We Study Billionaires - The Investor’s Podcast Network - BTC211: Bitcoin vs Art and Real Estate w/ Tad Smith (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. On this week's episode, I have a stellar guest with Mr. Tad Smith. Tad is the former CEO of Madison Square Gardens Company, the former CEO of Sotheby's premier fine art auction house. During the show, we talk about many different topics. But I'm telling you guys, I learned a ton about the art world, how it's priced, how to think about things in investment terms. And are these prices we're seeing like a $6 million banning?

Starting point is 00:00:30 Anna, getting duct taped to a canvas. Is this just insane or is there something else going on here? All of these questions are answered in such thoughtful detail. You guys are going to love this chat. Tad is fun and such a thoughtful guest. So without further delay, here's the chat. Celebrating 10 years. You are listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. Hey, everyone. Welcome to the show. I am here with 10. Ted Smith, boy, I'm excited to have this conversation. This is going to be an interesting one.

Starting point is 00:01:14 So, sir, welcome to the show. Preston, great to be here. Thank you. So, Ted, this is where I want to start. A week ago, two weeks ago, there was this auction that happened with Sotheby's. And this was just, this was like the shot heard around the world back. I want to say back in 2019, there was an artist. He goes and correct me if I'm getting any of this wrong, but there was an artist.

Starting point is 00:01:37 I think this happened down in Miami. had a banana, duct tapes it to a canvas. It sells, I think it was selling for like 150, 200,000, somewhere in that ballpark. Everybody online was talking about how absurd this is that somebody could do this and sell it for those kinds of prices. So if that wasn't enough, this past week, two weeks ago, this comes back up again. I think it's the same art, and I think this art is called a comedian. And this just sold for 6.2 million. dollars. And for people in the Bitcoin space, they're well aware of Justin's son was the buyer, but he wasn't the only person. I think the bidding started off at like $800,000 for this

Starting point is 00:02:19 banana duct tape to a canvas. Help us make this make sense. To me, this makes no sense whatsoever. Help us understand what in the world is happening. Yeah, it gives new meaning to the word banana zone, doesn't it? So first of all, let's talk about piece of art so everybody's clear on what it is. You've actually, a lot of people ask, and by the way, a Justin son told the media that he planned to eat the banana. So let's start. Let's, okay. So what is it exactly? By the way, you got to, is it a real banana?

Starting point is 00:02:47 It's a very frequent question. So it turns out what he actually bought was not a banana and not a piece of duct tape. He bought a little certificate from the artist named Maurizio Catalan that says he can go out, buy some duct tape and tape a banana to the wall. And it's a piece of art. and he paid $6.2 million for it, including the fees. How is this even possible? Hold on, so he didn't even get a banana to eat. He doesn't even get a banana.

Starting point is 00:03:15 Well, I think he probably got the one that was in the auction room. But the point is, when he gets the right to eat a banana and take another banana, put it up there. And so he gets the right to go to Walmart and pay 26 cents for a banana and tape it to the wall and call it world-class arm. I'm so confused. I think anybody hearing this, if you lined up 100 people off the street, I think 99, If not a hundred of them would say this is insane. This is, this makes no sense. This is chaos, crazy.

Starting point is 00:03:42 And moreover, to your point that you made, he wasn't the only bidder. Yeah, right. There were a lot of people with a lot of money lining up to bid for Rizu, Catalanski. It's banana. And it's such an interesting moment of the times, right? Because it goes to what is value? What is money? Where does money come from?

Starting point is 00:04:04 Where does it go to? why do people, is it, I mean, is it crazy that a banana, which cost 26 cents in Walmart, could go for 24 million times that in Sotheby's? From my perspective, there's so much to, I hesitate to say, unpeel, unwrap, if you will, in this that I think it really is a good place to go to because it goes to the question of value. Why do things have value? Why would a banana be worth $6 million in one context and $0.26 in another? Why would a dollar, or be worth something here and something else be there? Why would a piece of code have value? And that's really about, frankly, when you get to it, it's really about evolution. When you think

Starting point is 00:04:44 about our, we as a species, we tell stories. I mean, there's objective reality. There's a wonderful book out currently, Harare's Nexus that goes into this. Subjective reality is a mountain. There's a window behind me. There's a rock. My dog is playing in the yard. Then there's subjective reality, which is what I think is going on. But also there's a reality between you and me. press and a reality among all the people that listen to your show and also the world, which is called what he calls and almost an intersubjective reality, which is a storytelling reality. And our species is really highly evolved to tell stories. And the stories create movements. They create religions. They create manias. They create all these things. And guess what else?

Starting point is 00:05:29 They create money and they create value. And they create a stock market. And so when you look around why things have value and what things they are, what you have to understand is it goes back to things have value because we say they do. And the fundamental insight I had that was not immediately intuitive. I don't think it is intuitive to me. I thought the U.S. dollar had value because you have to pay your taxes in it. Yes, check. It is a highly, highly valuable form of currency, meaning utility of the dollar is phenomenal. It's really a great instrument.

Starting point is 00:06:03 And yet, if we all held hands together tomorrow and we said, you know, Preston, the dollar isn't worth anything, guess what? The dollar crashes. And that's a really, again, an insight, which means there's no difference between that and looking at a Picasso and saying, well, it's just paint and canvas. So why should it cost $20 million? Or the most extreme example that you started with, which is a banana. There is 26 cents in Walmart and $6.2 million in Sotheby's and you don't even get the banana. I mean, think about it. I like this idea that you're saying that the way we're wired is around this idea of stories and how powerful the stories are. And so I'm just going to throw this out there. So my take on this, right, with the banana. This is a social flex. This is a story around a person.

Starting point is 00:06:50 And, you know, I have no problem calling Justin that he's socially flexing. He's going out and he's saying $6.2 million is so meaningless to me because I'm so insanely wealthy that I can go buy this banana duct tape to a canvas and I'm going to eat the banana and I know I can get the banana for 19 cents and I don't care. I am showing you how insanely wealthy I am is what I think the story is that's wrapped around this. Now, I had read that the other bidders were wanting to buy it because they were going to give it to Elon Musk or at least one of them was or something like that.

Starting point is 00:07:24 And so that's a story. The person wanted to be able to give Elon this crazy super-exam. weird thing. Maybe they're trying to suggest that he's an idiot and here's the, I have no idea what the story is, but you're right. There is a story that was attached to the insane amount of money that was being spent. And for these people that have a net worth, they've called it a billion dollars or whatever, $6.2 million is pretty meaningless to them. And the whole world is going to talk about it. Exactly. Yeah. And now let's step back from the story, which I think you've nailed on fame. And we're going to set aside the banana for just a minute and talk about a piece of art.

Starting point is 00:08:02 Art, you have two almost identical necklaces. And one is magnificent, let's say exactly the same carrots, exactly the same gems, exactly the same era. One just happens to have been worn by Marie Antoinette. So the piece can have a story. And admittedly, it has all the fame advantages of owning it. You know, you tell your friends, you know, what I just put my wife in. That was once worn by Marie Antoinette. By the way, I'm not sure that's a compliment.

Starting point is 00:08:29 And nonetheless, you step back and you say, okay, well, that the piece of the story. And then you realize, wait, whether it is an NFT and ordinal art or frankly, the pet of bone behind me, the reason we buy things, the reason we pay more than the cost of materials is often because there's a story attached to them. It gives us a story. And by the way, it can be the one you said, which is it accrues to our social status. But often it's just the fact of the story creates value. Yeah. And so then there's a story about all these other things that I know you talk a lot about.

Starting point is 00:09:01 There's a story about Bitcoin. There's a story about micro strategy. There's a story about crypto. There's a story about all these different things. And the story is what, in my mind, drives outsized value. Utility is a fundamental feature of many of these things. But frankly, for a lot of the value, since I'm having me to do with utility, it has to be with the story aspect. Yeah.

Starting point is 00:09:19 Where I start getting a major problem with some of this stuff. We go back to, I think it was 2022, this rock, this job. this JPEG rock. And it wasn't like there was one. The artist that put this out there, there was this shade of gray. There was that shade of gray. There was a hundred of them that were sold at this shade of gray. And they were being sold for hundreds of thousands of dollars.

Starting point is 00:09:41 Yeah. And so for me, I'm looking at this. And some of me puts on this military lens, right? Because that's my background. I have a military background. And I'm saying, this is money laundering. These are people that just really want to be able to wash very dirty money. They want to buy something for some very subjective price and then try to offload it through

Starting point is 00:10:04 marketing and through a story to then wash the money. And I know that's a very dark and negative turn to look at it, but I think the reason, and I don't know that I necessarily see this banana thing in that light, but I definitely see these JPEG rocks that were sold by the thousands, I think, definitely in the hundreds. because there was so much of it. And because the story gets really kind of wonky there when you're selling thousands of them, I don't know that I buy it. I think that there was something very convoluted and hidden underneath of it.

Starting point is 00:10:37 And again, this is just breast and pisses and I have no idea. You're right on track. Yeah. One of the most powerful aspects of any story and one of the most powerful stories we have is get rich quick. Yeah. Meaning the notion that you can win a lottery ticket, the notion that tomorrow you can have be free of all your financial burdens. The notion that tomorrow you can be a billionaire is a fundamental story.

Starting point is 00:10:59 And by the way, and it is almost like rocket fuel for other kinds of stories around it. So I'm not surprised. You know, I'm old enough to remember what the real pet, you know, Jamie Diamond talks about pet rocks. I'm old enough to remember real pet rocks. And they didn't ever explode in value, but we know the stories of tulip bolts and how those exploded in value and various other things. So, or frankly, many cryptocurrencies are.

Starting point is 00:11:22 NFTs and earlier incarnations. And they have a story. There's a certain, oh my gosh, I'm in, I'm on the inside. I'm an insider. The money is moving. I'm seeing my value go up and up and up. And that's a powerful, powerful reinforcing story. It's so hard. For me, when I'm looking at art, and I know art is subjective. Everybody has a different point of view. I'm just looking at the proof of work. If the person's sitting down with, I really enjoy looking at like pencil art that's very hyper-realistic in the person I know has spent thousands of hours just working on this in the diligence and the attention to detail. And the fact that if I line up 100 people off the street, maybe one can even come close to replicating what I know is one copy. There's tons of proof of work. It's physical.

Starting point is 00:12:12 It's there. Versus a picture of this that can be replicated, you know, online. as many times as the artist wants. It's just, to me, those two things are very, very different. Yeah. Very different from what I would be personally willing to pay. And I guess when I see some of the values of these things that people are willing to pay, I think it's more of a function of the times with respect to Fiat and how grossly out of

Starting point is 00:12:36 whack society has gotten between the haves and the have-nots that are demonstrating the prices of some of these crazy things that we're seeing online versus what we would see and what maybe I would call a somewhat under control market or a normalized market where the money is actually scarce and not just being printed by the trillions by clacking on some keys. So many threads to pull on that. That's really powerful. We go down the thread about fiat. We go down the thread about how long art can sustain value in a world where you do not

Starting point is 00:13:07 have the fiat sort of based system. And then we can also go down the thread, which is maybe interesting also at some point later on, would you be willing to pay for art that's created by a machine and not a person? I like that. There's something inherently human that is required for you as part of the story for art. Because I literally sat on a conference. I was at a panel in Christy's in Hong Kong three or four weeks ago with a poet. And she creates art with a machine.

Starting point is 00:13:33 And she called it not a tool, but a collaborator or co-collaborate. So any one of the threads, we could go down all three. Where would you like to go? Let's start off with the money. I love all that. Let's start off with the money. and just kind of your thoughts on the Fiat system and how broke and how it's divided society. Yeah. So it starts with from a layperson's perspective, and I count myself as a layperson in this,

Starting point is 00:13:56 we can start with a simple question. Why does art and ask, sorry, why does a house in Aspen and Palm Beach and I don't know, Hillsborough or Palo Alto or East Hampton or Southampton, why do they cost so much? It's an interesting question. Why is it that Picasso can charge $20 million for a painting, and something that looks exactly like it can be $5. Why is it that a necklace owned by Maria Antoinette or Josephine Bonaparte can be millions of dollars and the same necklace can be mere thousands of dollars? Why is it that mega-cap tech stocks can have sustainable, long, mean, for over a long period of time, they can have very high multiples.

Starting point is 00:14:34 And then, by the way, it's not far removed from inequality. And I step back and I say, well, you know what? One of the powerful things that we see is that when the government, for lack of better ways, say it, creates significant amounts of liquidity in the system. Excess liquidity in the economy is like bees to the honeycomb on scarce and desirable assets. And that is such a powerful thing to see immediately. It sounds obvious. We talk often about, and it's sort of a clinical way, people that own assets do well, people that are renting out their labor in exchange for earnings or something like that or sell bananas on the street corner where the case might be,

Starting point is 00:15:12 they don't do as well. But if you looked at just the money printer, if you looked at just liquidity and the powerful effect it has on not just assets per se, it's not all assets. By the only not all assets go up when the mic firm's running. It's the scarce and the desirable ones that go up. Yes. And that is why you see massive accumulations of wealth

Starting point is 00:15:35 in highly concentrated areas where it's defined. both desirability and scarcity. And interestingly, if you don't have that, then we can talk about how people have solved for that where you don't have either scarceness or scarcity or desirability. It's generally you lever up. But let's set that aside. If in the unlevered world, it's really those things.

Starting point is 00:15:57 And that's it. And the secret to just observing, right, the secret to long-term wealth creation in a world where the money printer runs at a regular pace, we can debate, whether it's 6.6 or 8.95 or whatever. I love those numbers you're throwing. We can have that debate. But if you just step back and you look at it, you see,

Starting point is 00:16:18 ah, that is how wealth is being accumulated. And guess what? If you own those assets and you just bought them cheaper and you held them, you didn't have to do anything. Mm-hmm. Mm-hmm. You had to do nothing. Nothing.

Starting point is 00:16:30 And you get really, really, really rich. Yeah. And that, by the way, and if you didn't, if you weren't, if you didn't have the money to do it or you're selling your money, labor, you're doing these other things, you don't get rich. I guess you get really lucky. Yeah. You got me thinking on this idea of a story being attached to art.

Starting point is 00:16:46 And I want to go back to the other piece that you highlighted there on the previous question. But you got me thinking on this idea of a story. Do you find that some of the best investors in art are leaning into whatever that story is after they own, like, let's say you're just investing in art for the value ad, right? You're just trying to see number go up on whatever piece you got. Do you find that some of these people that are buying it for investment purposes, lean into the story of whatever that piece was to continue the marketing and the story propagation so that it becomes more valuable,

Starting point is 00:17:21 call it when they try to sell it five or ten years later? Is that part of the strategy? But I want to add one of the thing, which is they not only do it for the utility reason that you said, which is an enhanced the value. Yeah. They do it because the story is irresistant. Meaning, in other words, the story, if I spend, if I stretch to buy a painting or stretched to buy a banana, whatever it is, the story becomes part of me. And more importantly, I become part of the

Starting point is 00:17:45 story. So you look at it and I have become, as long as the banana is in existence, as long as the Da Vinci's in existence, the Salvador or Mundi, as long as any of these famous things that are in existence, I have become a part of that story forever. 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. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year bringing together activists, technologists, journalists,

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Starting point is 00:21:59 Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. So let's just play on this. So Justin buys this banana on the canvas. He says he's going to eat it. Let's say he just does some weird stuff with it, right?

Starting point is 00:22:19 He only ate half of it. He puts it in some vault in some, you know, obscure. It catches on fire in two years. years from now. And you're just like admonishing and you're becoming part of this story and then he's putting it into these are the antics or these are the things that potentially make that I know this sounds crazy folks. I'm not suggesting this thing can go over six million in the future. I know all this is so crazy. I'm just trying to understand how a person dabbles or plays in this space and does it successfully. These are the things that like add to the story, right?

Starting point is 00:22:51 And guess what? When you're really, really super rich, super rich, not just merely rich. I'm talking super rich. You need to do these types of things. You realize that you're going to run out of time. Now, maybe you can make the best investment in the world and work on your health and all those good things. But you are going to run out of time. So how do you transcend time?

Starting point is 00:23:12 Well, you can build a carman, build a skyscraper. You can do a lot of different things. But one is how do you create a story or how do you pick by a story and weave yourself into a story that transcends that transcends your own mortality? This is not a new thing. This is a timeless thing. And it's part of us. And there you go. And this is interesting.

Starting point is 00:23:39 This has me thinking. This is very fun. Let's talk about the AI and the assisted poetry and things like that. So in general, what are your thoughts? So in general, Christy's hasn't sort of, apparently the panel that I spoke on is off the record. So they won't release it, which is fine. I respect that. But I will say some things that I said on there.

Starting point is 00:23:59 One is, I predicted that within 10 years, nearly all art will be created by machines. Yeah. Pause for a minute, right? Because isn't our fundamental premise that when AI replaces all of our jobs, we're all going to be doing art? Well, interestingly, some of the best art, in my opinion, that's, emerging right now is actually done in collaboration with machines. And the thing is, we think about machines as a paintbrush as a tool, you know, the computer is a tool that helps me create art. We're way beyond that now, Preston. Yeah. We are in the world where the artist has a partner

Starting point is 00:24:33 and the partner is a machine. The machine is creating, bringing more out of the artists and the machine. So the artists are in effect, both the machine and the person. And so art, which is an endeavor of our species. I would say is no longer an exclusive endeavor of our species. And moreover, I would say as we go forward, I'm not even sure we'll be the best artists. I mean, I don't know how it's to say it. That's pretty direct. Yeah.

Starting point is 00:25:00 It does make sense because when I'm just looking at the tools that people have at their disposal, let's say I am trying to do a hand sketched pencil art, whatever. Yeah. My ability to tap into AI to help me kind of craft new ideas, whatever, how to, you know, do a certain corner of the painting because I, or the picture, because I wanted to look a certain way that, how else are you going to be able to get this? And I can run it through AI a thousand times until I find exactly what I'm looking for and then I can replicate that onto the paper.

Starting point is 00:25:31 I think as a tool, I just don't know how artists are going to be able to not be using it in a way. And I don't even know how anyone would be able to prove that they aren't used. using it in the manner that I just described, right? I think you're right. But I think it's also important to see that the AI, the large language models and the neural networks behind them are modeled and improved upon. They're both modeled after and improvements on our own brain.

Starting point is 00:25:57 In other words, the very brain that you and I are lucky enough to have that's creative and creates things, there is a machine or non-biological version of that brain. And for us to believe either A, it can't create things or B, doesn't create art, it's just wrong. We have a biological substrate that has a non-biological substrate. They both are modeled after exactly the same set of processes, the same set of signals, all of those things. And so, surprise, surprise, humans have no exclusive monopoly over art. And I believe we won't even have a significant portion of it except as an oddity like the banana or the Mona Lisa or the Da Vinci or something like that. Obviously, collectible stuff will, by the way, interesting, how weird, right,

Starting point is 00:26:44 we're talking about stories, how weird that in 2034 you and I buy a piece of art and the story that we cherish about it is it was created by human being. That's the story. Yeah. Right. And it's coming. And I guess if you go upstream of that, what most people are valuing is the time and the energy that the individual put into the piece because it's just so easy to now to go out and have anything made with a couple keystrokes in five seconds of your time. People don't value something that only takes five seconds of somebody's time. They value something that took thousands of hours of time of the creator, I suspect. It doesn't mean it will always be the case with, you know, you line up 100 pieces of art. I think a majority of the stuff that's going to

Starting point is 00:27:28 be highly valued is the stuff that also has a pretty enormous amount of time associated with it along with a story, along with something that makes it very unique because of the story. Would you agree with that? Well, I do agree with it, but I have a premise that maybe you share, which is that a truly great inspiration, creative inspiration in this example, takes time. Interestingly, the materials, some art takes centuries. Look at Notre Dame, for example, takes century, right? And literally generations work on it.

Starting point is 00:28:00 pyramids take long, long periods of time. But some great art really doesn't take that long. What it is is it was just an inspiration that was, wow, I never saw it that way before. Oh my gosh. And the story is so memetic and powerful that it's just irresistible in some way. And then, of course, we've set aside already the point I think you made earlier, which is very important, which is there's just social cred in owning something. So social great piece. We both agree on that. Let's set that aside. It's less interesting than the memetic quality about why artists. attractive other than social credit. Yeah. How do you see Bitcoin fitting into all this?

Starting point is 00:28:34 So when we look at Bitcoin units and, you know, we both know that it's backed by energy, encrypted energy. Yeah. And this is really kind of the thing that sets Bitcoin apart from all the other protocols is that it's backed by energy. Is that really the thing that sets it apart? Why is Bitcoin, quote unquote, winning in the face of everything else in your mind? and does that, whatever that quality is or qualities, is that what allows it to continue to win moving forward?

Starting point is 00:29:03 Yeah, I love this question. So let's go back to the point I was making earlier about the thing that creates value and sort of almost the honeycomb for beans is things that are both scarce and desirable. Okay, with that is a fundamental way to think about it. You've talked many times that there is literally nothing on earth that is both digital, frankly even, and. analog anymore and more scarce to Bitcoin. It is truly finite. It is just done. So you're not going to win.

Starting point is 00:29:35 Nothing else is going to win. No other assets are going to win on scarce. In terms of desire, well, okay, maybe a single Da Vinci, but not for long. We'll come to that in a minute. And then the second question, and this is the hard part for people to get comfortable with. People talk about volatility is the issue. I think volatility is an issue.

Starting point is 00:29:52 It sort of amplifies the fear. But the real hard part is the desirability. And for that, the world of Bitcoin calls it adoption, which to me is the proxy for desirability. So at some point, I've bought into the thesis of scarcity, and I've bought into the thesis now of desirability as we approach literally billions of dollars of market cap. And so those two things, boxes are checked. And so now my behavior's beginning to change, which goes directly to your question. I'll give me two quick anecdotes.

Starting point is 00:30:22 Story number one, I, in July, decided I wanted to. buy a little painting to go right here behind it. Right. Okay. And I had one in mind, and it was a cute little warhol toy robot, sort of techy, but old school and a really great. You notice it's not there yet. It's actually on the way.

Starting point is 00:30:41 But what I said to my guy who was buying it for me, I said, you know what? I'll put a deposit down now, but I really don't want to pay for a few months. And he says, why? And I said, I don't want to pay for four months because I'm feeling really good about Bitcoin and really good about some other. assets I have between July of this calendar year and now. So I paid a couple of weeks ago. And lo and behold, the value of the thing, which hadn't arrived at it, the value of the thing has gone way down relative to my currency, right, which was Bitcoin as an example. And so what does

Starting point is 00:31:12 that mean? What that means is Warhol is worth less in Bitcoin terms to me in the space of three or four or five months. Warhol, an icon of value in the world of art. Okay. So that's story one. So already you can see that art, if I'm not alone, I can't be alone. If I'm not alone, art is, at Bitcoin is beginning to encroach even on things like art as a store of value. Second point, I'm literally coming back from, I think, North Carolina last night, late landing in Miami at drive-up, landing in Miami. And I'm sitting next to this nice guy on the plane. And we were talking about, you know, it's really fun to live in Florida and beautiful night. It's great.

Starting point is 00:31:53 landed. And I said, you know, he says, do you live here? I said, yeah. How often you get to North Carolina? He said, he said he goes quarterly. And I said, oh, you're going to board? He says, no, he's an executive coach. And then somehow we got on a real estate because you can't talk about Florida without talking about real estate, right? And he asked me, oh, do you live here? I said, yeah, I said, do you live anywhere else? Which is code for are you also New Yorker? And I said, well, no, the only home my own is actually here in Florida. And he says, oh, that's interesting. Me too. And I said, well, Why? He says, well, because, you know, I just think it's, I just only want one home.

Starting point is 00:32:24 And I said, well, what do you do? I said, well, I actually invest in tech. And he says, really? I said, yeah. And I, you know, I also invest in Bitcoin and crypto. He says, really? I do too. The guy is older than I am.

Starting point is 00:32:35 I'm sort of a first year of the Gen X. He's probably a boomer, sort of a few years old than I am. And we talked about it. And guess what? Both of us agree that we wouldn't put any more money into real estate. Yeah. We can put it in a Bitcoin. In other words, even real estate in Florida,

Starting point is 00:32:50 is beginning to get eroded by that conceptually. And so I don't see that stopping, Preston, I see that beginning to accelerate. And by the way, we're not Gen Z. We're not millennials. You're talking about, call it a boomer and a Gen X that is right on the cusp of boomer. I'm close enough to boomer to know it when I see it.

Starting point is 00:33:11 So that's, by the way, if it's happening here, it's going to happen everywhere and it's inevitable. And my guess is it accelerates. I think that you're the line of thinking of the two of you on that conversation is very early for most people that have really kind of preserved a lot of their buying power in real estate. Saylor talks about this a lot. It's like, hey, if you're net worths over $100 million, how are you going to preserve a lot of this, you know, in a way that's not super volatile or super risky?

Starting point is 00:33:38 Well, you plowed it into real estate because interest rates just kept getting compressed for 40 years from the 80s until, you know, COVID. And it was kind of a surefire way to just have some nice properties. You made a lot of money in the process, relatively speaking, to everything else that was out there. And there wasn't a lot of volent in all of it. And now I think that I truly believe that what we saw in the compression of the yield curve and the compression of interest rates for 40 years, I think that we're in very

Starting point is 00:34:06 early days of a lot of that starting to unwind itself. And for the people like yourself that are recognizing and seeing this very early, they're transitioning out of that. They're saying, I have to put my money. Yeah, I have to go somewhere else. I can't deal with this anymore. Bass, by the way, initially, the bellwether for me is my wife, who cares obviously about family finances, and she doesn't want to buy any more property. Yeah. She wouldn't even think of it. She's like, absolutely not. Let's put it in a Bitcoin. Let's put it into something else. It's equivalent to Bitcoin or proxy or something. And it's a complete non-starter for her. And again, this is going to accelerate. I mentioned,

Starting point is 00:34:41 I alluded to several minutes ago, there are ways in a Fiat world we compensate for the fact that real estate or other things don't meet the hurdle rate. And we should talk about leverage briefly. You can imagine what I'm talking about comparing real estate to a Bitcoin investment, I'm talking about two unlevered investments. Yeah, right. Now, the way we solve that, right, is we have the government give us a subsidy on our mortgage debt. And so we can have a long-term fixed rate at, I don't know, whatever it happens to be, if you're, you've been in it a while, maybe you're as lucky as 300 basis points. If you've been in it more recently, it's 700 basis points and everywhere in between. So the way that we have managed

Starting point is 00:35:20 to deal and outrun the money for our terms of value is that we lever up. Now, I'm not sure whether that is good for society or not. It's not clear to me, but I'll tell you one thing. Everything else being equal. And by which I mean, if we're talking about unlevered versus unlevered, I would go with Bitcoin any day or week. Yeah. Yeah. And if you are still, you can do a hybrid too, right? And I think the ownership of one home is effectively the hybrid, maybe two, depending on what your net worth is. By the way, if you own your own home, then you can do whatever you want to it. Which so that that to me is a lifestyle expense. Yeah. Yeah. And I think that this is such a salient point because people are looking at this and like, well, how did you outrun the money printer when it's doing 7 to 8% annualize if we're using M2 growth rate or whatever to kind of represent the basement? The thing is, is if you put 10, 20% down on a home and you were getting it at, that this speaks to this cycle, this 40-year cycle, right? Let's say you locked in a 7% yield and then rates went lower. Well, you just refied and got it at 4% then, or you got it at 3%. And so you were able to just keep that leverage on the whole time and while the price just kept blowing out, you know, as a shooting

Starting point is 00:36:27 to the moon. But for those starting out, we want a home and they say, what do I do? I mean, this is not financial advice, but the observation, I'll say the best way to look at it's history. And if you can go back and I'm going to get the numbers approximately correct because they came around on Twitter, I think, from Hump or somebody. He said that the median house price in, I think it was 2016, was 66 Bitcoin. And when he said it again, more recently it was six, now it's actually lower because that was before the most recent pump. So the question is, wow, if we had simply, sorry, in reverse, six initially, six hundred

Starting point is 00:36:58 60s recently. You look at it and you say, no, I was right. Six 66 initially and six recently. You look at that and you say, oh, my gosh, if you just invest in an asset or you just put away a little bit of any sort of asset that's growing 50% a year, 43% a year, whatever the current growth rate is, you will catch the home. Maybe you will catch up. You will be able to afford one.

Starting point is 00:37:17 Now, again, not financial advice, but it shows when you look at the way these assets are accelerating, Bitcoin in particular, you say that's pretty exciting. Now, admittedly, we've set aside the volatility. We can talk about that too. 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.

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Starting point is 00:40:42 This and other information can be found in the income fund fund's prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. What I think is going to be hard, especially for these younger generations that are, you know, let's say you have a couple that they're 30 years old, they recently got married and they're wanting to buy a home. The advice they're probably receiving from their parents and others is lever up. Let's go. Like, get after it. And it's interesting because where it's such a strange shift, I think, as to like what good financial advice is moving forward.

Starting point is 00:41:17 And I think to your point, the volatility only makes Bitcoin that much more confusing and difficult for people to wrap. their head around. And a lot of the times, once they become interested in it, it was almost always the worst time to become interested in it because of the volatility and then the speculative forces that brought them there to ask these questions. And I think it's really hard to give advice to some of these people that are kind of in this period of their life, call it 30 years old. What kind of advice do you give to somebody like this who's just trying to break through? And it's very challenging with the inflationary forces that everybody's dealing with today. 100%. And I agree with you. I think it's very difficult to come up with advice. But I will tell you what I

Starting point is 00:41:55 told my 25-year-old son about that. And it's not necessarily a financial advice, but what it was was a little bit of life advice, which touches financial advice, which is those, you too, by the way, Preston, because you're, I think, considerably younger than I am. One of the things to think about is the probability that you live a very, very long time. And I'm talking about a century. Yeah. And healthy century. not an unhealthy century is really hot. Yeah.

Starting point is 00:42:22 It's really high. By the way, every day, it's looking better. It's looking lot better, right? It's looking better and better by the minute. I'm telling you it looks good,

Starting point is 00:42:30 which is, that's a point. The second thing, for the vast majority of that century, machines will do better tasks better than you do. Even creative ones, as we were talking about earlier. And what that means is how you think about building a life of a house ownership,

Starting point is 00:42:47 as strange and controversial, is going to be when I finish the sentence is less important to me for my kids than how they think about a life of purpose. What does it mean? Because we think about it. Certainly in my generation, all of us were creatures of the late industrial era. We got our education. We got all of our life choices. We're not all of our life choices. Our professional life choices were framed around how do I earn a living? How do I have the ability, the blessing, if you will, to be able to pay six million dollars for a banana and eat it? All of that. But that isn't going to be the situation with the generations behind us.

Starting point is 00:43:25 They have a different question, which is, oh, my gosh, I can't even make a piece of art that is better than a machine does. So what is my purpose? And I don't know the answer to that question. But I'll tell you one thing. I'm optimistic. I think it means we're going to be freed up to think about what it really means to be human beings. And that's really powerful. Oh, I like that spin.

Starting point is 00:43:50 I like that a lot. But yeah, you're right. Like, this is getting weird, like really fast. Yeah. Yeah. What does it even mean? Let's talk about money management. What does money management mean in the 2030s?

Starting point is 00:44:00 You know, Raul Powell talks about this and he's not wrong. I mean, when he says it, he almost apologizes for talking about it because it sounds so completely crazy. But let's just step back. I mean, what does it mean to be managing money in the 2030s when the machines do it? Yeah. I don't know. Yeah. Hottle, I guess.

Starting point is 00:44:18 Yeah. I'm looking at it, like, when we get an AI that can go out, do an assessment across the market and say, all right, I think there's an efficiency here that I can create with this piece of software or whatever. Yeah. It can then prompt itself to write the piece of software. It can prompt itself to go market the piece of software. It can prompt itself to set up all the deliverables to the receivables and it's creating a bottom

Starting point is 00:44:44 line on its own without a human in the loop. Exactly. Is this intelligence? Is this life when something can create? Consciousness. That's the heart of thought. Right. Yeah.

Starting point is 00:44:56 That's because it's creating value for others at that point on its own. And I don't know. Some of this stuff gets super deep. You go deep on this. But guess what? It's profound for anyone who thinks about money, value, investments. Because it's here and now. It's not something that we can defer to the future.

Starting point is 00:45:15 It's coming now. So 100%. Yeah. By the way, I haven't been thanked him for. Can I thank you for me? Oh, let's hear it. What's that? No, you appeared in January of this calendar year.

Starting point is 00:45:26 And I should have dug it out before our chat. I'm so sorry, Kristen. And there was a moment. Oh, sorry, quick digression. Yeah, no, let's hear this. I became interested in Microstrategie sometime in the summer of last year. Yeah. And so I bought a moderate position.

Starting point is 00:45:41 And I don't remember what it was. And of course, it went up a year ago and had an ice rally. And then in January, I'm thinking, hmm, how do I feel about this with the new ETS coming out if it's basically just an ETS? And it was actually you, by the way, and I don't remember where I'm going to find out where it is I'm going to send it to you. You made this incredibly thoughtful, eloquent description of where micro strategy could be going and why it would create value and why the ETS were not a good model. And it's because of you, I did. didn't sell.

Starting point is 00:46:17 Yes. I love this. No, it was so powerful. And that's why I think I said to you at some point how much I appreciate your wisdom in that because it's set in motion this whole other series of things that really created a lot of value for me and my family over quite a short period of time. And I'm eminently appreciative of your truth. It's a real example of how you actually really have made a big difference, at least in my

Starting point is 00:46:44 So thank you for that. Thank you so much, Ted. I'm blushing. No, it's true, honestly. And by the way, I'm going to dig out the YouTube. Oh, man. That's awesome. Makes a difference what you do.

Starting point is 00:46:57 It's more fun when you're lucky together, right, sir? Yeah, 100%. Hey, let's talk about Michael. So this is getting really interesting. My concern moving forward, you know, if I was going to like discuss this, the fact that you're at 3X, the nav, or somewhere in that ballpark. 2.5 over what he has in the Treasury. Back in January, it was easy. It was less than what he had in the treasury. It just kind of made a lot of sense. Now you're starting to get this really large

Starting point is 00:47:23 premium because everybody's expecting him to go out. He's going to issue more shares or he's going to do couponless debt issuance. But some of this is also dependent on how far does the underlying Bitcoin price run? I'm of the opinion that I think 2025 is going to get really, like we haven't even seen anything yet. Some of that is very speculative in the way that I'm viewing it. And I fully recognize that. But at a certain point, if the speculation gets too far and if we go through another cycle and all these other things, there's going to be some point where I'm looking at it and I'm saying, hey, this is, and I'm just going to throw out crazy numbers, right? This is seven times or 10 times the nav. Like, what am I doing? I should just sell this and buy Bitcoin with this or keep it

Starting point is 00:48:06 if you think it's another cycle. Market timing, I know I'm going on and on. But my concern is like, what is too far? And I know you have this guy, Jeff Punter and some others out there that are looking at the whole GameStop scenario and how the influx of short sellers is something that you have to really pay attention to, especially if you think that the underlying is going to continue to set new highs. They're going to blow out. You're going to get an even higher premium over the nav. And like, I don't want to leave too early if I think it could go to five or 10x because of the short sellers and all these other things that are looking like a pretty high probability that are going to play out in the coming year. So with all that, I'm curious,

Starting point is 00:48:49 your opinion, Tad. So let me tell you what I had been doing. And on March 5th, sorry, November 5th, I remember because it was election day, I appeared in another context and someone asked me about this and I said, I like the stock. And importantly, the stock was in the 200s at the time. Now, I am privileged to have as a partner in our investment firm, Dan Tapiero, who has been for years a very, very astute observer and a participant in the markets. And I asked his opinion about two weeks ago, and he said, you know, Tad, I would take a little profit if I were you. And when Dan says something like, you know, and he wasn't giving financial advice, I certainly give it to me, I take it. In fact, I'm an investor in the fund, so I rely on his investment advice. But I took it. And so what I did

Starting point is 00:49:36 several weeks ago was collar the stock. And interestingly, that gave me a lot. And then also on the high end of the collar, but the collar was approximately $300 to $600, just to give you real math. And then bought call options on the 600 because I was at the time thinking this thing could go far higher. It's so easy, right? Again, it's a story. I buy into the story of going up into the right. But one of the things that concerned me about it is exactly what you're saying, which is if we're in a world of price discovery, people can disagree on what the value of something is, particularly when it's well above MNAP. Now, we can make arguments about it, but really you and I are debating a story or anyone who's short is debating a story with us if we're long. In that environment,

Starting point is 00:50:20 things can get volatile and the prices can plunge or soar, and they can stay where they are for long periods of time or plunge for long periods of time. And that's what's so powerful about taking profit. I did buy a call option to protect me if it's soared back three 600. Then when a week before last, I think it was when it started going $75 per day, I took the call options off. And I think we got out at like 535 and now we're 380 or something. And by the way, this is not anything other than luck, which is the discipline of taking profits when things get a little nutty is good. Now, I have to tell you, at 380, from my portfolio, I kind of like the stock again. I kind of like it again.

Starting point is 00:51:05 Now, I wouldn't put as much as I had sort of in January when you, a year ago, when you gave me a real vision about where it could go. But I think it's more interesting than it was at 500. And I'm not knocking the stock. I'm not knocking anything about it. I'm just saying the stock is a medic. And above a nav, when you start getting naps, two and a half, three, three and a half, three point eight, four,

Starting point is 00:51:27 anybody can just weigh in and say what it is, which means the value of that asset to me becomes more volatile than I'm willing to pay for. And that's where it is to me today. Yeah, I like to define it really into one or two buckets, which is, am I investing or am I speculating? Yeah, that's good. Back in January, it was, to me, it was just really obvious. This is an investment.

Starting point is 00:51:50 It was trading, you know, the per share price was below how much Bitcoin he had per share. and I just saw that he had this flywheel that he could tap into, which is the public markets and also the debt markets. And I just saw that as something that I thought was really investable. Today, I'm looking at it and I'm saying, I don't want to sell my shares. I don't want to sell my call options that I have on it, but because I think that there, it has the, I think the potential of it getting crazier is pretty high. Yeah, and that's why I have call options on it. It's a high possibility for asymptot or parabolic meat. Yeah. And so I continue to sit there. I don't want to, I have it in a tax advantage account. So I could sell it and not really have tax ramifications, but that's always a really important consideration for people who don't have it in there. It's like, okay, like, what do you think this trend is? How do you assess that? And if you do want to pull some off the table and deal with the tax burden, like that's a huge consideration too, as you look for other places to put it. But yeah, in general, I, it's getting it's already getting hard to really kind of wrap my head around what the right point will be.

Starting point is 00:52:53 be. But I think that we have another strong six months coming here. And I'm just going to kind of sit back and enjoy the ride and see where it takes me. For someone who has an interest in it, well, let me put it in my own personal opinion, I would feel really badly if I didn't have a call option or some position in it. Yeah. But you're right. It's for, I don't want to miss out the speculative fervor. It's different than it was a year and a half ago. Oh, yeah. The value proposition. Now, admittedly, the story about micro-stratage is vastly more of all than it was even three months. I mean, Scurning's call was a work of art in terms of story. And I'm saying that with admiration, I'm not diminishing what he did.

Starting point is 00:53:36 But the story, and it's actually a story he wandered into, is incredibly powerful and it has a memetic quality, set aside the sort of get-rich thing. It makes sense, right? How do you unlock a multi-trillion-dollar, multi-hundred? trillion dollar debt market and give it access to Bitcoin in a world where the regulatory environment hasn't quite caught up. And there are lots of countries where you can't spend on it, the convertibles have the UV quality.

Starting point is 00:54:04 All these things are possible. The funniest thing to me, and I always remember this, I had this conversation with Michael back when he first bought Bitcoin in 2020 and he did this convertible debt issuance. And I want to say it was at like 75 bibs. And I said to Michael, I said, Michael, I think you could have done it for way lower. It was oversubscribed. The fact that it was oversubs tells you you can do it for like 25 bips or maybe nothing. Maybe it could be couponless.

Starting point is 00:54:28 And I remember him just laughing at me and saying, Preston, I think you're overzealous. And then just this past, just this past four years later, he literally issued it with a zero coupon. And that was oversubscribed by a billion, which is crazy. Crazy. Exactly. So I don't know. We're on for a wild ride. and I think it's going to be really interesting.

Starting point is 00:54:52 I will say I don't think his recent CNBC appearance was as clear as he has been. He is world-class at communicating. And that to me was not, I didn't really follow the story particularly well in that interview for what it's worth. Yeah, I mean, it's crazy how descriptive and detailed and thoughtful he can just kind of plow through something very complex. But what a ride. It's pretty exciting. All right. This is my last question for.

Starting point is 00:55:19 you, Tad, help us, because I'm no expert in art. And I would imagine most people that are listening to the show also aren't experts in art. When you're talking to a commoner like us that don't understand art, what is something that is a commoner who taught me a lot about micro strategy being more of that commoner. You're a high end. By the way, we all want to be a commoner like you, Preston. Thank you, sir. We're all going to queue up. No, I'm serious. I'm a total idiot it when it comes to this stuff. What is the person missing or what is something that for you being the CEO of Sotheby as many years as you were that like, you know, you're in there, you're seeing this stuff. What is something that is missed on so many people that is somewhat obvious to a person

Starting point is 00:56:02 that's played in this space for as long as you have? It's really simple, embarrassingly. So I don't know how many times I've been asked is already a good investment. I really don't. I mean, And that question is a thousand times a day forever. And by the way, I'm chairman of the board of the Fine Art Group now, which is a large art advisory and merchant bank. When I say Merchant Bank, we also do art lending in the world. It's based in London. And so I still get the question.

Starting point is 00:56:27 And you know what? Art can be a very good investment in my opinion. But honestly, you should buy art that you love. It's really that simple. And by the way, then if it's an expensive piece, maybe get a little help to make sure that you're not getting fleeced. But if you buy something you love, you'll always love it. And by the way, and you'll become a part of the story of it.

Starting point is 00:56:47 And the story will become part of you. And that's really what you're bought. I love that. Every time you look at it, you'll say, wow, that rocks. I love that advice. That's a win. All right, Tad, I've really enjoyed this. I learned a ton.

Starting point is 00:57:00 Yes, this is awesome. And hopefully we can connect again in the future. I'll look forward to it. Have a great afternoon. Happy Thanksgiving. You as well, sir. Thank you for listening to TIP. Make sure to follow Bitcoin Fundamentals on your favorite podcast app and never miss out on episodes.

Starting point is 00:57:18 To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only, before making any decision consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - BTC211: Bitcoin vs Art and Real Estate w/ Tad Smith (Bitcoin Podcast)

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