We Study Billionaires - The Investor’s Podcast Network - BTC035: A Bitcoin Debate/Discussion w/ Greg Foss & David Collum (Bitcoin Podcast)

Episode Date: July 21, 2021

IN THIS EPISODE, YOU’LL LEARN: 03:58 - Dave and Greg's thoughts on the bond market resolving its potential mispricing 12:27 - Thoughts on the current bull market in bonds despite high inflation 15:34 - How Dave views markets moving forward in the next ten years 42:01 - What are Dave's reservations about Bitcoin? 43:55 - Dave's thoughts on large investors and entities entering Bitcoin 57:56 - Thinking about Bitcoin as an expected value problem 01:06:31 - Bitcoin's immediate clearance attributes and how it impacts financial rails 01:07:30 - Dave's interest in Silver and Gold vs. Bitcoin 01:12:19 - Bitcoin Soft forks vs. Hard forks 1:30:16 - Marrying an investment *Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members. Greg Foss's Twitter David Collum's Twitter Greg's Article On Bitcoin A book recommendation, The Bitcoin Standard A book recommendation, The Book of Satoshi A book recommendation, The Bullish Case for Bitcoin A Podcast Recommendation on Stable Coin Policy, Stephan Livera's Podcast A Podcast Recommendation on Stable Coin Policy, Chris Brummer's Podcast Check out our Investing Starter Packs about business and finance Browse through all our episodes (complete with transcripts) here SPONSORS Support our free podcast by supporting our sponsors: Bluehost Fintool PrizePicks Vanta Onramp SimpleMining Fundrise TurboTax Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Hey, everyone. Welcome to this Wednesday's release of the podcast where we're talking about Bitcoin. On today's show, I bring back a fan favorite with Greg Foss, who's got more than three decades in the fixed income market, and he's joined with Cornell professor David Callum. The impetus for this conversation was a lively debate that the three of us were all having on Twitter about Bitcoin. And after we had been going back and forth on Twitter for so long, we all just kind of agreed,

hey, like, let's all DM each other and let's set up a time to actually do a real conversation. And that's what led to this recorded interview, which was an absolute blast. You get to hear various points of view, counter arguments and just general banter that was really a lot of fun. So I hope you guys enjoy this conversation as much as I did. And with that, here's the show with Greg and Dave. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish.

All right. So everyone, welcome to the show. Like I said in the introduction, I'm here with David Colum and Greg Foss. I've been really looking forward to this chat, gentlemen. So welcome to the show. Hey, we're thrilled to be here, I bet. I certainly am. Dave, it's great to meet you.

And Preston, thanks as always for including me in your podcast. We had a fun time down in Miami, Greg. Man, oh man. I will tell you, and I'm disappointed you. Somehow we got crossed up, right? Because John Valles did his show. That was totally my miss. I felt terrible because I'm such a fan of him.

And then to be there with you and Jeff, I felt like such an idiot. So when I replied, it was like, yeah, I'm ready. Let's do this. He was like, it happened yesterday, Preston. So we were on stage in Miami, but the gentleman that was our moderator, is from Newfoundland, Canada. And that's sort of like being sort of from Serenac Lake, New York, okay? You know what I mean?

So John is down in Costa Rica and he gets on the pod and he's not wearing a shirt because it's so hot in the jungle, all right? And a lot of people are like, John, what the heck are you doing? Are you visiting us from like the men's room? The George Costanza scenario from Seinfeld. Anyway, point is, John Valis, great Canadian, Jeff Booth, wrote the best book. I'm going to pitch this as the best book I've ever read, okay, called The Price of Tomorrow. And as a Canadian, I can pitch it with 100% patriotism, but also somewhat of a critical bent.

I love Jeff Booth. And so it was me, myself, Jeff Booth, there was Mark Yusko and Preston on stage, introduced by John Valison moderated by Preston's buddy, Trey. It was the highlight of my, certainly my trip to Miami, but yeah, we were trying to recreate it and we got crossed up by Preston. Yeah, I felt terrible. I got so much respect for John. Man, sometimes you just blow it and that was me totally blowing it. So Dave and I have Cornell University in common. Professor Dave is a renowned professor at Cornell. I was at Cornell, so I'm going to date you here, Dave. I was at Cornell in 1988 while I graduated in 1988.

So I don't believe we would have crossed paths when you were a professor. But I was an MBA student, so I was there only for two years. I was at the Johnson School. And certain there's some professors. I'm really pumped because I've listened to you on Marty Bent podcast. And I know you're certainly well versed. And you speak the truth as you see it. And that's what I love.

Okay, so Greg, the last time that we were talking, there was some, in my opinion, very interesting things happening in the bond market. So we had the 10-year treasury just selling off at a pace that was faster than anything we'd seen in decades. It was approaching 1.75%. What we were talking about on the show was the rate at how fast they got there. It was like instantaneous compared to other sell-offs that we've seen in the 10-year treasury. Since then, we've had a lot of news that's come out. I see David posting Loz receipts today on Twitter and showing the price delta of 400% in some of these commodity prices. And everybody's talking about how the home prices are exploding. Any type of inflationary thing that you could think of is going berserk.

But unlike what you would expect in the 10-year treasury, which is it would keep selling off and the yields would go any higher, we've actually seen the exact opposite where the price is actually started to bid, and now it's at 1.36, and this is only a matter of probably a quarter. So what in the world is happening? Because it doesn't, for a person who's looking at that and seeing the inflation that we're seeing, and it's not like that expectation is disappearing. Everyone's expectation moving forward is that you're going to have more of this. And so what in the world is making the bond market bid right now? What a great question. So way to jump in right into it, Preston. So here's what I know. That is not truth. Okay. There's a hundred and twenty billion

dollar per month purchaser elephant in the room. They have actually done a pretty magical job of getting the market short and then squeezing it. They're pretty good at trading this thing, I will admit. So everybody and their brother was shorted. It was the largest short interest by certain metrics that you've ever seen. And rumor has it, according to the Bear Traps report, that there was a one massive account that capitulated and brought it all the way down to 125. So all I'm going to throw out to you is who cares? 125 or 175, you're talking basis points. Basis points are for kids. Don't mess around with basis points. The reality is there's a 120 billion dollar elephant in the room. That market itself is not even true. If you listen to Stan Drucken

Miller, the proper rate on the U.S. Treasury right now without the Fed being involved would be closer to 3.5% in the tenure. And Stan Drucken Miller is way smarter than I'll ever hope to be. So let's go with his viewpoint as what the proper rate would be. The 175, 125, 125 just so happens that 125 was a technical indicator, if I'm not mistaken, it's the 200-day moving average on the 10-year. So markets always go in the direction that causes the maximum pain to the most people. And the most people were shorted, and it went from 175 back to 125. The one thing I would love to leave you with is inflation expectations are not what we need to look at right now.

It's credit default. The component of the 10-year that is made up of credit risk rather than inflation risk is what the world needs to focus on right now. And I know it sounds like it's a de minimis amount in the U.S. 10-year. Right now, the CDS market, the credit default. swap market for the U.S. Treasury's about 10 basis points in the five-year tenor. The point is this. It's going to move. It's going to get bigger. And inflation expectations are going to be overwhelmed by credit default risk. Very simply, you see it with other countries. The U.S.

will be the last market to capitulate, but you're going to see contagion that will flow through from other countries. So we've got to remove the focus on inflation expectations, whether they're real or perceived according to a CPI. And you've got to focus on an open market called the credit default swap market. So that's what I would say to this. 175 versus 125 basis points in the tenure. But that's trading levels.

You got big accounts that got caught offside. It was a point of maximum pain and all of a sudden it's rebounded right back to 135. Again, it's noise. The range in 10 years is higher because of credit risk, but not because of inflation expectations. The Fed will control the inflation narrative. They will not be able to control the credit narrative. Stan saying that the proper rate is this 3.5% if central banks aren't involved. But they are. They are involved. And not only are they involved here in the U.S., but they're involved at the ECB, their Bank of Japan, over in China. So you have these major central banks that are at play. Let me run this idea past you. So I just tweeted out this

picture that Yardini, I think we talked about this last time I was on, where they plot out all the total assets of major central banks and they compare them side by side with different colors on the chart. This one was on the X axis's time and on the Y axis, it's denominated in trillions of dollars, and then it's these various colors for each central balance. On this one in particular, it does a good job of keeping the same y-axis. I don't like the ones where the y-axis is different on each side. This one here, you can really kind of see because it redenominates all the currencies into the same U.S. dollar currency, and it's an apples-to-apples comparison of how much they're adding to their balance sheet. When we look at this and we look at what's happened in the last six months,

the ECB has absolutely gone bananas on the amount of printing in the basement that they've done with the euro. And so when we think about kind of the last time that Greg and I were talking, the ECB hadn't basically kicked on ludicrous speed with their debasement relative to what the, and I think this is really important, relative to what the Fed was doing, they were kind of moving at the same pace. But ever since probably, I'd say, when the second quarter started of this calendar year that we're in right now, the ECB is just taken off and the Fed has gone at a much slower pace. So this means the dollar is going to get stronger relative to the biggest fiat currency

competitor out there, which is the Fed, right? Is that appreciation in the dollar relative to the euro, the thing that's making the treasury market kind of performance? in the way that it's performed, which is, it's been bidding. First, I would say one should never lose sight of the fact that all these systems look like emergent systems to me where they can make sense right up until that moment when they don't. When LTCM went to hell in a handbasket, you've got these super, super level of correlated behavior. And it's like trying to predict thunderstorms or something.

It just does not make sense. Drach and Miller's an optimist, in my opinion. I've tweeted this several times. I said, imagine you had to buy a 30-year bond. I don't care about the 10, the 30. Let's use the 30. And I said, imagine you had to buy the 30, but you had to hang on to it for 30 years. And you couldn't hedge it. And you were guaranteed to be paid, but the future is a complete unknown. The one thing you had to do is say, what am I willing to accept? It's an interest rate for 30 years. And the collective wisdom of the social media is well over 7%. And I, I would say that if I had more spaces in the poll, there would have been people shooting up to 12 or 15, I think. The bottom line is I wouldn't accept 3% return on a 10 year by that model. And so I think Drucken Miller's model is not correct either. And again, he's smarter than me. But Lacey Hunt's smarter than the two of us combined potentially.

And he would put the 10 year 1.1 or something. And I do casually chat with Lacey and I don't push back because he's too smart. Dave, I don't buy that. I agree with you. He's really smart. He's really smart. But at the end of the day, I think the people that are participating in this market are people that aren't thinking in 30-year terms. If we had 100 of them in the room, 99 of them, maybe more than 99 of them, are not there for 30 years. They're there to put the trade on and directionally try to be on the right side of it as it bids or sells off. For 15 minutes. That's right. Or for whatever duration they're trying to time the market. So they're just speculative. So you could make the argument.

The entire bond market is a speculative place these days. So this is the cool thing you guys are hitting on. There's actually no such thing as capital gains in bonds, right? Everyone says I own bonds because I'm going to be the world's greatest trader and I'm going to buy it at 1.75 and sell it down to 1.25. And the reality is it never happens because all you're doing is cashing out a coupon on your trading prowess. The greatest thing that you just mentioned, Dave, from a former bond trader is that you said you wouldn't buy it at 3%. And it's currently trading at 2% in the 30 year.

That 100 basis points in the 30 year is worth 20 bond points. Isn't that remarkable? 20 bond points because of duration and convexity. Yeah. And so what I love about the. the analysis that you just laid out is that you would buy it down 20%. And let's go to an extreme and say if the 10 years at three and a half, and let's just say the five years, therefore, at 5%, that 300 basis points, it doesn't even compute. You've lost 50% of your

value in a long-term treasury that's supposed to be risk-free. People haven't lived this for their entire lives because when I started trading, U.S. 10-year rates were at 14% and they went down to 1% and below. So bonds are a misunderstood contract by most money managers in today's day and age. We're not boomers. You're not a boomer. That's correct. And the crazy thing is, even Ray Dalio, who's so brilliant on this and made so much money on a risk parity trade and risk parity hedging, He understands the bond math. He's just not calling out people on the bond math, right? He understands it for the ludicrous nature that it is.

It used to be when equity sold off, bonds would get bid because interest rates would go down. But we've reached our floor in interest rates and that correlation doesn't work anymore. Ray needs another non-correlated asset. I wonder what that could be. Let's just sit back and understand. And I want to put one more thing. You're so right, Dave, because what you have not even brought into the analysis is you lend a U.S. Treasury 100 bucks today for 10 years.

It's almost certain you're going to get your 100 bucks back in 10 years, not 100% probability, very high probability, but the purchasing power of that $100 that you lent them today is going to be like $65 in today's dollars in 10 years. Right. That is why you need to hedge yourself against the certain. be a Fiat contract debasing. Best thing I could advise anybody out there, do your math, understand that you should have a lower exposure to bonds than you've ever had in your career over the last 30 years. It's pure mathematics.

So, David, you mentioned Lacey. So I listened to the interview that Lacey did with Grant. He's obviously brilliant, smartest guy in the space for decades. If I was going to say the thing that I think he's missing. And I obviously want to hear you counter this. I don't think that he's accounting for there being an alternative to fiat currencies globally. His model is based on there only being fiat currencies moving forward. My model is based on this idea that that's about to be disrupted. And because of that, we see the solution, we see the pricing mechanism of fixed income particularly and equities, because I could go down how that would then fall out into equities, as being grossly mispriced. But the fundamental linchpin of all this is this idea

that the model that we're accustomed to over the last 30 to 40 years, ever since 71, when you come off the gold standard, that model on how we understand this homeostasis between fiat currencies is about to be disrupted. And as long as it's only fiat currencies and as long as, uh-oh, the euro is printing faster than the dollar, therefore the dollar's bidding. Oh, no, now the Fed is printing faster than the euro. So that whole model gets flipped upside down. If there's this alien type technology that enters itself in and starts to say, no, I'm sound money.

I can't be debased. I'm immediately spendable up to any amount. If you want a really high transaction, let's say you want to send $100 million somewhere, that might take 10 to 30 minutes at $5 of an expense. If you want to immediately clear like in El Salvador and you want to transact in dollars and receive in dollars but use the backbone of Bitcoin that nobody even understands how that's happening, at least from the user's perspective, it immediately clears that $100 value, that's happening today, like right now.

And so, like, I'm looking at it from that lens. I don't have a problem with that to you. I think that the system, what I learn as a chemist, is that when you push a system away from equilibrium, way far away from equilibrium, the return trip tends to be violent, destructive, gives off a lot of heat. So in a chemistry community, you blow up your lab, avalanche, lanches, you destroy villages, earthquakes, you clip California off into the ocean, right? Any system, the return equilibrium, which has got a huge kind of potential energy is going to do destructive things.

What's also true is they tend to get very shock sensitive. There was a great metaphor and algae aphorism, whatever you call it, by Richard Russell years ago, when someone said, why can't this system go on forever? And his response was, going to your kid's room and start stacking blocks. He says, just keep stacking. And what you discover is anyone who's ever done this is the higher the stack, the more shock sensitive. So pretty soon, Russian bond defaults can tip over the system, as we saw in the late 90s, for example.

So when a system gets a shock sensitive, and I think we can all agree that the system is heading for shock sensitivity of a higher order, right? I'm not convinced we need a revolutionary technology to trigger the badness. you guys may have the solution to how to avoid that. We're about 99.9% on the same page in terms of what we have to not get hurt by. We don't want to be hurt by. One thing is I learned in 2020. And I think the bond market is the sign of inflation.

I once told a prominent hedge fund manager many years ago that the bond interest rates were low because of inflation. He totally blew me off. And now he writes about that. And it's just that the money started chasing bonds. So the hot money went after bonds and you say there's no capital gains, but they certainly get bit up. The money started chasing the bonds and you could leverage up and you could buy corporate bonds and you could sort of make something on the spread and everything worked fine.

By the way, I'm not as enamored with Ray Dalio with some people. Dallio system works fine as long as you're pumping money all over the system. But his risk parity model, I think, is kind of hokey. I think it's a way to justify inordinate leverage in the bond market. that he shouldn't be doing. If you want to call it risk parity, if you really want to send the bond market to the level of risk of the equity market, I think you're asking for a mushroom cloud at some point. And I think they've created that. We've had a 40-year bond market that's been nothing but good news for 40 years. But now we've reached the end of the row. Now 60-40

portfolios, you get precisely zero on your 40 almost, unless you want to go to Argentina to get a bond or something. And so your 60-40 is guaranteed to invest high, the best break even on inflation on the 40. And the 60 is probably 130, 140% overvalue. And so we can agree

that the conventional alternatives just suck. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You got long days of daylight, incredible food,

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All right. Back to the show. I completely agree with everything. Especially Ray Dalio risk parity stuff we're levering into the bonds. Like, that's nuts right now. Are they continuing to kill it because the trend for the last 40 years

is still the yields going down? It hasn't the last few years of his portfolio been such? I think that's right. But here's the other thing, guys, it's only mathematics, right? Look, you can let. in a downward trending interest rate environment, because in his volatility model, bonds had

lower volve. If you measure risk by volatility, which isn't always the best way to measure risk, then his model sold. And that's the key, right? It was simple to understand and simple to model when he was showing it to pension allocators who bought into that model. He admits that it's no longer there. He said himself, I'd rather own a Bitcoin than a bond. I don't know what else to say. He supports both. He is on record both. Dahlio does this macro analysis. I hope he's not listening. He does this macro analysis that seems pedestrian to me. I mean, I listen to him. I go, I don't go, what a wizard. It seems like he's just skim coding some basic principles. And I think that he, he grew his entire empire under this optimized situation that was set up by interest rates starting at 16%.

Amen to that. Yeah, you're exactly right. And it's sort of like Peter Lynch became a rock star by entering equities in about 76 and getting out in around 2000. And sending his kids to the mall and telling him what is selling in the mall so that he could figure out. Yeah, sinabon, synabon. You're so correct, Dave.

I've never been more proud of a chemistry professor. in my life, okay? Because you understand bond market, which is like you're in the 99th percentile. Even the fund allocators don't understand bond markets. It's that simple. Price is up, rates down. Well, not only that. How about this? If something is a straight line down from top left to bottom right with no volatility, right? It's a straight line. Does that mean there's no risk? No. But that's how everyone measures risk is by the volatility. Like my Lord, people have lost their friggin' minds in terms of how to measure risk. It goes back to what you were saying earlier about pumping all the energy into something.

For 40 years, they have done nothing but pump all this energy straight into the fixed income market through bidding the prices to the moon and the yields down to nothing. And here we are in the U.S., nominally the 1.36, but you go to other parts on the planet, pretty much anywhere else on the planet. And these things are so compressed and so much energy has been stuffed into them. I mean, it's unimaginable. And it's just, it blows my mind that you don't hear anybody talking about that systematic risk when you watch any type of financial media or news or anything.

They don't get it because no one studies the bond market press. And you know that. Equities are the thing that sells mainstream media TV. equities are the things that grow to the moon. Equities are excitement and bonds are for mathematicians. But here's the reality. Every single fiat is debasing. That's 100% certain.

It's just a relative value game. It's how fast your ice cube is melting. And if you can play beggar thy neighbor a game where the euro is weak compared to the US dollar, that increases exports. because foreign exports and trade balances are what balances your current account. At the end of the day, it's a short-term game, but the long game, the long horizon is it's 100% certain that every single fiat currency is debasing because that's mathematics. And the relative level of debasing, well, that's just the game that they play.

But they're all debasing at different rates, but they're going lower, of the math of the total debt to total GDP debt spiral? They're also not including the fact that we're going to have a tough time repeating China's influence on the last 40 years. So China's influence has been hugely deflationary. And so we went from, you know, Maoist China where these guys were basically half starving to death and growing rice, walk around barefoot to generating everything the world consumes. And doing so remarkably cheaply. One could argue strategically knowing that they're happy to not make a fortune because they will become a dominant superpower by just patiently selling us stuff for 40 years.

These games, this is like squeezing juice out of an orange. At some point, no amount of pressure gets more. I think we could have a crack up in the bond market without the pundits will come up with an explanation. But again, back to the idea it's an emergent system. It can just be because the wrong vibration. It's highly likely to 99 percentile in my opinion that that's where it comes from. When you're in a debt spiral, debt doesn't mature. It needs to roll over. And when you have a failed bond auction, that's when people look around and say, wait a minute, maybe I'm the guy holding this hot potato. Maybe I'm the fool at the table. And everyone, one pulls back. Maybe I have a hundred billion in leverage and I got to get out. Listen, and then what do

they do? Dave, this is what happens because the system is so leverage. You get a tap on the shoulder from your margin clerk and you're like, hey Foss, we're getting redeemed. We're getting redeemed. We need to deliver cash to our clients tomorrow. And I don't care what you sell. Sell something because I need cash in three days to settle this trade. And that's the worst situation you've ever been in there in your life because you're like, I thought my portfolio was hedged, but the only thing I can really sell is the stuff that I'm long because I thought I was right about it, but I can't sell the stuff that I'm short. I can't buy it in. So this is the crazy part of how a leverage system works. And unless you've ever sat in that chair and actually manage risk on a real life

basis where your margin clerk says, Fosser, you've done, you've had a great year. But God darn it, our clients are redeeming us because the world is unraveling. And sometimes we get redeemed. You know what the worst part is? You get redeemed when you're doing really well, because your clients actually want to cash out of the stuff they're doing well in. And so, you get penalized by the whole system because you're doing well. And all of a sudden, misleverage unwind, hits contagion levels, and it always, always, always starts in the credit markets and the equity guys still have the glue bag on and they're still sniffing that Kramer hopium that, oh, don't sell on a Tuesday because Tuesdays are really bad days to sell.

Stop it, Jim Kramer. You are giving such bad advice and you have no idea how credit markets work. It is so, so scary when I sit back having managed risk for 30 years listening to pundits that actually have no idea how capital markets work. David, here's my question for you. I think we pretty much see the world through a very similar lens here, like all three of us. I think the thing that we maybe don't, I don't even know if we disagree, but I guess it goes back to my original comment with Lacey is, I guess, what blossoms out of this meltdown? Because everything that we're seeing leads to this event.

we arrive at the event, it's a total catastrophe for anybody who is lending money. If you're lending out dollars and you're going to get paid in dollars in the future, it's going to be one sorry store value for you to get the repayment in 30 years back at what you were lending out. So when we're talking about the size of this market, it's hundreds of trillions of dollars, total impairment if a new system is then stood up on the other side of this event, horizon, whatever that system is, Greg and I obviously have our bias as to what we think that is. But for you, and you're looking at this, what is that thing that's going to be re-stood up? Is it going to be the IMF, getting everybody in the room and going back on a Bretton Woods kind of

scenario where everyone's just going to trust central bankers and the gold that they have and then ride some currency on top of that? I don't want to say my opinion, but I think you can tell by By the way, I'm framing it what my opinion is. Let's hear what you think. First and foremost, 2020 was eye-opening for me because I thought central banks as nutty as they look. If you follow my Twitter feed, I don't think a day goes by that I don't tag the Federal Reserve with some insulting tweet about what a bunch of idiots are. Although I always say it in this backhanded way where I always say things like, no matter

how aggressively I change them, you keep meeting my expectations. I like phrases like that. So they're full of ambiguity, but GameStop will soar, and I'll thank the Fed and say, this could never happen without your help, right? And what makes investing so difficult now is that what 2020 taught me was that the sense that many of us, I think, had that there was some sort of guardrail out there is now gone. So as much as they dumped a ton of money in an 0809, which, by the way, for the record, I called in writing in 2002. I wrote it about a five-page email to a friend of mine in Goldman,

and I said the banking system's going to go down, and I explained how I was going to go down, and I got absolutely everything right, with one exception of that J.P. Morgan's derivatives book was going to bring it down, and I was wrong about that. And people say, oh, that's too early. And I go, when you make that kind of a call, you can be five years earlier. You're still dead right, right? When you call the collapse of the, you want to call a hiccup in the equity market, you've got to be on time. When you say the entire banking system is going to go down the tubes, you can be early. So what makes it so hard is that you're somehow battling an investment strategy where you have to hedge against what could be an awful inflation or a horrific deflation. Because you guys can't rule out the possibility that we get this collapse of debt and that represents a massive deflationary collapse.

And then all of a sudden, the things that you can own and wrap your arms around become really important. And then the question that you guys have strong opinions on, and I can't refute is you think Bitcoin will still be standing. I think gold will still be standing. I think some kinds of real estate will still be standing. But I think meme stocks are gone. Tech stocks are gone. I did an analysis last year, the fangs. The valuations on the fangs are completely insane. You absolutely, positively have to tell this miraculous story to put the valuations on these big tech stocks because Amazon is Sears Robo. That's all it is.

It's faster and bigger, but it's just Sears Robo. Facebook is a billboard company, except for the fact that I think they get a lot of money from the Pentagon and sources like that. I never looked at Netflix. I thought that it was 60,000 movies. I could just pick one and watch any movie I want it. It's like 100 upper tier channels on your setup. It's nothing.

And I quickly ran out of movies that I wanted to watch. I couldn't even watch old classics. I couldn't find them. Here's a little math for you. And Netflix could cut to 1% of its current value, 1% and it would still be an overvalued company that loses money. How do you value a company when no matter what price it is, it's overvalue? Your name and the ones that obviously have just insane market caps.

This is a huge part of the market cap, though. It's a significant portion of the S&P. All the gains. It's all the gains for the last 10 years are all embedded in about 10 of these stocks. So they go down. We've got a problem. I think you got to look at the entire equity market as being equally as nuts if you normalize rates. So when I think about discount rates on equities, I'm thinking, well, what's the 10-year treasury? Well, we just all talked about when we started the show that Stan thinks it's 3.5. We think it's higher than that. And so let's just take a number. Let's just say it's 7% after it normalizes.

And then you stick historically about 200 basis points of a premium on top of that for a discount rate in the equity market. So now we're talking about a 9% discount rate for equities, public equities. Today, I think we're about 100 basis points above the 10-year treasury at 1.5. So we're like at a 2.5 current valuation. So if we move from a 2.5 to a 9% valuation in the equity market, everything. That's the problem. Everything melts down.

And we're not talking like 30% meltdown. We're talking like 70, 80%. Yeah, massive markdown if we go to those kind of discount rates. So like, I hear you. I agree with you. I think the whole market's looking at it and saying, well, their top line just keeps on going to the moon. So I guess that's the thing I need to own. and it's insane, but so are the value picks, the quote-unquote value picks that are trading

at a 3% discount rate when we all think that the real rates are way, way high. You're nailing it. You guys both nailed it. Remember, though, that the valuation of a perpetuity is one over R minus G. All equity guys play with is the G component. If you have a big enough G, you can rationalize any discount rate. This is so true. It's true.

So it's one over R minus G is the valuation of a perpetuity. I'll play with the discount rate. I'm telling you, Dave, Column, that Netflix is growing at 12%, and that you can put a 15% R on that and still discounted at 1 over 3, which is a 33 times multiple. I want to take it one step further. Don't even look at equities, guys. They're a derivative of the credit markets.

If the credit markets aren't working properly, equities get destroyed time and time again. You need to look at the credit markets for early warning systems in capital markets as a whole. And all of this is true. You said Sears Roebuck. So Amazon is the Sears Roebuck. Sears Roebuck used to be a Dow 30 stock and it's bankrupt. Kodak used to be in the Dow 30. It's bankrupt.

It founded digital photography, but the size. according to their board that there was no future in digital. Now Apple rules the digital photography landscape. Point be told, equities regularly go out of business. Credit will be the early warning system of that and that's why you need to look to the equity markets. You will see the stresses in the credit markets. So Dave, I mean, we have maybe 15 or 20 minutes left. Let's get right to the crux of the matter. You love gold. We are on the same page, 100% because of the Fiat Ponzi. All that Preston and I would love to do would be to convince you that there's no way

that you can be 100% certain that Bitcoin doesn't have value. And all I would like to do is convince you to move a portion of your store of value and it shouldn't come out of your gold portfolio. It perhaps should come out of other store of value portfolios like equity, certainly like bonds, that you need to own a portion of your portfolio in Bitcoin. Because if you are not long Bitcoin, you're exposed to an incredible short position on what could be the best performing asset of this century. And that's all I'm saying because having traded risk for 30 years, I don't believe I've ever seen a better asymmetric return opportunity in my life than Bitcoin. And it's not because I'm 100% certain.

It's only because I play the probabilities that it can go to a price that could blow the doors off of any other return. asset out there. And I think that's what Preston and I are saying. We're on the same page. You said it, 99.9%. I'm not sure if you own an allocation to Bitcoin yet, but I would love to convince you that if you own zero, you're actually taking more risk than if you own two to three percent of your portfolio in Bitcoin. Because if it goes to where it could go, you had 99% of your investment theory correct, but you didn't act on the best performing horse in the race in our opinion. I don't want to talk for Preston, but in my opinion, it could be the best performing. My question, David, is just what are some of your reservations? Because there's people

listening to this that have a very similar opinion as you. And they look at Bitcoin and they're concerned about it. So like if you have some questions or things that you think just don't add up or that you think are confusing or whatever, please. First and foremost, serious investors pass on a lot of opportunities. I've had people tell me that. and it sounds really good. And I go, I'm still going to pass on it. And so the ability to pass on opportunities, it's a critical ingredient of investing. So it doesn't trouble me to pass on an opportunity. Sometimes it hurts. What are my reservations? Well, whenever I do a Bitcoin podcast, I do a shocking number for a guy who doesn't know his rear end from his hands about Bitcoin,

reservations are multi-fold. One is, for example, and you guys can address these various things. is I still think you're going to have to do battle with the sovereign states. And my political views are such that I think that we're seeing a massive rise in authoritarianism. And so while Bitcoin, in my opinion, has made great progress towards your goal, I also see the forces of evil amassing. And forces of evil, right? It's clouds over mortar or whatever metaphor you want to use. I see more and more evidence every day that the state capital S will do everything to squash their opponent like a bug. And so then the question comes down to, does Bitcoin survive that? And I know there's various arguments about, you know, we're just distributed. I get all those arguments, but the fact

of the matter is Bitcoin does have a problem if the collective Western world says we're going to squash these guys. It's not to say you're going to lose, but it is to say that you're going to be in the Battle of the Bastards game of throne style. It's going to be a brawl. What do you think about the Dalios and the Stan Drucken Millers who are starting to take positions in this? Other politicians starting to take positions in it. And now they have a vested interest in its success. Good question. Superficially, it seems like great news. But what I see in these guys is I see weak hands. I see different Bitcoin hodlers. I see guys like you who look like you'll survive anything, right? You're going down with the Titanic, right? It could be a disaster.

You guys are going to be waving Bitcoin flags from the bottom of the ocean. Paul Tudor Jones apparently told Druck and Miller that, said, look, 85% of the hodlers didn't sell during that sell off deal. And that caught Druck and Miller's attention, right? So that's the story there. But what I know is that there are a bunch of guys out there with humongous sums of money, humongous amounts of leverage and will buy anything, anything that's going up in price. And if Bitcoin ceases to be fun for these crazies, who I think are reckless, they're way worse than the hodlers, right? These guys will head for the hills, not only if it stops going, they need returns or

they're out. And I don't know, I personally don't know how much they're influencing the market. and what a wholesale sell-off by, you know, hedge funds with attention spans of Nats would do. Would it destroy Bitcoin? I don't know. It would certainly knock it down some serious notches. I'm also, I'm equally annoyed when I go on Twitter and people are boasting about Bitcoin cut in half. And I go, if you've been following Bitcoin, that's all in a day's work. You guys have put up with so many bumps and smashes and black eyes. You guys are Conn McGregors of the investing world.

So when Bitcoin is down 60, 70, 80%, then we'll find out who's got who's got Hutzpah, but a factor of 50%. That is, here's the definition of a correction. A correction is when you not only correct the price significantly, but that price change corrects investors' attitudes. Now, let's go to equities for a moment. Was the March 2020 sell off a correction? The answer is not even close.

What attitudes got changed? Two months later, they were back even. So no attitude. The attitude that would change, couldn't possibly change. The message is, just hang on, just buy more, do whatever you got to do. Was 0809 a correction? I would argue no, because the Federal Reserve came in, saved the day. And investors, again, investors' attitudes are we're bulletproof if we just patiently.

So by that model, you have to go, but you go back to 87. No, not even close. 87 was the worst example of a correction. The shot across the bow that showed people, you just weather the storm, period, no matter what, right? Brainless investing. So the last correction was 67 to 81. That one ripped the souls out of equity investors. The last correction in the bond market was so many decades ago that no one can remember. We talked about that for the first 20 minutes. Everyone thinks bonds just can't go down in price. And someday, that will turn it to be so wrong and so painful. So the equity investors haven't seen pain since the late 70s.

The bond investors haven't seen pain since the early 80s. Gold investors are constantly sort of going up and down like a yo-yo, so they know pain. They know some pain. They can get pretty demoralized. And hodlers are going to have to learn to get demoralized and not sell. So that's That worries me. Then me at a personal level, there's still too many Wild West stories about individuals getting pounded by some exchange and the guy's taking off the Timbuktu with the money. And I know that drives you guys nuts, but they're still out there. Because it's such a wild west, those stories are going to keep surfacing. So that's just, but I would just call you guys up Paul Marty bent up and say, how do I do this safely?

That wouldn't stop me. The second thing is I hit the weak hands. I think the big money is weak hands. That's key. Right now, I think those guys who are in big could go out big fast. The sovereign state. Then there's little questions like the tether story. If you guys could explain the tether story.

I, for example, look at the tether story and it looks like a compellingly problematic thing. But I personally, I'm sure if I spent hours on Google, I could answer it. it, but I can't tell how big a problem a tether collapse would be for the cryptos. I don't feel any better because some guy who's got laser eyes coming out of his Twitter feed tells me, I know that you guys are having fun. I was going to put silver dollars on my eyes. I know you guys are just having fun, but the fact of the matter is someone can assure me that if tether goes down the tubes, we'll be okay. And I'm going to go, well, I think at some point

we're probably going to find out based on what I'm hearing. It might be my buying. opportunity. If I'm thinking about Bitcoin, Tether goes down the tubes. By the way, I started buying energy again in the fall when they took Exxon out of the Dow. And then I figured out the Dow only had 2% energy. And I go, so I've been thinking very hard about what's going to fuel the world. And it's not going to be wind turbines. It's not going to be biomass. It's not going to be solar panels. I've been paying a lot of attention to how to play energy for the next 20 or 30 years. this Dow, this 30-year treasury model. If I'm in a coma for 30 and I wake up, will energy do well? I'm trying to find the ones that I'd say they will do well. Let's take a quick break and hear

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Back to the show. The large Dalio type entities entering the space, the thing that I think about as far as the really large holders of Bitcoin, they're people that were actually involved. prior to 2015 and just have massive returns. And so that group, they're not selling. If anything, it's become... Rock solid. I get that. If you're going to step into the market today, I mean, the Winklefoss twins are a great

example of people who have a billion plus position in Bitcoin. And for somebody to come along today and take a position in Bitcoin and think that they're going to move it around in a negative kind of way, it's going to run. it's going to really take a lot and it's probably going to have to be with borrowed coins if they're going to try to not move the market price by owning the underlying. Let me make a counter to that. I would argue that Bitcoin in some sense could trade like a new issue, like an IPO where the float's really small.

So the 85% who are solid holders, that's like a lockout period except for it's not a lockout period. Those guys are not selling. Exactly. Get that. But the price is determined at the market. And it's got a pretty small float up there. Is that right, Greg, or not? One of you guys tell me? I think that I forget what the number was that Michael Saylor told me. His first buy was

a couple hundred million dollars. And he inserted that into the market without even moving the price. And he did it. And what I want to say was a week without moving the market price. So I think that the liquidity in the space is actually fairly significant in order to, I mean, this last buy he did, I think was half a billion, and he put it into the market. And I don't even think you saw the price. I think price was actually going down while he inserted half a billion. Yeah, the whole market, though, it reached a trillion dollar market cap. You need to understand how large that is in terms of financial assets out there. It would have been in the top eight companies in the total global market caps of equities anywhere, not enterprise value, but equity.

Dave, I love what you're saying. And I'm not going to offend you. What I want to do. What I want to do is... You can't offend me. How about this? Do you have a Bitcoin wallet then? Have you gone to the first principles? No, no, I got nothing. I got nothing. Do me a favor. And with, if you don't own, have a Bitcoin wallet in your possession by the end of August, I am driving over the border and I'm coming down to Cornell and I'm putting a Bitcoin wallet on your phone. And then I'm going to drive back to Canada and I'm going to send you value within 10 minutes. And you're going to be like, what? Why would I put one on when I, when I, when you, make that offer. So I'm going to wait until August and have you come down and do it.

I'll do that too. But listen, this is the coolest thing. I've sent value across the world that has settled in 10 minutes. I've sent money to New Zealand indigenous tribes that have settled in 10 minutes. Dave, I could have you download an app right now. You could hold up the QR code over this video chat. I've done this on the show. And I could scan it over this video chat that we're having, and I could send it to you instantly, Bitcoin, instantly. It's so beautiful, guys. And here's what I know as an engineer in conservation of energy principle and all that. Dave, no disrespect. You are overthinking the risk. They are all relative risk factors. But in the reality, think of what's happening. If I could convince you

to put 3% of your portfolio into Bitcoin and you're worried about all this stuff like Heather, can you imagine what would happen to the rest of your portfolio, to the other 97%. I can't imagine, actually. That's what you need to. And this is like a hedge against all that. That's all I'm saying. I think what Greg's, the way he's framing it is he's saying it's an expected value problem. So he's looking at what could be the payout.

Let's just make up whatever that number is. If $10 trillion, sure. 50 trillion, sure. whatever that payout would be at the terminal value creation that Bitcoin the network could ever be used for it. Let's just put that number out there. And then you look at the price that it's at today. Where are we at, Greg, half a trillion or somewhere around there? 600 billion, let's call it. Yeah. So when we're looking at that potential payoff of where that could go and you're thinking about it as an expected value problem, you're then saying, all right, I have to have some type of exposure,

even if it's 0.001% of my portfolio based off of this potential upside versus downside. That I don't agree with. And the reason I don't agree with is because I'm not interested in investment that's not life-changing in some ways. And so, for example, it's the equivalent of saying, well, you should at least get a $10,000 life insurance policy. I go, why about it? So the point is for me to go into Bitcoin, for me to go into it and care enough about

it and pay attention to it and do what I got to do, it has to be, first of all, I push every single major decision I ever make through one filter. And the filter is, if it goes very, very badly, will I forgive myself? Now, 3% I could forgive myself. But for example, I would put as high a probability on a massive run in silver as I would on a Bitcoin run. So let's pull the thread on that. So when you look at the market cap of silver today and what it could appreciate into saying, let's say that's a part of the new currency solution after we go through this. I'm not worried about it as a currency. I'm actually thinking about it's flat out a resource that's going to become hard to get. You think the demand for that is going to increase by that

much? Because the market cap is already fairly mature. I think the demand is going to increase. I think the supplies is getting harder and harder and harder and harder. And there's some super strong handedness in that world. There is silver being taken off off the normal market and put in the investment market that looks to me like it is sort of ultra strong hands, sort of like your ultra holders. And so I think the silver, above ground silver supplies are getting tight. I think the investment world could push it to the point where all of a sudden to get the silver you need for your iPhones and your computers and your solar panels, and you name it, silver is in every single electronic device, every last one. So if there's a tightness in the silver market, they are going

to bid it to wherever they got to bid it to. Dave, and I'll only use gold because I know the approximate supply of gold is 2% per annum, but let's play a game. If the price of gold doubled overnight, just doubled for some reason, do you think the supply would be capped at 2% per annum? Do you think that the market would figure out a way of getting you more than 2% per annum of gold if the price doubled? Gold is different than silver. How so, sir? Gold, there are massive sovereign supplies. And gold is not consumed.

The amount of gold that's been mine is still here. Silver is almost impossible to recycle with the one exception that's no longer relevant, and that's photography. So when photography was a big consumer of silver, they're a phenomenal recovery. rates. But it was also being used in electronics. And so people overplay the photography story. Couldn't you own Bitcoin and silver? I could. So how about this? Look, look, here's my, so Preston wanted to play a continuous distribution. I'm going to play a binary distribution with you where I think that there's a significant chance that Bitcoin achieves more than $2 million per Bitcoin in the lifespan of my children, maybe not of me, but of my children, okay? So $2 million of Bitcoin, would you grant me a 10%

chance that that could come true if I gave you a 90% chance it was worth zero? And most people would. They'd say, yeah, Foss, you're giving me a 90% chance that's worth more than $2 million over a period of time. I just don't know how to put those numbers on it. I will tell you how, very simply. The total global assets, in the world is $900 trillion, okay? If Bitcoin becomes the reserve asset of the world because energy is priced in Bitcoin, which I think is a very likely outcome, is it possible of that $900 trillion of assets in the world, Bitcoin captures 5% of $900 trillion?

So 5% of $900 trillion is $45 trillion, $45 trillion divide by $21 million is over $2 million bucks of Bitcoin. So on a probability basis, if it can go to $2 million a Bitcoin and I give you a 10% chance that happens, if you give me a 90% chance, the downside is zero. The expected value of that binary outcome is over $200,000 in today's dollars of Bitcoin. And it's trading at 30. You got to buy this, sir. You have to buy it with your eyes closed and then say, I own 3% of this in my portfolio. And I'm not going to worry about that 3%. I'm going to focus on the other 97% that is the traditional, I'll play gold, I'll play silver, I'll play equities, I'll play Netflix, I'll play bonds. But everyone overthinks it. That's all I'm saying. Everybody overthinks it. Dave, correct me if I'm wrong, but the way you responded to the way I framed it, you were saying that for the position size that you suspect you would take, the amount of effort that you have to expend in order to research and understand. understand and get yourself comfortable with taking that small position size isn't worth it.

So it's a sizing thing that's limiting you today. So let's say the price goes berserk and we're over $150,000 and you're looking at this and the probability of it doing what Greg just described appears to be going higher. Is that something that you would entertain in the future as far as taking it more seriously? Probably not. So I looked at Bitcoin at 10. I looked at Bitcoin at 60. there is a certain inertia that sets in when it's up at 60,000.

Still a rounding error at 60,000. Still a rounding error when it's going to 2 million. The final thing I wanted to mention was, and I kept trying to think of what it was, is that if you read any book on manias and panics, and I'm not saying this is a mania because I don't know, right? This is a problem. But you read any book on manias and panics and you write out a checklist, Bitcoin, you can check almost every box.

So you got the laser-eyed crazies, right, which I don't blame you guys for, but they're out there. And you got the retail holder saying, look, you can't lose it, can't go down. You know, if you don't on Bitcoin, you're an idiot. I chat with hodlers who say, yeah, there's serious risk here. I get those guys. They do the math. You guys have done the math. There is an intangible quality, albeit with a good story about the blockchain, albeit with a good story about being distributed all.

I get all that. But for example, you both have to recall how compelling the dot com story was and how the world was changing so profoundly. Everyone in his brother was buying dot coms and the same was true in 29. The same was true in Japan and 89. They all have. So you've got, I'm not saying it's a mania, but you get to check all the boxes for mania. That is a disturbing thing. I do understand qualitatively. I'm not sure I understand quantitatively, but I understand qualitatively, because when I was, when I was looking at 10, it was just this goofy thing. 10 or 10,000? Is that, was it actually 10? 10 bucks. People turned down Amazon at 12. I have people tell me, you know, so I was buying gold between 270 and 290. Now, it's not the gazegabagger

that Bitcoin is, but it was still a real good buy. And they say, well, of course, you were buying it then. It was so cheap. And I go, there was about five of us who thought it was cheap back then. And the rest of them thought it was stupid. And so what I can tell you is when it was 10, it was ridiculous. When it was 60, it was still pseudo-radiculous. And it's getting less ridiculous. And by the time it really looks unrediculous, it's going to be fair priced. So it's some sense I agree that it's getting less risky in the sense that it's becoming more normal, right? I'll give you that. When it was 10, it was absurdity. When you look at the network effect, though, Dave, so here we are compared to the price when it was $10, and you look at the number of participants that were on the network, right? The amount of participants that we're seeing that are joining the network that are using it for utility, I really think one of the biggest things that I see people misunderstand today,

especially with the El Salvador announcement with it being legal tender down in El Salvador, is Bitcoin's being used not for necessarily a store of value. Like you got all these people in the U.S. They're buying it, they're holding it because they want the price to go higher. Down there, they're using it as a back end rail for immediate clearance so that if you were a vendor and I was coming to you and I said, hey, I want to pay you $10. You're saying, yes, I want to receive the $10. And I send it to you and you look in your wallet and there's $10 in your digital wallet.

and I sent you $10 from my digital wallet, a person that would see that would say, well, that was a dollar to dollar transaction. But it wasn't. It was a dollar to Bitcoin Lightning Network to dollar transaction. El Salvador, though, is it a dollar bill would buy you stuff too. This is what is happening in El Salvador right now is a dollar to Bitcoin to dollar transaction where the two users don't even know that they're using Bitcoin to. to immediately settle with each other, and they're using it as a network infrastructure.

And that utility, when I'm thinking about the price today, and you're thinking about the utility, just like you would use metal, like you were describing silver, which I thought was an amazing point that you had there where the stock of silver is not like the stock of gold, where it's almost like a tritting itself because of the utility that's associated with using silver. In my opinion, you have the same thing happening in the Bitcoin space where in a digital space, you are actually creating utility for the rails in order to transact and send payments fiat to fiat with Bitcoin in between because you can capture immediate clearance. The world has never had that before.

Immediate clearance through a transaction later to transmit value. One of your biggest competitors are other cryptos. And I know you've got the jumpstart on Bitcoin. I get the network effect. By the way, I've been thinking a lot about networking effects. And I realize networking effects are the modern day monopoly. But for example, from an outsider looking in, I have no way to know whether Ethereum's going to blow Bitcoin right out of the game.

I have no way of knowing. When we think about the network effects of what I'm not. I suspect is going to replace this Fiat disaster that we talked about for the first 45 minutes of the conversation. I think you're moving from something that was absolute centralization to something that is absolute decentralization. So when we look at all these protocols and there's thousands of them that are out there, for me, what it really comes down to is which one of these protocols is truly, really truly

decentralized. When I look at Ethereum, that thing is growing at a terabyte a month or a terabyte every two months. And I might be off a little bit on the rate at which that protocol is expanding. All the things, all those transactions, all the smart contracts, all the swoopty stuff that it's trying to do on the base layer. Well, guess what? That has tremendous amounts of memory associated with it. I run a full node, which is different than a mining rig. I don't I don't know how much you know about the basically the infrastructure of it. So you got mining and then you got full nodes. The full node operators like myself cost me.

The electrical expense is so small. I don't even know what it is because it's so small. I run a full node. I run the consensus, just like Marty Bent has his full node. He runs his consensus of every transaction that ever takes place. We are the ones people like Marty, myself and others that run full nodes that are dictating and saying, this is the true code that represents Bitcoin. The reason we're able to do that, and the reason why this is so important and why the

Bitcoin block space is so small is because anybody can go on the Amazon, buy a Raspberry Pi, and start running this code as such a cheap cost, $100, $200. You can use a laptop that you have just sitting there from five years ago, and you can run the Bitcoin full node software on it. This is what keeps Bitcoin decentralized. Back in 2017, we had miners that tried to change the code of Bitcoin to change the incentive structure to benefit them by making the block size larger. The full node operator said, that's not good for the mass participants, the majority of

participants of the network. The software got forked. It created this thing called Bitcoin Cash. It's down like 95% and maybe more than that against the real. code that currently exists for Bitcoin. And what that represented back in 2017 is full node operators dictate this decentralized code base that is immutable, can't be changed. And so if somebody else tries to do it in the future, the full node operators are going

to stand up and they're not going to accept it because it's in our best interest to not accept it. How many are there? So the ones that we know that are on the network is in excess of 10,000 full node operations. Decentralized all over the globe. What would it take in terms of, let's use a modern term, an insurrection amongst the full node operators to somehow screw the pooch in there? What would it take to mess with that?

So when you go into a soft fork, these updates, so we just did a taproot update, which has not been fully integrated into the code base, but we'll be here shortly. That's a soft fork. I can choose to run it or I can choose not to run it. The soft fork means that it's interoperable with previous versions of the software. When you go into a hard fork, then anybody who forks off of that has to agree with the new code base. And then they've got to somehow convince other participants to go on that version. Is there a way for this forking to cause, can you imagine a scenario where this causes chaos,

where it causes a bit of a mess? So let's say that it does. Let's just assume that that could happen. The full node operators can revert back to the previous baseline of the code and everyone's then using that. See, that used to be my concern when I first came into this is like, what if there's a bug in the code and what if, you know, it causes the whole system to melt down and crash and then, you know, the price goes to quote unquote zero. But when you start to understand how the soft forks happen with the code. base and how the full node operators can agree that this is the code that we're operating off of will.

And right now is a perfect example. Not everybody's updated the tap route, right? Like my full node, I have. So I'm ready to run that whenever it's rolled out. But there's people, there's participants in the network that haven't updated to that, and they're still going to, they continue to. What's the consequence? There's no consequences.

They just don't get the benefits that are associated with the taproot upgrade for the node in the consensus that they're running. What's the benefits? Again, so it sounds like they're running Windows 95 all of a sudden. And the question is, what's the consequence? So let's say I'm running a newer version of Windows than Windows 95. There's more capability that's associated with the version that I'm running. But I can still send, and this is really people that are coders are going to probably cringe at some of these examples.

But I can still send you an email to your Microsoft Out. outlook and you're still able to receive it. So that would be the transaction. That would be the transactions. Windows analogy is a bad one. That's right. It's a very bad way. Microsoft can screw up any software.

Let me ask you have listeners who are not hodlers? Are they all pretty much hodlers? No, I think so. You pronounce it hodler or hodler. Hodler. I call it hodler. See, to me, hodler means you're holding it.

Your pronunciation makes more sense, but I think most people in the community would call it a hodler. Well, I'm going to call you hodler just to annoy you. What book should I read? Give me a book. Give me a starter book. VJ. Well, VJ.

Yeah, VJ has a great book. Let me ask you this. What are you more interested in the technology side of it or are you more interested in? No, you're trying to convince me. I need you to give me a book where I get to the end. I go, holy cow, I got to get me some Bitcoin. What book? If you want to know why I think climate change is a hoax, I can give you books.

Buddy, I love it. Okay, here, I'm going to ask you to read my paper again if you didn't read it. But I put 40 pages of stuff down there. It's my history. And I'll say, Dave, I love you for doing the research. At least you're willing to do the intellectual curiosity. Too many of your compatriots don't. I'm not really ignorant.

No, no, no. But listen, the mark of a great risk manager is the ability to change direction and realize they may have made a mistake. So let me flip the question on its ear. It seems like you have done enough research to buy Bitcoin at a price. you just don't happen to think the current price properly reflects the potential reward. It's not the price. So I've done so many of these podcasts now.

The story has changed. And that's not meant to be a criticism because I think the purpose of Bitcoin has changed. So I think it started out is you're going to buy pizzas with it. And I think it's turned into more of an asset class. So I don't own treasuries to buy pizzas. And if I bought Bitcoin, it wouldn't be so I could buy a pizza. Fair enough. So the original idea of Bitcoin is I've got to use it to buy pizzas.

So as an asset class, then I can entertain why the heck it would be. Very simple, Dave. If I can point it out from 32 years of sitting in a risk share, it is the perfect hedge to the Fiat certainty of debasing. It has no counterparty risk. It has 21 million fixed supply by math and code that cannot be overtaken or 51% attack, everything that Preston was just referring to. It is the most perfect hard asset ever created by mankind.

It's portable. It's transferable. You like gold. Well, at the end of the day, what you hold gold for in an Armageddon scenario, which I don't want to occur, but it could. You don't want to be walking around with a gold. bar. Okay, you don't.

You actually want to be walking around with a transferability of a seed phrase. I get that part. But your pitch sounds disturbingly gold-like except for that bar. It is. It's exactly, but this is just gold 2.0. And I'll take it one step further. It's not actually gold 2.0. It's energy.

It's digital energy. This is the most perfect conservation of energy ever created by mankind. And it has the best asymmetric return I've ever seen in a trade in my entire life. went over to you, press it. Coming out of your eyes. I can see the laser beams. I had this great idea, which I wish I'd done when I was young, and that is buy some some dirt cheap farmland and plant walnut trees.

This is all the same principle, but it's better because you can't pick up your farmland and move. You can't take those walls. You also can't protect him against guys with chainsaws in the middle of the time. Exactly. Kyle Bass has the same theory, except that he's just missing it by a fraction. He's too smart by a half. Now, when you said it's price, it's not price, though.

See, let's go back to that point. It's not price. Remember when I said why I started dabbling in energy again. I owned energy from like 0-1 up to a little past where I should have, but it did really well. And the reason I started dabbling in energy at the end of 2020 was because I saw certain signs that told me that this thing had very little downside left and a lot upside. One of them was the disbelief in alternative energies. Second was the low representation of the S&P being an all-time record low.

Exxon getting booted out of the Dow. These are all by signal. Anyone in the Wall Street says this is a buy signal. Dave, the biggest buy signal for me was when oil was negative $45 a barrel. Well, that was a problem. But that also showed me that it's an emergent system that I shouldn't trust at all and get the hell out of Dodds you go to Montana. But I think what would get me to buy Bitcoin more likely,

would be a combination of price, which would come from what I still believe will be a brawl. I think you guys haven't yet squared off against the state. But are you 100% certain that's an actual outcome? What if that isn't the outcome? No, I'm not. I'm not. I think we're going through that right now. I think we're going through it in a major way.

So China had half the mining processing power for the entire network. China banned it. 100% just stepped in, banned Bitcoin, forced all of those miners to turn off every one of their rigs and to get them out of the country. That's good news. Not bad news. So for us, you're right. This is good news. You're saying banning mining.

I think when the Western powers say it's illegal to you, I think when the Western powers go at you, that's when we're going to be looking at the battlefield and say, okay, who won? Let me play the optimist from Canada. There are smart people in politics that would realize this is a chance to absolutely change the world. And right now it's starting in Central America. We better learn Spanish if we don't get our act together, okay, guys? Get a Western nation that's in the G7 to embrace this. And all of a sudden, you've totally changed the narrative of East versus West. The thing I would tell you, David, is I think that the game theory is maybe something that you're discounted.

a little too much. Yeah, or I'm over counting. When I think of the game theory and how it's played out, it starts out with the individual. That's what we've seen. Then it started moving to the corporations. A lot of people in the space had been predicting very early on that you're going to see local governments start to do it. Then you're going to start to see state governments that are going to start doing these

policies that are actually the opposite of banning and they're actually going to try to start pulling it into their domestic regions. We're seeing that play out right now. We've seen it. Look at Miami. Look at the person who's the frontrunner in New York. Look at what's happening in Texas. Look at what's happening in Wyoming.

These are all locations that I don't know what's happening in all these locations. I know it happened in El Salvador. Now you're having small nation states that are adopting it as legal tender. So in order for Bitcoin to fail, in my opinion, you have to have all of them collectively ban it. If there's even a couple nation states that allow it, I think Bitcoin's going to continue to do quite well. I wanted to answer your question about the books. Two books that I think are really important reads. The Bitcoin Standard, in my opinion, is a great book, especially because it addresses things from a very economic lens.

The other book that I would tell you that a lot of people in the community don't talk about, but for me was really instrumental in my understanding, is that, this book right here, it's called The Book of Satoshi by Phil Champaign. And what he did is he went back through all of the forum posts when Satoshi was designing Bitcoin. And these are all the things that he described. And a lot of your questions were questions that people were asking him or her, whoever, 10 years ago, more than 10 years ago, in many cases, like, how does the mining work? How does this work in he or she goes through all of these questions in excruciating detail, describing the inner workings of what this person or entity created? And I've just found this book to be a gem of a resource to really kind of understand the

intentions behind what was created. You were also talking a little bit earlier about like it being a store of value versus there's many different meanings as to what this thing. is and what it was intended to be. What I would tell you is the block times of 10-minute blocks posed this initially when it was created, posed this issue of, you know, I'm not going to go to a Starbucks and use this and then stand there for 10 to 20 minutes for the transaction to clear as I'm waiting to leave the store.

That will never amount to something that will compete with a currency. But that seems solvable to me anyways. And it is solvable. and it's already solved. And it's solved in a second layer. So just like how the internet has the internet protocol and its base layer, and then you have the transmission control protocol that rides on top of it, that breaks the data packets into smaller pieces.

I also have a credit card that means I don't have to have the money in my wallet. I presume that you could have intermediaries that act as the go between that says, give them the coffee, we'll cover it. And so that's what the layer two, Lightning Network, which is already in place and already So the way I would describe it in a really easy, understandable way is on the base layer, on the base Bitcoin layer, it's like FedWire. It only takes 10 minutes to 20 minutes to clear, opposed to four to five hours to a day when you use FedWire to pay for your house. So that's on the base layer. Then on the second layer, which is the lightning network, this is like ACH. This is like your immediate clearing that takes place when you swipe your credit card with a store. Only, it is immediate. We know in the background when you swipe your credit card that there's these IOUs that then clear at a much slower pace, but with the Lightning Network, it happens immediately.

Credit card companies basically are paid to take the short-term risk. What you're finding is now, and so here, this goes to the game theory too. So I want to say it was like nine months ago. There was some legal changes that clearing houses can, now use, quote unquote, cryptocurrencies, Bitcoin Lightning Network, in order to use it for clearance rails. Well, why are they doing that? Well, they're incentivized to use this because the first movers that are able to do this are dropping their expense structure of this Rube Goldberg machine of clearing down to nothing, right? So now if I'm Visa and I'm using this in the back end

Rails, like, think about how much money I'm saving myself because I can get immediate clearance by using lightning channels. And so there's a company called Fold. They've got a visa card. So, like, when I go out and buy something with my debit card, it's just a visa debit card, I get Bitcoin for every single transaction as a reward, like an air mile, for every single transaction I conduct on a daily basis today, right now. And they're using the Lightning Network.

So who pays the money to Visa? Where does that money come from? Does that come from the vendor? It's coming from the vendor today. Now, this company, when I say they're using the Lightning Network, I probably need to be a little bit more clear with what I'm saying. So they also have a rewards card system. So like if I wanted to buy a $100 gift card on Amazon,

I can buy that $100 gift card with Bitcoin and then they're using those for some of the rewards that they're then paying, people that are using their visa card. And it's kind of like this business model that kind of interconnects some of those things. But there's people out there today, like myself, every single transaction that I conduct, I get Bitcoin rewards just like their air miles. For Greg, if we have a correction, column style, an attitude adjusting correction, do you think Bitcoin follows that part way? Gold certainly will. Oh, 100%. Oh, yes.

Okay. It could be the buying opportunity of the century, but I always go through life as saying, well, what if it doesn't happen? And then you're waiting for a pullback to 25,000 or 10,000 when in fact you think the upside is 2 million. You're getting too fancy by a half, right? Here's the real use model that I know. When Preston and I were in Miami, I met a bunch of kids from Guatemala that were starting a

Bitcoin exchange in Guatemala that wanted to be based on the same concept they used in El Salvador. And we happened to be on stage about six hours before Jack Mullers got on stage and announced he had onboarded the country of El Salvador, okay? And I'm talking about these young kids that are trying to do something in Guatemala because we think of things through the lens of a privileged G7 country in my case and a privileged G1 country in your case about trying to time markets and everything. If you took yourself to the other 180 Fiat currencies in the world that are not privileged like our own, they look at things through a much different lens.

Argentina is a serial defaulter that's defaulted three times in my lifetime. They think of things a whole lot differently. These kids from Guatemala are going to change the world for Guatemala. And it may not register in Canada. And it certainly won't register in the U.S. if it doesn't register in Canada. But let me tell you, over time, they could be changing their entire susceptibility to fiat imperialism. And that is a beautiful thing from my perspective, okay?

Look, I'll just tell you, the world deserves to be given an equal chance. And these kids are so smart. Lots of them were schooled in the U.S. and decided to go back to their home country to try and make a difference. And all of a sudden, they weren't experts just in Guatemala. Guatemala is a three-hour car drive from El Salvador. These guys are the most popular kids on the block right now to try and help all the implementations that are taking place.

I get it. It's so cool. All I would say is a 57-year-old fart like I am. It gives me such confidence to see this innovation and aspiration in the eyes of young kids, and I know you'd feel the same way. So I'm going to send you money on a Bitcoin wallet, and you're not allowed to keep it. You're just going to transfer it to Guatemala, okay? So it's going to go from Foss to column to Guatemala, and you're going to say, I should have probably kept this thing, but I sent it to Guatemala just to pay it forward, to pay the beauty of this

system forward to people whose lives literally will change if you give them 500 bucks versus you and me who, you know, if you checked your seat cushion right now, you wouldn't just find 500 bucks, you'd find a lot more money than that in your couch at home, right, Dave? We are a very privileged country that doesn't see things the same way as these. And that's what Bitcoin is for a lot of people. It's hope and it's truth and it's math and code. And that's what I've lived my whole life on is math and code. I believe that you have to marry an investment.

They always say don't marry an investment. I believe you have to marry an investment. You can trade anything, but you have to marry an investment. investment. And so I guess I'm looking for that, that marriable moment. Here's a related story. It kind of conveys the epiphany I'm looking for personally where a friend of mine named Steve Sinovsky was Gates's right-hand man. He became president of Microsoft, but he was a Cornell undergrad, and I knew him then, and Gates had taken the internet too lightly. And he was not taking it seriously at all. And Sanofsky comes to Cornell for reunion. And he emails Bill and says, Bill, all of Cornell

is wired. And that supposedly is the moment that Gates said, holy cow, we've got to get there. The moment may come, right? I have to do some more reading. Greg, you of all people, because I know you know the fixed income world. There's a lot of hodlers out there. Notice I'm calling them hodlers now. There's progress. Our mission is done. There's a lot, exactly, we can quit. Now, a lot of hoddlers do not know history. They don't know market history. They don't know manias, panics, crashes.

They don't know any of that. Those guys are of no value to me in my quest to understand this stuff. So there's only, so Mark Yusko matters to me, but he goes, him and pomp and these guys go all glazed-eyed, all Paul. And I get nervous when I see them looking glassy. I don't mean laser. I glassy-eyed enthusiastic. I go, the enthusiasm level has got me spooked.

I want these guys looking nervous. I want to see some fear. I put kids through college buying tobacco at this exactly the right time. Oh, yeah. And I was nervous. And I finally had that moment where I said, my God, here's the final piece of the puzzle right here. And I put it together. And I bought more than I should have.

And I put kids through college with it. You sound like a way better trader than anybody on Wall Street. No, but I still own it. Let alone a chemistry professor. Okay. So all I'm going to say is I'm going to help you sign off, Preston, because I think we've accomplished one thing. Okay.

He's doing more research. He's doing more research, which is all I could ask of anybody, because I know people who are intellectually lazy, that we don't have room for them. But people that will research it and do the work that's required and still discounted or say it's not for me, hey, all I can say is thank you for trying the research and hearing the argument. Dave, I approach investing in a very similar way that you're kind of describing where if I don't have the conviction in the trade, I just won't put it on.

Even if, you know, like Greg's throwing out the numbers. And for me, I just have to read. Like, I just got to pick up a bunch of books, go to the best sources I can find. Really, for me, it's books because I can have these conversations with people, but I I don't know what their biases are. I don't know if they're only understanding 10% of the overall site picture or whatever. But if I read a couple books that are from notable authors that are big names in the space, it has a huge impact on me to just build whatever conviction I might need for the trade.

If I don't have a conviction in the trade, I've usually been burnt by selling it at the wrong time and buying it at the wrong time. So I just want to tell you, I appreciate the conversation. and I appreciate you approaching it in such a, we're going to have over 100,000 people that are going to listen to this conversation. And like that's a, that's a massive amount of people that you're just willing to put yourself out there for my Twitter feed off more than you already have. No, not at all.

You guys have already wiped it out with the laser crazies. The other problem in my defense is I cover too many topics. So I write about college politics. I write about Las Vegas shootings. I write about fixed income and equities and all sorts of stuff and anything that moves me. And so for a topic to fight its way into my field of view takes some serious effort. All right, guys. Well, this was a blast.

I'm going to have links in the show notes to both of your Twitter feeds. We'll also have some links to the books that were mentioned throughout the show. We'll also have Greg's article in there. And with that, thanks so much for coming on. the show. Thanks again, guys. Have a great night. Yeah, thank you. This was fun. Hey, so I hope everybody enjoyed this chat with Dave and Greg. One of the things that we kind of got sidetracked on during the conversation that was never properly addressed was Dave's comment or question about tether and stable coins in general. I think this is a super important topic that's currently

taking place right now with respect to policy and regulatory guidance that's coming out, as this is being released. Just recently in this past week, I've listened to two different interviews with a person who I respect immensely, who I think is probably one of the most eloquent speakers in the space on this, and that's Miss Caitlin Long. Recently, she did an interview on Stefan Levera's podcast and also a podcast with Georgetown Professor, Dr. Chris Brummer. I'm going to have links to both of these interviews in the show notes, and I hope you guys

take the time to check these out because I think they're definitely worth your time. And I think it goes into way more detail than we would have ever covered in this conversation that addresses this specific concern, this specific topic. And so I just really encourage folks to check out those two interviews, which will have links to in the show notes. If you guys enjoyed this conversation, be sure to follow or subscribe to the show on whatever podcast application you use. Just search for We Study Billionaires. And the Bitcoin specific shows come out every Wednesday and I'd love to have you as a regular listener. If you enjoyed the show or you learn something new or you found it valuable, if you can leave a review, we would really appreciate

that. And it's something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening and I'll catch you again next week. Thank you for listening to TIP. To access our show notes, courses or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permissions must be granted before syndication or rebroadcasting.