We Study Billionaires - The Investor’s Podcast Network - BTC152: The Debt Event Horizon & Bitcoin w/ Jesse Myers (Bitcoin Podcast)

Episode Date: October 18, 2023

Preston Pysh talks with Jesse Myers about the FTX court findings, a few of Jesse’s recent articles on the debt spiral, the ability for institutions to perform multi-institutional Bitcoin custody, and much more. IN THIS EPISODE, YOU’LL LEARN: 00:00 - Intro 01:11 - Jesse's thoughts on the FTX trial. 03:50 - The impact of FTX selling Bitcoin into the last bull market. 03:50 - Does the halving event matter? 15:54 - Have we passed the event horizon for US debt? 15:54 - What outsiders are missing about Bitcoin and the debt burdens. 30:09 - How is Janet Yellen suggesting the US' interest expense could only be 1% of GDP? 33:33 - Jesse's thoughts on AI and Bitcoin. 50:20 - How and why multi-sig institutional custody is evolving right now. BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members. Jesse Myers' Twitter. Jesse's Newsletter. Jesse's Company: Onramp. NEW TO THE SHOW? Check out our We Study Billionaires Starter Packs. Browse through all our episodes (complete with transcripts) here. Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Enjoy exclusive perks from our favorite Apps and Services. Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets. Learn how to better start, manage, and grow your business with the best business podcasts.  SPONSORS Support our free podcast by supporting our sponsors: River Toyota CI Financial Sun Life AFR The Bitcoin Way Industrious Briggs & Riley Range Rover Meyka iFlex Stretch Studios Vacasa Public Simon & Schuster USPS American Express Shopify 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 Bitcoin Fundamentals podcast. On today's show, I have the thoughtful Jesse Myers here to talk about all things Bitcoin. During our conversation, we cover some of the FTX court findings, Janet Yellen's recent comments about the interest expense only being 1% of the total GDP, a few of Jesse's recent articles on the debt spiral, the ability for institutions to perform multi-institutional Bitcoin custody, and much, much more. Jesse is such a clear and eloquent guest, so this is one you won't want to miss. So let's get started. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish.

Hey, everyone, welcome to the show. I'm here with Jesse. Jesse, it has been way too long since we chatted last. A ton has happened. What's it been a year or more, I would imagine? right? Yeah, it's almost two years now. Oh my gosh. Time flies, man. Let's just start off with some like current events here because I'm flipping through my Twitter feed. And the buzz right now is this SBF, Caroline News, where evidently they were conspiring in 2021 to keep the price of Bitcoin

below 20,000. They were taking all of the customers, Bitcoin deposits and selling them into the market to try to keep the price down. What are your thoughts? What the heck? You know, there was, Caitlin Long had said, and sorry to go on, because I really want to hear your thoughts, but Caitlin Long had initially said shortly after the FTX blow up that, she thinks that the price targets of in excess of 100,000 would have been achieved if the FTX blow up didn't happen. And now it seems like now, now it's getting more granular through what's coming out in the courts, that that is not just highly likely, but almost absolutely likely that they were able to suppress the price based on the amount of Bitcoin they were squatting on.

When that came out, when FTX imploded a year ago, and it turned out that they had $1.4 billion in Bitcoin that they owed on their balance sheet that they didn't have. So that was paper Bitcoin, right? They had a $1.4 billion obligation that they could not fulfill because they were out of Bitcoin. They sold it all. that amounted to 80,000 Bitcoin that their customers thought that they had that they didn't have anymore because of this paper Bitcoin re-hypothication that had happened. And so that meant that during that period, I guess in the year before,

FTX had been creating paper Bitcoin, creating Bitcoin that didn't exist, like double claims on the same Bitcoin to the tune of, so 80,000 Bitcoin is a quarter of all the Bitcoin that had been mined in the prior year. So they had increased, quote unquote, increased the amount of Bitcoin mined that year by 25%. And no wonder we didn't go higher because that fake supply was going out into the market, meeting real demand and causing the price to not go up as much as the supply shortage of the post-having bull market, quote unquote, should have allowed. And so I think that finding that out right now, that that is, in fact,

according to Caroline Ellison, what was happening is kind of just vindication of all of our frustration with FTCS a year ago. And that's just from the Bitcoiner point of view of people who didn't have any funds on FTCX. And if you did have funds on FTCS, you're a whole order of magnitude more mad about the shenanigans that were going on there. I guess the cause and effect, right? So that was the effect. But the cause, as we look towards the future is have they compressed the spring of price action as we prepare for this next cycle, next having event. In that, I'm curious as you respond to that, is the, because there's a lot of debate around, does the having even matter anymore? And I'm kind of curious to hear some of your

thoughts on that. Yeah, this is, I love this topic because I will go to bat for the having all day every day. I think that the having still matters very much. I think it's actually a misconception that people make that relative to traded volume per day, the halving doesn't matter because there's $12 billion of Bitcoin traded every day recently. And the impact of the having will be $30 million per day of new supply issuance being suddenly not being there. And so that you look at those two numbers and you think, well, this doesn't matter at all. But the reality, of traded volume is that if the price is going sideways, then supply, then buying pressure and selling pressure net out to zero. That's what happens if the price of a commodity goes sideways.

You have supply demand price equilibrium. And that's what we always have in the year or so before the halving. The price finds its equilibrium point. And then forget about the $12 billion dollars or traded volume, it nets out to zero. And then the impact of the having very much matters because suddenly you're talking about a $30 million deficit every day. I guess it's $30 million total. So right now we're mining $900 million every month of new Bitcoin. So that's $30 million every day. The impact of the having will be half of that. So $450 million short every month of Bitcoin that is being created right now every month, but in six months it won't be created. So $450 million shortage, so $15 million per day. And that adds up. And that creates the flywheel

because the traded volume doesn't matter. And what matters is the net inflow of capital to Bitcoin trying to find supply to purchase. And suddenly there's half as much new supply being created every day. And so long as holders aren't giving up, aren't quick to fork over their coins, there's your supply shortage. There's the tailwind that creates the fly wheel of a a bull market that turns into a bubble and crashes. But then we set a higher base. That's the story of Bitcoin is we find this supply demand price equilibrium in the year or so before having as the market is stabilized around what's the amount of capital from sat stackers coming into the market every month on average. And does that net out to the amount of new Bitcoin being

created every month on average? And then the halving comes along and disrupts it. upends that entirely. I think that it's even clearer this cycle that the conditions for the post-having slow but sure bull market are there. And I think you're right that because of how the last bull market ended, I think kind of getting cut short, we have ended up and then the paper Bitcoin unwinding over the ensuing year and ending in the FTX collapse a year ago. And us ending up at $15,000 per Bitcoin, which was unwinded. under the previous cycle high of 20,000, which had never happened before. So we ended up kind of shifting, I think, the market, the range of the high and the low for

this cycle, lower than it would have been if there hadn't been FTX and whatever other paper Bitcoin issuers out there. So I think that the spring is more coiled than it otherwise would be. I'd go so far as to say, I think it's more likely than in any other prior cycle that we see a higher, that we see a bigger bull market after the next having than we did after the prior one after the 2020 having. And I think that's like a 30, 40% chance. So I wouldn't call it my base case, but I wouldn't be surprised if we have a bigger bull market coming up than we, then we saw in 2021. Can I just say, I completely agree with everything you just said. And two points that I would add to what you're saying. First of all, I think that,

People who are looking at that trading volume in dollar terms are missing the bigger context of how a true bitcoiner looks at this market as you go into the having because a real bitcoiner is looking at it in Bitcoin terms. And so they're looking at the stock of coins that have already been mined, have already been put out in the market, and then have been squatted on, never to go back on an exchange, relative to the new flow of coins that are coming out of this having them. It's as if, let's say, you were an oil producer or mining gold and somebody snaps their finger, okay, and literally a whale steps in and is removing the amount of supply that can be

purchased off of that market. But here's where it's different in Bitcoin than that scenario that people can wrap their head around. They can see real fast why the price would go higher in that scenario where there's only half as much, regardless of how much the commodity manufacturer works harder, they still can only produce half as much as they were before you snapped your finger. The reason why this is different is because everybody that's a hardcore Bitcoiner that's squatting on a tremendous amount of these coins outstanding, they're looking at it through the lens of this is going to become the new global settlement layer. And if the price goes to 500,000, name it whatever high price you want in dollar terms.

A Bitcoiner is saying, yeah, it's only getting started at 200, 300, 500, a million. It's only getting started because in dollar terms or in fiat terms, it's literally going to go parabolic to infinity in Bitcoin terms. So they're not going to step the hardcores that hold a majority of the stock, right? We refer to them as the psychopaths. They're not putting it back on the market. And if anything, this last cycle going through the FTX debacle, and you can see this with on-chain data, the coins aren't moving.

The hoddle waves, right? They're stronger on this cycle than they have ever been in the history of Bitcoin's existence. And like, what do you think's going to happen when it's at two or three hundred thousand? They're not selling at all. They're doubling down at that point, which is so different than commodities, which is different in commodities, right? Yeah. There's an additional layer of like spring compression that's going on too because the amount

of Bitcoin on exchanges is being drawn down. And specifically being drawn by, drowned down by the quote unquote shrimp, those small holders as defined by what Checkmate has put out in with his research of small holders have been stacking more than the amount of Bitcoin being mined. And this is really important because this is so different than anything that you see. in any other market, right? When the price runs, the smaller holders are taking their gains because they know there's going to be this balancing net effect where more producers are going to come online, fill the void,

and they're going to suppress the price through that oversupply because the supply is not truly scarce like it is in Bitcoin. But here, that dynamic of the small guy coming up with the small amount of buying power and buying up as much as they can, you don't see that anywhere else. And we know it exists because we can look at the on-stance. chain data and see it. That's just so foreign to how people are used to looking at markets. Like, yeah.

In no other market, do you have this kind of visibility, absolute transparency about who owns what? And also what's coming ahead in terms of changes in supply issuance? Like, that's unreal to be able to point forward in time six months and say, well, there's going to be a drop in issuance in exactly six months. And it will be permanent and completely indifferent to our desire. to create more Bitcoin, deal with it. Yeah.

If I was going to summarize it to somebody on Wall Street that's listening to our conversation, I would say the thing that people don't understand is that the people that are squatting on a majority of the coins that are already in existence, they're not selling no matter what. And when it goes to 100 to 300, their conviction hasn't just doubled. It's probably quadrupled that they're right and they're going to continue to be right and they're not selling them out or what. And that's just so foreign, I think, to any other asset, just totally foreign. I know.

And it's what, it's what like Paul Tudor Jones has keyed in on to. Like, Paul Tudor Jones, Bill Miller, Stan Drucker Miller, they're excited about that fact about Bitcoin. Looking at the prior bear market, they noticed that 86% of people didn't sell their Bitcoin through a massive 80% drawdown. And that's conviction doesn't exist anywhere. It doesn't exist anywhere. They saw that.

They were like, all right. right, we're going to position for the next bull market. They did that very successfully in 2020. And just this week, Paul Trudey Jones has come out and said that Bitcoin's going to be a larger percentage of people's portfolios than they're currently thinking. I think if I was going to say one other thing that I think people on Wall Street don't get, it's on the mining side, Moore's Law benefits the newest entrant. When we look at like business in general, like the person who has the first. mover advantage is typically how things work. In this space, if you buy the newer rig that has a faster processing, like you're the one with the advantage as long as you can go find cheap

electricity, right? And so when we look around the world, like as long as Moore's law continues to progress, that rewards this person who just bought their very first rig and they don't need to have volume of scale, they can have a small one as long as they have access to cheap electricity, which is abundant all over the planet. The network's going to continue to be secured. There's going to continue to be miners there that are extracting Bitcoin and processing transactions. And I think there's another thing that's heavily lost upon individuals that are just looking

at it and saying, oh, well, it's a Ponzi scheme. It's going to eventually collapse it. It's just so far from the truth. But anyway, sorry to go off on a little bit of a tangent here. We can talk about what is a Ponzi scheme. Yeah, yeah, we sure can. So let's, great, great transition, sir. Great transition. So you wrote this article on September 20, the 28th of September. It's called Strange Tides and Global Macro. Summarize this for us. What are you trying to accomplish with this?

It's hard to figure out. If you're an investor, it's hard to figure out what's going on out there in an investment landscape with global macro economics right now because there's weird things happening. We have mortgage rates at 8% and yet the price of homes is not coming down. We have yields selling off like crazy. All of a sudden, really, it's been a trickle and then now it's a flood of bonds selling off. And yet everyone is proclaiming that there's no recession. In fact, if anything, there's a soft landing that has been successfully accomplished or is certain to happen. And it just doesn't add up.

There's just so much strangeness out there. it all comes back to the money. It all comes back to what's going on with the fiscal position of the U.S., kind of the dog wagging the tail when it comes to global economics in my book, fiscal position of the U.S. and how that relates to U.S. Treasury bonds. When I look at this, there's people that are saying we are in a debt spiral. Like, we have crossed over that event horizon, and we are now, it's unrecoverable. I'm a little, I've asked Lynn Alden the same question and she kind of says, well, I think we're flirting with the event horizon. I don't know that I could say definitively that we're through it or not. I'm kind of curious how you see that.

Yeah. I actually wrote a whole piece on exactly this making the case for, we have passed the effective event horizon in my book. And that's to say that there are things we could do to recover, but we're not going to be able to do them. So, you know, with the way that Congress works, with the way that interest expense works, and our complete inability to cut spending, and the American public's total lack of concern and disinterest and austerity, we are not going to pull the levers that we should be pulling, should have already been pulling, to balance the budget. That's step one. And that's just not happening. We haven't balanced the budget in 22 years. We have normalized multi-truelly. million dollar every year deficits. That just adds straight to the national debt. And then that national debt gets, you have to pay interest expense on that. And that interest expense is nothing if you're at zero percent interest rates, which we were for about a decade, more or less. And now suddenly they're five percent. And so all the national debt is rolling over slowly at the five percent interest rates. And so on 33 trillion dollars of national debt, you're talking about,

$1.6 trillion of interest expense every year. It's an expense that didn't exist a few years ago. And that's on top of already normalizing multi-trillion dollar deficits. I mean, we can, we'll get into this, but since we lifted the debt ceiling in May June, we have added $2.1 trillion of national debt. That's in four months. And what's the- What do we bring in in tax revenues, just so people can kind of understand the context? of that number. That's actually a great question. And I won't have the up-to-date numbers on that because tax receipts have dropped so much

because tax receipts are so dependent on capital gains tax. And with markets down, I actually don't know if we're like three or four trillion in tax receipts currently annualized. But I think that's the ballpark figure that they're going after, somewhere between three to four trillion is what they're trying to raise through taxes. And then when you look at last year was kind of a gangbuster year, mostly because of all the proceeds that were captured from the gains on stocks. This year, from what I'm reading, they are not just like slightly off of last year's numbers, but like aggressively off of last year's numbers. And when you when you say the interest expense, like we're getting to a point where just the interest expense alone is starting to creep up on the amount that we're.

collecting collectively across the whole country. Just for people to visualize how insane this is, think about all the tax receipts they collect from a company like Apple and Google and like these big players. And just to service the interest, we're approaching that number. Like, it's that insane. I'm sorry to interrupt you. Keep going. I think these numbers are good for context, though.

And it's such a helpful way to think about. That's the absolute event horizon. That's the speed of light event horizon. When you suddenly pass interest expense being more than your tax receipts. There's no way out then. Like, you're done. But I'm making the case that we've passed the effective event horizon. You know, we're not, maybe our spaceship can go a tenth of the speed of light,

but that's not enough at this point to escape the gravity well of the black hole. Right. Like, we need to be able to do more than our spaceship is capable of. Just to use that metaphor. But, yeah, I mean, so, you. If we've added 2.1 trillion in 120 days, that's 6.5 trillion annualized. So we're on track right now to add $6.5 trillion between the end of the debt ceiling and a year from then, which is 20 percent.

That would be a 20 percent increase on our national debt in one year. It took 225 years for the U.S. to add $6 trillion of national debt, and we're going to do that in a year at the current rate. 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've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is.

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All right. Back to the show. And you're not even talking about all these wars that we're involved in. Like, we're not even talking about that. We're just talking about, like, how we got, like, our past action. that have led to these numbers right now, let alone the foresight of where it's looking a lot of, like where this is all going.

I think that's one of the fallacies of like people assume that it'll be one thing at a time and you can handle one crisis at a time. But the fall of Rome was death by a thousand cuts, really. It all happened more and more with greater and greater frequency. That's sort of happening to us. And so it's a question of like, how do we get out of that? I mean, but bringing it back to like, I don't think people are aware of the scale of the,

the national debt increase right now. And like what that, because you hear six and a half trillion dollars annualized growth and it doesn't really mean anything. So I ran some numbers to try to humanize this. And first of all, that that is $12 million every minute. So we are currently adding $12 million of debt every single minute of every single day. We're consuming $12 million worth of energy more than we produce. And the expectation is, don't worry about it.

Our kids will pay for it. And that's pretty messed up too. But to turn this into a human scale thing, I ran the numbers on like how many new retirees are there every day? There's 7,000 or so, 7 to 10,000. And if you were to take the money that we are adding to the national debt right now and instead distribute it to new retirees, it's your last day of work, you've worked hard.

Here's a gift from the government. How big is that check? It's $2.5 million. So instead of when you retire, going home with a $2.5 million check from the government, that money is being spent on your behalf, on who knows what, and you're not really seeing the benefit of any of that. But your kids have to pay for it. Unbelievable. So in short, the event horizon has been breached simply because human nature is going to prevent austerity and any type of logical pain now with benefit later.

decision making in order to rescue the path that we're on. Okay, in your article, you talk about the Japanification factor. Explain what you mean by this. I think a lot of people are confused by how Japan was able to have such a massive debt to GDP for as long as they did. And, you know, if they were able to basically deal with that since 1990 till now, why can't the U.S. deal with something like that until now? Just kind of give us a little bit of context behind that.

Japanification is this concept of when a government is issuing securities, issuing debt, and the market doesn't want to buy it because the market doesn't find it attractive. Then the central bank or some other arm of the government steps in to buy that asset and put it on their balance sheet. And the way they do that is by issuing more money. So they're creating a blank check to hand it to the person who's trying to sell that bond and saying, here you go, here's the money that it's quote unquote worth, even though you couldn't find a buyer and I'll buy it. And it ends up on the central bank balance sheet. And it sits

there. So you've taken a portion of that country's debt and you've put it in a different place under the umbrella of the government and it sits on the central bank balance sheet. And it's all hunky dory, but you've added to the money supply in doing this. And you've made the whole system a little bit more fragile, a little bit more levered up, and that it can be dangerous in the future. And I think it is a mystery, like, how has Japan been able to do this for 20, 30 years without it seeming to have mattered? And I think is because everywhere else in the world has been pretty stable. You know, the G7 hasn't had this problem. And so they're able to prop up Japan and support Japan when necessary. It's okay if Japan has a cold for 30 years. The rest of the global

financial system is still humming. But when everybody, you know, gets sick together, then then it's not really possible for the G7 to support the G7 because everybody has this problem. And so that's the new phase that we're entering here where Japan may have been able to limp along for 20, 30 years with this central bank balance sheet expansion, but the G7 won't have that luxury because there's nobody supporting them. There's nobody stepping in to provide stability and a healthy balance sheet.

This is all we got. I think that timeframe will be significantly compressed. Maybe we're talking five, 10 years. Maybe it's 15. We probably already started the clock on it. So we're a few years into this issue. And what I wrote about is the Treasury is sort of backchanneling right now.

that they're planning to start buying treasury bonds and putting it on their balance sheet in 2024, which hasn't happened in a few decades. And I think the subtext there is that with bond yields soaring, that means bonds are selling off, the treasury is realizing that suddenly these instruments are not attractive to the market. And they need to step in in order to provide some stability. and suddenly you're on the same track as Japan, though they've been doing it for 20 years longer. Yeah. And I think that when we look at it from a global context, I think they've been able to get away with doing it for so long simply because they were net producers as a nation.

Yep. And now that it's arriving for the rest of these NATO-based countries that aren't net producers but are net consumers, I don't think that the math works. I don't think that all these other countries in Europe and the U.S. are going to be able to play the same game for nearly as long as they did simply because of that simple fact of being net consumers. Yeah, it's getting wild. So Yellen came out today and had an interesting comment that she said, the interest expense, which we were talking about earlier,

is only going to be 1% of the GDP. This is wild to me because when we look at the math today right now, with where it's at, where are we out? We're like at four or five percent of interest expense to GDP. So for her to say that it's going to be one percent for the coming decade or that they're going to be able to hold it at one percent for the coming decade, the only way I know that they could do something like that is with yield curve control. It would be expanding GDP to a way higher.

I mean, they'd have to quadruple it the GDP while holding rates steady or conduct yield curve. of control to drop it down significantly from where we're at right now or kind of a function of both. And I think that that's probably what they're going to attempt to do. But what I think isn't discussed in all of that is what's the actual impact of not just continuing these policies, but like 5xing or 10xing the magnitude of these policies? Because that's effectively what she's saying they're going to do. They're not doubling down. They're going to 10xing. the policy implementation. And I mean, I have some opinions on what I think the policies are actually doing to society, but I'm kind of curious to hear your thoughts of like, what does a 10x on these

policies do to society as we know it? Assuming Bitcoin doesn't scoop in and rescue free and open markets. Yeah, thank God for Bitcoin. Thank God for Bitcoin. It's the only thing that, the only lifeboat that is around. It's the only thing that makes sense. I think that it's, more of the same. I think it's just an increasing frequency and frenetic energy around just clown world financial markets that have developed over the last few years in particular, where they have this conviction that their Keynesian policies are the right way to go. It's like modern monetary theory got in their psyches and as a solution and has stayed there, even though it's not talked about anymore because inflation wasn't transitory. Yeah. So like if they pursue, they only have a few

levers and they're going to pull the levers and say that this will solve it because the alternative of like looking into the abyss is just untenable. It's so scary. So they're going to convince themselves that they can just stimulate their way out of it, really is what it all is going to amount to. And we know from history that every time that has ever been attempted, It just increases the amplitude of the problems until eventual default. Yeah, reset. And it's crazy. I mean, you see Ray, Dahlia going around and talking about the resets coming.

And every other major person who's dominated the markets for the past decades are all saying it. You know, I talk about how I think that it's going to just continue to obliterate the middle class in mid and small cap companies in that they just cannot possibly. compete because as they do this influx of capital of printed, freshly printed Fiat into the system, it just gets shoved immediately into the hands of the dominant players and they dominate even harder than they have been dominating. Yeah. So another piece to this that I think doesn't 10x it, but almost 100x is it, is AI. I know you have this background in neuroscience and I'm sure you're heavily dialed into AI and all the things that are progressing. And the speed that it's progressing is astounding. I'm curious what your thoughts are when you combine these policies from a

monetary standpoint and them 10xing it to keep these numbers that she's throwing around. And you combine it with the pace of GPT4 being 1,500 times better than GPT3. And I can only imagine what five is going to be, walk us through that acceleration and what that means for people that are trying to keep their head above water in this economy. And I'm not trying to paint a doom and gloom. I'm just trying to deal with reality in a way that's reasonable and, you know, as appropriately defined as possible. Yeah, it's a little scary. The implications of, you know, I got excited about the concept of, you know, the singularity is near, the math behind that, the, um, Moore's Law sort of based exponential growth of computational power culminating in super

intelligence, which was a really good book from Nick Bostrom about 10 years ago. And that all seemed, so 10 years ago, it all seemed like, yeah, Moore's Law points towards that in time here. And fast forward 10 years and sort of seems to be happening. You know, I've paid attention to the sort of rumors that the latest GPT version is borders on artificial general intelligence, which is stunning. And so, you know, then it kind of becomes a question of like, is, are we contending with that soon? Is that going to, what are your thoughts? Do you think it has been achieved? Because I've read, like you, I have read that it's already

happened. It's already here. It hasn't been released. But it will probably be released to the public within a year and a half. Yeah, this is where it comes back to neuroscience, because in the neuroscience landscape, like you basically learn that the brain is a machine. It is zeros and ones from neurons and synapses firing. And somehow through that incredible stew, we have this higher consciousness and problem solving ability. But it all is just switches. And a artificial intelligence model is just switches. So there's nothing stopping, you know, if you follow that concept of what a brain is, there's nothing stopping a machine brain from meeting or exceeding our abilities. And so then it wouldn't be surprising for it to have already happened behind closed doors

and for that to be coming down the pike for humanity to deal with and all of the ramifications for what it will mean for the labor market in particular because it will take many jobs, but it will also fuel a lot of growth and create jobs in unexpected in new ways. So it's kind of impossible to forecast. I think that's sort of one of the tenets of dealing with the possibility of a singularity is beyond that point in time. It looks totally different from anything that you've known. So it's kind of impossible to forecast what it looks like. And the thing that is clear in all of that is that from a portfolio point of view,

you want to be holding the kinds of assets that are scarce because that, That's the only way to protect yourself, protect your portfolio and your net worth from a machine being able to create a bunch of wealth, like because it is smarter or better, innovative, and creates new companies or who knows what. But finite resources are finite resources. And so I think that also plays into the commodities super cycle sort of notion of what I think is going to play out over the coming decades. We have financialized everything over the last 40 years.

equities are at record PE ratios. The 40-year bond bull market has already turned over the last year to three years. The bonds created at the top are down 50% already in two years, which is remarkable. So the commodities arc is beginning because that's the stuff that you can't make more of in the digital realm. and I think that plays well for gold, for oil, for energy as part of that. And I think it is especially potent for Bitcoin because it's the only digital asset that you can't make more of. It almost seems like if we were going to go back and replay time, that if Bitcoin wasn't invented and AI became this prominent player and it's hyper-intelligent beyond even our comprehension, I mean, Some of these things that you watch on YouTube with respect to AI are just, it just makes your mind run wild where it's like, well, if we could code in a more efficient language, why wouldn't these AIs basically create a whole different language so that they can program in and be more efficient to process the ones and zeros?

And we wouldn't even understand what and why they're doing it and what their, you know, actions are in this, you know, hyper-intelligent. setting. And it's almost if AI happened before Bitcoin that they would have to find, the AI would have to find a way to create money that couldn't be debased and it would discover Bitcoin. Almost in that these two technologies go hand in hand with each other like peanut butter and jelly. It's just kind of wild, it's a wild thought experiment. There's no question in that. It's just me kind of pontificating about some of the wild stuff you hear. See. And this reminds me of a, I guess, a philosophical conversation I had with a Stanford friend of mine who you got a master's in computer science at Stanford. And our debate is what matters more, Bitcoin or

artificial intelligence, like what's a bigger economic trend? And I really waffled on that for a while. I've spent a lot of time thinking about it. But I think it's that Bitcoin is the bigger trend because that is the foundation of an economy. And artificial intelligence is a massive amplification tool, but it's not the very foundation of value. And so I think that Bitcoin will benefit massively from the development of intelligent machines seeking a good money to transact in and also store value in. And all of the productivity gains that will come from artificial intelligence will end up impacting the value of the foundation of money that all of that is built on. So, yeah, it just kind of takes me back to philosophical conversation that,

We were having the Stanford campus a number of years ago. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. Vanta automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform.

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requirements and energy requirements between its various AI models that it's seeking cooperation with. Jesse, so it's interesting. Today, I saw an announcement from J.P. Morgan that they're launching a, the tokenized collateralization or collateral network where they're going to basically tokenize securities so that they can exchange with each other. and they tons of blockchain this, blockchain that. Of course, they're controlling this blockchain protocol, which for all intensive purposes,

might as well just be another database, but I think they're using all the buzzwords so that they can settle certificates immediately. This is interesting. And this is interesting because it really takes the wind out of all these other blockchains in that you have the SEC, for the last year and a half, just clobbering exchanges that are dealing with altcoins

to make it very clear that they view those as securities only for J.P. Morgan and I guess BlackRock is heavily involved in this announcement of this tokenized collateralization network. And it almost seems like they were forcing everybody that had a head start on this for them to catch up and to use their centralized ledgers to create digital tokens of security. so that they can pass them around amongst each other. For somebody who's not intimately familiar with this and saying, whoa, this sounds like this would be a concern to Bitcoin, explain to people why it's not. And then also any of your thoughts on all of this craziness.

It's great you keyed into, I actually didn't even hear that announcement. I'm not surprised at all. It makes total sense. Of course it's happening. What you keyed into is that it removes the need or the, the value proposition for so many of these crypto platforms, which are fundamentally, like, controlled by a leadership team, which means it's a company that is saying, here's the protocol for how we're going to exchange value digitally on our network that we control. And so ultimately,

in all of those scenarios, you have a trusted entity at the heart of it. But these trusted entities to date have been little crypto startups or VC funded dreams. But here comes JPMorgan saying, no, we'll take this. We'll be the trusted intermediary at the heart of how digital value is transacted. In these use cases specifically that you need somebody to make it, you need a trusted person at the center, an entity at the center, in order to say that the assets in the real world are connected to this thing and have the clout to make that possible, which is just a database. It doesn't require a blockchain, really.

Any advantages here and any reason for this to happen because a blockchain database may have some operational advantages or lower cost to run and maintain than traditional architecture. That's the one argument for it. And of course, the hype argument too of like there's a lot of buzz around blockchain. So people might be excited about it. But at the end of the day, like this is totally different from Bitcoin because what J.P. Morgan is talking about is tokenizing assets that exist in the traditional

financial landscape and just converting, having a digital token represent a stock unit, for example, a stock share. And fine, great. Go ahead, J.P. Morgan. Like, you guys can try that. It's not really any different from your current business model. It's not really any true innovation. And then most importantly, it's totally separate from money. You're talking about, how you're administratively going to link real world assets into a digital trading platform versus what Bitcoin is doing, which is bootstrapping a form of digital money out of nothing that exists nowhere but in the digital space. That's the key is it is not linked to the real world. And that gives it all of its decentralized properties because only decentralized asset

can exist everywhere and nowhere at once. Because if you have a physical asset, you have to have some link to the real world, and that's why J.P. Morgan has an opportunity to do something like this. It all amounts to a nothing burger from Bitcoin's point of view, but it is very problematic to everything else in crypto that is trying to pursue these sorts of, at the margin use cases that Bitcoin doesn't address, that arguably has some value to the world,

but not much value ultimately. Talk to me about multi-institutional custody. So when we start to, talking about how people, I think everybody's familiar with how individuals can custody Bitcoin. I think a lot less people are intimately familiar with organizations custodying Bitcoin. So like you got micro strategy. They're custodying Bitcoin. They're using a solution. And I don't think they're very public about how they go about that. But if a company or an organization wants to buy Bitcoin in custody it, you now have to go through some type of structure,

multi-key management to custody this. How do you see that evolving moving forward? Because I think this next four-year cycle, I think people are going to have a big choice on their hands. They're going to either buy an ETF and outsource all of that and trust that whoever they hire to do that, that they're going to be good custodians of their coins. And then on the other hand, I think you're going to have organizations that truly understand the value prop of holding their own keys, and they're going to have to do some type of multi-institutional

custody solution for this. So what does explain this to us? I think we have just entered a very exciting new era for Bitcoin custody, the multi-institution custody era. To date, your options have been limited to you either do self-custody or you do third-party custody. And there's pros and cons with either, right? So with self-custody, you don't have any counterparty risk. And it's excellent security. If you set it up right, it's fantastic security. The cons with that are that you have to, it's challenging. It's technically a little bit scary. And it requires like perfect security indefinitely into the future for how you're storing that material. Also kind of a non-starter for institutions because it requires a whole new skill set of who's going to hold the keys.

You know, if you have an investment committee of seven people, what one person has unilateral control over the Bitcoin that that organization is holding, how do you, you know, you have to set up processes and new operational setups that are daunting is kind of a non-starter and forces a lot of people, a lot of high net worth individuals and institutions and corporate treasuries, to default to the other option, which is third party custody. So you're just going to trust somebody who says, I'll take care of it. I'll hold your Bitcoin. I'm really good at it. And the largest example of that right now is Coinbase. They do this for a lot of entities like the new Black Rock ETF calls out that Coinbase will be the custodian for all of the Bitcoin that sits there.

And that is easy. So that's a pro. It helps a lot. When you're thinking about getting a Bitcoin allocation and you don't want to set up self-custody, it makes it very easy to do. third party custody. And in theory, they're experts, right? So you have this kind of weight off your shoulders. They're like, okay, an expert's taking care of it. But it introduces some very unattractive risks, some big counterparty risks. And what we've seen is that those counterparty risks are very real. FTX, which we talked about already, is they said that they weren't re-hypothicating Bitcoin, but they were. And as a result of that, plenty of customers who thought that they had Bitcoin sitting at FTX didn't at the end of the day, and now they're out of luck.

More recently, we saw Prime Trust and Fortress Trust have problems. They mismanage a wallet in one case and got hacked in another case and lost customer funds. So the track record of single institutions serving as custodian is not very good in the digital asset space. And what's really exciting is that multi-institution custody kind of takes the pros from both and minimizes the cons from both forms of custody. And the way it works for a simplified setup here is it's a multi-sig vault where there's three keys that control the assets in the vault. And any two of the three keys need to sign in order to control the funds. But so this is like self-custody, you could have self-custody multi-sig setup. You could do it with collaborative.

of custody where somebody else holds one of the keys. But with multi-institution custody, three institutions, three different institutions hold each of the three keys. And then the client, the end client, has full control ultimately over the assets in their vault because they direct the keyholders to move the funds. And each of the keyholders does not have unilateral control over the funds in the vault. They need to. two of the keyholders to sign in order to move the funds. And the only person who can authorize that is the end client. In that way, multi-institution custody minimizes the counterparty risk while having the maximum security of not only multi-sig vaults, but also expertise in managing

cryptographic materials that custodian companies have. And so that is, I think, a key ingredient for unlocking all of the capital that has yet to come into Bitcoin. You know, we're still so early in the adoption curve, we're so early in Bitcoin as an asset, it's only a $500 billion asset. What we're talking about is tens of trillions of dollars of capital sitting in other store value assets currently, realizing that, you know, I don't think that bonds have a pretty outlook or stocks are at an all-time PE ratio. Maybe I should shift into hard-out.

assets like gold or Bitcoin. Maybe this increasing scarcity function of the halvings is going to be jet fuel for Bitcoin. Maybe that's the winner, the fastest horse is decade. Maybe I want some of that. There's tens of trillions of capital that I think will make that choice and have to figure out how to get into Bitcoin and hold that Bitcoin on their balance sheet in a secure way. And the current options of self-custody, it's a non-starter for institutions and high net worth individuals, is what billionaire really wants to set up a go buy some hardware wallets and set up their own multi-sig vault and try not to lose the key material that they have never ever dealt with before. And so it's not part of their competency.

And to date, the option has been go to Coinbase and Coinbase will take care of you. And they probably will. They've done well so far. But there's the FTX example, the Prime Trust example, the Fortress Trust example, and many others where having a custodian that has unilateral control over your funds can cause problems. Now, this multi-institution solution, which is different from how custody can be done with any real-world asset, this is a really kind of exciting thing about a pure digital asset that's a bearer asset like Bitcoin. It makes it possible to have a superior form of custody that has all the advantages of multi-sig custody

and removes almost all of the scary factor of how am I going to, how am I going to set this up? Do I know what I'm doing? Am I going to be able to keep the keys safe? Because you're now entrusting institutions that that's their entire business to do this for you. And no one of those institutions can do anything without your direction because that's how this model works. So it's a very exciting new development. I think one of the big mistakes that institutions are going to make here in the coming two years is I think this ETF product's going to get approved. I think it's going to get approved here,

call it the first quarter of 24. A lot of them that have been wanting exposure, but have lacked the technical competence to do what Microstrategy did and just kind of want to turnkey solution are then going to go and buy this ETF as if it's a marketable security that they stick on their on their balance sheet only to find out that as the demand for bitcoin as a payments technology picks up all around the world because they're dealing with currencies that are being debased by 10 to 20 percent annually and maybe even more in a lot of countries they're going to find out that the demand for bitcoin as a payments technology is going to open up this really unique opportunity for people that are entities that are actually holding their keys to open channels

on layer two to collect routing fees with these Bitcoin that are just sitting there in a treasury. They can do all of this while holding the key, which is like nothing that has ever happened in history, where you're basically a lender, but you're not actually lending out the underlying thing that you're lending. And that's what Bitcoin actually enables with layer two. So you can collect this yield. You're still squatting on the key. You haven't relinquished control of the key.

And for everybody who used this turnkey, I'm outsourcing, somebody else to do all this for me. So I'm not even holding the key. ETF vehicle. They're going to totally miss out or they're going to have to sell that position, realize a tax event, to transition into physical Bitcoin to hold the key and collect some type of interest for routing on layer two. I think it's going to be the big mistake. I think it's, and if you're somebody that's running a company or you're the CFO of a large institution and you're getting ready to buy this and you didn't understand what we were just talking about right there,

I would highly encourage you to go do your research on the direction that all of this is going on layer two, because I think it's going to be extremely profound. And it's enabling something technologically that was never physically possible in this past legacy system. So, So to you, you're working on this solution in the marketplace, right? Yes. Do you have any additional thoughts on that particular idea or things that you would tell an institution as they're preparing for what I think is going to be a crazy year ahead? Yeah, absolutely. You're dead on about how, like if you're trusting the BlackRock ETF or any of the other ETFs, there are hidden provisions in there that make it so you could be left holding the bag.

at the end of the day. And that's besides the fact that in the Black Rock set up, you're trusting Black Rock as a counterparty. They have to stay in business. They have to not get in trouble. They have to not get hacked. And you're also trusting Coinbase as they're outsourced custodian. You're trusting that they're not going to get hacked, that they're not going to get turnout to have re-hypothecated and like FTX did and be exposed. And both of those are kind of black boxes. And both of those are subject to, you know, the very scary, possibility of the government decides it wants to nationalize some Bitcoin and take your Bitcoin. Those are risks. And when anybody is considering any options for how they should get exposure to

Bitcoin, you need to make sure that you're leaving it open for the future to take in-kind redemption, to take your Bitcoin out of whatever vehicle you're participating in so that you can participate in layer two or Bitcoin lending or whatever. And part of that is to not have a taxable event when the time comes because if you're in GBT, you're not allowed to redeem your Bitcoin. The only way out is to sell your shares of GBT into dollars. That's a taxable event. Then use those dollars to buy Bitcoin somewhere else. So you just lost 20 or 30 percent of your Bitcoin stack because you had a taxable event.

If you're getting into the space, if you're starting your allocation, make sure you're starting in a place where you can eventually take self-custody if you want. in order to do all the wonderful things that are possible with Bitcoin. And yes, that is kind of the core idea of what we've been building. I've been working on for the last year with OnRamp is all about setting up a Bitcoin asset management platform built on multi-institution custody. So that's what we've been focused on. And I think there's going to be other people that do this too.

And I encourage people to lean into learning more about multi-institution custody, whether at OnRamp or anywhere else, because I think that if you've been on the fence about how do I get Bitcoin the right way, how do I get started the right way, self-custies too scary. You know, I don't want to trust BlackRock or Coinbase or whatever third-party custodian. I don't want to leave my funds on exchange. This new type of custody model is the solution for unlocking access to Bitcoin for a lot of people. And so, you know, whether it's through OnRip or any other of the multi-enstomation.

institution offerings, that is a big trend that I think will be a big tailwind for the next bull market as capital is trying to get into Bitcoin. Suddenly, there are better ways to do that than there used to be. All right, Jesse. So if we have any CFOs or individuals that are hearing that, they want to learn more about you, which you're working on, or just reach out to you on Twitter or whatever, give people a handoff where they can learn more. Awesome. So you can go check out more about OnRamp and our version of multi-institution custody at OnRamp Bitcoin.com.

And you can find me on Twitter, Jesse Myers, but my handle is at Kreis underscore BTC. So that's CROESUS underscore BTC. And yeah, those are the two places you can find me. You can also find these articles we talked about at once in a species.com. That's my weekly newsletter. Which is phenomenal, by the way. Highly recommended. Thank you, Prest.

Yeah. We'll have links to all of that in the show notes. Jesse, it is such a pleasure chatting with you. And I just appreciate you making time to come on the show. Awesome. Loved it. If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for We Study Billionaires.

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