We Study Billionaires - The Investor’s Podcast Network - TIP186: Part II - The Bitcoin Debate - Tuur Demeester & Erik Townsend (Investing Podcast)

Starting point is 00:00:00 You're listening to TIP. So on this week's show, we continue our Bitcoin and Crypto Debate with Eric Townsend and Terdemeister. If you missed the first part of our conversation, you'll definitely want to go back and listen to Episode 185 first, because some of the comments might not make sense or be a little bit confusing if you start right here. So if you're ready to start the second part episode, sit back and we hope you enjoy. You are listening to The Investors Podcast, where we study the financial market, and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. So I'm sure both of you guys see vulnerabilities or weaknesses or issues with moving forward with Bitcoin.

Starting point is 00:00:54 So I kind of want to highlight what both of you think that those concerns are. So, Eric, since you're the main critic, you can lead this one. What's wrong with Bitcoin and why do you think that it's not here to stay? Well, ironically, I think that the biggest criticisms I have of Bitcoin are actually its biggest features. And I happen to love those features. So let's start with what those are. Bitcoin is designed so that you make a payment and that payment is persistent. It's a done deal.

Starting point is 00:01:20 Nobody can undo it. There's no chargeback where the bank decides to unwind the transaction. Once you've been paid, you've been paid. It's solid. Nobody can unwind it. That also means governments cannot tax or control or monitor your transactions. They can't actually monitor the transactions on the Bitcoin network, but it's anonymous. They don't know who owns the wallets, and there's no way for them to seize the

Starting point is 00:01:44 wallets. There's no way for them to freeze accounts or void transactions or clawback transactions. It's all designed to prevent governments from doing any of those things. And I think, unfortunately, those are all the reasons that it will be outlawed. Now, again, just to go on record, I personally hope to be proven dead wrong on this. I would love to say, see Bitcoin be successful at providing a payment system that protects the good people of the world from the overreach of government power. But I don't think it's going to happen. I think that governments are going to design the opposite system, which does everything the opposite of how Bitcoin does it. So everything is controllable by government. Everything is seizable. Everything is reversible.

Starting point is 00:02:26 Everything is reversible. Everything is under government control. And as soon as they begin to build that system that implements those features, I predict that they will outlaw Bitcoin. There will be safe havens that like Bitcoin and say, you can do your Bitcoin transactions here. What I think eventually happens is the other governments of the world will come back and say, look, we're going to build this global payment system. It's going to replace the U.S. dollar as the world's reserve currency. It is going to be the new currency in which all sovereign debt is denominated. Governments are going to control the whole thing. And among other things, the world's, you know, the world's, you know, things, what we're going to do is we're going to solve finally this problem, and they see it as a

Starting point is 00:03:08 problem of tax havens around the world. So every transaction in the global payment system has to have the tax ID of the payer and the payee of every transaction. And guess what? That means that you've got to have a country code. Think of it like a phone number that has a country code at the beginning of it. So if it's U.S., it's going to be plus one as your country code for U.S. and then it's your social security number. If you're in the UK, it's whatever their tax ID number is and a plus 44 means UK. If you are in the Cayman Islands, I think that the rest of the world is going to say, guess what? We recognize the Cayman Islands as a tax haven. We're tired of their crap. We're not going to let you use a Cayman Islands ID. We know you weren't really born there. You're going to have to use the tax

Starting point is 00:03:54 idea of the country you were born in, not the one that you naturalized in later in order to avoid taxes. And I think that they will cite one of the main features of this new government-controlled digital currency system as basically solving the problem of drug dealers and terrorists financing their dirty dealings with a cryptocurrency. They're going to label Bitcoin as the tool of terrorists. And then they're going to say, we can solve the problem of tax havens. We can finally make the 1% that is cheating you by not paying their fair share of taxes. accountable. We're going to nail the tax cheats by eliminating these things. And suddenly, those safe haven countries like the Cayman Islands will have to play ball in order to participate

Starting point is 00:04:40 in the global payment system. And again, I absolutely don't like anything that I'm saying. I think it's a really horrible outcome for civilization, if I'm right. Unfortunately, I think the governments have the power, the wherewithal, and the desire to do the things that I'm describing. So, Eric, I had a long position in Bitcoin from, we did an episode back in 2015. I took a position in Bitcoin. I held it clear up till December of 2017 and I sold my position in December. I had a substantial tax bill that I had to pay. You better believe I paid the tax bill because, you know, I don't want to have to deal with that chaos. And I think that other Americans or other people that have been dealing in cryptocurrencies, if they had a large tax bill, they paid their tax bill. And for me, for me, me, whenever I thought through the situation, not that I would ever not pay my tax bill, but it's like, they know exactly what's happening with these exchanges that are operating. I think the only tax loophole here, to your point for people is if they're mining bitcoins, and they're not doing it through a pool, and they're receiving Bitcoin straight off of the blockchain, and no one knows that they're

Starting point is 00:05:49 operating that address, that's pretty much the only way that you're able to do something, and the government would never be able to track that. But if you're dealing with an exchange, the governments are tracking all that. So I'm sure the government collected a hefty amount of taxes from people that have been dealing with cryptocurrencies here in the United States in the past year. And I'm curious, do you think that maybe the exchanges are the points where the governments will allow this because that's where they can basically keep track of people that are making money and people that are losing money? Well, from a tactical standpoint, first of all, historically, IRA records indicate that very, very few people have been responsible as you were and paid their tax

Starting point is 00:06:31 bills. What they're starting to do is they're using the exchanges as the point of control that they are surveilling in order to try to keep people accountable to those tax liabilities. And I think you're absolutely right. But I see this as a very small, you know, right now kind of chapter in the story. Longer term, everything Bitcoin is set to do, governments have a much bigger agenda, which is They want to eliminate tax havens globally. They want to get to the point where everybody on earth, whatever wealth they have, the government knows exactly how much you have, and they know exactly where you got it and who you got it from to the penny on the date,

Starting point is 00:07:11 tracking every transaction that ever occurred that allowed you to have anything. And they will tell you that in order to protect everyone from terrorism, it's necessary for them to know that information. And I think that they will set out to build a global payment system, a global currency system, which is designed to achieve that goal. If the government knows every penny of wealth that exists on earth, who owns it, where they got it from, who gave it to them, and why? Sure. I think the audience is curious to know how a proponent of Bitcoin sees this somewhat bleak future that Eric paints here. So I think in general, if you really look at things from the long-term perspective, like usually governments who bet against,

Starting point is 00:07:51 they tend to lose. And I think that Bitcoin as a technology, what is producing is this exquisite reserve asset. It's a fantastic thing to hold and you get this access to this scarcity, this digital gold that has all kinds of features that traditional gold didn't have, especially if you think about moving into potentially a period of higher inflation, right? We haven't had inflation since the late 70s. And at the same time, we've had QE for nine years now. So I think it's consistent. that somewhere in the next 10 years we'll see another bout of inflation. And then you get the problem from a government point of view is how do you raise taxes efficiently in an environment of high inflation?

Starting point is 00:08:31 One extreme example that I found, which was interesting, was that Boris Yeltsin in Russia, he noticed that Moscow was losing big time on taxes. Like the projected revenues were underperformed, I think, by 80%, something like that. And so he organized a committee to investigate, like what was going wrong. And obviously at the time, the ruble was hyperinflating. And so the local governments, in order to get paid, they didn't bother asking for rubles anymore. They accepted taxes to be paid in kind, which could, if you're a chemical company, you would deliver chemicals to the government and so on.

Starting point is 00:09:06 And then part of that would be transported to Moscow. So you can only imagine the kind of chaos. So if in my mind, I plug Bitcoin into that environment and Bitcoin as being a reality, why wouldn't a government in a situation like that accept Bitcoin for taxes? And why wouldn't they want to hold some reserves in Bitcoin? Why wouldn't they even mandate their banks to hold some of their reserves in Bitcoin? Because it's politically neutral. It's scarce.

Starting point is 00:09:33 It gives you kind of a matter of fact, Russian government is hoarding gold. And then as far as when you think about, can governments really control Bitcoin? Well, again, Bitcoin is kind of like gold. So I think it's true. Government have a track record of controlling to some extent the government. gold price, which, you know, this project of demonetizing gold, which really started pick up speed in the 60s. But keep in mind, they had huge amounts of gold in their central bank. So, yeah, you can use that to control the gold price to some extent. Right now, no central banks have any

Starting point is 00:10:04 Bitcoin. So to me, this scenario of like, you know, governments trying to really interfere and control Bitcoin, other than, of course, coming up, and I'll get into this with some specific risk factors, they first have to own some. So to me, it's really too early to talk about, you know, governments controlling Bitcoin from an economic point of view. So when I think about the risks that are involved with Bitcoin right now, I think we have probably too much mining centralization, although it's already improving. Part of the problem is that chip manufacturing has not been commoditized yet. So the ASIC chips are still, it's only a few manufacturers that have committed enough resources to come up with a cutting-edge

Starting point is 00:10:44 chip. That's a risk because through those chip manufacturing process, these governments could conceivably control what happens with mining. But again, commoditization is solving that. Another risk is quantum computing if they come up with a way to crack the main cryptographic protocols that are used to build Bitcoin. But then again, those are the ones that are used in the financial system as well. So this would be a huge issue for everyone. And Bitcoin can always, I think even through a soft fork, a user-activated soft fork, it should be possible to change the mining algorithm. And Bitcoin has different levels of quantum resistance already built into it. So if you move to a different type of address,

Starting point is 00:11:25 you'll be safer, et cetera, et cetera. So there's things that you can do proactively as a saver. I think one of the bigger concerns is privacy. It's commonly known now that the Bitcoin blockchain is pretty transparent, even though it's pseudonymous. But there are several initiatives, mast, snore, the lightning network, all those are going to improve, privacy. And it's also if you want to roll out Bitcoin as a currency that's widely used by companies, you just need that privacy. Like an Apple or whatever company doesn't want their internal bookkeeping to be transparent. So there's lots of economic incentives to improve privacy. I think from a security point of view, to me, what would be the logical next step

Starting point is 00:12:04 for a government is to say we are concerned about these hacks that are happening. This reminds us of wildcat banking. There is conflicts of interest with these exchanges where they are front running kind of like the bucket shops of the early 20th century, Wildcat banking, late 19th century. So they would say, we want you to pool your assets into these government-approved repositories. And we're going to have a system of Bitcoin reserves. And then, of course, you could have a Bitcoin central bank. So I would be worried because that central bank one day could be hacked and that would be

Starting point is 00:12:35 very disruptive. But I don't think it would dislodge the core protocol of Bitcoin. There are more peripheral concerns that I have. Interesting. 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,

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Starting point is 00:16:54 So let's talk about the future here, guys. So, and Eric, we heard some of your ideas as well. I'd like to hear if there's anything else that you have as far as your opinion on the future of crypto or Bitcoin specifically? Well, first of all, I want to clarify, I don't predict that governments will ever try to take over Bitcoin. I don't think they have any reason to want to do that. I think that governments will build their own digital payment system that will compete

Starting point is 00:17:20 with Bitcoin initially and the way that they'll compete is simply by outlying first generation cryptos such as Bitcoin. So that's the way I see that going. As far as the future, I think that eventually governments will recognize a new, space race, if you will. If you think about the 1960s space race, the Soviets and the Americans both figured out that whoever controls space has a profound military advantage. Governments are going to figure out that the U.S. dollars' days are numbered as world's reserve currency. Whoever figures out the digital payment system, the digital currency that can replace

Starting point is 00:17:56 the U.S. dollar as the world's both initially, probably the first round of this, will be trade settlement. So all international trade is settled in a digital currency, which somebody needs to invent. And then eventually we get to the point where the true meaning of a reserve currency, which is central bank reserve assets, are denominated not in U.S. dollars in U.S. treasury bills, but in this new digital currency. Whoever controls that, that's like controlling space. Governments are going to figure that out, and I think there's going to be a modern-day space race to say who owns and controls the digital payment system. And I think it's very likely that it's not a single winner. I think that there could be a Western Hemisphere digital payment system and a separate,

Starting point is 00:18:44 you know, Russians and Chinese work together to come up with the Eastern answer and US works together with the UK and other governments to come up with the Western answer and the two systems coexist. But I think we eventually get to government-backed payment systems which are designed, to have all the opposite features of Bitcoin. They're designed so the government can control everything. They're designed to enable negative interest rates as a monetary policy tool. And they're designed to enable the outlawing of cash so that it becomes possible for the government to know where every penny of wealth and existence on the planet is,

Starting point is 00:19:20 who owns it, when they got it, and who they got it from. So I think that we first go toward a global digital currency system, which is government-backed, has all the opposite features of Bitcoin. And eventually, what distributed ledger technology will eventually get us to is a global sovereign bond market where all sovereign debt is denominated in this new digital reserve currency. And there are some really cool things that you could do to design a digital sovereign bond market using the Ethereum concept of smart contracts and so forth. You can start to do things where governments cannot.

Starting point is 00:19:59 weasel out of their own debt and restructure their own debt because you actually have digital safeguards in place that hold them accountable to the original covenants that were behind the debt that they issued as sovereign debt. So I think there are fascinating things that could happen in terms of eventually replacing the U.S. dollar-centric global economy with a digital currency centric global economy. What history teaches us about this is who controls the global currency is usually who has the strongest navy. It's about military force. And I think that this will become, as I said, the new space race between China and Russia on one side of it and the United States and other Western governments on the other side of it. I think there will be a race for who controls it.

Starting point is 00:20:44 And I think right now, People's Bank of China is already ahead of the game. They're hiring blockchain engineers to try to figure out the digital RMB. I don't think the digital RMB is going to be the answer to anything, but I think it is going to give China a leg up on being one of the key players in this space eventually. So I think that the future is very large in terms of digital currency, and unfortunately I think it's very scary. Sure. Yeah, so I want to like take a step back for a moment. It's just kind of amazing to me to think that a few years ago, you know, most people, when we talked about Bitcoin, the question was, like, is it a Ponzi scheme? And so here we are talking about whether Bitcoin could compete with world currencies. And it's like, what world are we living in?

Starting point is 00:21:30 So to me, it's just even just noting that Bitcoin right now is worth about 2% of the value of all the physical gold that has ever been mine. That is just mind blowing to me. And so to me, you know, the technology is here to stay. The pace of innovation within Bitcoin is tremendous. The next year, I expect, obviously, you know, regulatory pressure on exchanges and the ICD could be an ICO crackdown. At the same time, the Lightning Network is going to keep growing. And that is going to really empower lots of people who, of course, I mean, in December, we were briefly talking about plus $10 transaction fees. That was just, you know, another one of those bottleneck moments for Bitcoin. But once we have thousands of transactions per second, I think that especially the unbanked,

Starting point is 00:22:17 are going to be tremendously empowered, like people who basically want some cash on their phone, they don't have a bank account. Very, very exciting things to come. I think institutional interest is just ramping up. So I think we'll see eventually that Bitcoin ETF happen and more institutional products built upon Bitcoin. I think it's going to just strengthen its use case as a reserve asset. It may be true that governments try to come up with an answer.

Starting point is 00:22:43 But really, I mean, just the fact that we're talking about a marketplace of currencies, all of a sudden. And it's no longer just a government game is just tremendously exciting to me. Talk to us about the Lightning Network. I was tracking this pretty closely, probably six months ago. I haven't really looked at too much of it since. And I'm kind of curious to hear your thoughts on where the status of that is because I know that that was pretty big news here this past summer. And it seems like it's actually starting to materialize. I just don't know enough about it to speak intelligently. So I'm curious if you could tell our audience a little bit more about it. Yeah, so basically the technology, the way it works, it's kind of like you keep a tab at a bar and you only pay at the end.

Starting point is 00:23:24 So that's the settlement on the main chain. So opening a lightning channel, you funded with some Bitcoin. And then there's lots of notes in the network. So if you want to reach someone on the other side, you have up to 20 hops to reach that other person. And all the nodes in the middle, what they can see is only where the money came from, the previous. node and they can only see where they're supposed to send it to the next node. So that's very similar to Tor. It's onion routing. It's similar to how the Tor browser works. There is no permanent ledger of the transactions. And so that really improves privacy a lot. And it also

Starting point is 00:24:01 improves scalability. It's kind of interesting how scalability and privacy, they're kind of two sizes the same coin often. The more you compress information, the more scalable it gets. And then at the same time, the more it enhances privacy. There are six implementations of the Lightning Network. So it's kind of like six different browsers to browse the network. All of them are open source. There's three of those that are the most known and prominent ones. And they have the same interoperable standard called Bolt.

Starting point is 00:24:30 So before they went live, the developers all came together and tried to make sure that each implementation passed every of 75 tests of compatibility. so that it's kind of like the same with the browsers. If you browse the network, you kind of want to see the same transactions as you would with another browser that there's no one of them kind of limping behind. And so I think that's just a fantastic start for this new era in Bitcoin. I think it's just, it's massive. I mean, we're getting companies like Square involved in Bitcoin payments,

Starting point is 00:25:02 just large companies that are really looking again rather than kind of playing around with it and accepting it for a few payments. It's now with Lightning and true scalability becoming available. Retail companies are going to get interested again in accepting Bitcoin for payments. Yeah, and you even seeing Robin Hood doing crypto transactions on the network too. It's very interesting what's happening in the space right now. Eric, I'm curious to hear your thoughts on the Lightning Network. Well, I think TUR's description was very accurate.

Starting point is 00:25:33 I agree with the things that he said, but I want to put it in a different context or a different perspective. We're starting with Bitcoin, a system because of its limitation of being based on proof of work, which is simply not suitable to scale to be a meaningful global payment system for anything. It's only a few transactions per second. It is inherently broken. What lightning is is a fantastic way to provide an off-chain settlement system that operates in parallel to the Bitcoin network that creates some scalability. It is, in other words, a fantastic workaround to solve a really big limitation of Bitcoin.

Starting point is 00:26:13 And my question is, okay, what happens when somebody comes up with a replacement for blockchain, a DLP, which doesn't require mining, doesn't require proof of work, and does tens or hundreds of thousands of transactions per second without any blockchain, and it's completely secure and decentralized and achieves all the same things? all of a sudden, the cryptocurrency that's based on that standard as opposed to blockchain has such a profound advantage that everybody will forget that Bitcoin ever existed, just like the right flyer. Now, I know Tour is dying to say, it's been 10 years.

Starting point is 00:26:49 Nobody's come up with that yet. And that's right. Nobody's come up with it yet. I think it's coming and I think it's coming soon. The question is going to be it will take longer to do the truly, fully decentralized version of that versus a mostly decentralized version, which doesn't fully achieve all of the government impenetrability objectives of Bitcoin,

Starting point is 00:27:10 but it might be satisfactory if you're part of the crowd that says, hey, I don't mind paying my taxes. I don't mind that the government can see it, but I'm going to get a much faster, more scalable, secure system that's going to, okay, maybe that's a competitor that I'm interested in. Well, yeah, like, first of all, if there is ever a better Bitcoin, I'll be first in line to buy it.

Starting point is 00:27:28 Like, I love innovation. You know, if there's something better out there, I want to see it. Just to your point about Bitcoin having all these limitations, I would say keep in mind, gold was the backbone of the world's financial system all the way until 100 years ago for thousands of years. And you could say goal is enormously limiting. It's heavy.

Starting point is 00:27:50 It's cumbersome. It's a pain to store it. And yet, layers were built on top of it. You could say it's a hack or it's a workaround. I would argue that complex systems always. are built out of simple systems that interact with each other. And so to eventually develop gold-based IOUs to have the London bullion market in London where large-scale transactions were settled.

Starting point is 00:28:15 By the way, the LBMA still exists today. It only does a few transactions per day. The average value of a transaction in the LBMA is $7 million. It's a settlement system. It does what it needs to do. And most people trade gold based on ATFs and all kinds of paper. So, you know, I don't think that it's wrong or hacky for Bitcoin to scale in the way that it's scaling. I think it's just, you know, just in line with what you would expect from a digital gold.

Starting point is 00:28:43 Sure. I have a question. Did the fees drop in the Lightning Network, something that was under heavy critique because it was escalating under the Bitcoin protocol? I think the fee discussion is a little bit complex because you had all this speculation, all this frenzy and late last year. So people eventually didn't care anymore what they paid. And you had payment processors like Coinbase and other ones who they didn't optimize the fees that they charged. And so if a lot of people overpaid, then in order to jump above that, you would overpay even more. And so it was kind of a cascade that way.

Starting point is 00:29:16 There was also some suspicions of spam attacks where miners would actually include transactions of their own with high fees, just to kind of boycott the network and maybe promote Bitcoin Cash over some other altcoin. So now with the frenzy subsiding, just, you know, lots of pressure is gone. I think that's the main reason because there's not a lot of Bitcoin circulating on the lightning network. Even though it's live, it's still beta. It's still, you know, being tested for robustness to withstand the tax and improve it. So I don't think it's the direct reason. But in the long run, it's going to alleviate a lot of pressure from the main chain

Starting point is 00:29:50 because the only transactions you're going to need is to open a channel, leave it open as long as you want. And then finally, now and then you want to settle on the main chain. So that's going to push a lot of, and also will likely, if you look at what Blockstream came up with the federated side chain, so they can move Bitcoins in the side chain, have a lot of transactions there to settle with other exchanges and then move it back to the main chain. So all these technologies are relieving pressure. But I do think in the long run, if we're thinking about, you know, $100,000 Bitcoin, a million dollar Bitcoin, sure, we can have main chain transactions that are $100 or even $1,000 for transaction. But that doesn't mean that for the average user, that's going to be the price. Guys, I want to talk to you guys both about the technicals on it, just strictly talking price. Because everything we've been talking about really is kind of a fundamental analysis.

Starting point is 00:30:42 Is Bitcoin going to be around 5, 10 years from now and the reasons why or why not? But for a lot of people listening to this, they might own Bitcoin or they might have taken a position in Bitcoin in the last, you know, call it a couple months. And they've had a very, very terrible experience since December. I mean, this thing has been punished in the price. And I'm kind of curious because I know, Eric, you obviously understand technical analysis. You understand how to buy and sell commodities. I know you're an active investor in all these cryptos. So I'm kind of curious how you guys see the next couple months playing out maybe through the coming year.

Starting point is 00:31:17 Do you think that this bear market and Bitcoin is going to continue to persist? And let's just take our whole, especially Eric, because I know you're a bear on it long term. But let's just imagine that Bitcoin is going to be successful in the long run. How do you look at it from a price standpoint and the technicals that you're seeing in the price action? And we'll throw it over to you first, Eric. I have to be honest. I don't look at technicals on Bitcoin. I do understand technical analysis.

Starting point is 00:31:45 That's what I do for a living. I look at Bitcoin and the way that I see it is a lottery ticket speculative investment. And the way that I think about it is the argument that holds water and my mind. book is, hey, if you bought a bunch of Bitcoin back when they were a fraction of a penny and sat on them, you'd be feeling pretty good right now. I don't think it makes any sense for anybody anywhere to put a substantial part of their net worth into Bitcoin or any other first-generation cryptocurrency. And the reason is you just don't know. It could be that these things take over the world and are going to be worth 10 times or 100 times or a thousand times more than they

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Starting point is 00:35:51 All right. Back to the show. To me, Bitcoin technical analysis works really well, actually. I think that the cryptocurrency market is just like any other market. It just has people involved in it. And so psychology is at play. Mass psychology also is at play. And if anything, I would say technical analysis works better than traditional markets,

Starting point is 00:36:13 just because the players are a little less sophisticated and you get more the raw emotion. And so you do see the patterns a little better. I have an outlook that I put together in January when Bitcoin was about $10,000. So maybe I'll just go over the main points of what I'm expecting for the coming year. So to me, 2017 was, I call it the year of the fork wars were because of the Bitcoin transaction fees kicking in, a lot of people thought that something was wrong with Bitcoin and that it was supposed to be free. And so you got this, you know, kind of all these alternatives that were proposed.

Starting point is 00:36:48 But nonetheless, there was Bitcoin went through the wall of worry and rallied all the way up to $20,000. And so I'm expecting for the coming year that these reactionary narratives, you know, we have something better than Bitcoin. I think they're likely to continue and to probably increase in size. It'll be larger companies, larger ICOs, maybe even like Venezuela, some more governments coming up with their own proposal. I think that this year, and I wrote this one, Bitcoin was like $10,000. So I think that it could really be a shakeout year. I think we, in the terms of the ICOs, we're in a lemon market. There's lots of questionable assets, information asymmetry, inexperienced participants.

Starting point is 00:37:29 At the same time, regulators are catching up. So I think they're going to start looking at exchanges more closely at the existing hedge funds at the ICOs. There might be some forced dishorting of assets, and that could put downward pressure on the price. The security of the custodians is something that I worry about because a lot of these were founded when Bitcoin was maybe $5 billion or less. And now we're talking about a lot more. So that means a bigger target on their back. And it's not certain that their security procedures have improved accordingly. The tether is an asset that I think people should look at because it's basically a dollar substitute that people use to move funds between exchanges.

Starting point is 00:38:09 it's quite effective and it's pegged to the dollar. The company who runs it argues that it's backed by dollars one to one. But I think that the legality of it could be disputed in the year to come. And so that could really hurt liquidity in the markets. And then at the same time, we're going to keep seeing technical advancements in Bitcoin. Like I said, the Lightning Network, smart contracts come into Bitcoin, decentralized apps come into Bitcoin, enhanced privacy, improved custody solutions. Like smart custody, I think, is going to become a word with multi-sick solutions.

Starting point is 00:38:39 and atomic swaps. And in the mining space, I see ASIC commoditization. So like I said, like cheaper production of chips by more manufacturers, giving more access to the mining space. And then in terms of ICOs, I really think valuations are going to suffer more, even though we've seen really such a downturn. I think there'll be more hurt. I think Ethereum's value was in part based on this ICO boom.

Starting point is 00:39:04 It's kind of like Yahoo. Yahoo was the recipient of a lot of advertising dollars from dot-com companies in the late 90s. And so in the same sense, a lot of ICOs, they raise money in ether, thereby constraining supply. And so I think that having the unwind of the ICO market

Starting point is 00:39:22 is also going to hurt ether, especially because there are so many legal issues there. But at the same time, at some point, Yahoo had a market cap that was over three times that of Amazon. And so I think that it's possible if the ICU crackdown doesn't happen, that ether soars a little more and could even become bigger than Bitcoin, even though right now

Starting point is 00:39:44 it's at like 20%, I think. So those are my thoughts about the coming year. I think more Bitcoin price weakness is definitely possible. All right. So guys, I've really enjoyed this conversation. You guys are both so intelligent and it's fun to kind of beat this issue up on both sides of the aisle. And what I want to do here at the very end is I want to throw it over to each of you to kind of make your case or your narrative to the audience on why you think whatever's going to happen in the crypto or Bitcoin specific. You guys can kind of tailor it however you want. But let's throw it over to Eric first and give us your narrative there, Eric. I think that Bitcoin was a fabulous invention that's going to inspire a lot of innovation and cool things. Preston, you and I could

Starting point is 00:40:26 create the Preston coin this afternoon. And we know all of the big podcast producers on the internet. we could conspire to go and pimp our new thing and say we're going to compete with Bitcoin. Bitcoin is entirely an open source project, which means we can easily just, we don't have to steal anything. We can copy all the source code and we can do the exact same thing over. There is no intrinsic value in a Bitcoin other than it's popular. Bitcoin has a name brand associated with it. If we come up with the Preston coin and try to sell them, nobody's going to buy them because they haven't heard about Preston coins being worthwhile or valuable. But we can create something

Starting point is 00:41:05 that's technologically equivalent to Bitcoin. The only difference is Bitcoin has a very well-established community of miners, and we would be starting from scratch, having to recruit new miners in order to compete with it. Meanwhile, the entire military industrial complex is going to look at this whole thing and say, hey, there's an opportunity for somebody more in the government contractor space to say, let me hire up all the smartest guys doing this and let's go invent not the next Bitcoin, but the Orwell, the version of this, which has all the opposite goals of Bitcoin who is designed to eliminate the freedom that Bitcoin is intending to protect and basically gives governments control over everything. And they then sell that to governments and say,

Starting point is 00:41:52 look, you can outlaw these first generation cryptos by the new digital currency, technology from us, your trusted defense contractor, and the hell with privacy and the rights of individuals. I'm not hoping that that's the answer. Government can outlaw Bitcoin and the view that you'll hear people say, which is, oh, they can't outlaw it because there's no way to stop it. It's true that it would be very hard to outlaw the existence of the Bitcoin network, but it's very easy for them to outlaw the exchange of Bitcoins for fiat currency. And that's the way that they would do it. And I predict that they will eventually. Why haven't they yet? Because they're not ready to introduce the government-backed alternative, which I think is going to be what eventually wins in the end. And I so hope to be

Starting point is 00:42:38 proven wrong. So, TUR, please tell me why I'm wrong and why the good side of the force, because I'm definitely talking the dark side of the force here. Tell me why the light side of the force is going to win out. Yeah, so with Bitcoin, after a period of 20 years of trying to come up with a private digital currency. Finally, digital gold was invented and it's because of this genius combination of approaches, a part of which, important part of which is proof of work. So the creation of digital gold to me as an event that is similar to the discovery of petroleum, which petroleum was around for ages and that people would use it for different things. But it wasn't until in 1850, people started refining the petroleum that it became useful in such a huge boom erupted.

Starting point is 00:43:25 And so to me, that proof of work component and then also the whole idea of modular scaling, I think is going to just unleash so many new types of products that we don't even realize are there yet. Bitcoin is a way to convert energy directly into financial security. You don't need all the bureaucracy. You can directly have financial reliability peer to peer. And that is very much in line with the current generation of millennials, which is going to be the dominant generation. in a few years from now, economically speaking, they grew up with peer-to-peer. They were torrenting movies. They understand how this is robust types of technology.

Starting point is 00:44:06 They like choice. And so to them, it's natural that they have choice in things, including money. They understand open source and the power of it. And they also grew up around this financial crisis in 2008. So they know that it's good to have a little bit of insurance against sudden events that might happen. in terms of is Bitcoin going to state the dominant currency? I do believe so.

Starting point is 00:44:30 I think Bitcoin is the dot com of this space. All the other ones are a lot smaller like dotRU or dot B.E. They might be around, but the long tail I think is going to be very slim. Bitcoin is a shelling point, which is basically something that you refer to when you don't have anything else to relate to the other person. It's just something that is universally known as a brand and that's trustworthy, just like Coca-Cola. just like Coca-Cola. There's lots of Coca-Cola knock-offs,

Starting point is 00:44:56 but people trust the reliability that the Coca-Cola brand stands for. And that is real because the best developers are working on Bitcoin. And code is something that is live. It's not something that you can just drop. So you have to keep maintaining it

Starting point is 00:45:11 in order to prevent software rot. And we have the most brilliant and the most accomplished developers working on the Bitcoin Protocol. So, yeah, I think it's going to continue to shine as the digital gold of this world. So Eric and TUR, seriously, guys, thank you so much for having this discussion. And what I really liked about this discussion is you guys were so respectful of each other.

Starting point is 00:45:33 And I think that that is just so important when you're trying to have a thoughtful discussion, a calm discussion so that when the person who's listening to this can hear both sides and it's not emotion filled, they can make their own opinion as to where they lie in this and what kind of decisions they want to make in the future. And so thank you both for such an informed discussion, a thoughtful discussion, and most importantly, a calm discussion. Thank you for that. So, guys, real fast, Eric, you run macro voices. We're going to have a link in our show notes to macro voices. You guys have some superb content, especially if you're interested in any type of macro investing. His show is just phenomenal. So, Eric, we're going to have a link in your show notes.

Starting point is 00:46:14 Is there anything else that you wanted to give people a handoff, a Twitter feed, or something like that? And you can follow me on Twitter at Eric S. Townsend. That's E R-R-I-K-S like Scott Townsend. But Macrovoices.com is really the place to follow me. We do a podcast every Thursday night. It's a real pleasure for me to be on your show. Thank you so much for the invitation. And it's also a real pleasure to be on a conversation with a guy like TUR because, as you said, TIR is a super smart guy. I think we both see both sides of this argument. And I, by the way, really hope that TIR's right about all this. But it's a great opportunity to be on a show with a super smart couple of guys.

Starting point is 00:46:52 So I really enjoyed it. Thanks, Eric. And TIR, give people a hand off to your location as well. Yeah, I share the sentiment. It was really stimulating discussion. And yeah, people can find me. You just Google my name, T-U-U-U-R-D-E-M-E-S-T-E-R. The first link is my Twitter account, which I'm on every day.

Starting point is 00:47:13 And then I also published some articles on Medium.com. So you can find me there as well. And we'll have links in the show notes to TIR's Twitter feed and also his Medium account. Guys, thank you so much for joining us here on the show. That was what we had for this episode of The Investors Podcast. We see each other again next week. Thanks for listening to TIP. To access the show notes, courses or forums, go to the Investorspodcast.com.

Starting point is 00:47:40 To get your questions played on the show, go to Asktheinvestors.com and win a free subscription to any of our courses on TIP Academy. This show is for entertainment purposes only. Before making investment decisions, consult a professional. This show is copyrighted by the TIP network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP186: Part II - The Bitcoin Debate - Tuur Demeester & Erik Townsend (Investing Podcast)

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