and create something that's more efficient. I don't know exactly the composition of the, you know, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, people are talking about this, but I don't know exactly what kind of bonds they have and stuff like that to back it. But I think it looks like a pretty stable model.

Starting point is 01:16:58 I think if they have problems, it would probably more be on the regulatory side, you know, that somebody decides to go against it. and freeze bank accounts or things like that. But yeah, I mean, I think it was a pretty brilliant solution to a genuine problem. It's like, how do people move dollar value between exchanges or around the world quickly and inexpensively? Last question for you. Talk to us about generating alpha in this space. Yeah, so it's one of the questions that always come back.

Starting point is 01:17:26 It's like, okay, once I have Bitcoin, I can, it's kind of like Warren Buffett. I can follow them. I can look at them. but like, how do I get more value out of them? How do I get a yield out of them or some kind of return? And that's what they call Bitcoin Alpha. It's like you use Bitcoin as the performance benchmark and then you want to outperform it year by year.

Starting point is 01:17:45 It's challenging because, well, first of all, on the surface, it looks very easy. It's like, oh, yeah, just go to these loan guys and lend out your Bitcoin and they're going to give you a yield. But when you're really trying to be responsible and have long-term thinking and really try to not lose your Bitcoin, I think due diligence is hard. It's hard to do, in a way, it's like a black box. Like, you lend out your coins and something magical happens behind the scenes and then you get more coins back.

Starting point is 01:18:11 It's like, how do you know if something goes wrong, right? I mean, it's a very, very young ecosystem. Most of those companies are only a few years old. And so I'm using a lot of words to say that it's challenging. And I think, I mean, one of the things we're working on with Blockstream is to actually create products that have a conservative yield that don't aim for like, oh, we're going to give you 10% guaranteed every year or something. like that, but that have a conservative yield and that are really respectful to how precious

Starting point is 01:18:38 bitcoins really are. One of the things I think that BlockTream does really well is that because they're a full stack company that have existed since 2015-14 is that they can do proper due diligence in kind of a 360 degrees kind of way. And so that's why I've been really excited to, you know, I'm an advisor and I sold my company to them to work with them, is that they just have such know-how on like what questions to really ask to dig in. into finding things that are more transparent than average, for example, things like that.

Starting point is 01:19:07 So I think, I mean, I've been saying this for a few years now, but I think Bitcoin Alpha is the next frontier. Like, who cares about dollar denominated profits? Like, you know, you want to make your Bitcoin grow over time. That's what really matters. That's the benchmark to think about. I completely agree with you. And I think that once that becomes less risky or that the market participants feel like their Bitcoin that they've worked so hard to be able to secure can be lent in a way that they feel like they can see in a very public way, the collateral, and they understand the mechanics and they're able to audit the mechanics of how the yield is being generated in a very open kind of way. I think that it's just going to have massive implications

Starting point is 01:19:52 for how everything on the planet starts to be valued, especially equities. Yeah, also you don't have to rush into this and for this idea. Like you can borrow if as long as you like I did a little back of the napkin calculation, I think as long as you don't borrow more than two to three percent of the value of your bitcoins at any time in terms of, you know, you borrow 2% of that value in dollar terms and you use it for everyday life. Like say that just say that your income is not enough. Instead of selling Bitcoin, you can kind of go go that route.

Starting point is 01:20:25 which you possibly could do that forever. Like if you keep the percentages that low, you can just roll over your loans and the Bitcoin appreciation takes care of the interest and the new loans. Of course, it's very speculative for me to say that. But I think roughly speaking, it has held through historically. So it could hold true in the future as well, especially with accelerating inflation. Yeah. And based on how much you have starting out.

Starting point is 01:20:51 2% is relative, right? So it's like no matter how few you have. I see what you're saying as far as the principle that you're talking about. Yeah. I got you. Well, Tur, this has been amazing. You just got to promise me one thing that when I call you in 2025, you'll still do the interview with me. That's a promise. I really enjoy talking with you. You had a huge influence on me whenever I was first starting out, learning about this stuff and just building conviction, you know, just reading the stuff that you wrote through the years. And I know that that's true for a lot of people out there. It's really exciting

Starting point is 01:21:29 for me to have a conversation with you and to catch up. And we need to do it more often and probably more often than 2025. Well, and I want to say the gratitude is mutual, like, not just to you, but in general to, like, you know, people that I get to interact with. Because I do this for myself, too. Like, kind of like engaging in this conversation is what helps me understand things better and that in turn helps with conviction and making better decisions. Like, I've become such a better investor, you know, by engaging with other people. So it's such a blessing. It's incredible. All right. Well, Ter, give people a handoff. I don't know if you have anything that you want to give a

Starting point is 01:22:06 hand off to, but if you do, give them a hand off to where they can find you. And I know you commented earlier about the one day Twitter opening. So, yeah, if you hear this podcast on the day of publication, go. just go find my Twitter account. You should be able to just follow me. If it's on another day, just find my Twitter account and do the request, like request to follow. And I can't promise, but I'm going to try to, you know, approve everyone I can. And that's pretty much it.

Starting point is 01:22:32 Sometimes I publish a medium article, but that's rare. I'm working on a long-form thing. It will probably be a book, and it's probably way down the road. But so there's more coming, but that's down the road. All right. The one and only, Turdemeister. Thank you so much for coming on the show. Thanks, Preston.

Starting point is 01:22:50 Hey, so thanks for everybody listening to the show. If you enjoyed the conversation, be sure to subscribe to the show on whatever podcast app you're using. We really appreciate that. And if you have time, leave us a review. So thanks for joining us this week. And we'll catch you next Wednesday. Thank you for listening to TIP. To access our show notes, courses or forums, go to theinvestorspodcast.com.

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